SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF | ||
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For the transition period from to |
For the transition period from ________ to _______
Commission file number 1-9924
Citigroup Inc.
(Exact name of registrant as specified in its charter)
Delaware |
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incorporation or organization) | 52-1568099 | |
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 xý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitionthe definitions of “accelerated"large accelerated filer," "accelerated filer" and large accelerated filer”"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
| Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company 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 xý
Indicate the number of shares outstanding of each of the issuer’sissuer's classes of common stock as of the latest practicable date:
Common stock outstanding as of June 30, 2007: 4,974,552,734March 31, 2008: 5,249,833,103
Available on the Web at www.citigroup.com
Citigroup Inc.
Part I-I—Financial Information
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Item 1. | Financial Statements: | ||||||
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2007 |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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First Quarter of | 5 | ||||||
Events in | 6 | ||||||
Segment, Product and Regional Net Income and Net Revenues |
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Managing Global Risk | 20 | |||||
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Capital Resources and Liquidity | 38 | ||||||
Off-Balance Sheet Arrangements |
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Forward-Looking Statements |
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Quantitative and Qualitative Disclosures About Market Risk |
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Controls and Procedures |
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Part II—Other Information | ||||||
1. |
Legal Proceedings | 119 | ||||
Item 1A. | Risk Factors | 121 | ||||
Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 4. | Submission of Matters to a Vote of Security Holders | 122 | ||||
Exhibits | 123 | |||||
Signatures | 124 | |||||
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2
Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company) is a global diversified global financial services holding company. Ourcompany whose businesses provide a broad range of financial services to consumer and corporate customers. Citigroup has more than 200 million customer 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’sCompany's subsidiaries are subject to supervision and examination by their respective federal state and foreignstate authorities.
This quarterly report on Form 10-Q should be read in conjunction with Citigroup’s 2006Citigroup's 2007 Annual Report on Form 10-K. 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’sCompany's Current Report on Form 8-K, filed with the Securities and Exchange Commission (SEC) on July 20, 2007.Apri1 18, 2008.
The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043. The10043, telephone number is 212 559 1000. Additional information about Citigroup is available on the Company’sCompany's Web site atwww.citigroup.com. Citigroup’sCitigroup'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 webCompany's Web site by clicking on the “Investor Relations”"Investor Relations" page and selecting “SEC"All SEC Filings.”" The SEC’s webSecurities and Exchange Commission (SEC) 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 first quarter of 2008:
The following are the six regions in which Citigroup operates. The regional results are fully reflected in the product results.CITIGROUP SEGMENTS AND PRODUCTSGlobalConsumerGroupMarkets &BankingGlobalWealthManagementAlternativeInvestmentsCorporate /Other· Securities and Banking-Investment banking-Debt and equity markets-Lending· Transaction Services-Cash management-Trade services-Custody and fund services-Clearing services-Agency/trust services·Smith Barney-Advisory-Financial planning-Brokerage·Private Bank-Wealth management services· Citigroup Investment Research- Equity and fixed income research-Private equity-Hedge funds-Real estate-Structured products-Managed futures-Treasury-Operations and technology-Corporate expenses-Discontinued operationsU.S· Cards- MasterCard, VISA, Diners Club, private label and Amex· Consumer Lending-Real estate lending-Student loans-Auto loans· Retail Distribution-Citibank branches-CitiFinancial branches-Primerica Financial Services· Commercial Business- Small and middlemarket commercial bankingInternational·Cards-MasterCard, VISA,Diners Club and private label· Consumer Finance-Real estate lending-Personal loans-Auto loans· Retail Banking-Retail bank branches-Small and middle market commercial banking-Investment services-Retirement services-Real estate lending-Personal loans-Sales financeCITIGROUP REGIONSUnited States (1)(U.S.)MexicoEurope,Middle East &Africa(EMEA)JapanAsia(excl. Japan)Latin America
SUMMARY OF SELECTED FINANCIAL DATA In millions of dollars, Three Months Ended June 30, % Six Months Ended June 30, % except per share amounts 2007 2006 Change 2007 2006 Change Net interest revenue $ 11,426 $ 9,855 16 % $ 21,996 $ 19,621 12 % Non-interest revenue 15,204 12,327 23 30,093 24,744 22 Revenues, net of interest expense $ 26,630 $ 22,182 20 % $ 52,089 $ 44,365 17 % Restructuring expense 63 — — 1,440 — — Other operating expenses 14,792 12,769 16 28,986 26,127 11 Provisions for credit losses and for benefits and claims 2,717 1,817 50 5,684 3,490 63 Income from continuing operations before taxes and minority interest $ 9,058 $ 7,596 19 % $ 15,979 $ 14,748 8 % Income taxes 2,709 2,303 18 4,571 3,840 19 Minority interest, net of taxes 123 31 NM 170 91 87 Income from continuing operations $ 6,226 $ 5,262 18 % $ 11,238 $ 10,817 4 % Income from discontinued operations, net of taxes(1) — 3 (100 ) — 87 (100 ) Net Income $ 6,226 $ 5,265 18 % $ 11,238 $ 10,904 3 % Earnings per share Basic: Income from continuing operations $ 1.27 $ 1.07 19 % $ 2.29 $ 2.20 4 % Net income 1.27 1.07 19 2.29 2.21 4 Diluted: Income from continuing operations 1.24 1.05 18 2.25 2.16 4 Net income 1.24 1.05 18 2.25 2.17 4 Dividends declared per common share $ 0.54 $ 0.49 10 $ 1.08 $ 0.98 10 At June 30: Total assets $ 2,220,866 $ 1,626,551 37 % Total deposits 771,761 645,805 20 Long-term debt 340,077 239,557 42 Mandatorily redeemable securities of subsidiary trusts 10,095 6,572 54 Common stockholders’ equity 127,154 114,428 11 Total stockholders’ equity 127,754 115,428 11 Ratios: Return on common stockholders’ equity(2) 20.1 % 18.6 % 18.6 % 19.5 % Return on risk capital(3) 35 % 38 % 33 % 39 % Return on invested capital(3) 20 % 19 % 19 % 20 % Tier 1 Capital 7.91 % 8.51 % Total Capital 11.23 11.68 Leverage(4) 4.37 5.19 Common stockholders’ equity to assets 5.73 % 7.04 % Dividend payout ratio(5) 43.5 % 46.7 % 48.0 % 45.2 % Ratio of earnings to fixed charges and preferred stock dividends 1.47 x 1.55x 1.43 x 1.56 x
| Three Months Ended March 31, | | ||||||||
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In millions of dollars, except per share amounts | % Change | |||||||||
2008 | 2007 | |||||||||
Net interest revenue | $ | 13,473 | $ | 10,612 | 27 | % | ||||
Non-interest revenue | (254 | ) | 14,847 | NM | ||||||
Revenues, net of interest expense | $ | 13,219 | $ | 25,459 | (48 | )% | ||||
Operating expenses | 16,216 | 15,571 | 4 | |||||||
Provisions for credit losses and for benefits and claims | 6,026 | 2,967 | NM | |||||||
Income (loss) before taxes and minority interest | $ | (9,023 | ) | $ | 6,921 | NM | ||||
Income taxes (benefits) | (3,891 | ) | 1,862 | NM | ||||||
Minority interest, net of taxes | (21 | ) | 47 | NM | ||||||
Net Income (loss) | $ | (5,111 | ) | $ | 5,012 | NM | ||||
Earnings per share | ||||||||||
Basic | $ | (1.02 | ) | $ | 1.02 | NM | ||||
Diluted(1) | (1.02 | ) | 1.01 | NM | ||||||
Dividends declared per common share | 0.32 | 0.54 | (41 | )% | ||||||
At March 31: | ||||||||||
Total assets | $ | 2,199,848 | $ | 2,020,966 | 9 | % | ||||
Total deposits | 831,208 | 738,521 | 13 | |||||||
Long-term debt | 424,959 | 310,768 | 37 | |||||||
Mandatorily redeemable securities of subsidiary trusts | 23,959 | 9,440 | NM | |||||||
Common stockholders' equity | 108,835 | 121,083 | (10 | ) | ||||||
Total stockholders' equity | 128,219 | 122,083 | 5 | |||||||
Ratios: | ||||||||||
Return on common stockholders' equity(2) | (18.6 | )% | 17.1 | % | ||||||
Tier 1 Capital | 7.74 | % | 8.26 | % | ||||||
Total Capital | 11.22 | % | 11.48 | |||||||
Leverage(3) | 4.39 | % | 4.84 | |||||||
Common Stockholders' equity to assets | 4.95 | % | 5.99 | % | ||||||
Dividend payout ratio(4) | N/A | 53.5 | ||||||||
Ratio of earnings to fixed charges and preferred stock dividends | 0.45x | 1.39x | ||||||||
Discontinued operations relatesresidual items from the Company’s salenet loss in the first quarter of Travelers Life & Annuity, which closed during2008, basic shares were used to calculate diluted earnings per share. Adding diluted securities to the 2005 third quarter, and the Company’s sale of substantially all of its Asset Management Business, which closed during the 2005 fourth quarter. See Note 2 on page 53.
denominator would result in anti-dilution.stockholders’stockholders' equity is calculated using net income (loss) minus preferred stock dividends.
Risk capital is a measure of risk levels and the trade-off of risk and return. It is defined as the amount of capital required to absorb potential unexpected economic losses resulting from extremely severe events over a one-year time period. Return on risk capital is calculated as annualized income from continuing operations divided by average risk capital. Invested capital is defined as risk capital plus goodwill and intangible assets excluding mortgage servicing rights (which are a component of risk capital). Return on invested capital is calculated using income adjusted to exclude a net internal charge Citigroup levies on the goodwill and intangible assets of each business offset by each business’ share of the rebate of the goodwill and intangible asset charge. Return on risk capital and return on invested capital are non-GAAP performance measures; because they are measures of risk with no basis in GAAP, there is no comparable GAAP measure to which they can be reconciled. Management uses return on risk capital to assess businesses’ operational performance and to allocate Citigroup’s balance sheet and risk capital capacity. Return on invested capital is used to assess returns on potential acquisitions and to compare long-term performance of businesses with differing proportions of organic and acquired growth. See page 24 for a further discussion of risk capital.
(4)
(5)
For the first quarter of 2008, the dividend payout ratio was not calculable due to the net loss.
4
Certain statements in this Form 10-Q, including, but not limited to, statements made in "Management's Discussion and Analysis," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors including, but not limited to, those described in Citigroup's 2007 Annual Report on Form 10-K under "Risk Factors" beginning on page 38.
MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS
Income from continuing operations rose 18% Citigroup reported a $5.1 billion net loss ($1.02 per share) for the first quarter of 2008. The first quarter results were driven by two main factors: write-downs and losses related to $6.226 billionthe continued disruption in the fixed income markets and washigher U.S. consumer credit costs. Results also include a $661 million pretax gain on the highest ever recorded by the Company. Diluted EPS from continuing operations was also up 18%.sale of Redecard shares and a $633 million increase to pretax earnings for Visa-related items.
Revenues were a record $26.6$13.2 billion, up 20%down 48% from a year ago, led by Markets & Banking,primarily as a result of a $13.4 billion decrease in CMB revenues, including $6.0 billion in write-downs and credit costs on subprime-related direct exposures, write-downs of $3.1 billion (net of underwriting fees) on funded and unfunded highly leveraged financing commitments, a downward credit value adjustment of $1.5 billion related to exposure to monoline insurers, and write-downs of $1.5 billion on auction rate securities inventory and $1.0 billion on Alt-A mortgage securities.
International Consumer revenues were up 33%. Our international operations recorded revenue growth of 34% in the quarter, with International Consumer up 16%, International Markets & Banking up 50%, and International Global Wealth Management (GWM) revenues more than doubling.doubled, reflecting double-digit organic growth and results from Nikko Cordial. U.S. Consumer revenues grewwere up 3%, from the prior year, while Alternative Investments recorded negative revenues grew 77%. Acquisitions represented approximately 4% of the revenue growth.$358 million. Transaction Services had another record quarter, with revenues up 42%.
Customer volume growth was strong, with average loans up 16%17%, average deposits up 20%16%, and average interest-earning assets up 32%10%. International Cards purchase sales were up 31%41%, while U.S. Cards sales were up 6%4%. In Global Wealth Management,GWM, client assets under fee-based management were up 40% from year-ago levels, and client assets in Alternative Investments grew 55%15%. Branch activity included the opening or acquisition of 160 new branches during the quarter (136 internationally and 24 in the U.S.).
Ten international acquisitions since October of 2006 have been announced, consistent with our efforts to drive growth through a balance of organic investment and targeted acquisitions, and to expand our international franchise. We increased our ownership of Nikko Cordial Corporation to 68% during the second quarter of 2007. Nikko Cordial financial results are now consolidated in Citigroup’s consolidated financial statements.
International businesses contributed 49% of the Company’s revenue in the second quarter of 2007 and 50% of income, up from 43% and 43%, respectively, a year ago. Income and revenue were diversified by segment, product and region.
Net interest revenue increased 16%27% from last year, reflecting volume increases across allmost products. Net interest margin (NIM) in the secondfirst quarter of 20072008 was 2.40%2.83%, down 33up 36 basis points from the secondfirst quarter of 2006, as2007, reflecting significantly lower cost of funding, costs werepartially offset by growtha decrease in lower-yielding assetsasset yields related to the decrease in our trading businesses and assets from the Nikko acquisition (seefed funds rate. (See discussion of net interest marginNIM on page 30)33).
Operating expenses increased 16%4% from the secondfirst quarter of 2006 driven by increased business volumes2007 (foreign exchange translation accounted for 3%). The major components of the change are $622 million in repositioning charges related to our re-engineering plan, a $250 million reserve related to an offer to facilitate GWM clients' liquidation from a specific Citi-managed fund, a $202 million write-down on the multi-strategy hedge fund intangible asset related to Old Lane and acquisitions (which contributed 4%). Expense growth was partially offset by savingsthe impact of acquisitions. Partially offsetting these items were the $166 million Visa-related litigation reserve release and a $282 million benefit resulting from a legal vehicle restructuring in our Mexico business. The first quarter of 2007 included a $1.4 billion restructuring charge related to our Structural Expense Initiatives andreview. Expenses were down 2% from the releasefourth quarter of $300 million2007.
During the first quarter of litigation reserves reflecting our continued progress in favorably resolving WorldCom/Research Litigation matters. The relationship between revenue growth and expense growth continued to improve during2008, the quarter with positive operating leverage of 4%.
Credit costs increased $934 million or 59%, primarily driven by an increase in net credit losses of $259 million andCompany recorded a net chargebuild of $465 million$1.9 billion to increase loan lossits credit reserves. The $465 million net charge compares to a net reserve releasebuild consisted of $210 million$1.8 billion in the prior-year period. The buildGlobal Consumer ($1.4 billion in U.S. Consumer was primarily due to increased reserves to reflect: higher delinquencies in second mortgages in U.S. ConsumerLending, a change in estimate of loan losses inherent in the U.S. Cards portfolio, and portfolio growth. The increase$424 million in International Consumer primarily reflected portfolio growth, an increaseConsumer) and $148 million in past due accounts and portfolio seasoning in Mexico cards, higher net credit losses in Japan consumer finance, and the impact of recent acquisitions.Markets & Banking. The Global Consumer loss rate was 1.56%2.50%, an 881 basis-point increase from the secondfirst quarter of 2006.2007. Corporate cash-basis loans declined 25%increased $1.5 billion from year-ago levels to $599 million.levels.
The effective tax rate was 29.9%(benefit) of (43)% in the secondfirst quarter of 2007, reflecting $96 million2008 primarily resulted from the pretax losses in the Company's S&B business taxed in the U.S. (the U.S. is a higher tax jurisdiction). In addition, the tax benefits due toof permanent differences, including the initial application under APB 23 relating totax benefit for not providing U.S. income taxes on the earnings of certain foreign subsidiaries’ ability tosubsidiaries that are indefinitely reinvest their earnings abroad. Theinvested, favorably affected the Company's effective tax rate in the second quarter of 2006 was 30.3%rate.
Our stockholders’stockholders' equity and trust preferred securities grew to $137.8were $152.2 billion at June 30, 2007. Stockholders’ equity increased by $5.7March 31, 2008, reflecting preferred stock issuances of $19.4 billion during the quarter to $127.8 billion.quarter. We distributed $2.7$1.7 billion in common dividends to shareholders. Return on common equity was 20.1% forshareholders during the quarter. Citigroup maintained its “well-capitalized”"well-capitalized" position with a Tier 1 Capital Ratio of 7.91%7.74% at June 30, 2007.March 31, 2008.
We made good progressraised an additional $6.0 billion of capital through a preferred stock issuance on our 2007 priorities: growing U.S. consumer, reweighting our business toward International Consumer, Markets & BankingApril 28, 2008 and Global Wealth Management, expense management,sold approximately $4.9 billion of common stock (scheduled to close on May 5, 2008), which includes the over-allotment option that was exercised on May 1, 2008. On a pro forma basis, taking into account the issuances of this preferred and credit management. We expect that operating expenses, credit costscommon stock, the Company's March 31, 2008 Tier 1 Capital ratio would have been approximately 8.7%.
On March 31, 2008, we announced a comprehensive reorganization of Citigroup's organizational structure to achieve greater client focus and income taxesconnectivity, global product excellence, and clear accountability. The new organizational structure will allow us to focus resources towards growth in emerging and developed markets and improve efficiencies throughout the thirdCompany.
EVENTS IN 2008
Write-Downs on Subprime-Related Direct Exposures
During the first quarter of 2007 will have challenging comparisons2008, the Company'sS&B business recorded unrealized losses of $6.0 billion pretax, net of hedges, on its subprime-related direct exposures.
The Company's remaining $29.1 billion in U.S. subprime net direct exposure inS&B at March 31, 2008 consisted of (a) approximately $22.7 billion of net exposures to the thirdsuper senior tranches of collateralized debt obligations, which are collateralized by asset-backed securities, derivatives on asset-backed securities or both and (b) approximately $6.4 billion of subprime-related exposures in its lending and structuring business. See "Exposure to U.S. Residential Real Estate" on page 22 for a further discussion of such exposures and the associated losses recorded during the first quarter of 2006. The challenging comparison is due2008.
Write-Downs on Highly Leveraged Loans and Financing Commitments
Due to an unusually low levelthe continued dislocation of operating expensesthe credit markets and certain tax benefits recordedthe reduced market interest in the third quarter of 2006, as well as the expectationhigher risk/higher yield instruments that the consumer credit environment will continue to deteriorate inbegan during the second half of 2007, causing higher credit costs.
So farliquidity in the thirdmarket for highly leveraged financings has declined significantly.
Citigroup's exposure to highly leveraged financings totaled $38 billion at March 31, 2008 ($21 billion in funded and $17 billion in unfunded commitments). This compares to total exposure of $43 billion ($22 billion in funded and $21 billion in unfunded commitments) at December 31, 2007. During the first quarter of 2007, we have2008, the Company recorded a $3.1 billion pretax write-down on these exposures, net of underwriting fees.
Since March 31, 2008, the Company transferred approximately $12 billion of loans to third parties, of which $8.5 billion relates to the highly leveraged loans and commitments. This structure allows Citigroup to lock in the sales proceeds and significantly reduces further downside price risk associated with these commitments. See "Highly Leveraged Financing Commitments" on page 56 for further discussion.
Write-Downs on Monoline Insurers
During the first quarter of 2008, Citigroup recorded pretax write-downs on credit market value adjustments (CMVA) of $1.5 billion on its exposure to monoline insurers. The CMVA is calculated by applying the counterparty's current credit spread to the expected exposure on the trade. The majority of those receivables relate to hedges on super senior positions that were executed with various monoline insurance companies. During the quarter, credit spreads on monoline insurers continued to experience an increased levelwiden and expected exposures increased. See "Direct Exposure to Monolines" on page 24 for a further discussion.
Write-downs on Auction Rate Securities
As of delinquencies in our consumer mortgage portfolio, and some fixed incomeMarch 31, 2008 the Company reported $6.5 billion of auction rate securities have experienced meaningful price deteriorationclassified as Trading assets. During the first quarter of 2008, S&B recorded $1.5 billion of pretax write-downs on auction rate securities, primarily due to a wideningfailed auctions as liquidity diminished because of deterioration in the credit spreads. This credit spread wideningmarkets.
Write-downs on Alt-A Mortgage Securities in S&B
During the first quarter of 2008, Citigroup recorded pretax losses of approximately $1.0 billion, net of hedges, on Alt-A mortgage securities held in S&B. For these purposes, Alt-A mortgage securities are non-agency residential mortgage-backed securities (RMBS) where: (1) the underlying collateral has negatively affected the valuation of certain fixed income securities that the Company holdsweighted average FICO scores between 680 and may affect the sale of certain debt financing commitments that the Company has with clients. See additional discussion on pages 18, 19 and 26.
Certain720 or, (2) for instances where FICO scores are greater than 720, RMBS have 30% or less of the statements above are forward-looking statements within the meaningunderlying collateral comprised of the Private Securities Litigation Reform Act. See “Forward-Looking Statements” on page 44.full documentation loans.
Certain of the following statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See “Forward-Looking Statements” on page 44. Additional information regarding “EventsThe Company had $18 billion in 2007 and 2006” is available in the Company’s Quarterly Report on Form 10-Q for the quarter endedAlt-A mortgage securities carried at fair value at March 31, 2007 and Annual Report on Form 10-K for the year ended2008 in S&B, which decreased from $22 billion at December 31, 2006.2007. Of the $18 billion, $4.7 billion was classified as Trading assets, on which $900 million of fair value write-downs, net of hedging, were recorded in earnings, and $13.6 billion were classified as available-for-sale investments, on which $120 million of write-downs were recorded in earnings due to other than temporary impairments. In addition, $2.0 billion of pretax fair value write-downs were recorded in Accumulated Other Comprehensive Income (OCI).
Nikko CordialWrite-Downs on Commercial Real Estate Exposures
On May 9, 2007, S&B's commercial real estate exposure can be split into three categories: assets held at fair value, loans and commitments, and equity and other investments. For the assets held at fair value, (which includes a $2 billion portfolio of available-for-sale securities), Citigroup completed its successful tender offer to becomerecorded a $600 million of fair value write-downs, net of hedges, during the majority shareholderfirst quarter of Nikko Cordial Corporation in Japan. Approximately 56% of Nikko’s shares were acquired in the tender offer2008. See page 24 for a total costdiscussion of approximately $7.7 billion, bringing Citigroup’s aggregate ownership stake in NikkoCitigroup's exposure to approximately 61%. Citigroup later acquired additional Nikko shares to bring its aggregate ownership stake in Nikko to approximately 68% at June 30, 2007. At June 30, 2007, Citigroup consolidated Nikko Cordial financial results including the appropriate Minority Interest. Results for Nikko are included from May 9, 2007 forward.commercial real estate.
Credit Reserves
During the secondfirst quarter of 2007,2008, the Company recorded a net build of $465 million$1.9 billion to its credit reserves, consistingreserves. The build consisted of a net build of $491 million$1.8 billion in Global Consumer ($1.4 billion in U.S. Consumer and a net release/utilization of $26$424 million in International Consumer) and $148 million in Markets & Banking.
The $1.4 billion build in U.S. Consumer primarily reflected a weakening of leading credit indicators, including higher delinquencies on first and second mortgages, unsecured personal loans, credit cards and auto loans. Reserves also increased due to trends in the U.S. macro-economic environment, including the housing market downturn and rising unemployment rates, as well as portfolio growth.
The $424 million build in International Consumer was primarily driven by Mexico and India cards and India consumer finance, as well as by acquisitions and portfolio growth.
The build of $491 million in Global Consumer was primarily due to increased reserves to reflect: increased delinquencies in second mortgages in U.S. Consumer Lending; a change in estimate of loan losses inherent in the U.S. Cards portfolio; an increase in past due accounts and portfolio seasoning in Mexico cards; the impact of recent acquisitions; and overall growth in the portfolio.
The net build to its credit reserves in the second quarter of 2007 compares to the second quarter of 2006 net release/ utilization of $210 million, which consisted of a net release/ utilization of $328 million in Global Consumer and Global Wealth Management, and a net build of $118$148 million in Markets & Banking.
Acquisition of Grupo CuscatlanBanking primarily reflected an increase for specific counterparties.
On May 11, 2007,Visa Restructuring and Litigation Matters
During the first quarter of 2008, Citigroup completedrecorded a $633 million increase to pretax income resulting from events surrounding Visa. These events include (1) a $359 million gain on the acquisitionredemption of Visa shares primarily recorded inU.S. Consumer; (2) a $108 million gain from an adjustment of the subsidiariesregional share allocation related to the fourth quarter 2007 Visa reorganization primarily recorded inInternational Consumer; and (3) a $166 million reduction of Grupo Cuscatlan for $1.51 billionlitigation
reserves that were originally booked in the fourth quarter of 2007 primarily inU.S. Consumer.
Repositioning Charges
In the first quarter of 2008, Citigroup recorded repositioning charges of $622 million related to Citigroup's ongoing reengineering plan, which will result in certain branch closings and headcount reductions of approximately 9,000 employees.
Sale of Redecard Shares
In the first quarter of 2008, Citigroup sold approximately 46.8 million Redecard shares, which decreased Citigroup's ownership in Redecard from approximately 23.9% to approximately 17%. An after-tax gain of $426 million ($755661 million in cash and 14.2 million Citigroup shares) from Corporacion UBC Internacional S.A. Grupo Cuscatlan is one of the leading financial groups in Central America, with assets of $5.4 billion, loans of $3.5 billion, and deposits of $3.4 billion. Grupo Cuscatlan has operations in El Salvador, Guatemala, Costa Rica, Honduras and Panamá. The results of Grupo Cuscatlan are included from May 11, 2007 forward and arepretax) was recorded in theInternational Retail BankingCards.
Acquisition of Egg business.
On May 1, 2007, Citigroup completed its acquisition of Egg Banking plc (Egg), the world’s largest pure online bank and one of the U.K.’s leading online financial services providers, from Prudential PLC for approximately $1.15 billion. Egg has more than three million customers and offers various financial products and services including online payment and account aggregation services, credit cards, personal loans, savings accounts, mortgages, insurance and investments.
Acquisition of Bisys
Support of Structured Investment Vehicles (SIVs)
On August 1,December 13, 2007, the Company completedannounced a commitment to provide support facilities to its acquisitionCiti-advised Structured Investment Vehicles (SIVs) for the purpose of Bisys Group, Inc. (Bisys) for $1.44 billion in cash. In addition, Bisys’ shareholders will receive $18.2 million inresolving the uncertainty regarding the SIVs' senior debt ratings. As a result of this commitment, the Company consolidated the SIVs' assets and liabilities onto Citigroup's Consolidated Balance Sheet.
On February 12, 2008, the Company finalized the terms of these support facilities, which take the form of a special dividend paid by Bisys. Citigroup completedcommitment to provide $3.5 billion of mezzanine capital to the saleSIVs. During March 2008, five of the Retirement and Insurance Services Divisionssix facilities were drawn in the aggregate amount of Bisys$3.4 billion.
For the first quarter of 2008, the Company recorded pretax trading account losses of $212 million related to affiliatesthese consolidated SIVs. See page 54 for further discussion.
Banamex Legal Vehicle Reorganization
During the first quarter of J.C. Flowers & Co. LLC, making2008, Banamex completed a legal vehicle reorganization. As a result, Citigroup recognized an operating expense reduction of $282 million, primarily inInternational Consumer.
Citi-Managed Fund Reserve
In the netfirst quarter of 2008, GWM offered to facilitate the liquidation of its clients' investments in the Falcon multi-strategy fixed income funds (Falcon Funds) that have been negatively affected by recent market stress in certain fixed income assets. As a result, GWM recorded a $250 million reserve to cover the estimated cost of these arrangements.
Write-down of Intangible Asset Related to Old Lane
As a result of the transactionOld Lane hedge fund notifying its investors that they will have the opportunity to redeem their investments, without restriction, effective July 31, 2008, CAI recorded a pretax write-down of $202 million during the first quarter of 2008 of intangible assets related to this multi-strategy hedge fund. In April 2008, substantially all unaffiliated investors had notified Old Lane of their intention to redeem their investments. See note 10 on page 74 for additional information.
Issuance of Preferred Stock
During the first quarter of 2008, the Company enhanced its capital base by issuing $12.5 billion of 7% convertible preferred stock in a private offering, and $3.2 billion of 6.5% convertible preferred stock in public offerings, and $3.715 billion of 8.125% of non-convertible preferred stock in public offerings. See Note 12 on page 78 for further information.
Nikko Cordial
Citigroup began consolidating Nikko Cordial's financial results and the related minority interest on May 9, 2007, when Nikko Cordial became a 61%-owned subsidiary. Citigroup later, in 2007, increased its ownership stake in Nikko Cordial to approximately $800 million. Citigroup will retain the Fund Services and Alternative Investment services businesses of Bisys which provides administrative services for hedge funds, mutual funds and private equity funds. Bisys will be68%. Nikko Cordial results are included within Citigroup’s Citigroup'sTransaction ServicesSecurities and Banking, Smith Barney business. and International Consumer businesses.
On January 29, 2008, Citigroup acquired the remaining Nikko Cordial shares outstanding by issuing 175 million Citigroup common shares (approximately $4.4 billion based on the exchange terms) in a public transaction in exchange for those Nikko Cordial shares.
Acquisition of Old Lane Partners, L.P.
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 total assets under management and private equity commitments of approximately $4.5 billion. Old Lane will operate as part of Alternative Investments (AI), Citigroup’s integrated alternative investments platform. Old Lane’s Vikram Pandit became the Chief Executive Officer of AI.
Agreement to Establish Partnership with Quiñenco—Banco de ChileChile's US Branches
On July 19, In 2007, Citigroup and Quiñenco entered into a definitive agreement to establish a strategic partnership that combines CitiCitigroup operations in Chile with Banco de Chile’sChile's local banking franchise to create a banking and financial services institution with aboutapproximately 20% market share of the Chilean banking industry. The transaction closed on January 1, 2008.
Under the agreement, Citi will initially acquireCitigroup contributed Citigroup's Chilean operations and other assets, and acquired an approximate 32.96% stake in LQIF, a wholly owned subsidiary of Quiñenco that will then hold 57.1% of the voting rights and a 37.8% economic interest incontrols Banco de Chile. In the initial phase, Citi will contribute Citi Chile, and other assets (in cash or other businesses)is accounted for a total investment valued at $893 million.under the equity method of accounting. As part of the overall transaction, Citi willCitigroup also acquireacquired the U.S. businessesbranches of Banco de Chile for approximately $130 million. CitiCitigroup has the optionentered into an agreement to acquire an additional 17.04% stake in LQIF for approximately $900 million$1 billion within three years. The new partnership calls for active participation by CitiCitigroup in the management of Banco de Chile including board representation at both LQIF and Banco de Chile.
Sale of CitiCapital
On April 17, 2008, Citigroup signed an agreement to sell CitiCapital, the equipment finance unit in North America. The transaction is expectedsale consists of net assets of approximately $13 billion and will result in an after-tax loss of approximately $325 million, subject to closeclosing adjustments. The loss will be recorded in the firstsecond quarter of 2008 and is subject to customary regulatory reviews.
Acquisition of Automated Trading Desk
On July 2, 2007, Citigroup announced the agreement to acquire Automated Trading Desk (ATD), a leader in electronic market making and proprietary trading, for approximately $680 million ($102.6 million in cash and approximately 11.12 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. The transaction is subject to regulatory approval andsale is expected to close in the third quarter of 2007.2008.
Sale of Citi Street
Acquisition of Bank of Overseas Chinese
On April 9, 2007,May 2, 2008, Citigroup and State Street Corporation announced thethat they have entered into a definitive agreement to acquire 100% of Bank of Overseas Chinese (BOOC)sell CitiStreet, a benefits servicing business, to ING Group in Taiwan for approximately $427 million, subject to certain closing adjustments. BOOC offersan all-cash transaction valued at $900 million. CitiStreet is a broad suite of corporate banking, consumerjoint venture formed in 2000, which is owned 50 percent each by Citi and wealth management products and services to more than one million clients through 55 branches in Taiwan.
This transaction will strengthen Citigroup’s presence in Asia making it the largest international bank and 13th largest by total assets among all domestic Taiwan banks. Citigroup’sState Street. The acquisition of BOOC is subject to shareholder and U.S. and Taiwanese regulatory approvals and is expected to close, duringpending customary closing conditions, by the second halfend of 2007.
Redecard IPO
On July 11, 2007, Citigroup (a 31.9% shareholderthe third quarter of 2008. The sale will result in Redecard S.A., the only merchant acquiring company for MasterCard in Brazil) sold 41.75 million Redecard shares as part of Redecard’s initial public offering. After the sale of these shares, Citigroup remains a 25% shareholder in Redecard. Anan after-tax gain of approximately $400$200 million to Citigroup, subject to closing adjustments, which will be recorded in Citigroup’s third quarterat the time of 2007 financial results.
Resolution of Federal Tax Audit
In March 2006, the Company received a notice from the Internal Revenue Service (IRS) that they had concluded the tax audit for the years 1999 through 2002 (referred to hereinafter as the “resolution of the Federal Tax Audit”). For the first quarter of 2006, the Company released a total of $657 million from its tax contingency reserves related to the resolution of the Federal Tax Audit.
The following table summarizes the 2006 first quarter tax benefits, by business, from the resolution of the Federal Tax Audit:
In millions of dollars |
| Total |
| |
Global Consumer |
| $ | 290 |
|
Markets & Banking |
| 176 |
| |
Global Wealth Management |
| 13 |
| |
Alternative Investments |
| 58 |
| |
Corporate/Other |
| 61 |
| |
Continuing Operations |
| $ | 598 |
|
|
|
|
| |
Discontinued Operations |
| 59 |
| |
Total |
| $ | 657 |
|
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 January 2006.
The following table summarizes the SFAS 123(R) impact, by segment, on the 2006 first quarter 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 and second quarters of 2007, the Company recorded the quarterly accrual for the estimated stock awards that will be granted in January 2008.closing.
The following tables show the net income (loss) and revenuerevenues for Citigroup’sCitigroup's businesses on a segment and product view and on a regional view:
Citigroup Net Income—Segment and Product View Three Months Ended June 30, % Six Months Ended June 30, % In millions of dollars 2007 2006 Change 2007 2006 Change Global Consumer U.S. Cards $ 726 $ 878 (17 )% $ 1,623 $ 1,804 (10 )% U.S. Retail Distribution 453 568 (20 ) 841 1,083 (22 ) U.S. Consumer Lending 441 470 (6 ) 800 907 (12 ) U.S. Commercial Business 151 138 9 272 264 3 Total U.S. Consumer(1) $ 1,771 $ 2,054 (14 )% $ 3,536 $ 4,058 (13 )% International Cards $ 351 $ 328 7 % $ 739 $ 619 19 % International Consumer Finance (6 ) 173 NM 19 341 (94 ) International Retail Banking 671 714 (6 ) 1,211 1,391 (13 ) Total International Consumer $ 1,016 $ 1,215 (16 )% $ 1,969 $ 2,351 (16 )% Other $ (91 ) $ (92 ) 1 % $ (176 ) $ (159 ) (11 )% Total Global Consumer $ 2,696 $ 3,177 (15 )% $ 5,329 $ 6,250 (15 )% Markets & Banking Securities and Banking $ 2,145 $ 1,412 52 % $ 4,318 $ 3,030 43 % Transaction Services 514 340 51 961 663 45 Other 173 (29 ) NM 174 (41 ) NM Total Markets & Banking $ 2,832 $ 1,723 64 % $ 5,453 $ 3,652 49 % Global Wealth Management Smith Barney $ 321 $ 238 35 % $ 645 $ 406 59 % Private Bank 193 109 77 317 228 39 Total Global Wealth Management $ 514 $ 347 48 % $ 962 $ 634 52 % Alternative Investments $ 456 $ 257 77 % $ 678 $ 610 11 % Corporate/Other (272 ) (242 ) (12 ) (1,184 ) (329 ) NM Income from Continuing Operations $ 6,226 $ 5,262 18 % $ 11,238 $ 10,817 4 % Income from Discontinued Operations(2) — 3 (100 ) — 87 (100 ) Total Net Income $ 6,226 $ 5,265 18 % $ 11,238 $ 10,904 3 %
| First Quarter | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | ||||||||||
2008 | 2007(1) | ||||||||||
Global Consumer | |||||||||||
U.S. Cards | $ | 595 | $ | 897 | (34 | )% | |||||
U.S. Retail Distribution | 101 | 388 | (74 | ) | |||||||
U.S. Consumer Lending | (476 | ) | 359 | NM | |||||||
U.S. Commercial Business | 59 | 81 | (27 | ) | |||||||
Total U.S. Consumer(2) | $ | 279 | $ | 1,725 | (84 | )% | |||||
International Cards | $ | 703 | $ | 388 | 81 | % | |||||
International Consumer Finance | (168 | ) | 25 | NM | |||||||
International Retail Banking | 728 | 540 | 35 | ||||||||
Total International Consumer | $ | 1,263 | $ | 953 | 33 | % | |||||
Other | $ | (108 | ) | $ | (85 | ) | (27 | )% | |||
Total Global Consumer | $ | 1,434 | $ | 2,593 | (45 | )% | |||||
Markets & Banking | |||||||||||
Securities and Banking | $ | (6,401 | ) | $ | 2,211 | NM | |||||
Transaction Services | 732 | 449 | 63 | % | |||||||
Other | (2 | ) | 1 | NM | |||||||
Total Markets & Banking | $ | (5,671 | ) | $ | 2,661 | NM | |||||
Global Wealth Management | |||||||||||
Smith Barney | $ | 142 | $ | 324 | (56 | )% | |||||
Private Bank | 157 | 124 | 27 | ||||||||
Total Global Wealth Management | $ | 299 | $ | 448 | (33 | )% | |||||
Alternative Investments | $ | (509 | ) | 222 | NM | ||||||
Corporate/Other(3) | (664 | ) | (912 | ) | 27 | % | |||||
Total Net Income (Loss) | $ | (5,111 | ) | $ | 5,012 | NM | |||||
(2) See Note 2
April 11, 2007.
8
Citigroup Net Income—Regional View
|
| % of |
| Three Months Ended |
| % |
| Six Months Ended |
| % |
| ||||||||
In millions of dollars |
| Total(1) |
| 2007 |
| 2006 |
| Change |
| 2007 |
| 2006 |
| Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S.(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
| $ | 1,680 |
| $ | 1,962 |
| (14 | )% | $ | 3,360 |
| $ | 3,899 |
| (14 | )% | |
Markets & Banking |
|
|
| 984 |
| 747 |
| 32 |
| 1,983 |
| 1,262 |
| 57 |
| ||||
Global Wealth Management |
|
|
| 335 |
| 290 |
| 16 |
| 696 |
| 518 |
| 34 |
| ||||
Total U.S. |
| 50 | % | $ | 2,999 |
| $ | 2,999 |
| — |
| $ | 6,039 |
| $ | 5,679 |
| 6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 360 |
| $ | 375 |
| (4 | )% | $ | 732 |
| $ | 733 |
| — |
|
Markets & Banking |
|
|
| 95 |
| 88 |
| 8 |
| 209 |
| 166 |
| 26 | % | ||||
Global Wealth Management |
|
|
| 15 |
| 10 |
| 50 |
| 27 |
| 18 |
| 50 |
| ||||
Total Mexico |
| 8 | % | $ | 470 |
| $ | 473 |
| (1 | )% | $ | 968 |
| $ | 917 |
| 6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 148 |
| $ | 215 |
| (31 | )% | $ | 231 |
| $ | 400 |
| (42 | )% |
Markets & Banking |
|
|
| 803 |
| 342 |
| NM |
| 1,497 |
| 977 |
| 53 |
| ||||
Global Wealth Management |
|
|
| 46 |
| 5 |
| NM |
| 53 |
| 8 |
| NM |
| ||||
Total EMEA |
| 17 | % | $ | 997 |
| $ | 562 |
| 77 | % | $ | 1,781 |
| $ | 1,385 |
| 29 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Japan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 32 |
| $ | 178 |
| (82 | )% | $ | 77 |
| $ | 366 |
| (79 | )% |
Markets & Banking |
|
|
| 124 |
| 72 |
| 72 |
| 159 |
| 157 |
| 1 |
| ||||
Global Wealth Management |
|
|
| 30 |
| — |
| — |
| 30 |
| — |
| — |
| ||||
Total Japan |
| 3 | % | $ | 186 |
| $ | 250 |
| (26 | )% | $ | 266 |
| $ | 523 |
| (49 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Asia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 426 |
| $ | 359 |
| 19 | % | $ | 809 |
| $ | 706 |
| 15 | % |
Markets & Banking |
|
|
| 567 |
| 336 |
| 69 |
| 1,128 |
| 750 |
| 50 | % | ||||
Global Wealth Management |
|
|
| 74 |
| 40 |
| 85 |
| 139 |
| 85 |
| 64 |
| ||||
Total Asia |
| 17 | % | $ | 1,067 |
| $ | 735 |
| 45 | % | $ | 2,076 |
| $ | 1,541 |
| 35 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 50 |
| $ | 88 |
| (43 | )% | $ | 120 |
| $ | 146 |
| (18 | )% |
Markets & Banking |
|
|
| 259 |
| 138 |
| 88 |
| 477 |
| 340 |
| 40 |
| ||||
Global Wealth Management |
|
|
| 14 |
| 2 |
| NM |
| 17 |
| 5 |
| NM |
| ||||
Total Latin America |
| 5 | % | $ | 323 |
| $ | 228 |
| 42 | % | $ | 614 |
| $ | 491 |
| 25 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Alternative Investments |
|
|
| $ | 456 |
| $ | 257 |
| 77 | % | $ | 678 |
| $ | 610 |
| 11 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate/Other |
|
|
| (272 | ) | (242 | ) | (12 | ) | (1,184 | ) | (329 | ) | NM |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income from Continuing Operations |
|
|
| $ | 6,226 |
| $ | 5,262 |
| 18 | % | $ | 11,238 |
| $ | 10,817 |
| 4 | % |
Income from Discontinued Operations(3) |
|
|
| — |
| 3 |
| (100 | ) | — |
| 87 |
| (100 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Net Income |
|
|
| $ | 6,226 |
| $ | 5,265 |
| 18 | % | $ | 11,238 |
| $ | 10,904 |
| 3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total International |
| 50 | % | $ | 3,043 |
| $ | 2,248 |
| 35 | % | $ | 5,705 |
| $ | 4,857 |
| 17 | % |
| First Quarter | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | ||||||||||
2008 | 2007 | ||||||||||
U.S.(1) | |||||||||||
Global Consumer | $ | 171 | $ | 1,640 | (90 | )% | |||||
Markets & Banking | (5,444 | ) | 1,039 | NM | |||||||
Global Wealth Management | 163 | 361 | (55 | ) | |||||||
TotalU.S. | $ | (5,110 | ) | $ | 3,040 | NM | |||||
Mexico | |||||||||||
Global Consumer | $ | 340 | $ | 372 | (9 | )% | |||||
Markets & Banking | 101 | 114 | (11 | ) | |||||||
Global Wealth Management | 12 | 12 | — | ||||||||
TotalMexico | $ | 453 | $ | 498 | (9 | )% | |||||
EMEA | |||||||||||
Global Consumer | $ | 66 | $ | 83 | (20 | )% | |||||
Markets & Banking | (1,142 | ) | 694 | NM | |||||||
Global Wealth Management | 26 | 7 | NM | ||||||||
TotalEMEA | $ | (1,050 | ) | $ | 784 | NM | |||||
Japan | |||||||||||
Global Consumer | $ | (8 | ) | $ | 45 | NM | |||||
Markets & Banking | (145 | ) | 35 | NM | |||||||
Global Wealth Management | 27 | — | — | ||||||||
TotalJapan | $ | (126 | ) | $ | 80 | NM | |||||
Asia (Excluding Japan) | |||||||||||
Global Consumer | $ | 370 | $ | 383 | (3 | )% | |||||
Markets & Banking | 725 | 561 | 29 | ||||||||
Global Wealth Management | 56 | 65 | (14 | ) | |||||||
TotalAsia | $ | 1,151 | $ | 1,009 | 14 | % | |||||
Latin America | |||||||||||
Global Consumer | $ | 495 | $ | 70 | NM | ||||||
Markets & Banking | 234 | 218 | 7 | % | |||||||
Global Wealth Management | 15 | 3 | NM | ||||||||
TotalLatin America | $ | 744 | $ | 291 | NM | ||||||
Alternative Investments | $ | (509 | ) | $ | 222 | NM | |||||
Corporate/Other | (664 | ) | (912 | ) | 27 | % | |||||
Total Net Income (Loss) | $ | (5,111 | ) | $ | 5,012 | NM | |||||
Total International | $ | 1,172 | $ | 2,662 | (56 | )% | |||||
Second quarter of 2007 as a percent of total Citigroup net income, excluding Alternative Investments and Corporate/Other.
(2)
(3)See Note 2
April 11, 2007.
Citigroup Revenues—Segment and Product View
|
| Three Months Ended June 30, |
| % |
| Six Months Ended June 30, |
| % |
| ||||||||
In millions of dollars |
| 2007 |
| 2006 |
| Change |
| 2007 |
| 2006 |
| Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Cards |
| $ | 3,181 |
| $ | 3,251 |
| (2 | )% | $ | 6,475 |
| $ | 6,485 |
| — |
|
U.S. Retail Distribution |
| 2,545 |
| 2,499 |
| 2 |
| 4,971 |
| 4,795 |
| 4 | % | ||||
U.S. Consumer Lending |
| 1,606 |
| 1,307 |
| 23 |
| 3,157 |
| 2,567 |
| 23 |
| ||||
U.S. Commercial Business |
| 446 |
| 516 |
| (14 | ) | 889 |
| 986 |
| (10 | ) | ||||
Total U.S. Consumer(1) |
| $ | 7,778 |
| $ | 7,573 |
| 3 | % | $ | 15,492 |
| $ | 14,833 |
| 4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
International Cards |
| $ | 2,013 |
| $ | 1,510 |
| 33 | % | $ | 3,752 |
| $ | 2,790 |
| 34 | % |
International Consumer Finance |
| 843 |
| 1,009 |
| (16 | ) | 1,733 |
| 1,971 |
| (12 | ) | ||||
International Retail Banking |
| 3,030 |
| 2,555 |
| 19 |
| 5,789 |
| 5,022 |
| 15 |
| ||||
Total International Consumer |
| $ | 5,886 |
| $ | 5,074 |
| 16 | % | $ | 11,274 |
| $ | 9,783 |
| 15 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| $ | (2 | ) | $ | (19 | ) | 89 | % | $ | 2 |
| $ | (33 | ) | NM |
| |
Total Global Consumer |
| $ | 13,662 |
| $ | 12,628 |
| 8 | % | $ | 26,768 |
| $ | 24,583 |
| 9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Markets & Banking |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Securities and Banking |
| $ | 7,121 |
| $ | 5,269 |
| 35 | % | $ | 14,434 |
| $ | 11,165 |
| 29 | % |
Transaction Services |
| 1,840 |
| 1,495 |
| 23 |
| 3,485 |
| 2,877 |
| 21 |
| ||||
Other |
| — |
| (3 | ) | 100 |
| (1 | ) | (2 | ) | 50 |
| ||||
Total Markets & Banking |
| $ | 8,961 |
| $ | 6,761 |
| 33 | % | $ | 17,918 |
| $ | 14,040 |
| 28 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Wealth Management |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Smith Barney |
| $ | 2,611 |
| $ | 1,990 |
| 31 | % | $ | 4,857 |
| $ | 3,977 |
| 22 | % |
Private Bank |
| 586 |
| 502 |
| 17 |
| 1,158 |
| 998 |
| 16 |
| ||||
Total Global Wealth Management |
| $ | 3,197 |
| $ | 2,492 |
| 28 | % | $ | 6,015 |
| $ | 4,975 |
| 21 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Alternative Investments |
| $ | 1,032 |
| $ | 584 |
| 77 | % | $ | 1,594 |
| $ | 1,259 |
| 27 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate/Other |
| (222 | ) | (283 | ) | 22 |
| (206 | ) | (492 | ) | 58 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Net Revenues |
| $ | 26,630 |
| $ | 22,182 |
| 20 | % | $ | 52,089 |
| $ | 44,365 |
| 17 | % |
| First Quarter | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | ||||||||||
2008 | 2007(1) | ||||||||||
Global Consumer | |||||||||||
U.S. Cards | $ | 3,217 | $ | 3,294 | (2 | )% | |||||
U.S. Retail Distribution | 2,656 | 2,426 | 9 | ||||||||
U.S. Consumer Lending | 1,710 | 1,551 | 10 | ||||||||
U.S. Commercial Business | 422 | 474 | (11 | ) | |||||||
Total U.S. Consumer(2) | $ | 8,005 | $ | 7,745 | 3 | % | |||||
International Cards | $ | 3,053 | $ | 1,739 | 76 | % | |||||
International Consumer Finance | 809 | 890 | (9 | ) | |||||||
International Retail Banking | 3,325 | 2,759 | 21 | ||||||||
Total International Consumer | $ | 7,187 | $ | 5,388 | 33 | % | |||||
Other | $ | 15 | $ | 4 | NM | ||||||
Total Global Consumer | $ | 15,207 | $ | 13,137 | 16 | % | |||||
Markets & Banking | |||||||||||
Securities and Banking | $ | (6,823 | ) | $ | 7,277 | NM | |||||
Transaction Services | 2,347 | 1,650 | 42 | % | |||||||
Other | — | (1 | ) | 100 | |||||||
Total Markets & Banking | $ | (4,476 | ) | $ | 8,926 | NM | |||||
Global Wealth Management | |||||||||||
Smith Barney | $ | 2,643 | $ | 2,246 | 18 | % | |||||
Private Bank | 631 | 572 | 10 | ||||||||
Total Global Wealth Management | $ | 3,274 | $ | 2,818 | 16 | % | |||||
Alternative Investments | $ | (358 | ) | $ | 562 | NM | |||||
Corporate/Other | (428 | ) | 16 | NM | |||||||
Total Net Revenues | $ | 13,219 | $ | 25,459 | (48 | )% | |||||
Citigroup Revenues—Regional View
|
| % of |
| Three Months Ended |
| % |
|
|
| % |
| ||||||||
In millions of dollars |
| Total(1) |
| 2007 |
| 2006 |
| Change |
| 2007 |
| 2006 |
| Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S.(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 7,776 |
| $ | 7,554 |
| 3 | % | $ | 15,494 |
| $ | 14,800 |
| 5 | % |
Markets & Banking |
|
|
| 3,041 |
| 2,803 |
| 8 |
| 6,755 |
| 5,726 |
| 18 |
| ||||
Global Wealth Management |
|
|
| 2,439 |
| 2,149 |
| 13 |
| 4,824 |
| 4,303 |
| 12 |
| ||||
Total U.S. |
| 51 | % | $ | 13,256 |
| $ | 12,506 |
| 6 | % | $ | 27,073 |
| $ | 24,829 |
| 9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 1,354 |
| $ | 1,192 |
| 14 | % | $ | 2,731 |
| $ | 2,341 |
| 17 | % |
Markets & Banking |
|
|
| 183 |
| 199 |
| (8 | ) | 410 |
| 385 |
| 6 |
| ||||
Global Wealth Management |
|
|
| 41 |
| 33 |
| 24 |
| 77 |
| 64 |
| 20 |
| ||||
Total Mexico |
| 6 | % | $ | 1,578 |
| $ | 1,424 |
| 11 | % | $ | 3,218 |
| $ | 2,790 |
| 15 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 1,618 |
| $ | 1,360 |
| 19 | % | $ | 3,064 |
| $ | 2,630 |
| 17 | % |
Markets & Banking |
|
|
| 2,993 |
| 2,043 |
| 47 |
| 5,820 |
| 4,339 |
| 34 |
| ||||
Global Wealth Management |
|
|
| 137 |
| 83 |
| 65 |
| 245 |
| 158 |
| 55 |
| ||||
Total EMEA |
| 19 | % | $ | 4,748 |
| $ | 3,486 |
| 36 | % | $ | 9,129 |
| $ | 7,127 |
| 28 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Japan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 680 |
| $ | 807 |
| (16 | )% | $ | 1,295 |
| $ | 1,582 |
| (18 | )% |
Markets & Banking |
|
|
| 453 |
| 269 |
| 68 |
| 665 |
| 565 |
| 18 |
| ||||
Global Wealth Management |
|
|
| 286 |
| — |
| — |
| 286 |
| — |
| — |
| ||||
Total Japan |
| 5 | % | $ | 1,419 |
| $ | 1,076 |
| 32 | % | $ | 2,246 |
| $ | 2,147 |
| 5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Asia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 1,464 |
| $ | 1,244 |
| 18 | % | $ | 2,823 |
| $ | 2,433 |
| 16 | % |
Markets & Banking |
|
|
| 1,635 |
| 1,062 |
| 54 |
| 3,039 |
| 2,194 |
| 39 |
| ||||
Global Wealth Management |
|
|
| 242 |
| 181 |
| 34 |
| 476 |
| 361 |
| 32 |
| ||||
Total Asia |
| 13 | % | $ | 3,341 |
| $ | 2,487 |
| 34 | % | $ | 6,338 |
| $ | 4,988 |
| 27 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Global Consumer |
|
|
| $ | 770 |
| $ | 471 |
| 63 | % | $ | 1,361 |
| $ | 797 |
| 71 | % |
Markets & Banking |
|
|
| 656 |
| 385 |
| 70 |
| 1,229 |
| 831 |
| 48 |
| ||||
Global Wealth Management |
|
|
| 52 |
| 46 |
| 13 |
| 107 |
| 89 |
| 20 |
| ||||
Total Latin America |
| 6 | % | $ | 1,478 |
| $ | 902 |
| 64 | % | $ | 2,697 |
| $ | 1,717 |
| 57 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Alternative Investments |
|
|
| $ | 1,032 |
| $ | 584 |
| 77 | % | $ | 1,594 |
| $ | 1,259 |
| 27 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate/Other |
|
|
| (222 | ) | (283 | ) | 22 | % | (206 | ) | (492 | ) | 58 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Net Revenues |
|
|
| $ | 26,630 |
| $ | 22,182 |
| 20 | % | $ | 52,089 |
| $ | 44,365 |
| 17 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total International |
| 49 | % | $ | 12,564 |
| $ | 9,375 |
| 34 | % | $ | 23,628 |
| $ | 18,769 |
| 26 | % |
(1)Second quarter of 2007 as a percent of total Citigroup revenues, net of interest expense, excluding Alternative Investments and Corporate/Other.
(2) First Quarter In millions of dollars % Change 2008 2007 U.S.(1) Global Consumer $ 8,020 $ 7,749 3 % Markets & Banking (7,466 ) 3,683 NM Global Wealth Management 2,377 2,385 — TotalU.S. $ 2,931 $ 13,817 (79 )% Mexico Global Consumer $ 1,458 $ 1,377 6 % Markets & Banking 203 227 (11 ) Global Wealth Management 37 36 3 TotalMexico $ 1,698 $ 1,640 4 % EMEA Global Consumer $ 1,861 $ 1,446 29 % Markets & Banking 133 2,827 (95 ) Global Wealth Management 170 108 57 TotalEMEA $ 2,164 $ 4,381 (51 )% Japan Global Consumer $ 640 $ 615 4 % Markets & Banking 202 212 (5 ) Global Wealth Management 415 — — TotalJapan $ 1,257 $ 827 52 % Asia Global Consumer $ 1,691 $ 1,359 24 % Markets & Banking 1,827 1,404 30 Global Wealth Management 212 234 (9 ) TotalAsia $ 3,730 $ 2,997 24 % Latin America Global Consumer $ 1,537 $ 591 NM Markets & Banking 625 573 9 % Global Wealth Management 63 55 15 TotalLatin America $ 2,225 $ 1,219 83 % Alternative Investments $ (358 ) $ 562 NM Corporate/Other (428 ) 16 NM Total Net Revenues $ 13,219 $ 25,459 (48 )% Total International $ 11,074 $ 11,064 —
11
Citigroup’sCitigroup's Global Consumer Group provides a wide array of banking, lending, insurance and investment services through a network of 8,2028,441 branches, approximately 19,30020,000 ATMs 708and 538 Automated LoanLending Machines (ALMs), the Internet, telephone and mail, and the Primerica Financial Services salesforce.sales force. Global Consumer serves more than 200 million customer accounts, providing products and services to meet the financial needs of both individuals and small businesses.
|
| Three Months Ended June 30, |
| % |
| Six Months Ended June 30, |
| % |
| ||||||||||||||||||||||
In millions of dollars |
| 2007 |
| 2006 |
| Change |
| 2007 |
| 2006 |
| Change |
| ||||||||||||||||||
Net interest revenue |
| $ | 8,189 |
| $ | 7,481 |
| 9 | % | $ | 15,833 |
| $ | 14,705 |
| 8 | % | ||||||||||||||
Non-interest revenue |
| 5,473 |
| 5,147 |
| 6 |
| 10,935 |
| 9,878 |
| 11 |
| ||||||||||||||||||
Revenues, net of interest expense |
| $ | 13,662 |
| $ | 12,628 |
| 8 |
| $ | 26,768 |
| $ | 24,583 |
| 9 | % | ||||||||||||||
Operating expenses |
| 7,063 |
| 6,379 |
| 11 |
| 13,823 |
| 12,736 |
| 9 |
| ||||||||||||||||||
Provisions for loan losses and for benefits and claims |
| 2,769 |
| 1,649 |
| 68 |
| 5,455 |
| 3,317 |
| 64 |
| ||||||||||||||||||
Income before taxes and minority interest |
| $ | 3,830 |
| $ | 4,600 |
| (17 | )% | $ | 7,490 |
| $ | 8,530 |
| (12 | )% | ||||||||||||||
Income taxes |
| 1,104 |
| 1,400 |
| (21 | ) | 2,121 |
| 2,247 |
| (6 | ) | ||||||||||||||||||
Minority interest, net of taxes |
| 30 |
| 23 |
| 30 |
| 40 |
| 33 |
| 21 |
| ||||||||||||||||||
Net income |
| $ | 2,696 |
| $ | 3,177 |
| (15 | ) | $ | 5,329 |
| $ | 6,250 |
| (15 | )% | ||||||||||||||
Average assets (in billions of dollars) |
| $ | 744 |
| $ | 582 |
| 28 | % | $ | 727 |
| $ | 572 |
| 27 | % | ||||||||||||||
Return on assets |
| 1.45 | % | 2.19 | % |
|
| 1.48 | % | 2.20 | % |
|
| ||||||||||||||||||
Average risk capital(1) |
| $ | 33,599 |
| $ | 27,522 |
| 22 | % | $ | 32,627 |
| $ | 27,618 |
| 18 | % | ||||||||||||||
Return on risk capital(1) |
| 32 | % | 46 | % |
|
| 33 | % | 46 | % |
|
| ||||||||||||||||||
Return on invested capital(1) |
| 16 | % | 21 | % |
|
| 16 | % | 21 | % |
|
| ||||||||||||||||||
Key Indicators—(in billions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Average loans |
| $ | 487.4 |
| $ | 431.7 |
| 13 | % |
|
|
|
|
|
| ||||||||||||||||
Average deposits |
| $ | 289.3 |
| $ | 247.4 |
| 17 | % |
|
|
|
|
|
| ||||||||||||||||
Total branches |
| 8,202 |
| 7,670 |
| 7 | % |
|
|
|
|
|
|
| |||||||||||||||||
| First Quarter | | |||||||
---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | ||||||||
2008 | 2007 | ||||||||
Net interest revenue | $ | 8,749 | $ | 7,676 | 14 | % | |||
Non-interest revenue | 6,458 | 5,461 | 18 | ||||||
Revenues, net of interest expense | $ | 15,207 | $ | 13,137 | 16 | % | |||
Operating expenses | 7,515 | 6,744 | 11 | ||||||
Provisions for loan losses and for benefits and claims | 5,756 | 2,695 | NM | ||||||
Income before taxes and minority interest | $ | 1,936 | $ | 3,698 | (48 | )% | |||
Income taxes | 493 | 1,095 | (55 | ) | |||||
Minority interest, net of taxes | 9 | 10 | (10 | ) | |||||
Net income | $ | 1,434 | $ | 2,593 | (45 | )% | |||
Average assets(in billions of dollars) | $ | 739 | $ | 702 | 5 | % | |||
Return on assets | 0.78 | % | 1.50 | % | |||||
Key Indicators—(in billions of dollars) | |||||||||
Average loans | $ | 531.4 | $ | 461.8 | 15 | % | |||
Average deposits | 312.2 | 271.6 | 15 | ||||||
Total branches | 8,441 | 8,140 | 4 | ||||||
(1) See footnote 3 to the table on page 4.
(This page intentionally left blank)
U.S. Consumer is composed of four businesses:Cards, Retail Distribution, Consumer LendingandCommercial Business which operate in the U.S., Canada and Puerto Rico..
|
| Three Months Ended June 30, |
| % |
| Six Months Ended June 30, |
| % |
| First Quarter | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | |||||||||||||||||||||||||
| 2007 |
| 2006 |
| Change |
| 2007 |
| 2006 |
| Change |
| 2008 | 2007 | ||||||||||||
Net interest revenue |
| $ | 4,285 |
| $ | 4,189 |
| 2 | % | $ | 8,470 |
| $ | 8,327 |
| 2 | % | $ | 4,353 | $ | 4,217 | 3 | % | |||
Non-interest revenue |
| 3,493 |
| 3,384 |
| 3 |
| 7,022 |
| 6,506 |
| 8 |
| 3,652 | 3,528 | 4 | ||||||||||
Revenues, net of interest expense |
| $ | 7,778 |
| $ | 7,573 |
| 3 | % | $ | 15,492 |
| $ | 14,833 |
| 4 | % | $ | 8,005 | $ | 7,745 | 3 | % | |||
Operating expenses |
| 3,644 |
| 3,551 |
| 3 |
| 7,273 |
| 7,120 |
| 2 |
| 3,827 | 3,613 | 6 | ||||||||||
Provisions for loan losses and for benefits and claims |
| 1,504 |
| 827 |
| 82 |
| 2,974 |
| 1,728 |
| 72 |
| 3,771 | 1,479 | NM | ||||||||||
Income before taxes and minority interest |
| $ | 2,630 |
| $ | 3,195 |
| (18 | )% | $ | 5,245 |
| $ | 5,985 |
| (12 | )% | $ | 407 | $ | 2,653 | (85 | )% | |||
Income taxes |
| 845 |
| 1,121 |
| (25 | ) | 1,687 |
| 1,898 |
| (11 | ) | 124 | 920 | (87 | ) | |||||||||
Minority interest, net of taxes |
| 14 |
| 20 |
| (30 | ) | 22 |
| 29 |
| (24 | ) | 4 | 8 | (50 | ) | |||||||||
Net income |
| $ | 1,771 |
| $ | 2,054 |
| (14 | )% | $ | 3,536 |
| $ | 4,058 |
| (13 | )% | $ | 279 | $ | 1,725 | (84 | )% | |||
Average assets (in billions of dollars) |
| $ | 511 |
| $ | 395 |
| 29 | % | $ | 506 |
| $ | 388 |
| 30 | % | $ | 467 | $ | 492 | (5 | )% | |||
Return on assets |
| 1.39 | % | 2.09 | % |
|
| 1.41 | % | 2.11 | % |
|
| 0.24 | % | 1.42 | % | |||||||||
Average risk capital(1) |
| $ | 18,221 |
| $ | 14,797 |
| 23 | % | $ | 18,014 |
| $ | 14,933 |
| 21 | % | |||||||||
Return on risk capital(1) |
| 39 | % | 56 | % |
|
| 40 | % | 55 | % |
|
| |||||||||||||
Return on invested capital(1) |
| 19 | % | 24 | % |
|
| 19 | % | 24 | % |
|
| |||||||||||||
Key Indicators—(in billions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Average loans |
| $ | 346.8 |
| $ | 319.2 |
| 9 | % |
|
|
|
|
|
| $ | 367.2 | $ | 335.8 | 9 | % | |||||
Average deposits |
| $ | 120.9 |
| $ | 100.8 |
| 20 | % |
|
|
|
|
|
| 122.6 | 117.4 | 4 | % | |||||||
Total branches |
| 3,433 |
| 3,253 |
| 6 | % |
|
|
|
|
|
| 3,569 | 3,488 | 2 | % | |||||||||
1Q08 vs. 1Q07
(1) See footnote 3 to the table on page 4.
Net Interest Revenuewas 2% better3% higher than the prior year, as growth in average loans and deposits of 9% and loans of 20% and 9%4%, respectively, was partially offset by a decrease in net interest margins. Net interest margins declined due to an increase in higher-cost time deposit and e-savings balances, the securitization of higher-margin credit card receivables, and a mix toward lower-yielding mortgage assets.spread compression.
Non-Interest Revenue increased 3%4%, primarily due to higher loan and deposit volumes, 6%4% growth in CardCards purchase sales, and a higher levelpretax gain on Visa shares of securitized Card receivables. Growth was also driven by$349 million, higher gains on salesales of mortgage loans, and growth in net servicing revenues and the impact of the acquisition of ABN AMRO Mortgage Group in the first quarter of 2007. Second quarter of 2006 results also included a $132 million pretax gain from the sale of upstate New York branches.
Consumer LendingOperating expenses increased primarily due to acquisitions and increased investment spending, including 24 new branch openings during the quarter (15 in CitiFinancial and 9 in Citibank). Higher volume-related expenses primarily reflected 18% growth in loan originations in Consumer Lending.
Provisions for loan losses and for benefits and claims increased primarily reflecting a change in estimate of loan losses inherent in the U.S. Cards portfolio, portfolio seasoning and delinquencies in second mortgages, and higher loan volumes. TheThis increase in provision for loan losses also reflected the absence of loan loss reserve releases recorded in the prior year. The net credit loss ratio increased 12 basis points to 1.26%.
Net Interest Revenue was 2% better than the prior year, as growth in average deposits and loans of 20% and 10%, respectively, and higher risk-based fees in Cards, was partially offset by a decreaselower securitization revenues in net interest margins. Net interest margins declined due to an increaseCards primarily reflecting the impact of higher credit losses in higher-cost time deposit and e-savings balances, and the securitization trusts, as well as the absence of higher margin credit card receivables.
Non-Interest Revenue increased 8% primarily due to higher loan and deposit volumes, and 6% growth in Card purchase sales. Non-interest revenues also reflected a prior-year $161 million net pretax gain on the sale of MasterCard shares, the impactshares.
Operating expense growth of the acquisition6% was primarily driven by a repositioning charge of ABN AMRO Mortgage Group in the first quarter of 2007,$130 million, volume growth, higher collection costs, acquisitions, and higher gains on sale of mortgage loan and net servicing revenues. Second quarter of 2006 results also included a $132 million pretax gain from the sale of upstate New York branches.
Operating expenses increased primarily due to acquisitions, increased investment spending related to the 75176 new branch openings during the first half of 2007 (45past twelve months (99 in CitiFinancial and 3077 in Citibank), and costs associated with Citibank Direct. The. This increase in 2007 was also favorably affectedpartially offset by the absence$159 million reduction of the charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006. Higher volume-related expenses primarily reflected 20% growth in loan originations in Consumer Lending businesses.Visa-related litigation reserve.
Provisions for loan losses and for benefits and claims increased $2.3 billion, primarily reflecting a change in estimateweakening of loan losses inherentleading credit indicators, including higher delinquencies on first and second mortgages, unsecured personal loans, credit cards and auto loans. Credit costs also increased due to trends in the U.S. Cards portfolio. The increase in provision for loan losses also reflectedmacro-economic environment, including the absence of loan loss reserve releases recorded in the prior year, higher loan volumes, portfolio seasoninghousing market downturn and increased delinquencies in
second mortgages,rising unemployment rates, as well as an increase in bankruptcy filings over unusually low filing levels experienced in the first half of 2006.portfolio growth. The net credit loss ratio increased 9109 basis points to 1.27%2.39%..
The Net income decline in 2007 also reflects the absence of a $175 million tax benefit resulting from the resolution of the Federal Tax Audit from the first quarter of 2006.
15
International Consumer is comprisedcomposed of three businesses:Cards,Consumer Finance andRetail Banking. International Consumer operates in five regions: geographies:Mexico,Latin America,EMEA,Japan, andAsia.
|
| Three Months Ended June 30, |
|
|
| Six Months Ended June 30, |
|
|
| | First Quarter | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % Change | |||||||||||||||||||||||||
| 2007 |
| 2006 |
| Change |
| 2007 |
| 2006 |
| Change |
| 2008 | 2007 | |||||||||||||
Net interest revenue |
| $ | 3,938 |
| $ | 3,343 |
| 18 | % | $ | 7,427 |
| $ | 6,476 |
| 15 | % | Net interest revenue | $ | 4,433 | $ | 3,489 | 27 | % | |||
Non-interest revenue |
| 1,948 |
| 1,731 |
| 13 |
| 3,847 |
| 3,307 |
| 16 |
| Non-interest revenue | 2,754 | 1,899 | 45 | ||||||||||
Revenues, net of interest expense |
| $ | 5,886 |
| $ | 5,074 |
| 16 | % | $ | 11,274 |
| $ | 9,783 |
| 15 | % | Revenues, net of interest expense | $ | 7,187 | $ | 5,388 | 33 | % | |||
Operating expenses |
| 3,264 |
| 2,701 |
| 21 |
| 6,240 |
| 5,322 |
| 17 |
| Operating expenses | 3,521 | 2,976 | 18 | ||||||||||
Provisions for loan losses and for benefits and claims |
| 1,265 |
| 822 |
| 54 |
| 2,481 |
| 1,589 |
| 56 |
| Provisions for loan losses and for benefits and claims | 1,985 | 1,216 | 63 | ||||||||||
Income before taxes and minority interest |
| $ | 1,357 |
| $ | 1,551 |
| (13 | )% | $ | 2,553 |
| $ | 2,872 |
| (11 | )% | Income before taxes and minority interest | $ | 1,681 | $ | 1,196 | 41 | % | |||
Income taxes |
| 325 |
| 333 |
| (2 | ) | 566 |
| 517 |
| 9 |
| Income taxes | 413 | 241 | 71 | ||||||||||
Minority interest, net of taxes |
| 16 |
| 3 |
| NM |
| 18 |
| 4 |
| NM |
| Minority interest, net of taxes | 5 | 2 | NM | ||||||||||
Net income |
| $ | 1,016 |
| $ | 1,215 |
| (16 | )% | $ | 1,969 |
| $ | 2,351 |
| (16 | )% | Net income | $ | 1,263 | $ | 953 | 33 | % | |||
Revenues, net of interest expense, by region: |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues, net of interest expense, by region: | |||||||||||||
Mexico |
| $ | 1,354 |
| $ | 1,192 |
| 14 | % | $ | 2,731 |
| $ | 2,341 |
| 17 | % | ||||||||||
EMEA |
| 1,618 |
| 1,360 |
| 19 |
| 3,064 |
| 2,630 |
| 17 |
| ||||||||||||||
Japan — Cards and Retail Banking |
| 322 |
| 192 |
| 68 |
| 503 |
| 376 |
| 34 |
| ||||||||||||||
Asia |
| 1,464 |
| 1,244 |
| 18 |
| 2,823 |
| 2,433 |
| 16 |
| ||||||||||||||
Latin America |
| 770 |
| 471 |
| 63 |
| 1,361 |
| 797 |
| 71 |
| ||||||||||||||
Mexico | $ | 1,458 | $ | 1,377 | 6 | % | |||||||||||||||||||||
EMEA | 1,861 | 1,446 | 29 | ||||||||||||||||||||||||
Japan—Cards and Retail Banking | 334 | 181 | 85 | ||||||||||||||||||||||||
Asia | 1,691 | 1,359 | 24 | ||||||||||||||||||||||||
Latin America | 1,537 | 591 | NM | ||||||||||||||||||||||||
Subtotal |
| $ | 5,528 |
| $ | 4,459 |
| 24 | % | $ | 10,482 |
| $ | 8,577 |
| 22 | % | Subtotal | $ | 6,881 | $ | 4,954 | 39 | % | |||
Japan Consumer Finance |
| $ | 358 |
| $ | 615 |
| (42 | ) | $ | 792 |
| $ | 1,206 |
| (34 | ) | ||||||||||
Japan Consumer Finance | $ | 306 | $ | 434 | (29 | ) | |||||||||||||||||||||
Total revenues |
| $ | 5,886 |
| $ | 5,074 |
| 16 | % | $ | 11,274 |
| $ | 9,783 |
| 15 | % | Total revenues | $ | 7,187 | $ | 5,388 | 33 | % | |||
Net income by region |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income by region | |||||||||||||
Mexico |
| $ | 360 |
| $ | 375 |
| (4 | )% | $ | 732 |
| $ | 733 |
| — |
| ||||||||||
EMEA |
| 148 |
| 215 |
| (31 | ) | 231 |
| 400 |
| (42 | )% | ||||||||||||||
Japan—Cards and Retail Banking |
| 65 |
| 44 |
| 48 |
| 101 |
| 97 |
| 4 |
| ||||||||||||||
Asia |
| 426 |
| 359 |
| 19 |
| 809 |
| 706 |
| 15 |
| ||||||||||||||
Latin America |
| 50 |
| 88 |
| (43 | ) | 120 |
| 146 |
| (18 | ) | ||||||||||||||
Mexico | $ | 340 | $ | 372 | (9 | )% | |||||||||||||||||||||
EMEA | 66 | 83 | (20 | ) | |||||||||||||||||||||||
Japan—Cards and Retail Banking | 61 | 36 | 69 | ||||||||||||||||||||||||
Asia | 370 | 383 | (3 | ) | |||||||||||||||||||||||
Latin America | 495 | 70 | NM | ||||||||||||||||||||||||
Subtotal |
| $ | 1,049 |
| $ | 1,081 |
| (3 | )% | $ | 1,993 |
| $ | 2,082 |
| (4 | )% | Subtotal | $ | 1,332 | $ | 944 | 41 | % | |||
Japan Consumer Finance |
| $ | (33 | ) | $ | 134 |
| NM |
| $ | (24 | ) | $ | 269 |
| NM |
| ||||||||||
Japan Consumer Finance | (69 | ) | 9 | NM | |||||||||||||||||||||||
Total net income |
| $ | 1,016 |
| $ | 1,215 |
| (16 | ) | $ | 1,969 |
| $ | 2,351 |
| (16 | )% | Total net income | $ | 1,263 | $ | 953 | 33 | % | |||
Average assets (in billions of dollars) |
| $ | 222 |
| $ | 177 |
| 25 | % | $ | 211 |
| $ | 176 |
| 20 | % | Average assets(in billions of dollars) | $ | 260 | $ | 199 | 31 | % | |||
Return on assets |
| 1.84 | % | 2.75 | % |
|
| 1.88 | % | 2.69 | % |
|
| Return on assets | 1.95 | % | 1.94 | % | |||||||||
Average risk capital(1) |
| $ | 15,378 |
| $ | 12,725 |
| 21 |
| $ | 14,613 |
| $ | 12,686 |
| 15 |
| ||||||||||
Return on risk capital(1) |
| 26 | % | 38 | % |
|
| 27 | % | 37 | % |
|
| ||||||||||||||
Return on invested capital(1) |
| 14 | % | 19 | % |
|
| 14 | % | 18 | % |
|
| ||||||||||||||
Key indicators—(in billions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Key indicators—(in billions of dollars) | Key indicators—(in billions of dollars) | ||||||||||||||||||||||||||
Average loans |
| $ | 140.6 |
| $ | 112.5 |
| 25 | % |
|
|
|
|
|
| Average loans | $ | 164.2 | $ | 126.0 | 30 | % | |||||
Average deposits |
| $ | 168.4 |
| $ | 146.6 |
| 15 | % |
|
|
|
|
|
| Average deposits | 189.6 | 154.2 | 23 | ||||||||
EOP AUMs |
| $ | 150.3 |
| $ | 122.8 |
| 22 | % |
|
|
|
|
|
| EOP AUMs | $ | 163.6 | $ | 138.5 | 18 | ||||||
Total branches |
| 4,769 |
| 4,417 |
| 8 | % |
|
|
|
|
|
| Total branches | 4,872 | 4,652 | 5 | ||||||||||
(1)1Q08 vs. 1Q07 See footnote 3 to the table on page 4.
NM Not meaningful
2Q07 vs. 2Q06
Net Interest Revenueincreased 18%. Growth was27%, driven by higher30% growth in average loans as well asand 23% growth in average deposits, including the impact of the acquisitions of Grupo Financiero Uno, Egg, Grupo Cuscatlan, and CrediCard.
Non-Interest Revenue increased 13%, primarily due to higher Card purchase sales, up 31%, and increased investment product sales, up 46%. By region, the growth was led by Japan—Cards and Retail Banking, Latin America, Asia, and EMEA. Bank of Overseas Chinese. The positive impact of foreign currency translation also contributed to increasesthe increase in revenues. The 2006 second quarter included
Non-Interest Revenue increased 45%, primarily due to a $663 million gain on Redecard shares and a $97 million gain on the Initial Public Offering (IPO) of Visa shares, partially offset by a gain of $107 million on the sale of MasterCard IPO of $55 million.shares in the prior-year period. The increase is also driven by a 41% increase in Cards purchase sales, a 14% increase in investment AUMs, and acquisitions, (including Nikko Cordial.)
Excluding the impact of Japan Consumer Finance, revenues increased 24%.
Operating expenses increased by 18%, reflecting the integrationacquisitions, higher business volume and a repositioning charge of the CrediCard portfolio, the acquisitions of Grupo Financiero Uno, Grupo Cuscatlan, and Egg, and an increase$106 million, partially offset by a $257 million benefit related to a legal vehicle restructuring in ownership in Nikko. Expense growth also reflects volume growth across the regions (excluding Japan Consumer Finance), continued investment spending, including 136 branches opened or acquired, higher customer activity, and theMexico. The impact of foreign currency translation.translation also contributed to the increase in expenses.
Provisions for loan losses and for benefits and claims increased 54%63%, primarily driven by Mexico and India, as well as by acquisitions and portfolio growth, increased past due accounts and targeted market expansion in growth.Mexico, the integration of acquisitions, higher net credit losses in
In Japan Consumer Finance, a net loss of $69 million reflected the difficult operating environment and the absence of 2006 second quarter loan loss reserve releases.
Net income was also affected by the absence of prior-year Mexico tax benefits of $70 million related to APB 23.
In Citigroup’s 2006 Form 10-K the Company stated that it expected its consumer finance business in Japan to break even in 2007. However, the situation remains unpredictable; and given the Company’s recent experience with the level of Grey Zone related refund claims, the Company’s best estimate now is that the business will have net losses in 2007. The Company will continue to analyze the profitability prospects for this business thereafter.
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 44.
Net Interest Revenue increased 15% overall, 26% after excluding theongoing impact of Japan Consumer Finance. Growth was driven by higher average receivables, as well as the impact of the acquisitions of Grupo Financiero Uno, Egg, Grupo Cuscatlan, and CrediCard, and increased ownership in Nikko Cordial.
Non-Interest Revenue increased 16%, primarily due to higher purchase sales, up 28% in Cards, increased investment product sales, up 40% in Retail Banking, and growth across all regions. The positive impact of foreign currency translation and a year-over-year gain on the MasterCard IPO of $53 million also contributed to the increase in revenues.
Operating expenses increased, reflecting the integration of the CrediCard portfolio and the acquisitions of Grupo Financiero Uno, Grupo Cuscatlan, and Egg, and increased ownership in Nikko along with volume growth across the products and regions, continued investment spending driven by 269 branches opened or acquired, higher customer activity, and the impact of foreign currency translation. The increase in YTD 2007 expenses was also favorably affected by the absence of the charge related to the initial adoption of FAS 123(R)consumer lending laws passed in the firstfourth quarter of 2006.
Provision for loan losses increased 56% driven by portfolio growth, increased past due accounts and portfolio seasoning in Mexico, the integration of acquisitions, and higher net credit losses in Japan Consumer Finance. These increases were partially offset by the absence of a 2006 second quarter loan loss reserve release.
Net Income was also affected by the absence of prior-year tax benefit impact of $190 million primarily resulting from APB 23 and the absence of a prior-year $75 million benefit from tax reserve releases related to the resolution of the Federal Tax Audit in the first quarter of 2006.
Markets & Banking provides a broad range of trading, investment banking, and commercial lending products and services to companies, governments, institutions and investors in approximately 100 countries. Markets & Banking includesSecurities and Banking,Transaction Services and Other Markets & Banking.Other.
|
| Three Months Ended June 30, |
| % |
| Six Months Ended June 30, |
| % |
| ||||||||
In millions of dollars |
| 2007 |
| 2006 |
| Change |
| 2007 |
| 2006 |
| Change |
| ||||
Net interest revenue |
| $ | 2,831 |
| $ | 2,147 |
| 32 | % | $ | 5,283 |
| $ | 4,381 |
| 21 | % |
Non-interest revenue |
| 6,130 |
| 4,614 |
| 33 |
| 12,635 |
| 9,659 |
| 31 |
| ||||
Revenues, net of interest expense |
| $ | 8,961 |
| $ | 6,761 |
| 33 | % | $ | 17,918 |
| $ | 14,040 |
| 28 | % |
Operating expenses |
| 4,948 |
| 4,158 |
| 19 |
| 10,059 |
| 8,915 |
| 13 |
| ||||
Provision for credit losses |
| (62 | ) | 173 |
| NM |
| 201 |
| 173 |
| 16 |
| ||||
Income before taxes and minority interest |
| $ | 4,075 |
| $ | 2,430 |
| 68 | % | $ | 7,658 |
| $ | 4,952 |
| 55 | % |
Income taxes |
| 1,236 |
| 702 |
| 76 |
| 2,183 |
| 1,276 |
| 71 |
| ||||
Minority interest, net of taxes |
| 7 |
| 5 |
| 40 |
| 22 |
| 24 |
| (8 | ) | ||||
Net income |
| $ | 2,832 |
| $ | 1,723 |
| 64 | % | $ | 5,453 |
| $ | 3,652 |
| 49 | % |
Revenues, net of interest expense, by region: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. |
| $ | 3,041 |
| $ | 2,803 |
| 8 | % | $ | 6,755 |
| $ | 5,726 |
| 18 | % |
Mexico |
| 183 |
| 199 |
| (8 | ) | 410 |
| 385 |
| 6 |
| ||||
EMEA |
| 2,993 |
| 2,043 |
| 47 |
| 5,820 |
| 4,339 |
| 34 |
| ||||
Japan |
| 453 |
| 269 |
| 68 |
| 665 |
| 565 |
| 18 |
| ||||
Asia |
| 1,635 |
| 1,062 |
| 54 |
| 3,039 |
| 2,194 |
| 39 |
| ||||
Latin America |
| 656 |
| 385 |
| 70 |
| 1,229 |
| 831 |
| 48 |
| ||||
Total revenues |
| $ | 8,961 |
| $ | 6,761 |
| 33 | % | $ | 17,918 |
| $ | 14,040 |
| 28 | % |
Net income by region: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. |
| $ | 984 |
| $ | 747 |
| 32 | % | $ | 1,983 |
| $ | 1,262 |
| 57 | % |
Mexico |
| 95 |
| 88 |
| 8 |
| 209 |
| 166 |
| 26 |
| ||||
EMEA |
| 803 |
| 342 |
| NM |
| 1,497 |
| 977 |
| 53 |
| ||||
Japan |
| 124 |
| 72 |
| 72 |
| 159 |
| 157 |
| 1 |
| ||||
Asia |
| 567 |
| 336 |
| 69 |
| 1,128 |
| 750 |
| 50 |
| ||||
Latin America |
| 259 |
| 138 |
| 88 |
| 477 |
| 340 |
| 40 |
| ||||
Total net income |
| $ | 2,832 |
| $ | 1,723 |
| 64 | % | $ | 5,453 |
| $ | 3,652 |
| 49 | % |
Average risk capital(1) |
| $ | 27,555 |
| $ | 21,755 |
| 27 | % | $ | 25,850 |
| $ | 21,174 |
| 22 | % |
Return on risk capital(1) |
| 41 | % | 32 | % |
|
| 43 | % | 35 | % |
|
| ||||
Return on invested capital(1) |
| 32 | % | 23 | % |
|
| 32 | % | 26 | % |
|
|
| First Quarter | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | |||||||||
2008 | 2007 | |||||||||
Net interest revenue | $ | 4,356 | $ | 2,462 | 77 | % | ||||
Non-interest revenue | (8,832 | ) | 6,464 | NM | ||||||
Revenues, net of interest expense | $ | (4,476 | ) | $ | 8,926 | NM | ||||
Operating expenses | 5,298 | 5,127 | 3 | % | ||||||
Provision for credit losses | 249 | 254 | (2 | ) | ||||||
Income (loss) before taxes and minority interest | $ | (10,023 | ) | $ | 3,545 | NM | ||||
Income taxes (benefits) | (4,367 | ) | 869 | NM | ||||||
Minority interest, net of taxes | 15 | 15 | — | |||||||
Net income (loss) | $ | (5,671 | ) | $ | 2,661 | NM | ||||
Revenues, net of interest expense, by region: | ||||||||||
U.S. | $ | (7,466 | ) | $ | 3,683 | NM | ||||
Mexico | 203 | 227 | (11 | )% | ||||||
EMEA | 133 | 2,827 | (95 | ) | ||||||
Japan | 202 | 212 | (5 | ) | ||||||
Asia | 1,827 | 1,404 | 30 | |||||||
Latin America | 625 | 573 | 9 | |||||||
Total revenues | $ | (4,476 | ) | $ | 8,926 | NM | ||||
Total revenues, net of interest expense by product: | ||||||||||
Securities and Banking | $ | (6,823 | ) | $ | 7,277 | NM | ||||
Transaction Services | 2,347 | 1,650 | 42 | % | ||||||
Other | — | (1 | ) | 100 | ||||||
Total revenues | $ | (4,476 | ) | $ | 8,926 | NM | ||||
Net income (loss) by region: | ||||||||||
U.S. | $ | (5,444 | ) | $ | 1,039 | NM | ||||
Mexico | 101 | 114 | (11 | ) | ||||||
EMEA | (1,142 | ) | 694 | NM | ||||||
Japan | (145 | ) | 35 | NM | ||||||
Asia | 725 | 561 | 29 | |||||||
Latin America | 234 | 218 | 7 | |||||||
Total net income (loss) | $ | (5,671 | ) | $ | 2,661 | NM | ||||
Total net income (loss) by product: | ||||||||||
Securities and Banking | $ | (6,401 | ) | $ | 2,211 | NM | ||||
Transaction Services | 732 | 449 | 63 | % | ||||||
Other | (2 | ) | 1 | NM | ||||||
Total net income(loss) | $ | (5,671 | ) | $ | 2,661 | NM | ||||
(1)1Q08 vs. 1Q07 See footnote 3 to the table on page 4.
NM Not meaningful
2Q07 vs. 2Q06
Revenues,, net of interest expenseincreased driven by broad-based performance across products, were negative inSecurities and regions. Equity MarketsBanking due to substantial write-downs and losses related to the fixed income and credit markets. Included in these losses are $6.0 billion of write-downs on subprime-related direct exposure, $3.1 billion of write-downs (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, $1.5 billion of downward credit market value adjustments related to exposure to monoline insurers, and $1.5 billion of write-downs on auction rate securities inventory due to failed auctions and deterioration in the credit markets.Transaction Services revenues increasedgrew a record 42%, with records in all three businesses (cash management, securities services and trade) driven by strong growth globally, including cash trading, derivatives products, equity finance and convertibles. Fixed Income Markets revenue increases were driven by improved results across interest rates and currencies, credit and securitized products, and commodities. Investment Banking revenue growth wasdriven by higher equity underwriting and advisory and other fees. Transaction Services revenues increased reflecting growth in customer liability balances and assets under custody, higher net interest margins in Cash Management and Securities and Funds Services.custody.
Operating expensesincreased due to higherTransaction Services' increased business volumes and the acquisition of The Bisys Group. Expenses decreased inSecurities and Banking from a decline in incentive compensation costs, and growth due to acquisitions. The growth in the second quarter of 2007 was favorably affectedpartially offset by a $300$295 million pretax release of litigation reserves.repositioning charge.
TheThe provision for credit lossesdecreased, reflecting a stable global corporate credit environment anddue primarily to the absence of a $118$290 million net increase to loan loss reserves recorded in the prior-year period.
Markets & Banking’s exposure in the subprime secured lending market is divided between secured lending and trading, which together accounted for approximately 2% of the Securities and Banking revenues in full-year 2006.
The Company has been actively managing down its secured lending exposure. In addition, the Company has been adjusting clients’ collateral and margin requirements during these periods.
Citigroup continues to be an active market-maker in trading activities. As such, the Company hedges risks, using a variety of methods to monitor very carefully the ongoing credit quality of counterparties. The Company monitors its subprime business daily and has a rigorous process for marking the Company’s positions using fundamental valuation techniques, market references, and liquidity analysis.
Leveraged lending accounted for approximately 5% of Securities and Banking revenues in the second quarter of 2006. As of June 30, 2007, there were four committed transactions which required re-pricing. For those transactions, the Company recorded losses on its commitments, which were recorded in commissions and fees revenue during the second quarter of 2007. The Company has made commitments to finance other similar transactions which will likely require an adjustment to price and terms.
The Company believes that when these transactions are re-priced, these transactions will be sold to investors. In a small subset of these transactions, the Company has extended equity bridge commitments to top-tier clients in connection with the Company’s leveraged financing activities.
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 44.
Revenues, net of interest expense, increased, driven by broad-based performance across products and regions and by the $402 million benefit from the adoption of SFAS 157. Equity Markets revenues increased, driven by strong growth globally, including cash trading, derivatives products, equity finance, convertibles and prime brokerage. Fixed Income Markets revenue increases were driven by improved results across all products, including interest rates and currencies, and credit and securitized products and commodities. Investment Banking revenue growth wasdriven by higher equity underwriting and advisory and other fees. Transaction Services revenues increased reflecting growth in liability balances and assets under custody, higher net interest margins in Cash Management and Securities and Funds Services.
Operating expensesgrowth was primarily driven by higher business volumes and compensation costs. The 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.
The provision for credit losses increased due to a net charge of $286 million in the first quarter of 2007 to increase loan loss reserves. Thereserves in the prior-year period, offset by an increase in net credit losses of $123 million and a $157 million incremental charge to increase loan loss reserves was driven by portfolio growth, which includes higher commitments to leveraged transactions and an increase in average loan tenor. This was partially offset by a decrease in the second quarter reflecting a stable global corporate credit environment and the absence of a $118 million net increase to loan loss reserves recorded in the prior-year second quarter.for specific counterparties.
Global Wealth Management is comprisedcomposed of theSmith Barney Private Client businesses (including Citigroup Wealth Advisors, Nikko Cordial, Quilter and the legacy Citicorp Investment Services business), Citigroup CitiPrivate Bank and CitigroupCiti Investment Research.
|
| Three Months Ended June 30, |
| % |
| Six Months Ended June 30, |
| % |
| | First Quarter | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % Change | |||||||||||||||||||||||||
| 2007 |
| 2006 |
| Change |
| 2007 |
| 2006 |
| Change |
| 2008 | 2007 | |||||||||||||
Net interest revenue |
| $ | 526 |
| $ | 444 |
| 18 | % | $ | 1,055 |
| $ | 904 |
| 17 | % | Net interest revenue | $ | 571 | $ | 529 | 8 | % | |||
Non-interest revenue |
| 2,671 |
| 2,048 |
| 30 |
| 4,960 |
| 4,071 |
| 22 |
| Non-interest revenue | 2,703 | 2,289 | 18 | ||||||||||
Revenues, net of interest expense |
| $ | 3,197 |
| $ | 2,492 |
| 28 | % | $ | 6,015 |
| $ | 4,975 |
| 21 | % | Revenues, net of interest expense | $ | 3,274 | $ | 2,818 | 16 | % | |||
Operating expenses |
| 2,455 |
| 1,961 |
| 25 |
| 4,557 |
| 4,016 |
| 13 |
| Operating expenses | 2,780 | 2,102 | 32 | ||||||||||
Provision for loan losses |
| 12 |
| 8 |
| 50 |
| 29 |
| 13 |
| NM |
| Provision for loan losses | 21 | 17 | 24 | ||||||||||
Income before taxes and minority interest |
| $ | 730 |
| $ | 523 |
| 40 | % | $ | 1,429 |
| $ | 946 |
| 51 | % | Income before taxes and minority interest | $ | 473 | $ | 699 | (32 | )% | |||
Income taxes |
| 199 |
| 176 |
| 13 |
| 450 |
| 312 |
| 44 |
| Income taxes | 168 | 251 | (33 | ) | |||||||||
Minority interest, net of taxes |
| 17 |
| — |
| — |
| 17 |
| — |
| — |
| Minority interest, net of taxes | 6 | — | — | ||||||||||
Net income |
| $ | 514 |
| $ | 347 |
| 48 | % | $ | 962 |
| $ | 634 |
| 52 | % | Net income | $ | 299 | $ | 448 | (33 | )% | |||
Revenues, net of interest expense, by region: |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues, net of interest expense, by region: | |||||||||||||
U.S. |
| $ | 2,439 |
| $ | 2,149 |
| 13 | % | $ | 4,824 |
| $ | 4,303 |
| 12 | % | ||||||||||
Mexico |
| 41 |
| 33 |
| 24 |
| 77 |
| 64 |
| 20 |
| ||||||||||||||
EMEA |
| 137 |
| 83 |
| 65 |
| 245 |
| 158 |
| 55 |
| ||||||||||||||
Japan |
| 286 |
| — |
| — |
| 286 |
| — |
| — |
| ||||||||||||||
Asia |
| 242 |
| 181 |
| 34 |
| 476 |
| 361 |
| 32 |
| ||||||||||||||
Latin America |
| 52 |
| 46 |
| 13 |
| 107 |
| 89 |
| 20 |
| ||||||||||||||
U.S. | $ | 2,377 | $ | 2,385 | — | ||||||||||||||||||||||
Mexico | 37 | 36 | 3 | % | |||||||||||||||||||||||
EMEA | 170 | 108 | 57 | ||||||||||||||||||||||||
Japan | 415 | — | — | ||||||||||||||||||||||||
Asia | 212 | 234 | (9 | ) | |||||||||||||||||||||||
Latin America | 63 | 55 | 15 | ||||||||||||||||||||||||
Total revenues |
| $ | 3,197 |
| $ | 2,492 |
| 28 |
| $ | 6,015 |
| $ | 4,975 |
| 21 |
| Total revenues | $ | 3,274 | $ | 2,818 | 16 | % | |||
Net income by region: |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income by region: | |||||||||||||
U.S. |
| $ | 335 |
| $ | 290 |
| 16 | % | $ | 696 |
| $ | 518 |
| 34 | % | ||||||||||
Mexico |
| 15 |
| 10 |
| 50 |
| 27 |
| 18 |
| 50 |
| ||||||||||||||
EMEA |
| 46 |
| 5 |
| NM |
| 53 |
| 8 |
| NM |
| ||||||||||||||
Japan |
| 30 |
| — |
| — |
| 30 |
| — |
| — |
| ||||||||||||||
Asia |
| 74 |
| 40 |
| 85 |
| 139 |
| 85 |
| 64 |
| ||||||||||||||
Latin America |
| 14 |
| 2 |
| NM |
| 17 |
| 5 |
| NM |
| ||||||||||||||
U.S. | $ | 163 | $ | 361 | (55 | )% | |||||||||||||||||||||
Mexico | 12 | 12 | — | ||||||||||||||||||||||||
EMEA | 26 | 7 | NM | ||||||||||||||||||||||||
Japan | 27 | — | — | ||||||||||||||||||||||||
Asia | 56 | 65 | (14 | ) | |||||||||||||||||||||||
Latin America | 15 | 3 | NM | ||||||||||||||||||||||||
Total net income |
| $ | 514 |
| $ | 347 |
| 48 |
| $ | 962 |
| $ | 634 |
| 52 |
| Total net income | $ | 299 | $ | 448 | (33 | )% | |||
Average risk capital(1) |
| $ | 2,878 |
| $ | 2,366 |
| 22 | % | $ | 2,878 |
| $ | 2,452 |
| 17 | % | ||||||||||
Return on risk capital(1) |
| 72 | % | 59 | % |
|
| 67 | % | 52 | % |
|
| ||||||||||||||
Return on invested capital(1) |
| 30 | % | 36 | % |
|
| 34 | % | 32 | % |
|
| ||||||||||||||
Key indicators: (in billions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
| Key indicators:(in billions of dollars) | |||||||||||||
Total assets under fee-based management |
| $ | 509 |
| $ | 363 |
| 40 | % |
|
|
|
|
|
| Total assets under fee-based management | $ | 482 | $ | 418 | 15 | % | |||||
Total client assets(2) |
| 1,788 |
| 1,321 |
| 35 | % |
|
|
|
|
|
| ||||||||||||||
Total client assets(1) | Total client assets(1) | 1,707 | 1,493 | 14 | |||||||||||||||||||||||
Net client asset flows |
| — |
| (4 | ) | NM |
|
|
|
|
|
|
| Net client asset flows | $ | (1 | ) | $ | 6 | NM | |||||||
Financial advisors (FA) / bankers(2) |
| 15,595 |
| 13,671 |
| 14 | % |
|
|
|
|
|
| ||||||||||||||
Financial advisors (FA) / bankers(1) | Financial advisors (FA) / bankers(1) | 15,241 | 13,605 | 12 | |||||||||||||||||||||||
Annualized revenue per FA / banker |
| $ | 878 |
| $ | 726 |
| 21 | % |
|
|
|
|
|
| Annualized revenue per FA / banker(in thousands of dollars) | 858 | 837 | 3 | ||||||||
Average deposits and other customer liability balances |
| $ | 113 |
| $ | 100 |
| 13 | % |
|
|
|
|
|
| Average deposits and other customer liability balances | 129 | 113 | 14 | ||||||||
Average loans |
| $ | 51 |
| $ | 42 |
| 21 |
|
|
|
|
|
|
| Average loans | 64 | 46 | 39 | ||||||||
(2)During the second quarter of 2007, U.S. Consumer’s Consumer'sRetail Distribution transferred approximately $47 billion of Client Assets,client assets, 686 Financial Advisors and 79 branches toSmith Barney related to the consolidation of Citicorp Investment Services (CIS) intoSmith Barney.
1Q08 vs. 1Q07
NM Not meaningful
2Q07 vs. 2Q06
Revenues, net of interest expense, increased 16% primarily due to the impact of $3.197 billion in the second quarter of 2007 increased $705 million, or 28%, from the prior-year period, primarily reflecting theNikko Cordial acquisition, of Nikko; an increase in fee-based and recurring net interest revenue,revenues reflecting the continued advisory-based strategy;strategy, an increase in Structured Lending revenue in the U.S., and an increase in international revenues driven mainly by stronggrowth in Banking and Capital Markets activityrevenue inAsia; and strong domestic syndicate sales. Total assets under fee-based management were $509 billion as of June 30, 2007, up $146 billion, or 40%, from the prior-year period. EMEA.
Total client assets, including assets under fee-based management, of $1,788 billion in the second quarter of 2007 increased $467$214 billion, or 35%14%, mainly reflecting the inclusion of client assets from Nikko Cordial. Net flows declined compared to the prior-year quarter, reflecting organic growth and the acquisition of Nikko and Quilter client assets, as well as the transfer of CIS assetsprior year, to ($1) billion from U.S. Consumer on June 30, 2007. Global Wealth Management$6 billion. GWM had 15,59515,241 financial advisors/bankers as of June 30, 2007,March 31, 2008, compared with 13,67113,605 as of June 30, 2006,March 31, 2007, driven by the Nikko Cordial acquisition and Quilterthe consolidation of the legacy Citicorp Investment Services business.
Operating expenses increased 32% primarily due to the impact of acquisitions, a reserve of $250 million related to an offer of facilitating the CIS transfer, and hiringliquidation of investments in the Private Bank. Annualized revenue per FA/banker of $878,000 increased 21% from the prior-year quarter.
Operating expenses of $2.455 billion in the second quarter of 2007 increased $494 million from the prior-year
quarter. The expense increase in 2007 was mainly driven by the Nikko and Quilter acquisitions as well asFalcon fund for its clients, higher variable compensation associated with increased business volumes.and repositioning charges.
Theprovision for loan losses increased $4 million, or 50%. The provision of $12 million in the current quarter was driven by portfolio growth.
Net Incomein the 2007 second quarter included a $65 million APB 23 benefit in Private Bank.
Revenues, net of interest expense, of $6.015 billion in the first half of 2007 increased $1.040 billion, or 21%, from the prior-year period, primarily due24% to a 77% increase in international revenues, driven by the Nikko acquisition, strong Capital Markets activity in Asia and Latin America, and higher domestic syndicate sales. Net flows were $6 billion compared to ($1) billion in the prior-year first half.
Operating expenses of $4.557 billion in the first half of 2007 increased $541 million from the prior year. The expense increase in 2007 was favorably affected by the absence of the charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006 of $145 million. Additionally, the increase in expenses was driven by the Nikko and Quilter acquisitions and higher variable compensation associated with increased business volumes.
The provision for loan losses increased $16$21 million, primarily driven by portfolio growth.higher write-offs of loans in Asia.
21
Alternative Investments (AI)(CAI) manages capital on behalf of Citigroup, as well as for third-party institutional and high-net-worth investors. AICAI 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.
|
| Three Months Ended June 30, |
| % |
| Six Months Ended June 30, |
| % |
| | First Quarter | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % Change | |||||||||||||||||||||||||
| 2007 |
| 2006 |
| Change |
| 2007 |
| 2006 |
| Change |
| 2008 | 2007 | |||||||||||||
Net interest revenue |
| $ | (3 | ) | $ | (7 | ) | 57 | % | $ | (23 | ) | $ | (4 | ) | NM |
| Net interest revenue | $ | (34 | ) | $ | (20 | ) | (70 | )% | |
Non-interest revenue |
| 1,035 |
| 591 |
| 75 |
| 1,617 |
| 1,263 |
| 28 | % | Non-interest revenue | (324 | ) | 582 | NM | |||||||||
Total revenues, net of interest expense |
| $ | 1,032 |
| $ | 584 |
| 77 | % | $ | 1,594 |
| $ | 1,259 |
| 27 | % | Total revenues, net of interest expense | $ | (358 | ) | $ | 562 | NM | |||
Net realized and net change in unrealized gains |
| 910 |
| 475 |
| 92 |
| 1,354 |
| 1,038 |
| 30 | % | Net realized and net change in unrealized gains | $ | (462 | ) | $ | 444 | NM | |||||||
Fees, dividends and interest |
| 42 |
| 49 |
| (14 | ) | 77 |
| 98 |
| (21 | ) | Fees, dividends and interest | 38 | 35 | 9 | % | |||||||||
Other |
| (42 | ) | (37 | ) | (14 | ) | (85 | ) | (65 | ) | (31 | ) | Other | (46 | ) | (43 | ) | (7 | ) | |||||||
Total proprietary investment activities revenues |
| 910 |
| 487 |
| 87 |
| 1,346 |
| 1,071 |
| 26 | % | Total proprietary investment activities revenues | (470 | ) | 436 | NM | |||||||||
Client revenues(1) |
| 122 |
| 97 |
| 26 |
| 248 |
| 188 |
| 32 |
| ||||||||||||||
Client revenues(1) | Client revenues(1) | 112 | 126 | (11 | )% | ||||||||||||||||||||||
Total revenues, net of interest expense |
| $ | 1,032 |
| $ | 584 |
| 77 | % | $ | 1,594 |
| $ | 1,259 |
| 27 | % | Total revenues, net of interest expense | $ | (358 | ) | $ | 562 | NM | |||
Operating expenses |
| 215 |
| 199 |
| 8 |
| 395 |
| 380 |
| 4 |
| Operating expenses | 498 | 180 | NM | ||||||||||
Provision for loan losses |
| — |
| (13 | ) | 100 |
| 1 |
| (13 | ) | NM |
| Provision for loan losses | — | 1 | (100 | )% | |||||||||
Income before taxes and minority interest |
| $ | 817 |
| $ | 398 |
| NM |
| $ | 1,198 |
| $ | 892 |
| 34 | % | ||||||||||
Income (loss) before taxes and minority interest | Income (loss) before taxes and minority interest | $ | (856 | ) | $ | 381 | NM | ||||||||||||||||||||
Income taxes |
| $ | 297 |
| $ | 138 |
| NM |
| $ | 435 |
| $ | 249 |
| 75 | % | Income taxes | (304 | ) | 138 | NM | |||||
Minority interest, net of taxes |
| 64 |
| 3 |
| NM |
| 85 |
| 33 |
| NM |
| Minority interest, net of taxes | (43 | ) | 21 | NM | |||||||||
Net income |
| $ | 456 |
| $ | 257 |
| 77 | % | $ | 678 |
| $ | 610 |
| 11 | % | ||||||||||
Average risk capital(2) (in billions of dollars) |
| $ | 4.0 |
| $ | 4.0 |
| — |
| $ | 4.1 |
| $ | 4.3 |
| (5 | )% | ||||||||||
Return on risk capital(2) |
| 46 | % | 26 | % |
|
| 33 | % | 29 | % |
|
| ||||||||||||||
Return on invested capital(2) |
| 42 | % | 22 | % |
|
| 31 | % | 25 | % |
|
| ||||||||||||||
Net income (loss) | Net income (loss) | $ | (509 | ) | $ | 222 | NM | ||||||||||||||||||||
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue by product: | |||||||||||||
Client(1) |
| $ | 122 |
| $ | 97 |
| 26 | % | $ | 248 |
| $ | 188 |
| 32 | % | ||||||||||
Private Equity |
| $ | 711 |
| $ | 516 |
| 38 | % | $ | 1,072 |
| $ | 729 |
| 47 | % | ||||||||||
Hedge Funds |
| 119 |
| (43 | ) | NM |
| 166 |
| 64 |
| NM |
| ||||||||||||||
Other |
| 80 |
| 14 |
| NM |
| 108 |
| 278 |
| (61 | ) | ||||||||||||||
Client(1) | Client(1) | $ | 112 | $ | 126 | (11 | )% | ||||||||||||||||||||
Private Equity | $ | 115 | $ | 361 | (68 | )% | |||||||||||||||||||||
Hedge Funds | (257 | ) | 47 | NM | |||||||||||||||||||||||
Other | (328 | ) | 28 | NM | |||||||||||||||||||||||
Proprietary |
| $ | 910 |
| $ | 487 |
| 87 | % | $ | 1,346 |
| $ | 1,071 |
| 26 | % | Proprietary | $ | (470 | ) | 436 | NM | ||||
Total |
| $ | 1,032 |
| $ | 584 |
| 77 | % | $ | 1,594 |
| $ | 1,259 |
| 27 | % | Total | $ | (358 | ) | $ | 562 | NM | |||
Key indicators: (in billions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
| Key indicators:(in billions of dollars) | |||||||||||||
Capital under management: |
|
|
|
|
|
|
|
|
|
|
|
|
| Capital under management: | |||||||||||||
Client |
| $ | 47.4 |
| $ | 30.6 |
| 55 | % |
|
|
|
|
|
| ||||||||||||
Proprietary |
| 11.8 |
| 11.3 |
| 4 | % |
|
|
|
|
|
| ||||||||||||||
Client | $ | 43.4 | $ | 42.9 | 1 | % | |||||||||||||||||||||
Proprietary | 10.9 | 10.8 | 1 | ||||||||||||||||||||||||
Total |
| $ | 59.2 |
| $ | 41.9 |
| 41 | % |
|
|
|
|
|
| Total | $ | 54.3 | $ | 53.7 | 1 | % | |||||
(2) See footnote 3 to the table on page 4.
2Q07 vs. 2Q06 The
Proprietary PortfolioRevenues, net of interest expense, CAI consists of $1.032 billionprivate equity, single- and multi-manager hedge funds, real estate and Legg Mason, Inc. (Legg Mason) preferred shares. Private equity, which constitutes the largest proprietary investments on both a direct and an indirect basis, is in the second quarterform of 2007 increased $448 million or 77%.equity and mezzanine debt financing in companies across a broad range of industries worldwide, including investments in developing economies. Such investments include Citigroup Venture Capital International Brazil, LP (CVC/Brazil, formerly CVC/Opportunity Equity Partners, LP), which has invested primarily in companies privatized by the government of Brazil in the mid-1990s.
Total proprietary revenues, net The Company's investment in CVC/Brazil was previously subject to a variety of interest expense, forunresolved matters, including the second quarterpending litigation involving some of 2007its portfolio companies. On April 25, 2008, the Company executed settlement agreements which resolved these litigation uncertainties. The resolution of $910 million, werethese uncertainties will facilitate the sale of certain portfolio companies. Certain sales transactions may be subject to regulatory approvals.
TheClient Portfolio is composed of revenues from private equity of $711 million,single- and multi-manager hedge funds, of $119 million and other investment activity of $80 million. Private equity revenueincreased $195 million from the 2006 second quarter, primarily driven by higher realized and unrealized gains. Hedge fund revenue improved by $162 million, largely due to a higher investment performance. Other investment activities revenue increased $66 million from the 2006 second quarter, largely due to realized and unrealized real estate, gains and the mark-to-market value on Citigroup’s investments. Client revenues increased $25 million, reflecting increased management fees from a 55% growth in average client capital under management.
Operating expenses in the second quarter of 2007 of $215 million increased $16 million from the second quarter of 2006, primarily due to increased performance-driven compensation and higher employee-related expenses.
Minority interest, net of taxes, in the second quarter of 2007 of $64 million increased $61 million from the second quarter 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
and net change in unrealized gains consistent with proceeds received by minority interests.
Proprietary capital under management of $11.8 billion increased $506 million from the second quarter 2006, as increases inmanaged futures, private equity, and hedge fundsa variety of leveraged fixed income products (credit structures). Products are distributed to investors directly by CAI and through GWM'sPrivate Bank andSmith Barney platforms. Revenue includes management and performance fees earned on the portfolio.
The remaining 8.4 million shares of Legg Mason were partially offset bysold during the salefirst quarter of MetLife shares in July 2006.2008.
Client capital under management of $47.4 billion in the 2007 second quarter increased $16.8 billion from the 2006 second quarter, due to inflows from institutional and high-net-worth clients.
On July 2, 2007, the Company completed the acquisition of Old Lane Partners, L.P.LP 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 total assets under management and private equity commitments of approximately $4.5 billion. In the first quarter of 2008, Old Lane will operate as partnotified investors in its multi-strategy hedge fund that they would have the opportunity to redeem their investments in the fund, without restriction, effective July 31, 2008. In April 2008, substantially all unaffiliated investors had notified Old Lane of AI.their intention to redeem their investments. The Company is currently evaluating alternatives for the restructuring of the Old Lane’s Vikram PanditLane multi-strategy hedge fund.
On February 20, 2008, the Company entered into a $500 million credit facility with the Falcon multi-strategy fixed income funds (Falcon funds) managed by CAI. As a result of providing this facility, the Company became the Chief Executive Officerprimary
beneficiary of AI.the Falcon funds and consolidated the assets and liabilities in its Consolidated Balance Sheet. On March 31, 2008, the total assets of the Falcon funds were approximately $4 billion.
On March 3, 2008, the Company made an equity investment of $661 million (under a $1 billion commitment) which provides for gain sharing with unaffiliated investors, in the Municipal Opportunity Funds (MOFs). MOFs are funds managed by Alternative Investments that make leveraged investments in tax-exempt municipal bonds and accept investments through feeder funds known as ASTA and MAT. As a result of the Company's equity commitment, the Company became the primary beneficiary of the MOFs and consolidated the assets and liabilities in its Consolidated Balance Sheet. On March 31, 2008, the total assets of the MOFs were approximately $2 billion.
2007 YTD1Q08 vs. 2006 YTD1Q07
Revenues, net of interest expense,of $1.594 billion in the first six months of 2007 increased $335$(358) million or 27%.
Total proprietary revenues, net of interest expense, for the first six monthsquarter of 20072008 decreased $920 million.
Total proprietary investment activity revenues, of $1.346 billion,$(470) million for the first quarter of 2008 were composed of revenues from private equity of $1.072 billion,$115 million, hedge funds of $166$(257) million and other investment activity of $108$(328) million. Private equity revenueincreased $343 decreased $246 million from the first six monthsquarter of 2006, primarily2007, driven by higher realized and unrealizedlower gains. Hedge fund revenue increased $102decreased $304 million, largely due to higherlower investment performance on an increased asset base.performance. Other investment activities revenue decreased $170$356 million from the first six monthsquarter of 2006,2007, largely due to a $212 million MTM loss in the absence of gains from the liquidation during 2006 of Citigroup’sSIVs and lower investment in St. Paul shares.performance. Client revenues increased $60decreased $14 million, reflecting increased management fees from a 53% growth in average client capital under management.lower performance of fixed income-oriented products, partially offset by the inclusion of Old Lane.
Operating expenses in the first six monthsquarter of 20072008 of $395$498 million increased $15$318 million from the first six monthsquarter of 2006,2007, primarily due to increased performance-driven compensationinclusion of Old Lane and higher employee-related expenses.the write down of $202 million of the intangible asset as a result of the offer to investors to redeem their investments in the Old Lane multi-strategy hedge fund.
Minority interest, net of taxes, in the first six monthsquarter of 20072008 of $85$(43) million increased $52decreased $64 million from the first six months of 2006,2007, primarily due to higher private equitylower 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/(losses) consistent with proceeds received by minority interests.
Client capital under managementNet Income of $43.4 billion at March 31, 2008 increased $0.5 billion from year-ago levels, due to the acquisition of Old Lane in the first six months 2006 reflects higher tax benefits including $58 million resulting from the resolution of the Federal Tax Audit2007 and capital raised in the first quarter of 2006.private equity funds, offset by mark-to-market losses in fixed income-oriented products.
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(intersegment eliminations), the results of discontinued operations and unallocated taxes.
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
In millions of dollars |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||
Revenues, net of interest expense |
| $ | (222 | ) | $ | (283 | ) | $ | (206 | ) | $ | (492 | ) |
Restructuring expense |
| 63 |
| — |
| 1,440 |
| — |
| ||||
Other operating expense |
| 111 |
| 72 |
| 152 |
| 80 |
| ||||
Provision for loan losses |
| (2 | ) | — |
| (2 | ) | — |
| ||||
Loss from continuing operations before taxes and minority interest |
| $ | (394 | ) | $ | (355 | ) | $ | (1,796 | ) | $ | (572 | ) |
Income tax benefits |
| (127 | ) | (113 | ) | (618 | ) | (244 | ) | ||||
Minority interest, net of taxes |
| 5 |
| — |
| 6 |
| 1 |
| ||||
Loss from continuing operations |
| $ | (272 | ) | $ | (242 | ) | $ | (1,184 | ) | $ | (329 | ) |
Income from discontinued operations |
| — |
| 3 |
| — |
| 87 |
| ||||
Net loss |
| $ | (272 | ) | $ | (239 | ) | $ | (1,184 | ) | $ | (242 | ) |
| First Quarter | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars | |||||||
2008 | 2007 | ||||||
Net interest revenue | $ | (169 | ) | $ | (35 | ) | |
Non-interest revenue | (259 | ) | 51 | ||||
Revenues, net of interest expense | $ | (428 | ) | $ | 16 | ||
Operating expense | 125 | 1,418 | |||||
Provision for loan losses | — | — | |||||
(Loss) before taxes and minority interest | $ | (553 | ) | $ | (1,402 | ) | |
Income taxes (benefits) | 120 | (491 | ) | ||||
Minority interest, net of taxes | (9 | ) | 1 | ||||
Net (loss) | $ | (664 | ) | $ | (912 | ) | |
1Q08 vs. 1Q07
2Q07 vs. 2Q06
Revenues, net of interest expense, increased,decreased primarily due to improved treasury results, partially offset by higher intersegment eliminations. Lower overall rates, partially offset by higher funding balances, drove the improvement in treasury revenues.
Restructuring expense. See Note 7mark-to-market losses on page 57 for details on the 2007 restructuring charge.
Other operating expenses increased, primarily due to increased staffing, technology and other unallocated expenses, partially offset by higher intersegment eliminations.
Income tax benefits increased due to the higher pretax lossNikko Cordial equity holdings in the current year.
2007 YTD vs. 2006 YTD
Revenues, netquarter, including a $212 million write-down of Nikko Cordial's interest expense, increased, primarily due to improved treasury results andin an equity investment, as well as the absence of a prior-year gain on the sale of certain corporate-owned assets, partially offset by higher intersegment eliminations. Lower overall rates drove the improvement in treasury revenues.assets.
Operating expensesRestructuring expense. See Note 7 on page 57 for details on, excluding the 2007 first quarter restructuring charge.
Other operating expensescharge of $1,377 million, increased primarily due to increased staffing,lower intersegment eliminations, as well as higher technology and other unallocated expenses, partially offset by higher intersegment eliminations.expenses.
Income tax benefits increased decreased due to the highera lower pretax loss in the current year, offset by a prior-year tax reserve release of $61 million relating to the resolution of the Federal Tax Audit.
Discontinued operations represent the operations in the Company’s Sale of the Asset Management Business to Legg Mason Inc.,2008 first quarter and the Sale of the Life Insurance and Annuities Business. For 2006, income from discontinued operations included a gain from the Sale of the Asset Management Business in Poland, as well as a tax reserve release of $59 million relating to the resolution of the Federal Tax Audit. See Note 2 on page 53.additional taxes held at Corporate.
Citigroup’s Citigroup's risk management framework balances strong themed corporate oversight with well-defined independent risk management functions within each business. The Citigroup risk management framework is described in Citigroup’s 2006Citigroup's 2007 Annual Report on Form 10-K.
RISK CAPITAL
At June 30, 2007, December 31, 2006, and June 30, 2006, risk capital for Citigroup was composed of the following risk types:
In billions of dollars |
| June 30, |
| Dec. 31, |
| June 30, |
| |||
Credit risk |
| $ | 42.8 |
| $ | 36.7 |
| $ | 35.7 |
|
Market risk |
| 28.9 |
| 21.5 |
| 17.6 |
| |||
Operational risk |
| 7.9 |
| 8.0 |
| 8.1 |
| |||
Intersector diversification(1) |
| (5.4 | ) | (6.4 | ) | (5.7 | ) | |||
Total Citigroup |
| $ | 74.2 |
| $ | 59.8 |
| $ | 55.7 |
|
|
|
|
|
|
|
|
| |||
Return on risk capital (second quarter) |
| 35 | % |
|
| 38 | % | |||
Return on invested capital (second quarter) |
| 20 | % |
|
| 19 | % | |||
|
|
|
|
|
|
|
| |||
Return on risk capital (six months) |
| 33 | % |
|
| 39 | % | |||
Return on invested capital (six months) |
| 19 | % |
|
| 20 | % |
(1) Reduction in risk represents diversification between sectors.
Average risk capital, return on risk capital and return on invested capital are provided for each segment and are disclosed on pages 12 – 22.
DETAILS OF CREDIT LOSS EXPERIENCE
In millions of dollars |
| 2nd Qtr. |
| 1st Qtr. |
| 4th Qtr. |
| 3rd Qtr. |
| 2nd Qtr. |
| In millions of dollars | 1st Qtr. 2008 | 4th Qtr.(1) 2007 | 3rd Qtr.(1) 2007 | 2nd Qtr.(1) 2007 | 1st Qtr.(1) 2007 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for loan losses at beginning of period |
| $ | 9,510 |
| $ | 8,940 |
| $ | 8,979 |
| $ | 9,144 |
| $ | 9,505 |
| Allowance for loan losses at beginning of period | $ | 16,117 | $ | 12,728 | $ | 10,381 | $ | 9,510 | $ | 8,940 | ||||||
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
| Provision for loan losses | |||||||||||||||||||||
Consumer |
| $ | 2,583 |
| $ | 2,443 |
| $ | 2,028 |
| $ | 1,736 |
| $ | 1,426 |
| |||||||||||||||||
Corporate |
| (63 | ) | 263 |
| 85 |
| 57 |
| 10 |
| ||||||||||||||||||||||
Consumer | $ | 5,502 | $ | 6,539 | $ | 4,622 | $ | 2,577 | $ | 2,452 | |||||||||||||||||||||||
Corporate | 249 | 883 | 154 | (57 | ) | 254 | |||||||||||||||||||||||||||
$ | 5,751 | $ | 7,422 | $ | 4,776 | $ | 2,520 | $ | 2,706 | ||||||||||||||||||||||||
|
| $ | 2,520 |
| $ | 2,706 |
| $ | 2,113 |
| $ | 1,793 |
| $ | 1,436 |
| |||||||||||||||||
Gross credit losses |
|
|
|
|
|
|
|
|
|
|
| Gross credit losses | |||||||||||||||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
| Consumer | |||||||||||||||||||||
In U.S. offices |
| $ | 1,264 |
| $ | 1,291 |
| $ | 1,223 |
| $ | 1,091 |
| $ | 1,090 |
| |||||||||||||||||
In offices outside the U.S. |
| 1,346 |
| 1,341 |
| 1,309 |
| 1,227 |
| 1,145 |
| ||||||||||||||||||||||
In U.S. offices | $ | 2,357 | $ | 1,914 | $ | 1,382 | $ | 1,264 | $ | 1,290 | |||||||||||||||||||||||
In offices outside the U.S. | 1,851 | 1,601 | 1,617 | 1,346 | 1,341 | ||||||||||||||||||||||||||||
Corporate |
|
|
|
|
|
|
|
|
|
|
| Corporate | |||||||||||||||||||||
In U.S. offices |
| 22 |
| 6 |
| 13 |
| 6 |
| 44 |
| ||||||||||||||||||||||
In offices outside the U.S. |
| 30 |
| 29 |
| 97 |
| 38 |
| 75 |
| ||||||||||||||||||||||
In U.S. offices | 40 | 596 | 18 | 22 | 7 | ||||||||||||||||||||||||||||
In offices outside the U.S. | 97 | 169 | 74 | 30 | 29 | ||||||||||||||||||||||||||||
$ | 4,345 | $ | 4,280 | $ | 3,091 | $ | 2,662 | $ | 2,667 | ||||||||||||||||||||||||
|
| $ | 2,662 |
| $ | 2,667 |
| $ | 2,642 |
| $ | 2,362 |
| $ | 2,354 |
| |||||||||||||||||
Credit recoveries |
|
|
|
|
|
|
|
|
|
|
| Credit recoveries | |||||||||||||||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
| Consumer | |||||||||||||||||||||
In U.S. offices |
| $ | 175 |
| $ | 214 |
| $ | 165 |
| $ | 153 |
| $ | 183 |
| |||||||||||||||||
In offices outside the U.S. |
| 343 |
| 286 |
| 307 |
| 350 |
| 298 |
| ||||||||||||||||||||||
In U.S. offices | $ | 179 | $ | 168 | $ | 166 | $ | 175 | $ | 214 | |||||||||||||||||||||||
In offices outside the U.S. | 328 | 341 | 279 | 343 | 286 | ||||||||||||||||||||||||||||
Corporate |
|
|
|
|
|
|
|
|
|
|
| Corporate | |||||||||||||||||||||
In U.S. offices |
| 9 |
| 18 |
| 2 |
| 5 |
| 12 |
| ||||||||||||||||||||||
In offices outside the U.S. |
| 80 |
| 40 |
| 26 |
| 48 |
| 65 |
| ||||||||||||||||||||||
In U.S. offices | 3 | 15 | 1 | 9 | 18 | ||||||||||||||||||||||||||||
In offices outside the U.S. | 33 | 55 | 59 | 80 | 40 | ||||||||||||||||||||||||||||
$ | 543 | $ | 579 | $ | 505 | $ | 607 | $ | 558 | ||||||||||||||||||||||||
|
| $ | 607 |
| $ | 558 |
| $ | 500 |
| $ | 556 |
| $ | 558 |
| |||||||||||||||||
Net credit losses |
|
|
|
|
|
|
|
|
|
|
| Net credit losses | |||||||||||||||||||||
In U.S. offices |
| $ | 1,102 |
| $ | 1,065 |
| $ | 1,069 |
| $ | 939 |
| $ | 939 |
| |||||||||||||||||
In offices outside the U.S. |
| 953 |
| 1,044 |
| 1,073 |
| 867 |
| 857 |
| ||||||||||||||||||||||
In U.S. offices | $ | 2,215 | $ | 2,327 | $ | 1,233 | $ | 1,102 | $ | 1,065 | |||||||||||||||||||||||
In offices outside the U.S. | 1,587 | 1,374 | 1,353 | 953 | 1,044 | ||||||||||||||||||||||||||||
Total |
| $ | 2,055 |
| $ | 2,109 |
| $ | 2,142 |
| $ | 1,806 |
| $ | 1,796 |
| Total | 3,802 | 3,701 | $ | 2,586 | $ | 2,055 | $ | 2,109 | ||||||||
Other—net(1)(2)(3)(4)(5) |
| $ | 406 |
| $ | (27 | ) | $ | (10 | ) | $ | (152 | ) | $ | (1 | ) | |||||||||||||||||
Other—net(2)(3)(4)(5)(6) | Other—net(2)(3)(4)(5)(6) | $ | 191 | $ | (332 | ) | $ | 157 | $ | 406 | $ | (27 | ) | ||||||||||||||||||||
Allowance for loan losses at end of period |
| $ | 10,381 |
| $ | 9,510 |
| $ | 8,940 |
| $ | 8,979 |
| $ | 9,144 |
| Allowance for loan losses at end of period | 18,257 | 16,117 | $ | 12,728 | $ | 10,381 | $ | 9,510 | ||||||||
Allowance for unfunded lending commitments(6) |
| $ | 1,100 |
| $ | 1,100 |
| $ | 1,100 |
| $ | 1,100 |
| $ | 1,050 |
| |||||||||||||||||
Total allowance for loans and unfunded lending commitments |
| $ | 11,481 |
| $ | 10,610 |
| $ | 10,040 |
| $ | 10,079 |
| $ | 10,194 |
| |||||||||||||||||
Allowance for unfunded lending commitments(7) | Allowance for unfunded lending commitments(7) | $ | 1,250 | $ | 1,250 | $ | 1,150 | $ | 1,100 | $ | 1,100 | ||||||||||||||||||||||
Total allowance for loan losses and unfunded lending commitments | Total allowance for loan losses and unfunded lending commitments | $ | 19,507 | $ | 17,367 | $ | 13,878 | $ | 11,481 | $ | 10,610 | ||||||||||||||||||||||
Net consumer credit losses |
| $ | 2,092 |
| $ | 2,132 |
| $ | 2,060 |
| $ | 1,815 |
| $ | 1,754 |
| Net consumer credit losses | $ | 3,701 | $ | 3,006 | $ | 2,554 | $ | 2,092 | $ | 2,131 | ||||||
As a percentage of average consumer loans |
| 1.56 | % | 1.69 | % | 1.64 | % | 1.49 | % | 1.48 | % | As a percentage of average consumer loans | 2.50 | % | 2.02 | % | 1.81 | % | 1.56 | % | 1.70 | % | |||||||||||
Net corporate credit losses/(recoveries) |
| $ | (37 | ) | $ | (23 | ) | $ | 82 |
| $ | (9 | ) | $ | 42 |
| Net corporate credit losses/(recoveries) | $ | 101 | $ | 695 | $ | 32 | $ | (37 | ) | $ | (22 | ) | ||||
As a percentage of average corporate loans |
| NM |
| NM |
| 0.05 | % | NM |
| 0.03 | % | As a percentage of average corporate loans | 0.05 | % | 0.34 | % | 0.02 | % | NM | NM | |||||||||||||
(2)
(3) The 2006 fourth quarter includes reductions to the loan loss reserve of $74 million related to securitizations.
(4) The 2006 third quarter includes reductions to the loan loss reserve of $140 million related to securitizations and portfolio sales.
(5) The 2006 second quarter includes reductions to the loan loss reserve of $125 million related to securitizations, offset by $84 million of additions related to the Credicard acquisition.
(6)
Consumer Loan Balances, Net of Unearned Income
|
| End of Period |
| Average |
| End of Period | Average | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars |
| June 30, |
| March 31, |
| June 30, |
| 2nd Qtr. |
| 1st Qtr. |
| 2nd Qtr. |
| Mar. 31, 2008 | Dec. 31,(1) 2007 | Mar. 31,(1) 2007 | 1st Qtr. 2008 | 4th Qtr.(1) 2007 | 1st Qtr.(1) 2007 | ||||||||||||||||||
On-balance sheet |
| $ | 548.6 |
| $ | 516.6 |
| $ | 478.3 |
| $ | 539.3 |
| $ | 511.9 |
| $ | 474.0 |
| $ | 593.0 | $ | 587.7 | $ | 512.2 | $ | 595.6 | $ | 585.2 | $ | 507.9 | ||||||
Securitized receivables (all in U.S. Cards) |
| 101.1 |
| 98.6 |
| 97.3 |
| 97.5 |
| 97.3 |
| 94.5 |
| ||||||||||||||||||||||||
Securitized receivables (all inU.S. Cards) | 109.3 | 108.1 | 98.6 | 105.6 | 99.6 | 97.3 | |||||||||||||||||||||||||||||||
Credit card receivables held-for-sale |
| 2.9 |
| 3.0 |
| — |
| 3.3 |
| 3.0 |
| — |
| 0.9 | 1.0 | 3.0 | 1.0 | 2.7 | 3.0 | ||||||||||||||||||
Total managed(3) |
| $ | 652.6 |
| $ | 618.2 |
| $ | 575.6 |
| $ | 640.1 |
| $ | 612.2 |
| $ | 568.5 |
| ||||||||||||||||||
Total managed(4) | $ | 703.2 | $ | 696.8 | $ | 613.8 | $ | 702.2 | $ | 687.5 | $ | 608.2 | |||||||||||||||||||||||||
(2)
(3)
Citigroup’s Citigroup's total allowance for loans, leases and unfunded lending commitments of $11.481$19.5 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup’sCitigroup's allowance for creditloan losses attributed to the Consumer portfolio was $7.206 billion at June 30, 2007, $6.338$14.4 billion at March 31, 2008, $12.4 billion at December 31, 2007 and $6.311$6.3 billion at June 30, 2006.March 31, 2007. The increase in the allowance for creditloan losses from June 30, 2006March 31, 2007 of $895 million$8.1 billion included net builds of $691 million.$7.9 billion.
The net builds consisted of $7.8 billion in Global Consumer ($6.2 billion in U.S. Consumer and $1.6 billion in International Consumer), and $93 million in Global Wealth Management.
The build of $6.2 billion in U.S. Consumer primarily related to: increased delinquencies in second mortgages in U.S. Consumer Lending; a change in estimate of loan losses inherent in the U.S. Cards portfolio; targeted market expansion,reflected an increase in past due accounts,the losses embedded in the portfolio based on weakening leading credit indicators, including increased delinquencies on first and second mortgages, unsecured personal loans, credit cards, and auto loans. Also, the build reflected trends in the U.S. macroeconomic environment, including the housing market downturn, rising unemployment rates and portfolio seasoninggrowth. The build of $1.6 billion in Mexico cards; increased reserves in Japan,International Consumer primarily related to the change in the operating environment in the consumer finance businessreflected portfolio growth and the passage on December 13, 2006impact of changes to Japan’s consumer lending laws;recent acquisitions and overall growthcredit deterioration in the Consumer portfolio.certain countries.
Additionally, the allowance had an increase of $204 million primarily due to: the addition of $580 million related to the acquisition of Egg, Nikko and Grupo Financiero Uno, and increased ownership in Nikko Cordial; offset by a reduction of $459 million related to securitizations, transfers to loans held-for-sale, and sales of portfolios in the U.S. Cards business.
On-balance sheet On-balance-sheet consumer loans of $548.6$593.0 billion increased $70.3$80.8 billion, or 15%16%, from June 30, 2006,March 31, 2007, primarily driven byU.S. Consumer Lending,,U.S. Retail Distribution, Global Wealth Management,International Cards, and International Retail Banking. Banking andPrivate Bank. 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.
EXPOSURE TO U.S. Consumer Mortgage PortfolioRESIDENTIAL REAL ESTATE
Subprime-Related Direct Exposure inSecurities and Banking
The Company’sfollowing table summarizes Citigroup's U.S. Consumer Mortgage portfoliosubprime-related direct exposures inSecurities and Banking (S&B) at March 31, 2008 and December 31, 2007:
In billions of dollars | December 31, 2007 exposures | First quarter 2008 write-downs | First quarter 2008 sales/transfers(1) | March 31, 2008 exposures | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Direct ABS CDO Super Senior Exposures: | ||||||||||||||
Gross ABS CDO Super Senior Exposures (A) | $ | 39.8 | $ | 33.2 | ||||||||||
Hedged Exposures (B) | 10.5 | 10.5 | ||||||||||||
Net ABS CDO Super Senior Exposures: | ||||||||||||||
ABCP/CDO(2) | $ | 20.6 | $ | (3.1 | ) | $ | (0.7 | ) | $ | 16.8 | (4) | |||
High grade | 4.9 | (1.0 | ) | (0.1 | ) | 3.8 | (5) | |||||||
Mezzanine | 3.6 | (1.5) | (3) | (0.1 | ) | 2.0 | (6) | |||||||
ABS CDO-squared | 0.2 | (0.1) | (3) | (0.0 | ) | 0.1 | ||||||||
Total Net Direct ABS CDO Super Senior Exposures (A-B)=(C) | $ | 29.3 | $ | (5.7 | ) | $ | (0.9 | ) | $ | 22.7 | ||||
Lending & Structuring Exposures: | ||||||||||||||
CDO warehousing/unsold tranches of ABS CDOs | $ | 0.2 | $ | (0.1 | ) | $ | 0.1 | $ | 0.2 | |||||
Subprime loans purchased for sale or securitization | 4.0 | (0.2 | ) | (0.2 | ) | 3.6 | ||||||||
Financing transactions secured by subprime | 3.8 | (0.0 | ) | (1.1 | ) | 2.6 | ||||||||
Total Lending and Structuring Exposures (D) | $ | 8.0 | $ | (0.3 | ) | $ | (1.2 | ) | $ | 6.4 | ||||
Total Net Exposures (C+D)(7) | $ | 37.3 | $ | (6.0 | ) | $ | (2.1 | ) | $ | 29.1 | ||||
Credit Adjustment on Hedged Counterparty Exposures (E)(8) | $ | (1.5 | ) | |||||||||||
Total Net Write-Downs (C+D+E) | $ | (7.5 | ) | |||||||||||
Subprime-Related Direct Exposure inSecurities and Banking
The Company had approximately $29.1 billion in net U.S. subprime-related direct exposures in itsSecurities and Banking business at March 31, 2008.
The exposure consisted of (a) approximately $22.7 billion of net exposures in the super senior tranches (i.e., most senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities, derivatives on asset-backed securities or both (ABS CDOs), and (b) approximately $6.4 billion of subprime-related exposures in its lending and structuring business.
Direct ABS CDO Super Senior Exposures
The net $22.7 billion in ABS CDO super senior exposures as of March 31, 2008 is collateralized primarily by subprime residential mortgage-backed securities (RMBS), derivatives on RMBS or both. These exposures include $16.8 billion in commercial paper (ABCP) issued as the super senior tranches of ABS CDOs and approximately $5.9 billion of other super senior tranches of ABS CDOs.
Citigroup's CDO super senior subprime direct exposures, $22.7 billion at March 31, 2008, are Level 3 assets and are subject to valuation based on significant unobservable inputs. Accordingly, fair value of these exposures is based on estimates of future cash flows from the mortgage loans underlying the assets of the of the ABS CDOs. To determine the performance of the underlying mortgage loan portfolios , the Company estimates the prepayments, defaults and loss severities based on a number of macro-economic factors, including housing price changes, unemployment rates and interest rates and borrower and loan attributes such as age, credit scores, documentation status, loan-to-value (LTV) ratios, and debt-to-income (DTI) ratios. The model is calibrated using available mortgage loan information including historical loan performance. In addition, the methodology estimates the impact of geographic concentration of mortgages, and the impact of reported fraud in the origination of subprime mortgages. An appropriate discount rate is then applied to the cash flows generated for each super senior ABS CDO tranches, in order to estimate its current fair value.
When necessary, the valuation methodology used by Citigroup is refined and the inputs used for the purposes of estimation are modified, in part, to reflect ongoing market developments. More specifically, two refinements were made during the first quarter of 2008: a more direct method of calculating estimated housing-price changes and a more
refined method for calculating the discount rate. During the fourth quarter 2007, housing-price changes were estimated using a series of factors including projected national housing-price changes. During the first quarter of 2008 housing-price changes were estimated using a forward looking projection based on the S&P Case-Shiller Home Price Index. This change facilitates a more direct estimation of subprime house price changes. The valuation of the Company's direct ABS CDO super senior exposures as of March 31, 2008 assumes a cumulative decline in U.S. house prices from peak to trough of 20%. This consists of boththe 9% decline observed pre-2008, with additional assumed declines of 8% and 3% in 2008 and 2009, respectively. Prior to the first and second mortgages. Asquarter of June 30, 2007, approximately 85%2008, the discount rate used was based on observable CLO spreads applicable to the assumed rating of each ABS CDO super senior tranche. During the first quarter of 2008, the discount rate was based on a weighted average combination of the Company’s firstimplied spreads from single named ABS bond prices, ABX indices and CLO spreads depending on vintage and asset types. This refinement was made, in part, in response to the combination of continuing rating agency downgrades of RMBS and ABS CDOs and the absence of observable CLO spreads at the resulting rating levels.
The primary drivers that currently impact the super senior valuations are the discount rates used to calculate the present value of projected cash flows and projected mortgage portfolio had a FICO (Fair Isaac Corporation) credit score of at least 620 at origination. Approximately 72% of the first mortgage portfolio had a loan-to-value (LTV) ratio of 80% or less at origination.
loan performance. In the Company’s second mortgage portfolio, there were substantially less than 1% of loans at June 30, 2007 with a FICO score of less than 620 at origination. Approximately 48% of the second mortgage portfolio had an LTV ratio of 80% or less at origination.
In light of increased delinquencies,valuing its direct ABS CDO super senior exposures, the Company has increased reserves for loansmade its best estimate of the key inputs that should be used in its second mortgage portfoliovaluation methodology. However, the size and nature of these positions as well as current market conditions are such that changes in inputs such as the discount rates used to calculate the present value of the cash flows can have a significant impact on the reported value of these exposures. For instance, each 10 basis point change in the discount rate used generally results in an approximate $90 million change in the fair value of the Company's direct ABS CDO super senior exposures as at March 31, 2008. This applies to both decreases in the discount rate (which would increase the value of these assets and reduce reported losses) and increases in the discount rate (which would decrease the value of these assets and increase reported losses).
Estimates of the fair value of the CDO super senior exposures depend on market conditions and are subject to further change over time. In addition, while Citigroup believes that the methodology used to value these exposures is reasonable, the methodology is subject to continuing refinement, including those made as a result of market developments. Further, any observable transactions in respect of some or all of these exposures could be employed in the fair valuation process in accordance with and in the manner called for by SFAS 157.
Lending and Structuring Exposures
The $6.4 billion of subprime-related exposures includes approximately $0.2 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $3.6 billion of actively managed subprime loans purchased for resale or securitization, at a discount to par, during 2007, and approximately $2.6 billion of financing transactions with customers secured by subprime collateral. These amounts represent fair value determined based on observable inputs and other market data. The majority of the change reflects sales, transfers and liquidations.
S&B also has trading positions, both long and short, in U.S. subprime RMBS and related products, including ABS CDOs, which are not included in the figures above. The exposure from these positions is actively managed and hedged, although the effectiveness of the hedging products used may vary with material changes in market conditions.
In its Securities and Banking business, the Company has exposure to various monoline bond insurers listed in the table below ("Monolines") from hedges on certain investments and from trading positions. The hedges are composed of credit default swaps and other hedge instruments. The Company recorded an additional $1.5 billion in credit market value adjustments during the first six monthsquarter of 2007. There were minimal changes in2008 on the compositionmarket value exposures to the Monolines as a result of widening credit spreads.
The following table summarizes the net market value of the U.S. Consumer Mortgage portfolio fromCompany's direct exposures to and the corresponding notional amount of transactions with the various Monolines as of March 31, 2007 to June 30, 2007.
CORPORATE CREDIT RISK
Credit Exposure Arising from Derivatives and Foreign Exchange
The following tables summarize by derivative type the notionals, receivables and payables held for trading and asset/liability management hedge purposes as of June 30, 20072008 and December 31, 2006. A portion2007 in Securities and Banking:
| March 31, 2008 | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Net Market Value Exposure December 31, 2007 | |||||||||
In millions of dollars at March 31, 2008 | Net Market Value Exposure | Notional Amount of Transactions | ||||||||
Direct Subprime ABS CDO Super Senior: | ||||||||||
AMBAC | $ | 2,946 | $ | 5,485 | $ | 1,815 | ||||
FGIC | 1,031 | 1,460 | 909 | |||||||
ACA | 531 | 600 | 438 | |||||||
Radian | — | — | 100 | |||||||
Subtotal Direct Subprime ABS CDO Super Senior | $ | 4,508 | $ | 7,545 | $ | 3,262 | ||||
Trading Assets—Subprime: | ||||||||||
AMBAC | $ | 1,207 | $ | 1,400 | $ | 1,150 | ||||
Trading Assets—Subprime | $ | 1,207 | $ | 1,400 | $ | 1,150 | ||||
Trading Assets—Non Subprime: | ||||||||||
MBIA | $ | 1,386 | $ | 5,874 | $ | 395 | ||||
FSA | — | — | 121 | |||||||
ACA | 122 | 1,938 | 50 | |||||||
Assured | 47 | 503 | 7 | |||||||
Radian | 13 | 350 | 5 | |||||||
AMBAC | (7 | ) | 1,759 | — | ||||||
Trading Assets—Non Subprime | $ | 1,571 | $ | 14,345 | $ | 578 | ||||
Subtotal Trading Assets | $ | 2,778 | $ | 15,745 | $ | 1,728 | ||||
Credit Market Value Adjustment | $ | (2,461 | ) | $ | (967 | ) | ||||
Total Net Market Value Direct Exposure | $ | 4,825 | $ | 4,023 | ||||||
As of March 31, 2008 and December 31, 2007, the Company had $10.5 billion notional amount of hedges against its Direct Subprime ABS CDO Super Senior positions. Of that $10.5 billion, $7.6 billion was purchased from Monolines and is included in notional amount of transactions in the table above. The net market value of the asset/liability management hedges are accounted for under SFAS 133,provided by the Monolines against our Direct Subprime ABS CDO Super Senior positions was $4.5 billion as described in Note 15 on page 69.of March 31, 2008 and $3.3 billion as of December 31, 2007.
In addition, there was $2.8 billion and $1.7 billion of net market value exposure to Monolines related to our trading assets as of March 31, 2008 and December 31, 2007, respectively. Trading assets include trading positions, both long and short, in U.S. subprime residential mortgage-backed securities (RMBS) and related products, including ABS CDOs. There were $1.4 billion in notional amount of transactions related to subprime positions with a net market value exposure of $1.2 billion as of March 31, 2008 and December 31, 2007. The notional amount of transactions related to the remaining non-subprime trading assets as of March 31, 2008 was $14.3 billion with a corresponding net market value exposure of $1.6 billion. The $14.3 billion notional amount of transactions comprised $6.1 billion primarily in interest rate swaps with a corresponding net market value exposure of $40 million. The remaining notional amount of $8.2 billion was in the form of credit default swaps and total return swaps with a net market value exposure of $1.531 billion.
26 The corresponding amounts for the notional amount of transactions related to the remaining non-subprime trading assets of December 31, 2007 was $11.3 billion with a corresponding net market value exposure of $578 million. The $11.3 billion notional amount of transactions comprised $4.1 billion primarily in interest rate swaps with a corresponding net market value exposure of $34 million. The remaining notional amount of $7.2 billion was in the form of credit default swaps and total return swaps with a net market value of $544 million.
The net market value exposure, net of payable and receivable positions, represents the market value of the contract as of March 31, 2008. The notional amount of the transactions, including both long and short positions, is used as a reference value to calculate payments. The credit market value adjustment is a downward adjustment to the net market value exposure to a counterparty to reflect the counterparty's creditworthiness.
In Global Consumer, the Company has purchased mortgage insurance from various monoline mortgage insurers on first mortgage loans. The notional amount of this insurance protection is approximately $600 million with nominal pending claims against this notional amount.
In addition, Citigroup has indirect exposure to Monolines in various other parts of its businesses. For example, corporate or municipal bonds in the trading business may be insured by the Monolines. In this case, Citigroup is not a party to the insurance contract. The previous table does not capture this type of indirect exposure to the Monolines.
Exposure to Commercial Real Estate
In itsSecurities and Banking and Alternative Investments businesses, the Company, through its business activities and as a capital markets participant, incurs exposures that are directly or indirectly tied to the global commercial real estate market. These exposures are represented primarily by the following three categories:
(1) Assets held at fair value: approximately $16 billion of securities, loans and other items linked to commercial real estate that are carried at fair value as Trading assets, approximately $5 billion of commercial real estate loans and loan commitments classified as held-for-sale and measured at the lower of cost or market (LOCOM), and approximately $2 billion of securities backed by commercial real estate carried at fair value as available-for-sale Investments. Changes in fair value for these Trading assets and held-for-sale loans and loan commitments are reported in current earnings, while changes in fair value for these available for sale Investments are reported in OCI with other than temporary impairments reported in current earnings.
The majority of these exposures are classified as Level 3 in the fair value hierarchy. In recent months, weakening activity in the trading markets for some of these instruments resulted in reduced liquidity, thereby decreasing the observable inputs for such valuations and could have an adverse impact on how these instruments are valued in the future if such conditions persist. Changes in the values of these positions are recognized through revenues.
(2) Loans and commitments: approximately $21 billion of commercial real estate loan exposures, including $12 billion of funded loans that are classified as held-for investment and $9 billion of unfunded loan commitments, all of which are recorded at cost less loan loss reserves. The impact from changes in credit is reflected in the calculation of the allowance for loan losses and in net credit losses.
(3) Equity and other investments: Approximately $6 billion of equity and other investments such as limited partner fund investments.
CITIGROUP DERIVATIVES
Notionals(1) Trading Asset/Liability In millions of dollars June 30, December 31, June 30, December 31, Interest rate contracts Swaps $ 15,456,277 $ 14,196,404 $ 677,310 $ 561,376 Futures and forwards 2,290,094 1,824,205 132,280 75,374 Written options 3,558,937 3,054,990 18,443 12,764 Purchased options 3,558,971 2,953,122 72,263 35,420 Total interest rate contract notionals $ 24,864,279 $ 22,028,721 $ 900,296 $ 684,934 Foreign exchange contracts Swaps $ 800,304 $ 722,063 $ 69,952 $ 53,216 Futures and forwards 2,318,837 2,068,310 39,283 42,675 Written options 521,790 416,951 545 1,228 Purchased options 512,025 404,859 758 1,246 Total foreign exchange contract notionals $ 4,152,956 $ 3,612,183 $ 110,538 $ 98,365 Equity contracts Swaps $ 131,262 $ 104,320 $ — $ — Futures and forwards 31,216 36,362 — — Written options 587,432 387,781 — — Purchased options 541,496 355,891 — — Total equity contract notionals $ 1,291,406 $ 884,354 $ — $ — Commodity and other contracts Swaps $ 34,372 $ 35,611 $ — $ — Futures and forwards 47,648 17,433 — — Written options 18,000 11,991 — — Purchased options 24,344 16,904 — — Total commodity and other contract notionals $ 124,364 $ 81,939 $ — $ — Credit derivatives $ 2,924,046 $ 1,944,980 $ — $ — Total derivative notionals $ 33,357,051 $ 28,552,177 $ 1,010,834 $ 783,299
Derivatives(2)
Management Hedges(3)
2007
2006
2007
2006
| Trading derivatives(2) | Asset/liability management hedges(3) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | March 31, 2008 | December 31, 2007 | March 31, 2008 | December 31, 2007 | ||||||||||
Interest rate contracts | ||||||||||||||
Swaps | $ | 18,977,760 | $ | 16,433,117 | $ | 607,524 | $ | 521,783 | ||||||
Futures and forwards | 2,345,714 | 1,811,599 | 180,841 | 176,146 | ||||||||||
Written options | 3,667,458 | 3,479,071 | 23,061 | 16,741 | ||||||||||
Purchased options | 3,871,563 | 3,639,075 | 119,537 | 167,080 | ||||||||||
Total interest rate contract notionals | $ | 28,862,495 | $ | 25,362,862 | $ | 930,963 | $ | 881,750 | ||||||
Foreign exchange contracts | ||||||||||||||
Swaps | $ | 1,012,926 | $ | 1,062,267 | $ | 70,257 | $ | 75,622 | ||||||
Futures and forwards | 2,936,731 | 2,795,180 | 42,887 | 46,732 | ||||||||||
Written options | 744,996 | 653,535 | 719 | 292 | ||||||||||
Purchased options | 732,388 | 644,744 | 988 | 686 | ||||||||||
Total foreign exchange contract notionals | $ | 5,427,041 | $ | 5,155,726 | $ | 114,851 | $ | 123,332 | ||||||
Equity contracts | ||||||||||||||
Swaps | $ | 149,913 | $ | 140,256 | $ | — | $ | — | ||||||
Futures and forwards | 34,543 | 29,233 | — | — | ||||||||||
Written options | 775,271 | 625,157 | — | — | ||||||||||
Purchased options | 746,779 | 567,030 | — | — | ||||||||||
Total equity contract notionals | $ | 1,706,506 | $ | 1,361,676 | $ | — | $ | — | ||||||
Commodity and other contracts | ||||||||||||||
Swaps | $ | 35,346 | $ | 29,415 | $ | — | $ | — | ||||||
Futures and forwards | 82,820 | 66,860 | — | — | ||||||||||
Written options | 25,563 | 27,087 | — | — | ||||||||||
Purchased options | 29,347 | 30,168 | — | — | ||||||||||
Total commodity and other contract notionals | $ | 173,076 | $ | 153,530 | $ | — | $ | — | ||||||
Credit derivatives(4) | ||||||||||||||
Citigroup as the Guarantor: | ||||||||||||||
Credit default swaps | $ | 1,857,744 | $ | 1,755,440 | $ | — | $ | — | ||||||
Total return swaps | 7,165 | 12,121 | — | — | ||||||||||
Credit default options | 85 | 276 | — | — | ||||||||||
Citigroup as the Beneficiary: | ||||||||||||||
Credit default swaps | $ | 2,021,534 | $ | 1,890,611 | $ | — | $ | — | ||||||
Total return swaps | 21,226 | 15,895 | — | — | ||||||||||
Credit default options | 187 | 450 | — | — | ||||||||||
Total credit derivatives | $ | 3,907,941 | $ | 3,674,793 | $ | — | $ | — | ||||||
Total derivative notionals | $ | 40,077,059 | $ | 35,708,587 | $ | 1,045,814 | $ | 1,005,082 | ||||||
[Table Continues on the following page.]
Mark-to-Market (MTM) Receivables/Payables
|
| Derivatives |
| Derivatives |
| ||||||||
In millions of dollars |
| June 30, |
| December 31, |
| June 30, |
| December 31, |
| ||||
Trading Derivatives(2) |
|
|
|
|
|
|
|
|
| ||||
Interest rate contracts |
| $ | 213,344 |
| $ | 168,872 |
| $ | 217,817 |
| $ | 168,793 |
|
Foreign exchange contracts |
| 57,195 |
| 52,297 |
| 50,824 |
| 47,469 |
| ||||
Equity contracts |
| 30,169 |
| 26,883 |
| 65,604 |
| 52,980 |
| ||||
Commodity and other contracts |
| 5,326 |
| 5,387 |
| 5,926 |
| 5,776 |
| ||||
Credit derivative |
| 26,533 |
| 14,069 |
| 27,096 |
| 15,081 |
| ||||
Total |
| $ | 332,567 |
| $ | 267,508 |
| $ | 367,267 |
| $ | 290,099 |
|
Less: Netting agreements, cash collateral and market value adjustments |
| (271,854 | ) | (217,967 | ) | (270,085 | ) | (215,295 | ) | ||||
Net Receivables/Payables |
| $ | 60,713 |
| $ | 49,541 |
| $ | 97,182 |
| $ | 74,804 |
|
|
|
|
|
|
|
|
|
|
| ||||
Asset/Liability Management Hedges (3) |
|
|
|
|
|
|
|
|
| ||||
Interest rate contracts |
| $ | 1,818 |
| $ | 1,801 |
| $ | 3,538 |
| $ | 3,327 |
|
Foreign exchange contracts |
| 4,228 |
| 3,660 |
| 1,359 |
| 947 |
| ||||
Total |
| $ | 6,046 |
| $ | 5,461 |
| $ | 4,897 |
| $ | 4,274 |
|
| Derivatives receivables—MTM | Derivatives payables—MTM | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | March 31, 2008 | December 31, 2007 | March 31, 2008 | December 31, 2007 | |||||||||||
Trading Derivatives(2) | |||||||||||||||
Interest rate contracts | $ | 382,454 | $ | 269,400 | $ | 374,712 | $ | 257,329 | |||||||
Foreign exchange contracts | 123,719 | 77,942 | 118,963 | 71,991 | |||||||||||
Equity contracts | 31,075 | 27,934 | 49,619 | 66,916 | |||||||||||
Commodity and other contracts | 12,380 | 8,540 | 12,929 | 8,887 | |||||||||||
Credit derivatives: | |||||||||||||||
Citigroup as the Guarantor | 3,425 | 4,967 | 139,560 | 73,103 | |||||||||||
Citigroup as the Beneficiary | 150,478 | 78,426 | 3,715 | 11,191 | |||||||||||
Total | $ | 703,531 | $ | 467,209 | $ | 699,498 | $ | 489,417 | |||||||
Less: Netting agreements, cash collateral and market value adjustments | (579,050 | ) | (390,328 | ) | (573,515 | ) | (385,876 | ) | |||||||
Net Receivables/Payables | $ | 124,481 | $ | 76,881 | $ | 125,983 | $ | 103,541 | |||||||
Asset/Liability Management Hedges(3) | |||||||||||||||
Interest rate contracts | $ | 6,157 | $ | 8,529 | $ | 9,973 | $ | 7,176 | |||||||
Foreign exchange contracts | 992 | 1,634 | 769 | 972 | |||||||||||
Total | $ | 7,149 | $ | 10,163 | $ | 10,742 | $ | 8,148 | |||||||
Credit Derivatives
The Company makes markets in and trades a range of credit derivatives, both on behalf of clients as well as for its own account. Through these contracts the Company either purchases or writes protection on either a single-name or portfolio basis. The Company uses credit derivatives to help mitigate credit risk in its corporate loan portfolio and other cash positions, to take proprietary trading positions, and to facilitate client transactions.
Credit derivatives generally require that the seller of credit protection make payments to the buyer upon the occurrence of predefined events (settlement triggers). These settlement triggers are defined by the form of the derivative and the referenced credit and are generally limited to the market standard of failure to pay on indebtedness and bankruptcy of the reference credit and, in a more limited range of transactions, debt restructuring. Credit derivative transactions referring to emerging market reference credits will also typically include additional settlement triggers to cover the acceleration of indebtedness and the risk of repudiation or a payment moratorium. In certain transactions on a portfolio of referenced credits or asset-backed securities, the seller of protection may not be required to make payment until a specified amount of losses has occurred with respect to the portfolio and/or may only be required to pay for losses up to a specified amount.
The following tables summarize the key characteristics of the Company's credit derivative portfolio by activity, counterparty and derivative form as of March 31, 2008 and December 31, 2007:
(4)March 31, 2008:
| Market values | Notionals | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||||
Receivable | Payable | Beneficiary | Guarantor | |||||||||
Credit portfolio | $ | 63 | $ | 1,462 | $ | 91,909 | $ | — | ||||
Dealer/client | 153,840 | 141,813 | 1,951,038 | 1,864,994 | ||||||||
Total | $ | 153,903 | $ | 143,275 | $ | 2,042,947 | $ | 1,864,994 | ||||
Bank | $ | 65,458 | $ | 69,937 | $ | 1,115,287 | $ | 1,050,201 | ||||
Broker-dealer | 49,613 | 49,943 | 707,879 | 646,173 | ||||||||
Monoline | 7,360 | 113 | 15,660 | 961 | ||||||||
Non-financial | 524 | 901 | 11,458 | 10,390 | ||||||||
Insurance and other financial institutions | 30,948 | 22,381 | 192,663 | 157,269 | ||||||||
Total | $ | 153,903 | $ | 143,275 | $ | 2,042,947 | $ | 1,864,994 | ||||
Credit default swaps and options | $ | 152,973 | $ | 142,527 | $ | 2,021,721 | $ | 1,857,829 | ||||
Total return swaps and other | 930 | 748 | 21,226 | 7,165 | ||||||||
Total | $ | 153,903 | $ | 143,275 | $ | 2,042,947 | $ | 1,864,994 | ||||
December 31, 2007(1):
| Market values | Notionals | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||||
Receivable | Payable | Beneficiary | Guarantor | |||||||||
Credit portfolio | $ | 626 | $ | 129 | $ | 91,228 | $ | — | ||||
Dealer/client | 82,767 | 84,165 | 1,815,728 | 1,767,837 | ||||||||
Total | $ | 83,393 | $ | 84,294 | $ | 1,906,956 | $ | 1,767,837 | ||||
Bank | $ | 28,571 | $ | 34,425 | $ | 1,035,217 | $ | 970,831 | ||||
Broker-dealer | 28,183 | 31,519 | 633,745 | 585,549 | ||||||||
Monoline | 5,044 | 88 | 15,064 | 1,243 | ||||||||
Non-financial | 220 | 331 | 3,682 | 4,253 | ||||||||
Insurance and other financial institutions | 21,375 | 17,931 | 219,248 | 205,961 | ||||||||
Total | $ | 83,393 | $ | 84,294 | $ | 1,906,956 | $ | 1,767,837 | ||||
Credit default swaps and options | $ | 82,752 | $ | 83,015 | $ | 1,891,061 | $ | 1,755,716 | ||||
Total return swaps and other | 641 | 1,279 | 15,895 | 12,121 | ||||||||
Total | $ | 83,393 | $ | 84,294 | $ | 1,906,956 | $ | 1,767,837 | ||||
The market values shown are prior to the current period’s presentation.application of any netting agreements, cash collateral, and market or credit value adjustments.
The Company actively participates in trading a variety of credit derivatives products as both an active two-way market-maker for clients and to manage credit risk. During 2007, Citigroup and the industry experienced a material increase in trading volumes. The volatility and liquidity challenges in the credit markets during the third and fourth quarters drove derivatives trading volumes as credit derivatives became the instrument of choice for managing credit risk. The majority of this activity was transacted with other financial intermediaries, including both banks and broker-dealers.
During the full year 2007, the total notional amount of protection purchased and sold increased $906 billion and $824 billion, respectively, and by various market participants. The total market value increase of $69 billion for each protection purchased and sold was primarily due to an increase in volume growth of $63 billion and $62 billion, and market spread changes of $6 billion and $7 billion for protection purchased and sold, respectively.
During the first quarter of 2008, the total notional amount of protection purchased and sold increased $136 billion and $97 billion, respectively as volume continued to grow. The corresponding market value increased $71 billion for protection purchased and $59 billion for protection sold. These market value increases were primarily due to an increase in volume growth of $17 billion and $ 8 billion, and changes in market spreads of $54 billion and $51 billion, respectively.
The Company generally has a mismatch between the total notional amounts of protection purchased and sold, and it may hold the reference assets directly rather than entering into offsetting credit derivative contracts as and when desired. The open risk exposures from credit derivative contracts are largely matched after certain cash positions in reference assets are considered and after notional amounts are adjusted, either to a duration-based equivalent basis, or to reflect the level of subordination in tranched structures.
The Company actively monitors its counterparty credit risk in credit derivative contracts. Approximately 84% and 77% of the receivables as of March, 31 2008 and December 31, 2007,
respectively, are from counterparties with which the Company maintains collateral agreements. A majority of the Company's top 15 counterparties (by receivable balance owed to the Company) are banks, financial institutions or other dealers. Contracts with these counterparties do not include ratings-based termination events. However, counterparty rating downgrades may have an incremental effect by lowering the threshold at which the Company may call for additional collateral. A number of the remaining significant counterparties are monolines. See page 24 for a discussion of the Company's exposure to monolines. The master agreements with these monoline insurance counterparties are generally unsecured, and the few ratings-based triggers (if any) generally provide the ability to terminate only upon significant downgrade. As with all derivative contracts, the Company considers counterparty credit risk in the valuation of its positions and recognizes credit valuation adjustments as appropriate. Recent reports and credit agency actions and announcements suggest that ratings downgrades of one or more monoline insurers are being contemplated.
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"Capital Resources and Liquidity”Liquidity" section beginning on page 38. 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.
The exposures in the following table represent the approximate annualized risk to NIRNet Interest Revenue assuming an unanticipated parallel instantaneous 100bp change, as well as a more gradual 100bp (25bp(25bps per quarter) parallel change in rates as compared with the market forward interest rates in selected currencies.
The exposures in the following tables do not include interest rate exposures (IRE)Interest Rate Exposures (IREs) for the Nikko Cordial portion of Citigroup's operations inJapan due to the unavailability of information. Nikko’sNikko Cordial's IRE exposure is primarily denominated in Japanese yen.
|
| June 30, 2007 |
| March 31, 2007 |
| June 30, 2006 |
| March 31, 2008 | December 31, 2007 | March 31, 2007 | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||||||||||||||||||||||||||||||
| Increase |
| Decrease |
| Increase |
| Decrease |
| Increase |
| Decrease |
| Increase | Decrease | Increase | Decrease | Increase | Decrease | ||||||||||||||||||||
U.S. dollar |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Instantaneous change |
| $ | (572 | ) | $ | 553 |
| $ | (677 | ) | $ | 470 |
| $ | (344 | ) | $ | 436 |
| $ | (1,423 | ) | $ | 1,162 | $ | (940 | ) | $ | 837 | $ | (677 | ) | $ | 470 | ||||
Gradual change |
| $ | (309 | ) | $ | 329 |
| $ | (335 | ) | $ | 348 |
| $ | (247 | ) | $ | 212 |
| $ | (781 | ) | $ | 666 | $ | (527 | ) | $ | 540 | $ | (335 | ) | $ | 348 | ||||
Mexican peso |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Instantaneous change |
| $ | (29 | ) | $ | 29 |
| $ | 21 |
| $ | (21 | ) | $ | 44 |
| $ | (44 | ) | $ | (20 | ) | $ | 20 | $ | (25 | ) | $ | 25 | $ | 21 | $ | (21 | ) | ||||
Gradual change |
| $ | (14 | ) | $ | 14 |
| $ | 21 |
| $ | (21 | ) | $ | 32 |
| $ | (32 | ) | $ | 4 | $ | (4 | ) | $ | (17 | ) | $ | 17 | $ | 21 | $ | (21 | ) | ||||
Euro |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Instantaneous change |
| $ | (97 | ) | $ | 97 |
| $ | (123 | ) | $ | 123 |
| $ | (70 | ) | $ | 70 |
| $ | (51 | ) | $ | 51 | $ | (63 | ) | $ | 63 | $ | (123 | ) | $ | 123 | ||||
Gradual change |
| $ | (43 | ) | $ | 43 |
| $ | (57 | ) | $ | 57 |
| $ | (33 | ) | $ | 33 |
| $ | (39 | ) | $ | 39 | $ | (32 | ) | $ | 32 | $ | (57 | ) | $ | 57 | ||||
Japanese yen |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Instantaneous change |
| $ | (9 | ) | NM |
| $ | (38 | ) | NM |
| $ | (21 | ) | NM |
| $ | 65 | NM | $ | 67 | NM | $ | (38 | ) | NM | ||||||||||||
Gradual change |
| $ | (5 | ) | NM |
| $ | (26 | ) | NM |
| $ | (10 | ) | NM |
| $ | 43 | NM | $ | 43 | NM | $ | (26 | ) | NM | ||||||||||||
Pound sterling |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Instantaneous change |
| $ | (19 | ) | $ | 19 |
| $ | (22 | ) | $ | 22 |
| $ | (32 | ) | $ | 31 |
| $ | (17 | ) | $ | 17 | $ | (16 | ) | $ | 16 | $ | (22 | ) | $ | 22 | ||||
Gradual change |
| $ | 3 |
| $ | (3 | ) | $ | (11 | ) | $ | 11 |
| $ | (18 | ) | $ | 18 |
| $ | (4 | ) | $ | 4 | $ | (4 | ) | $ | 4 | $ | (11 | ) | $ | 11 | ||||
The changes in the U.S. dollar interest rate exposures from MarchDecember 31, 2007 primarily reflectsreflect movements in customer-related asset and liability mix, as well as Citigroup’sCitigroup's view of prevailing interest rates.
The following table shows the risk to NIR from six different changes in the implied forward rates. Each scenario assumes that the rate change will occur on a gradual basis every three months over the course of one year.
|
| Scenario 1 |
| Scenario 2 |
| Scenario 3 |
| Scenario 4 |
| Scenario 5 |
| Scenario 6 |
| Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | Scenario 5 | Scenario 6 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Overnight rate change (bp) |
| — |
| 100 |
| 200 |
| (200 | ) | (100 | ) | — |
| — | 100 | 200 | (200 | ) | (100 | ) | — | |||||||||||||||||
10-year rate change (bp) |
| (100 | ) | — |
| 100 |
| (100 | ) | — |
| 100 |
| (100 | ) | — | 100 | (100 | ) | — | 100 | |||||||||||||||||
Impact to net interest revenue (in millions of dollars) |
| $ | (147 | ) | $ | (461 | ) | $ | (922 | ) | $ | 781 |
| $ | 511 |
| $ | (70 | ) | $ | (149 | ) | $ | (686 | ) | $ | (1,479 | ) | $ | 1,169 | $ | 620 | $ | (108 | ) | |||
For Citigroup’sCitigroup's major trading centers, the aggregate pretax VAR in the trading portfolios was $153$393 million, $191 million, and $122 million and $97 million at June 30, 2007, March 31, 2008, December 31, 2007, and June 30, 2006,March 31, 2007, respectively. Daily exposures averaged $138$341 million during the secondfirst quarter of 20072008 and ranged from $109$308 million to $164$393 million.
The following table summarizes VAR to Citigroup in the trading portfolios at June 30,March 31, 2008, December 31, 2007, and March 31, 2007, and June 30, 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 |
| June 30, |
| Second Quarter |
| March 31, |
| First Quarter |
| June 30, |
| Second Quarter |
| March 31, 2008(1) | First Quarter 2008 Average(1) | December 31, 2007 | Fourth Quarter 2007 Average | March 31, 2007 | First Quarter 2007 Average | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest rate |
| $ | 117 |
| $ | 102 |
| $ | 99 |
| $ | 95 |
| $ | 96 |
| $ | 103 |
| $ | 281 | $ | 283 | $ | 89 | $ | 97 | $ | 99 | $ | 95 | |||||||
Foreign exchange |
| 32 |
| 31 |
| 29 |
| 28 |
| 27 |
| 29 |
| 77 | 45 | 28 | 28 | 29 | 28 | |||||||||||||||||||
Equity |
| 100 |
| 87 |
| 77 |
| 70 |
| 41 |
| 51 |
| 235 | 125 | 150 | 129 | 77 | 70 | |||||||||||||||||||
Commodity |
| 31 |
| 35 |
| 27 |
| 28 |
| 13 |
| 19 |
| 53 | 47 | 45 | 45 | 27 | 28 | |||||||||||||||||||
Covariance adjustment |
| (127 | ) | (117 | ) | (110 | ) | (100 | ) | (80 | ) | (87 | ) | (253 | ) | (159 | ) | (121 | ) | (130 | ) | (110 | ) | (100 | ) | |||||||||||||
Total—All market risk factors, including general and specific risk |
| $ | 153 |
| $ | 138 |
| $ | 122 |
| $ | 121 |
| $ | 97 |
| $ | 115 |
| $ | 393 | $ | 341 | $ | 191 | $ | 169 | $ | 122 | $ | 121 | |||||||
Specific risk only component |
| $ | 8 |
| $ | 11 |
| $ | 5 |
| $ | 12 |
| $ | 5 |
| $ | 10 |
| $ | 39 | $ | 37 | $ | 28 | $ | 29 | $ | 5 | $ | 12 | |||||||
Total—General market factors only |
| $ | 145 |
| $ | 127 |
| $ | 117 |
| $ | 109 |
| $ | 92 |
| $ | 105 |
| $ | 354 | $ | 304 | $ | 163 | $ | 140 | $ | 117 | $ | 109 | |||||||
The specific risk only component represents the level of equity and debt issuer-specific risk embedded in VAR. Citigroup’sCitigroup'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:
|
| June 30, 2007 |
| March 31, 2007 |
| June 30, 2006 |
| March 31, 2008 | December 31, 2007 | March 31, 2007 | |||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | |||||||||||||||||||||||||||||||||||||
| Low |
| High |
| Low |
| High |
| Low |
| High |
| Low | High | Low | High | Low | High | |||||||||||||||||||
Interest rate |
| $ | 88 |
| $ | 128 |
| $ | 71 |
| $ | 125 |
| $ | 86 |
| $ | 125 |
| $ | 278 | $ | 293 | $ | 88 | $ | 104 | $ | 71 | $ | 125 | ||||||
Foreign exchange |
| 27 |
| 35 |
| 21 |
| 35 |
| 21 |
| 40 |
| 23 | 77 | 23 | 37 | 21 | 35 | ||||||||||||||||||
Equity |
| 64 |
| 112 |
| 55 |
| 85 |
| 41 |
| 68 |
| 58 | 235 | 106 | 164 | 55 | 85 | ||||||||||||||||||
Commodity |
| 24 |
| 49 |
| 17 |
| 34 |
| 12 |
| 25 |
| 36 | 58 | 33 | 56 | 17 | 34 | ||||||||||||||||||
OPERATIONAL RISK MANAGEMENT PROCESS
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from 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 objective of the Policy is to establish a consistent, value-added framework for assessing and communicating operational risk and the overall effectiveness of the internal control environment across Citigroup. Each major business segment must implement an operational risk process consistent with the requirements of this Policy.
The RCSA standards establish 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. They establish RCSA as the process whereby important risks inherent in the activities of a business are identified and the effectiveness of the key controls over those risks are evaluated and monitored. RCSA processes facilitate Citigroup's adherence to internal control over financial reporting, 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 Audit and Risk Review, and the results of RCSA are included in periodic management reporting, including reporting to senior management and the Audit and Risk Management Committee.
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.
Measurement and Basel II
To support advanced capital modeling and management, the businesses are required to capture relevant operational risk information. The risk capital 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
Information security and the protection of confidential and sensitive customer data are a priority of Citigroup. The Company has implemented an Information Security Program that complies with the Gramm-Leach-Bliley Act and other regulatory guidance. The Information Security Program is reviewed and enhanced periodically to address emerging threats to customers' information.
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 RISK
The table below shows all countries where total FFIEC cross-border outstandings exceed 0.75% of total Citigroup assets:
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| December 31, 2006 |
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| Trading |
| Investments |
| Total |
| Commit- |
| Total |
| Commit- |
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March 31, 2008 | March 31, 2008 | December 31, 2007 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cross-Border Claims on Third Parties | Cross-Border Claims on Third Parties | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In Billions of U.S. dollars | Banks | Public | Private | Total | Trading and Short- Term Claims | Investments in and Funding of Local Franchises | Total Cross- Border Outstandings | Commitments | Total Cross- Border Outstandings | Commitments | |||||||||||||||||||||||||||||||||||||||||||||||||||
India | $ | 1.1 | $ | 0.2 | $ | 11.2 | $ | 12.5 | $ | 10.3 | $ | 21.1 | $ | 33.6 | $ | 1.3 | $ | 39.0 | $ | 1.7 | |||||||||||||||||||||||||||||||||||||||||
Germany |
| $ | 19.4 |
| $ | 8.1 |
| $ | 8.7 |
| $ | 36.2 |
| $ | 33.2 |
| $ | — |
| $ | 36.2 |
| $ | 40.3 |
| $ | 38.6 |
| $ | 43.6 |
| 10.9 | 8.3 | 10.4 | 29.6 | 26.9 | — | 29.6 | 40.9 | 29.3 | 46.4 | ||||||||||||||||||||
India |
| 1.7 |
| 0.1 |
| 11.8 |
| 13.6 |
| 11.1 |
| 19.0 |
| 32.6 |
| 1.4 |
| 24.8 |
| 0.7 |
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France |
| 9.2 |
| 4.6 |
| 12.1 |
| 25.9 |
| 23.5 |
| — |
| 25.9 |
| 97.0 |
| 19.8 |
| 60.8 |
| 10.1 | 3.8 | 12.9 | 26.8 | 25.6 | — | 26.8 | 91.6 | 24.3 | 107.8 | ||||||||||||||||||||||||||||||
Netherlands |
| 6.4 |
| 1.2 |
| 15.6 |
| 23.2 |
| 19.5 |
| — |
| 23.2 |
| 16.6 |
| 20.1 |
| 10.5 |
| 6.9 | 2.1 | 15.7 | 24.7 | 18.9 | — | 24.7 | 16.8 | 23.1 | 20.2 | ||||||||||||||||||||||||||||||
Spain |
| 4.2 |
| 5.9 |
| 8.4 |
| 18.5 |
| 17.4 |
| 3.8 |
| 22.3 |
| 6.9 |
| 19.7 |
| 6.8 |
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United Kingdom |
| 6.2 |
| 0.1 |
| 16.4 |
| 22.7 |
| 21.4 |
| — |
| 22.7 |
| 275.6 |
| 18.4 |
| 192.8 |
| 8.4 | 0.1 | 13.6 | 22.1 | 20.7 | — | 22.1 | 478.4 | 24.7 | 366.0 | ||||||||||||||||||||||||||||||
South Korea |
| 1.0 |
| 0.9 |
| 3.7 |
| 5.6 |
| 5.5 |
| 16.5 |
| 22.1 |
| 8.6 |
| 19.7 |
| 11.4 |
| 1.9 | 0.5 | 3.1 | 5.5 | 5.4 | 16.8 | 22.3 | 20.2 | 21.9 | 22.0 | ||||||||||||||||||||||||||||||
Spain | 3.3 | 5.7 | 8.6 | 17.6 | 16.4 | 3.3 | 20.9 | 8.3 | 21.3 | 7.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Italy |
| 2.2 |
| 10.1 |
| 4.9 |
| 17.2 |
| 16.7 |
| — |
| 17.2 |
| 6.1 |
| 18.6 |
| 4.0 |
| 2.1 | 8.8 | 4.1 | 15.0 | 14.3 | 4.5 | 19.5 | 5.6 | 18.8 | 5.1 | ||||||||||||||||||||||||||||||
(1) Included in total cross-border claims on third parties.
(2) Commitments (not included in total cross-border outstandings) include legally binding cross-border letters of credit and other commitments and contingencies as defined by the FFIEC. Effective March 31, 2006 the FFIEC revised the definition of commitments to include commitments to local residents that will be funded with local currency local liabilities.
29
INTEREST REVENUE/EXPENSE AND YIELDS
Average Rates- Interest Revenue, Interest Expense, and |
In millions of dollars |
| 2nd Qtr. |
| 1st Qtr. |
| 2nd Qtr. |
| % Change |
| |||
Interest Revenue(2) |
| $ | 30,598 |
| $ | 28,132 |
| $ | 23,572 |
| 30 | % |
Interest Expense(3) |
| 19,172 |
| 17,562 |
| 13,717 |
| 40 | % | |||
Net Interest Revenue(2) |
| $ | 11,426 |
| $ | 10,570 |
| $ | 9,855 |
| 16 | % |
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Interest Revenue—Average Rate |
| 6.43 | % | 6.55 | % | 6.52 | % | (9 | ) bps | |||
Interest Expense—Average Rate |
| 4.43 | % | 4.55 | % | 4.24 | % | 19 | bps | |||
Net Interest Margin (NIM) |
| 2.40 | % | 2.46 | % | 2.73 | % | (33 | ) bps | |||
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Interest Rate Benchmarks: |
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Federal Funds Rate—End of Period |
| 5.25 | % | 5.25 | % | 5.25 | % | — |
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2 Year U.S. Treasury Note—Average Rate |
| 4.80 | % | 4.76 | % | 4.99 | % | (19 | ) bps | |||
10 Year U.S. Treasury Note—Average Rate |
| 4.85 | % | 4.68 | % | 5.07 | % | (22 | ) bps | |||
10 Year vs. 2 Year Spread |
| 5 | bps | (8 | ) bps | 8 | bps |
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(1)The 2007 second quarter includes Nikko Cordial from May 9, 2007 forward. Excluding Nikko Cordial, the average rate on Interest-Earning Assets and Interest-Bearing Liabilities would have been 6.56% and 4.51%, respectively. Net Interest Revenue as a percentage of Average Interest-Earning Assets (NIM) would have been 2.45% in the second quarter of 2007.Margin
(2)
In millions of dollars | 1st Qtr. 2008 | 4th Qtr. 2007 | 1st Qtr. 2007 | % Change 1Q08 vs. 1Q07 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest Revenue(1) | $ | 29,950 | $ | 32,618 | $ | 28,174 | 6 | % | |||||
Interest Expense(2) | 16,477 | 19,993 | 17,562 | (6 | ) | ||||||||
Net Interest Revenue(1)(2) | $ | 13,473 | $ | 12,625 | $ | 10,612 | 27 | % | |||||
Interest Revenue—Average Rate | 6.29 | % | 6.53 | % | 6.56 | % | (27) bps | ||||||
Interest Expense—Average Rate | 3.77 | % | 4.37 | % | 4.55 | % | (78) bps | ||||||
Net Interest Margin (NIM) | 2.83 | % | 2.53 | % | 2.47 | % | 36 bps | ||||||
Interest Rate Benchmarks: | |||||||||||||
Federal Funds Rate—End of Period | 2.25 | % | 4.25 | % | 5.25 | % | (300) bps | ||||||
2 Year U.S. Treasury Note—Average Rate | 2.03 | % | 3.49 | % | 4.76 | % | (273) bps | ||||||
10 Year U.S. Treasury Note—Average Rate | 3.67 | % | 4.27 | % | 4.68 | % | (101) bps | ||||||
10 Year vs. 2 Year Spread | 164 bps | 78 bps | (8) bps | ||||||||||
(3)
A significant portion of the Company’sCompany's business activities are based upon gathering deposits and borrowing money and then lending or investing those funds, including 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.
During 2007, pressure on netthe first quarter of 2008, the significantly lower cost of funding more than offset the lower asset yields, resulting in higher Net interest margin continued.margin. The widening between the short-term and the long-term spreads as well as the short-term liability sensitive positions contributed to the upward movement of the Net Interest Margininterest margin. On the assets side, the average yield was mainlynegatively impacted by the results of Nikko Cordial, consolidated from May 9, 2007 forward. The average rate on assets reflected a highly competitive loan pricing environment,decline in the rates for Fed Funds Sold as well as athe shift in the Company’sConsumer loan portfolio from higher-yieldinghigher yielding credit card receivables to assets that carry lower yields,yielding assets such as mortgages and home equity loans.
See pages 31 – 37 for a detailed analysis of Average Rates and Volumes.
AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)ASSETS(1)(2)(3)(4)
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| Average Volume |
| Interest Revenue |
| % Average Rate |
| | Average Volume | Interest Revenue | % Average Rate | ||||||||||||||||||||||||||||||||||||||||
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In millions of dollars |
| 2nd Qtr. |
| 1st Qtr. |
| 2nd Qtr. |
| 2nd Qtr. |
| 1st Qtr. |
| 2nd Qtr. |
| 2nd Qtr. |
| 1st Qtr. |
| 2nd Qtr. |
| In millions of dollars | 1st Qtr. 2008 | 4th Qtr. 2007 | 1st Qtr. 2007 | 1st Qtr. 2008 | 4th Qtr. 2007 | 1st Qtr. 2007 | 1st Qtr. 2008 | 4th Qtr. 2007 | 1st Qtr. 2007 | ||||||||||||||||||||||
Assets |
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Deposits with banks |
| $ | 55,580 |
| $ | 45,306 |
| $ | 38,951 |
| $ | 792 |
| $ | 709 |
| $ | 517 |
| 5.72 | % | 6.35 | % | 5.32 | % | $ | 65,460 | $ | 63,902 | $ | 45,306 | $ | 805 | $ | 825 | $ | 709 | 4.95 | % | 5.12 | % | 6.35 | % | ||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(6) |
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Federal funds sold and securities borrowed or purchased under agreements to resell(5) | Federal funds sold and securities borrowed or purchased under agreements to resell(5) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices |
| $ | 185,143 |
| $ | 184,069 |
| $ | 163,276 |
| $ | 3,002 |
| $ | 2,879 |
| $ | 2,450 |
| 6.50 | % | 6.34 | % | 6.02 | % | In U.S. offices | $ | 177,420 | $ | 188,647 | $ | 184,069 | $ | 1,746 | $ | 2,630 | $ | 2,879 | 3.96 | % | 5.53 | % | 6.34 | % | |||||||
In offices outside the U.S.(5) |
| 135,668 |
| 109,226 |
| 87,806 |
| 1,660 |
| 1,410 |
| 947 |
| 4.91 |
| 5.24 |
| 4.33 |
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In offices outside the U.S.(4) | In offices outside the U.S.(4) | 104,895 | 126,044 | 109,226 | 1,426 | 1,683 | 1,410 | 5.47 | 5.30 | 5.24 | |||||||||||||||||||||||||||||||||||||||||
Total |
| $ | 320,811 |
| $ | 293,295 |
| $ | 251,082 |
| $ | 4,662 |
| $ | 4,289 |
| $ | 3,397 |
| 5.83 | % | 5.93 | % | 5.43 | % | Total | $ | 282,315 | $ | 314,691 | $ | 293,295 | $ | 3,172 | $ | 4,313 | $ | 4,289 | 4.52 | % | 5.44 | % | 5.93 | % | |||||||
Trading account assets(7)(8) |
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Trading account assets(6)(7) | Trading account assets(6)(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices |
| $ | 264,112 |
| $ | 236,977 |
| $ | 181,415 |
| $ | 3,111 |
| $ | 2,822 |
| $ | 2,173 |
| 4.72 | % | 4.83 | % | 4.80 | % | In U.S. offices | $ | 254,155 | $ | 273,007 | $ | 236,977 | $ | 3,634 | $ | 3,962 | $ | 2,822 | 5.75 | % | 5.76 | % | 4.83 | % | |||||||
In offices outside the U.S.(5) |
| 180,361 |
| 133,274 |
| 99,644 |
| 1,274 |
| 1,108 |
| 875 |
| 2.83 |
| 3.37 |
| 3.52 |
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In offices outside the U.S.(4) | In offices outside the U.S.(4) | 180,714 | 187,482 | 133,274 | 1,165 | 1,074 | 1,108 | 2.59 | 2.27 | 3.37 | |||||||||||||||||||||||||||||||||||||||||
Total |
| $ | 444,473 |
| $ | 370,251 |
| $ | 281,059 |
| $ | 4,385 |
| $ | 3,930 |
| $ | 3,048 |
| 3.96 | % | 4.30 | % | 4.35 | % | Total | $ | 434,869 | $ | 460,489 | $ | 370,251 | $ | 4,799 | $ | 5,036 | $ | 3,930 | 4.44 | % | 4.34 | % | 4.30 | % | |||||||
Investments(1) |
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In U.S. offices |
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Taxable |
| $ | 149,303 |
| $ | 160,372 |
| $ | 85,292 |
| $ | 1,860 |
| $ | 2,000 |
| $ | 873 |
| 5.00 | % | 5.06 | % | 4.11 | % | ||||||||||||||||||||||||||
Exempt from U.S. income tax |
| 18,971 |
| 16,810 |
| 15,470 |
| 273 |
| 190 |
| 182 |
| 5.77 |
| 4.58 |
| 4.72 |
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In offices outside the U.S.(5) |
| 113,068 |
| 107,079 |
| 97,138 |
| 1,444 |
| 1,350 |
| 1,200 |
| 5.12 |
| 5.11 |
| 4.95 |
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Taxable | $ | 104,474 | $ | 108,548 | $ | 160,372 | $ | 1,179 | $ | 1,343 | $ | 2,000 | 4.54 | % | 4.91 | % | 5.06 | % | |||||||||||||||||||||||||||||||||
Exempt from U.S. income tax | 13,031 | 16,196 | 16,810 | 159 | 204 | 190 | 4.91 | 5.00 | 4.58 | ||||||||||||||||||||||||||||||||||||||||||
In offices outside the U.S.(4) | In offices outside the U.S.(4) | 100,866 | 110,016 | 107,079 | 1,361 | 1,466 | 1,350 | 5.43 | 5.29 | 5.11 | |||||||||||||||||||||||||||||||||||||||||
Total |
| $ | 281,342 |
| $ | 284,261 |
| $ | 197,900 |
| $ | 3,577 |
| $ | 3,540 |
| $ | 2,255 |
| 5.10 | % | 5.05 | % | 4.57 | % | Total | $ | 218,371 | $ | 234,760 | $ | 284,261 | $ | 2,699 | $ | 3,013 | $ | 3,540 | 4.97 | % | 5.09 | % | 5.05 | % | |||||||
Loans (net of unearned income)(9) |
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Loans (net of unearned income)(8) | Loans (net of unearned income)(8) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer loans |
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| Consumer loans | |||||||||||||||||||||||||||||||
In U.S. offices |
| $ | 370,762 |
| $ | 362,860 |
| $ | 339,997 |
| $ | 7,663 |
| $ | 7,458 |
| $ | 7,071 |
| 8.29 | % | 8.34 | % | 8.34 | % | In U.S. offices | $ | 398,362 | $ | 397,386 | $ | 362,860 | $ | 7,751 | $ | 8,393 | $ | 7,500 | 7.83 | % | 8.38 | % | 8.38 | % | |||||||
In offices outside the U.S.(5) |
| 170,855 |
| 151,523 |
| 136,648 |
| 4,621 |
| 4,033 |
| 3,834 |
| 10.85 |
| 10.79 |
| 11.25 |
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In offices outside the U.S.(4) | In offices outside the U.S.(4) | 199,665 | 195,815 | 151,523 | 5,333 | 5,087 | 4,033 | 10.74 | 10.31 | 10.79 | |||||||||||||||||||||||||||||||||||||||||
Total consumer loans |
| $ | 541,617 |
| $ | 514,383 |
| $ | 476,645 |
| $ | 12,284 |
| $ | 11,491 |
| $ | 10,905 |
| 9.10 | % | 9.06 | % | 9.18 | % | Total consumer loans | $ | 598,027 | $ | 593,201 | $ | 514,383 | $ | 13,084 | $ | 13,480 | $ | 11,533 | 8.80 | % | 9.02 | % | 9.09 | % | |||||||
Corporate loans |
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| Corporate loans | |||||||||||||||||||||||||||||||
In U.S. offices |
| $ | 31,075 |
| $ | 28,685 |
| $ | 25,740 |
| $ | 608 |
| $ | 538 |
| $ | 440 |
| 7.85 | % | 7.61 | % | 6.86 | % | In U.S. offices | $ | 43,423 | $ | 40,266 | $ | 28,685 | $ | 648 | $ | 680 | $ | 503 | 6.00 | % | 6.70 | % | 7.11 | % | |||||||
In offices outside the U.S.(5) |
| 152,545 |
| 136,103 |
| 122,944 |
| 3,361 |
| 2,906 |
| 2,298 |
| 8.84 |
| 8.66 |
| 7.50 |
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In offices outside the U.S.(4) | In offices outside the U.S.(4) | 152,934 | 159,708 | 136,103 | 3,409 | 3,673 | 2,906 | 8.97 | 9.12 | 8.66 | |||||||||||||||||||||||||||||||||||||||||
Total corporate loans |
| $ | 183,620 |
| $ | 164,788 |
| $ | 148,684 |
| $ | 3,969 |
| $ | 3,444 |
| $ | 2,738 |
| 8.67 | % | 8.48 | % | 7.39 | % | Total corporate loans | $ | 196,357 | $ | 199,974 | $ | 164,788 | $ | 4,057 | $ | 4,353 | $ | 3,409 | 8.31 | % | 8.64 | % | 8.39 | % | |||||||
Total loans |
| $ | 725,237 |
| $ | 679,171 |
| $ | 625,329 |
| $ | 16,253 |
| $ | 14,935 |
| $ | 13,643 |
| 8.99 | % | 8.92 | % | 8.75 | % | Total loans | $ | 794,384 | $ | 793,175 | $ | 679,171 | $ | 17,141 | $ | 17,833 | $ | 14,942 | 8.68 | % | 8.92 | % | 8.92 | % | |||||||
Other interest-earning assets |
| $ | 82,459 |
| $ | 68,379 |
| $ | 55,081 |
| $ | 929 |
| $ | 729 |
| $ | 712 |
| 4.52 | % | 4.32 | % | 5.18 | % | ||||||||||||||||||||||||||
Total interest-earning assets |
| $ | 1,909,902 |
| $ | 1,740,663 |
| $ | 1,449,402 |
| $ | 30,598 |
| $ | 28,132 |
| $ | 23,572 |
| 6.43 | % | 6.55 | % | 6.52 | % | ||||||||||||||||||||||||||
Non-interest-earning assets(7) |
| 249,358 |
| 204,255 |
| 195,670 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Total assets from discontinued operations |
| — |
| — |
| — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Other interest-earning Assets | Other interest-earning Assets | $ | 119,148 | $ | 114,484 | $ | 68,379 | $ | 1,334 | $ | 1,598 | $ | 764 | 4.50 | % | 5.54 | % | 4.53 | % | ||||||||||||||||||||||||||||||||
Total interest-earning Assets | Total interest-earning Assets | $ | 1,914,547 | $ | 1,981,501 | $ | 1,740,663 | $ | 29,950 | $ | 32,618 | $ | 28,174 | 6.29 | % | 6.53 | % | 6.56 | % | ||||||||||||||||||||||||||||||||
Non-interest-earning assets(6) | Non-interest-earning assets(6) | 410,972 | 304,299 | 204,255 | |||||||||||||||||||||||||||||||||||||||||||||||
Total assets |
| $ | 2,159,260 |
| $ | 1,944,918 |
| $ | 1,645,072 |
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets | $ | 2,325,519 | $ | 2,285,800 | $ | 1,944,918 | ||||||||||||||||||||||
$45$48 million, $15$31 million, and $25$15 million for the secondfirst quarter of 2008, the fourth quarter of 2007, and the first quarter of 2007, and the second quarter of 2006, respectively.
69
91.
Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 2 on page 53.
(5)
(6)interestInterest revenue excludes the impact of FIN 41.
(7)non-interest bearingnon-interest-bearing liabilities.
(8)tradingTrading account liabilities of Markets & Banking is reported as a reduction of interestInterest revenue. Interest revenue and interestInterest expense on cash collateral positions are reported in tradingTrading account assets and tradingTrading account liabilities, respectively.
(9)
Reclassified to conform to the current period’speriod's presentation.
AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY,
AND NET INTEREST REVENUE(1)REVENUE(1)(2)(3)(4)
|
| Average Volume |
| Interest Expense |
| % Average Rate |
| | Average Volume | Interest Expense | % Average Rate | ||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
| 2nd Qtr. |
| 1st Qtr. |
| 2nd Qtr. |
| 2nd Qtr. |
| 1st Qtr. |
| 2nd Qtr. |
| 2ndQtr. |
| 1st Qtr. |
| 2nd Qtr. |
| In millions of dollars | 1st Qtr. 2008 | 4th Qtr. 2007 | 1st Qtr. 2007 | 1st Qtr. 2008 | 4th Qtr. 2007 | 1st Qtr. 2007 | 1st Qtr. 2008 | 4th Qtr. 2007 | 1st Qtr. 2007 | ||||||||||||||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities | |||||||||||||||||||||||||||||||
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deposits | |||||||||||||||||||||||||||||||
In U. S. offices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| In U. S. offices | |||||||||||||||||||||||||||||||
Savings deposits(5) |
| $ | 147,517 |
| $ | 145,259 |
| $ | 133,958 |
| $ | 1,178 |
| $ | 1,170 |
| $ | 1,002 |
| 3.20 | % | 3.27 | % | 3.00 | % | ||||||||||||||||||||||||||
Other time deposits |
| 53,597 |
| 54,946 |
| 45,292 |
| 861 |
| 807 |
| 579 |
| 6.44 |
| 5.96 |
| 5.13 |
| ||||||||||||||||||||||||||||||||
In offices outside the U.S.(6) |
| 485,871 |
| 448,074 |
| 394,805 |
| 4,900 |
| 4,581 |
| 3,623 |
| 4.05 |
| 4.15 |
| 3.68 |
| ||||||||||||||||||||||||||||||||
Savings deposits(4) | $ | 164,945 | $ | 155,703 | $ | 145,259 | $ | 1,040 | $ | 1,203 | $ | 1,170 | 2.54 | % | 3.07 | % | 3.27 | % | |||||||||||||||||||||||||||||||||
Other time deposits | 64,792 | 70,217 | 54,946 | 777 | 1,012 | 807 | 4.82 | 5.72 | 5.96 | ||||||||||||||||||||||||||||||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 521,160 | 532,291 | 448,074 | 4,483 | 5,490 | 4,581 | 3.46 | 4.09 | 4.15 | |||||||||||||||||||||||||||||||||||||||||
Total |
| $ | 686,985 |
| $ | 648,279 |
| $ | 574,055 |
| $ | 6,939 |
| $ | 6,558 |
| $ | 5,204 |
| 4.05 | % | 4.10 | % | 3.64 | % | Total | $ | 750,897 | $ | 758,211 | $ | 648,279 | $ | 6,300 | $ | 7,705 | $ | 6,558 | 3.37 | % | 4.03 | % | 4.10 | % | |||||||
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(6) | Federal funds purchased and securities loaned or sold under agreements to repurchase(6) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices |
| $ | 233,021 |
| $ | 237,732 |
| $ | 187,346 |
| $ | 3,600 |
| $ | 3,541 |
| $ | 2,955 |
| 6.20 | % | 6.04 | % | 6.33 | % | In U.S. offices | $ | 209,878 | $ | 233,351 | $ | 237,732 | $ | 2,035 | $ | 3,146 | $ | 3,541 | 3.90 | % | 5.35 | % | 6.04 | % | |||||||
In offices outside the U.S.(6) |
| 152,984 |
| 128,641 |
| 97,408 |
| 2,312 |
| 1,942 |
| 1,364 |
| 6.06 |
| 6.12 |
| 5.62 |
| ||||||||||||||||||||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 120,066 | 132,501 | 128,641 | 1,868 | 2,056 | 1,942 | 6.26 | 6.16 | 6.12 | |||||||||||||||||||||||||||||||||||||||||
Total |
| $ | 386,005 |
| $ | 366,373 |
| $ | 284,754 |
| $ | 5,912 |
| $ | 5,483 |
| $ | 4,319 |
| 6.14 | % | 6.07 | % | 6.08 | % | Total | $ | 329,944 | $ | 365,852 | $ | 366,373 | $ | 3,903 | $ | 5,202 | $ | 5,483 | 4.76 | % | 5.64 | % | 6.07 | % | |||||||
Trading account liabilities(8)(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Trading account liabilities(7)(8) | Trading account liabilities(7)(8) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices |
| $ | 58,139 |
| $ | 42,319 |
| $ | 35,503 |
| $ | 312 |
| $ | 235 |
| $ | 227 |
| 2.15 | % | 2.25 | % | 2.56 | % | In U.S. offices | $ | 37,713 | $ | 37,012 | $ | 42,319 | $ | 270 | $ | 293 | $ | 235 | 2.88 | % | 3.14 | % | 2.25 | % | |||||||
In offices outside the U.S.(6) |
| 62,949 |
| 45,340 |
| 39,364 |
| 68 |
| 72 |
| 54 |
| 0.43 |
| 0.64 |
| 0.55 |
| ||||||||||||||||||||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 53,432 | 54,831 | 45,340 | 63 | 89 | 72 | 0.47 | 0.64 | 0.64 | |||||||||||||||||||||||||||||||||||||||||
Total |
| $ | 121,088 |
| $ | 87,659 |
| $ | 74,867 |
| $ | 380 |
| $ | 307 |
| $ | 281 |
| 1.26 | % | 1.42 | % | 1.51 | % | Total | $ | 91,145 | $ | 91,843 | $ | 87,659 | $ | 333 | $ | 382 | $ | 307 | 1.47 | % | 1.65 | % | 1.42 | % | |||||||
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term borrowings | |||||||||||||||||||||||||||||||
In U.S. offices |
| $ | 170,962 |
| $ | 143,544 |
| $ | 118,686 |
| $ | 1,612 |
| $ | 1,262 |
| $ | 972 |
| 3.78 | % | 3.57 | % | 3.28 | % | In U.S. offices | $ | 167,619 | $ | 176,035 | $ | 143,544 | $ | 1,152 | $ | 1,605 | $ | 1,262 | 2.76 | % | 3.62 | % | 3.57 | % | |||||||
In offices outside the U.S.(6) |
| 66,077 |
| 40,835 |
| 25,501 |
| 325 |
| 202 |
| 157 |
| 1.97 |
| 2.01 |
| 2.47 |
| ||||||||||||||||||||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 66,827 | 71,084 | 40,835 | 298 | 309 | 202 | 1.79 | 1.72 | 2.01 | |||||||||||||||||||||||||||||||||||||||||
Total |
| $ | 237,039 |
| $ | 184,379 |
| $ | 144,187 |
| $ | 1,937 |
| $ | 1,464 |
| $ | 1,129 |
| 3.28 | % | 3.22 | % | 3.14 | % | Total | $ | 234,446 | $ | 247,119 | $ | 184,379 | $ | 1,450 | $ | 1,914 | $ | 1,464 | 2.49 | % | 3.07 | % | 3.22 | % | |||||||
Long-term debt (10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Long-term debt(9) | Long-term debt(9) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices |
| $ | 267,496 |
| $ | 252,833 |
| $ | 194,096 |
| $ | 3,562 |
| $ | 3,385 |
| $ | 2,476 |
| 5.34 | % | 5.43 | % | 5.12 | % | In U.S. offices | $ | 310,984 | $ | 310,132 | $ | 252,833 | $ | 3,988 | $ | 4,212 | $ | 3,385 | 5.16 | % | 5.39 | % | 5.43 | % | |||||||
In offices outside the U.S.(6) |
| 37,391 |
| 27,084 |
| 24,273 |
| 442 |
| 365 |
| 308 |
| 4.74 |
| 5.47 |
| 5.09 |
| ||||||||||||||||||||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 41,866 | 43,064 | 27,084 | 503 | 578 | 365 | 4.83 | 5.32 | 5.47 | |||||||||||||||||||||||||||||||||||||||||
Total |
| $ | 304,887 |
| $ | 279,917 |
| $ | 218,369 |
| $ | 4,004 |
| $ | 3,750 |
| $ | 2,784 |
| 5.27 | % | 5.43 | % | 5.11 | % | Total | $ | 352,850 | $ | 353,196 | $ | 279,917 | $ | 4,491 | $ | 4,790 | $ | 3,750 | 5.12 | % | 5.38 | % | 5.43 | % | |||||||
Total interest-bearing liabilities |
| $ | 1,736,004 |
| $ | 1,566,607 |
| $ | 1,296,232 |
| $ | 19,172 |
| $ | 17,562 |
| $ | 13,717 |
| 4.43 | % | 4.55 | % | 4.24 | % | Total interest-bearing liabilities | $ | 1,759,282 | $ | 1,816,221 | $ | 1,566,607 | $ | 16,477 | $ | 19,993 | $ | 17,562 | 3.77 | % | 4.37 | % | 4.55 | % | |||||||
Demand deposits in U.S. offices |
| 11,234 |
| 11,157 |
| 11,827 |
|
|
|
|
|
|
|
|
|
|
|
|
| Demand deposits in U.S. offices | 12,960 | 13,670 | 11,157 | ||||||||||||||||||||||||||||
Other non-interest bearing |
| 287,371 |
| 247,402 |
| 222,581 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Total liabilities from discontinued operations |
| — |
| — |
| — |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Other non-interest-bearing liabilities(7) | Other non-interest-bearing liabilities(7) | 426,171 | 335,375 | 247,402 | |||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities |
| $ | 2,034,609 |
| $ | 1,825,166 |
| $ | 1,530,640 |
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities | $ | 2,198,413 | $ | 2,165,266 | $ | 1,825,166 | ||||||||||||||||||||||
Total stockholders’ equity(11) |
| $ | 124,651 |
| $ | 119,752 |
| $ | 114,432 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity |
| $ | 2,159,260 |
| $ | 1,944,918 |
| $ | 1,645,072 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Total stockholders' equity | Total stockholders' equity | $ | 127,106 | $ | 120,534 | $ | 119,752 | ||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 2,325,519 | $ | 2,285,800 | $ | 1,944,918 | ||||||||||||||||||||||||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(10) | Net interest revenue as a percentage of average interest-earning assets(10) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices |
| $ | 1,087,398 |
| $ | 1,049,574 |
| $ | 859,063 |
| $ | 5,212 |
| $ | 4,976 |
| $ | 4,673 |
| 1.92 | % | 1.92 | % | 2.18 | % | In U.S. offices | $ | 1,127,735 | $ | 1,103,354 | $ | 1,049,574 | $ | 6,199 | $ | 6,135 | $ | 5,159 | 2.21 | % | 2.21 | % | 1.99 | % | |||||||
In offices outside the U.S.(6) |
| 822,504 |
| 691,089 |
| 590,339 |
| 6,214 |
| 5,594 |
| 5,182 |
| 3.03 | % | 3.28 |
| 3.52 |
| ||||||||||||||||||||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 786,812 | 878,147 | 691,089 | 7,274 | 6,490 | 5,453 | 3.72 | % | 2.93 | % | 3.20 | % | ||||||||||||||||||||||||||||||||||||||
Total |
| $ | 1,909,902 |
| $ | 1,740,663 |
| $ | 1,449,402 |
| $ | 11,426 |
| $ | 10,570 |
| $ | 9,855 |
| 2.40 | % | 2.46 | % | 2.73 | % | Total | $ | 1,914,547 | $ | 1,981,501 | $ | 1,740,663 | $ | 13,473 | $ | 12,625 | $ | 10,612 | 2.83 | % | 2.53 | % | 2.47 | % | |||||||
$45$48 million, $15$31 million, and $25$15 million for the secondfirst quarter of 2008, the fourth quarter of 2007, and the first quarter of 2007, and the second quarter of 2006, respectively.
69
91.
Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 2 on page 53.
(5)
(6)
(7)interestInterest expense excludes the impact of FIN 41.
(8)non-interest bearingnon-interest-bearing liabilities.
(9)tradingTrading account liabilities of Markets & Banking is reported as a reduction of interestInterest revenue. Interest revenue and interestInterest expense on cash collateral positions are reported in tradingTrading account assets and tradingTrading account liabilities, respectively.
(10)
(11)Includes stockholders’ equity from discontinued operations.
(12)
Reclassified to conform to the current period’s presentation.
32
AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)
|
| Average Volume |
| Interest Revenue |
| % Average Rate |
| ||||||||||
In millions of dollars |
| Six Months |
| Sixth Months |
| Six Months |
| Sixth Months |
| Six Months |
| Sixth Months |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits with banks(5) |
| $ | 50,443 |
| $ | 36,901 |
| $ | 1,501 |
| $ | 1,006 |
| 6.00 | % | 5.50 | % |
Federal funds sold and securities borrowed or purchased under agreements to resell(6) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U.S. offices |
| $ | 184,606 |
| $ | 161,301 |
| $ | 5,881 |
| $ | 4,805 |
| 6.42 | % | 6.01 | % |
In offices outside the U.S.(5) |
| 122,447 |
| 84,758 |
| 3,070 |
| 1,797 |
| 5.06 |
| 4.28 |
| ||||
Total |
| $ | 307,053 |
| $ | 246,059 |
| $ | 8,951 |
| $ | 6,602 |
| 5.88 | % | 5.41 | % |
Trading account assets(7)(8) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U.S. offices |
| $ | 250,545 |
| $ | 179,098 |
| $ | 5,933 |
| $ | 4,059 |
| 4.78 | % | 4.57 | % |
In offices outside the U.S.(5) |
| 156,817 |
| 94,306 |
| 2,382 |
| 1,689 |
| 3.06 |
| 3.61 |
| ||||
Total |
| $ | 407,362 |
| $ | 273,404 |
| $ | 8,315 |
| $ | 5,748 |
| 4.12 | % | 4.24 | % |
Investments(1) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U.S. offices |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Taxable |
| $ | 154,838 |
| $ | 85,115 |
| $ | 3,860 |
| $ | 1,657 |
| 5.03 | % | 3.93 | % |
Exempt from U.S. income tax |
| 17,891 |
| 14,789 |
| 463 |
| 335 |
| 5.22 |
| 4.57 |
| ||||
In offices outside the U.S.(5) |
| 110,073 |
| 94,785 |
| 2,794 |
| 2,319 |
| 5.12 |
| 4.93 |
| ||||
Total |
| $ | 282,802 |
| $ | 194,689 |
| $ | 7,117 |
| $ | 4,311 |
| 5.07 | % | 4.47 | % |
Loans (net of unearned income)(9) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U.S. offices |
| $ | 366,811 |
| $ | 333,511 |
| $ | 15,121 |
| $ | 13,733 |
| 8.31 | % | 8.30 | % |
In offices outside the U.S.(5) |
| 161,189 |
| 134,007 |
| 8,654 |
| 7,524 |
| 10.83 |
| 11.32 |
| ||||
Total consumer loans |
| $ | 528,000 |
| $ | 467,518 |
| $ | 23,775 |
| $ | 21,257 |
| 9.08 | % | 9.17 | % |
Corporate loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U.S. offices |
| $ | 29,880 |
| $ | 26,460 |
| $ | 1,146 |
| $ | 871 |
| 7.73 | % | 6.64 | % |
In offices outside the U.S.(5) |
| 144,324 |
| 117,453 |
| 6,267 |
| 4,333 |
| 8.76 |
| 7.44 |
| ||||
Total corporate loans |
| $ | 174,204 |
| $ | 143,913 |
| $ | 7,413 |
| $ | 5,204 |
| 8.58 | % | 7.29 | % |
Total loans |
| $ | 702,204 |
| $ | 611,431 |
| $ | 31,188 |
| $ | 26,461 |
| 8.96 | % | 8.73 | % |
Other interest-earning assets |
| $ | 75,419 |
| $ | 57,144 |
| $ | 1,658 |
| $ | 1,317 |
| 4.43 | % | 4.65 | % |
Total interest-earning assets |
| $ | 1,825,283 |
| $ | 1,419,628 |
| $ | 58,730 |
| $ | 45,445 |
| 6.49 | % | 6.46 | % |
Non-interest-earning assets(7) |
| 226,806 |
| 188,976 |
|
|
|
|
|
|
|
|
| ||||
Total assets from discontinued operations |
| — |
| — |
|
|
|
|
|
|
|
|
| ||||
Total assets |
| $ | 2,052,089 |
| $ | 1,608,604 |
|
|
|
|
|
|
|
|
|
(1) Interest revenue excludes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $60 million, $54 million for the first six months of 2007 and 2006, respectively.
(2) Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 15 on page 69.
(3) Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.
(4) Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 2 on page 53.
(5) Average rates reflect prevailing local interest rates, including inflationary effects and monetary correction in certain countries.
(6) Average volumes of securities borrowed or purchased under agreements to resell are reported net pursuant to FIN 41 and interest revenue excludes the impact of FIN 41.
(7) The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest bearing liabilities.
(8) Interest expense on trading account liabilities of Markets & Banking is reported as a reduction of interest revenue. Interest revenue and interest expense on cash collateral positions are reported in trading account assets and trading account liabilities, respectively.
(9) Includes cash-basis loans.
Reclassified to conform to the current period’speriod's presentation.
AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY,
AND NET INTEREST REVENUE(1)(2)(3)(4)
|
| Average Volume |
| Interest Expense |
| % Average Rate |
| ||||||||||
In millions of dollars |
| Six Months |
| Sixth Months |
| Six Months |
| Sixth Months |
| Six Months |
| Sixth Months |
| ||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U. S. offices |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Savings deposits(5) |
| $ | 146,388 |
| $ | 133,112 |
| $ | 2,348 |
| $ | 1,870 |
| 3.23 | % | 2.83 | % |
Other time deposits |
| 54,272 |
| 43,851 |
| 1,668 |
| 1,078 |
| 6.20 |
| 4.96 |
| ||||
In offices outside the U.S.(6) |
| 466,972 |
| 382,613 |
| 9,481 |
| 6,761 |
| 4.09 |
| 3.56 |
| ||||
Total |
| $ | 667,632 |
| $ | 559,576 |
| $ | 13,497 |
| $ | 9,709 |
| 4.08 | % | 3.50 | % |
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U.S. offices |
| $ | 235,377 |
| $ | 186,247 |
| $ | 7,141 |
| $ | 5,631 |
| 6.12 | % | 6.10 | % |
In offices outside the U.S.(6) |
| 140,812 |
| 92,747 |
| 4,254 |
| 2,587 |
| 6.09 |
| 5.62 |
| ||||
Total |
| $ | 376,189 |
| $ | 278,994 |
| $ | 11,395 |
| $ | 8,218 |
| 6.11 | % | 5.94 | % |
Trading account liabilities(8)(9) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U.S. offices |
| $ | 50,229 |
| $ | 35,386 |
| $ | 547 |
| $ | 419 |
| 2.20 | % | 2.39 | % |
In offices outside the U.S.(6) |
| 54,145 |
| 37,925 |
| 140 |
| 105 |
| 0.52 |
| 0.56 |
| ||||
Total |
| $ | 104,374 |
| $ | 73,311 |
| $ | 687 |
| $ | 524 |
| 1.33 | % | 1.44 | % |
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U.S. offices |
| $ | 157,253 |
| $ | 116,019 |
| $ | 2,874 |
| $ | 1,737 |
| 3.69 | % | 3.02 | % |
In offices outside the U.S.(6) |
| 53,456 |
| 21,840 |
| 527 |
| 357 |
| 1.99 |
| 3.30 |
| ||||
Total |
| $ | 210,709 |
| $ | 137,859 |
| $ | 3,401 |
| $ | 2,094 |
| 3.25 | % | 3.06 | % |
Long-term debt(10) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U.S. offices |
| $ | 260,165 |
| $ | 192,936 |
| $ | 6,947 |
| $ | 4,665 |
| 5.38 | % | 4.88 | % |
In offices outside the U.S.(6) |
| 32,237 |
| 24,130 |
| 807 |
| 614 |
| 5.05 |
| 5.13 |
| ||||
Total |
| $ | 292,402 |
| $ | 217,066 |
| $ | 7,754 |
| $ | 5,279 |
| 5.35 | % | 4.90 | % |
Total interest-bearing liabilities |
| $ | 1,651,306 |
| $ | 1,266,806 |
| $ | 36,734 |
| $ | 25,824 |
| 4.49 | % | 4.11 | % |
Demand deposits in U.S. offices |
| 11,196 |
| 10,936 |
|
|
|
|
|
|
|
|
| ||||
Other non-interest bearing liabilities(8) |
| 267,385 |
| 217,084 |
|
|
|
|
|
|
|
|
| ||||
Total liabilities from discontinued operations |
| — |
| — |
|
|
|
|
|
|
|
|
| ||||
Total liabilities |
| $ | 1,929,887 |
| $ | 1,494,826 |
|
|
|
|
|
|
|
|
| ||
Total stockholders’ equity(11) |
| $ | 122,202 |
| $ | 113,778 |
|
|
|
|
|
|
|
|
| ||
Total liabilities and stockholders’ equity |
| $ | 2,052,089 |
| $ | 1,608,604 |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net interest revenue as a percentage of average interest-earning |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
In U.S. offices |
| $ | 1,068,486 |
| $ | 848,074 |
| $ | 10,188 |
| $ | 9,613 |
| 1.92 | % | 2.29 | % |
In offices outside the U.S.(6) |
| 756,797 |
| 571,554 |
| 11,808 |
| 10,008 |
| 3.15 |
| 3.53 |
| ||||
Total |
| $ | 1,825,283 |
| $ | 1,419,628 |
| $ | 21,996 |
| $ | 19,621 |
| 2.43 | % | 2.79 | % |
(1) Interest revenue the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $60 million, $54 million for the first six months of 2007 and 2006, respectively.
(2) Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 15 on page 69.
(3) Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.
(4) Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 2 on page 53.
(5) Savings deposits consist of Insured Money Market Rate accounts, NOW accounts, and other savings deposits.
(6) Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.
(7) Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 and interest expense excludes the impact of FIN 41.
(8) The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest bearing liabilities.
(9) Interest expense on trading account liabilities of Markets & Banking is reported as a reduction of interest revenue. Interest revenue and interest expense on cash collateral positions are reported in trading account assets and trading account liabilities, respectively.
(10) Excludes hybrid financial instruments and beneficial interests in consolidated VIEs that are classified as long-term debt as these obligations are accounted for at fair value with changes recorded in Principal Transactions.
(11) Includes stockholders’ equity from discontinued operations.
(12) Includes allocations for capital and funding costs based on the location of the asset.
Reclassified to conform to the current period’s presentation.
ANALYSIS OF CHANGES IN INTEREST REVENUEREVENUE(1)(2)
| 1st Qtr. 2008 vs. 4th Qtr. 2007 | 1st Qtr. 2008 vs. 1st Qtr. 2007 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | |||||||||||||||
In millions of dollars | Average Volume | Average Rate | Net Change | Average Volume | Average Rate | Net Change | |||||||||||||
Deposits with banks(3) | $ | 20 | $ | (40 | ) | $ | (20 | ) | $ | 270 | $ | (174 | ) | $ | 96 | ||||
Federal funds sold and securities borrowed or purchased under agreements to resell | |||||||||||||||||||
In U.S. offices | $ | (149 | ) | $ | (735 | ) | $ | (884 | ) | $ | (101 | ) | $ | (1,032 | ) | $ | (1,133 | ) | |
In offices outside the U.S.(3) | (287 | ) | 30 | (257 | ) | (57 | ) | 73 | 16 | ||||||||||
Total | $ | (436 | ) | $ | (705 | ) | $ | (1,141 | ) | $ | (158 | ) | $ | (959 | ) | $ | (1,117 | ) | |
Trading account assets(4) | |||||||||||||||||||
In U.S. offices | $ | (270 | ) | $ | (58 | ) | $ | (328 | ) | $ | 215 | $ | 597 | $ | 812 | ||||
In offices outside the U.S.(3) | (40 | ) | 131 | 91 | 340 | (283 | ) | 57 | |||||||||||
Total | $ | (310 | ) | $ | 73 | $ | (237 | ) | $ | 555 | $ | 314 | $ | 869 | |||||
Investments(1) | |||||||||||||||||||
In U.S. offices | $ | (87 | ) | $ | (122 | ) | $ | (209 | ) | $ | (691 | ) | $ | (161 | ) | $ | (852 | ) | |
In offices outside the U.S.(3) | (123 | ) | 18 | (105 | ) | (81 | ) | 92 | 11 | ||||||||||
Total | $ | (210 | ) | $ | (104 | ) | $ | (314 | ) | $ | (772 | ) | $ | (69 | ) | $ | (841 | ) | |
Loans—consumer | |||||||||||||||||||
In U.S. offices | $ | 21 | $ | (663 | ) | $ | (642 | ) | $ | 707 | $ | (456 | ) | $ | 251 | ||||
In offices outside the U.S.(3) | 101 | 145 | 246 | 1,286 | 14 | 1,300 | |||||||||||||
Total | $ | 122 | $ | (518 | ) | $ | (396 | ) | $ | 1,993 | $ | (442 | ) | $ | 1,551 | ||||
Loans—corporate | |||||||||||||||||||
In U.S. offices | $ | 51 | $ | (83 | ) | $ | (32 | ) | $ | 229 | $ | (84 | ) | $ | 145 | ||||
In offices outside the U.S.(3) | (153 | ) | (111 | ) | (264 | ) | 371 | 132 | 503 | ||||||||||
Total | $ | (102 | ) | $ | (194 | ) | $ | (296 | ) | $ | 600 | $ | 48 | $ | 648 | ||||
Total loans | $ | 20 | $ | (712 | ) | $ | (692 | ) | $ | 2,593 | $ | (394 | ) | $ | 2,199 | ||||
Other interest-earning assets | $ | 63 | $ | (327 | ) | $ | (264 | ) | $ | 568 | $ | 2 | $ | 570 | |||||
Total interest revenue | $ | (853 | ) | $ | (1,815 | ) | $ | (2,668 | ) | $ | 3,056 | $ | (1,280 | ) | $ | 1,776 | |||
|
| 2nd Qtr. 2007 vs. 1st Qtr. 2007 |
| 2nd Qtr. 2007 vs. 2nd Qtr. 2006 |
| ||||||||||||||
|
| Increase (Decrease) |
|
|
| Increase (Decrease) |
|
|
| ||||||||||
In millions of dollars |
| Average Volume |
| Average Rate |
| Net Change(2) |
| Average Volume |
| Average Rate |
| Net Change(2) |
| ||||||
Deposits with banks(4) |
| $ | 150 |
| $ | (67 | ) | $ | 83 |
| $ | 235 |
| $ | 40 |
| $ | 275 |
|
Federal funds sold and securities borrowed or purchased under agreements to resell |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In U.S. offices |
| $ | 17 |
| $ | 106 |
| $ | 123 |
| $ | 345 |
| $ | 207 |
| $ | 552 |
|
In offices outside the U.S.(4) |
| 327 |
| (77 | ) | 250 |
| 572 |
| 141 |
| 713 |
| ||||||
Total |
| $ | 344 |
| $ | 29 |
| $ | 373 |
| $ | 917 |
| $ | 348 |
| $ | 1,265 |
|
Trading account assets(5) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In U.S. offices |
| $ | 320 |
| $ | (31 | ) | $ | 289 |
| $ | 975 |
| $ | (37 | ) | $ | 938 |
|
In offices outside the U.S.(4) |
| 350 |
| (184 | ) | 166 |
| 597 |
| (198 | ) | 399 |
| ||||||
Total |
| $ | 670 |
| $ | (215 | ) | $ | 455 |
| $ | 1,572 |
| $ | (235 | ) | $ | 1,337 |
|
Investments(1) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In U.S. offices |
| $ | (112 | ) | $ | 55 |
| ($57 | ) | $ | 820 |
| $ | 258 |
| $ | 1,078 |
| |
In offices outside the U.S.(4) |
| 76 |
| 18 |
| 94 |
| 202 |
| 42 |
| 244 |
| ||||||
Total |
| $ | (36 | ) | $ | 73 |
| $ | 37 |
| $ | 1,022 |
| $ | 300 |
| $ | 1,322 |
|
Loans—consumer |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In U.S. offices |
| $ | 163 |
| $ | 42 |
| $ | 205 |
| $ | 636 |
| $ | (44 | ) | $ | 592 |
|
In offices outside the U.S.(4) |
| 522 |
| 66 |
| 588 |
| 930 |
| (143 | ) | 787 |
| ||||||
Total |
| $ | 685 |
| $ | 108 |
| $ | 793 |
| $ | 1,566 |
| $ | (187 | ) | $ | 1,379 |
|
Loans—corporate |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In U.S. offices |
| $ | 46 |
| $ | 24 |
| $ | 70 |
| $ | 99 |
| $ | 69 |
| $ | 168 |
|
In offices outside the U.S.(4) |
| 360 |
| 95 |
| 455 |
| 610 |
| 453 |
| 1,063 |
| ||||||
Total |
| $ | 406 |
| $ | 119 |
| $ | 525 |
| $ | 709 |
| $ | 522 |
| $ | 1,231 |
|
Total loans |
| $ | 1,091 |
| $ | 227 |
| $ | 1,318 |
| $ | 2,275 |
| $ | 335 |
| $ | 2,610 |
|
Other interest-earning assets |
| $ | 157 |
| $ | 43 |
| $ | 200 |
| $ | 317 |
| $ | (100 | ) | $ | 217 |
|
Total interest revenue |
| $ | 2,376 |
| $ | 90 |
| $ | 2,466 |
| $ | 6,338 |
| $ | 688 |
| $ | 7,026 |
|
(1)
(4)
(5)
35
ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUEREVENUE(1)(2)
| 1st Qtr. 2008 vs. 4th Qtr. 2007 | 1st Qtr. 2008 vs. 1st Qtr. 2007 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | |||||||||||||||
In millions of dollars | Average Volume | Average Rate | Net Change | Average Volume | Average Rate | Net Change | |||||||||||||
Deposits | |||||||||||||||||||
In U.S. offices | $ | 37 | $ | (435 | ) | $ | (398 | ) | $ | 267 | $ | (427 | ) | $ | (160 | ) | |||
In offices outside the U.S.(3) | (113 | ) | (894 | ) | (1,007 | ) | 687 | (785 | ) | (98 | ) | ||||||||
Total | $ | (76 | ) | $ | (1,329 | ) | $ | (1,405 | ) | $ | 954 | $ | (1,212 | ) | $ | (258 | ) | ||
Federal funds purchased and securities loaned or sold under agreements to repurchase | |||||||||||||||||||
In U.S. offices | $ | (293 | ) | $ | (818 | ) | $ | (1,111 | ) | $ | (378 | ) | $ | (1,128 | ) | $ | (1,506 | ) | |
In offices outside the U.S.(3) | (193 | ) | 5 | (188 | ) | (132 | ) | 58 | (74 | ) | |||||||||
Total | $ | (486 | ) | $ | (813 | ) | $ | (1,299 | ) | $ | (510 | ) | $ | (1,070 | ) | $ | (1,580 | ) | |
Trading account liabilities(4) | |||||||||||||||||||
In U.S. offices | $ | 5 | $ | (28 | ) | $ | (23 | ) | $ | (28 | ) | $ | 63 | $ | 35 | ||||
In offices outside the U.S.(3) | (2 | ) | (24 | ) | (26 | ) | 11 | (20 | ) | (9 | ) | ||||||||
Total | $ | 3 | $ | (52 | ) | $ | (49 | ) | $ | (17 | ) | $ | 43 | $ | 26 | ||||
Short-term borrowings | |||||||||||||||||||
In U.S. offices | $ | (74 | ) | $ | (379 | ) | $ | (453 | ) | $ | 192 | $ | (302 | ) | $ | (110 | ) | ||
In offices outside the U.S.(3) | (19 | ) | 8 | (11 | ) | 118 | (22 | ) | 96 | ||||||||||
Total | $ | (93 | ) | $ | (371 | ) | $ | (464 | ) | $ | 310 | $ | (324 | ) | $ | (14 | ) | ||
Long-term debt | |||||||||||||||||||
In U.S. offices | $ | 12 | $ | (236 | ) | $ | (224 | ) | $ | 751 | $ | (148 | ) | $ | 603 | ||||
In offices outside the U.S.(3) | (16 | ) | (59 | ) | (75 | ) | 181 | (43 | ) | 138 | |||||||||
Total | $ | (4 | ) | $ | (295 | ) | $ | (299 | ) | $ | 932 | $ | (191 | ) | $ | 741 | |||
Total interest expense | $ | (656 | ) | $ | (2,860 | ) | $ | (3,516 | ) | $ | 1,669 | $ | (2,754 | ) | $ | (1,085 | ) | ||
Net interest revenue | $ | (197 | ) | $ | 1,045 | $ | 848 | $ | 1,387 | $ | 1,474 | $ | 2,861 | ||||||
|
| 2nd Qtr. 2007 vs. 1st Qtr. 2007 |
| 2nd Qtr. 2007 vs. 2nd Qtr. 2006 |
| ||||||||||||||
|
| Increase (Decrease) |
|
|
| Increase (Decrease) |
|
|
| ||||||||||
In millions of dollars |
| Average Volume |
| Average Rate |
| Net Change(2) |
| Average Volume |
| Average Rate |
| Net Change(2) |
| ||||||
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In U.S. offices |
| $ | 9 |
| $ | 53 |
| $ | 62 |
| $ | 206 |
| $ | 252 |
| $ | 458 |
|
In offices outside the |
| 382 |
| (63 | ) | 319 |
| 894 |
| 383 |
| 1,277 |
| ||||||
Total |
| $ | 391 |
| $ | (10 | ) | $ | 381 |
| $ | 1,100 |
| $ | 635 |
| $ | 1,735 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In U.S. offices |
| $ | (71 | ) | $ | 130 |
| $ | 59 |
| $ | 707 |
| $ | (62 | ) | $ | 645 |
|
In offices outside the |
| 368 |
| 2 |
| 370 |
| 832 |
| 116 |
| 948 |
| ||||||
Total |
| $ | 297 |
| $ | 132 |
| $ | 429 |
| $ | 1,539 |
| $ | 54 |
| $ | 1,593 |
|
Trading account |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In U.S. offices |
| $ | 85 |
| $ | (8 | ) | $ | 77 |
| $ | 126 |
| $ | (41 | ) | $ | 85 |
|
In offices outside the |
| 23 |
| (27 | ) | (4 | ) | 27 |
| (13 | ) | 14 |
| ||||||
Total |
| $ | 108 |
| $ | (35 | ) | $ | 73 |
| $ | 153 |
| $ | (54 | ) | $ | 99 |
|
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In U.S. offices |
| $ | 254 |
| $ | 96 |
| $ | 350 |
| $ | 476 |
| $ | 164 |
| $ | 640 |
|
In offices outside the |
| 124 |
| (1 | ) | 123 |
| 206 |
| (38 | ) | 168 |
| ||||||
Total |
| $ | 378 |
| $ | 95 |
| $ | 473 |
| $ | 682 |
| $ | 126 |
| $ | 808 |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
In U.S. offices |
| $ | 195 |
| $ | (18 | ) | $ | 177 |
| $ | 973 |
| $ | 113 |
| $ | 1,086 |
|
In offices outside the |
| 126 |
| (49 | ) | 77 |
| 156 |
| (22 | ) | 134 |
| ||||||
Total |
| $ | 321 |
| $ | (67 | ) | $ | 254 |
| $ | 1,129 |
| $ | 91 |
| $ | 1,220 |
|
Total interest expense |
| $ | 1,495 |
| $ | 115 |
| $ | 1,610 |
| $ | 4,603 |
| $ | 852 |
| $ | 5,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest revenue |
| $ | 881 |
| $ | (25 | ) | $ | 856 |
| $ | 1,735 |
| $ | (164 | ) | $ | 1,571 |
|
(1)
(4)
(5)
ANALYSIS OF CHANGES IN INTEREST REVENUE, INTEREST EXPENSE,
AND NET INTEREST REVENUE(1)(2)(3)
|
| Six Months 2007 vs. Six Months 2006 |
| |||||||
|
| Increase (Decrease) |
|
|
| |||||
|
| Due to Change in: |
| Net |
| |||||
In millions of dollars |
| Average Volume |
| Average Rate |
| Change(2) |
| |||
Deposits with banks(4) |
| $ | 396 |
| $ | 99 |
| $ | 495 |
|
Federal funds sold and securities borrowed or purchased under agreements to resell |
|
|
|
|
|
|
| |||
In U.S. offices |
| $ | 727 |
| $ | 349 |
| $ | 1,076 |
|
In offices outside the U.S.(4) |
| 902 |
| 371 |
| 1,273 |
| |||
Total |
| $ | 1,629 |
| $ | 720 |
| $ | 2,349 |
|
Trading account assets(5) |
|
|
|
|
|
|
| |||
In U.S. offices |
| $ | 1,685 |
| $ | 189 |
| $ | 1,874 |
|
In offices outside the U.S.(4) |
| 981 |
| (288 | ) | 693 |
| |||
Total |
| $ | 2,666 |
| $ | (99 | ) | $ | 2,567 |
|
Investments(1) |
|
|
|
|
|
|
| |||
In U.S. offices |
| $ | 1,727 |
| $ | 604 |
| $ | 2,331 |
|
In offices outside the U.S.(4) |
| 385 |
| 90 |
| 475 |
| |||
Total |
| $ | 2,112 |
| $ | 694 |
| $ | 2,806 |
|
Loans—consumer |
|
|
|
|
|
|
| |||
In U.S. offices |
| $ | 1,373 |
| $ | 15 |
| $ | 1,388 |
|
In offices outside the U.S.(4) |
| 1,471 |
| (341 | ) | 1,130 |
| |||
Total |
| $ | 2,844 |
| $ | (326 | ) | $ | 2,518 |
|
Loans—corporate |
|
|
|
|
|
|
| |||
In U.S. offices |
| $ | 121 |
| $ | 154 |
| $ | 275 |
|
In offices outside the U.S.(4) |
| 1,090 |
| 844 |
| 1,934 |
| |||
Total |
| $ | 1,211 |
| $ | 998 |
| $ | 2,209 |
|
Total loans |
| $ | 4,055 |
| $ | 672 |
| $ | 4,727 |
|
Other interest-earning assets |
| $ | 404 |
| $ | (63 | ) | $ | 341 |
|
Total interest revenue |
| $ | 11,262 |
| $ | 2,023 |
| $ | 13,285 |
|
Deposits |
|
|
|
|
|
|
| |||
In U.S. offices |
| $ | 427 |
| $ | 641 |
| $ | 1,068 |
|
In offices outside the U.S.(4) |
| 1,623 |
| 1,097 |
| 2,720 |
| |||
Total |
| $ | 2,050 |
| $ | 1,738 |
| $ | 3,788 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase |
|
|
|
|
|
|
| |||
In U.S. offices |
| $ | 1,490 |
| $ | 20 |
| $ | 1,510 |
|
In offices outside the U.S.(4) |
| 1,437 |
| 230 |
| 1,667 |
| |||
Total |
| $ | 2,927 |
| $ | 250 |
| $ | 3,177 |
|
Trading account liabilities(5) |
|
|
|
|
|
|
| |||
In U.S. offices |
| $ | 164 |
| $ | (36 | ) | $ | 128 |
|
In offices outside the U.S.(4) |
| 42 |
| (7 | ) | 35 |
| |||
Total |
| $ | 206 |
| $ | (43 | ) | $ | 163 |
|
Short-term borrowings |
|
|
|
|
|
|
| |||
In U.S. offices |
| $ | 701 |
| $ | 436 |
| $ | 1,137 |
|
In offices outside the U.S.(4) |
| 356 |
| (186 | ) | 170 |
| |||
Total |
| $ | 1,057 |
| $ | 250 |
| $ | 1,307 |
|
Long-term debt |
|
|
|
|
|
|
| |||
In U.S. offices |
| $ | 1,756 |
| $ | 526 |
| $ | 2,282 |
|
In offices outside the U.S.(4) |
| 203 |
| (10 | ) | 193 |
| |||
Total |
| $ | 1,959 |
| $ | 516 |
| $ | 2,475 |
|
Total interest expense |
| $ | 8,199 |
| $ | 2,711 |
| $ | 10,910 |
|
|
|
|
|
|
|
|
| |||
Net interest revenue |
| $ | 3,063 |
| $ | (688 | ) | $ | 2,375 |
|
(1) The taxable equivalent adjustment is based on the U.S. Federal statutory tax rate of 35% and is excluded from this presentation.
(2) Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change.
(3) Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 2 on page 53.
(4) Changes in average rates reflect changes in prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.
(5) Interest expense on trading account liabilities of Markets & Banking is reported as a reduction of interest revenue. Interest revenue and interest expense on cash collateral positions are reported in trading account assets and trading account liabilities, respectively.
CAPITAL RESOURCES AND LIQUIDITY
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 sheetoff-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”"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.
As noted in the following table, Citigroup maintained a “well capitalized”"well capitalized" position during the first six months of 2007March 31, 2008 and the full year of 2006:December 31, 2007.
Citigroup Regulatory Capital Ratios(1)
|
| June 30, |
| March 31, |
| December 31, |
| March 31, 2008(2) | December 31, 2007(2) | |||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital |
| 7.91 | % | 8.26 | % | 8.59 | % | 7.74 | % | 7.12 | % | |
Total Capital (Tier 1 and Tier 2) |
| 11.23 |
| 11.48 |
| 11.65 |
| 11.22 | 10.70 | |||
Leverage |
| 4.37 |
| 4.84 |
| 5.16 |
| 4.39 | 4.03 |
(3) The impact related to using Citigroup’s credit rating under the adoption of SFAS 157 is excluded from Tier 1 Capital at June 30, 2007 and March 31, 2007, respectively.
Components of Capital Under Regulatory Guidelines
In millions of dollars |
| June 30, |
| March 31, |
| December 31, |
| In millions of dollars | Mar. 31, 2008 | Dec. 31,(1) 2007 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital |
|
|
|
|
|
|
| Tier 1 Capital | ||||||||||
Common stockholders’ equity |
| $ | 127,154 |
| $ | 121,083 |
| $ | 118,783 |
| ||||||||
Common stockholders' equity | Common stockholders' equity | $ | 108,835 | $ | 113,598 | |||||||||||||
Qualifying perpetual preferred stock |
| 400 |
| 1,000 |
| 1,000 |
| Qualifying perpetual preferred stock | 19,384 | — | ||||||||
Qualifying mandatorily redeemable securities of subsidiary trusts |
| 10,095 |
| 9,440 |
| 9,579 |
| Qualifying mandatorily redeemable securities of subsidiary trusts | 23,959 | 23,594 | ||||||||
Minority interest |
| 3,889 |
| 1,124 |
| 1,107 |
| Minority interest | 1,506 | 4,077 | ||||||||
Less: Net unrealized (gains) on securities available-for-sale(1) |
| (248 | ) | (1,251 | ) | (943 | ) | |||||||||||
Less: Accumulated net (gains)/losses on cash flow hedges, net of tax |
| (546 | ) | 500 |
| 61 |
| |||||||||||
Less: Net unrealized gains/(losses) on securities available-for-sale(2) | Less: Net unrealized gains/(losses) on securities available-for-sale(2) | (1,916 | ) | 471 | ||||||||||||||
Less: Accumulated net losses on cash flow hedges, net of tax | Less: Accumulated net losses on cash flow hedges, net of tax | (4,801 | ) | (3,163 | ) | |||||||||||||
Less: Pension liability adjustment, net of tax |
| 1,526 |
| 1,570 |
| 1,647 |
| (1,026 | ) | (1,057 | ) | |||||||
Less: Cumulative effect included in fair value of financial liabilities attributable to credit-worthiness, net of tax(3) |
| (138 | ) | (222 | ) | — |
| |||||||||||
Less: Cumulative effect included in fair value of financial liabilities attributable to credit worthiness, net of tax(4) | Less: Cumulative effect included in fair value of financial liabilities attributable to credit worthiness, net of tax(4) | 1,409 | 1,352 | |||||||||||||||
Less: Restricted Core Capital Elements(5) | Less: Restricted Core Capital Elements(5) | — | 1,364 | |||||||||||||||
Less: Disallowed Deferred Tax Assets(6) | Less: Disallowed Deferred Tax Assets(6) | 3,715 | — | |||||||||||||||
Less: Intangible assets: |
|
|
|
|
|
|
| Less: Intangible assets: | ||||||||||
Goodwill |
| (39,231 | ) | (34,380 | ) | (33,415 | ) | |||||||||||
Other disallowed intangible assets |
| (8,981 | ) | (6,589 | ) | (6,127 | ) | |||||||||||
Goodwill | 43,622 | 41,204 | ||||||||||||||||
Other disallowed intangible assets | 12,262 | 10,511 | ||||||||||||||||
Other |
| (1,485 | ) | (853 | ) | (793 | ) | Other | (1,331 | ) | (1,361 | ) | ||||||
Total Tier 1 Capital |
| $ | 92,435 |
| $ | 91,422 |
| $ | 90,899 |
| Total Tier 1 Capital | $ | 99,088 | $ | 89,226 | |||
Tier 2 Capital |
|
|
|
|
|
|
| Tier 2 Capital | ||||||||||
Allowance for credit losses(4) |
| $ | 11,475 |
| $ | 10,604 |
| $ | 10,034 |
| ||||||||
Qualifying debt(5) |
| 26,593 |
| 24,447 |
| 21,891 |
| |||||||||||
Unrealized marketable equity securities gains(1) |
| 747 |
| 562 |
| 436 |
| |||||||||||
Allowance for credit losses(7) | Allowance for credit losses(7) | $ | 16,102 | $ | 15,778 | |||||||||||||
Qualifying debt(8) | Qualifying debt(8) | 27,332 | 26,690 | |||||||||||||||
Unrealized marketable equity securities gains(2) | Unrealized marketable equity securities gains(2) | 1,086 | 1,063 | |||||||||||||||
Restricted Core Capital Elements(5) | Restricted Core Capital Elements(5) | — | 1,364 | |||||||||||||||
Total Tier 2 Capital |
| $ | 38,815 |
| $ | 35,613 |
| $ | 32,361 |
| Total Tier 2 Capital | $ | 44,520 | $ | 44,895 | |||
Total Capital (Tier 1 and Tier 2) |
| $ | 131,250 |
| $ | 127,035 |
| $ | 123,260 |
| Total Capital (Tier 1 and Tier 2) | $ | 143,608 | $ | 134,121 | |||
Risk-Adjusted Assets(6) |
| $ | 1,168,380 |
| $ | 1,106,961 |
| $ | 1,057,872 |
| ||||||||
Risk-Adjusted Assets(9) | Risk-Adjusted Assets(9) | $ | 1,279,586 | $ | 1,253,321 | |||||||||||||
(2)
(3)
(4) Includable
(5)
(6)
Common stockholders' equity decreased approximately $4.8 billion to $108.8 billion, representing 4.9% of total assets as of March 31, 2008 from $113.6 billion and 5.2% at December 31, 2007.
During the first quarter of 2008, the Company completed or announced the following preferred stock issuances:
Subsequent to March 31, 2008, the Company issued $6 billion of Series E 8.40% fixed rate/floating rate non-cumulative preferred stock, which settled on April 28, 2008. The Series E preferred stock will pay, when and if declared by the Company's Board of Directors, dividends in cash at a rate of 8.40% per annum, payable semi-annually until April 2018, and quarterly thereafter at a floating rate. The first dividend payment date will be October 30, 2008. The Series E preferred stock is perpetual and has no maturity date.
We raised an additional $6.0 billion of capital through a preferred stock issuance on April 28, 2008 and sold approximately $4.9 billion of common stock (scheduled to close on May 5, 2008), which includes the over-allotment option that was exercised on May 1, 2008 (194,327,721 total shares that were priced at $25.27 per share on April 30, 2008). On a pro forma basis, taking into account the issuances of this preferred and common stock, the Company's March 31, 2008 Tier 1 Capital ratio would have been approximately 8.7%.
Common stockholders’ equity increased approximately $8.4 billion during the first six months of 2007 to $127.2 billion at June 30, 2007, representing 5.7% of assets. This compares to $118.8 billion and 6.3% at year-end 2006.
The table below summarizes the change in common stockholders’stockholders' equity:
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 |
| 11.2 |
| |
Employee benefit plans and other activities |
| 2.0 |
| |
Dividends |
| (5.4 | ) | |
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 |
| 0.6 |
| |
Common Equity, June 30, 2007 |
| $ | 127.2 |
|
In billions of dollars | | |||
---|---|---|---|---|
Common Equity, December 31, 2007 | $ | 113.6 | ||
Net income | (5.1 | ) | ||
Employee benefit plans and other activities | 0.4 | |||
Dividends | (1.8 | ) | ||
Issuance of shares for Nikko Cordial acquisition | 4.4 | |||
Net change in Accumulated other comprehensive income (loss), net of tax | (2.7 | ) | ||
Common Equity, March 31, 2008 | $ | 108.8 | ||
(1) The adjustment to the opening balance of retained earnings represents the total of the after-tax amounts for the adoption of the following accounting pronouncements:
· SFAS 157, for $75 million,
· SFAS No. 159, for ($99) million,
· FSP No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-2) for ($148) million, and
· FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) for ($14) million.
See Note 1 and Note 16 on pages 51 and 71, respectively.
(2) The after-tax adjustment to the opening balance of Accumulated other comprehensive income (loss) represents the reclassification of the unrealized gains (losses) related to the Legg Mason securities as well as several miscellaneous items previously reported in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS 115). These available-for-sale securities were reclassified to retained earnings upon the adoption of the fair value option in accordance with SFAS 159. See Note 1 and 16 on pages 51 and 71, respectively, for further discussions.
The decrease in the common stockholders’ equity ratio during the six months ended June 30, 2007 reflected the above items and a 17.9% increase in total assets.
On April 17, 2006, the Board of Directors authorized up to an additional $10 billion in share repurchases. As of June 30, 2007, $6.8March 31, 2008, $6.7 billion remained under authorized repurchase programs after the repurchase of $653 million and $7.0$0.7 billion in shares during the six months ended June 30, 2007 and full year 2006, respectively.2007. As a result of developments in the Company’slatter half of 2007 and early 2008, including CDO write-downs and recent acquisitions, the successful Nikko tender offer, and other growth opportunities, it is anticipated that the Company will not resume its share repurchase program forin the remaindernear future.
Capital Resources of the year. This is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See “Forward-Looking Statements” on page 44. For further details, see “Unregistered Sales of Equity Securities and Use of Proceeds” on page 92.Citigroup's Depository Institutions
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.
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 quarter-end, they did not qualify as Tier 1 Capital at June 30, 2007.
The table below summarizes the Company’s repurchase activity:
In millions, except per share amounts |
| Total |
| Dollar Value |
| Average Price |
| Dollar Value |
| |||
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 |
|
Total year-to-date 2007 |
| 12.2 |
| $ | 653 |
| $ | 53.34 |
| $ | 6,759 |
|
(1) On April 17, 2006, the Board of Directors authorized up to an additional $10 billion in share repurchases.
(2) See “Unregistered Sales of Equity Securities and Use of Proceeds” on page 92.
39
Citibank, N.A. Regulatory Capital Ratios(1)
Citigroup’s 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’sFRB's guidelines. To be “well capitalized”"well capitalized" under federal bank regulatory agency definitions, Citigroup’sCitigroup'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 June 30, 2007,March 31, 2008, all of Citigroup’sCitigroup's subsidiary depository institutions were “well capitalized”"well capitalized" under the federal regulatory agencies’agencies' definitions, including Citigroup’sCitigroup's primary depository institution, Citibank, N.A., as noted in the following table:
|
| June 30, |
| March 31, |
| December 31, |
|
Tier 1 Capital |
| 8.21 | % | 8.13 | % | 8.32 | % |
Total Capital (Tier 1 and Tier 2) |
| 12.24 |
| 12.05 |
| 12.39 |
|
Leverage(2) |
| 5.83 |
| 5.97 |
| 6.09 |
|
Citibank, N.A. Regulatory Capital Ratios(1)
| March 31, 2008(2)(3) | December 31, 2007(2) | |||
---|---|---|---|---|---|
Tier 1 Capital | 8.59 | % | 8.98 | % | |
Total Capital (Tier 1 and Tier 2) | 12.88 | 13.33 | |||
Leverage(4) | 6.09 | 6.65 |
(3)The impact related to using Citigroup’s credit rating under the adoption of SFAS 157 is excluded from Tier 1 Capital at June 30, 2007 and March 31, 2007, respectively.
Citibank, N.A. Components of Capital Under Regulatory GuidelinesGuidelines(1)
In billions of dollars | March 31, 2008(2)(3) | December 31, 2007(2) | ||||
---|---|---|---|---|---|---|
Tier 1 Capital | $ | 80.9 | $ | 82.0 | ||
Total Capital (Tier 1 and Tier 2) | 121.2 | 121.6 |
In billions of dollars |
| June 30, |
| March 31, |
| December 31, |
| |||
Tier 1 Capital |
| $ | 67.0 |
| $ | 62.2 |
| $ | 59.9 |
|
Total Capital (Tier 1 and Tier 2) |
| 99.9 |
| 92.2 |
| 89.1 |
| |||
(1)
Citibank, N.A. had a net incomeloss of $0.9 billion for the secondfirst quarter of 2007 and for2008.
Citibank, N.A. did not issue any additional subordinated notes during the six months ended June 30, 2007 of $3.0 billion and $5.2 billion, respectively. During the secondfirst quarter of 2007 and for2008. For the six months ended June 30,full year 2007, Citibank, received contributions from parent company of $3.7 billion and $5.7 billion, respectively.
During the first six months of 2007 and full year 2006, CitibankN.A. issued an additional $2.4$5.2 billion and $7.8 billion, respectively, of subordinated notes to Citicorp Holdings Inc. that qualify for inclusion in Citibank, N.A.’s's Tier 2 Capital. Total subordinated notes issued to Citicorp Holdings Inc. that were outstanding at June 30, 2007March 31, 2008 and December 31, 20062007, and included in Citibank, N.A.’s's Tier 2 Capital, amounted to $25.4$28.2 billion.
The following table presents the estimated sensitivity of Citigroup's and Citibank, N.A.'s Capital Ratios to changes of $100 million of Tier 1 or Total Capital (numerator) or changes of $1 billion and $23.0 billion, respectively.in risk-adjusted assets or adjusted average assets (denominator). This information is provided solely for the purpose of analyzing the impact that a change in the Company's financial position or results of operations has on these ratios. These sensitivities only consider a single change to either a component of Capital, risk-adjusted assets or adjusted average assets. Accordingly, an event that affects more than one factor may have a larger basis point impact than what is reflected in this table.
Tier 1 Capital Ratio | Total Capital Ratio | Leverage Ratio | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Impact of $100 million change in Tier 1 Capital | Impact of $1 billion change in risk-adjusted assets | Impact of $100 million change in Total Capital | Impact of $1 billion change in risk-adjusted assets | Impact of $100 million change in Tier 1 Capital | Impact of $1 billion change in adjusted average assets | |||||||
Citigroup | 0.8 bps | 0.6 bps | 0.8 bps | 0.9 bps | 0.4 bps | 0.2 bps | ||||||
Citibank, N.A. | 1.1 bps | 0.9 bps | 1.1 bps | 1.4 bps | 0.8 bps | 0.5 bps |
Broker-Dealer Subsidiaries
At June 30, 2007,March 31, 2008, Citigroup Global Markets Inc., an indirect wholly owned subsidiary of Citigroup Global Markets HoldingMarket Holdings Inc. (CGMHI), had net capital, computed in accordance with the Net Capital Rule, of $4.4$4.0 billion, which exceeded the minimum requirement by $3.6$3.1 billion.
In addition, certain of the Company’sCompany's broker-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’sCompany's broker-dealer subsidiaries were in compliance with their capital requirements at June 30, 2007.March 31, 2008.
Regulatory Capital 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 July 20,December 7, 2007, the U.S. banking regulators announced thatpublished the implementation ofrules for large banks to comply with Basel II in the U.S. should be technically consistent in most aspectsThese rules require Citigroup, as a large and internationally active bank, to comply with the international version. This should lead to the finalization of a rule for implementing themost advanced Basel II approaches for computing Citigroup’s risk-basedcalculating credit and operational risk capital requirements under Basel II.requirements. The U.S. implementation timetable is expected to consistconsists of a parallel calculationscalculation period under the current regulatory capital regime (Basel I) and Basel II, starting Januaryany time between April 1, 2008, and an implementationApril 1, 2010 followed by a three-year transition period, typically starting January 1, 2009 through year-end 2011 or possibly later.12 months after the beginning of parallel reporting. The U.S. regulators have 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 Actionprompt corrective action and leverage capital requirements applicable to U.S. banking organizations.
Citigroup continues to monitor, analyze and comment on the developing capital standardsorganizations 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 44.The Company is currently reviewing its timetable for adoption.
At the Holding Company level for Citigroup, for CGMHI, and for the Combined Holding Company and CGMHI, Citigroup maintains sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing the unsecured markets.
FUNDING
Overview
As a financial holding company, substantially all of Citigroup’sCitigroup's net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries’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 June 30, During the second half of 2007 long-term debt and the first quarter of 2008 the Company took a series of actions to reduce potential funding risks related to short-term market dislocations. The amount of commercial paper outstanding for Citigroupwas reduced and the weighted-average maturity was extended, the Parent Company CGMHI, Citigroup Funding Inc.liquidity portfolio (a portfolio of cash and Citigroup’s other subsidiarieshighly liquid securities) and broker-dealer "cash box" (unencumbered cash deposits) were increased substantially, and the amount of unsecured overnight bank borrowings was reduced. As of March 31, 2008, the Parent Company liquidity portfolio and broker-dealer "cash box" totaled $30.0 billion as follows:
In billions of dollars |
| Citigroup |
| CGMHI |
| Citigroup |
| Other |
| ||||
Long-term debt |
| $ | 140.4 |
| $ | 29.2 |
| $ | 30.9 |
| $ | 139.6 | (1) |
Commercial paper |
| $ | — |
| $ | — |
| $ | 53.1 |
| $ | 2.7 |
|
(1) At June 30,compared with $24.2 billion at December 31, 2007 approximately $90.2and $11.4 billion relates to collateralized advances from the Federal Home Loan Bank.
See Note 12 on page 61 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 June 30, 2007. The outlook for allAs a result of Citigroup’s ratings is “stable.”recent funding and capital actions, this balance totaled $54.8 billion at April 30, 2008.
Banking Subsidiaries
There are various legal limitations on the ability of Citigroup’sCitigroup'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’sagency's regulations. State-chartered depository institutions are subject to dividend limitations imposed by applicable state law.
As of June 30, 2007, Citigroup’sMarch 31, 2008, Citigroup's subsidiary depository institutions cancould declare dividends to their parent companies, without regulatory approval, of approximately $16.3$8.3 billion. In determining the dividends, each depository institution must also consider its effect on applicable risk-based capital and Leverage Ratioleverage 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 June 30, 2007,March 31, 2008, its subsidiary depository institutions cancould distribute dividends to Citigroup of the entire $8.3 billion.
At March 31, 2008, long-term debt and commercial paper outstanding for Citigroup Parent Company, CGMHI, Citigroup Funding Inc. (CFI) and Citigroup's Subsidiaries were as follows:
In billions of dollars | Citigroup Parent company | CGMHI(1) | Citigroup Funding Inc.(1) | Other Citigroup Subsidiaries(2) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term debt | $ | 181.1 | $ | 25.1 | $ | 37.9 | $ | 180.9 | ||||
Commercial paper | $ | — | $ | — | $ | 37.3 | $ | 2.0 | ||||
See Note 11 to the Consolidated Financial Statements on page 75 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 table below indicates the current ratings for Citigroup.
On January 15, 2008, Standard & Poor's lowered Citigroup Inc.'s senior debt rating to "AA-" from "AA" and Citibank, N.A.'s long-term rating to "AA" from "AA+". Standard & Poor's changed the outlook on the ratings to "negative" and removed the "CreditWatch with negative implications" designation.
On April 18, 2008, Fitch Ratings lowered Citigroup Inc.'s and Citibank, N.A.'s senior debt rating to "AA-" from "AA". In doing so, Fitch removed the rating from "Watch Negative" and applied a "Negative Outlook". Also on April 18, 2008, Moody's Investors Service placed the ratings of Citigroup Inc. and its subsidiaries on "Negative Outlook", and Standard & Poor's changed the outlook on Citigroup and its subsidiaries ratings to "CreditWatch Negative" from "Negative Outlook".
As a result of the Citigroup guarantee, changes in ratings and ratings outlooks for Citigroup Funding Inc. are the same as those of Citigroup Inc. noted above.
Citigroup’sCitigroup's Debt Ratings as of June 30, 2007March 31, 2008
LIQUIDITY
Citigroup's liquidity management is structured to optimize the free flow of funds through the Company's legal and regulatory structure. Principal constraints relate to legal and regulatory limitations, sovereign risk and tax considerations. Consistent with these constraints, Citigroup's primary objectives for liquidity management are established by entity and in aggregate across three main operating entities as follows:
Within this construct, there is a funding framework for the Company's activities. The primary benchmark for the Parent and Broker-Dealer Entities is that on a combined basis, Citigroup maintains sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing the unsecured markets. The resulting "short-term ratio" is monitored on a daily basis.
OFF-BALANCE SHEET ARRANGEMENTS
Overview
Citigroup and its subsidiaries are involved with severalnumerous types of off-balance sheetoff-balance-sheet arrangements, including special purpose entities (SPEs), lines and letters of credit and loan commitments.
The securitization process enhancesUses of SPEs
An SPE is an entity in the liquidityform 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 markets,assets, to assist clients in securitizing their financial assets, and to create investment products for clients. SPEs may spreadbe 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, which are recorded on the balance sheet of the SPE and not reflected on the transferring company's balance sheet, assuming applicable accounting requirements are satisfied. 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, liquidity put option or asset purchase agreement. 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 among severalof the SPE. Citigroup may be the provider of certain credit enhancements as well as the counterparty to any related derivative contracts.
SPEs may be Qualifying SPEs (QSPEs) or Variable Interest Entities (VIEs) or neither.
Qualifying SPEs
QSPEs are a special class of SPEs defined in FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 140). These SPEs have significant limitations on the types of assets and derivative instruments they may own and the types and extent of activities and decision-making they may engage in. Generally, QSPEs are passive entities designed to purchase assets and pass through the cash flows from those assets to the investors in the QSPE. QSPEs may not actively manage their assets through discretionary sales and are generally limited to making decisions inherent in servicing activities and issuance of liabilities. QSPEs are generally exempt from consolidation by the transferor of assets to the QSPE and any investor or counterparty.
Variable Interest Entities
VIEs are entities defined in FASB Interpretation No. 46, "Consolidation of Variable Interest Entities (revised December 2003)" (FIN 46-R), and are entities that have either a total equity investment at risk 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, right to receive the expected residual returns of the entity, and obligation to absorb the expected losses of the entity). Investors that finance the VIE through debt or equity interests, or other counterparties that provide other forms of support, such as guarantees, subordinated fee arrangements, or certain types of derivative contracts, 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. Consolidation under FIN 46-R is based onexpected losses and residual returns, which consider various scenarios on a probability-weighted basis. Consolidation of a VIE is, therefore, determined based primarily on variability generated in scenarios that are considered most likely to occur, rather than based on scenarios that are considered more remote. Certain variable interests may absorb significant amounts of losses or residual returns contractually, but if those scenarios are considered very unlikely to occur, they may not lead to consolidation of the VIE.
All of these facts and circumstances are taken into consideration when determining whether the Company has variable interests that would deem it the primary beneficiary and, therefore, require consolidation of the related VIE or otherwise rise to the level where disclosure would provide useful information to the users of the Company's financial statements. In some cases, it is qualitatively clear based on the extent of the Company's involvement or the seniority of its investments that the Company is not the primary beneficiary of the VIE. In other cases, a more detailed and quantitative analysis is required to make such a determination.
The Company generally considers the following types of involvement to be significant:
Thus, the Company's definition of "significant" involvement generally includes all variable interests held by the Company, even those where the likelihood of loss or the notional amount of exposure to any single legal entity is small. Involvement with a VIE as described above, regardless of the
seniority or perceived risk of the Company's involvement, is included as significant.
In various other transactions the Company may act as a derivative counterparty (for example, interest rate swap, cross-currency swap, or purchaser of credit protection under a credit default swap or total return swap where the Companypays the total return on certain assets to the SPE); may act as underwriter or placement agent; may provide administrative, trustee, or other services; or may make a market participants,in debt securities or other instruments issued by VIEs. The Company generally considers such involvement, by itself, "not significant" under FIN 46-R.
Citigroup's total involvement with SPEs, including QSPEs, consolidated VIEs and makes newsignificant unconsolidated VIEs as of March 31, 2008 and December 31, 2007 is presented below:
| March 31, 2008 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars of SPE assets | Total involvement with SPEs | QSPE assets | Consolidated VIE assets | Significant unconsolidated VIE assets(1) | |||||||||
Global Consumer | |||||||||||||
Credit card securitizations | $ | 120,695 | $ | 120,695 | $ | — | $ | — | |||||
Mortgage loan securitizations | 517,907 | 517,845 | 62 | — | |||||||||
Investment funds | 935 | — | 254 | 681 | |||||||||
Leasing | 35 | — | 35 | — | |||||||||
Other | 16,158 | 14,539 | 1,619 | — | |||||||||
Total | $ | 655,730 | $ | 653,079 | $ | 1,970 | $ | 681 | |||||
Markets & Banking | |||||||||||||
Citi-administered asset-backed commercial paper conduits (ABCP) | $ | 71,858 | $ | — | $ | — | $ | 71,858 | |||||
Third-party commercial paper conduits | 27,131 | — | — | 27,131 | |||||||||
Collateralized debt obligations (CDOs) | 64,932 | — | 18,198 | 46,734 | |||||||||
Collateralized loan obligations (CLOs) | 22,336 | — | 1,139 | 21,197 | |||||||||
Mortgage loan securitizations | 87,832 | 87,832 | — | — | |||||||||
Asset-based financing | 114,901 | — | 3,179 | 111,722 | |||||||||
Municipal securities tender option bond trusts (TOBs) | 37,748 | 9,758 | 15,751 | 12,239 | |||||||||
Municipal investments | 15,635 | — | 991 | 14,644 | |||||||||
Client intermediation | 17,094 | — | 4,627 | 12,467 | |||||||||
Other | 31,359 | 8,568 | 12,954 | 9,837 | |||||||||
Total | $ | 490,826 | $ | 106,158 | $ | 56,839 | $ | 327,829 | |||||
Global Wealth Management | |||||||||||||
Investment Funds | $ | 584 | $ | — | $ | 538 | $ | 46 | |||||
Alternative Investments | |||||||||||||
Structured investment vehicles | $ | 46,809 | $ | — | $ | 46,809 | $ | — | |||||
Investment funds | 16,719 | — | 6,577 | 10,142 | |||||||||
Total | $ | 63,528 | $ | — | $ | 53,386 | $ | 10,142 | |||||
Corporate/Other | |||||||||||||
Trust preferred securities | $ | 24,121 | $ | — | $ | — | $ | 24,121 | |||||
Citigroup Total | $ | 1,234,789 | $ | 759,237 | $ | 112,733 | $ | 362,819 | |||||
| December 31, 2007 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars of SPE assets | Total involvement with SPEs | QSPE assets | Consolidated VIE assets | Significant unconsolidated VIE assets(1) | |||||||||
Global Consumer | |||||||||||||
Credit card securitizations | $ | 125,109 | $ | 125,109 | $ | — | $ | — | |||||
Mortgage loan securitizations | 516,865 | 516,802 | 63 | — | |||||||||
Investment funds | 886 | — | 276 | 610 | |||||||||
Leasing | 35 | — | 35 | — | |||||||||
Other | 16,267 | 14,882 | 1,385 | — | |||||||||
Total | $ | 659,162 | $ | 656,793 | $ | 1,759 | $ | 610 | |||||
Markets & Banking | |||||||||||||
Citi-administered asset-backed commercial paper conduits (ABCP) | $ | 72,558 | $ | — | $ | — | $ | 72,558 | |||||
Third-party commercial paper conduits | 27,021 | — | — | 27,021 | |||||||||
Collateralized debt obligations (CDOs) | 74,106 | — | 22,312 | 51,794 | |||||||||
Collateralized loan obligations (CLOs) | 23,227 | — | 1,353 | 21,874 | |||||||||
Mortgage loan securitizations | 84,093 | 84,093 | — | — | |||||||||
Asset-based financing | 96,072 | — | 4,468 | 91,604 | |||||||||
Municipal securities tender option bond trusts (TOBs) | 50,129 | 10,556 | 17,003 | 22,570 | |||||||||
Municipal investments | 13,715 | — | 53 | 13,662 | |||||||||
Client intermediation | 12,383 | — | 2,790 | 9,593 | |||||||||
Other | 37,466 | 14,526 | 12,642 | 10,298 | |||||||||
Total | $ | 490,770 | $ | 109,175 | $ | 60,621 | $ | 320,974 | |||||
Global Wealth Management | |||||||||||||
Investment Funds | $ | 642 | $ | — | $ | 590 | $ | 52 | |||||
Alternative Investments | |||||||||||||
Structured investment vehicles | $ | 58,543 | $ | — | $ | 58,543 | $ | — | |||||
Investment funds | 10,979 | — | 45 | 10,934 | |||||||||
Total | $ | 69,522 | $ | — | $ | 58,588 | $ | 10,934 | |||||
Corporate/Other | |||||||||||||
Trust preferred securities | $ | 23,756 | $ | — | $ | $ | 23,756 | ||||||
Citigroup Total | $ | 1,243,852 | $ | 765,968 | $ | 121,558 | $ | 356,326 | |||||
These tables do not include:
Primary Uses of SPEs by Consumer
Securitization of Credit Card ReceivablesCitigroup’s AssetsIn 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 13 on page 63.
Credit card receivables are securitized through trusts, which are established to purchase the receivables. 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. The Company relies on securitizations to fund a significant portion of its managedU.S. Cards business, which includes both on-balance-sheet and securitized receivables.
The following table reflects amounts related to the Company’sCompany's securitized credit card receivables at June 30, 2007March 31, 2008 and December 31, 2006:2007:
In billions of dollars |
| June 30, |
| December 31, |
| March 31, 2008 | December 31, 2007 | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Principal amount of credit card receivables in trusts |
| $ | 111.6 |
| $ | 112.4 |
| $ | 120.7 | $ | 125.1 | ||
Ownership interests in principal amount of trust credit card receivables: |
|
|
|
|
| ||||||||
Sold to investors via trust-issued securities |
| 96.0 |
| 93.1 |
| $ | 102.8 | $ | 102.3 | ||||
Retained by Citigroup as trust-issued securities |
| 3.4 |
| 5.1 |
| 5.5 | 4.5 | ||||||
Retained by Citigroup via non-certificated interest recorded as consumer loans |
| 12.2 |
| 14.2 |
| ||||||||
Retained by Citigroup via non-certificated interests recorded as consumer loans | 12.4 | 18.3 | |||||||||||
Total ownership interests in principal amount of trust credit card receivables |
| $ | 111.6 |
| $ | 112.4 |
| $ | 120.7 | $ | 125.1 | ||
Other amounts recorded on the balance sheet related to interests retained in the trusts: |
|
|
|
|
| ||||||||
Amounts receivable from trusts |
| $ | 4.5 |
| $ | 4.5 |
| $ | 4.0 | $ | 4.4 | ||
Amounts payable to trusts |
| 1.8 |
| 1.7 |
| 1.7 | 1.6 | ||||||
Residual interest retained in trust cash flows |
| 2.8 |
| 2.5 |
| 3.4 | 2.7 | ||||||
In the second quarters of 2007 and 2006, theThe Company recorded net gains from securitization of credit card receivables of $149$221 million and $284$335 million respectively, and $396 million and $456 million induring the first six monthsquarter of 20072008 and 2006,2007, respectively. Net gains reflect the following:
·
·
·
· offset by other-than-temporary impairments for the portion of the residual interest classified as available-for-sale
· Mark-to-market
See Note 13 on page 63 for additional information regarding the Company’s securitization activities.
MortgagesSecuritization of Originated Mortgage and Other AssetsConsumer Loans
The CompanyCompany's Consumer business provides a wide range of mortgage and other consumer loan products to its customers. Once originated, the Company often securitizes these loans (primarily mortgage and student loans). In addition to providing a source of liquidity and less expensive funding, securitizing these assets also reduces the Company’sCompany's credit exposure to the borrowers. In addition to servicing rights, the Company also retains a residual interest in its
The Company's mortgage and student loan and other asset securitizations consistingare primarily non-recourse, thereby effectively transferring the risk of securities and interest-only strips that arise from the calculation of gain or loss at the time assets are soldfuture credit losses to the SPE.purchasers of the securities issued by the trust. However, the Company's Consumer business generally retains the servicing rights.
The Company recognized gains related to the securitization of mortgagesthese mortgage and other consumer loan products of $3 million and $53 million in first quarter of 2008 and 2007, respectively.
Subprime Loan Modification Framework
In the 2007 fourth quarter, the American Securitization Forum (ASF) issued the "Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans" (the ASF Framework) with the support of the U.S. Department of the Treasury. The purpose of this guidance is to provide evaluation procedures and prevent losses on securitized subprime residential mortgages that originated between January 1, 2005 and July 31, 2007 and that have an initial interest rate reset between January 1, 2008 and July 31, 2010. The framework segments securitized loans based on various factors, including the ability of the borrower to meet the initial terms of the loan and obtain refinancing. For certain eligible loans in the scope of the ASF Framework, a fast-track loan modification plan may be applied, under which the loan interest rate will be frozen at the introductory rate for a period of five years following the upcoming reset date. To qualify for fast-track modification, a loan must: currently be no more than 30 days delinquent and no more than 60 days delinquent in the past 12 months; have a loan-to-value ratio greater than 97%; be ineligible for FHA Secure; be subject to payment increases greater than 10% upon reset; and be for the primary residence of the borrower.
Primary Uses of SPEs by Markets & Banking
Citi-administered Asset-backed Commercial Paper Conduits
The Company is active in the asset-backed commercial paper conduit business as administrator of several multi-seller commercial paper conduits, and also as a service provider to single-seller and other commercial paper conduits sponsored by third parties.
The multi-seller commercial paper conduits are designed to provide the Company's customers access to low-cost funding in the commercial paper markets. The conduits purchase assets from or provide financing facilities to customers and are funded by issuing commercial paper to third-party investors. The conduits generally do not purchase assets originated by the Company. The funding of the conduit is facilitated by the liquidity support and credit enhancements provided by the Company and by certain third parties. As administrator to the conduits, the Company is responsible for selecting and structuring of assets purchased or financed by the conduits, making decisions regarding the funding of the conduits, including determining the tenor and other features of the commercial paper issued, monitoring the quality and performance of the conduits' assets, and facilitating the operations and cash flows of the conduits.
In return, the Company earns structuring fees from clients for individual transactions and earns an administration fee from the conduit, which is equal to the income from client program and liquidity fees of the conduit after payment of interest costs and other fees. This administration fee is fairly
stable, since most risks and rewards of the underlying assets are passed back to the customers and, once the asset pricing is negotiated, most ongoing income, costs and fees are relatively stable as a percentage of the conduit's size.
The conduits administered by the Company do not generally invest in liquid securities that are formally rated by third parties. The assets are privately negotiated and structured transactions that are designed to be held by the conduit, rather than actively traded and sold. The yield earned by the conduit on each asset is generally tied to the rate on the commercial paper issued by the conduit, thus passing interest rate risk to the client. Each asset purchased by the conduit is structured with transaction-specific credit enhancement features provided by the third-party seller, including over-collateralization, cash and excess spread collateral accounts, direct recourse or third-party guarantees. Credit enhancements are sized based on historic asset performance to achieve an internal risk rating that, on average, approximates an AA or A rating.
Substantially all of the funding of the conduits is in the form of commercial paper, with a weighted average life generally ranging from 30-40 days. As of March 31, 2008 and December 31, 2007, the weighted average life of the commercial paper issued was approximately 30 days. In addition, the conduits have issued Subordinate Loss Notes and equity with a notional amount of approximately $78 million and $77 million as of March 31, 2008 and December 31, 2007, respectively, with varying remaining tenors ranging from three months to eight years.
The primary credit enhancement provided to the conduit investors is in the form of transaction-specific credit enhancement described above. In addition, there are two additional forms of credit enhancement that protect the commercial paper investors from defaulting assets. First, the Subordinate Loss Notes issued by each conduit absorb any credit losses up to their full notional amount. It is expected that the Subordinate Loss Notes issued by each conduit are sufficient to absorb a majority of the expected losses from each conduit, thereby making the single investor in the Subordinate Loss Note the primary beneficiary under FIN 46-R. Second, each conduit has obtained either a letter of credit from the Company or a surety bond from a monoline insurer that will reimburse the conduit for any losses up to a specified amount, which is generally 8-10% of the conduit's assets. Where surety bonds are obtained, the Company, in turn, provides the surety bond provider a reimbursement guarantee up to a stated amount for aggregate losses incurred by any of the conduits covered by the surety bond. The total of the letters of credit and the reimbursement guarantee provided by the Company is approximately $2.1 billion and is considered in the Company's maximum exposure to loss. The net result across all multi-seller conduits administered by the Company is that, in the event of defaulted assets in excess of the transaction-specific credit enhancement described above, any losses in each conduit are allocated in the following order:
The Company, along with third parties, also provides the conduits with two forms of liquidity facilities that are used to provide funding to the conduits in the event of a market disruption, among other events. Each asset of the conduit is supported by a transaction-specific liquidity facility in the form of an asset purchase agreement (APA). Under the APA, the Company has agreed to purchase non-defaulted eligible receivables from the conduit at par. Any assets purchased under the APA are subject to increased pricing. The APA is not designed to provide credit support to the conduit, as it generally does not permit the purchase of defaulted or impaired assets and generally reprices the assets purchased to consider any potential increased credit risk. The APA covers all assets in the conduits and is considered in the Company's maximum exposure to loss. In addition, the Company provides the conduits with program-wide liquidity in the form of short-term lending commitments. Under these commitments, the Company has agreed to lend to the conduits in the event of a short-term disruption in the commercial paper market, subject to specified conditions. The total notional exposure under the program-wide liquidity agreement is $10.6 billion and is considered in the Company's maximum exposure to loss. The Company receives fees for providing both types of liquidity agreements, and considers these fees to be on fair market terms.
Finally, the Company is one of several named dealers in the commercial paper issued by the conduits and earns a market-based fee for providing such services. Along with third-party dealers, the Company makes a market in the commercial paper and may from time to time fund commercial paper pending sale to a third party. On specific dates with less liquidity in the market, the Company may hold in inventory commercial paper issued by conduits administered by the Company, as well as conduits administered by third parties. The amount of commercial paper issued by its administered conduits held in inventory fluctuates based on market conditions and activity. As of March 31, 2008 and December 31, 2007, the Company owned less than $12 million and $10 million, respectively, of commercial paper issued by its administered conduits.
FIN 46-R requires that the Company quantitatively analyze the expected variability of the Conduit to determine whether the Company is the primary beneficiary of the conduit. The Company performs this analysis on a quarterly basis, and has concluded that the Company is not the primary beneficiary of the conduits as defined in FIN 46-R and, therefore, does not consolidate the conduits it administers. In conducting this analysis, the Company considers three primary sources of variability in the conduit: credit risk, interest rate risk and fee variability.
The Company models the credit risk of the conduit's assets using a Credit Value at Risk (C-VaR) model. The C-VaR model considers changes in credit spreads (both within a rating class as well as due to rating upgrades and downgrades), name-specific changes in credit spreads, credit defaults and recovery rates and diversification effects of pools of financial assets. The model incorporates data from independent rating agencies as well as the Company's own proprietary
information regarding spread changes, ratings transitions and losses given default. Using this credit data, a Monte Carlo simulation is performed to develop a distribution of credit risk for the portfolio of assets owned by each conduit, which is then applied on a probability-weighted basis to determine expected losses due to credit risk. In addition, the Company continuously monitors the specific credit characteristics of the conduit's assets and the current credit environment to confirm that the C-VaR model used continues to incorporate the Company's best information regarding the expected credit risk of the conduit's assets.
The Company also analyzes the variability in the fees that it earns from the conduit using monthly actual historical cash flow data to determine average fee and standard deviation measures for each conduit. Because any unhedged interest rate and foreign currency risk not contractually passed on to customers is absorbed by the fees earned by the Company, the fee variability analysis incorporates those risks.
The fee variability and credit risk variability are then combined into a single distribution of the conduit's overall returns. This return distribution is updated and analyzed on at least a quarterly basis to ensure that the amount of the Subordinate Loss Notes issued to third parties is sufficient to absorb greater than 50% of the total expected variability in the conduit's returns. The expected variability absorbed by the Subordinate Loss Note investors is therefore measured to be greater than the expected variability absorbed by the Company through its liquidity arrangements and other fees earned, the surety bond providers, and the investors in commercial paper and medium-term notes. While the notional amounts of the Subordinate Loss Notes are quantitatively small compared to the size of the conduits, this is reflective of the fact that most of the substantive risks of the conduits are absorbed by the enhancements provided by the sellers and other third parties that provide transaction-level credit enhancement. Because FIN 46-R requires these risks and related enhancements to be excluded from the analysis, the remaining risks and expected variability are quantitatively small. The calculation of variability under FIN46-R focuses primarily onexpected variability, rather than the risks associated with extreme outcomes (for example, large levels of default) that are expected to occur very infrequently. So while the Subordinate Loss Notes are sized appropriately compared to expected losses as measured in FIN 46-R, they do not provide significant protection against extreme or unusual credit losses.
The following tables describe the important characteristics of assets owned by the administered multi-seller conduits as of March 31, 2008 and December 31, 2007:
| | Credit rating distribution | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Weighted average life | ||||||||||
| AAA | AA | A | BBB | |||||||
March 31, 2008 | 1.3 years | 28 | % | 62 | % | 8 | % | 2 | % | ||
December 31, 2007 | 2.5 years | 30 | % | 59 | % | 9 | % | 2 | % | ||
| % of Total Portfolio | ||||
---|---|---|---|---|---|
Asset Class | March 31, 2008 | December 31, 2007 | |||
Student loans | 23 | % | 21 | % | |
Trade receivables | 15 | % | 16 | % | |
Credit cards and consumer loans | 12 | % | 13 | % | |
Portfolio finance | 11 | % | 11 | % | |
Commercial loans and corporate credit | 11 | % | 10 | % | |
Export finance | 9 | % | 9 | % | |
Auto | 9 | % | 8 | % | |
Residential mortgage | 5 | % | 7 | % | |
Other | 5 | % | 5 | % | |
Total | 100 | % | 100 | % | |
Third-party Conduits
The Company also provides liquidity facilities to single- and multi-seller conduits sponsored by third parties. These conduits are independently owned and managed and invest in a variety of asset classes, depending on the nature of the conduit. The facilities provided by the Company typically represent a small portion of the total liquidity facilities obtained by each conduit, and are collateralized by the assets of $144 millioneach conduit. The notional amount of these facilities is approximately $2.0 billion and $96 million$2.2 billion as of March 31, 2008 and December 31, 2007, respectively. No amounts were funded under these facilities as of March 31, 2008 and December 31, 2007.
Collateralized Debt Obligations
A collateralized debt obligation (CDO) is an SPE that purchases a pool of assets consisting of asset-backed securities and synthetic exposures through derivatives on asset-backed securities and issues multiple tranches of equity and notes to investors. A third-party manager is typically retained by the CDO to select the pool of assets and manage those assets over the term of the CDO. The Company earns fees for warehousing assets prior to the creation of a CDO, structuring CDOs, and placing debt securities with investors. In addition, the Company has retained interests in many of the CDOs it has structured and makes a market in those issued notes.
A cash CDO, or arbitrage CDO, is a CDO designed to take advantage of the difference between the yield on a portfolio of selected assets, typically residential mortgage-backed securities, and the cost of funding the CDO through the sale of notes to investors. "Cash flow" CDOs are vehicles in which the CDO passes on cash flows from a pool of assets, while "market value" CDOs pay to investors the market value of the pool of assets owned by the CDO at maturity. Both types of CDOs are typically managed by a third-party asset manager. In these transactions, all of the equity and notes issued by the CDO are funded, as the cash is needed to purchase the debt securities. In a typical cash CDO, a third-party investment manager selects a portfolio of assets, which the Company funds through a "warehouse" financing arrangement prior to the creation of the CDO. The Company then sells the debt securities to the CDO in exchange for cash raised through the issuance of notes. The Company's involvement in cash CDOs after issuance is typically limited to investing in a portion of the notes or loans issued by the CDO, making a market in those securities, and acting as derivative counterparty for interest rate or foreign currency swaps used in the structuring of the CDO.
A synthetic CDO is similar to a cash CDO, except that the CDO obtains exposure to all or a portion of the referenced assets synthetically through derivative instruments, such as credit default swaps. Because the CDO does not need to raise cash sufficient to purchase the entire referenced portfolio, a substantial portion of the senior tranches of risk is typically passed on to CDO investors in the form of unfunded liabilities or derivative instruments. Thus, the CDO writes credit protection on selected referenced debt securities to the Company or third parties, and the risk is then passed on to the CDO investors in the form of funded notes or purchased credit protection through derivative instruments. Any cash raised from investors is invested in a portfolio of collateral securities or investment contracts. The collateral is then used to support the CDO's obligations on the credit default swaps written to counterparties. The Company's involvement in synthetic CDOs after issuance generally includes purchasing credit protection through credit default swaps with the CDO, owning a portion of the capital structure of the CDO in the form of both unfunded derivative positions (primarily super senior exposures discussed below) and funded notes, entering into interest rate swap and total return swap transactions with the CDO, lending to the CDO, and making a market in those funded notes.
The following table describes credit ratings of assets of unconsolidated CDOs with which the Company had significant involvement as of March 31, 2008 and December 31, 2007:
| | Credit rating distribution | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Weighted average life | A or higher | BBB | BB/B | CCC | Unrated | |||||||
March 31, 2008 | 4.6 years | 28 | % | 27 | % | 14 | % | 25 | % | 6 | % | ||
December 31, 2007 | 5.1 years | 40 | % | 20 | % | 12 | % | 25 | % | 3 | % | ||
Commercial Paper CDOs (CPCDOs)
During the second quartershalf of 2007, the market interest rates on commercial paper issued by certain CDO structures increased significantly. To pre-empt the formal exercise of liquidity puts provided by the Company to its CDO structures, the Company purchased all of the outstanding commercial paper issued by these entities, which totaled approximately $25 billion. Because of these purchases, which are deemed to be FIN 46-R reconsideration events, and 2006, respectively,because the value of the CDOs' commercial paper and $189 millionsubordinated tranches was deteriorating as the underlying collateral of the CDOs (primarily residential mortgage-backed securities) was being downgraded, the Company concluded that it was the primary beneficiary of these entities and $148 millionbegan consolidating them in the fourth quarter of 2007.
Upon consolidation, the Company reflected the underlying assets of the CDOs on its balance sheet in Trading account assets at fair value, eliminated the commercial paper assets previously recognized, and recognized the subordinate CDO liabilities (owned by third parties) at fair value. This resulted in a balance sheet gross-up of approximately $400 million as of December 31, 2007 compared to the prior accounting treatment as unconsolidated VIEs.
During the first six monthsquarter of 2008 and the fourth quarter of 2007, the Company recognized pretax losses of $3.1 billion and 2006,$4.3 billion, respectively, for changes in the fair value of the consolidated CDOs' assets.
CDO Super Senior Exposure
In addition to asset-backed commercial paper positions in consolidated CDOs, the Company has retained significant portions of the "super senior" positions issued by certain CDOs. These positions are referred to as "super senior," because they represent the most senior positions in the CDO and, at the time of structuring, were senior to tranches rated AAA by independent rating agencies. However, since inception of these transactions, the subordinate positions have diminished significantly in value and in rating. There have been substantial reductions in value of these super senior positions during the first quarter of 2008 and fourth quarter of 2007.
While at inception of the transactions, the super senior tranches were well protected from the expected losses of these CDOs, subsequent declines in value of the subordinate tranches and the super senior tranches in the fourth quarter of 2007 indicated that the super senior tranches now are exposed to a significant portion of the expected losses of the CDOs, based on current market assumptions. The Company evaluates these transactions for consolidation when reconsideration events occur, as defined in FIN 46-R. The Company continues to monitor its involvement in these transactions and, if the Company were to acquire additional interests in these vehicles or if the CDOs' contractual arrangements were to be changed to reallocate expected losses or residual returns among the various interest holders, the Company may be required to consolidate the CDOs. The net result of such consolidation would be to gross up the Company's balance sheet by the current fair value of the subordinate securities held by third parties, which amounts are not considered material.
Collateralized Loan Obligations
A collateralized loan obligation (CLO) is substantially similar to the CDO transactions described above, except that the assets owned by the SPE (either cash instruments or synthetic exposures through derivative instruments) are corporate loans and to a lesser extent corporate bonds, rather than asset-backed debt securities.
The following table describes credit ratings of assets of unconsolidated CLOs with which the Company had significant involvement as of March 31, 2008 and December 31, 2007, respectively:
| | Credit rating distribution | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Weighted average life | A or Higher | BBB | BB/B | CCC | Unrated | |||||||
March 31, 2008 | 5.5 years | 5 | % | 6 | % | 78 | % | 0 | % | 10 | % | ||
December 31, 2007 | 5.0 years | 7 | % | 11 | % | 56 | % | 0 | % | 26 | % | ||
Mortgage Loan Securitizations
CMB is active in structuring and underwriting residential and commercial mortgage-backed securitizations. In these transactions, the Company or its customer transfers loans into a bankruptcy-remote SPE. These SPEs are designed to be QSPEs as described above. The Company may hold residual interests and other securities issued by the SPEs until they can be sold to independent investors and makes a market in those securities on an ongoing basis. These securities are held as trading assets on the balance sheet, are managed as part of the Company's trading activities, and are marked to market with most changes in value recognized in earnings. The Company sometimes retains servicing rights for certain entities. The table on page 45 shows the assets for mortgage QSPEs in which CMB acted as principal in transferring mortgages to the QSPE.
Asset-Based Financing
The Company provides loans and other forms of financing to VIEs that hold assets. Those loans are subject to the same credit approvals as all other loans originated or purchased by the Company, and related loan loss reserves are reported as part of the Company's Allowance for credit losses. Financings in the form of debt securities or derivatives are, in most circumstances, reported in Trading account assets and accounted for at fair value through earnings.
The primary types of asset-based financing, total assets of the unconsolidated VIEs with significant involvement, and the Company's maximum exposure to loss at March 31, 2008 and December 31, 2007 are shown below. For the Company to realize that maximum loss, the VIE (borrower) would have to default with no recovery from the assets held by the VIE.
In billions of dollars | March 31, 2008 | December 31, 2007 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Type | Total assets | Maximum exposure | Total assets | Maximum exposure | ||||||||
Commercial and other real estate | $ | 48.0 | $ | 16.1 | $ | 34.3 | $ | 16.0 | ||||
Hedge funds and equities | 44.5 | 14.9 | 36.0 | 13.1 | ||||||||
Asset purchasing vehicles/SIVs | 7.7 | 2.3 | 10.2 | 2.5 | ||||||||
Airplanes, ships and other assets | 11.5 | 2.9 | 11.1 | 2.7 | ||||||||
Total | $ | 111.7 | $ | 36.2 | $ | 91.6 | $ | 34.3 | ||||
The Company's involvement in the asset purchasing vehicles and Structured Investment Vehicles (SIVs) sponsored and managed by third parties is primarily in the form of provided backstop liquidity. Those vehicles finance a majority of their asset purchases with commercial paper and short-term notes. Certain of the assets owned by the vehicles have suffered significant declines in fair value, leading to an inability to re-issue maturing commercial paper and short-term notes. Citigroup has been required to provide loans to those vehicles to replace maturing commercial paper and short-term notes, in accordance with the original terms of the backstop liquidity facilities.
The asset quality of the third-party asset purchasing vehicle and SIVs to which the Company had provided backstop liquidity as of March 31, 2008 and December 31, 2007 consisted of the following:
| Credit rating distribution | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| A or Higher | BBB | BB/B | CCC | Unrated | ||||||
March 31, 2008 | 94 | % | 2 | % | 4 | % | 0 | % | 0 | % | |
December 31, 2007 | 96 | % | 1 | % | 3 | % | 0 | % | 0 | % | |
Municipal Securities Tender Option Bond (TOB) Trusts
The Company sponsors TOB trusts that hold fixed- and floating-rate, tax-exempt securities issued by state and local municipalities. The trusts are single-issuer trusts whose assets are purchased from the Company and from the secondary market. The trusts issue long-term senior floating-rate notes ("Floaters") and junior residual securities ("Residuals"). The Floaters have a long-term rating based on the long-term rating of the underlying municipal bond and a short-term rating based on that of the liquidity provider to the trust. The Residuals are generally rated based on the long-term rating of the underlying municipal bond and entitle the holder to the residual cash flows from the issuing trust.
The Company sponsors three kinds of TOB trusts: customer TOB trusts, proprietary TOB trusts, and QSPE TOB trusts.
The total assets and other characteristics of the three categories of TOB trusts as of March 31, 2008 and December 31, 2007 are as follows:
March 31, 2008
| | | Credit rating distribution | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
TOB trust type | Total assets (in billions) | Weighted average life | AAA/Aaa | AA/Aa1- AA-/Aa3 | Less than AA-/Aa3 | |||||||
Customer TOB Trusts (Not consolidated) | $ | 11.7 | 9.9 years | 68 | % | 18 | % | 14 | % | |||
Proprietary TOB Trusts (Consolidated and Non-consolidated) | $ | 22.9 | 21.5 years | 69 | % | 28 | % | 3 | % | |||
QSPE TOB Trusts (Not consolidated) | $ | 9.8 | 2.8 years | 79 | % | 21 | % | — | ||||
December 31, 2007
| | | Credit rating distribution | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
TOB trust type | Total assets (in billions) | Weighted average life | AAA/Aaa | AA/Aa1- AA-/Aa3 | Less than AA-/Aa3 | ||||||
Customer TOB Trusts (Not consolidated) | $ | 17.6 | 8.4 years | 84 | % | 16 | % | — | |||
Proprietary TOB Trusts (Consolidated and Non-consolidated) | $ | 22.0 | 18.1 years | 67 | % | 33 | % | — | |||
QSPE TOB Trusts (Not consolidated) | $ | 10.6 | 3.0 years | 80 | % | 20 | % | — | |||
Credit rating distribution is based on the external rating of the municipal bonds within the TOB trusts, including any credit enhancement provided by monoline insurance companies or the Company in the primary or secondary markets, as discussed below. The total assets for proprietary TOB Trusts (Consolidated and Non-consolidated) include $7.1 billion and $5.0 billion of assets as of March 31, 2008 and December 31, 2007, respectively, where the Residuals are held by hedge funds that are consolidated and managed by the Company.
The TOB trusts fund the purchase of their assets by issuing Floaters along with Residuals, which are frequently less than 1% of a trust's total funding. The tenor of the Floaters matches the maturity of the TOB trust and is equal to or shorter than the tenor of the municipal bond held by the trust, and the Floaters bear interest rates that are typically reset weekly to a new market rate (based on the SIFMA index). Floater holders have an option to tender the Floaters they hold back to the trust periodically. Customer TOB trusts issue the Floaters and Residuals to third parties. Proprietary and QSPE TOB trusts issue the Floaters to third parties, and the Residuals are held by the Company.
Approximately $4.5 billion as of March 31, 2008 and $5.7 billion as of December 31, 2007 of the municipal bonds owned by TOB trusts have an additional credit guarantee provided by the Company. In all other cases, the assets are either unenhanced or are insured with a monoline insurance provider in the primary market or in the secondary market. While the trusts have not encountered any adverse credit events as defined in the underlying trust agreements, certain monoline insurance companies have experienced downgrades. In these cases, the Company has proactively managed the TOB programs by applying additional secondary market insurance on the assets or proceeding with orderly unwinds of the trusts.
The Company, in its capacity as remarketing agent, facilitates the sale of the Floaters to third parties at inception of the trust and facilitates the reset of the Floater coupon and tenders of Floaters. If Floaters are tendered and the Company (in its role as remarketing agent) is unable to find a new investor within a specified period of time, it can declare a failed remarketing (in which case the trust is unwound) or may choose to buy the Floaters into its own inventory and may continue to try to sell it to a third party investor. While the levels of the Company's inventory of Floaters fluctuates, the Company held approximately $0.4 billion and $0.9 billion of Floater inventory related to the TOB programs as of March 31, 2008 and December 31, 2007, respectively.
If a trust is unwound early due to an event other than a credit event on the underlying municipal bond, the underlying municipal bond is sold in the secondary market. If there is an accompanying shortfall in the trust's cash flows to fund the redemption of the Floaters after the sale of the underlying municipal bond, the trust draws on a liquidity agreement in an amount equal to the shortfall. Liquidity agreements are generally provided to the trust directly by the Company. For customer TOBs where the Residual is less than 25% of the trust's capital structure, the Company has a reimbursement agreement with the Residual holder under which the Residual holder reimburses the Company for any payment made under the liquidity arrangement. Through this reimbursement agreement, the Residual holder remains economically exposed to fluctuations in value of the municipal bond. These reimbursement agreements are actively margined based on changes in value of the underlying municipal bond to mitigate the Company's counterparty credit risk. In cases where a third party provides liquidity to a proprietary or QSPE TOB trust, a similar reimbursement arrangement is made whereby the Company (or a consolidated subsidiary of the Company) as Residual holder absorbs any losses incurred by the liquidity provider. As of March 31, 2008 and December 31, 2007, liquidity agreements provided with respect to customer TOB trusts totaled $10.4 billion and $14.4 billion, offset by reimbursement agreements in place with a notional amount of $8.1 billion and $11.5 billion, respectively. The remaining exposure relates to TOB transactions where the Residual owned by the customer is at least 25% of the bond value at the inception of the transaction. In addition, the Company has provided liquidity arrangements with a notional amount of $9.5 billion as of March 31, 2008, and $11.4 billion as of December 31, 2007, to QSPE TOB trusts and other non-consolidated proprietary TOB trusts described above.
The Company considers the customer and proprietary TOB trusts (excluding QSPE TOB trusts) to be variable interest entities within the scope of FIN 46-R. Because third party investors hold the Residual and Floater interests in the customer TOB trusts, the Company's involvement and variable interests include only its role as remarketing agent and liquidity provider. On the basis of the variability absorbed by the customer through the reimbursement arrangement or significant residual investment, the Company does not consolidate the Customer TOB trusts. The Company's variable interests in the Proprietary TOB trusts include the Residual as well as the remarketing and liquidity agreements with the trusts. On the basis of the variability absorbed through these contracts (primarily the Residual), the Company generally consolidates the Proprietary TOB trusts. Finally, certain proprietary TOB trusts and QSPE TOB trusts are not consolidated by application of specific accounting literature. For the nonconsolidated proprietary TOB trusts and QSPE TOB trusts, the Company recognizes only its residual investment on its balance sheet at fair value and the third-party financing raised by the trusts is off-balance sheet.
Municipal Investments
Municipal Investment transactions represent partnerships that finance the construction and rehabilitation of low-income affordable rental housing. The Company generally invests in these partnerships as a limited partner and earns a return primarily through the receipt of tax credits earned from the affordable housing investments made by the partnership.
Client AssetsIntermediation
Client intermediation transactions represent a range of transactions designed to provide investors with specified returns based on the returns of an underlying security, referenced asset or index. These transactions include credit-linked notes and equity-linked notes. In these transactions, the SPE typically obtains exposure to the underlying security, referenced asset or index through a derivative instrument such as a total return swap or a credit default swap. In turn, the SPE issues notes to investors that pay a return based on the specified underlying security, referenced asset or index. The SPE invests the proceeds in a financial asset or a guaranteed insurance contract (GIC) that serves as collateral for the derivative contract over the term of the transaction. The Company's involvement in these transactions includes being the counterparty to the SPE's derivative instruments and investing in a portion of the notes issued by the SPE. In certain transactions, the investor's maximum risk of loss is limited and the Company absorb risk of loss above a specified level.
The Company's maximum risk of loss in these transactions is defined as the amount invested in notes issued by the SPE and the notional amount of any risk of loss absorbed by the Company through a separate instrument issued by the SPE. The derivative instrument held by the Company may generate a receivable from the SPE (for example, where the Company purchases credit protection from the SPE in connection with the SPE's issuance of a credit-linked note), which is collateralized by the assets owned by the SPE. These derivative instruments are not considered to be variable interests under FIN 46-R and any associated receivables are not included in the calculation of maximum exposure to the SPE.
Mutual Fund Deferred Sales Commission (DSC) Securitizations
Mutual Fund Deferred Sales Commission (DSC) receivables are assets purchased from distributors of mutual funds that are backed by distribution fees and contingent deferred sales charges (CDSC) generated by the distribution of certain shares to mutual fund investors. These share investors pay no upfront load, but the shareholder agrees to pay, in addition to the management fee imposed by the mutual fund, the distribution fee over a period of time and the CDSC (a penalty for early redemption to recover lost distribution fees). Asset managers use the proceeds from the sale of DSC receivables to cover sales commissions owed to brokers associated with the shares sold.
The Company purchases these receivables from mutual fund distributors and sells a diversified pool of receivables to a trust. The trust in turn issues two tranches of securities:
Primary Uses of SPEs by Alternative Investments
Structured Investment Vehicles
Structured Investment Vehicles (SIVs) are SPEs that issue junior notes and senior debt (medium-term notes and short-term commercial paper) to fund the purchase of high quality assets. The junior notes are subject to the "first loss" risk of the SIVs. The SIVs provide a variable return to the junior note investors based on the net spread between the cost to issue the senior debt and the return realized by the high quality assets. The Company acts as an intermediaryinvestment manager for the SIVs and, prior to December 13, 2007, was not contractually obligated to provide liquidity facilities or guarantees to the SIVs.
In response to the ratings review of the outstanding senior debt of the SIVs, for a possible downgrade announced by two ratings agencies and the continued reduction of liquidity in the SIV-related asset-backed commercial paper and medium-term note markets, on December 13, 2007, Citigroup announced its corporate clients, assisting themcommitment to provide support facilities that would support the SIVs' senior debt ratings. As a result of this commitment, Citigroup became the SIVs' primary beneficiary and began consolidating these entities.
On February 12, 2008, Citigroup finalized the terms of the support facilities, which take the form of a commitment to provide mezzanine capital to the SIVs in obtaining liquidity by sellingthe event the market value of their trade receivables or other financial assetsjunior notes approaches zero. The facilities rank senior to an SPE.the junior notes but junior to the commercial paper and medium-term notes. The facilities are on arm's-length terms. Interest will be paid on the drawn amount of the facilities and a commitment fee will be paid on the unused portion. The termination date of the facilities is January 15, 2011, cancelable at any time at the discretion of the SIVs.
In addition, Citigroup administers several third-party-owned, special purpose, multi-seller finance companies that purchase pools The impact of trade receivables, credit card receivables, and other financial assets from its clients. At June 30, 2007this consolidation on Citigroup's Consolidated Balance Sheet as of March 31, 2008 and December 31, 2006, total combined2007 is as follows:
In billions of dollars | March 31, 2008 | December 31, 2007 | |||||
---|---|---|---|---|---|---|---|
Assets | |||||||
Cash and due from banks | $ | 12.0 | $ | 11.8 | |||
Trading account assets | 34.2 | 46.4 | |||||
Other assets | 0.6 | 0.3 | |||||
Total assets | $ | 46.8 | $ | 58.5 | |||
Liabilities | |||||||
Short-term borrowings | $ | 4.2 | $ | 11.7 | |||
Long-term borrowings | 41.6 | 45.9 | |||||
Other liabilities | 1.0 | 0.9 | |||||
Total liabilities | $ | 46.8 | $ | 58.5 | |||
Balances include intercompany assets of $1 billion and intercompany liabilities of $7 billion as of March 31, 2008 and December 31, 2007, respectively, which are eliminated in consolidation. In addition, Long-term borrowings include the current portion of medium-term notes with an original maturity of greater than 364 days.
The following tables summarize the seven Citigroup-advised SIVs as of March 31, 2008 and December 31, 2007 as well as the aggregate asset mix and credit quality of the SIV assets.
In billions of dollars | March 31, 2008 | December 31, 2007 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
SIV | Assets | Short-term borrowings | Long-term borrowings | Assets | Short-term borrowings | Long-term borrowings | ||||||||||||
Beta | $ | 13.0 | $ | 0.1 | $ | 12.7 | $ | 14.8 | $ | 0.4 | $ | 14.2 | ||||||
Centauri | 12.8 | 0.0 | 12.4 | 14.9 | 0.8 | 13.8 | ||||||||||||
Dorada | 6.8 | 0.3 | 6.4 | 8.4 | 1.0 | 7.2 | ||||||||||||
Five | 6.6 | 0.5 | 5.9 | 8.7 | 2.6 | 6.0 | ||||||||||||
Sedna | 5.8 | 2.5 | 3.3 | 9.1 | 5.5 | 3.6 | ||||||||||||
Zela | 1.3 | 0.7 | 0.6 | 1.9 | 1.1 | 0.7 | ||||||||||||
Vetra | 0.5 | 0.1 | 0.3 | 0.7 | 0.3 | 0.4 | ||||||||||||
Total | $ | 46.8 | $ | 4.2 | $ | 41.6 | $ | 58.5 | $ | 11.7 | $ | 45.9 | ||||||
| March 31, 2008 | December 31, 2007 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average Asset | Average Credit Quality(1)(2) | Average Asset | Average Credit Quality(1)(2) | |||||||||||||
| Mix | Aaa | Aa | A/Baa(3) | Mix | Aaa | Aa | A | |||||||||
Financial Institutions Debt | 61 | % | 12 | % | 43 | % | 6 | % | 59 | % | 12 | % | 43 | % | 4 | % | |
Sovereign Debt | — | — | — | — | 1 | % | 1 | % | — | — | |||||||
Structured Finance | |||||||||||||||||
MBS—Non-U.S. residential | 12 | % | 12 | % | — | — | 12 | % | 12 | % | — | — | |||||
CBOs, CLOs, CDOs | 6 | % | 6 | % | — | — | 6 | % | 6 | % | — | — | |||||
MBS—U.S. residential | 6 | % | 6 | % | — | — | 7 | % | 7 | % | — | — | |||||
CMBS | 4 | % | 4 | % | — | — | 4 | % | 4 | % | — | — | |||||
Student loans | 6 | % | 6 | % | — | — | 6 | % | 6 | % | — | — | |||||
Credit cards | 5 | % | 5 | % | — | — | 5 | % | 5 | % | — | — | |||||
Total Structured Finance | 39 | % | 39 | % | — | — | 40 | % | 40 | % | — | — | |||||
Total | 100 | % | 51 | % | 43 | % | 6 | % | 100 | % | 53 | % | 43 | % | 4 | % | |
Investment Funds
The Company is the investment manager for certain investment funds that invest in various asset classes including private equity, hedge funds, real estate, fixed income and infrastructure. The Company earns a management fee which is a percentage of capital under management, and may earn performance fees. In addition, for some of these funds, the Company has an ownership interest in the investment funds.
The Company has also established a number of investment funds as opportunities for qualified employees to invest in private equity 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.
Certain Fixed Income Funds Managed by Alternative Investments
Falcon multi-strategy fixed income funds
On February 20, 2008, the Company entered into a $500 million credit facility with the Falcon multi-strategy fixed income funds (the "Falcon funds") managed by Alternative Investments. As a result of providing this facility, the Company became the primary beneficiary of the Falcon funds and consolidated the assets and liabilities in its Consolidated Balance Sheet. At March 31, 2008, the unconsolidated conduitstotal assets of the Falcon funds were $77approximately $4 billion.
ASTA/MAT municipal funds
On March 3, 2008, the Company made an equity investment of $661 million (under a $1 billion commitment) which provides for gain sharing with unaffiliated investors, in the Municipal Opportunity Funds (MOFs). The MOFs are funds managed by Alternative Investments that make leveraged investments in tax-exempt municipal bonds and $66 billion, respectively.accept investments through feeder funds known as ASTA and MAT. As a result of the Company's equity commitment, the Company became the primary beneficiary of the MOFs and consolidated the assets and liabilities in its Consolidated Balance Sheet. At March 31, 2008, the total assets of the MOFs were approximately $2 billion.
Primary Uses of SPEs by Corporate/Other
Creation of Other Investment and Financing ProductsTrust Preferred Securities
The Company packageshas raised financing through the issuance of trust preferred securities. In these transactions, the Company forms a statutory business trust and securitizesowns all of the voting equity shares of the trust. The trust issues preferred equity securities to third-party investors and invests the gross proceeds in junior subordinated deferrable interest debentures issued by the Company. These trusts have no assets, purchasedoperations, revenues or cash flows other than those related to the issuance, administration, and repayment of the preferred equity securities held by third-party investors. These trusts' obligations are fully and unconditionally guaranteed by the Company.
Because the sole asset of the trust is a receivable from the Company, the Company is not permitted to consolidate the trusts under FIN 46-R, even though the Company owns all of the voting equity shares of the trust, has fully guaranteed the trusts' obligations, and has the right to redeem the preferred securities in certain circumstances. The Company recognizes the financial markets in order to create new security offerings, including arbitrage collateralized debt obligations (CDOs) and synthetic CDOs for institutional clients and retail customers, which match the clients’ investment needs and preferences. Typically these instruments diversify investors’ risk to a pool of assetssubordinated debentures on its balance sheet as compared with investments in individual assets.long-term liabilities.
See Note 1311 on page 6375 for additional information about off-balance sheet arrangements.the Company's involvement with trust preferred securities. See Note 14 on page 80 for additional information regarding the Company's off-balance-sheet arrangements with respect to securitizations and SPEs.
Elimination of QSPEs and Changes in the FIN 46(R) Consolidation Model
In April 2008, the FASB voted to eliminate Qualifying Special Purpose Entities (QSPEs) from the guidance in SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." While the revised standard has not been finalized and the Board's proposals will be subject to a public comment period, this change may have a significant impact on Citigroup's consolidated financial statements as the Company may lose sales treatment for assets previously sold to a QSPE, as well as for future sales. This proposed revision could be effective as early as January 2009. As of March 31, 2008, the total assets of QSPEs to which Citigroup, acting as principal, has transferred assets and received sales treatment were $760 billion.
In connection with the proposed changes to SFAS 140, the FASB also is proposing three key changes to the consolidation model in FIN 46(R). First, the Board will now include former QSPEs in the scope of FIN 46(R). In addition, the FASB supports amending FIN 46(R) to change the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE to a primarily qualitative determination of control instead of today's risks and rewards model. Finally, the proposed amendment is expected to require all VIEs and their primary beneficiaries to be reevaluated quarterly. The previous rules required reconsideration only when specified reconsideration events occurred. As of March 31, 2008, the total assets of significant unconsolidated VIEs with which Citigroup is involved were approximately $363 billion.
The Company will be evaluating the impact of these changes on Citigroup's consolidated financial statements once the actual guidelines are completed.
Credit Commitments and Lines of Credit
The table below summarizes Citigroup’sCitigroup's credit commitments as of June 30, 2007March 31, 2008 and December 31, 2006.2007:
In millions of dollars |
| June 30, |
| December 31, |
| U.S. | Outside of U.S. | March 31, 2008 | December 31, 2007 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial standby letters of credit and foreign office guarantees |
| $ | 80,654 |
| $ | 72,548 |
| $ | 53,347 | $ | 28,603 | $ | 81,950 | $ | 87,066 | ||||
Performance standby letters of credit and foreign office guarantees |
| 16,242 |
| 15,802 |
| 5,994 | 12,531 | 18,525 | 18,055 | ||||||||||
Commercial and similar letters of credit |
| 9,270 |
| 7,861 |
| 1,650 | 8,099 | 9,749 | 9,175 | ||||||||||
One- to four-family residential mortgages |
| 6,641 |
| 3,457 |
| 5,893 | 763 | 6,656 | 4,587 | ||||||||||
Revolving open-end loans secured by one- to four-family residential properties |
| 34,136 |
| 32,449 |
| 30,266 | 3,346 | 33,612 | 35,187 | ||||||||||
Commercial real estate, construction and land development |
| 5,177 |
| 4,007 |
| 3,291 | 812 | 4,103 | 4,834 | ||||||||||
Credit card lines(1) |
| 1,014,718 |
| 987,409 |
| 961,838 | 157,858 | 1,119,696 | 1,103,535 | ||||||||||
Commercial and other consumer loan commitments(2) |
| 548,441 |
| 439,931 |
| 295,614 | 160,897 | 456,511 | 473,631 | ||||||||||
Total |
| $ | 1,715,279 |
| $ | 1,563,464 |
| $ | 1,357,893 | $ | 372,909 | $ | 1,730,802 | $ | 1,736,070 | ||||
See Note 17 to the Consolidated Financial Statements on page 107 for additional information on credit commitments and lines of credit.
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 the case 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. Due to this risk, the interest rates and fees charged for this type of financing are generally higher than other types of financing.
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, and other fees are netted against any recorded losses.
Citigroup generally manages the risk associated with highly leveraged financings it generally has entered into by seeking to sell 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:
Due to the dislocation of the credit markets and the reduced market interest in higher risk/higher yield instruments during the second half of 2007 and the first quarter of 2008, liquidity in the market for highly leveraged financings has continued to decline significantly during that period.
Citigroup's exposures for highly leveraged financings totaled $38 billion at March 31, 2008 ($21 billion in funded and $17 billion in unfunded commitments). This compares to total commitments of $43 billion ($22 billion funded and $21 billion unfunded) at December 31, 2007. During the first quarter of 2008, the Company recorded a net $3.1 billion pretax write down on its highly leveraged financing commitments as a result of the reduction in liquidity in the market for such instruments.
Subsequent to March 31, 2008, the Company transferred approximately $12 billion of loans to third parties, of which $8.5 billion relates to the highly leveraged loans and commitments. In these transactions, the third parties purchased subordinate interests backed by the transferred loans. These subordinate interests absorb first loss on the transferred loans and provide the third parties with control of the loans. The company retained senior debt securities backed by the transferred loans, and purchased protection on these retained senior positions via total return swaps. The credit risk in the total return swap is protected through margin arrangements that provide for both initial margin as well as additional margin at specified triggers. These transactions were accounted for as sales of the transferred loans. The loans were removed from the balance sheet and the retained securities are classified as available-for-sale securities on the Company's balance sheet. Due to the initial cash margin received and ongoing margin requirements on the total return swaps, and the substantive subordinate investments made by third parties, the Company believes that the transactions substantially mitigate the Company's risk related to these transferred loans.
FAIR VALUATION
For a division of fair value of assets and liabilities, see Note 16 to the Consolidated Financial Statements on page 95.
Disclosure
The Company’sCompany's management, with the participation of the Company’sCompany's CEO and CFO, has evaluated the effectiveness of the Company’sCompany's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of June 30, 2007March 31, 2008 and, based on that evaluation, the CEO and CFO have concluded that at that date the Company’sCompany's disclosure controls and procedures were effective.
Financial Reporting
There were no changes in the Company’sCompany's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2007March 31, 2008 that materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.
In this Quarterly Report on Form 10-Q, the Company uses certain forward-looking statements when describing future business conditions. The Company’sCompany'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"believe," "expect," "anticipate," "intend," "estimate," "may increase,” “may" "may fluctuate,”" and similar expressions, or future or conditional verbs such as “will,” “should,” “would,”"will," "should," "would," and “could.”"could."
These forward-looking statements involve external risks and uncertainties including, but not limited, to those described in the Company’s 2006Company's 2007 Annual Report on Form 10-K section entitled “Risk Factors”"Risk Factors": economic conditions; credit, market and liquidity risk; competition; country risk; operational risk; U.S. fiscal and monetary policies; reputational and legal risk; and certain regulatory considerations. Risks and uncertainties disclosed in this 10-Q include, but are not limited to:
·
· the expectation that the consumer credit environment will continue to deteriorate in the second half of 2007;
· the estimate that the Company’s consumer finance business in Japan will have net losses in 2007;
· the likely adjustment to price and terms of certain leveraged financing commitments; and
· the possible impact Basel II will have on capital standards in the U.S. and in countries where Citigroup has a significant presence.
44
Citigroup Inc.
TABLE OF CONTENTS
Page No. | |||||||
---|---|---|---|---|---|---|---|
Financial Statements: | |||||||
| 60 | ||||||
|
| 61 | |||||
| 62 | ||||||
| 63 | ||||||
| 64 | ||||||
| |||||||
| 65 | ||||||
Note 2—Business Segments | 68 | ||||||
| |||||||
| |||||||
| 68 | ||||||
| 69 | ||||||
Note 5—Retirement Benefits | 70 | ||||||
Note 6— |
| 71 | |||||
| |||||||
| 72 | ||||||
| 73 | ||||||
Note 9—Investments | 73 | ||||||
Note 10—Goodwill and Intangible Assets |
| 74 | |||||
Note 11—Debt | 75 | ||||||
Note |
| 78 | |||||
| |||||||
| |||||||
|
| 79 | |||||
Note 14—Securitizations and Variable Interest Entities | 80 | ||||||
Note 15—Derivatives Activities |
| 91 | |||||
| 95 | ||||||
Note 17—Guarantees and Credit Commitments | 107 | ||||||
Note |
| 110 | |||||
| |||||||
Note 19—Citibank, N.A. and Subsidiaries Statement of Changes in |
| 111 | |||||
|
| 112 |
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| Three Months Ended March 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except per share amounts | |||||||||||||||||||
| 2007 |
| 2006(1) |
| 2007 |
| 2006(1) |
| 2008 | 2007(1) | |||||||||
Revenues |
|
|
|
|
|
|
|
|
| ||||||||||
Interest revenue |
| $ | 30,598 |
| $ | 23,572 |
| $ | 58,730 |
| $ | 45,445 |
| $ | 29,950 | $ | 28,174 | ||
Interest expense |
| 19,172 |
| 13,717 |
| 36,734 |
| 25,824 |
| 16,477 | 17,562 | ||||||||
Net interest revenue |
| $ | 11,426 |
| $ | 9,855 |
| $ | 21,996 |
| $ | 19,621 |
| $ | 13,473 | $ | 10,612 | ||
Commissions and fees |
| $ | 6,474 |
| $ | 5,331 |
| $ | 12,247 |
| $ | 10,519 |
| $ | 1,671 | $ | 5,602 | ||
Principal transactions |
| 2,787 |
| 1,703 |
| 5,784 |
| 3,820 |
| (6,661 | ) | 3,168 | |||||||
Administration and other fiduciary fees |
| 2,241 |
| 1,707 |
| 4,190 |
| 3,412 |
| 2,317 | 1,949 | ||||||||
Realized gains (losses) from sales of investments |
| 119 |
| 302 |
| 592 |
| 681 |
| (119 | ) | 473 | |||||||
Insurance premiums |
| 846 |
| 800 |
| 1,684 |
| 1,570 |
| 983 | 838 | ||||||||
Other revenue |
| 2,737 |
| 2,484 |
| 5,596 |
| 4,742 |
| 1,555 | 2,817 | ||||||||
Total non-interest revenues |
| $ | 15,204 |
| $ | 12,327 |
| $ | 30,093 |
| $ | 24,744 |
| $ | (254 | ) | $ | 14,847 | |
Total revenues, net of interest expense |
| $ | 26,630 |
| $ | 22,182 |
| $ | 52,089 |
| $ | 44,365 |
| $ | 13,219 | $ | 25,459 | ||
|
|
|
|
|
|
|
|
|
| ||||||||||
Provision for credit losses and for benefits and claims |
|
|
|
|
|
|
|
|
| ||||||||||
Provision for loan losses |
| $ | 2,520 |
| $ | 1,436 |
| $ | 5,226 |
| $ | 2,832 |
| $ | 5,751 | $ | 2,706 | ||
Policyholder benefits and claims |
| 197 |
| 231 |
| 458 |
| 458 |
| 275 | 261 | ||||||||
Provision for unfunded lending commitments |
| — |
| 150 |
| — |
| 200 |
| — | — | ||||||||
Total provision for credit losses and for benefits and claims |
| $ | 2,717 |
| $ | 1,817 |
| $ | 5,684 |
| $ | 3,490 |
| $ | 6,026 | $ | 2,967 | ||
|
|
|
|
|
|
|
|
|
| ||||||||||
Operating expenses |
|
|
|
|
|
|
|
|
| ||||||||||
Compensation and benefits |
| $ | 8,922 |
| $ | 7,374 |
| $ | 17,621 |
| $ | 15,637 |
| $ | 9,080 | $ | 8,699 | ||
Net occupancy expense |
| 1,603 |
| 1,411 |
| 3,132 |
| 2,793 |
| 1,788 | 1,529 | ||||||||
Technology/communication expense |
| 1,143 |
| 934 |
| 2,122 |
| 1,820 |
| 1,226 | 979 | ||||||||
Advertising and marketing expense |
| 767 |
| 652 |
| 1,384 |
| 1,255 |
| 679 | 617 | ||||||||
Restructuring expense |
| 63 |
| - |
| 1,440 |
| — |
| 15 | 1,377 | ||||||||
Other operating expenses |
| 2,357 |
| 2,398 |
| 4,727 |
| 4,622 |
| 3,428 | 2,370 | ||||||||
Total operating expenses |
| $ | 14,855 |
| $ | 12,769 |
| $ | 30,426 |
| $ | 26,127 |
| $ | 16,216 | $ | 15,571 | ||
|
|
|
|
|
|
|
|
|
| ||||||||||
Income from continuing operations before income taxes and minority interest |
| $ | 9,058 |
| $ | 7,596 |
| $ | 15,979 |
| $ | 14,748 |
| ||||||
Provision for income taxes |
| 2,709 |
| 2,303 |
| 4,571 |
| 3,840 |
| ||||||||||
Minority interest, net of taxes |
| 123 |
| 31 |
| 170 |
| 91 |
| ||||||||||
Income (loss) before income taxes and minority interest | $ | (9,023 | ) | $ | 6,921 | ||||||||||||||
Provision (benefits) for income taxes | (3,891 | ) | 1,862 | ||||||||||||||||
Minority interest, net of income taxes | (21 | ) | 47 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||
Income from continuing operations |
| $ | 6,226 |
| $ | 5,262 |
| $ | 11,238 |
| $ | 10,817 |
| ||||||
Net income (loss) | $ | (5,111 | ) | $ | 5,012 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||
Discontinued operations |
|
|
|
|
|
|
|
|
| ||||||||||
Income from discontinued operations |
| $ | — |
| $ | — |
| $ | — |
| $ | 1 |
| ||||||
Gain on sale |
| — |
| — |
| — |
| 21 |
| ||||||||||
Provision (benefit) for income taxes and minority interest, net of taxes |
| — |
| (3 | ) | — |
| (65 | ) | ||||||||||
Income from discontinued operations, net of taxes |
| $ | — |
| $ | 3 |
| $ | — |
| $ | 87 |
| ||||||
Basic earnings per share | $ | (1.02 | ) | $ | 1.02 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||
Net income |
| $ | 6,226 |
| $ | 5,265 |
| $ | 11,238 |
| $ | 10,904 |
| ||||||
Weighted average common shares outstanding | 5,085.6 | 4,877.0 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||
Basic earnings per share(2) |
|
|
|
|
|
|
|
|
| ||||||||||
Income from continuing operations |
| $ | 1.27 |
| $ | 1.07 |
| $ | 2.29 |
| $ | 2.20 |
| ||||||
Income from discontinued operations, net of taxes |
| — |
| — |
| — |
| 0.02 |
| ||||||||||
Net income |
| $ | 1.27 |
| $ | 1.07 |
| $ | 2.29 |
| $ | 2.21 |
| ||||||
Weighted average common shares outstanding |
| 4,898.3 |
| 4,899.0 |
| 4,887.7 |
| 4,909.9 |
| ||||||||||
Diluted earnings per share(2) |
|
|
|
|
|
|
|
|
| $ | (1.02 | ) | $ | 1.01 | |||||
Income from continuing operations |
| $ | 1.24 |
| $ | 1.05 |
| $ | 2.25 |
| $ | 2.16 |
| ||||||
Income from discontinued operations, net of taxes |
| — |
| — |
| — |
| 0.02 |
| ||||||||||
Net income |
| $ | 1.24 |
| $ | 1.05 |
| $ | 2.25 |
| $ | 2.17 |
| ||||||
Adjusted weighted average common shares outstanding |
| 4,992.9 |
| 4,990.0 |
| 4,980.4 |
| 4,999.0 |
| 5,591.1 | 4,967.9 | ||||||||
See Notes to the Unaudited Consolidated Financial Statements.
(2)CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET Due to rounding, earnings per share on continuing and discontinued operations may not sum to earnings per share on net income.
In millions of dollars, except shares | March 31, 2008 | December 31, 2007 | ||||||
---|---|---|---|---|---|---|---|---|
| (Unaudited) | | ||||||
Assets | ||||||||
Cash and due from banks (including segregated cash and other deposits) | $ | 30,837 | $ | 38,206 | ||||
Deposits at interest with banks | 73,318 | 69,366 | ||||||
Federal funds sold and securities borrowed or purchased under agreements to resell (including $77,126 and $84,305 as of March 31, 2008 and December 31, 2007, respectively, at fair value) | 239,006 | 274,066 | ||||||
Brokerage receivables | 65,653 | 57,359 | ||||||
Trading account assets (including $140,404 and $157,221 pledged to creditors as of March 31, 2008 and December 31, 2007, respectively) | 578,437 | 538,984 | ||||||
Investments (including $22,306 and $21,449 pledged to creditors as of March 31, 2008 and December 31, 2007, respectively) | 204,155 | 215,008 | ||||||
Loans, net of unearned income | ||||||||
Consumer | 596,987 | 592,307 | ||||||
Corporate (including $3,304 and $3,727 as of March 31, 2008 and December 31, 2007, respectively, at fair value) | 192,856 | 185,686 | ||||||
Loans, net of unearned income | $ | 789,843 | $ | 777,993 | ||||
Allowance for loan losses | (18,257 | ) | (16,117 | ) | ||||
Total loans, net | $ | 771,586 | $ | 761,876 | ||||
Goodwill | 43,622 | 41,204 | ||||||
Intangible assets (including $7,716 and $8,380 at March 31,2008 and December 31,2007, respectively, at fair value) | 23,945 | 22,687 | ||||||
Other assets (including $2,648 and $9,802 as of March 31, 2008 and December 31, 2007 respectively, at fair value) | 169,289 | 168,875 | ||||||
Total assets | $ | 2,199,848 | $ | 2,187,631 | ||||
Liabilities | ||||||||
Non-interest-bearing deposits in U.S. offices | $ | 43,779 | $ | 40,859 | ||||
Interest-bearing deposits in U.S. offices (including $1,500 and $1,337 as of March 31, 2008 and December 31, 2007, respectively, at fair value) | 226,285 | 225,198 | ||||||
Non-interest-bearing deposits in offices outside the U.S. | 45,230 | 43,335 | ||||||
Interest-bearing deposits in offices outside the U.S. (including $2,142 and $2,261 as of March 31, 2008 and December 31, 2007, respectively, at fair value) | 515,914 | 516,838 | ||||||
Total deposits | $ | 831,208 | $ | 826,230 | ||||
Federal funds purchased and securities loaned or sold under agreements to repurchase (including $179,917 and $199,854 as of March 31, 2008 and December 31, 2007, respectively, at fair value) | 279,561 | 304,243 | ||||||
Brokerage payables | 95,597 | 84,951 | ||||||
Trading account liabilities | 201,986 | 182,082 | ||||||
Short-term borrowings (including $9,023 and $13,487 as of March 31, 2008 and December 31, 2007, respectively, at fair value) | 135,799 | 146,488 | ||||||
Long-term debt (including $71,147 and $79,312 as of March 31, 2008 and December 31, 2007, respectively, at fair value) | 424,959 | 427,112 | ||||||
Other liabilities (including $2,568 and $1,568 as of March 31, 2008 and December 31, 2007, respectively, at fair value) | 102,519 | 102,927 | ||||||
Total liabilities | $ | 2,071,629 | $ | 2,074,033 | ||||
Stockholders' equity | ||||||||
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value | $ | 19,384 | $ | — | ||||
Common stock ($.01 par value; authorized shares: 15 billion), issued shares-5,477,416,086 shares at March 31, 2008 and at December 31, 2007 | 55 | 55 | ||||||
Additional paid-in capital | 11,131 | 18,007 | ||||||
Retained earnings | 115,050 | 121,920 | ||||||
Treasury stock, at cost: March 31, 2008—227,582,983 shares and December 31, 2007—482,834,568 shares | (10,020 | ) | (21,724 | ) | ||||
Accumulated other comprehensive income (loss) | (7,381 | ) | (4,660 | ) | ||||
Total stockholders' equity | $ | 128,219 | $ | 113,598 | ||||
Total liabilities and stockholders' equity | $ | 2,199,848 | $ | 2,187,631 | ||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
In millions of dollars, except shares |
| June 30, |
| December 31, |
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks (including segregated cash and other deposits) |
| $ | 30,635 |
| $ | 26,514 |
|
Deposits with banks |
| 70,897 |
| 42,522 |
| ||
Federal funds sold and securities borrowed or purchased under agreements to resell (including $108,000 at fair value as of June 30, 2007) |
| 348,129 |
| 282,817 |
| ||
Brokerage receivables |
| 61,144 |
| 44,445 |
| ||
Trading account assets (including $190,038 and $125,231 pledged to creditors at June 30, 2007 and December 31, 2006, respectively) |
| 538,316 |
| 393,925 |
| ||
Investments (including $20,636 and $16,355 pledged to creditors as of June 30, 2007 and December 31, 2006, respectively) |
| 257,880 |
| 273,591 |
| ||
Loans, net of unearned income |
|
|
|
|
| ||
Consumer |
| 551,223 |
| 512,921 |
| ||
Corporate (including $2,280 and $384 at fair value as of June 30, 2007 and December 31, 2006, respectively) |
| 191,701 |
| 166,271 |
| ||
Loans, net of unearned income |
| $ | 742,924 |
| $ | 679,192 |
|
Allowance for loan losses |
| (10,381 | ) | (8,940 | ) | ||
Total loans, net |
| $ | 732,543 |
| $ | 670,252 |
|
Goodwill |
| 39,231 |
| 33,415 |
| ||
Intangible assets |
| 22,975 |
| 15,901 |
| ||
Other assets (including $18,030 at fair value as of June 30, 2007) |
| 119,116 |
| 100,936 |
| ||
Total assets |
| $ | 2,220,866 |
| $ | 1,884,318 |
|
Liabilities |
|
|
|
|
| ||
Non-interest-bearing deposits in U.S. offices |
| $ | 41,740 |
| $ | 38,615 |
|
Interest-bearing deposits in U.S. offices (including $720 and $366 at fair value as of June 30, 2007 and December 31, 2006, respectively) |
| 196,481 |
| 195,002 |
| ||
Non-interest-bearing deposits in offices outside the U.S. |
| 39,132 |
| 35,149 |
| ||
Interest-bearing deposits in offices outside the U.S. (including $2,151 and $472 at fair value at June 30, 2007 and December 31, 2006, respectively) |
| 494,408 |
| 443,275 |
| ||
Total deposits |
| $ | 771,761 |
| $ | 712,041 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase (including $263,261 at fair value as of June 30, 2007) |
| 394,143 |
| 349,235 |
| ||
Brokerage payables |
| 96,528 |
| 85,119 |
| ||
Trading account liabilities |
| 217,992 |
| 145,887 |
| ||
Short-term borrowings (including $6,859 and $2,012 at fair value as of June 30, 2007 and December 31, 2006, respectively) |
| 167,139 |
| 100,833 |
| ||
Long-term debt (including $26,021 and $9,439 at fair value as of June 30, 2007 and December 31, 2006, respectively) |
| 340,077 |
| 288,494 |
| ||
Other liabilities (including $4,897 at fair value as of June 30, 2007) |
| 105,472 |
| 82,926 |
| ||
Total liabilities |
| $ | 2,093,112 |
| $ | 1,764,535 |
|
Stockholders’ equity |
|
|
|
|
| ||
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value |
| $ | 600 |
| $ | 1,000 |
|
Common stock ($.01 par value; authorized shares: 15 billion), issued shares- 5,477,416,086 shares at June 30, 2007 and at December 31, 2006 |
| 55 |
| 55 |
| ||
Additional paid-in capital |
| 17,725 |
| 18,253 |
| ||
Retained earnings |
| 134,932 |
| 129,267 |
| ||
Treasury stock, at cost: June 30, 2007—502,863,352 shares and December 31, 2006—565,422,301 shares |
| (22,588 | ) | (25,092 | ) | ||
Accumulated other comprehensive income (loss) |
| (2,970 | ) | (3,700 | ) | ||
Total stockholders’ equity |
| $ | 127,754 |
| $ | 119,783 |
|
Total liabilities and stockholders’ equity |
| $ | 2,220,866 |
| $ | 1,884,318 |
|
See Notes to the Unaudited Consolidated Financial Statements.
47
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’STOCKHOLDERS' EQUITY (Unaudited)
|
| Six Months Ended June 30, |
| Three Months Ended March 31, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except shares in thousands | ||||||||||||||
| 2007 |
| 2006 |
| 2008 | 2007 | ||||||||
Preferred stock at aggregate liquidation value |
|
|
|
|
| |||||||||
Balance, beginning of period |
| $ | 1,000 |
| $ | 1,125 |
| $ | — | $ | 1,000 | |||
Redemption or retirement of preferred stock |
| (400 | ) | (125 | ) | |||||||||
Issuance of preferred stock | 19,384 | — | ||||||||||||
Balance, end of period |
| $ | 600 |
| $ | 1,000 |
| $ | 19,384 | $ | 1,000 | |||
Common stock and additional paid-in capital |
|
|
|
|
| |||||||||
Balance, beginning of period |
| $ | 18,308 |
| $ | 17,538 |
| $ | 18,062 | $ | 18,308 | |||
Employee benefit plans |
| (646 | ) | (58 | ) | (3,387 | ) | (913 | ) | |||||
Issuance of shares for Grupo Cuscatlan acquisition |
| 118 |
| — |
| |||||||||
Issuance of shares for Nikko Cordial acquisition | (3,485 | ) | — | |||||||||||
Other |
| — |
| 1 |
| (4 | ) | 1 | ||||||
Balance, end of period |
| $ | 17,780 |
| $ | 17,481 |
| $ | 11,186 | $ | 17,396 | |||
Retained earnings |
|
|
|
|
| |||||||||
Balance, beginning of period |
| $ | 129,267 |
| $ | 117,555 |
| $ | 121,920 | $ | 129,267 | |||
Adjustment to opening balance, net of tax(1) |
| (186 | ) | — |
| — | (186 | ) | ||||||
Adjusted balance, beginning of period |
| $ | 129,081 |
| $ | 117,555 |
| $ | 121,920 | $ | 129,081 | |||
Net income |
| 11,238 |
| 10,904 |
| |||||||||
Net income (loss) | (5,111 | ) | 5,012 | |||||||||||
Common dividends(2) |
| (5,353 | ) | (4,929 | ) | (1,676 | ) | (2,682 | ) | |||||
Preferred dividends |
| (34 | ) | (33 | ) | (83 | ) | (16 | ) | |||||
Balance, end of period |
| $ | 134,932 |
| $ | 123,497 |
| $ | 115,050 | $ | 131,395 | |||
Treasury stock, at cost |
|
|
|
|
| |||||||||
Balance, beginning of period |
| $ | (25,092 | ) | $ | (21,149 | ) | $ | (21,724 | ) | $ | (25,092 | ) | |
Issuance of shares pursuant to employee benefit plans |
| 2,520 |
| 1,945 |
| 3,843 | 1,904 | |||||||
Treasury stock acquired(3) |
| (653 | ) | (4,000 | ) | |||||||||
Issuance of shares for Grupo Cuscatlan acquisition |
| 637 |
| — |
| |||||||||
Treasury stock acquired(3) | (6 | ) | (645 | ) | ||||||||||
Issuance of shares for Nikko Cordial acquisition | 7,858 | — | ||||||||||||
Other |
| — |
| 5 |
| 9 | — | |||||||
Balance, end of period |
| $ | (22,588 | ) | $ | (23,199 | ) | $ | (10,020 | ) | $ | (23,833 | ) | |
Accumulated other comprehensive income (loss) |
|
|
|
|
| |||||||||
Balance, beginning of period |
| $ | (3,700 | ) | $ | (2,532 | ) | $ | (4,660 | ) | $ | (3,700 | ) | |
Adjustment to opening balance, net of tax(4) |
| 149 |
| — |
| — | 149 | |||||||
Adjusted balance, beginning of period |
| $ | (3,551 | ) | $ | (2,532 | ) | $ | (4,660 | ) | $ | (3,551 | ) | |
Net change in unrealized gains and losses on investment securities, net of tax |
| (844 | ) | (1,330 | ) | (2,387 | ) | 159 | ||||||
Net change in cash flow hedges, net of tax |
| 607 |
| 511 |
| (1,638 | ) | (439 | ) | |||||
Net change in foreign currency translation adjustment, net of tax |
| 697 |
| (1 | ) | 1,273 | (121 | ) | ||||||
Pension liability adjustment, net of tax |
| 121 |
| 1 |
| 31 | 77 | |||||||
Net change in Accumulated other comprehensive income (loss) |
| $ | 581 |
| $ | (819 | ) | $ | (2,721 | ) | $ | (324 | ) | |
Balance, end of period |
| $ | (2,970 | ) | $ | (3,351 | ) | $ | (7,381 | ) | $ | (3,875 | ) | |
Total common stockholders’ equity (shares outstanding: 4,974,553 at June 30, 2007 and 4,971,241 at December 31, 2006) |
| $ | 127,154 |
| $ | 114,428 |
| |||||||
Total stockholders’ equity |
| $ | 127,754 |
| $ | 115,428 |
| |||||||
Comprehensive income |
|
|
|
|
| |||||||||
Net income |
| $ | 11,238 |
| $ | 10,904 |
| |||||||
Total common stockholders' equity (shares outstanding: 5,249,833 at March 31, 2008 and 4,994,581 at December 31, 2007) | $ | 108,835 | $ | 121,083 | ||||||||||
Total stockholders' equity | $ | 128,219 | $ | 122,083 | ||||||||||
Comprehensive income (loss) | ||||||||||||||
Net income (loss) | $ | (5,111 | ) | $ | 5,012 | |||||||||
Net change in Accumulated other comprehensive income (loss) |
| 581 |
| (819 | ) | (2,721 | ) | (324 | ) | |||||
Total comprehensive income |
| $ | 11,819 |
| $ | 10,085 |
| |||||||
Total comprehensive income (loss) | $ | (7,832 | ) | $ | 4,688 | |||||||||
·
·
·
·
See NoteNotes 1 and Note 16 on pages 5165 and 71,95, respectively.
2007.
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
|
| Six Months Ended June 30, |
| ||||
In millions of dollars |
| 2007 |
| 2006(1) |
| ||
Cash flows from operating activities of continuing operations |
|
|
|
|
| ||
Net income |
| $ | 11,238 |
| $ | 10,904 |
|
Income from discontinued operations, net of taxes and minority interest |
| — |
| 87 |
| ||
Income from continuing operations |
| $ | 11,238 |
| $ | 10,817 |
|
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 |
| 171 |
| 142 |
| ||
Additions to deferred policy acquisition costs |
| (244 | ) | (155 | ) | ||
Depreciation and amortization |
| 1,151 |
| 1,215 |
| ||
Provision for credit losses |
| 5,226 |
| 3,032 |
| ||
Change in trading account assets |
| (107,467 | ) | (32,070 | ) | ||
Change in trading account liabilities |
| 56,803 |
| 21,875 |
| ||
Change in federal funds sold and securities borrowed or purchased under agreements to resell |
| (35,920 | ) | (16,926 | ) | ||
Change in federal funds purchased and securities loaned or sold under agreements to repurchase |
| 32,917 |
| 22,102 |
| ||
Change in brokerage receivables net of brokerage payables |
| (7,017 | ) | 637 |
| ||
Net gains from sales of investments |
| (592 | ) | (681 | ) | ||
Change in loans held for sale |
| (4,111 | ) | (609 | ) | ||
Other, net |
| 7,291 |
| (6,274 | ) | ||
Total adjustments |
| $ | (51,792 | ) | $ | (7,712 | ) |
Net cash (used in) provided by operating activities of continuing operations |
| $ | (40,554 | ) | $ | 3,105 |
|
Cash flows from investing activities of continuing operations |
|
|
|
|
| ||
Change in deposits at interest with banks |
| ($18,747 | ) | $ | (4,223 | ) | |
Change in loans |
| (175,228 | ) | (185,799 | ) | ||
Proceeds from sales and securitizations of loans |
| 129,093 |
| 129,468 |
| ||
Purchases of investments |
| (138,068 | ) | (109,734 | ) | ||
Proceeds from sales of investments |
| 92,557 |
| 33,944 |
| ||
Proceeds from maturities of investments |
| 71,022 |
| 61,471 |
| ||
Capital expenditures on premises and equipment |
| (1,743 | ) | (1,738 | ) | ||
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets |
| 1,394 |
| 602 |
| ||
Business acquisitions |
| (13,525 | ) | — |
| ||
Net cash used in investing activities of continuing operations |
| $ | (53,245 | ) | $ | (76,009 | ) |
Cash flows from financing activities of continuing operations |
|
|
|
|
| ||
Dividends paid |
| $ | (5,387 | ) | $ | (4,962 | ) |
Issuance of common stock |
| 852 |
| 900 |
| ||
Redemption or retirement of preferred stock |
| (400 | ) | (125 | ) | ||
Treasury stock acquired |
| (653 | ) | (4,000 | ) | ||
Stock tendered for payment of withholding taxes |
| (843 | ) | (591 | ) | ||
Issuance of long-term debt |
| 65,229 |
| 47,580 |
| ||
Payments and redemptions of long-term debt |
| (39,335 | ) | (26,191 | ) | ||
Change in deposits |
| 43,434 |
| 54,967 |
| ||
Change in short-term borrowings |
| 34,734 |
| 5,651 |
| ||
Net cash provided by financing activities of continuing operations |
| $ | 97,631 |
| $ | 73,229 |
|
Effect of exchange rate changes on cash and cash equivalents |
| $ | 289 |
| $ | 354 |
|
Change in cash and due from banks |
| $ | 4,121 |
| $ | 679 |
|
Cash and due from banks at beginning of period |
| $ | 26,514 |
| $ | 23,632 |
|
Cash and due from banks at end of period |
| $ | 30,635 |
| $ | 24,311 |
|
Supplemental disclosure of cash flow information for continuing operations |
|
|
|
|
| ||
Cash paid during the period for income taxes |
| $ | 2,652 |
| $ | 2,148 |
|
Cash paid during the period for interest |
| $ | 33,734 |
| $ | 22,927 |
|
Non-cash investing activities |
|
|
|
|
| ||
Transfers to repossessed assets |
| $ | 882 |
| $ | 667 |
|
| Three Months Ended March 31, | |||||||
---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||
2008 | 2007 | |||||||
Net income (loss) | $ | (5,111 | ) | $ | 5,012 | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 81 | 79 | ||||||
Additions to deferred policy acquisition costs | (105 | ) | (110 | ) | ||||
Depreciation and amortization | 812 | 573 | ||||||
Provision for credit losses | 5,751 | 2,706 | ||||||
Change in trading account assets | (39,453 | ) | (66,140 | ) | ||||
Change in trading account liabilities | 19,904 | 28,015 | ||||||
Change in federal funds sold and securities borrowed or purchased under agreements to resell | 35,060 | (21,108 | ) | |||||
Change in federal funds purchased and securities loaned or sold under agreements to repurchase | (24,682 | ) | 44,435 | |||||
Change in brokerage receivables net of brokerage payables | 2,352 | (3,928 | ) | |||||
Net losses/(gains) from sales of investments | 119 | (473 | ) | |||||
Change in loans held-for-sale | 6,369 | (1,513 | ) | |||||
Other, net | 489 | (5,965 | ) | |||||
Total adjustments | $ | 6,697 | $ | (23,429 | ) | |||
Net cash used in operating activities | $ | 1,586 | $ | (18,417 | ) | |||
Cash flows from investing activities | ||||||||
Change in deposits at interest with banks | $ | (3,952 | ) | $ | (2,384 | ) | ||
Change in loans | (83,273 | ) | (72,413 | ) | ||||
Proceeds from sales and securitizations of loans | 67,525 | 61,333 | ||||||
Purchases of investments | (92,497 | ) | (81,229 | ) | ||||
Proceeds from sales of investments | 39,571 | 39,017 | ||||||
Proceeds from maturities of investments | 58,849 | 34,393 | ||||||
Capital expenditures on premises and equipment | (744 | ) | (784 | ) | ||||
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets | 1,165 | 516 | ||||||
Business acquisitions | — | (2,353 | ) | |||||
Net cash used in investing activities | $ | (13,356 | ) | $ | (23,904 | ) | ||
Cash flows from financing activities | ||||||||
Dividends paid | $ | (1,759 | ) | $ | (2,698 | ) | ||
Issuance of common stock | 46 | 394 | ||||||
Issuance of preferred stock | 19,384 | — | ||||||
Treasury stock acquired | (6 | ) | (645 | ) | ||||
Stock tendered for payment of withholding taxes | (286 | ) | (819 | ) | ||||
Issuance of long-term debt | 19,900 | 34,760 | ||||||
Payments and redemptions of long-term debt | (27,502 | ) | (25,393 | ) | ||||
Change in deposits | 4,978 | 24,902 | ||||||
Change in short-term borrowings | (10,689 | ) | 9,718 | |||||
Net cash provided by financing activities | $ | 4,066 | $ | 40,219 | ||||
Effect of exchange rate changes on cash and cash equivalents | $ | 335 | $ | 9 | ||||
Change in cash and due from banks | $ | (7,369 | ) | $ | (2,093 | ) | ||
Cash and due from banks at beginning of period | $ | 38,206 | $ | 26,514 | ||||
Cash and due from banks at end of period | $ | 30,837 | $ | 24,421 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid during the period for income taxes | $ | (141 | ) | $ | 1,826 | |||
Cash paid during the period for interest | $ | 17,120 | $ | 15,332 | ||||
Non-cash investing activities | ||||||||
Transfers to repossessed assets | $ | 766 | $ | 453 | ||||
(1) Reclassified to conformSee Notes to the current period’s presentation.Unaudited Consolidated Financial Statements.
CITIBANK, N.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
In millions of dollars, except shares | March 31, 2008 | December 31, 2007 | ||||||
---|---|---|---|---|---|---|---|---|
| (Unaudited) | | ||||||
Assets | ||||||||
Cash and due from banks | $ | 23,138 | $ | 28,966 | ||||
Deposits at interest with banks | 58,460 | 57,216 | ||||||
Federal funds sold and securities purchased under agreements to resell | 27,649 | 23,563 | ||||||
Trading account assets (including $21,469 and $22,716 pledged to creditors as of March 31, 2008 and December 31, 2007, respectively) | 259,778 | 215,454 | ||||||
Investments (including $2,769 and $3,099 pledged to creditors as of March 31, 2008 and December 31, 2007, respectively) | 135,604 | 150,058 | ||||||
Loans, net of unearned income | 655,303 | 644,597 | ||||||
Allowance for loan losses | (11,972 | ) | (10,659 | ) | ||||
Total loans, net | $ | 643,331 | $ | 633,938 | ||||
Goodwill | 19,857 | 19,294 | ||||||
Intangible assets | 10,271 | 11,007 | ||||||
Premises and equipment, net | 7,797 | 8,191 | ||||||
Interest and fees receivable | 8,088 | 8,958 | ||||||
Other assets | 98,530 | 95,070 | ||||||
Total assets | $ | 1,292,503 | $ | 1,251,715 | ||||
Liabilities | ||||||||
Non-interest-bearing deposits in U.S. offices | $ | 43,993 | $ | 41,032 | ||||
Interest-bearing deposits in U.S. offices | 181,173 | 186,080 | ||||||
Non-interest-bearing deposits in offices outside the U.S. | 40,910 | 38,775 | ||||||
Interest-bearing deposits in offices outside the U.S. | 520,316 | 516,517 | ||||||
Total deposits | $ | 786,392 | $ | 782,404 | ||||
Trading account liabilities | 89,669 | 59,472 | ||||||
Purchased funds and other borrowings | 85,992 | 74,112 | ||||||
Accrued taxes and other expense | 11,085 | 12,752 | ||||||
Long-term debt and subordinated notes | 177,192 | 184,317 | ||||||
Other liabilities | 45,840 | 39,352 | ||||||
Total liabilities | $ | 1,196,170 | $ | 1,152,409 | ||||
Stockholder's equity | ||||||||
Capital stock ($20 par value) outstanding shares: 37,534,553 in each period | $ | 751 | $ | 751 | ||||
Surplus | 69,154 | 69,135 | ||||||
Retained earnings | 31,026 | 31,915 | ||||||
Accumulated other comprehensive income (loss)(1) | (4,598 | ) | (2,495 | ) | ||||
Total stockholder's equity | $ | 96,333 | $ | 99,306 | ||||
Total liabilities and stockholder's equity | $ | 1,292,503 | $ | 1,251,715 | ||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIBANK, N.A. AND SUBSIDIARIES
In millions of dollars, except shares |
| June 30, |
| December 31, |
| ||
Assets |
|
|
|
|
| ||
Cash and due from banks |
| $ | 22,912 |
| $ | 18,917 |
|
Deposits with banks |
| 59,850 |
| 38,377 |
| ||
Federal funds sold and securities purchased under agreements to resell |
| 12,300 |
| 9,219 |
| ||
Trading account assets (including $217 and $117 pledged to creditors at June 30, 2007 and December 31, 2006, respectively) |
| 126,525 |
| 103,945 |
| ||
Investments (including $2,469 and $1,953 pledged to creditors at June 30, 2007 and December 31, 2006, respectively) |
| 194,760 |
| 215,222 |
| ||
Loans, net of unearned income |
| 620,019 |
| 558,952 |
| ||
Allowance for loan losses |
| (6,517 | ) | (5,152 | ) | ||
Total loans, net |
| $ | 613,502 |
| $ | 553,800 |
|
Goodwill |
| 17,105 |
| 13,799 |
| ||
Intangible assets |
| 12,167 |
| 6,984 |
| ||
Premises and equipment, net |
| 7,379 |
| 7,090 |
| ||
Interest and fees receivable |
| 8,057 |
| 7,354 |
| ||
Other assets |
| 58,283 |
| 44,790 |
| ||
Total assets |
| $ | 1,132,840 |
| $ | 1,019,497 |
|
Liabilities |
|
|
|
|
| ||
Non-interest-bearing deposits in U.S. offices |
| $ | 41,604 |
| $ | 38,663 |
|
Interest-bearing deposits in U.S. offices |
| 162,416 |
| 167,015 |
| ||
Non-interest-bearing deposits in offices outside the U.S. |
| 35,546 |
| 31,169 |
| ||
Interest-bearing deposits in offices outside the U.S. |
| 486,382 |
| 428,896 |
| ||
Total deposits |
| $ | 725,948 |
| $ | 665,743 |
|
Trading account liabilities |
| 54,213 |
| 43,136 |
| ||
Purchased funds and other borrowings |
| 81,451 |
| 73,081 |
| ||
Accrued taxes and other expense |
| 11,110 |
| 10,777 |
| ||
Long-term debt and subordinated notes |
| 135,295 |
| 115,833 |
| ||
Other liabilities |
| 40,758 |
| 37,774 |
| ||
Total liabilities |
| $ | 1,048,775 |
| $ | 946,344 |
|
|
|
|
|
|
| ||
Stockholder’s equity |
|
|
|
|
| ||
Capital stock ($20 par value) outstanding shares: 37,534,553 in each period |
| $ | 751 |
| $ | 751 |
|
Surplus |
| 49,487 |
| 43,753 |
| ||
Retained earnings |
| 35,343 |
| 30,358 |
| ||
Accumulated other comprehensive income (loss)(1) |
| (1,516 | ) | (1,709 | ) | ||
Total stockholder’s equity |
| $ | 84,065 |
| $ | 73,153 |
|
Total liabilities and stockholder’s equity |
| $ | 1,132,840 |
| $ | 1,019,497 |
|
(1) Amounts at June 30, 2007 and December 31, 2006 include the after-tax amounts for net unrealized gains/(losses) on investment securities of ($1.016) billion and ($119) million, respectively, for foreign currency translation of $239 million and ($456) million, respectively, for cash flow hedges of $176 million and ($131) million, respectively, and for additional minimum pension liability of ($915) million and ($1.003) billion, respectively.
See Notes to the Unaudited Consolidated Financial Statements.
50
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The accompanying unaudited consolidated financial statements as of June 30, 2007March 31, 2008 and for the three- and six-month periodsthree-month period ended June 30, 2007March 31, 2008 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 2006Citigroup's 2007 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. Current market conditions increase the risk and complexity of the judgments in these estimates.
Certain reclassifications have been made to the prior-period’sprior-period's financial statements to conform to the current period’speriod's presentation.
Significant Accounting Policies
The Company’sCompany's accounting policies are fundamental to understanding management’smanagement'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 2006Company's 2007 Annual Report on Form 10-K.
LoansACCOUNTING CHANGES
Loans are classified upon origination or acquisition as either held for investment or held-for-sale. This classification is based on management’s intent and ability with regard to those loans.
Substantially all of the consumer loans sold or securitized by Citigroup are U.S. prime mortgage loans or U.S. credit card receivables. The practice of the U.S. prime mortgage business has been to sell all of its loans except for nonconforming adjustable rate loans. U.S. prime mortgage conforming loans are classified as held-for-sale at the time of origination. The related cash flows are classified in the Consolidated Statement of Cash Flows in the cash flows from operating activities category on the line “Change in loans held for sale.”
U.S credit card receivables are classifiedSEC Staff Guidance on Loan Commitments Recorded at origination as loans held-for-saleFair Value through Earnings
On January 1, 2008, the Company adopted Staff Accounting Bulletin No. 109 (SAB 109), which requires that the fair value of a written loan commitment that is marked to market through earnings should include the extent that management does nothave the intent to hold the receivables for the foreseeable future or until maturity. The U.S. credit card securitization forecast for the three months following the latest balance sheet date is the basis for the amount of such loans classified as held-for-sale. Cashcash flows related to U.S. credit card loans classified as held-for-sale at origination or acquisition are reported in the loan's servicing rights. However, the fair value measurement of a written loan commitment still must exclude the expected net cash flows from operating activities category on the line “Change inrelated to internally developed intangible assets (such as customer relationship intangible assets).
SAB 109 applies to two types of loan commitments: (1) written mortgage loan commitments for loans held for sale.”
Netting of Cash Flows, onCollateral against Derivative Exposures
During April 2007, the line “Changes in loans.” However, whenFASB issued FASB Staff Position No. FIN 39-1, "Amendment of FASB Interpretation No. 39" (FSP FIN 39-1) modifying certain provisions of FIN 39, "Offsetting of Amounts Related to Certain Contracts". This amendment clarified the initial intentacceptability of the existing market practice of offsetting the amounts recorded for holding a loan has changed from heldcash collateral receivables or payables against the fair value amounts recognized for investment to held-for-sale,net derivative positions executed with the loan is reclassified to held-for-sale, butsame counterparty under the related cash flows continue to be reported in cash flows from investing activities insame master netting agreement, which was the Consolidated StatementCompany's prior accounting practice. Thus, this amendment did not affect the Company's consolidated financial statements as of Cash Flows on the line “Proceeds from sales and securitizationsMarch 31, 2008.
Adoption of SFAS 157—Fair Value Measurements The Company elected to early-adopt SFAS No. 157, This hierarchy requires the Company to For some products or in certain market conditions, observable inputs may not always be available. For example, during the market dislocations that occurred in the second half of 2007, certain markets became illiquid, and some key observable inputs used in valuing certain exposures were unavailable. When and if these markets are liquid, the valuation of these exposures will use the related observable inputs available at that time from these markets. Under SFAS 157, Citigroup is required to take into account its own credit risk when measuring the fair value of derivative positions as well as the other liabilities for which fair value accounting has been elected under SFAS 155, "Accounting for certain Hybrid Financial Instruments" (SFAS 155) and SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159). The adoption of SFAS 157 has also resulted in some other changes to the valuation techniques used by Citigroup when determining fair value, most notably the changes to the way that the probability of default of a counterparty is factored in and the elimination of a derivative valuation adjustment which is no longer necessary under SFAS 157. The cumulative effect at January 1, 2007, of making these changes was a gain of $250 million after-tax ($402 million pretax), or $0.05 per diluted share, which was recorded in the first quarter of 2007 earnings within theSecurities and Banking business. SFAS 157 also precludes the use of block discounts for instruments traded in an active market, which were previously applied to large holdings of loans.”Reward CostsThe Company recognizes all reward costs for bank and credit card customers as incurred as a reduction of commissions and fees and Other revenue.Accounting Changes (SFAS 157)“Fair"Fair Value Measurements”Measurements" (SFAS 157), as of January 1, 2007. SFAS 157 defines fair value, establishes a consistent framework for measuringexpands disclosure requirements around fair value and expands disclosure requirements aboutspecifies 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. These two types of inputs create the following fair value measurements. SFAS 157 requires, among other things, Citigroup’shierarchy:usedin which one or more significant inputs or significant value drivers are unobservable.measure fair valueuse observable market data, when available, and to maximize the use of observable inputs and minimize the use of unobservable inputs. In addition,inputs when determining fair value.publicly-tradedpublicly traded equity securities, and requires the recognition of trade-date gains after consideration of all appropriate valuation adjustments related to certain derivative trades that use unobservable inputs in determining thetheir fair value. ThisPrevious accounting guidance supersedesallowed the guidanceuse of block discounts in EITF Issue No. 02-3, whichcertain circumstances and 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 71 for additional information.
Fair Value Option (SFAS 159)
In conjunction with the adoption of SFAS 157, the Company early-adopted SFAS 159, “The"The Fair Value Option for Financial Assets and Financial Liabilities”Liabilities" (SFAS 159), as of January 1, 2007. SFAS 159 provides an option on an instrument-by-instrument basis 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 hedgedresulted prior to its adoption from being required to apply fair value accounting to certain economic hedges (e.g., derivatives) while having to measure the assets and liabilities that were previously required to usebeing economically hedged using an accounting method other than fair value.
Under the SFAS 159 transition provisions, the Company elected to apply fair value while the related economic hedges wereaccounting to certain financial instruments held at January 1, 2007 with future changes in value reported at fair value.
in earnings. The adoption of SFAS 159 resulted in a decrease to January 1, 2007 retained earnings of $99 million.
See Note 16 on page 7195 for additional information.
Accounting for Uncertainty in Income Taxes
In July 2006, the FASB issued FIN 48, “Accounting"Accounting for Uncertainty in Income Taxes,” (FIN 48)," which setsattempts to set out a consistent 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 notmore-likely-than-not to be sustained. The amount of the benefit is then measured to be the highest tax benefit thatwhich is greater than 50 percent50% likely to be realized. FIN 48 also sets out disclosure requirements to enhance transparency of an entity’sentity's tax reserves.
Citigroup adopted FIN 48this Interpretation as of January 1, 2007, resulting2007. The adoption of FIN 48 resulted in a decreasereduction to January 1, 2007 opening 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 and second 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 and second quarters of 2007. The Company classifies interest and penalties as income tax expense. The Company is currentlypresently under audit by the IRS and other major taxing jurisdictions around the world.Internal Revenue Service (IRS) for 2003-2005. It is thus reasonably possible that significant changes in the gross balance of unrecognized tax benefits may occurexam will conclude within the next 12 months (anmonths. An estimate of the range of such gross changeschange in FIN 48 liabilities cannot be made), butmade at this time due to the Company does not expect such audits to result in amounts that would cause a significant change to its effective tax rate.number of items still being reviewed by the IRS.
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 |
|
(1) During the first quarter of 2007, one of the major filing groups completed an audit for 2001–2004.
Leveraged Leases
On January 1, 2007, the Company adopted FASB Staff Position “AccountingNo. 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”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.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
Business Combinations
In December 2007, the FASB issued Statement No. 141 (revised),"Business Combinations" (SFAS 141(R)), which attempts to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement replaces SFAS 141,"Business Combinations". SFAS 141(R) retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called thepurchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also retains the guidance in SFAS 141 for identifying and recognizing intangible assets separately from goodwill. The adoption of FSP 13-2 resultedmost significant changes in a decrease to January 1, 2007 retained earnings of $148 million. This decrease to retained earnings
SFAS 141(R) are: (1) acquisition and restructuring would be now expensed; (2) stock consideration 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 SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)), which replaced the existing SFAS 123 and APB 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires companies to measure compensation expense for stock options and other share-based paymentsmeasured based on the instruments’ grant date fair value, and to record expense based on that fair value reduced by expected forfeitures.
The Company maintains a number of incentive programs in which equity awards are granted to eligible employees. The most significantquoted market price as 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 grantacquisition date or accrued in the year prior to the grant date.
The impact to 2006 was a charge of $648 million ($398 million after-tax) for the immediate expensing of awards granted to retirement-eligible employees in January 2006, and $824 million ($526 million after-tax) for the accrualinstead of the awardsdate the deal is announced; (3) contingent consideration arising from contractual and noncontractual contingencies that were granted in January 2007.
In adopting SFAS 123(R),meet the Company began to recognize compensation expense for restrictedmore-likely-than-not recognition threshold will be measured and recognized as an asset or deferred stock awards net of estimated forfeitures. Previously, the effects of forfeitures were recorded as they occurred.
On January 1, 2006, the Company elected to early-adopt, primarily on a prospective basis, SFAS No. 155, “Accounting for Certain Hybrid FinancialInstruments” (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 forliability at fair value ifat the Company makes an irrevocable election to do so on an instrument-by-instrument basis. Theacquisition date using a probability-weighted discounted cash flows model, with subsequent changes in fair value reflected in earnings. Noncontractual contingencies that do not meet the more-likely-than-not criteria will continue to be recognized when they are probable and reasonably estimable; and (4) acquirer records 100% step-up to fair value for all assets & liabilities, including the minority interest portion and goodwill is recorded in current earnings.as if a 100% interest was acquired.
SFAS 141(R) is effective for Citigroup on January 1, 2009. The Company is currently evaluating the potential impact of adopting this standard was not material.statement.
Noncontrolling Interests in Subsidiaries
Accounting In December 2007, the FASB issued Statement No. 160,"Noncontrolling Interests in Consolidated Financial Statements" (SFAS 160), which establishes standards for Servicingthe accounting and reporting of Financial Assetsnoncontrolling interests in subsidiaries (that is, minority interests) in consolidated financial statements and for the loss of control of subsidiaries.
On January 1, 2006, SFAS 160 requires: (1) the Company elected to early-adopt SFAS No. 156, “Accounting for Servicingequity interest of Financial Assets” (SFAS 156). This pronouncement requires all servicing rightsnoncontrolling shareholders, partners, or other equity holders in subsidiaries to be accounted for and presented in equity, separately from the parent shareholder's equity, rather than as liabilities or as "mezzanine" items between liabilities and equity; (2) the amount of consolidated net income attributable to the parent and to the noncontrolling interests be clearly identified and presented on the face of the consolidated statement of income; and (3) when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially recognizedmeasured at fair value. Subsequent to initial recognition, it permits a one-time irrevocable election to remeasure each classThe gain or loss on the deconsolidation of servicing rights atthe subsidiary is measured using the fair value withof any noncontrolling equity investment rather than the changes in fair value being recorded in current earnings. The classescarrying amount of servicing rights are identified basedthat retained investment.
SFAS 160 is effective for Citigroup on the availability of market inputs used in determining their fair values and the methods for managing their risks.January 1, 2009. Early application is not allowed. The Company has elected fair value accounting for its mortgage and student loan classes of servicing rights. Theis currently evaluating the potential impact of adopting this standard wasstatement.
Sale with Repurchase Financing Agreements
In February 2008, the FASB issued FASB Staff Position (FSP) FAS 140-3, "Accounting for Transfers of Financial Assets and Repurchase Financing Transactions." The objective of this FSP is to provide implementation guidance on whether the security transfer and contemporaneous repurchase financing involving the transferred financial asset must be evaluated as one linked transaction or two separate de-linked transactions.
Current practice records the transfer as a sale and the repurchase agreement as a financing. The FSP requires the recognition of the transfer and the repurchase agreement as one linked transaction, unless all of the following criteria are met: (1) the initial transfer and the repurchase financing are not material.contractually contingent on one another; (2) the initial transferor has full recourse upon default, and the repurchase agreement's price is fixed and not at fair value; (3) the financial asset is readily obtainable in the marketplace and the transfer and repurchase financing are executed at market rates; and (4) the maturity of the repurchase financing is before the maturity of the financial asset. The scope of this FSP is limited to transfers and subsequent repurchase financings that are entered into contemporaneously or in contemplation of one another.
Future Application The FSP will be effective for Citigroup on January 1, 2009. Early adoption is prohibited. The Company is currently evaluating the potential impact of Accounting Standardsadopting this FSP.
Investment Company Audit Guide (SOP 07-1)
In July 2007, the AICPA issued Statement of Position 07-1, Clarification"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 (SOPCompanies" (SOP 07-1), which will becomewas expected to be effective for fiscal years beginning on or after December 15, 2007. However, in February 2008, the FASB delayed the effective date indefinitely by issuing an FSP SOP 07-1-1, "Effective Date of AICPA Statement of Position 07-1." 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 equity method investor to retain investment company accounting in their consolidated financial statements. Investment companies record all their investments at fair value with changes in value reflected in earnings. The Company is currently evaluating the potential impact of adopting SOP 07-1 as07-1.
Elimination of January 1, 2008.QSPEs and Changes in the FIN 46(R) Consolidation Model
Potential Amendments In April 2008, the FASB voted to Various Current Accounting Standards
The FASB is currently workingeliminate Qualifying Special Purpose Entities (QSPEs) from the guidance in SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." While the revised standard has not been finalized and the Board's proposals will be subject to a public comment period, this change may have a significant impact 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,Citigroup's consolidated financial statements as the Company will needmay lose sales treatment for assets previously sold to reevaluate its accounting and disclosures. Due toa QSPE, as well as for future sales. This proposed revision could be effective as early as January 2009. As of March 31, 2008, the ongoing deliberations of the standard setters, the Company is unable to accurately determine the effect of future amendments or proposals at this time.
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 billionQSPEs to which Citigroup, acting as principal, has transferred assets and liabilities of approximately $0.6 billion atreceived sales treatment were $760 billion.
In connection with the closing date,proposed changes to Legg Mason, Inc. (Legg Mason)SFAS 140, the FASB also is proposing three key changes to the consolidation model in exchange for Legg Mason’s broker-dealer and capital markets businesses, $2.298 billion of Legg Mason’s common and preferred shares (valued as ofFIN 46(R). First, the closing date), and $500 million in cash. The transaction did notBoard will now include Citigroup’s asset management business in Mexico, its retirement services business in Latin America (both of which are included in International Retail Banking) or its interestformer QSPEs in the CitiStreet joint venture (whichscope of FIN 46(R). In addition, the FASB supports amending FIN 46(R) to change the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE to a primarily qualitative determination of control instead of today's risks and rewards model. Finally, the proposed amendment is included in Smith Barney).expected to require all VIEs and their primary beneficiaries to be reevaluated quarterly. The total valueprevious rules required reconsideration only when specified reconsideration events occurred. As 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, which was reported in discontinued operations). (The transactions described above are referred to as the “Sale of the Asset Management Business.”)
On JanuaryMarch 31, 2006,2008, 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. 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 ($31 million pretax and minority interest) was recognized in the first quarter of 2006 within discontinued operations.
During March 2006, the 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.
The following is summarized financial information for discontinued operations related to the Sale of the Asset Management Business:
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
In millions of dollars |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||
Total revenues, net of interest expense |
| $ | — |
| $ | — |
| $ | — |
| $ | 21 |
|
Income (loss) from discontinued operations |
| $ | — |
| $ | — |
| $ | — |
| $ | (1 | ) |
Gain on sale |
| — |
| — |
| — |
| 21 |
| ||||
Provision for income taxes and minority interest, net of taxes |
| — |
| (3 | ) | — |
| 7 |
| ||||
Income from discontinued operations, net of taxes |
| $ | — |
| $ | 3 |
| $ | — |
| $ | 13 |
|
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 significant
unconsolidated VIEs with which Citigroup is involved were approximately $93.2 billion and liabilities of approximately $83.8$363 billion.
Citigroup received $1.0 billion in MetLife equity securities The Company will be evaluating the impact of these changes on Citigroup's consolidated financial statements once the actual guidelines are completed.
Disclosures about Derivative Instruments and $10.830 billion in cash, which resulted inHedging Activities
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" (SFAS 161), an after-tax gainamendment of approximately $2.120 billion ($3.386 billion pretax), which was reported in discontinued operations.
(SFAS 133. 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 itstandard requires enhanced disclosures about derivative instruments and hedged items that are accounted for under SFAS 133 and 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 in income from continuing operations in the Alternative Investments business.
In July 2006, the Company received the final closing adjustment payment related to this sale, resulting in an after-tax gain of $75 million ($115 million pretax), which was recorded in discontinued operations.
In addition, during the 2006 third quarter, a release of $42 million of deferred tax liabilities was reported in discontinued operations as it related to the Life Insurance & Annuities Business sold to MetLife.
Resultsinterpretations. The standard will be effective for all of the businesses included inCompany's interim and annual financial statements for periods beginning after November 15, 2008, with early adoption permitted. The standard expands the Sale of the Life Insurance & Annuities Business are reported as discontinued operationsdisclosure requirements for all periods presented.derivatives and hedged items and has no impact on how Citigroup accounts for these instruments.
Summarized financial information for discontinued operations related to the Sale of the Life Insurance & Annuities Business is as follows:
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
In millions of dollars |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||
Total revenues, net of interest expense |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Income from discontinued operations |
| $ | — |
| $ | — |
| $ | — |
| $ | 2 |
|
Provision (benefit) for income taxes |
| — |
| — |
| — |
| (28 | ) | ||||
Income from discontinued operations, net of taxes |
| $ | — |
| $ | — |
| $ | — |
| $ | 30 |
|
The Spin-Off of Travelers Property Casualty Corp. (TPC)
During the 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 in 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 Travelers Property Casualty Corp. is as follows:
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
In millions of dollars |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||
Total revenues, net of interest expense |
| $ | — |
| $ | — |
| $ | — |
| $ | 21 |
|
Income from discontinued operations |
| $ | — |
| $ | — |
| $ | — |
| $ | 1 |
|
Gain on sale |
| — |
| — |
| — |
| 21 |
| ||||
Provision (benefit) for income taxes and minority interest, net of taxes |
| — |
| (3 | ) | — |
| (65 | ) | ||||
Income from discontinued operations, net of taxes |
| $ | — |
| $ | 3 |
| $ | — |
| $ | 87 |
|
The following table presents certain information regarding the Company’s continuingCompany's operations by segment:
|
| Revenues, Net |
| Provision (Benefit) |
| Income (Loss) |
| Identifiable Assets |
| ||||||||||||||||
In millions of dollars, except |
| Three Months Ended June 30, |
| June 30, |
| Dec. 31, |
| ||||||||||||||||||
identifiable assets in billions |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| ||||||||
Global Consumer |
| $ | 13,662 |
| $ | 12,628 |
| $ | 1,104 |
| $ | 1,400 |
| $ | 2,696 |
| $ | 3,177 |
| $ | 741 |
| $ | 702 |
|
Markets & Banking |
| 8,961 |
| 6,761 |
| 1,236 |
| 702 |
| 2,832 |
| 1,723 |
| 1,343 |
| 1,078 |
| ||||||||
Global Wealth Management |
| 3,197 |
| 2,492 |
| 199 |
| 176 |
| 514 |
| 347 |
| 94 |
| 66 |
| ||||||||
Alternative Investments |
| 1,032 |
| 584 |
| 297 |
| 138 |
| 456 |
| 257 |
| 17 |
| 12 |
| ||||||||
Corporate/Other(3) |
| (222 | ) | (283 | ) | (127 | ) | (113 | ) | (272 | ) | (242 | ) | 26 |
| 26 |
| ||||||||
Total |
| $ | 26,630 |
| $ | 22,182 |
| $ | 2,709 |
| $ | 2,303 |
| $ | 6,226 |
| $ | 5,262 |
| $ | 2,221 |
| $ | 1,884 |
|
|
| Revenues, Net |
| Provision (Benefit) |
| Income (Loss) |
| Revenues, net of interest expense | Provision (benefit) for income taxes | Net income (loss)(1)(2) | Identifiable assets | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
| Six Months Ended June 30, |
| First Quarter | | | |||||||||||||||||||||||||||||||||||||
In millions of dollars |
| 2007 |
| 2006 |
| 2007 |
| 2006(2) |
| 2007 |
| 2006(2) |
| ||||||||||||||||||||||||||||||
In millions of dollars, except identifiable assets in billions | First Quarter | Mar. 31, 2008 | Dec. 31, 2007(3) | ||||||||||||||||||||||||||||||||||||||||
Global Consumer |
| $ | 26,768 |
| $ | 24,583 |
| $ | 2,121 |
| $ | 2,247 |
| $ | 5,329 |
| $ | 6,250 |
| $ | 15,207 | $ | 13,137 | $ | 493 | $ | 1,095 | $ | 1,434 | $ | 2,593 | $ | 748 | $ | 736 | ||||||||
Markets & Banking |
| 17,918 |
| 14,040 |
| 2,183 |
| 1,276 |
| 5,453 |
| 3,652 |
| (4,476 | ) | 8,926 | (4,367 | ) | 869 | (5,671 | ) | 2,661 | 1,233 | 1,233 | |||||||||||||||||||
Global Wealth Management |
| 6,015 |
| 4,975 |
| 450 |
| 312 |
| 962 |
| 634 |
| 3,274 | 2,818 | 168 | 251 | 299 | 448 | 112 | 104 | ||||||||||||||||||||||
Alternative Investments |
| 1,594 |
| 1,259 |
| 435 |
| 249 |
| 678 |
| 610 |
| (358 | ) | 562 | (304 | ) | 138 | (509 | ) | 222 | 67 | 73 | |||||||||||||||||||
Corporate/Other(3) |
| (206 | ) | (492 | ) | (618 | ) | (244 | ) | (1,184 | ) | (329 | ) | ||||||||||||||||||||||||||||||
Corporate/Other(2) | (428 | ) | 16 | 119 | (491 | ) | (664 | ) | (912 | ) | 40 | 42 | |||||||||||||||||||||||||||||||
Total |
| $ | 52,089 |
| $ | 44,365 |
| $ | 4,571 |
| 3,840 |
| $ | 11,238 |
| $ | 10,817 |
| $ | 13,219 | $ | 25,459 | $ | (3,891 | ) | $ | 1,862 | $ | (5,111 | ) | $ | 5,012 | $ | 2,200 | $ | 2,188 | |||||||
(2) The effective tax rates for the first quarter of 2006 reflect the impact of the resolution of the Federal Tax Audit.
(3)2008 and 2007, respectively.
4.3. Interest Revenue and Expense
For the three-three months ended March 31, 2008 and six-month periods ended June 30, 2007 and 2006,respectively, interest revenue and expense consisted of the following:
|
| Three Months Ended June 30, , |
| Six Months Ended June 30 |
| Three Months Ended March 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | |||||||||||||||||||
| 2007 |
| 2006(1) |
| 2007 |
| 2006(1) |
| 2008 | 2007(1) | |||||||||
Interest revenue |
|
|
|
|
|
|
|
|
| ||||||||||
Loan interest, including fees |
| $ | 16,253 |
| $ | 13,643 |
| $ | 31,188 |
| $ | 26,461 |
| $ | 17,141 | $ | 14,942 | ||
Deposits with banks |
| 792 |
| 517 |
| 1,501 |
| 1,006 |
| ||||||||||
Deposits at interest with banks | 805 | 709 | |||||||||||||||||
Federal funds sold and securities purchased under agreements to resell |
| 4,662 |
| 3,397 |
| 8,951 |
| 6,602 |
| 3,172 | 4,289 | ||||||||
Investments, including dividends |
| 3,577 |
| 2,255 |
| 7,117 |
| 4,311 |
| 2,699 | 3,540 | ||||||||
Trading account assets(2) |
| 4,385 |
| 3,048 |
| 8,315 |
| 5,748 |
| 4,799 | 3,930 | ||||||||
Other interest |
| 929 |
| 712 |
| 1,658 |
| 1,317 |
| 1,334 | 764 | ||||||||
Total interest revenue |
| $ | 30,598 |
| $ | 23,572 |
| $ | 58,730 |
| $ | 45,445 |
| $ | 29,950 | $ | 28,174 | ||
Interest expense |
|
|
|
|
|
|
|
|
| ||||||||||
Deposits |
| $ | 6,939 |
| $ | 5,204 |
| $ | 13,497 |
| $ | 9,709 |
| $ | 6,300 | $ | 6,558 | ||
Trading account liabilities(2) |
| 380 |
| 281 |
| 687 |
| 524 |
| 333 | 307 | ||||||||
Short-term debt and other liabilities |
| 7,849 |
| 5,448 |
| 14,796 |
| 10,312 |
| 5,353 | 6,947 | ||||||||
Long-term debt |
| 4,004 |
| 2,784 |
| 7,754 |
| 5,279 |
| 4,491 | 3,750 | ||||||||
Total interest expense |
| $ | 19,172 |
| $ | 13,717 |
| $ | 36,734 |
| $ | 25,824 |
| $ | 16,477 | $ | 17,562 | ||
|
| �� |
|
|
|
|
|
|
| ||||||||||
Net interest revenue |
| $ | 11,426 |
| $ | 9,855 |
| $ | 21,996 |
| $ | 19,621 |
| $ | 13,473 | $ | 10,612 | ||
Provision for loan losses | 5,751 | 2,706 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||
Provision for loan losses |
| 2,520 |
| 1,436 |
| 5,226 |
| 2,832 |
| ||||||||||
Net interest revenue after provision for loan losses |
| $ | 8,906 |
| $ | 8,419 |
| $ | 16,770 |
| $ | 16,789 |
| $ | 7,722 | $ | 7,906 | ||
55
Commissions and fees revenue 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-relatedmanagement- related fees, including brokerage services, and custody and trust services; and insurance fees and commissions.
The following table presents commissions and fees revenue for the three-three months ended March 31, 2008 and six-month periods ended June 30,2007:
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||
In millions of dollars |
| 2007 |
| 2006(1) |
| 2007 |
| 2006(1) |
| 2008 | 2007(1) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Credit cards and bank cards |
| $ | 1,242 |
| $ | 1,303 |
| $ | 2,512 |
| $ | 2,569 |
| $ | 1,213 | $ | 1,270 | ||
Investment banking |
| 1,267 |
| 1,098 |
| 2,828 |
| 2,108 |
| 795 | 1,390 | ||||||||
Smith Barney |
| 803 |
| 765 |
| 1,577 |
| 1,482 |
| 763 | 774 | ||||||||
Markets & Banking trading-related |
| 598 |
| 705 |
| 1,284 |
| 1,360 |
| 702 | 686 | ||||||||
Nikko-related(2) |
| 263 |
| — |
| 263 |
| — |
| ||||||||||
Other Consumer | 356 | 216 | |||||||||||||||||
Transaction services | 353 | 231 | |||||||||||||||||
Checking-related |
| 305 |
| 251 |
| 592 |
| 499 |
| 330 | 287 | ||||||||
Transaction services |
| 251 |
| 209 |
| 482 |
| 418 |
| ||||||||||
Corporate finance |
| 186 |
| 202 |
| 481 |
| 372 |
| ||||||||||
Nikko Cordial-related(2) | 300 | — | |||||||||||||||||
Other Markets & Banking | 130 | 57 | |||||||||||||||||
Primerica | 110 | 116 | |||||||||||||||||
Loan servicing(3) |
| 1,226 |
| 436 |
| 1,487 |
| 1,004 |
| (284 | ) | 261 | |||||||
Primerica |
| 113 |
| 106 |
| 229 |
| 202 |
| ||||||||||
Other Consumer |
| 122 |
| 170 |
| 338 |
| 329 |
| ||||||||||
Other Markets & Banking |
| 84 |
| 49 |
| 141 |
| 105 |
| ||||||||||
Corporate finance(4) | (3,111 | ) | 295 | ||||||||||||||||
Other |
| 14 |
| 37 |
| 33 |
| 71 |
| 14 | 19 | ||||||||
Total commissions and fees |
| $ | 6,474 |
| $ | 5,331 |
| $ | 12,247 |
| $ | 10,519 |
| $ | 1,671 | $ | 5,602 | ||
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 principal U.S. defined benefit plan provideswhich formerly covered substantially all U.S. employees, is closed to new entrants and effective January 1, 2008 no longer accrues benefits under a cash balance formula.for most employees. 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’sCompany's Retirement Benefit Plans and Pension Assumptions, see Citigroup’s 2006Citigroup's 2007 Annual Report on Form 10-K.
The following tables summarizetable summarizes the components of the net expense recognized in the Consolidated Statement of Income for the three and six months ended June 30, 2007March 31, 2008 and 2006.2007.
Net Expense (Benefit) Three Months Ended June 30, Pension Plans Postretirement 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 $ 67 $ 67 $ 46 $ 45 $ — $ — $ 5 $ 4 Interest cost on benefit obligation 163 158 75 68 15 14 17 14 Expected return on plan assets (223 ) (212 ) (109 ) (84 ) (3 ) (3 ) (23 ) (13 ) Amortization of unrecognized: Prior service cost (benefit) — (6 ) 1 — (1 ) (1 ) — — Net actuarial loss 27 43 12 14 1 3 2 1 Net expense $ 34 $ 50 $ 25 $ 43 $ 12 $ 13 $ 1 $ 6
Benefit Plans
|
| Six Months Ended June 30, |
| | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
| Pension Plans |
| Postretirement |
| | Pension Plans | Postretirement Benefit Plans | |||||||||||||||||||||||||||||||||||||||||||
|
| U.S. Plans(1)(2) |
| Plans Outside U.S. |
| U.S. Plans |
| Plans Outside U.S. |
| | U.S. Plans(1)(2) | Plans Outside U.S. | U.S. Plans | Plans Outside U.S. | |||||||||||||||||||||||||||||||||||||
In millions of dollars | In millions of dollars | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||||||||
Benefits earned during the period |
| $ | 134 |
| $ | 135 |
| $ | 90 |
| $ | 88 |
| $ | 1 |
| $ | 1 |
| $ | 11 |
| $ | 8 |
| Benefits earned during the period | $ | 8 | $ | 67 | $ | 51 | $ | 44 | $ | — | $ | 1 | $ | 7 | $ | 6 | |||||||||
Interest cost on benefit obligation |
| 326 |
| 315 |
| 149 |
| 136 |
| 30 |
| 30 |
| 35 |
| 28 |
| Interest cost on benefit obligation | 164 | 163 | 83 | 74 | 15 | 15 | 20 | 18 | |||||||||||||||||||||||||
Expected return on plan assets |
| (445 | ) | (424 | ) | (216 | ) | (168 | ) | (6 | ) | (6 | ) | (47 | ) | (27 | ) | Expected return on plan assets | (233 | ) | (222 | ) | (128 | ) | (107 | ) | (2 | ) | (3 | ) | (28 | ) | (24 | ) | |||||||||||||||||
Amortization of unrecognized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization of unrecognized: | |||||||||||||||||||||||||||||||||
Net transition obligation |
| — |
| — |
| 1 |
| — |
| — |
| — |
| — |
| — |
| ||||||||||||||||||||||||||||||||||
Prior service cost |
| (1 | ) | (12 | ) | 1 |
| 1 |
| (2 | ) | (2 | ) | — |
| — |
| ||||||||||||||||||||||||||||||||||
Net actuarial loss |
| 54 |
| 87 |
| 25 |
| 28 |
| 2 |
| 6 |
| 4 |
| 3 |
| ||||||||||||||||||||||||||||||||||
Net expense |
| $ | 68 |
| $ | 101 |
| $ | 50 |
| $ | 85 |
| $ | 25 |
| $ | 29 |
| $ | 3 |
| $ | 12 |
| ||||||||||||||||||||||||||
Net transition obligation | — | — | — | 1 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Prior service cost (benefit) | (1 | ) | (1 | ) | 1 | — | — | (1 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||
Net actuarial loss | — | 27 | 9 | 13 | — | 1 | 3 | 2 | |||||||||||||||||||||||||||||||||||||||||||
Net expense (benefit) | Net expense (benefit) | $ | (62 | ) | $ | 34 | $ | 16 | $ | 25 | $ | 13 | $ | 13 | $ | 2 | $ | 2 | |||||||||||||||||||||||||||||||||
Employer Contributions
Citigroup’s Citigroup's pension funding policy for U.S. plans and non-U.S. 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’splan's funded position. At June 30, 2007March 31, 2008 and December 31, 2006,2007, there were no minimum required contributions and no discretionary cash or non-cash contributions are currently planned for the U.S. plans. For the non-U.S. plans, the Company contributed $63$31 million as of June 30, 2007.March 31, 2008. Citigroup presently anticipates contributing an additional $105$116 million to fund its non-U.S. plans in 20072008 for a total of $168$147 million.
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.initiatives.
The primary goals of the 2007 Structural Expense Review are as follows:
·Eliminate layers of management/improve workforce management;
·Consolidate certain back-office, middle-office and corporate functions;
·Increase the use of shared services;
·Expand centralized procurement; and
·Continue to rationalize operational spending on technology.
For the three and six months ended June 30, 2007,March 31, 2008, Citigroup recorded a pretax restructuring charge of $63 million and $1.440 billion, respectively, in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146).$15 million.
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 $150$29 million pretaxpre-tax are anticipated to be recorded by the end of 2007.the second quarter of 2008. Of this charge, $113$5 million is attributable to Global Consumer, $16$2 million to Global Wealth Management and $21$22 million to Corporate/Other.
The following table details the Company’sCompany's restructuring reserves.
|
| Severance |
| Contract |
| Asset |
| Employee |
|
|
| ||||||||
|
|
|
|
|
| Termination |
| Write |
| Termination |
| Citigroup |
| ||||||
|
| SFAS 112(1) |
| SFAS 146(2) |
| Costs |
| Downs(3) |
| Cost |
| Total |
| ||||||
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 |
| (236 | ) | (18 | ) | (7 | ) | (39 | ) | (3 | ) | (303 | ) | ||||||
Balance at June 30, 2007 |
| $ | 730 |
| $ | 5 |
| $ | 42 |
| $ | 64 |
| $ | 37 |
| $ | 878 |
|
| 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 | ||||||||
Fourth quarter of 2007: | ||||||||||||||||||||
Additional Charge | 23 | 70 | 6 | 8 | — | 107 | ||||||||||||||
Foreign Exchange | 3 | — | — | — | — | 3 | ||||||||||||||
Utilization | (155 | ) | (44 | ) | (7 | ) | (13 | ) | (6 | ) | (225 | ) | ||||||||
Changes in Estimates(4) | (39 | ) | — | (6 | ) | (1 | ) | (8 | ) | (54 | ) | |||||||||
Balance at December 31, 2007 | $ | 425 | $ | 32 | $ | 22 | $ | 15 | $ | 9 | $ | 503 | ||||||||
First quarter of 2008: | ||||||||||||||||||||
Additional Charge | 5 | 5 | 3 | 2 | — | 15 | ||||||||||||||
Foreign Exchange | 5 | — | — | — | — | 5 | ||||||||||||||
Utilization | (114 | ) | (22 | ) | (4 | ) | (2 | ) | (1 | ) | (143 | ) | ||||||||
Balance at March 31, 2008 | $ | 321 | $ | 15 | $ | 21 | $ | 15 | $ | 8 | $ | 380 | ||||||||
Since the beginning of this initiative approximately 17,30018,700 positions have been eliminated, after considering attrition and redeployment within the Company.
The total restructuring reserve balance as of June 30, 2007 andMarch 31, 2008, the net restructuring charges for first quarter 2008 and the three- and six-month periods then endedcumulative net restructuring charges incurred to date under the first quarter 2007 restructuring initiative are presented below by business segment. These net charges were included in the Corporate/Other segment because this company-wide restructuring was a corporate initiative.
|
|
|
| Restructuring Charges |
| | Restructuring charges | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
| Ending Balance |
| Three Months Ended |
| Six Months Ended |
| ||||||||||||
|
| June 30, 2007 |
| June 30, 2007 |
| June 30, 2007 |
| ||||||||||||
In millions of dollars | Ending balance March 31, 2008 | Three months ended March 31, 2008 | Cumulative balance since inception(1) | ||||||||||||||||
Global Consumer |
| $ | 528 |
| $ | 27 |
| $ | 959 |
| $ | 258 | $ | 11 | $ | 1,015 | |||
Markets & Banking |
| 183 |
| 5 |
| 282 |
| 43 | 1 | 300 | |||||||||
Global Wealth Management |
| 60 |
| 14 |
| 79 |
| 28 | 1 | 97 | |||||||||
Alternative Investments |
| 7 |
| — |
| 7 |
| — | — | 7 | |||||||||
Corporate/Other |
| 100 |
| 17 |
| 113 |
| 51 | 2 | 124 | |||||||||
Total Citigroup (pretax) |
| $ | 878 |
| $ | 63 |
| $ | 1,440 |
| $ | 380 | $ | 15 | $ | 1,543 | |||
The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the three and six months ended June 30, 2007March 31, 2008 and 2006:2007:
In millions, except per share amounts | March 31, 2008 | March 31, 2007 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net income (loss) | $ | (5,111 | ) | $ | 5,012 | |||||||||||||||
Preferred dividends | (83 | ) | (16 | ) | ||||||||||||||||
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||
In millions, except per share amounts |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| |||||||||||
Income from continuing operations |
| $ | 6,226 |
| $ | 5,262 |
| $ | 11,238 |
| $ | 10,817 |
| |||||||
Discontinued operations |
| — |
| 3 |
| — |
| 87 |
| |||||||||||
Preferred dividends |
| (14 | ) | (16 | ) | (30 | ) | (32 | ) | |||||||||||
Income available to common stockholders for basic EPS |
| 6,212 |
| 5,249 |
| 11,208 |
| 10,872 |
| (5,194 | ) | 4,996 | ||||||||
Effect of dilutive securities |
| — |
| — |
| — |
| — |
| 66 | — | |||||||||
Income available to common stockholders for diluted EPS |
| $ | 6,212 |
| $ | 5,249 |
| $ | 11,208 |
| $ | 10,872 |
| $ | (5,128 | ) | $ | 4,996 | ||
|
|
|
|
|
|
|
|
|
| |||||||||||
Weighted average common shares outstanding applicable to basic EPS |
| 4,898.3 |
| 4,899.0 |
| 4,887.7 |
| 4,909.9 |
| 5,085.6 | 4,877.0 | |||||||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
| |||||||||||
Convertible securities | 489.2 | — | ||||||||||||||||||
Options |
| 25.2 |
| 27.9 |
| 25.9 |
| 27.6 |
| 0.9 | 26.7 | |||||||||
Restricted and deferred stock |
| 69.4 |
| 63.1 |
| 66.8 |
| 61.5 |
| 15.4 | 64.2 | |||||||||
Adjusted weighted average common shares outstanding applicable to diluted EPS |
| 4,992.9 |
| 4,990.0 |
| 4,980.4 |
| 4,999.0 |
| 5,591.1 | 4,967.9 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Basic earnings per share(1) |
|
|
|
|
|
|
|
|
| |||||||||||
Income from continuing operations |
| $ | 1.27 |
| $ | 1.07 |
| $ | 2.29 |
| $ | 2.20 |
| |||||||
Discontinued operations |
| — |
| — |
| — |
| 0.02 |
| |||||||||||
Net income |
| $ | 1.27 |
| $ | 1.07 |
| $ | 2.29 |
| $ | 2.21 |
| |||||||
Basic earnings per share | $ | (1.02 | ) | $ | 1.02 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Diluted earnings per share(1) |
|
|
|
|
|
|
|
|
| |||||||||||
Income from continuing operations |
| $ | 1.24 |
| $ | 1.05 |
| $ | 2.25 |
| $ | 2.16 |
| |||||||
Discontinued operations |
| — |
| — |
| — |
| 0.02 |
| |||||||||||
Net income |
| $ | 1.24 |
| $ | 1.05 |
| $ | 2.25 |
| $ | 2.17 |
| |||||||
Diluted earnings per share(1)(2) | $ | (1.02 | ) | $ | 1.01 | |||||||||||||||
58
9.8. Trading Account Assets and Liabilities
Trading account assets and liabilities, at fair value, consisted of the following:
In millions of dollars |
| June 30, |
| December 31, |
| ||
Trading account assets |
|
|
|
|
| ||
U.S. Treasury and federal agency securities |
| $ | 49,419 |
| $ | 44,661 |
|
State and municipal securities |
| 21,186 |
| 17,358 |
| ||
Foreign government securities |
| 78,542 |
| 33,057 |
| ||
Corporate and other debt securities |
| 116,297 |
| 93,891 |
| ||
Derivatives(1) |
| 60,713 |
| 49,541 |
| ||
Equity securities |
| 131,877 |
| 92,518 |
| ||
Mortgage loans and collateralized mortgage securities |
| 42,571 |
| 37,104 |
| ||
Other |
| 37,711 |
| 25,795 |
| ||
Total trading account assets |
| $ | 538,316 |
| $ | 393,925 |
|
Trading account liabilities |
|
|
|
|
| ||
Securities sold, not yet purchased |
| $ | 120,810 |
| $ | 71,083 |
|
Derivatives(1) |
| 97,182 |
| 74,804 |
| ||
Total trading account liabilities |
| $ | 217,992 |
| $ | 145,887 |
|
(1) Pursuant to master netting agreements and cash collateral.
10. Goodwill and Intangible Assets
The changes in goodwill during the first six months of 2007 were as follows:
In millions of dollars |
| Goodwill |
| |
|
|
|
| |
Balance at December 31, 2006 |
| $ | 33,415 |
|
|
|
|
| |
Acquisition of Grupo Financiero Uno |
| 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 |
|
During the first two quarters of 2007, no goodwill was written off due to impairment.
The changes in intangible assets during the first six months of 2007 were as follows:
In millions of dollars |
| Net Carrying |
| Acquisitions |
| Amortization |
| FX & |
| Impairments(2) |
| Net Carrying |
| ||||||
Purchased credit card relationships |
| $ | 4,879 |
| $ | 200 |
| $ | (298 | ) | $ | 28 |
| $ | (35 | ) | $ | 4,774 |
|
Core deposit intangibles |
| 734 |
| 203 |
| (48 | ) | 22 |
| — |
| 911 |
| ||||||
Other customer relationships |
| 389 |
| 1,748 |
| (51 | ) | (25 | ) | (127 | ) | 1,934 |
| ||||||
Present value of future profits |
| 181 |
| — |
| (4 | ) | — |
| — |
| 177 |
| ||||||
Indefinite-lived intangible assets |
| 639 |
| 557 |
| — |
| 4 |
| (73 | ) | 1,127 |
| ||||||
Other |
| 3,640 |
| 437 |
| (134 | ) | 37 |
| — |
| 3,980 |
| ||||||
Mortgage servicing rights |
| 5,439 |
| 3,133 |
| — |
| 1,500 |
| — |
| 10,072 |
| ||||||
Total intangible assets |
| $ | 15,901 |
| $ | 6,278 |
| ($535 | ) | $ | 1,566 |
| ($235 | ) | $ | 22,975 |
| ||
(1)Includes foreign exchange translation as well as purchase accounting adjustments.
(2)The impairment loss was determined based on a discounted cash flow model as a result of the 2007 Structural Expense Review and is included in Restructuring expense on the Consolidated Statement of Income.
The components of intangible assets were as follows:
|
| June 30, 2007 |
| December 31, 2006 |
| ||||||||||||||
In millions of dollars |
| Gross |
| Accumulated |
| Net |
| Gross |
| Accumulated |
| Net Carrying |
| ||||||
Purchased credit card relationships |
| $ | 8,601 |
| $ | 3,827 |
| $ | 4,774 |
| $ | 8,391 |
| $ | 3,512 |
| $ | 4,879 |
|
Core deposit intangibles |
| 1,472 |
| 561 |
| 911 |
| 1,223 |
| 489 |
| 734 |
| ||||||
Other customer relationships |
| 2,320 |
| 386 |
| 1,934 |
| 1,044 |
| 655 |
| 389 |
| ||||||
Present value of future profits |
| 428 |
| 251 |
| 177 |
| 428 |
| 247 |
| 181 |
| ||||||
Other(1) |
| 5,017 |
| 1,037 |
| 3,980 |
| 4,445 |
| 805 |
| 3,640 |
| ||||||
Total amortizing intangible assets |
| $ | 17,838 |
| $ | 6,062 |
| $ | 11,776 |
| $ | 15,531 |
| $ | 5,708 |
| $ | 9,823 |
|
Indefinite-lived intangible assets |
| 1,127 |
| N/A |
| 1,127 |
| 639 |
| N/A |
| 639 |
| ||||||
Mortgage servicing rights |
| $ | 10,072 |
| N/A |
| $ | 10,072 |
| $ | 5,439 |
| N/A |
| 5,439 |
| |||
Total intangible assets |
| $ | 29,037 |
| $ | 6,062 |
| $ | 22,975 |
| $ | 21,609 |
| $ | 5,708 |
| $ | 15,901 |
|
(1) Includes contract-related intangible assets
N/A Not applicable
In millions of dollars |
| June 30, 2007 |
| December 31, 2006 |
| ||
Debt securities, substantially all available-for-sale at fair value |
| $ | 231,577 |
| $ | 254,107 |
|
Marketable equity securities available-for-sale |
| 9,708 |
| 3,981 |
| ||
Non-marketable equity securities |
| 16,543 |
| 15,466 |
| ||
Other |
| 52 |
| 37 |
| ||
Total |
| $ | 257,880 |
| $ | 273,591 |
|
The amortized cost and fair value of investments in debt and equity securitiesfollowing at June 30, 2007March 31, 2008 and December 31, 2006 were as follows:2007:
|
| June 30, 2007 |
| December 31, 2006(1)(2) |
| ||||||||||||||
In millions of dollars |
| Amortized |
| Gross |
| Gross |
| Fair Value |
| Amortized |
| Fair Value |
| ||||||
Debt securities held to maturity(3) |
| $ | 1 |
| $ | — |
| $ | — |
| $ | 1 |
| $ | 1 |
| $ | 1 |
|
Debt securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities, principally obligations of U.S. Federal agencies |
| $ | 70,199 |
| $ | 19 |
| $ | 1,411 |
| $ | 68,807 |
| $ | 82,443 |
| $ | 82,413 |
|
U.S. Treasury and Federal agencies |
| 20,766 |
| 7 |
| 379 |
| 20,394 |
| 24,872 |
| 24,531 |
| ||||||
State and municipal |
| 18,920 |
| 222 |
| 234 |
| 18,908 |
| 15,152 |
| 15,654 |
| ||||||
Foreign government |
| 79,465 |
| 463 |
| 666 |
| 79,262 |
| 73,943 |
| 73,783 |
| ||||||
U.S. corporate |
| 34,316 |
| 242 |
| 261 |
| 34,297 |
| 32,311 |
| 32,455 |
| ||||||
Other debt securities |
| 9,910 |
| 64 |
| 66 |
| 9,908 |
| 25,071 |
| 25,270 |
| ||||||
Total debt securities available-for-sale (4) |
| $ | 233,577 |
| $ | 1,017 |
| $ | 3,017 |
| $ | 231,577 |
| $ | 253,793 |
| $ | 254,107 |
|
Equity securities(5)(6) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Marketable equity securities |
| $ | 8,048 |
| $ | 1,668 |
| $ | 8 |
| $ | 9,708 |
| $ | 3,011 |
| $ | 3,981 |
|
Non-marketable equity securities carried at |
| 11,169 |
| — |
| — |
| 11,169 |
| 4,804 |
| 4,804 |
| ||||||
Non-marketable equity securities carried at fair value(7) |
| 5,374 |
| — |
| — |
| 5,374 |
| 10,662 |
| 10,662 |
| ||||||
Total equity securities |
| $ | 24,591 |
| $ | 1,668 |
| $ | 8 |
| $ | 26,251 |
| $ | 18,477 |
| $ | 19,447 |
|
In millions of dollars | March 31, 2008 | December 31, 2007(1) | ||||
---|---|---|---|---|---|---|
Trading account assets | ||||||
U.S. Treasury and federal agency securities | $ | 33,664 | $ | 32,180 | ||
State and municipal securities | 18,005 | 18,574 | ||||
Foreign government securities | 68,748 | 52,332 | ||||
Corporate and other debt securities | 140,481 | 156,242 | ||||
Derivatives(2) | 124,481 | 76,881 | ||||
Equity securities | 90,373 | 106,868 | ||||
Mortgage loans and collateralized mortgage securities | 51,761 | 56,740 | ||||
Other | 50,924 | 39,167 | ||||
Total trading account assets | $ | 578,437 | $ | 538,984 | ||
Trading account liabilities | ||||||
Securities sold, not yet purchased | $ | 76,003 | $ | 78,541 | ||
Derivatives(2) | 125,983 | 103,541 | ||||
Total trading account liabilities | $ | 201,986 | $ | 182,082 | ||
At December 31, 2006, gross pretax unrealized gains and losses on debt and equity securities totaled $3.225 billion and $1.941 billion, respectively.
(2)
(3)9. Investments Recorded at amortized cost.
(4) Includes debt securities held to maturity.
(5) The Legg Mason securities were previously reported at fair value within equity securities and changes in value were reported in Accumulated other comprehensive income (loss). Upon election of fair value accounting with the adoption of SFAS 159 as of January 1, 2007, the unrealized loss on these securities was reclassified to retained earnings and the shares are now included in Trading account assets in accordance with SFAS 159. See Note 14 and Note 16 on pages 68 and 71, respectively, for further discussions.
(6) Non-marketable equity securities carried at cost are periodically evaluated for other than temporary impairment. For purposes of presenting the information in the table above, the cost is assumed to represent the fair value for these investments.
(7)In millions of dollars March 31, 2008 December 31, 2007 Securities available-for-sale $ 181,165 $ 193,113 Non-marketable equity securities carried at fair value(1) 14,603 13,603 Non-marketable equity securities carried at cost(2) 8,386 8,291 Debt securities held-to-maturity(3) 1 1 Total $ 204,155 $ 215,008
The amortized cost and are not included in the table above.fair value of securities available-for-sale at March 31, 2008 and December 31, 2007 were as follows:
| March 31, 2008 | December 31, 2007 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Amortized cost | Fair value | ||||||||||||
Securities available-for-sale | ||||||||||||||||||
Mortgage-backed securities | $ | 62,017 | $ | 432 | $ | 4,086 | $ | 58,363 | $ | 63,888 | $ | 63,075 | ||||||
U.S. Treasury and federal agencies | 17,208 | 124 | 61 | 17,271 | 19,428 | 19,424 | ||||||||||||
State and municipal | 13,604 | 81 | 946 | 12,739 | 13,342 | 13,206 | ||||||||||||
Foreign government | 69,889 | 570 | 474 | 69,985 | 72,339 | 72,075 | ||||||||||||
U.S. corporate | 11,770 | 48 | 588 | 11,230 | 13,250 | 12,850 | ||||||||||||
Other debt securities | 7,683 | 87 | 112 | 7,658 | 8,734 | 8,717 | ||||||||||||
Total debt securities available-for-sale | $ | 182,171 | $ | 1,342 | $ | 6,267 | $ | 177,246 | $ | 190,981 | $ | 189,347 | ||||||
Marketable equity securities available-for-sale | $ | 1,506 | $ | 2,431 | $ | 18 | $ | 3,919 | $ | 1,404 | $ | 3,766 | ||||||
Total securities available-for-sale | $ | 183,677 | $ | 3,773 | $ | 6,285 | $ | 181,165 | $ | 192,385 | $ | 193,113 | ||||||
Citigroup invests in certain complex investment company structures known as Master-Feeder funds by making direct investments in the Feeder funds. Each Feeder fund records its net investment in the Master fund, which is the sole or principal investment of the Feeder fund, and does not consolidate the Master Fund. Citigroup consolidates Feeder funds where it has a controlling interest. At June 30, 2007,March 31, 2008, the total assets of Citigroup’sCitigroup's consolidated Feeder funds amounted to approximately $2.1$0.5 billion. Citigroup has not consolidated approximately $7.5$3.2 billion of additional assets and liabilities recorded in the related Master Funds’Funds' financial statements.
10. Goodwill and Intangible Assets
Goodwill
The changes in goodwill during the first three months of 2008 were as follows:
In millions of dollars | Goodwill | ||
---|---|---|---|
Balance at December 31, 2007 | $ | 41,204 | |
Purchase of the remaining shares of Nikko Cordial | 1,492 | ||
Purchase accounting adjustment—BOOC acquisition | 100 | ||
Acquisition of the U.S. branches of Banco de Chile | 88 | ||
Purchase accounting adjustment—Bisys acquisition | 68 | ||
Foreign exchange translation and other | 670 | ||
Balance at March 31, 2008 | $ | 43,622 | |
During the first quarter of 2008, no goodwill was written off due to impairment.
12.Intangible Assets
The components of intangible assets were as follows:
| March 31, 2008 | December 31, 2007 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||||
Purchased credit card relationships | $ | 8,846 | $ | 4,287 | $ | 4,559 | $ | 8,499 | $ | 4,045 | $ | 4,454 | ||||||
Core deposit intangibles | 1,570 | 687 | 883 | 1,435 | 518 | 917 | ||||||||||||
Other customer relationships | 4,328 | 207 | 4,121 | 2,746 | 197 | 2,549 | ||||||||||||
Present value of future profits | 429 | 261 | 168 | 427 | 257 | 170 | ||||||||||||
Other(1) | 5,422 | 1,228 | 4,194 | 5,783 | 1,157 | 4,626 | ||||||||||||
Total amortizing intangible assets | $ | 20,595 | $ | 6,670 | $ | 13,925 | $ | 18,890 | $ | 6,174 | $ | 12,716 | ||||||
Indefinite-lived intangible assets | 2,304 | N/A | 2,304 | 1,591 | N/A | 1,591 | ||||||||||||
Mortgage servicing rights | 7,716 | N/A | 7,716 | 8,380 | N/A | 8,380 | ||||||||||||
Total intangible assets | $ | 30,615 | $ | 6,670 | $ | 23,945 | $ | 28,861 | $ | 6,174 | $ | 22,687 | ||||||
The changes in intangible assets during the first three months of 2008 were as follows:
In millions of dollars | Net carrying amount at December 31, 2007 | Acquisitions | Amortization | Impairments(1) | FX and other(2) | Net carrying amount at March 31, 2008 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Purchased credit card relationships | $ | 4,454 | $ | 85 | $ | (165 | ) | $ | — | $ | 185 | $ | 4,559 | |||||
Core deposit intangibles | 917 | — | (39 | ) | — | 5 | 883 | |||||||||||
Other customer relationships | 2,549 | 1,355 | (57 | ) | — | 274 | 4,121 | |||||||||||
Present value of future profits | 170 | — | (3 | ) | — | 1 | 168 | |||||||||||
Indefinite-lived intangible assets | 1,591 | 550 | — | — | 163 | 2,304 | ||||||||||||
Other | 4,626 | 78 | (82 | ) | (202 | ) | (226 | ) | 4,194 | |||||||||
$ | 14,307 | $ | 2,068 | $ | (346 | ) | $ | (202 | ) | $ | 402 | $ | 16,229 | |||||
Mortgage servicing rights(3) | 8,380 | 7,716 | ||||||||||||||||
Total intangible assets | $ | 22,687 | $ | 23,945 | ||||||||||||||
Short-Term Borrowings
Short-term borrowings consist of commercial paper and other short-term borrowings as follows:
In millions of dollars |
| June 30, |
| December 31, |
| March 31, 2008 | December 31, 2007 | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Commercial paper |
|
|
|
|
| ||||||||
Citigroup Funding Inc. |
| $ | 53,122 |
| $ | 41,767 |
| $ | 37,331 | $ | 34,939 | ||
Other Citigroup Subsidiaries |
| 2,674 |
| 1,928 |
| 2,016 | 2,404 | ||||||
|
| $ | 55,796 |
| $ | 43,695 |
| ||||||
Other short-term borrowings(1) |
| 111,343 |
| 57,138 |
| ||||||||
$ | 39,347 | $ | 37,343 | ||||||||||
Other short-term borrowings | 96,452 | 109,145 | |||||||||||
Total short-term borrowings |
| $ | 167,139 |
| $ | 100,833 |
| $ | 135,799 | $ | 146,488 | ||
(1) At June 30, 2007, collateralized advances from the Federal Home Loan Bank are $3.1 billion.
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 pays commitment fees for its lines of credit.
Some of Citigroup’sCitigroup's nonbank subsidiaries have credit facilities with Citigroup’sCitigroup's subsidiary depository institutions, including Citibank, N.A. Borrowings under these facilities must be collateralizedsecured in accordance with Section 23A of the Federal Reserve Act.
Long-term debt, including its current portion, consisted of the following:Long-Term Debt
In millions of dollars |
| June 30, |
| December 31, |
| ||||||||
In millions of dollars at year end | March 31, 2008 | December 31, 2007 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Citigroup Parent Company |
| $ | 140,446 |
| $ | 125,350 |
| $ | 181,109 | $ | 171,637 | ||
Other Citigroup Subsidiaries(1) |
| 139,553 |
| 115,578 |
| 180,876 | 187,657 | ||||||
Citigroup Global Markets Holdings Inc.(2) |
| 29,148 |
| 28,719 |
| 25,095 | 31,401 | ||||||
Citigroup Funding Inc.(3)(4) |
| 30,930 |
| 18,847 |
| 37,879 | 36,417 | ||||||
Total long-term debt |
| $ | 340,077 |
| $ | 288,494 |
| ||||||
Total long term debt | $ | 424,959 | $ | 427,112 | |||||||||
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 $575 million$1.375 billion with unaffiliated banks with borrowings maturing on various dates in 2008 and 2009. At June 30, 2007, the full $3.0 billionMarch 31, 2008, $800 million of the syndicated five-year facility wasbilateral facilities were drawn.
CGMHI also has committed long-term financing facilities with unaffiliated banks. At June 30, 2007,March 31, 2008, 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’sCGMHI'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 June 30, 2007March 31, 2008 and December 31, 20062007 includes $10,255 million$24.1 billion and $9,775 million,$23.8 billion, respectively, of junior subordinated debt. The Company formed statutory business trusts under the laws of the state of Delaware, whichDelaware. The trusts 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
61
approval from the Federal Reserve, Citigroup has the right to redeem these securities.
Citigroup has contractually agreed not to redeem or purchase (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, and (iv) the 6.829% Fixed Rate/Floating Rate Enhanced Trust Preferred Securities of Citigroup Capital XVIII before June 28, 2047, (v) the 7.250% Enhanced Trust Preferred Securities of Citigroup Capital XIX before August 15, 2047, (vi) the 7.875% Enhanced Trust Preferred Securities of Citigroup Capital XX before December 15, 2067, and (vii) the 8.300% Fixed Rate/Floating Rate Enhanced Trust Preferred Securities of Citigroup Capital XXI before December 21, 2067 unless certain conditions, described in Exhibit 4.03 to Citigroup’sCitigroup's Current Report on Form 8-K filed on September 18, 2006, in Exhibit 4.02 to Citigroup’sCitigroup's Current Report on Form 8-K filed on November 28, 2006, in Exhibit 4.02 to Citigroup’sCitigroup's Current Report on Form 8-K filed on March 8, 2007, and in Exhibit 4.02 to Citigroup’sCitigroup's Current Report on Form 8-K filed on July 2, 2007, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on August 17, 2007, in Exhibit 4.2 to Citigroup's Current Report on Form 8-K filed on November 27, 2007, and in Exhibit 4.2 to Citigroup's Current Report on Form 8-K filed on December 21, 2007, respectively, are met. These agreements are for the benefit of the holders of Citigroup’sCitigroup'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 38.
Citigroup owns all of the voting securities of these subsidiary trusts. These 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’trusts' common securities. These subsidiary trusts’trusts' obligations are fully and unconditionally guaranteed by Citigroup.
The following table summarizes the financial structure of each of the Company’sCompany's subsidiary trusts at June 30, 2007:March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
| Junior Subordinated Debentures Owned by Trust |
| ||||||||||||||||||||||||
Trust Securities |
| Issuance |
| Securities |
| Liquidation |
| Coupon |
| Common |
| Amount(1) |
| Maturity |
| Redeemable |
| ||||||||||||||||||||
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, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Citigroup Capital III |
| Dec. 1996 |
| 200,000 |
| $ | 200 |
| 7.625 | % | 6,186 |
| $ | 206 |
| Dec. 1, 2036 |
| Not redeemable |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 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 |
| 1,003 |
| 6.829 | % | 50 |
| 1,003 |
| June 28, 2067 |
| June 28, 2017 |
| June 2007 | 500,000 | 994 | 6.829 | % | 50 | 994 | June 28, 2067 | June 28, 2017 | |||||||||||
Citigroup Capital XIX | Aug. 2007 | 49,000,000 | 1,225 | 7.250 | % | 20 | 1,226 | Aug. 15, 2067 | Aug. 15, 2012 | ||||||||||||||||||||||||||||
Citigroup Capital XX | Nov. 2007 | 31,500,000 | 788 | 7.875 | % | 20,000 | 788 | Dec. 15, 2067 | Dec. 15, 2012 | ||||||||||||||||||||||||||||
Citigroup Capital XXI | Dec. 2007 | 3,500,000 | 3,500 | 8.300 | % | 500 | 3,501 | Dec. 21, 2077 | Dec. 21, 2037 | ||||||||||||||||||||||||||||
Citigroup Capital XXIX | Nov. 2007 | 1,875,000 | 1,875 | 6.320 | % | 10 | 1,875 | Mar. 15, 2041 | Mar. 15, 2013 | ||||||||||||||||||||||||||||
Citigroup Capital XXX | Nov. 2007 | 1,875,000 | 1,875 | 6.455 | % | 10 | 1,875 | Sept. 15, 2041 | Sept. 15, 2013 | ||||||||||||||||||||||||||||
Citigroup Capital XXXI | Nov. 2007 | 1,875,000 | 1,875 | 6.700 | % | 10 | 1,875 | Mar. 15, 2042 | Mar. 15, 2014 | ||||||||||||||||||||||||||||
Citigroup Capital XXXII | Nov. 2007 | 1,875,000 | 1,875 | 6.935 | % | 10 | 1,875 | Sept. 15, 2042 | Sept. 15, 2014 | ||||||||||||||||||||||||||||
Adam Capital Trust III | Dec. 2002 | 17,500 | 18 | 3 mo. LIB +335 bp. | 542 | 18 | Jan. 07, 2033 | Jan. 07, 2008 | |||||||||||||||||||||||||||||
Adam Statutory Trust III | Dec. 2002 | 25,000 | 25 | 3 mo. LIB +325 bp. | 774 | 26 | Dec. 26, 2032 | Dec. 26, 2007 | |||||||||||||||||||||||||||||
Adam Statutory Trust IV | Sept. 2003 | 40,000 | 40 | 3 mo. LIB +295 bp. | 1,238 | 41 | Sept. 17, 2033 | Sept. 17, 2008 | |||||||||||||||||||||||||||||
Adam Statutory Trust V | Mar. 2004 | 35,000 | 35 | 3 mo. LIB +279 bp. | 1,083 | 36 | Mar. 17, 2034 | Mar. 17, 2009 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Adam Capital Trust III(2) |
| Dec. 2002 |
| 17,500 |
| 18 |
| 3 mo. LIB |
| 542 |
| 18 |
| Jan. 07, 2033 |
| Jan. 07, 2008 |
| ||||||||||||||||||||
Adam Statutory Trust III(2) |
| Dec. 2002 |
| 25,000 |
| 25 |
| 3 mo. LIB |
| 774 |
| 26 |
| Dec. 26, 2032 |
| Dec. 26, 2007 |
| ||||||||||||||||||||
Adam Statutory Trust IV(2) |
| Sept. 2003 |
| 40,000 |
| 40 |
| 3 mo. LIB |
| 1,238 |
| 41 |
| Sept. 17, 2033 |
| Sept. 17, 2008 |
| ||||||||||||||||||||
Adam Statutory Trust V(2) |
| Mar. 2004 |
| 35,000 |
| 35 |
| 3 mo. LIB |
| 1,083 |
| 36 |
| Mar. 17, 2034 |
| Mar. 17, 2009 |
| ||||||||||||||||||||
Total obligated |
|
|
|
|
| $ | 10,521 |
|
|
|
|
| $ | 10,681 |
|
|
|
|
| $ | 23,525 | $ | 23,687 | ||||||||||||||
(2)Assumed by Citigroup upon completion of First American Bank acquisition.
In each case, the coupon rate on the debentures is the same as that on the trust securities. Distributions on the trust securities and interest on the debentures are payable quarterly, except for Citigroup Capital III, Citigroup Capital XVIII and Citigroup Capital XVIII,XXI on which distributions are payable semiannually.
On March 18, 2007 and March 26, During 2007, Citigroup redeemed for cash all ofissued $1.1 billion, $0.9 billion, $1.225 billion, $788 million, $3.5 billion and $7.5 billion related to the $23 million and $25 millionEnhanced Trust Preferred Securities of Adam Statutory Trust ICitigroup Capital XVII, XVIII, XIX, XX, XXI, and Adam Statutory Trust II, respectively,XXIX-XXXII (ADIA) respectively.
12. Preferred Stock
The following table summarizes the Company's Preferred stock outstanding at March 31, 2008 and December 31, 2007:
| | | | | Carrying Value (in millions of dollars) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Approximately convertible to Citigroup common shares | |||||||||||
| Dividend Rate | Redemption price per depositary share | Number of depositary shares | March 31, 2008 | December 31, 2007 | ||||||||||
Series T(1) | 6.500 | % | $ | 50 | 63,373,000 | 93,944,135 | $ | 3,169 | $ | — | |||||
Series A(2) | 7.000 | % | $ | 50 | 137,600,000 | 217,573,120 | 6,880 | — | |||||||
Series B(2) | 7.000 | % | $ | 50 | 60,000,000 | 94,872,000 | 3,000 | — | |||||||
Series C(2) | 7.000 | % | $ | 50 | 20,000,000 | 31,624,000 | 1,000 | — | |||||||
Series D(2) | 7.000 | % | $ | 50 | 15,000,000 | 23,718,000 | 750 | — | |||||||
Series J(2) | 7.000 | % | $ | 50 | 9,000,000 | 14,230,800 | 450 | — | |||||||
Series K(2) | 7.000 | % | $ | 50 | 8,000,000 | 12,649,600 | 400 | — | |||||||
Series L1(2) | 7.000 | % | $ | 50 | 100,000 | 158,120 | 5 | — | |||||||
Series N(2) | 7.000 | % | $ | 50 | 300,000 | 474,360 | 15 | — | |||||||
Series AA(3) | 8.125 | % | $ | 25 | 148,600,000 | — | 3,715 | — | |||||||
489,244,135 | $ | 19,384 | $ | — | |||||||||||
On March 6, 2007, CitigroupApril 28, 2008, the Company issued $1.000an additional $6 billion of Enhanced Trust Preferred Securities (Citigroup Capital XVII). An additional $100 million was issued,8.40% fixed rate/floating rate non-cumulative preferred stock, known as Series E, in a public offering. Dividends will be paid semi-annually on the Series E at a fixed rate for the first 10 years, until April 30, 2018, after which dividends will be paid quarterly at a floating rate so long as the Series E preferred stock remains outstanding.
13. Changes in Accumulated Other Comprehensive Income (Loss)
Changes in each component of "Accumulated Other Comprehensive Income (Loss)" for the three-month period ended March 31, 2008 were as follows:
In millions of dollars | Net unrealized gains (losses) on investment securities | Foreign currency translation adjustment | Cash flow hedges | Pension liability adjustments | Accumulated other comprehensive income (loss) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, December 31, 2007 | $ | 471 | $ | (772 | ) | $ | (3,163 | ) | $ | (1,196 | ) | $ | (4,660 | ) | ||
Decrease (increase) in net unrealized gains (losses) on investment securities, net of taxes(1) | (2,345 | ) | — | — | — | (2,345 | ) | |||||||||
Less: Reclassification adjustment for losses included in net income, net of taxes | (42 | ) | — | — | — | (42 | ) | |||||||||
Foreign currency translation adjustment, net of taxes(2) | — | 1,273 | — | — | 1,273 | |||||||||||
Cash flow hedges, net of taxes(3) | — | — | (1,638 | ) | — | (1,638 | ) | |||||||||
Pension liability adjustment, net of taxes | — | — | — | 31 | 31 | |||||||||||
Change | $ | (2,387 | ) | $ | 1,273 | $ | (1,638 | ) | $ | 31 | $ | (2,721 | ) | |||
Balance, March 31, 2008 | $ | (1,916 | ) | $ | 501 | $ | (4,801 | ) | $ | (1,165 | ) | $ | (7,381 | ) | ||
On February 15, 2007, Citigroup redeemed for cash allmortgage-backed securities activity.
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 distribution up to but excluding the date of redemption.
62
The Company primarily securitizes credit card receivables and mortgages. Other types of assets securitized include corporate debt securities,instruments (in cash and synthetic form), 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. The Company also retains an interestAs specified in some of the sale agreements, the net revenue collected each month is accumulated up to a predetermined maximum amount, and is available over the remaining term of that transaction to make payments of yield, fees, and transaction costs in the residualevent that net cash flows offrom the securitized credit card receivables. The residual cash flowsreceivables are not sufficient. Once the finance charge collections on the securitized receivables reducedpredetermined amount is reached, net revenue is recognized by payment of investor coupon on trust securities, servicing fees, and net credit losses. The residual cash flows are periodically remitted to the Citigroup subsidiary that sold the 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.receivables.
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 Company's U.S. Consumer business retains the servicing rights, which 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 loan 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’sCompany's mortgage loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchaserpurchasers of the securities issued by the trust. Markets & Banking retains servicing for a limited number of its mortgage securitizations.
|
| Three Months Ended June 30, 2007 |
| |||||||||||||
In billions of dollars |
| Credit |
| U.S. Consumer |
| Markets & |
| Markets & |
| Other(1) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Proceeds from new securitizations |
| $ | 6.4 |
| $ | 21.2 |
| $ | 13.1 |
| $ | 10.2 |
| $ | 1.4 |
|
Proceeds from collections reinvested in new receivables |
| 55.8 |
| — |
| — |
| — |
| 0.8 |
| |||||
Contractual servicing fees received |
| 0.5 |
| 0.3 |
| — |
| — |
| — |
| |||||
Cash flows received on retained interests and other net cash flows |
| 2.1 |
| 0.1 |
| — |
| — |
| — |
| |||||
The following tables summarize selected cash flow information related to credit card, mortgage, and certain other securitizations for the three months ended March 31, 2008 and 2007:
|
| Three Months Ended June 30, 2006 |
| Three Months Ended March 31, 2008 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars |
| Credit |
| U.S. Consumer |
| Markets & |
| Markets & |
| Other(1) |
| Credit cards | U.S. Consumer mortgages | Markets & Banking mortgages | Other | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Proceeds from new securitizations |
| $ | 7.6 |
| $ | 19.1 |
| $ | 7.9 |
| $ | 9.0 |
| $ | 0.1 |
| $ | 10.0 | $ | 23.7 | $ | 2.0 | $ | 0.1 | ||||
Proceeds from collections reinvested in new receivables |
| 53.2 |
| — |
| — |
| — |
| 0.3 |
| 55.0 | — | — | 0.3 | |||||||||||||
Contractual servicing fees received |
| 0.5 |
| 0.2 |
| — |
| — |
| — |
| 0.5 | 0.4 | — | — | |||||||||||||
Cash flows received on retained interests and other net cash flows |
| 2.0 |
| — |
| — |
| — |
| — |
| 2.0 | 0.2 | 0.1 | 0.1 | |||||||||||||
| Three Months Ended March 31, 2007 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit cards | U.S. Consumer mortgages | Markets & Banking mortgages | Other | ||||||||
Proceeds from new securitizations | $ | 6.3 | $ | 20.5 | $ | 16.5 | $ | 1.4 | ||||
Proceeds from collections reinvested in new receivables | 51.9 | — | — | 0.5 | ||||||||
Contractual servicing fees received | 0.5 | 0.3 | — | — | ||||||||
Cash flows received on retained interests and other net cash flows | 2.1 | — | — | — | ||||||||
|
| Six Months Ended June 30, 2007 |
| |||||||||||||
In billions of dollars |
| Credit |
| U.S. Consumer |
| Markets & |
| Markets & |
| Other(1) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Proceeds from new securitizations |
| $ | 12.7 |
| $ | 48.1 |
| $ | 29.6 |
| $ | 23.3 |
| $ | 1.4 |
|
Proceeds from collections reinvested in new receivables |
| 107.7 |
| — |
| — |
| — |
| 1.3 |
| |||||
Contractual servicing fees received |
| 1.1 |
| 0.6 |
| — |
| — |
| — |
| |||||
Cash flows received on retained interests and other net cash flows |
| 4.2 |
| 0.1 |
| — |
| — |
| — |
| |||||
|
| Six Months Ended June 30, 2006 |
| |||||||||||||
In billions of dollars |
| Credit |
| U.S. Consumer |
| Markets & |
| Markets & |
| Other(1) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Proceeds from new securitizations |
| $ | 14.4 |
| $ | 31.3 |
| $ | 13.1 |
| $ | 16.6 |
| $ | 0.2 |
|
Proceeds from collections reinvested in new receivables |
| 107.1 |
| — |
| — |
| — |
| 0.4 |
| |||||
Contractual servicing fees received |
| 1.0 |
| 0.5 |
| — |
| — |
| — |
| |||||
Cash flows received on retained interests and other net cash flows |
| 4.4 |
| — |
| — |
| — |
| — |
| |||||
(1) Other includes student loans and other assets.
The Company recognized gains on securitizations of U.S. Consumer mortgages of $52$2 million and $4$53 million for the three-monththree months periods ended June 30,March 31, 2008 and 2007, and 2006, respectively, and $83 million and $34 million duringrespectively. The gains declined in 2008 due to the adoption of SFAS 159 for most mortgage loans held-for-sale. In the first six months of 2007 and 2006, respectively. In the second quarter of 20072008 and 2006,2007, the Company recorded gains of $149$221 million and $284$335 million related to the securitization of credit card receivables, and $396 million and $456 million for the six months ended June 30, 2007 and 2006, respectively.receivables. Gains recognized on the securitization of Markets & Banking activities and other assets during the second quarterfirst three months of 2008 and 2007 and 2006 were $92$5 million and $93$13 million, respectively, and $106 million and $114 million for the six months ended 2007 and 2006, respectively.
Key assumptions used for securitizationsthe securitization of credit cards, mortgages, and certain other asset securitizationsassets during the three months ended June 30,first quarter of 2008 and 2007 and 2006 in measuring the fair value of retained interests at the date of sale or securitization follow:are as follows:
Three Months Ended | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Credit | U.S. Consumer | Markets & | ||||||||||||||||
Discount rate |
|
| 0.7% to 47.8% | |||||||||||||||
|
|
|
|
|
| |||||||||||||
Constant prepayment rate |
|
|
|
|
| |||||||||||||
Anticipated net credit losses |
| N/A |
|
|
|
(1)Other includes student loans and other assets.
Three Months Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Credit | U.S. Consumer | Markets & | |||||||||||
Discount rate |
|
| 4.1% to 27.9% | ||||||||||
|
|
|
|
|
| ||||||||
Constant prepayment rate |
|
|
|
|
| 52.5% | |||||||
Anticipated net credit losses |
| N/A |
|
|
| 100.0% |
(1)Other includes student loans and other assets.
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 June 30, 2007,March 31, 2008, 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 assumptionsAssumptions at June 30, 2007March 31, 2008
March 31, 2008 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Credit Cards | U.S. Consumer Mortgages(1) | Markets & Banking Mortgages | Other(2) | ||||||||
Discount rate |
| 13.8% | 0.7% to 47.8% | 11.0% to 13.0% | |||||||
|
|
|
|
| |||||||
|
|
|
|
|
| ||||||
Constant prepayment rate |
|
|
|
|
| ||||||
Anticipated net credit losses |
| N/A |
|
|
| ||||||
Weighted average life |
|
|
|
|
|
|
| June 30, 2007 |
| |||||||||||||
In millions of dollars |
| Credit |
| U.S. |
| Markets & |
| Markets & |
| Other(1) |
| |||||
Carrying value of retained interests |
| $ | 10,760 |
| $ | 11,341 |
| $ | 3,432 |
| $ | 7,239 |
| $ | 1,484 |
|
Discount Rates |
|
|
|
|
|
|
|
|
|
|
| |||||
10% |
| $ | (64 | ) | $ | (348 | ) | $ | (28 | ) | $ | (19 | ) | $ | (28 | ) |
20% |
| (126 | ) | (676 | ) | (54 | ) | (37 | ) | (55 | ) | |||||
Constant prepayment rate |
|
|
|
|
|
|
|
|
|
|
| |||||
10% |
| $ | (266 | ) | $ | (459 | ) | $ | (10 | ) | $ | (1 | ) | $ | (14 | ) |
20% |
| (474 | ) | (880 | ) | (25 | ) | (1 | ) | (28 | ) | |||||
Anticipated net credit losses |
|
|
|
|
|
|
|
|
|
|
| |||||
10% |
| $ | (371 | ) | $ | (8 | ) | $ | (36 | ) | N/A |
| $ | (6 | ) | |
20% |
| (740 | ) | (17 | ) | (67 | ) | N/A |
| (12 | ) |
| March 31, 2008 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Credit cards | U.S. Consumer mortgages | Markets & Banking mortgages | Other(1) | |||||||||
Carrying value of retained interests | $ | 12,594 | $ | 13,278 | $ | 3,401 | $ | 1,784 | |||||
Discount Rates | |||||||||||||
Adverse change of 10% | $ | (38 | ) | $ | (363 | ) | $ | (216 | ) | $ | (27 | ) | |
Adverse change of 20% | (134 | ) | (700 | ) | (310 | ) | (53 | ) | |||||
Constant prepayment rate | |||||||||||||
Adverse change of 10% | $ | (211 | ) | $ | (593 | ) | $ | (19 | ) | $ | (13 | ) | |
Adverse change of 20% | (413 | ) | (1,155 | ) | (32 | ) | (26 | ) | |||||
Anticipated net credit losses | |||||||||||||
Adverse change of 10% | $ | (536 | ) | $ | (7 | ) | $ | (97 | ) | $ | (8 | ) | |
Adverse change of 20% | (1,067 | ) | (15 | ) | (171 | ) | (15 | ) | |||||
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 June 30, 2007 and December 31, 2006, and credit losses, net of recoveries for the three-month periods ended June 30, 2007 and 2006.recoveries.
In billions of dollars |
| June 30, |
| December 31, |
| ||
Principal amounts, at period end |
|
|
|
|
| ||
On-balance sheet loans |
| $ | 77.0 |
| $ | 75.5 |
|
Securitized amounts |
| 101.1 |
| 99.5 |
| ||
Loans held-for-sale |
| 2.9 |
| — |
| ||
Total managed |
| $ | 181.0 |
| $ | 175.0 |
|
In millions of dollars, except loans in billions | Mar. 31, 2008 | Dec. 31, 2007 | ||||
---|---|---|---|---|---|---|
Loan amounts, at period end | ||||||
On balance sheet | $ | 83.7 | $ | 88.5 | ||
Securitized amounts | 109.3 | 108.1 | ||||
Loans held-for-sale | 0.9 | 1.0 | ||||
Total managed loans | $ | 193.9 | $ | 197.6 | ||
Delinquencies, at period end | ||||||
On balance sheet | $ | 1,792 | $ | 1,820 | ||
Securitized amounts | 2,113 | 1,864 | ||||
Loans held-for-sale | 14 | 14 | ||||
Total managed delinquencies | $ | 3,919 | $ | 3,698 | ||
Credit losses, net of recoveries, for the quarter ended March 31, | 2008 | 2007 | ||||
---|---|---|---|---|---|---|
On balance sheet | $ | 1,178 | $ | 823 | ||
Securitized amounts | 1,590 | 1,150 | ||||
Loans held-for-sale | — | — | ||||
Total managed | $ | 2,768 | $ | 1,973 | ||
In millions of dollars |
|
|
|
|
| ||
Delinquencies, at period end |
|
|
|
|
| ||
On balance sheet loans |
| $ | 1,499 |
| $ | 1,427 |
|
Securitized amounts |
| 1,469 |
| 1,616 |
| ||
Loans held-for-sale |
| 36 |
| — |
| ||
Total managed |
| $ | 3,004 |
| $ | 3,043 |
|
|
| Three Months Ended June 30, |
| ||||
|
| 2007 |
| 2006 |
| ||
Credit losses, net of recoveries |
|
|
|
|
| ||
On-balance sheet loans |
| $ | 805 |
| $ | 780 |
|
Securitized amounts |
| 1,157 |
| 969 |
| ||
Loans held-for-sale |
| — |
| — |
| ||
Total managed |
| $ | 1,962 |
| $ | 1,749 |
|
|
| Six Months Ended June 30, |
| ||||
|
| 2007 |
| 2006 |
| ||
Credit losses, net of recoveries |
|
|
|
|
| ||
On-balance sheet loans |
| $ | 1,628 |
| $ | 1,444 |
|
Securitized amounts |
| 2,307 |
| 1,840 |
| ||
Loans held-for-sale |
| — |
| 4 |
| ||
Total managed |
| $ | 3,935 |
| $ | 3,288 |
|
Mortgage Servicing Rights
The fair value of capitalized mortgage loan servicing rights (MSRs) was $10.1$7.7 billion and $8.8 billion and $5.6 billion at June 30, 2007, March 31, 2008 and 2007, and June 30, 2006, respectively.
The following table summarizes the changes in capitalized MSRs:
|
| Three Months Ended June 30, |
| ||||
In millions of dollars |
| 2007 |
| 2006 |
| ||
Balance, beginning of period |
| $ | 8,832 |
| $ | 4,955 |
|
|
|
|
|
|
| ||
Originations |
| 534 |
| 308 |
| ||
Purchases |
| 14 |
| 166 |
| ||
Changes in fair value of MSRs due to changes in inputs and assumptions |
| 1,041 |
| — |
| ||
Other changes(1) |
| (349 | ) | 136 |
| ||
Balance, end of period |
| $ | 10,072 |
| $ | 5,565 |
|
|
| Six Months Ended June 30. | Three Months Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||||||
| 2007 |
| 2006 |
| 2008 | 2007 | ||||||||
Balance, beginning of period |
| $ | 5,439 |
| $ | 4,339 |
| $ | 8,380 | $ | 5,439 | |||
Originations |
| 961 |
| 485 |
| 345 | 427 | |||||||
Purchases |
| 3,133 |
| 328 |
| 1 | 3,119 | |||||||
Changes in fair value of MSRs due to changes in inputs and assumptions |
| 1,166 |
| — |
| (561 | ) | 125 | ||||||
Other changes(1) |
| (627 | ) | 413 |
| |||||||||
Transfer to Trading account assets | (104 | ) | — | |||||||||||
Other changes(1) | (345 | ) | (278 | ) | ||||||||||
Balance, end of period |
| $ | 10,072 |
| $ | 5,565 |
| $ | 7,716 | $ | 8,832 | |||
The market for MSRs is not sufficiently liquid to provide participants with quoted market prices. Therefore, the Company uses an option-adjusted spread valuation approach to determine the fair value of MSRs. 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 MSRs’MSRs' fair value estimates are compared to observable trades of similar MSR portfolios and interest-only security portfolios, as well as to MSR broker valuations and industry surveys. The cash flow model and underlying prepayment and interest rate models used to value these MSRs are subject to validation in accordance with the Company’sCompany's model validation policies. Refer to key assumptions at June 30, 2007 on page 65 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 economically 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 trading. The amount of contractually specified servicing fees, late fees and ancillary fees earned were $466$411 million, $25$26 million and $17 million, respectively, for the secondfirst quarter of 2007;ended March 31, 2008, and $249$287 million, $12$16 million, and $12 million, respectively, for the secondfirst quarter of 2006.2007. These fees are classified in the Consolidated Statement of Income as Commissions and Fees.
Special-Purpose Entities
Primary Uses of and Involvement in SPEs
Citigroup is involved with many types of special-purpose entities (SPEs) in the normal course of business. The primary uses of SPEs are to obtain sources of liquidity for the Company and its clients through securitization vehicles and commercial paper conduits; to create investment products for clients; to provide asset-based financing to clients; or to raise financing for the Company.
The Company provides various products and services to SPEs. For example, it may:
SPEs used by the Company are generally accounted for as qualifying SPEs (QSPEs) or Variable Interest Entities (VIEs), as described below.
Qualifying SPEs
QSPEs are a special class of SPEs defined in FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 140). These SPEs have significant limitations on the types of assets and derivative instruments they may own and the types and extent of activities and decision-making they may engage in. Generally, QSPEs are passive entities designed to purchase assets and pass through the cash flows from those assets to the investors in the QSPE. QSPEs may not actively manage their assets through discretionary sales and are generally limited to making decisions inherent in servicing activities and issuance of liabilities. QSPEs are generally exempt from consolidation by the transferor of assets to the QSPE and any investor or counterparty.
The following table summarizes the Company's involvement in QSPEs by business segment at March 31, 2008 and December 31, 2007:
| Assets of QSPEs | Retained interests | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In million of dollars | Mar. 31, 2008 | Dec.31, 2007 | Mar. 31, 2008 | Dec. 31, 2007 | ||||||||
Global Consumer | ||||||||||||
Credit Cards | $ | 120,695 | $ | 125,109 | $ | 12,594 | $ | 11,739 | ||||
Mortgages | 517,845 | 516,802 | 13,308 | 13,801 | ||||||||
Other | 14,539 | 14,882 | 892 | 981 | ||||||||
Total | $ | 653,079 | $ | 656,793 | $ | 26,794 | $ | 26,521 | ||||
Securities & Banking | ||||||||||||
Mortgages | $ | 87,832 | $ | 84,093 | $ | 3,401 | $ | 4,617 | ||||
Municipal TOBs | 9,758 | 10,556 | 609 | 817 | ||||||||
DSC Securitizations and other | 8,568 | 14,526 | 253 | 344 | ||||||||
Total | $ | 106,158 | $ | 109,175 | $ | 4,263 | $ | 5,778 | ||||
Citigroup Total | $ | 759,237 | $ | 765,968 | $ | 31,057 | $ | 32,299 | ||||
Credit Card Master Trusts
The Company securitizes credit card receivables through trusts which are established to purchase the receivables. Citigroup sells receivables into the QSPE 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. The Company relies on securitizations to fund a significant portion of its managedU.S. Cards business.
Citigroup is a provider of liquidity facilities to the commercial paper programs of the two primary securitization trusts it transacts with. Both facilities are made available on market terms to each trust. With respect to the Palisades commercial paper program in the Omni Master Trust, Citibank (South Dakota), N. A. is the sole provider of a full liquidity facility. The liquidity facility requires Citibank (South Dakota), N.A. to purchase Palisades's commercial paper at maturity if the commercial paper does not roll over as long as there are available credit enhancements outstanding, typically in the form of subordinated notes. The Palisades liquidity commitment amounted to $8.0 billion at March 31, 2008 and $7.5 billion December 31, 2007. With respect to the Dakota commercial paper program of the Citibank Master Credit Card Trust, Citibank (South Dakota) N.A. became a partial liquidity provider during the 2008 1st quarter. The liquidity commitment under the facility is limited to 15% of the amount of commercial paper outstanding. As of March 31, 2008, Citibank (South Dakota) N.A.'s participation is for approximately 43% of the facility, with the remainder provided by third party institutions. This facility requires Citibank (South Dakota) N.A. to purchase Dakota commercial paper 390 days after its issuance if the commercial paper does not roll over. As of March 31, 2008, the Dakota program had $9 billion of commercial paper outstanding.
Mortgage and Other Consumer Loan Securitization Vehicles
The Company's Consumer business provides a wide range of mortgage and other consumer loan products to its customers. Once originated, the Company often securitizes these loans (primarily mortgage and student loans) through the use of QSPEs. 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. These mortgage and student 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. However, the Company generally retains the servicing rights and a residual interest in future cash flows from the trusts.
Municipal Tender Option Bond (TOB) QSPEs
The Company sponsors QSPE TOB trusts that hold municipal securities and issue long-term senior floating-rate notes ("Floaters") to third-party investors and junior residual securities ("Residuals") to the Company.
Unlike other Proprietary TOB trusts, and to conform to the requirements for a QSPE, the Company has no ability to unilaterally unwind QSPE TOB trusts. The Company would reconsider consolidation of the QSPE TOB trusts in the event that the amount of Floaters held by third parties decreased to such a level that the QSPE TOB trusts no longer met the definition of a QSPE because of insufficient third-party investor ownership of the Floaters.
Mutual Fund Deferred Sales Commission (DSC) Securitizations
Mutual Fund Deferred Sales Commission (DSC) receivables are assets purchased from distributors of mutual funds that are backed by distribution fees and contingent deferred sales charges (CDSC) generated by the distribution of certain shares to mutual fund investors. These share investors pay no upfront load, but the shareholder agrees to pay, in addition to the management fee imposed by the mutual fund, the distribution fee over a period of time and the CDSC (a penalty for early redemption to recover lost distribution fees). Asset managers use the proceeds from the sale of DSC receivables to cover the sales commissions associated with the shares sold.
The Company purchases these receivables from mutual fund distributors and sells a diversified pool of receivables to a trust. The trust in turn issues two tranches of securities:
Mortgage Loan Securitizations
Markets & Banking is active in structuring and underwriting residential and commercial mortgage-backed securitizations. In these transactions, the Company or its customer transfers loans into a bankruptcy-remote SPE. These SPEs are designed to be QSPEs as described above. The Company may hold residual interests and other securities issued by the SPEs until
they can be sold to independent investors, and makes a market in those securities on an ongoing basis. The Company sometimes retains servicing rights for certain entities. These securities are held as trading assets on the balance sheet, are managed as part of the Company's trading activities, and are marked—to-market with most changes in value recognized in earnings. The table above shows the assets and retained interests for mortgage QSPEs in which the Company acted as principal in transferring mortgages to the QSPE.
Variable Interest Entities
VIEs are entities defined in FIN 46-R as entities which either have a total equity investment at risk 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, right to receive the expected residual returns of the entity, and obligation to absorb the expected losses of the entity). Investors that finance the VIE through debt or equity interests, or other counterparties that provide other forms of support, such as guarantees, subordinated fee arrangements, or certain types of derivative contracts, 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. Consolidation under FIN 46-R is based onexpected losses and residual returns, which consider various scenarios on a probability-weighted basis. Consolidation of a VIE is, therefore, determined based primarily on variability generated in scenarios that are considered most likely to occur, rather than based on scenarios that are considered more remote. Certain variable interests may absorb significant amounts of losses or residual returns contractually, but if those scenarios are considered very unlikely to occur, they may not lead to consolidation of the VIE.
All of these facts and circumstances are taken into consideration when determining whether the Company has variable interests that would deem it the primary beneficiary and, therefore, require consolidation of the related VIE or otherwise rise to the level where disclosure would provide useful information to the users of the Company's financial statements. In some cases, it is qualitatively clear based on the extent of the Company's involvement or the seniority of its investments that the Company is not the primary beneficiary of the VIE. In other cases, more detailed and quantitative analysis is required to make such a determination.
FIN 46-R requires disclosure of the Company's maximum exposure to loss where the Company has "significant" variable interests in an unconsolidated VIE. FIN 46-R does not define "significant" and, as such, judgment is required. The Company generally considers the following types of involvement to be "significant":
Thus, the Company's definition of "significant" involvement generally includes all variable interests held by the Company, even those where the likelihood of loss or the notional amount of exposure to any single legal entity is small. Involvement with a VIE as described above, regardless of the seniority or perceived risk of the Company's involvement, is included as significant. The Company believes that this more expansive interpretation of "significant" provides more meaningful and consistent information regarding its involvement in various VIE structures and provides more data for an independent assessment of the potential risks of the Company's involvement in various VIEs and asset classes.
In various other transactions the Company may act as a derivative counterparty (for example, interest rate swap, cross-currency swap, or purchaser of credit protection under a credit default swap or total return swap where the Companypays the total return on certain assets to the SPE); may act as underwriter or placement agent; may provide administrative, trustee, or other services; or may make a market in debt securities or other instruments issued by VIEs. The Company generally considers such involvement, by itself, "not significant" under FIN 46-R.
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The following tables summarize the Company's significant involvement in VIEs in millions of dollars:
As of March 31, 2008 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Maximum exposure to loss in significant unconsolidated VIEs(2) | |||||||||||||||
| | | Funded exposures | Unfunded exposures | ||||||||||||||
| Consolidated VIE assets | Significant unconsolidated VIE assets(1) | Debt investments | Equity investments | Funding Commitments | Guarantees and derivatives | ||||||||||||
Global Consumer | ||||||||||||||||||
Mortgages | $ | 62 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||
Investment funds | 254 | 681 | 7 | 10 | — | — | ||||||||||||
Leasing | 35 | — | — | — | — | — | ||||||||||||
Other | 1,619 | — | — | — | — | — | ||||||||||||
Total | $ | 1,970 | $ | 681 | $ | 7 | $ | 10 | $ | — | $ | — | ||||||
Markets & Banking | ||||||||||||||||||
Citi-administered asset-backed commercial paper conduits (ABCP) | $ | — | $ | 71,858 | $ | — | $ | — | $ | 71,858 | $ | — | ||||||
Third-party commercial paper conduits | — | 27,131 | — | — | 1,954 | 17 | ||||||||||||
Collateralized debt obligations (CDOs) | 18,198 | 46,734 | 3,611 | — | — | 5,718 | ||||||||||||
Collateralized loan obligations (CLOs) | 1,139 | 21,197 | 2,433 | — | 401 | 314 | ||||||||||||
Asset-based financing | 3,179 | 111,722 | 28,403 | 45 | 7,761 | — | ||||||||||||
Municipal securities tender option bond trusts (TOBs) | 15,751 | 12,239 | — | — | 10,943 | — | ||||||||||||
Municipal investments | 991 | 14,644 | — | 1,676 | 954 | — | ||||||||||||
Client intermediation | 4,627 | 12,467 | 2,536 | — | 2 | — | ||||||||||||
Other | 12,954 | 9,837 | 1,440 | 47 | 380 | — | ||||||||||||
Total | $ | 56,839 | $ | 327,829 | $ | 38,423 | $ | 1,768 | $ | 94,253 | $ | 6,049 | ||||||
Global Wealth Management | ||||||||||||||||||
Investment funds | $ | 538 | $ | 46 | $ | 39 | $ | — | $ | 6 | $ | — | ||||||
Alternative Investments | ||||||||||||||||||
Structured investment vehicles | $ | 46,809 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||
Investment funds | 6,577 | 10,142 | — | 504 | — | — | ||||||||||||
Total | $ | 53,386 | $ | 10,142 | $ | — | $ | 504 | $ | — | $ | — | ||||||
Corporate/Other | ||||||||||||||||||
Trust Preferred Securities | $ | — | $ | 24,121 | $ | — | $ | 162 | $ | — | $ | — | ||||||
Total Citigroup | $ | 112,733 | $ | 362,819 | $ | 38,469 | $ | 2,444 | $ | 94,259 | $ | 6,049 | ||||||
As of March 31, 2008 (continued) | | | | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Maximum exposure to loss in significant unconsolidated VIEs (continued) | As of December 31, 2007 | |||||||||
Total maximum exposure | Consolidated VIE assets | Significant unconsolidated VIE assets(1) | Maximum exposure to loss in significant unconsolidated VIE assets(2) | |||||||
$ | — | $ | 63 | $ | — | $ | — | |||
17 | 276 | 610 | 14 | |||||||
— | 35 | — | — | |||||||
— | 1,385 | — | — | |||||||
$ | 17 | $ | 1,759 | $ | 610 | $ | 14 | |||
71,858 | $ | — | $ | 72,558 | $ | 72,558 | ||||
1,971 | — | 27,021 | 2,154 | |||||||
9,329 | 22,312 | 51,794 | 13,979 | |||||||
3,147 | 1,353 | 21,874 | 4,762 | |||||||
36,209 | 4,468 | 91,604 | 34,297 | |||||||
10,943 | 17,003 | 22,570 | 17,843 | |||||||
2,630 | 53 | 13,662 | 2,711 | |||||||
2,538 | 2,790 | 9,593 | 1,643 | |||||||
1,867 | 12,642 | 10,298 | 1,875 | |||||||
$ | 140,492 | $ | 60,621 | $ | 320,974 | $ | 151,822 | |||
$ | 45 | $ | 590 | $ | 52 | $ | 45 | |||
$ | — | $ | 58,543 | $ | — | $ | — | |||
504 | 45 | 10,934 | 205 | |||||||
$ | 504 | $ | 58,588 | $ | 10,934 | $ | 205 | |||
$ | 162 | $ | — | $ | 23,756 | $ | 162 | |||
$ | 141,220 | $ | 121,558 | $ | 356,326 | $ | 152,248 | |||
These tables do not include:
The asset balances for consolidated VIEs represent the carrying amounts of the assets consolidated by the Company. The carrying amount may represent the amortized cost or the current fair value of the assets depending on the legal form of the asset (security or loan) and the Company's standard accounting policies for the asset type and line of business.
The asset balances for unconsolidated VIEs where the Company has significant involvement represent the most current information available to the Company regarding the remaining principal balance of cash assets owned. In most cases, the asset balances represent an amortized cost basis
without regard to impairments in fair value, unless fair value information is readily available to the Company. For VIEs that obtain asset exposures synthetically through derivative instruments (for example, synthetic CDOs), the Company includes the full original notional amount of the derivative as an asset.
The maximum funded exposure represents the balance sheet carrying amount of the Company's investment in the VIE in the form of purchased debt, funded loans or retained equity interest. It reflects the initial amount of cash invested in the VIE plus any accrued interest and is adjusted for any impairments in value recognized in earnings and any cash principal payments received. The maximum exposure of unfunded positions represents the remaining undrawn committed amount, including liquidity and credit facilities (such as guarantees) provided by the Company, or the notional amount of a derivative instrument considered to be a variable interest, adjusted for any declines in fair value recognized in earnings. In certain transactions, the Company has entered into derivative instruments or other arrangements that are not considered variable interests in the VIE under FIN 46-R (for example, interest rate swaps, cross-currency swaps, or where the Company is the purchaser of credit protection under a credit default swap or total return swap where the Companypays the total return on certain assets to the SPE). Receivables under such arrangements are not included in the maximum exposure amounts.
Consolidated VIEs—Balance Sheet Classification
The following table representspresents 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:obligations:
In billions of dollars |
| June 30, |
| December 31, |
| ||
Cash |
| $ | 0.3 |
| $ | 0.5 |
|
Trading account assets |
| 20.7 |
| 16.7 |
| ||
Investments |
| 28.7 |
| 25.0 |
| ||
Loans |
| 4.0 |
| 6.8 |
| ||
Other assets |
| 6.1 |
| 5.7 |
| ||
Total assets of consolidated VIEs |
| $ | 59.8 |
| $ | 54.7 |
|
In billions of dollars | March 31, 2008 | December 31, 2007 | ||||
---|---|---|---|---|---|---|
Cash | $ | 14.4 | $ | 12.3 | ||
Trading account assets | 70.1 | 87.3 | ||||
Investments | 17.8 | 15.0 | ||||
Loans | 2.8 | 2.2 | ||||
Other assets | 7.6 | 4.8 | ||||
Total assets of consolidated VIEs | $ | 112.7 | $ | 121.6 | ||
(1) Reclassified to conform to the current period’s presentation.
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 $59.8 billion and $54.7 billion of total assets of VIEs consolidated by the Company at June 30, 2007 and December 31, 2006, respectively, $20.7 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; $37.0 billion and $13.1 billion represent investment vehicles that were established to provide a return to the investors in the vehicles; and $2.1 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.
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.involved. In general, the third-party 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 acertain derivative transactiontransactions involving the VIE. Thus, the Company's maximum exposure to loss related to consolidated VIEs is significantly less than the carrying value of the consolidated VIE assets due to outstanding third-party financing.
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 theCiti-Administered Asset-Backed Commercial Paper Conduits
The Company is notactive in the primary beneficiary. These includeasset-backed commercial paper conduit business as administrator of several multi-seller finance companies, collateralized debt obligations (CDOs), structured finance transactions,commercial paper conduits, and numerous investment funds. In addition to these VIEs, the Company issues preferred securities to third- party investors through trust vehiclesalso as a source of funding and regulatory capital, which were deconsolidated during the 2004 first quarter. The Company’s liabilitiesservice provider to the deconsolidated trust are included in long-term debt.
The Company administers several third-party-owned, special purpose, multi-seller finance companies that purchase pools of trade receivables, credit cards,single-seller and other financialcommercial paper conduits sponsored by third parties.
The multi-seller commercial paper conduits are designed to provide the Company's customers access to low-cost funding in the commercial paper markets. The conduits purchase assets from third-party clients of the Company. As
administrator, the Company provides accounting, funding,or provide financing facilities to customers and operations services to these conduits. Generally, the Company has no ownership interest in the conduits. The sellers continue to service the transferred assets. The conduits’ asset purchases are funded by issuing high-grade commercial paper and medium-term notes.to third-party investors. The sellers absorbconduits generally do not purchase assets originated by the first lossesCompany. The funding of the conduit is facilitated by the liquidity support and credit enhancement provided by the Company and by certain third parties. As administrator to the conduits, the Company is responsible for selecting and structuring assets purchased or financed by providing collateral in the formconduits, making decisions regarding the funding of excess assets. The Company, along withthe conduit, including determining the tenor and other financial institutions, provides liquidity facilities, such asfeatures of the commercial paper backstop linesissued, monitoring the quality and performance of creditthe conduit's assets, and facilitating the operations and cash flows of the conduit. In return, the Company earns structuring fees from clients for individual transactions and earns an administration fee from the conduit, which is equal to the conduits.income from client program and liquidity fees of the conduit after payment of interest costs and other fees.
Third-Party Conduits
The Company also provides loss enhancementliquidity facilities to single-and multi-seller conduits sponsored by third parties. These conduits are independently owned and managed and invest in a variety of asset classes, depending on the form of letters of credit and other guarantees. All fees are charged on a market basis.
During 2003, to comply with FIN 46-R, manynature of the conduits issued “first loss” subordinated notes such that one third-party investor inconduit. The facilities provided by the Company typically represent a small portion of the total liquidity facilities obtained by each conduit, would be deemedand are collateralized by the primary beneficiaryassets of each conduit. The notional amount of these facilities is approximately $2.0 billion as of March 31, 2008, and would consolidate the conduit. At June 30, 2007 and$2.2 billion as of December 31, 2006, total assets in unconsolidated conduits2007. No amounts were $76.5 billion and $66.3 billion, respectively.funded under these facilities.
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, which match the clients’ investment needs and preferences. Typically, these instruments diversify investors’ risk toCollateralized Debt Obligations
A collateralized debt obligation (CDO) is an SPE that purchases a pool of assets as compared with investments in an individual asset. The VIEs, which are issuersconsisting of CDOasset-backed securities are generally organized as limited liability corporations. The Company typically receives fees for structuring and/or distributing thesynthetic exposures through derivatives on asset-backed securities soldand issues multiple tranches of equity and notes 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 VIECDO to select the pool of assets and manage those assets over the term of the CDO. The Company earns fees for warehousing assets prior to the creation of a CDO, structuring CDOs, and placing debt securities with investors. In addition, the Company has retained interests in many of the CDOs it has structured and makes a market in those issued notes.
Collateralized Loan Obligations
A collateralized loan obligation (CLO) is substantially similar to the CDO transactions described above, except that the assets owned by the SPE (either cash instruments or synthetic exposures through derivative instruments) are corporate loans and to a lesser extent corporate bonds, rather than asset-backed debt securities.
Certain of the assets and exposure amounts relate to CLO warehouses, whereby the Company provides senior financing to the CLO to purchase assets during the warehouse period. The senior financing is repaid upon issuance of notes to third-parties.
Asset-Based Financing
The Company provides loans and other forms of financing to VIEs that hold assets. Those loans are subject to the same credit approvals as all other loans originated or purchased by the Company, and related loan loss reserves are reported as part of the Company's Allowance for credit losses. Financing in the form of debt securities or derivatives is, in most circumstances, reported in Trading account assets and accounted for at fair value with changes in value reported in earnings.
Municipal Securities Tender Option Bond (TOB) Trusts
The Company sponsors TOB trusts that hold fixed- and floating-rate, tax-exempt securities issued by state or local municipalities. The trusts are single-issuer trusts whose assets are purchased from the Company and from the secondary market. The trusts issue long-term senior floating rate notes ("Floaters") and junior residual securities ("Residuals"). The Floaters have a long-term rating based on the long-term rating of the underlying municipal bond and a short-term rating based on that of the liquidity provider to the trust. The Residuals are generally rated based on the long-term rating of the underlying municipal bond and entitle the holder to the residual cash flows from the issuing trust.
The Company sponsors three kinds of TOB trusts: customer TOB trusts, proprietary TOB trusts, and QSPE TOB trusts. Customer TOB trusts are trusts through which customers finance investments in municipal securities and are not consolidated by the Company. Proprietary and QSPE TOB trusts, on the other hand, provide the Company with the ability to finance its own investments in municipal securities. Proprietary TOB trusts are generally consolidated, in which case the financing (the Floaters) is recognized on the Company's balance sheet as a liability. However, certain proprietary TOB trusts, the Residuals of which are held by hedge funds that are consolidated and managed by the Company, are not consolidated by the Company. The assets and the associated liabilities of these TOB trusts are not consolidated by the hedge funds (and, thus, are not consolidated by the Company) under the application of the AICPA Investment Company Audit Guide, which precludes consolidation of owned investments. The Company consolidates the hedge funds because the Company holds controlling financial interests in the hedge funds. Certain of the Company's equity investments in the hedge funds are hedged with derivatives transactions executed by the Company with third parties referencing the returns of the hedge fund. QSPE trusts provide the Company with the same exposure as proprietary TOB trusts and are not consolidated by the Company.
The total assets of the three categories of TOB trusts as of March 31, 2008 and December 31, 2007 are as follows:
In billions of dollars | March 31, 2008 | December 31, 2007 | ||||
---|---|---|---|---|---|---|
TOB trust type | ||||||
Customer TOB Trusts (Not consolidated) | $ | 11.7 | $ | 17.6 | ||
Proprietary TOB Trusts (Consolidated and Non- consolidated) | $ | 22.9 | $ | 22.0 | ||
QSPE TOB Trusts (Not consolidated) | $ | 9.8 | $ | 10.6 | ||
Municipal Investments
Municipal investment transactions represent partnerships that finance the construction and rehabilitation of low-income affordable rental housing. The Company generally invests in these partnerships as a limited partner and earns a return primarily through the receipt of tax credits accorded the affordable housing investments made by the partnership.
Client Intermediation
Client intermediation transactions represent a range of transactions designed to provide investors with specified returns based on the returns of an underlying security, referenced asset or index. These transactions include credit-linked notes and equity-linked notes. In these transactions, the SPE typically obtains exposure to the underlying security, referenced asset or index through a derivative instrument such as a total return swap or a credit default swap. In turn the SPE issues notes to investors that pay a return based on the specified underlying security, referenced asset or index. The SPE invests the proceeds in a financial asset or a guaranteed insurance contract (GIC) that serves as collateral for inclusionthe derivative contract over the term of the transaction.
The Company's involvement in these transactions includes being the counterparty to the SPE's derivative instruments and investing in a portion of the notes issued by the SPE.
Other
Other vehicles include the Company's interests in entities established to facilitate various client financing transactions as well as a variety of investment partnerships.
Structured Investment Vehicles
Structured Investment Vehicles (SIVs) are SPEs that issue junior notes and senior debt (medium-term notes, and short-term commercial paper) to fund the purchase of high-quality assets. The junior notes are subject to the "first loss" risk of the SIVs. The SIVs provide a variable return to junior note holders based on the net spread between the cost to issue the senior debt and the return realized by the high-quality assets. The Company acts as investment manager for the SIVs and, prior to December 13, 2007, was not contractually obligated to provide liquidity facilities or guarantees to the SIVs.
On December 13, 2007, the Company announced its commitment to provide support facilities that would resolve uncertainties regarding senior debt ratings facing the Citi-advised SIVs. The Company's commitment was a response to the ratings review for possible downgrade announced by two rating agencies of the outstanding senior debt of the SIVs, and the continued reduction of liquidity in the poolSIV-related asset-backed commercial paper and then actively manage it, or, in other cases, onlymedium-term note markets. These markets are the traditional funding sources for the SIVs. The Company's actions are designed to manage work-out credits. Thesupport the SIVs' senior debt ratings and to allow the SIVs to continue to pursue their asset reduction plan. As a result of this commitment, the Company may alsobecame the SIVs' primary beneficiary and began consolidating these entities.
On February 12, 2008, Citigroup finalized the terms of the support facilities, which take the form of a commitment to provide other financial services and/or products$3.5 billion of mezzanine capital to the VIEs for market-rate fees. These may include:SIVs in the provisionevent the market value of liquidity or contingent liquidity facilities; interest rate or foreign exchange hedges and credit derivative instruments; andtheir junior notes approaches zero. At March 31, 2008, $3.4 billion has been drawn in aggregate by the purchasing and warehousing of securities until they are sold toSIVs under the SPE.support facilities.
Investment Funds
The Company is not the primary beneficiaryinvestment manager for certain VIEs that invest in various asset classes including private equity, hedge funds, real estate, fixed income and infrastructure. The Company earns a management fee, which is a percentage of capital under management, and may earn performance fees. In addition, for some 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 addition to the conduits discussed above, the following table represents the total assets of unconsolidated VIEs wherefunds, the Company has significant involvement:an ownership interest in the investment funds. As of March 31, 2008 and December 31, 2007 the total amount invested in these funds was $0.5 billion and $0.2 billion, respectively.
In billions of dollars |
| June 30, |
| December 31, |
| ||
CDO-type transactions |
| $ | 74.7 |
| $ | 52.1 |
|
Investment-related transactions |
| 134.4 |
| 122.1 |
| ||
Trust preferred securities |
| 10.3 |
| 9.8 |
| ||
Mortgage-related transactions |
| 5.0 |
| 2.7 |
| ||
Structured finance and other |
| 37.4 |
| 41.1 |
| ||
Total assets of significant unconsolidated VIEs |
| $ | 261.8 |
| $ | 227.8 |
|
The Company has also established a number of investment funds as opportunities for qualified employees to invest in venture capitalprivate equity 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’employees' investment commitments.
In addition,Certain Fixed Income Funds Managed by Alternative Investments
Falcon multi-strategy fixed income funds
On February 20, 2008, the Company administers numerous personal estate trusts. The Company may act as trustee and may also beentered into a $500 million credit facility with the investment manager for the trust assets.
Falcon multi-strategy fixed income funds (the "Falcon funds") managed by Alternative Investments. 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, the Company’s maximum exposure to loss as a result of providing this facility, the Company became the primary beneficiary of the Falcon funds and consolidated the assets and liabilities in its involvementConsolidated Balance Sheet. At March 31, 2008, the total assets of the Falcon funds were approximately $4 billion.
ASTA/MAT municipal funds
On March 3, 2008, the Company made an equity investment of $661 million (under a $1 billion commitment) which provides for gain sharing with VIEs that are not consolidated was $117 billion and $109 billion at June 30, 2007 and December 31, 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 interestunaffiliated investors, in the VIEs. In addition,Municipal Opportunity Funds (MOFs). The MOFs are funds managed by Alternative Investments that make leveraged investments in tax-exempt municipal bonds and accept investments through feeder funds known as ASTA and MAT. As a result of the Company's equity commitment, the Company may be party to other derivative contracts with VIEs. Exposures that are considered to be guarantees are also included in Note 17 on page 77.
67
14. Changes in Accumulated Other Comprehensive Income (Loss) (“AOCI”)
Changes in each component of AOCI forbecame the first and second quarters of 2007 were as follows:
In millions of dollars |
| Net Unrealized |
| Foreign |
| Cash Flow |
| Pension |
| Accumulated |
| |||||
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 |
| |||||
Current period change |
| $ | (1,003 | ) | $ | 818 |
| $ | 1,046 |
| $ | 44 |
| $ | 905 |
|
Balance, June 30, 2007 |
| $ | 248 |
| $ | (2,099 | ) | $ | 546 |
| $ | (1,665 | ) | $ | (2,970 | ) |
(1) The after-tax adjustment to the opening balance of Accumulated other comprehensive income (loss) represents the reclassificationprimary beneficiary of the unrealized gains (losses)MOFs and consolidated the assets and liabilities in its Consolidated Balance Sheet. At March 31, 2008, the total assets of the MOFs were approximately $2 billion.
Trust Preferred Securities
The Company has raised financing through the issuance of trust preferred securities. In these transactions, the Company forms a statutory business trust and owns all of the voting equity shares of the trust. The trust issues preferred equity securities to third-party investors and invests the gross proceeds in junior subordinated deferrable interest debentures issued by the Company. These trusts have no assets, operations, revenues or cash flows other than those related to the Legg Mason securities, as well as several miscellaneous items previously reported in accordance with SFAS 115. The related unrealized gainsissuance, administration, and losses were reclassified to retained earnings upon the adoptionrepayment of the fair value option in accordance with SFAS 159. See Note 1preferred equity securities held by third-party investors. These trusts' obligations are fully and Note 16 on pages 51 and 71, respectively, for further discussions.unconditionally guaranteed by the Company.
(2) Reflects, among other items, Because the decline in market interest rates during the first quarter of 2007 on Citigroup’s pay-fixed/receive-floating swap programs hedging floating rate deposits and long-term debt.
(3) Primarily due to activities in the Company’s Mortgage-Backed Securities (MBS) Program driven by increases in market interest rates. Mark-to-market gains on the Company’s interest rate swap program that hedge the fundingsole asset of the MBS Program are includedtrust is a receivable from the Company, the Company is not permitted to consolidate the trusts under FIN 46-R, even though the Company owns all of the voting equity shares of the trust, has fully guaranteed the trusts' obligations, and has the right to redeem the preferred securities in certain circumstances. The Company recognizes the “Cash Flow Hedges” column.
(4) Reflects, among other items, the movements in the Japanese yen, Mexican peso, Indian rupee, Canadian dollar, British pound, Brazilian real, and the Polish zloty against the U.S. dollar, and related tax effects.
(5) Primarily reflects the increase in market interest rates during the second quarter of 2007subordinated debentures on Citigroup’s pay-fixed/receive-floating swap programs hedging floating rate deposits andits balance sheet as long-term debt.liabilities.
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 exchangeforeign-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 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 or debt instruments to manage the foreign exchange risk associated with equity investments in non-U.S. dollar functional currency foreign subsidiaries (net investment in a foreign operation) are callednet investment hedges.
All derivatives are reported on the balance sheet at fair value. In addition, where applicable, all such contracts covered by master netting agreements are reported net. Gross positive fair values are netted with gross negative fair values by counterparty pursuant to a valid master netting agreement. In addition payables and receivables in respect of cash collateral received from or paid to a given counterparty is included in this netting. However, non-cash collateral is not included.
As of March 31, 2008, and December 31, 2007, the amount of payables in respect of cash collateral received that was netted with unrealized gains from derivatives was $45 billion and $37 billion, respectively, while the amount of receivables in respect of cash collateral paid that was netted with unrealized losses from derivatives was $36 billion and $26 billion, respectively.
If certain hedging criteria specified in SFAS 133 are met, including testing for hedge effectiveness, special hedge accounting may be applied. The hedge effectivenesshedge-effectiveness assessment methodologies for similar hedges are performed in a similar manner and are used consistently throughout the hedging relationships. For fair valuefair-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 flowcash-flow hedges and net investmentnet-investment hedges, the changes in value of the hedging derivative are reflected in Accumulated other comprehensive income (loss) in stockholders’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, for Asset/Liability Management Hedging, the fixed ratefixed-rate long-term note isdebt may be 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 interest rate, with any such changes in fair value recorded in current earnings. The related interest rateinterest-rate swap is also recorded on the balance sheet at fair value, with any changes in fair value reflected in earnings. Thus, any ineffectiveness resulting from the hedging relationship is recorded in current earnings. Alternatively, an economic 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 fair
value recorded in earnings. The notedebt 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.swap's value and the underlying yield of the debt. This type of hedge is undertaken when SFAS 133 hedge requirements cannot be achieved.
Fairachieved or management decides not to apply SFAS 133 hedge accounting. Another alternative for the Company would be to elect to carry the note at fair value hedgesunder SFAS 159. Once the irrevocable election is made upon issuance of the note, the full change in fair value of the note would be reported in earnings. The related interest rate swap, with changes in fair value also reflected in earnings, provides a natural offset to the note's fair value change. To the extent the two offsets would not be exactly equal the difference would be reflected in current earnings. This type of economic hedge is undertaken when the Company prefers to follow this simpler method that achieves similar financial statement results to an SFAS 133 fair-value hedge.
·Fair-value hedges
Citigroup also hedges exposure to changes in the fair value of fixed-rate assets, including available-for-sale debt securities and inter-bankinterbank placements. The hedging instruments mainly used are receive-variable, pay-fixed interest rate swaps for the remaining hedged asset categories. Most of these fair valuefair-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 certain others use regression analysis.
For a limited number of fair valuefair-value hedges of benchmark interest rateinterest-rate risk, Citigroup uses the “shortcut”"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 rateinterest-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. The amount of shortcut method hedges that Citigroup uses is de minimis.
·Hedging the overall changes in fair valueCash-flow hedges—Citigroup primarily hedges the change in the overall fair value of portfolios of similar held-for-sale mortgage loans. Derivatives used in these hedging relationships are mainly forward sales of mortgage-backed securities. Citigroup assesses effectiveness at inception and on an ongoing basis using regression analysis.
·Hedging of benchmark interest rate riskrisk—
Citigroup also hedges variable cash flows resulting from investments in floating-rate available-for-sale debt 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 flowcash-flow hedging relationships use either regression analysis or dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis. EffortsSince efforts are made initially to align the terms of the derivatives to those of the hedged forecasted cash flows. As a result,flows as closely as possible, the amount of hedge ineffectiveness is not significant.
Citigroup is currently not using the shortcut method for any cash-flow hedging relationships.
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"Foreign Currency Translation”Translation" (SFAS 52), SFAS 133 allows hedging of the foreign currencyforeign-currency risk of a net investment in a foreign operation. Citigroup primarily uses foreign currency forwardforeign-currency forwards, options and swap foreign-currency-denominated debt instruments to manage the foreign exchangeforeign-exchange risk associated with Citigroup’sCitigroup's equity investments in several non-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 comprehensive income (loss). Simultaneously, the effective portion of the hedge of this exposure is also recorded in the cumulative translation adjustment account, and anythe ineffective portion, of net investment hedgesif any, is immediately recorded in earnings.
For derivatives used in net investmentnet-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 and the time value of foreign currency forward contracts,options are recorded in the cumulative translation adjustment account. For foreignforeign- currency-denominated debt instruments that are designated as hedges of net investment,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. To the extent the notional amount of the hedging instrument exactly matches the hedged net investment, and the underlying exchange rate of the derivative hedging instrument relates to the exchange rate between the functional currency of the net investment and Citigroup's functional currency, (or, in the case of the non-derivative debt instrument, such instrument is denominated in the functional currency of the net investment) no ineffectiveness is recorded in earnings.
Achieving hedge accounting in compliance with SFAS 133 guidelines is extremely 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 isrecognized 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’sCompany's hedging activities for the three and six months ended June 30, 2007March 31, 2008 and 2006:2007:
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| First Quarter | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
| 2007 |
| 2006 |
| 2007 |
| 2006 |
| 2008 | 2007 | |||||||||
Fair value hedges |
|
|
|
|
|
|
|
|
| |||||||||||
Hedge ineffectiveness recognized in earnings |
| $ | (9 | ) | $ | 223 |
| $ | 8 |
| $ | 289 |
| $ | 49 | $ | 17 | |||
Net gain excluded from assessment of effectiveness |
| 173 |
| 68 |
| 255 |
| 130 |
| |||||||||||
Net gain (loss) excluded from assessment of effectiveness | 117 | 82 | ||||||||||||||||||
Cash flow hedges |
|
|
|
|
|
|
|
|
| |||||||||||
Hedge ineffectiveness recognized in earnings |
| — |
| (8 | ) | — |
| (18 | ) | (10 | ) | — | ||||||||
Net gain excluded from assessment of effectiveness |
| — |
| — |
| — |
| — |
| |||||||||||
Net gain (loss) excluded from assessment of effectiveness | (6 | ) | — | |||||||||||||||||
Net investment hedges |
|
|
|
|
|
|
|
|
| |||||||||||
Net loss included in foreign currency translation adjustment within Accumulated other comprehensive income (loss) |
| $ | (121 | ) | $ | (28 | ) | $ | (144 | ) | $ | (142 | ) | |||||||
Net gain (loss) included in foreign currency translation adjustment within Accumulated other comprehensive income | $ | (166 | ) | $ | (23 | ) | ||||||||||||||
For cash-flow hedges, any changes in the fair value of the end-user derivative remaining in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheet will be included in earnings of future periods to offset the variability of the hedged cash flows when such cash flows affects earnings.
The change in Accumulated other comprehensive income (loss) from cash flowcash-flow hedges for the three and six months ended June 30,March 31, 2008 and 2007 and 2006 can be summarized as follows (after-tax):
In millions of dollars |
| 2007 |
| 2006 |
| 2008 | 2007 | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at January 1, |
| $ | (61 | ) | $ | 612 |
| |||||||
Beginning balance, January 1 | $ | (3,163 | ) | $ | (61 | ) | ||||||||
Net gain (loss) from cash flow hedges |
| (347 | ) | 317 |
| (1,833 | ) | (347 | ) | |||||
Net amounts reclassified to earnings |
| (92 | ) | (111 | ) | 195 | (92 | ) | ||||||
Balance at March 31, |
| $ | (500 | ) | $ | 818 |
| |||||||
Net gain from cash flow hedges |
| $ | 1,127 |
| $ | 456 |
| |||||||
Net amounts reclassified to earnings |
| (81 | ) | (151 | ) | |||||||||
Balance at June 30, |
| $ | 546 |
| $ | 1,123 |
| |||||||
Ending balance, March 31 | $ | (4,801 | ) | $ | (500 | ) | ||||||||
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 exchangeforeign-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’smanagement'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.
16. Fair Value (SFAS 155, SFAS 156, SFAS 157, and SFAS 159)
Effective January 1, 2007, the Company adopted SFAS 157 and SFAS 159. Both standards address aspects of the expanding application of fair valuefair-value accounting.
SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair valuefair-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 discounts 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"Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities”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 As a result of the useadoption 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 and other 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’sCitigroup's own credit standing,risk on derivatives and other liabilities 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 report 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 existing 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 The Company also has elected to early-adopt,the fair value accounting provisions permitted under FASB Statement No. 155, "Accounting for certain Hybrid Financial Instruments" (SFAS 155), and FASB Statement No 156, "Accounting for Servicing of Financial Assets" (SFAS 156) for certain assets and liabilities. In accordance with SFAS 155, which was primarily adopted on a prospective basis, 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 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 applicable 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 14 on page 80 for further discussions regarding the accounting and reporting of mortgage servicing rights.
Fair-Value Hierarchy
SFAS 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. 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
For assets and liabilities carried at fair value, the Company measures such value using the procedures set out below, irrespective of whether these assets and liabilities are carried at fair value as a result of an election under SFAS 159, SFAS 155 or SFAS 156, or whether they were previously carried at fair value.
When available, the Company generally uses quoted market prices to determine fair value, and classifies such items in 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 in Level 2.
If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently sourced market parameters, such as interest rates, currency rates, option volatilities, etc. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified
in Level 3 even though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate the description includes details of the valuation models, the key inputs to those models as well as any significant assumptions.
Securities purchased under agreements to resell & securities sold under agreements to repurchase
No quoted prices exist for such instruments and so fair value is determined using a discounted cash-flow technique. Cash flows are estimated based on the terms of the contract, taking into account any embedded derivative or other features. Expected cash flows are discounted using market rates appropriate to the maturity of the instrument as well as the nature and amount of collateral taken or received. Generally, such instruments are classified within Level 2 of the fair-value hierarchy as the inputs used in the fair valuation are readily observable.
Trading Account Assets—Trading Securities and Trading Loans
When available, the Company uses quoted market prices to determine the fair value of trading securities; such items are classified in Level 1 of the fair-value hierarchy. Examples include some government securities and exchange-traded equity securities.
For bonds and secondary market loans traded over the counter, the Company generally determines fair value utilizing internal valuation techniques. Fair values estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors. Vendors compile prices from various sources and may apply matrix pricing for similar bonds or loans where no price is observable. If available, the Company may also use quoted prices for recent trading activity of assets with similar characteristics to the bond or loan being valued. Trading securities and loans priced using such methods are generally classified as Level 2. However, when less liquidity exists for a security or loan, a quoted price is stale, or prices from independent sources vary, a loan or security is generally classified as Level 3.
Where the Company's principal market for a portfolio of loans is the securitization market, the Company uses the securitization price to determine the fair value of the portfolio. The securitization price is determined from the assumed proceeds of a hypothetical securitization in the current market, adjusted for transformation costs (i.e., direct costs other than transaction costs) and securitization uncertainties such as market conditions and liquidity. As a result of the severe reduction in the level of activity in certain securitization markets in the second half of 2007, which continues through the first quarter of 2008, observable securitization prices for certain directly comparable portfolios of loans have not been readily available. Therefore, such portfolios of loans are generally classified within Level 3 of the fair value hierarchy. However, for other loan securitization markets, such as those related to conforming prime fixed rate and conforming adjustable-rate mortgage loans, pricing verification of the hypothetical securitizations has been possible, since these markets have remained active. Accordingly, these loan portfolios are classified as Level 2 within the fair value hierarchy.
Trading Account Assets and Liabilities—Derivatives
Exchange-traded derivatives are generally fair valued using quoted market (i.e., exchange) prices and so are classified within Level 1 of the fair-value hierarchy.
The majority of derivatives entered into by the Company are executed over the counter and so are valued using internal valuation techniques as no quoted market prices exist for such instruments. The valuation techniques and inputs depend on the type of derivative and the nature of the underlying. The principal techniques used to value these instruments are discounted cash flows, Black-Scholes and Monte Carlo simulation. The fair values of derivative contracts reflect cash the Company has paid or received (for example, option premiums paid and received).
The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, foreign-exchange rates, the spot price of the underlying, volatility, and correlation. The item is placed in either Level 2 or Level 3 depending on the observability of the significant inputs to the model. Correlation and items with longer tenors are generally less observable.
Subprime-Related Direct Exposures in CDOs
The Company accounts for its CDO super senior subprime direct exposures and the underlying securities on a fair-value basis with all changes in fair value recorded in earnings. Citigroup's CDO super senior subprime direct exposures are not subject to valuation based on observable transactions. Accordingly, the fair value of these exposures is based on management's best estimates based on facts and circumstances as of the date of these consolidated financial statements.
Citigroup's CDO super senior subprime direct exposures, $22.7 billion at March 31, 2008, are Level 3 assets and are subject to valuation based on significant unobservable inputs. Accordingly, fair value of these exposures is based on estimates of the future cash flows from the mortgage loans underlying the assets of the ABS CDOs. To determine the performance of the underlying mortgage loan portfolios , the Company estimates the prepayments, defaults and loss severity based on a number of macro-economic factors, including housing price changes, unemployment rates and interest rates and borrower and loan attributes such as age, credit scores, documentation status, loan-to-value (LTV) ratios, and debt-to-income (DTI) ratios. The model is calibrated using available mortgage loan information including historical loan performance. In addition, the methodology estimates the impact of geographic concentration of mortgages, and the impact of reported fraud in the origination of subprime mortgages. An appropriate discount rate is then applied to the cash flows generated for each super senior ABS CDO tranche, in order to estimate its current fair value.
When necessary, the valuation methodology used by Citigroup is refined and the inputs used for the purposes of estimation are modified, in part, to reflect ongoing market developments. More specifically, two refinements were made
during the first quarter of 2008: a more direct method of calculating estimated housing-price changes and a more refined method for calculating the discount rate. During the fourth quarter 2007, housing-price changes were estimated using a series of factors including projected national housing-price changes. During the first quarter of 2008 housing-price changes were estimated using a forward looking projection based on the S&P Case-Shiller Home Price Index. This change facilitates a more direct estimation of subprime house price changes. Prior to the first quarter of 2008, the discount rate used was based on observable CLO spreads applicable to the assumed rating of each ABS CDO super senior tranche. During the first quarter of 2008, the discount rate was based on a weighted average combination of the implied spreads from single named ABS bond prices, ABX indices and CLO spreads depending on vintage and asset types. This refinement was made, in part, in response to the combination of continuing rating agency downgrades of RMBS and ABS CDOs and the absence of observable CLO spreads at the resulting rating levels.
The primary drivers that currently impact the super senior valuations are the discount rates used to calculate the present value of projected cash flows and projected mortgage loan performance.
Given the above, the Company's CDO super senior subprime direct exposures were classified in Level 3 of the fair-value hierarchy throughout 2007 and the first quarter of 2008.
For most of the lending and structuring direct subprime exposures (excluding super seniors), fair value is determined utilizing observable transactions where available, other market data for similar assets in markets that are not active and other internal valuation techniques.
Investments
The investments category includes available-for-sale debt and equity securities, whose fair value is determined using the same procedures described for trading securities above.
Also included in investments are nonpublic investments in private equity and real estate entities held by theAlternative Investments andSecurities and Banking businesses. Determining the fair value of nonpublic securities involves a significant degree of management resources and judgment as no quoted prices exist and such securities are generally very thinly traded. In addition, there may be transfer restrictions on private equity securities. The Company uses an established process for determining the fair value of such securities, using commonly accepted valuation techniques, including the use of earnings multiples based on comparable public securities, industry specific non-earnings-based multiples and discounted cash flow models. In determining the fair value of nonpublic securities, the Company also considers events such as a proposed sale of the investee company, initial public offerings, equity issuances, or other observable transactions.
Private equity securities are generally classified in Level 3 of the fair value hierarchy.
Short-Term Borrowings and Long-Term Debt
The fair value of non-structured liabilities is determined by discounting expected cash flows using the appropriate discount rate for the applicable maturity. Such instruments are generally classified in Level 2 of the fair-value hierarchy as all inputs are readily observable.
The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) and hybrid financial instruments (performance linked to risks other than interest rates, inflation or currency risks) using the appropriate derivative valuation methodology (described above) given the nature of the embedded risk profile. Such instruments are classified in Level 2 or Level 3 depending on the observability of significant inputs to the model.
Market Valuation Adjustments
Auction Rate Securities
The Company classifies its auction rate securities (ARS) as trading securities and accounts for them on a fair-value basis with all changes in fair value recorded in earnings.
Prior to our first auction failing in the first quarter of 2008, Citigroup valued ARS based on observation of market prices because the auctions had a short maturity period (7, 28, and 35 days). This generally resulted in valuations at par. Once the auctions failed, ARS could no longer be valued using observation of market prices. Accordingly, the fair value of ARS is currently estimated using internal valuation techniques that incorporate the specific characteristics of the assets underlying the ARS and take into account the current illiquidity in the market.
The ARS inventory was moved to Level 3 during the first quarter of 2008 as the entire auction rate security market failed and no secondary market developed.
Alt-A Mortgage Securities
The Company reports Alt-A mortgage securities in Trading account assets and available-for-sale Investments. In both cases the securities are recorded at fair value with changes in fair value reported in current earnings and OCI, respectively. For these purposes, Alt-A mortgage securities are non-agency residential mortgage-backed securities (RMBS) where: (1) the underlying collateral has weighted average FICO scores between 680 and 720 or, (2) for instances where FICO scores are greater than 720, RMBS have 30% or less of the underlying collateral comprised of full documentation loans.
Similar to the valuation methodologies used for other Trading securities and Trading loans, the Company generally determines the fair value of Alt-A mortgage securities utilizing internal valuation techniques. Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors. Vendors compile prices from various sources. Where available, the Company may also make use of quoted prices for recent trading activity in securities with the same or similar characteristics to that being valued.
The internal valuation techniques used for Alt-A mortgage securities, as with other mortgage exposures, consider, estimated housing price changes, unemployment rates interest rates and borrower attributes. They also consider prepayment rates as well as other market indicators.
Alt-A mortgage securities that are valued using these methods are generally classified as Level 2. However, Alt-A mortgage securities backed by Alt-A mortgages of lower quality or more recent vintages are mostly classified in Level 3 due to the reduced liquidity that exists for such positions, which reduces the reliability of prices available from independent sources.
Commercial Real Estate Exposure
Citigroup reports a number of different exposures linked to commercial real estate at fair value with changes in fair value reported in earnings, including securities, loans and investments in entities that hold commercial real estate loans or commercial real estate directly. The Company also reports securities backed by commercial real estate as available-for-sale investments, which are carried at fair value with changes in fair value reported in OCI.
Similar to the valuation methodologies used for other Trading securities and Trading loans, the Company generally determines the fair value of securities and loans linked to commercial real estate utilizing internal valuation techniques. Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors. Vendors compile prices from various sources. Where available, the Company may also make use of quoted prices for recent trading activity in securities or loans with the same or similar characteristics to that being valued. Securities and loans linked to commercial real estate valued using these methodologies are generally classified as Level 3 as a result of the reduced liquidity currently in the market for such exposures.
The fair value of investments in entities that hold commercial real estate loans or commercial real estate directly is determined using a similar methodology to that used for other non-public investments in real estate held by the Alternative Investments andSecurities and Banking business. The Company uses an established process for determining the fair value of such securities, using commonly accepted valuation techniques, including the use of earnings multiples based on comparable public securities, industry specific non-earnings-based multiples and discounted cash flow models. In determining the fair value of such investments, the Company also considers events such as a proposed sale of the investee company, initial public offerings, equity issuances, or other observable transactions. Such investments are generally classified in Level 3 of the fair value hierarchy.
The following table presents, as of June 30, 2007,March 31, 2008, those positions selected for fair valuefair-value accounting in accordance with SFAS 159, SFAS 156, and SFAS 155, as well as the changes in fair value for the three-three months ended March 31, 2008 and six-month periods then ended.March 31, 2007.
|
|
|
| Changes in fair value |
| |||||||||
|
|
|
| Quarter-to-date |
| Year-to-date |
| |||||||
In millions of dollars |
| June 30, 2007 |
| Principal |
| Other |
| Principal |
| Other |
| |||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||
Federal funds sold and securities borrowed or purchased under agreements to resell |
|
|
|
|
|
|
|
|
|
|
| |||
Selected portfolios of securities purchased under agreements to resell(1) |
| $ | 108,000 |
| $ | (175 | ) | — |
| $ | (38 | ) | — |
|
Trading account assets |
|
|
|
|
|
|
|
|
|
|
| |||
Legg Mason convertible preferred equity securities originally classified as available-for-sale |
| 825 |
| 35 |
| — |
| 28 |
| — |
| |||
Selected letters of credit hedged by credit default swaps or participation notes |
| 13 |
| — |
| — |
| 2 |
| — |
| |||
Certain credit products |
| 22,675 |
| (44 | ) | — |
| 180 |
| — |
| |||
Residual interest retained from asset securitizations |
| 2,293 |
| 1 |
| — |
| 201 |
| — |
| |||
Investments |
|
|
|
|
|
|
|
|
|
|
| |||
Certain investments in private equity and real estate ventures |
| 211 |
| — |
| 25 |
| — |
| 22 |
| |||
Certain equity method investments |
| 1,700 |
| — |
| 49 |
| — |
| 88 |
| |||
Other |
| 95 |
| — |
| 1 |
| — |
| 6 |
| |||
Loans |
|
|
|
|
|
|
|
|
|
|
| |||
Certain credit products |
| 1,616 |
| 10 |
| — |
| 33 |
| — |
| |||
Certain hybrid financial instruments |
| 664 |
| (43 | ) | — |
| (66 | ) | — |
| |||
|
|
|
|
|
|
|
|
|
|
|
| |||
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
| |||
Certain structured liabilities |
| 154 |
| 3 |
| — |
| 3 |
| — |
| |||
Certain hybrid financial instruments |
| 2,717 |
| 36 |
| — |
| 46 |
| — |
| |||
Federal funds purchased and securities loaned or sold under agreements to repurchase |
|
|
|
|
|
|
|
|
|
|
| |||
Selected portfolios of securities sold under agreements to repurchase(1) |
| 263,261 |
| 65 |
| — |
| 42 |
| — |
| |||
Trading account liabilities |
|
|
|
|
|
|
|
|
|
|
| |||
Certain hybrid financial instruments |
| 6,932 |
| (155 | ) | — |
| (233 | ) | — |
| |||
Short-term borrowings |
|
|
|
|
|
|
|
|
|
|
| |||
Certain non-collateralized short-term borrowings |
| 3,775 |
| 18 |
| — |
| 15 |
| — |
| |||
Certain hybrid financial instruments |
| 3,084 |
| 12 |
| — |
| 18 |
| — |
| |||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
| |||
Certain structured liabilities |
| 887 |
| 71 |
| — |
| 80 |
| — |
| |||
Certain non-structured liabilities |
| 2,583 |
| 41 |
| — |
| 41 |
| — |
| |||
Certain hybrid financial instruments |
| 22,551 |
| 115 |
| — |
| 587 |
| — |
| |||
| | Changes in fair value gains (losses) | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | First Quarter 2008 | First Quarter 2007 | |||||||||||||||
In millions of dollars | March 31, 2008 | 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) | $ | 77,126 | $ | 1,093 | $ | — | $ | 137 | $ | — | ||||||||
Trading account assets: | ||||||||||||||||||
Legg Mason convertible preferred equity securities originally classified as available-for-sale | 10 | (13 | ) | — | (7 | ) | — | |||||||||||
Selected letters of credit hedged by credit default swaps or participation notes | 10 | — | — | 2 | — | |||||||||||||
Certain credit products | 23,896 | (635 | ) | — | 224 | — | ||||||||||||
Certain mortgage loans held-for-sale | 9,273 | — | 39 | — | — | |||||||||||||
Certain hybrid financial instruments | 63 | 3 | — | — | — | |||||||||||||
Retained interests from asset securitizations | 5,610 | 80 | — | 200 | — | |||||||||||||
Total trading account assets | 38,862 | (565 | ) | 39 | 419 | — | ||||||||||||
Investments: | ||||||||||||||||||
Certain investments in private equity and real estate ventures | 615 | — | 3 | — | (3 | ) | ||||||||||||
Certain equity method investments | 1,004 | — | (18 | ) | — | 38 | ||||||||||||
Other | 354 | — | 3 | — | 5 | |||||||||||||
Total investments | 1,973 | — | (12 | ) | — | 40 | ||||||||||||
Loans: | ||||||||||||||||||
Certain credit products | 2,609 | 85 | — | 23 | — | |||||||||||||
Certain mortgage loans held-for-sale | 30 | — | (2 | ) | — | — | ||||||||||||
Certain hybrid financial instruments | 665 | (4 | ) | — | (23 | ) | — | |||||||||||
Total loans | 3,304 | 81 | (2 | ) | — | — | ||||||||||||
Other assets: | ||||||||||||||||||
Mortgage servicing rights | 7,716 | — | (353 | ) | — | 125 | ||||||||||||
Total other assets | 7,716 | — | (353 | ) | — | 125 | ||||||||||||
Total | $ | 128,981 | $ | 609 | $ | (328 | ) | $ | 556 | $ | 165 | |||||||
Liabilities | ||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||
Certain structured liabilities | $ | 334 | $ | 1 | $ | — | $ | — | $ | — | ||||||||
Certain hybrid financial instruments | 3,308 | 280 | — | 10 | — | |||||||||||||
Total interest-bearing deposits | 3,642 | 281 | — | 10 | — | |||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | ||||||||||||||||||
Selected portfolios of securities sold under agreements to repurchase, securities loaned(1) | 179,917 | (163 | ) | — | (23 | ) | — | |||||||||||
Trading account liabilities: | ||||||||||||||||||
Certain hybrid financial instruments | 11,515 | 1,176 | — | (78 | ) | — | ||||||||||||
Short-term borrowings: | ||||||||||||||||||
Certain non-collateralized short-term borrowings | 4,930 | (83 | ) | — | (3 | ) | — | |||||||||||
Certain hybrid financial instruments | 3,523 | 31 | — | 6 | — | |||||||||||||
Certain non-structured liabilities | 570 | — | — | — | — | |||||||||||||
Total short-term borrowings | 9,023 | (52 | ) | — | 3 | — | ||||||||||||
Long-term debt: | ||||||||||||||||||
Certain structured liabilities | 3,209 | 102 | — | 9 | — | |||||||||||||
Certain non-structured liabilities | 43,432 | 2,409 | — | — | — | |||||||||||||
Certain hybrid financial instruments | 24,506 | 870 | — | 544 | — | |||||||||||||
Total long-term debt | 71,147 | 3,381 | — | 553 | — | |||||||||||||
Total | $ | 275,244 | $ | 4,623 | $ | — | $ | 465 | $ | — | ||||||||
Includes
The fair value of liabilities for which the fair-value option was elected, other than the liabilities of the SIVs consolidated by the Company, 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 $1,279 million and $131 million for the three months ended March 31, 2008 and March 31, 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 relevant valuation technique used to value each liability as described above.
Impact on retainedRetained earnings of certain fair valuefair-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 retainedRetained earnings and the fair values (that is, the carrying values at January 1, 2007 after adoption) for those items that were selected for fair valuefair-value option accounting and that had an impact on retainedRetained earnings:
In millions of dollars |
| December 31, |
| Cumulative |
| January 1, |
| 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 |
| $ | 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 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 |
| 3,284 | (7 | ) | 3,291 | ||||||||
Selected letters of credit hedged by credit default swaps or participation notes |
| — |
| 14 |
| 14 |
| — | 14 | 14 | |||||||||
Various miscellaneous eligible items(1) |
| 96 |
| 3 |
| 96 |
| 96 | 3 | 96 | |||||||||
Pretax cumulative effect of adopting fair value option accounting |
|
|
| $ | (157 | ) |
|
| $ | (157 | ) | ||||||||
After-tax cumulative effect of adopting fair value option accounting |
|
|
| $ | (99 | ) |
|
| (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’sCitigroup's Asset Management business in December 2005. We holdThe Company held these shares as a non-strategic investment for long-term appreciation and, therefore, selected fair valuefair-value option accounting in anticipation of the January 2008future implementation of the Investment Company Audit Guide Statement of Position 07-1, “Clarification"Clarification of the Scope of Audit and Accounting GuideAudits of Investment Companiesand Accounting by Parent Companies and Equity Method Investors for Investment Companies”Companies" (SOP)., which was to be effective beginning January 1, 2008. In February 2008, the FASB delayed 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’sCitigroup's investment companies, must be accounted for at full fair value in order for Citigroup to retain investment company accounting in the Company’sCompany'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 valuefair-value option to migrate the Legg shares from available-for-sale (where changes in fair value are recorded in Accumulatedaccumulated 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’sCompany's adoption of SFAS 159, this unrealized loss was recorded as a reduction of January 1, 2007 retainedRetained earnings as part of the cumulative-effect adjustment. We have no intention
During the first quarter of selling2008, the Company sold the remaining 8.4 million shares of Legg shares prior to our previously estimated recovery period. The Legg shares, which haveat a fair valuepretax loss of $825$10.3 million as of June 30, 2007, are now included in Trading account assets on Citigroup’s Consolidated Balance Sheet. Dividends are included in Interest revenue.($6.7 million after-tax).
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 has elected the fair valuefair-value option retrospectively for our United States and United Kingdom and certain Japan portfolios of fixed incomefixed-income securities purchased under agreements to resell and fixed incomefixed-income securities sold under agreements to repurchase (and certain non-collateralized short-term borrowings),. The fair-value option was also elected prospectively in the second quarter of 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 rateinterest-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 thean accrual basis.
The cumulative effect of $58 million pretax ($37 million after-tax) from adopting the fair valuefair-value option for the U.S. and U.K. portfolios was recorded as an increase in the January 1, 2007 retainedRetained earnings balance. $25 million pretax of that cumulative effect related to securities purchased under agreements to resell, while $40 million pretax related to securities sold under agreements to
repurchase, offset by a reduction of $7 million pretax for non-collateralized short-term borrowings.
The June 30,March 31, 2008 and December 31, 2007 net balance of $108.0$77.1 billion and $84.3 billion, respectively, for securitiesSecurities purchased under agreements to resell and $263.3Securities borrowed, and $179.9 billion and $199.9 billion for securitiesSecurities sold under agreements to repurchase and Securities loaned are included in their respective accountsas such in the Consolidated Balance Sheet. The uncollateralized short-term borrowings of $3.8$4.9 billion and $5.1billion as of March 31, 2008 and December 31, 2007, respectively, 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 optionfair-value accounting for certain letters of credit that are hedged with derivative instruments or participation notes. Upon electing the fair valuefair-value option, the related portions of the allowance for loan losses and the allowance for unfunded lending commitments were reversed. Citigroup elected the fair valuefair-value option for these transactions because the risk is managed on a fair valuefair-value basis, and to mitigate accounting mismatches.
The cumulative effect of $14 million pretax ($9 million after-tax) fromof adopting fair valuefair-value option accounting was recorded as an increase in the January 1, 2007 retainedRetained earnings balance. The change in fair value as well as the receipt of related fees was reported as Principal transactions in the Company’sCompany's Consolidated Statement of Income.
The notional amount of these unfunded letters of credit was $1.4 billion as of June 30, 2007.March 31, 2008 and December 31, 2007, respectively. The amount funded was insignificant with no amounts 90 days or more past due or on a non-accrual status at June 30,March 31, 2008 and December 31, 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 currentlypreviously classified as available-for-sale securities were selected for fair valuefair-value option accounting. These items were selected in preparation for the adoption of the Investment Company Audit Guide SOP, as discussed above.previously discussed. In February 2008, the FASB delayed the implementation of this SOP indefinitely.
Other items for which the fair value option was selected in accordance with SFAS 159
The Company has elected fair valuethe fair-value option for the following eligible items, which did not affect opening retainedRetained earnings:
· Certain
· Certain
· Certain
· Certain
· Certain
Certain credit products
Citigroup has elected the fair valuefair-value option for certain originated and purchased loans, including certain unfunded loan products, such as guarantees and letters of credit, executed by Citigroup’sCitigroup'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 transactions where the economic risks are hedged with derivative instruments. Citigroup has elected the fair valuefair-value option to mitigate accounting mismatches in cases where hedge accounting is complex or inappropriate; to align accounting with the transaction’s business purpose; 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 within Trading account assets or Loans, were $22.7$23.9 billion and $1.6$2.6 billion as of June 30,March 31, 2008, and $26.0 billion and $3.0 billion as of December 31, 2007, respectively. The aggregate unpaid principal balances exceeded the aggregate fair values by $47$1.4 billion and $894 million as of June 30, 2007. $136March 31, 2008 and December 31, 2007, respectively. $174 million and $186 million of these loans were on a non-accrual basis while none were 90 days or more past due.as of March 31, 2008 and December 31, 2007, respectively. For those loans that are on a non-accrual basis, the aggregate unpaid principal balances exceeded the aggregate fair values by $85$83 million as of June 30,March 31, 2008 and $68 million as of December 31, 2007.
In addition, $193$180 million and $141 million of unfunded loan commitments were outstanding as of June 30, 2007 related to certain credit products selected for fair-value accounting were outstanding as of March 31, 2008 and December 31, 2007, respectively.
Changes in fair value accounting. .
of funded and unfunded credit products are classified in Principal transactions in the Company's Consolidated Statement of Income. Related interest incomerevenue is measured based on the contractual interest rates and reported as interest incomeInterest revenue on trading account assets or loans depending on their balance sheet classifications. The changes in fair value for the three months ended March 31, 2008 due to instrument-specific credit risk totaled to a loss of $16 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 valuefair-value option for certain of these ventures in anticipation of the January 2008 future
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 ofregarding the SOP above.SOP. The fair valuefair-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 private equity and real estate entities are accounted for at fair value.
These investments, which totaled $211$615 million and $539 million as of June 30,March 31, 2008 and December 31, 2007, respectively, are classified as Investments on Citigroup’sCitigroup's Consolidated Balance Sheet. Changes in the fair value forvalues of these investments are classified in Other revenue in the Company’sCompany's Consolidated Statement of Income.
Certain structured liabilities
The Company has elected the fair valuefair-value option for certain structured liabilities whose performance is linked to structured interest rates, inflation or currency risks (“("structured liabilities”liabilities"), but do not qualify for the fair value election under SFAS 155. This election is applicable only to structured liabilities originated after January 1, 2007.
The Company has elected fair valuethe fair-value option for structured liabilities, because these exposures are considered to be trading-related positions and, therefore, are managed on a fair valuefair-value basis. These positions will continue to be classified as debt, deposits or derivatives according to their legal structureform on the Company’sCompany'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 $154$334 million and $887 million$3.2 billion as of June 30, 2007, respectively.March 31, 2008 and $264 million and $3.0 billion as of December 31, 2007.
For thesethose structured liabilities classified as Long-term debt for which the fair valuefair-value option has been elected, the aggregate unpaid principal balance exceeds the aggregate fair value of such instruments by $80$58 million as of June 30,March 31, 2008 and $7 million as of December 31, 2007.
The change in fair value for these structured liabilities is reported in Principal transactions in the Company’sCompany'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 valuefair-value option for certain non-structured liabilities with fixed and non-structured floating interest rates (“("non-structured liabilities”liabilities"). This election was effective for applicable transactions originated after April 1, 2007.
The Company has elected the fair valuefair-value option where the interest rateinterest-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 Short-term borrowings and Long-term debt on the Company’sCompany's Consolidated Balance Sheet. The balances forbalance of these non-structured liabilities as of June 30,March 31, 2008 was $570 million and $43.4 billion, and as of December 31, 2007 is $2.6was $4.8 billion and $49.1 billion, respectively.
The majority of Long-term debt.these non-structured liabilities are a result of the Company's election of the fair value option for liabilities associated with the consolidation of CAI's Structured Investment Vehicles (SIVs) during the fourth quarter of 2007. The change in fair values of the SIV's liabilities reported in earnings was $2.1 billion for the quarter ended March 31, 2008.
For these non-structured liabilities classified as Long-term debt for which the fair valuefair-value option has been elected, the aggregate unpaid principal balancefair value exceeds the aggregate fair valueunpaid principal balance of such instruments by $31$1.2 billion as of March 31, 2008 and $434 million as of June 30,December 31, 2007.
The change in fair value for these non-structured liabilities is reported in Principal transactions in the Company’sCompany'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. 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 $1.0 billion and as of March 31, 2008, and $1.1 billion as of December 31, 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 of these mortgage loans held-for-sale, which were classified as Trading assets as of March 31, 2008, was $9.3 billion. As of December 31, 2007, the balance was $6.4 billion and was classified as Other assets. The aggregate fair value exceeded the unpaid principal balances by $195 million as of March 31, 2008, and $136 million as of December 31, 2007. The balance of these loans 90 days or more past due and on a non-accrual basis was $16 million at March 31, 2008, and $17 million at December 31, 2007, with aggregate unpaid principal balance exceeding aggregate fair values by $6 million at March 31, 2008. The difference between aggregate fair values and aggregate unpaid principal balance was immaterial at December 31, 2007.
The changes in fair values of these mortgage loans held-for-sale is reported in other revenue for the 2008 first quarter in the Company's Consolidated Statement of Income. The changes in fair value during the three months ended March 31, 2008 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 valuefair-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 valuefair-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 valuefair-value accounting for these instruments because these exposures are considered to be trading-related positions and, therefore, are managed on a fair valuefair-value basis. In addition, the accounting for these instruments is simplified under a fair valuefair-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’sCompany'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 $664$665 million, while $2.7$3.3 billion iswas in Interest-bearing deposits, $6.9$11.5 billion in Trading account liabilities, $3.1$3.5 billion in Short-term borrowings and $22.6$24.5 billion in Long-term debt on the Consolidated Balance Sheet as of June 30, 2007.March 31, 2008. As of December 31, 2007, the outstanding balances for such instruments were classified in loans was $689 million, while $3.3 billion was in Interest-bearing deposits, $12.1 billion in Trading account liabilities, $3.6 billion in Short-term borrowings and $27.3 billion in Long-term debt on the Consolidated Balance Sheet. In addition, $2.3$5.6 billion wasof the $5.7 billion reported in Trading account assets as of March 31, 2008 and $2.5 billion of the $2.6 billion reported as of December 31, 2007, respectively, were for the residualretained interests in securitizations.
For hybrid financial instruments for which the fair valuefair-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 $189by$342 million and $460 million as of June 30,March 31, 2008 and December 31, 2007, respectively, 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’sCompany'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 income.
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 future and accounting complexity, in particular related to the future implementation of the Investment Company Audit Guide SOP. Because 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 (that is, the net investmentInterest revenue in the funds reported on Citigroup’s Consolidated Balance Sheet will result in equal fair values for the investment in the fund on the balance sheet. In addition, Citigroup’s proportionate share of the net income or loss of each fund reported on Citigroup’sCompany's Consolidated Statement of Income in each period as equity income recognized under the equity method will equal the mark-to-market earnings on the income statement underIncome.
Mortgage servicing rights
The Company accounts for mortgage servicing rights (MSRs) at fair value accounting). Thus, thisin accordance with SFAS 156. Fair value for 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 election had no impactof 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 14 on opening retained earnings.page 80 for further discussions regarding the accounting and reporting of MSRs.
These fund investments,MSRs, which totaled $1.7$7.7 billion and $8.4 billion as of June 30,March 31, 2008 and December 31, 2007, respectively, are classified as InvestmentsIntangible assets on theCitigroup's Consolidated Balance Sheet. Changes in fair value of these investmentsfor MSRs are classifiedrecorded in Other revenueCommissions and fees in the Company's Consolidated Statement of Income.
Items Measured at Fair Value Hierarchy
The Company holds fixed income and equity securities, derivatives, investments in private equity,on a limited number of loan portfolios and certain other financial instruments, which are carried at fair value. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such as matrix or model pricing, when market quotes are not readily accessible or available. More specifically, for fixed income securities and derivatives, the Company’s alternative approach when market prices are not available is to discount the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. For loans carried at fair value, there is no related allowance for loan losses.
The Company also carries a number of its liabilities at fair value including certain structured notes and derivative liabilities. In determining the fair value of the Company’s obligations, various factors are considered including: closing exchange or over-the-counter market price quotations; time value and volatility factors underlying options, warrants, and derivatives; price activity for equivalent or synthetic instruments; the potential impact on market prices or fair value of liquidating the Company’s positions in an orderly manner over a reasonable period of time under current market conditions, and Citigroup’s own-credit standing.
These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
·Level 1—Quoted prices for identical instruments in active marketsRecurring Basis
·Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
·Level 3—Instruments whose significant value drivers are unobservable.
The following table presentstables present for each of thesethe fair-value hierarchy levels the Company’sCompany's assets and liabilities that are measured at fair value on a recurring basis at June 30,March 31, 2008 and December 31, 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. In addition, the Company also hedges items classified in the Level 3 category with instruments 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 |
| Netting(1) |
| Net balance |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Federal funds sold and securities borrowed or purchased under agreements to resell |
| $ | — |
| $ | 165,193 |
| $ | 16 |
| $ | (57,209 | ) | $ | 108,000 |
|
Trading account assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Trading securities |
| 222,316 |
| 211,513 |
| 43,774 |
| — |
| 477,603 |
| |||||
Derivatives |
| 6,564 |
| 314,909 |
| 11,094 |
| (271,854 | ) | 60,713 |
| |||||
Investments |
| 99,494 |
| 127,015 |
| 20,201 |
| — |
| 246,710 |
| |||||
Loans and leases(2) |
| — |
| 1,085 |
| 1,195 |
| — |
| 2,280 |
| |||||
Other financial assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Measured on a recurring basis |
| — |
| 7,681 |
| 10,349 |
| — |
| 18,030 |
| |||||
Measured on a non-recurring basis(3) |
| — |
| 15,775 |
| 8,691 |
| — |
| 24,466 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest-bearing deposits |
| — |
| 2,781 |
| 905 |
|
|
| 2,871 |
| |||||
Federal funds purchased and securities loaned or sold under agreements to repurchase |
| — |
| 314,229 |
| 6,241 |
| (57,209 | ) | 263,261 |
| |||||
Trading account liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Securities sold not yet purchased |
| 110,758 |
| 9,399 |
| 653 |
| — |
| 120,810 |
| |||||
Derivatives |
| 5,970 |
| 349,019 |
| 12,278 |
| (270,08 | ) | 97,182 |
| |||||
Short-term borrowings |
| — |
| 4,207 |
| 2,652 |
| — |
| 6,859 |
| |||||
Long-term debt |
| — |
| 24,217 |
| 1,804 |
| — |
| 26,021 |
| |||||
Other financial liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Measured on a recurring basis |
| — |
| 4,866 |
| 31 |
| — |
| 4,897 |
| |||||
In millions of dollars at March 31, 2008 | 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 | $ | — | $ | 122,443 | $ | 16 | $ | 122,459 | $ | (45,333 | ) | $ | 77,126 | ||||||
Trading account assets | |||||||||||||||||||
Trading securities and loans | 126,152 | 237,132 | 90,672 | 453,956 | — | 453,956 | |||||||||||||
Derivatives | 12,354 | 650,680 | 40,497 | 703,531 | (579,050 | ) | 124,481 | ||||||||||||
Investments | 45,295 | 129,935 | 20,539 | 195,769 | — | 195,769 | |||||||||||||
Loans(2) | — | 3,211 | 93 | 3,304 | — | 3,304 | |||||||||||||
Mortgage servicing rights | — | — | 7,716 | 7,716 | — | 7,716 | |||||||||||||
Other financial assets measured on a recurring basis | — | 10,462 | 812 | 11,274 | (8,626 | ) | 2,648 | ||||||||||||
Total assets | $ | 183,801 | $ | 1,153,863 | $ | 160,345 | $ | 1,498,009 | $ | (633,009 | ) | $ | 865,000 | ||||||
12.3 | % | 77.0 | % | 10.7 | % | 100.0 | % | ||||||||||||
Liabilities | |||||||||||||||||||
Interest-bearing deposits | $ | — | $ | 3,537 | $ | 105 | $ | 3,642 | $ | — | $ | 3,642 | |||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | — | 219,042 | 6,208 | 225,250 | (45,333 | ) | 179,917 | ||||||||||||
Trading account liabilities | |||||||||||||||||||
Securities sold, not yet purchased | 60,998 | 13,188 | 1,817 | 76,003 | — | 76,003 | |||||||||||||
Derivatives | 13,568 | 644,481 | 41,449 | 699,498 | (573,515 | ) | 125,983 | ||||||||||||
Short-term borrowings | — | 2,873 | 6,150 | 9,023 | — | 9,023 | |||||||||||||
Long-term debt | — | 23,948 | 47,199 | 71,147 | — | 71,147 | |||||||||||||
Other financial liabilities measured on a recurring basis | — | 11,194 | — | 11,194 | (8,626 | ) | 2,568 | ||||||||||||
Total liabilities | $ | 74,566 | $ | 918,263 | $ | 102,928 | $ | 1,095,757 | $ | (627,474 | ) | $ | 468,283 | ||||||
6.8 | % | 83.8 | % | 9.4 | % | 100.0 | % | ||||||||||||
In millions of dollars at December 31, 2007 | 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 | $ | — | $ | 132,383 | $ | 16 | $ | 132,399 | $ | (48,094 | ) | $ | 84,305 | ||||||
Trading account assets | |||||||||||||||||||
Trading securities and loans | 151,684 | 234,846 | 75,573 | 462,103 | — | 462,103 | |||||||||||||
Derivatives | 7,204 | 428,779 | 31,226 | 467,209 | (390,328 | ) | 76,881 | ||||||||||||
Investments | 64,375 | 125,282 | 17,060 | 206,717 | — | 206,717 | |||||||||||||
Loans(2) | — | 3,718 | 9 | 3,727 | — | 3,727 | |||||||||||||
Mortgage servicing rights | — | — | 8,380 | 8,380 | — | 8,380 | |||||||||||||
Other financial assets measured on a recurring basis | — | 13,570 | 1,171 | 14,741 | (4,939 | ) | 9,802 | ||||||||||||
Total assets | $ | 223,263 | $ | 938,578 | $ | 133,435 | $ | 1,295,276 | $ | (443,361 | ) | $ | 851,915 | ||||||
17.2 | % | 72.5 | % | 10.3 | % | 100.0 | % | ||||||||||||
Liabilities | |||||||||||||||||||
Interest-bearing deposits | $ | — | $ | 3,542 | $ | 56 | $ | 3,598 | $ | — | $ | 3,598 | |||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | — | 241,790 | 6,158 | 247,948 | (48,094 | ) | 199,854 | ||||||||||||
Trading account liabilities | |||||||||||||||||||
Securities sold, not yet purchased | 68,928 | 9,140 | 473 | 78,541 | — | 78,541 | |||||||||||||
Derivatives | 8,602 | 447,119 | 33,696 | 489,417 | (385,876 | ) | 103,541 | ||||||||||||
Short-term borrowings | — | 8,471 | 5,016 | 13,487 | — | 13,487 | |||||||||||||
Long-term debt | — | 70,359 | 8,953 | 79,312 | — | 79,312 | |||||||||||||
Other financial liabilities measured on a recurring basis | — | 6,506 | 1 | 6,507 | (4,939 | ) | 1,568 | ||||||||||||
Total liabilities | $ | 77,530 | $ | 786,927 | $ | 54,353 | $ | 918,810 | $ | (438,909 | ) | $ | 479,901 | ||||||
8.4 | % | 85.7 | % | 5.9 | % | 100.0 | % | ||||||||||||
adjustment.
(3) Primarily represents loans held for sale and assets obtained from purchase acquisitions for the quarter.
The following tables present the changes in the Level 3 fair valuefair-value category for the three- and-six-monthsthree months ended June 30,March 31, 2008 and 2007. Mis-characterizations and mis-classifications, which were deemed immaterialThe 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 presentationvaluation 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 consolidated financial statements , were identifiedgains and losses presented below include changes in the first three-months’ activityfair value related to both observable and unobservable inputs.
The Company often hedges positions with offsetting positions that were previouslyare classified in a different level. For example, the gains and losses for assets and liabilities in the Level 3 category presented in the Company’s first quarter 2007 Form10-Qtables below do not reflect the effect of offsetting losses and gains on hedging instruments that have been properly statedclassified by the Company in the tables below. The Consolidated Statement of Income,Level 1 and Level 2 categories. In addition, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Stockholders’ Equity, and the Consolidated Statement of Cash Flows presentedCompany hedges items classified in the 2007 first quarter Form 10-Q were properly stated.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 tables.
|
|
|
| Net realized/unrealized |
| Transfers |
| Purchases, |
|
|
| Unrealized |
| ||||
In millions of dollars |
| March 31, |
| Principal |
| Other(1)(2) |
| out of |
| and |
| June 30, |
| (losses) |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Securities purchased under agreements to resell |
| $ | 16 |
| — |
| — |
| — |
| — |
| $ | 16 |
| — |
|
Trading account assets Trading securities |
| 33,072 |
| (369 | ) | — |
| 2,741 |
| 8,330 |
| 43,774 |
| (773 | ) | ||
Investments |
| 12,653 |
| - |
| 666 |
| 433 |
| 6,449 |
| 20,201 |
| 285 |
| ||
Loans |
| — |
| (8 | ) | — |
| 459 |
| 744 |
| 1,252 |
| 5 |
| ||
Other financial assets Measured on a recurring basis |
| 8,919 |
| — |
| 1,264 |
| 172 |
| (6 | ) | 10,349 |
| 1,253 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest-bearing deposits |
| 107 |
| 12 |
| — |
| (33 | ) | 28 |
| 90 |
| 4 |
| ||
Securities sold under agreements to repurchase |
| 6,278 |
| 49 |
| — |
| 277 |
| (265 | ) | 6,241 |
| (23 | ) | ||
Trading account liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Securities sold not yet purchased |
| 434 |
| 8 |
| — |
| (115 | ) | 342 |
| 653 |
| (28 | ) | ||
Derivatives, net(4) |
| (1,234 | ) | 279 |
| — |
| 1,392 |
| 1,305 |
| 1,184 |
| (1,471 | ) | ||
Short-term borrowings |
| 1,889 |
| 17 |
| — |
| (327 | ) | 1,107 |
| 2,652 |
| — |
| ||
Long-term debt |
| 1,349 |
| (11 | ) | — |
| 92 |
| 352 |
| 1,804 |
| (2 | ) | ||
Other financial liabilities measured on a recurring basis |
| 8 |
| — |
| (24 | ) | (1 | ) | — |
| 31 |
| (23 | ) | ||
| | Net realized/ unrealized gains (losses) included in | | | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | Unrealized gains (losses) still held(3) | ||||||||||||||||||
In millions of dollars | December 31, 2007 | Principal transactions | Other(1)(2) | March 31, 2008 | |||||||||||||||||||
Assets | |||||||||||||||||||||||
Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 | $ | — | |||||||||
Trading account assets | |||||||||||||||||||||||
Trading securities and loans(4) | 75,573 | (8,416 | ) | — | 17,952 | 5,563 | 90,672 | (8,548 | ) | ||||||||||||||
Investments | 17,060 | — | (1,336 | ) | 3,432 | 1,383 | 20,539 | (747 | ) | ||||||||||||||
Loans | 9 | 6 | — | — | 78 | 93 | 6 | ||||||||||||||||
Mortgage servicing rights | 8,380 | — | (353 | ) | — | (311 | ) | 7,716 | (316 | ) | |||||||||||||
Other financial assets measured on a recurring basis | 1,171 | — | 17 | (519 | ) | 143 | 812 | 32 | |||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | $ | 56 | $ | (9 | ) | $ | — | $ | 13 | $ | 27 | $ | 105 | $ | (4 | ) | |||||||
Securities sold under agreements to repurchase | 6,158 | (139 | ) | — | 344 | (433 | ) | 6,208 | (135 | ) | |||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold, not yet purchased | 473 | 5 | — | 672 | 677 | 1,817 | 49 | ||||||||||||||||
Derivatives, net(5) | 2,470 | 1,474 | — | 1,075 | (1,119 | ) | 952 | 1,650 | |||||||||||||||
Short-term borrowings(6) | 5,016 | (70 | ) | — | 1,508 | (444 | ) | 6,150 | (74 | ) | |||||||||||||
Long-term debt(6) | 8,953 | 163 | — | 37,954 | 455 | 47,199 | (325 | ) | |||||||||||||||
Other financial liabilities measured on a recurring basis | 1 | — | 1 | — | — | — | — | ||||||||||||||||
| | Net realized/ unrealized gains (losses) included in | | | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Transfers in and/or out of Level 3 | | | Unrealized gains (losses) still held(3) | ||||||||||||||||||
In millions of dollars | January 1, 2007 | Principal transactions | Other(1)(2) | Purchases, issuances and settlements | March 31, 2007 | ||||||||||||||||||
Assets | |||||||||||||||||||||||
Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 | $ | — | |||||||||
Trading account assets | |||||||||||||||||||||||
Trading securities and loans(7) | 22,415 | 493 | — | 2,341 | 6,994 | 32,243 | 970 | ||||||||||||||||
Derivatives, net(5) | 1,875 | 406 | — | 286 | (1,333 | ) | 1,234 | 109 | |||||||||||||||
Investments | 11,468 | — | 183 | 580 | 422 | 12,653 | 29 | ||||||||||||||||
Loans | — | — | — | — | — | — | — | ||||||||||||||||
Mortgage servicing rights | 5,439 | — | 125 | — | 3,268 | 8,832 | 125 | ||||||||||||||||
Other financial assets measured on a recurring basis | 948 | — | 144 | (418 | ) | 242 | 916 | 140 | |||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | $ | 60 | $ | 1 | $ | — | $ | — | $ | 48 | $ | 107 | $ | 2 | |||||||||
Securities sold under agreements to repurchase | 6,778 | (60 | ) | — | (193 | ) | (367 | ) | 6,278 | (20 | ) | ||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold, not yet purchased | 467 | 28 | — | (98 | ) | 93 | 434 | (75 | ) | ||||||||||||||
Short-term borrowings | 2,214 | (8 | ) | — | (21 | ) | (312 | ) | 1,889 | (1 | ) | ||||||||||||
Long-term debt | 1,693 | — | — | — | (344 | ) | 1,349 | — | |||||||||||||||
Other financial liabilities measured on a recurring basis | — | — | — | — | 8 | 8 | — | ||||||||||||||||
|
|
|
| Net realized/unrealized |
| Transfers |
| Purchases, |
|
|
| Unrealized |
| ||||
In millions of dollars |
| January 1, |
| Principal |
| Other(1)(2) |
| out of |
| and |
| June 30, |
| (losses) still |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Securities purchased under agreements to resell |
| $ | 16 |
| — |
| — |
| — |
| — |
| $ | 16 |
| — |
|
Trading account assets Trading securities |
| 23,244 |
| 124 |
| — |
| 5,082 |
| 15,324 |
| 43,774 |
| (123 | ) | ||
Investments |
| 11,468 |
| — |
| 849 |
| 1,013 |
| 6,871 |
| 20,201 |
| 639 |
| ||
Loans |
| — |
| (8 | ) | — |
| 459 |
| 744 |
| 1,195 |
| 10 |
| ||
Other financial assets Measured on a recurring basis |
| 5,558 |
| — |
| 1,533 |
| (246 | ) | 3,504 |
| 10,349 |
| 1,517 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest-bearing deposits |
| 60 |
| 12 |
| 1 |
| (33 | ) | 76 |
| 90 |
| 6 |
| ||
Securities sold under agreements to repurchase |
| 6,778 |
| (11 | ) | — |
| 84 |
| (632 | ) | 6,241 |
| (23 | ) | ||
Trading account liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Securities sold not yet purchased |
| 467 |
| 36 |
| — |
| (213 | ) | 435 |
| 653 |
| (117 | ) | ||
Derivatives, net(4) |
| (1,875 | ) | 685 |
| — |
| 1,106 |
| 2,638 |
| 1,184 |
| (1,244 | ) | ||
Short-term borrowings |
| 2,214 |
| 9 |
| — |
| (348 | ) | 789 |
| 2,652 |
| (1 | ) | ||
Long-term debt |
| 1,693 |
| (11 | ) | — |
| 92 |
| 8 |
| 1,804 |
| (2 | ) | ||
Other financial liabilities measured on a recurring basis |
| — |
| — |
| (24 | ) | (1 | ) | 8 |
| 31 |
| (23 | ) | ||
In general, secured financing for level 3 assets has been impacted by fewer counterparties, higher haircuts and reduced market values.
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.
The fair value of loans measured on a LOCOM basis is determined where possible using quoted secondary-market prices. Such loans are generally classified in Level 2 of the fair-value hierarchy given the level of activity in the market and the frequency of available quotes. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan.
The following table presents all loans held-for-sale that are carried at LOCOM as of March 31, 2008 and December 2007 (in billions):
| Aggregate Cost | Fair value | Level 2 | Level 3 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2008 | $ | 39.1 | $ | 35.0 | $ | 5.5 | $ | 29.5 | ||||
December 31, 2007 | 33.6 | 31.9 | 5.1 | 26.8 | ||||||||
For the three months ended March 31, 2008 and 2007, the resulting charges taken on loans held-for-sale carried at fair value below cost were $2.3 billion and $1.8 billion, respectively.
Highly Leveraged Financing Commitments
The Company reports a number of highly leveraged loans as held-for-sale, which are measured on a LOCOM basis. The fair value of such exposures is determined, where possible, using quoted secondary-market prices and classified in Level 2 of the fair-value hierarchy if there is a sufficient level of activity in the market and quotes or traded prices are available with suitable frequency.
However, due to the dislocation of the credit markets and the reduced market interest in higher risk/higher yield instruments during the second half of 2007 and first quarter of 2008, liquidity in the market for highly leveraged financings has continued to decline significantly during that period. Therefore, a majority of such exposures are classified as Level 3 as quoted secondary market prices do not generally exist. The fair value for such exposures is determined using quoted prices for a similar asset or asset, adjusted for the specific attributes of the loan being valued.
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 summarizesFASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45), provides initial measurement and disclosure guidance in accounting for guarantees. FIN 45 requires that, for certain contracts meeting the definition of a guarantee, the guarantor must recognize, at June 30, 2007 and December 31, 2006 allinception, a liability for the fair value of the Company’s guarantees and indemnifications, where management believesobligation undertaken in issuing the guarantees and indemnifications are related to an asset, liability, or equity security ofguarantee.
In addition, the guaranteed parties atguarantor must disclose the inception of the contract. The maximum potential amount of future payments represents the notional amounts thatguarantor could be lostrequired to make under the guarantees and indemnificationsguarantee, if there were a total default by the guaranteed parties,parties. The determination of the maximum potential future payments is based on the notional amount of the guarantees without consideration of possible recoveries under recourse provisions or from collateral held or pledged. Such amounts bear no relationship to the anticipated losses, if any, on these guarantees and indemnifications and greatly exceed anticipated losses.guarantees.
The following tables present information about the Company’sCompany's guarantees at June 30, 2007March 31, 2008 and December 31, 2006:2007:
|
| Maximum Potential Amount of Future Payments |
|
|
| ||||||||
In billions of dollars at June 30, |
| Expire Within |
| Expire After 1 |
| Total Amount |
| Carrying Value |
| ||||
2007 |
|
|
|
|
|
|
|
|
| ||||
Financial standby letters of credit |
| $ | 54.0 |
| $ | 26.7 |
| $ | 80.7 |
| $ | 118.5 |
|
Performance guarantees |
| 10.4 |
| 5.8 |
| 16.2 |
| 49.7 |
| ||||
Derivative instruments |
| 54.3 |
| 1,349.3 |
| 1,403.6 |
| 35,380.2 |
| ||||
Loans sold with recourse |
| — |
| 1.7 |
| 1.7 |
| 49.7 |
| ||||
Securities lending indemnifications(1) |
| 157.3 |
| — |
| 157.3 |
| — |
| ||||
Credit card merchant processing(1) |
| 61.0 |
| — |
| 61.0 |
| — |
| ||||
Custody indemnifications(1) |
| — |
| 51.2 |
| 51.2 |
| — |
| ||||
Total |
| $ | 337.0 |
| $ | 1,434.7 |
| $ | 1,771.7 |
| $ | 35,598.1 |
|
77
| Maximum potential amount of future payments | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars at March 31, except carrying value in millions | Expire within 1 year | Expire after 1 year | Total amount outstanding | Carrying value (in millions) | ||||||||
2008 | ||||||||||||
Financial standby letters of credit | $ | 28.6 | $ | 53.3 | $ | 81.9 | $ | 149.5 | ||||
Performance guarantees | 10.5 | 8.0 | 18.5 | 26.7 | ||||||||
Derivative instruments | 98.5 | 267.4 | 365.9 | 30,548.7 | ||||||||
Loans sold with recourse | — | 0.4 | 0.4 | 44.6 | ||||||||
Securities lending indemnifications(1) | 163.3 | — | 163.3 | — | ||||||||
Credit card merchant processing(1) | 59.6 | — | 59.6 | — | ||||||||
Custody indemnifications and other(1) | — | 46.8 | 46.8 | 140.0 | ||||||||
Total | $ | 360.5 | $ | 375.9 | $ | 736.4 | $ | 30,909.5 | ||||
| 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) | ||||||||
2007(2) | ||||||||||||
Financial standby letters of credit | $ | 43.5 | $ | 43.6 | $ | 87.1 | $ | 160.6 | ||||
Performance guarantees | 11.3 | 6.8 | 18.1 | 24.4 | ||||||||
Derivative instruments | 121.5 | 381.6 | 503.1 | 23,083.3 | ||||||||
Loans sold with recourse | — | 0.5 | 0.5 | 45.5 | ||||||||
Securities lending indemnifications(1) | 153.4 | — | 153.4 | — | ||||||||
Credit card merchant processing(1) | 64.0 | — | 64.0 | — | ||||||||
Custody indemnifications and other(1) | — | 53.4 | 53.4 | 306.0 | ||||||||
Total | $ | 393.7 | $ | 485.9 | $ | 879.6 | $ | 23,619.8 | ||||
|
| Maximum Potential Amount of Future Payments |
|
|
| ||||||||
In billions of dollars at December 31, |
| Expire Within |
| Expire After |
| Total Amount |
| Carrying Value |
| ||||
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 |
|
Company’sCompany's obligations under these guarantees is immaterial.
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 Performance Guarantees Performance guarantees and letters of credit are issued to guarantee a Derivative Instruments Derivatives are financial instruments 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. Certain derivative contracts entered into by the Company meet the definition of a guarantee, including credit default swaps, total return swaps and certain written options. However, credit derivatives (that is, credit default swaps and total return swaps) with banks and broker-dealers are excluded from this definition as these counterparties are considered to be dealers in these instruments with the primary purpose of taking a risk position. In addition, non-credit derivative contracts that are cash settled and for which the Company is unable to assert that it is probable the counterparty held the underlying instrument at the inception of the contract are also not considered guarantees under FIN 45. Accordingly, these contracts are excluded from the disclosure above. In instances where the Company's maximum potential future payment is unlimited, such as in certain written foreign Loans Sold with Recourse Loans sold with recourse represent the 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 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 In the fourth quarter of 2007, Citigroup recorded a $306 million (pretax) charge related to certain of Visa USA's litigation matters. In March 2008, in connection with the IPO, Visa used a portion of its IPO proceeds to fund an escrow account with respect to those litigation matters. This has enabled Citigroup to recognize a $166 million (pretax) reduction of its $306 million reserve. The carrying value of the reserve is included in Other liabilities. Other Guarantees and 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 event of a billing dispute with respect to a bankcard transaction between a merchant and a cardholder that is ultimately resolved in the 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 However, the Company believes that the maximum exposure is not representative of the actual potential loss exposure based on the 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, since the total outstanding amount of the guarantees and the 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 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 At 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 Credit Commitments The table below summarizes Citigroup's other commitments as of March 31, 2008 and December 31, 2007. The majority of unused commitments are contingent upon customers' maintaining specific credit standards. Commercial commitments generally have floating interest rates and fixed expiration dates and may require payment of fees. Such fees (net of certain direct costs) are deferred and, upon exercise of the commitment, amortized over the life of the loan or, if exercise is deemed remote, amortized over the commitment period. Commercial and similar letters 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. Commercial Real Estate, Construction and Land Development Commercial real estate, construction and land development include unused portions of commitments to extend credit for the purpose of financing commercial and multifamily residential properties as well as land development projects. Both secured by real estate and unsecured commitments are included in this line. In addition, undistributed loan proceeds where there is an obligation to advance for construction progress payments are also included. However, this line only includes those extensions of credit that once funded will be classified as Loans on the Consolidated Balance Sheet. 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 $238 billion and $259 billion with an original maturity of less than one year at March 31, 2008 and December 31, 2007, 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. As described in the period’speriod's presentation.thatalso support options and purchases of securities or are in lieu of escrow deposit accounts. Financial standbys also backstop loans, credit facilities, promissory notes and trade acceptances.customer’scustomer'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’scustomer's obligation to supply specified products, commodities, or maintenance or warranty services to a third party.includewhose 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.exchangecurrency options, written put options, and written equity warrants.the notional amount of the contract is disclosed.Company’sCompany'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.Company’sCompany's indirect obligations in connection with the processing of private label and bankcard transactions on behalf of merchants.clients’clients' assets. Beginning with the 2006 third quarter, the scope of the custody indemnifications was broadened to cover all clients’clients' assets held by third-party subcustodians.Citigroup’sOthercardholder’scardholder'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.Company’sCompany'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 June 30, 2007March 31, 2008 and December 31, 2006,2007, this maximum potential exposure was estimated to be $61$60 billion and $52$64 billion, respectively.Company’sCompany'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 JuneMarch 31, 20072008 and December 31, 2006,2007, the estimated losses incurred and the carrying amounts of the Company’sCompany's contingent obligations related to merchant processing activities were immaterial.Company’sCompany'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. 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 June 30, 2007,March 31, 2008, the actual and estimated losses incurred and the carrying value of the Company’sCompany's obligations related to these programs were immaterial.Company’sCompany'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 June 30, 2007March 31, 2008 and December 31, 2006,2007, related to these indemnifications and they are not included in the table.member’smember's default on its obligations. The Company’sCompany'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’sCompany's participation in VTNs is not reported in the table and there are no amounts reflected on the Consolidated Balance Sheet as of June 30, 2007March 31, 2008 or December 31, 20062007 for potential obligations that could arise from the Company’sCompany's involvement with VTN associations.June 30, 2007March 31, 2008 and December 31, 2006,2007, the carrying amounts of the liabilities related to the guarantees and indemnifications included in the table amounted to approximately $36$31 billion and $17$24 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 June 30, 2007March 31, 2008 and December 31, 2006, other2007, Other liabilities on the Consolidated Balance Sheet include an allowance for credit losses of $1.1$1.25 billion relating to letters of credit and unfunded lending commitments.$109$104 billion and $92$112 billion at June 30, 2007March 31, 2008 and December 31, 2006,2007, respectively. Securities and other marketable assets held as collateral amounted to $61$72 billion and $42$54 billion and letters of credit in favor of the Company held as collateral amounted to $114$498 million and $142$192 million at June 30, 2007March 31, 2008 and December 31, 2006,2007, 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.In millions of dollars U.S. Outside of
U.S. March 31,
2008 December 31,
2007Commercial and similar letters of credit $ 1,650 $ 8,099 $ 9,749 $ 9,175 One- to four-family residential mortgages 5,893 763 6,656 4,587 Revolving open-end loans secured by one- to four-family residential properties 30,266 3,346 33,612 35,187 Commercial real estate, construction and land development 3,291 812 4,103 4,834 Credit card lines 961,838 157,858 1,119,696 1,103,535 Commercial and other consumer loan commitments 295,614 160,897 456,511 473,631 Total $ 1,298,552 $ 331,775 $ 1,630,327 $ 1,630,949 “Legal Proceedings”"Legal Proceedings" discussion on page 91,119, the Company has been a defendant in numerous lawsuits and other legal proceedings arising out of alleged misconduct in connection with:
During the second quarter of 2007, in connection with an evaluation of the Company’s litigation reserve for these matters and primarily as a result of favorable developments in certain WorldCom/Research litigation matters, the Company released $300 million ($188 million after-tax) from its litigation reserve for these matters. As of June 30, 2007,March 31, 2008, the Company’sCompany's litigation reserve for these matters, net of (a) amounts previously paid or not yet paid but committed to be paid in connection with the Enron class action settlement, the Enron bankruptcy and credit-linked notes settlements described under "Legal Proceedings" on page 119, and other settlements arising out of these matters, and (b) the $300 million release recorded during the 2007 second quarter, was approximately $2.8$1.1 billion.
The Company believes that this reserve is adequate to meet all of its remaining exposure for these matters. However,
As described in the "Legal Proceedings" discussion on page 119, the Company is also a defendant in numerous lawsuits and other legal proceedings arising out of alleged misconduct in connection with other matters. In view of the large number of theselitigation 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.Company's litigation reserves. 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’sCompany'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’sCompany's operating results for any particular period.
19. Citibank, N.A. and Subsidiaries Stockholder's Equity
Statement of Changes in Stockholder’sStockholder's Equity
|
| Six Months Ended June 30, |
| Three Months Ended March 31, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except shares |
| 2007 |
| 2006 |
| 2008 | 2007 | |||||||
Common stock ($20 par value) |
|
|
|
|
| |||||||||
Balance, beginning of period—Shares: 37,534,553 in 2007 and 2006 |
| $ | 751 |
| $ | 751 |
| |||||||
Balance, end of period—Shares: 37,534,553 in 2007 and 2006 |
| $ | 751 |
| $ | 751 |
| |||||||
Balance, beginning of period—Shares: 37,534,553 in 2008 and 2007 | $ | 751 | $ | 751 | ||||||||||
Balance, end of period—Shares: 37,534,553 in 2008 and 2007 | $ | 751 | $ | 751 | ||||||||||
Surplus |
|
|
|
|
| |||||||||
Balance, beginning of period |
| $ | 43,753 |
| $ | 37,978 |
| $ | 69,135 | $ | 43,753 | |||
Capital contribution from parent company |
| 5,707 |
| 1,470 |
| 18 | 2,030 | |||||||
Employee benefit plans |
| 27 |
| 78 |
| 1 | 11 | |||||||
Other |
| — |
| 10 |
| |||||||||
Balance, end of period |
| $ | 49,487 |
| $ | 39,536 |
| $ | 69,154 | $ | 45,794 | |||
Retained earnings |
|
|
|
|
| |||||||||
Balance, beginning of period |
| $ | 30,358 |
| $ | 24,062 |
| $ | 31,915 | $ | 30,358 | |||
Adjustment to opening balance, net of tax(1) |
| (96 | ) | — |
| |||||||||
Adjustment to opening balance, net of taxes(1) | — | (96 | ) | |||||||||||
Adjusted balance, beginning of period |
| $ | 30,262 |
| $ | 24,062 |
| $ | 31,915 | $ | 30,262 | |||
Net income |
| 5,202 |
| 5,229 |
| |||||||||
Net income (loss) | (881 | ) | 2,155 | |||||||||||
Dividends paid |
| (121 | ) | (1,987 | ) | (8 | ) | (18 | ) | |||||
Balance, end of period |
| $ | 35,343 |
| $ | 27,304 |
| $ | 31,026 | $ | 32,399 | |||
Accumulated other comprehensive income (loss) |
|
|
|
|
| |||||||||
Balance, beginning of period |
| $ | (1,709 | ) | $ | (2,550 | ) | $ | (2,495 | ) | $ | (1,709 | ) | |
Adjustment to opening balance, net of tax(2) |
| (1 | ) | — |
| |||||||||
Adjustment to opening balance, net of taxes(2) | — | (1 | ) | |||||||||||
Adjusted balance, beginning of period |
| $ | (1,710 | ) | $ | (2,550 | ) | $ | (2,495 | ) | $ | (1,710 | ) | |
Net change in unrealized gains (losses) on investment securities, available-for-sale, net of tax |
| (896 | ) | (537 | ) | |||||||||
Net change in foreign currency translation adjustment, net of tax |
| 696 |
| 942 |
| |||||||||
Net change for cash flow hedges, net of tax |
| 307 |
| 374 |
| |||||||||
Pension liability adjustment, net of tax |
| 87 |
| 1 |
| |||||||||
Net change in Accumulated other comprehensive income |
| $ | 194 |
| $ | 780 |
| |||||||
Net change in unrealized gains (losses) on investment securities available-for-sale, net of taxes | (1,942 | ) | 130 | |||||||||||
Net change in foreign currency translation adjustment, net of taxes | 799 | 141 | ||||||||||||
Net change in cash flow hedges, net of taxes | (1,008 | ) | (270 | ) | ||||||||||
Pension liability adjustment, net of taxes | 48 | 67 | ||||||||||||
Net change in Accumulated other comprehensive income (loss) | $ | (2,103 | ) | $ | 68 | |||||||||
Balance, end of period |
| $ | (1,516 | ) | $ | (1,770 | ) | $ | (4,598 | ) | $ | (1,642 | ) | |
Total stockholder’s equity |
|
|
|
|
| |||||||||
Balance, beginning of period |
| $ | 73,153 |
| $ | 60,241 |
| |||||||
Adjustment to opening balance, net of tax(1)(2) |
| (97 | ) | — |
| |||||||||
Adjusted balance, beginning of period |
| $ | 73,056 |
| $ | 60,241 |
| |||||||
Changes during the period, net |
| 11,009 |
| 5,580 |
| |||||||||
Balance, end of period |
| $ | 84,065 |
| $ | 65,821 |
| |||||||
Comprehensive income |
|
|
|
|
| |||||||||
Net income |
| $ | 5,202 |
| $ | 5,229 |
| |||||||
Net change in Accumulated other comprehensive income |
| 194 |
| 780 |
| |||||||||
Total comprehensive income |
| $ | 5,396 |
| $ | 6,009 |
| |||||||
Total common stockholder's equity and total stockholder's equity | $ | 96,333 | $ | 77,302 | ||||||||||
Comprehensive income (loss) | ||||||||||||||
Net income (loss) | $ | (881 | ) | $ | 2,155 | |||||||||
Net change in Accumulated other comprehensive income (loss) | (2,103 | ) | 68 | |||||||||||
Comprehensive income (loss) | $ | (2,984 | ) | $ | 2,223 | |||||||||
·
·
·
·
See NoteNotes 1 and Note 16 on pages 5165 and 71,95, respectively.
Reclassified to conform to the current period’s presentation.
20. Condensed Consolidating FinancialStatement 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.
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-issuedCGMHI'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 ownedwholly-owned subsidiary of Citigroup. CCC is a wholly ownedwholly-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 ownedwholly-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 ownedwholly-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 and intercompany eliminations, and income/loss from discontinued operations.eliminations.
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.
82
CONDENSED CONSOLIDATING STATEMENT OF INCOME
|
| Three Months Ended June 30, 2007 |
| ||||||||||||||||||||||
In millions of dollars |
| Citigroup |
| CGMHI |
| CFI |
| CCC |
| Associates |
| Other |
| Consolidating |
| Citigroup |
| ||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Dividends from subsidiary banks and bank holding companies |
| $ | 4,031 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (4,031 | ) | $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest revenue |
| 99 |
| 7,940 |
| — |
| 1,682 |
| 1,970 |
| 20,589 |
| (1,682 | ) | 30,598 |
| ||||||||
Interest revenue—intercompany |
| 1,358 |
| 401 |
| 1,451 |
| 36 |
| 140 |
| (3,350 | ) | (36 | ) | — |
| ||||||||
Interest expense |
| 1,920 |
| 6,277 |
| 1,047 |
| 47 |
| 190 |
| 9,738 |
| (47 | ) | 19,172 |
| ||||||||
Interest expense—intercompany |
| (30 | ) | 1,356 |
| 205 |
| 538 |
| 708 |
| (2,239 | ) | (538 | ) | — |
| ||||||||
Net interest revenue |
| $ | (433 | ) | $ | 708 |
| $ | 199 |
| $ | 1,133 |
| $ | 1,212 |
| $ | 9,740 |
| $ | (1,133 | ) | $ | 11,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commissions and fees |
| $ | — |
| $ | 2,668 |
| $ | — |
| $ | 26 |
| $ | 46 |
| $ | 3,760 |
| $ | (26 | ) | $ | 6,474 |
|
Commissions and fees—intercompany |
| — |
| 14 |
| �� |
| 5 |
| 5 |
| (19 | ) | (5 | ) | — |
| ||||||||
Principal transactions |
| (207 | ) | 1,418 |
| (344 | ) | — |
| 3 |
| 1,917 |
| — |
| 2,787 |
| ||||||||
Principal transactions—intercompany |
| (20 | ) | (99 | ) | 150 |
| — |
| (38 | ) | 7 |
| — |
| — |
| ||||||||
Other income |
| 940 |
| 1,230 |
| 84 |
| 113 |
| 199 |
| 3,490 |
| (113 | ) | 5,943 |
| ||||||||
Other income—intercompany |
| (867 | ) | 246 |
| (71 | ) | 6 |
| (27 | ) | 719 |
| (6 | ) | — |
| ||||||||
Total non-interest revenues |
| $ | (154 | ) | $ | 5,477 |
| $ | (181 | ) | $ | 150 |
| $ | 188 |
| $ | 9,874 |
| $ | (150 | ) | $ | 15,204 |
|
Total revenues, net of interest expense |
| $ | 3,444 |
| $ | 6,185 |
| $ | 18 |
| $ | 1,283 |
| $ | 1,400 |
| $ | 19,614 |
| $ | (5,314 | ) | $ | 26,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Provisions for credit losses and for benefits and claims |
| $ | — |
| $ | 17 |
| $ | — |
| $ | 402 |
| $ | 450 |
| $ | 2,250 |
| $ | (402 | ) | $ | 2,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Compensation and benefits |
| $ | 31 |
| $ | 3,391 |
| $ | — |
| $ | 171 |
| $ | 227 |
| $ | 5,273 |
| $ | (171 | ) | $ | 8,922 |
|
Compensation and benefits—intercompany |
| 4 |
| — |
| — |
| 41 |
| 40 |
| (44 | ) | (41 | ) | — |
| ||||||||
Other expense |
| 126 |
| 618 |
| 1 |
| 121 |
| 168 |
| 5,020 |
| (121 | ) | 5,933 |
| ||||||||
Other expense—intercompany |
| 87 |
| 451 |
| 8 |
| 74 |
| 93 |
| (639 | ) | (74 | ) | — |
| ||||||||
Total operating expenses |
| $ | 248 |
| $ | 4,460 |
| $ | 9 |
| $ | 407 |
| $ | 528 |
| $ | 9,610 |
| $ | (407 | ) | $ | 14,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries |
| $ | 3,196 |
| $ | 1,708 |
| $ | 9 |
| $ | 474 |
| $ | 422 |
| $ | 7,754 |
| $ | (4,505 | ) | $ | 9,058 |
|
Income taxes (benefits) |
| (320 | ) | 613 |
| 4 |
| 172 |
| 169 |
| 2,243 |
| (172 | ) | 2,709 |
| ||||||||
Minority interest, net of taxes |
| — |
| — |
| — |
| — |
| — |
| 123 |
| — |
| 123 |
| ||||||||
Equities in undistributed income of subsidiaries |
| 2,710 |
| — |
| — |
| — |
| — |
| — |
| (2,710 | ) | — |
| ||||||||
Income from continuing operations |
| $ | 6,226 |
| $ | 1,095 |
| $ | 5 |
| $ | 302 |
| $ | 253 |
| $ | 5,388 |
| $ | (7,043 | ) | $ | 6,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income from discontinued operations, net of taxes |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income |
| $ | 6,226 |
| $ | 1,095 |
| $ | 5 |
| $ | 302 |
| $ | 253 |
| $ | 5,388 |
| $ | (7,043 | ) | $ | 6,226 |
|
CONDENSED CONSOLIDATING STATEMENT OF INCOME
|
| Three Months Ended June 30, 2006 |
| ||||||||||||||||||||||
In millions of dollars |
| Citigroup |
| CGMHI |
| CFI |
| CCC |
| Associates |
| Other |
| Consolidating |
| Citigroup |
| ||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Dividends from subsidiary banks and bank holding companies |
| $ | 1,510 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (1,510 | ) | $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest revenue |
| 102 |
| 5,931 |
| — |
| 1,467 |
| 1,740 |
| 15,799 |
| (1,467 | ) | 23,572 |
| ||||||||
Interest revenue—intercompany |
| 1,005 |
| 112 |
| 758 |
| 8 |
| 87 |
| (1,962 | ) | (8 | ) | — |
| ||||||||
Interest expense |
| 1,446 |
| 4,676 |
| 503 |
| 48 |
| 183 |
| 6,909 |
| (48 | ) | 13,717 |
| ||||||||
Interest expense—intercompany |
| (7 | ) | 636 |
| 210 |
| 397 |
| 587 |
| (1,426 | ) | (397 | ) | — |
| ||||||||
Net interest revenue |
| $ | (332 | ) | $ | 731 |
| $ | 45 |
| $ | 1,030 |
| $ | 1,057 |
| $ | 8,354 |
| $ | (1,030 | ) | $ | 9,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commissions and fees |
| $ | — |
| $ | 2,570 |
| $ | — |
| $ | 17 |
| $ | 42 |
| $ | 2,719 |
| $ | (17 | ) | $ | 5,331 |
|
Commissions and fees—intercompany |
| — |
| 67 |
| — |
| 11 |
| 11 |
| (78 | ) | (11 | ) | — |
| ||||||||
Principal transactions |
| 20 |
| (137 | ) | 133 |
| — |
| 4 |
| 1,683 |
| — |
| 1,703 |
| ||||||||
Principal transactions—intercompany |
| 15 |
| 649 |
| (137 | ) | — |
| — |
| (527 | ) | — |
| — |
| ||||||||
Other income |
| 247 |
| 929 |
| 86 |
| 110 |
| 125 |
| 3,906 |
| (110 | ) | 5,293 |
| ||||||||
Other income—intercompany |
| (299 | ) | 161 |
| (73 | ) | 5 |
| 4 |
| 207 |
| (5 | ) | — |
| ||||||||
Total non-interest revenues |
| $ | (17 | ) | $ | 4,239 |
| $ | 9 |
| $ | 143 |
| $ | 186 |
| $ | 7,910 |
| $ | (143 | ) | $ | 12,327 |
|
Total revenues, net of interest expense |
| $ | 1,161 |
| $ | 4,970 |
| $ | 54 |
| $ | 1,173 |
| $ | 1,243 |
| $ | 16,264 |
| $ | (2,683 | ) | $ | 22,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Provisions for credit losses and for benefits and claims |
| $ | — |
| $ | 6 |
| $ | — |
| $ | 290 |
| $ | 329 |
| $ | 1,482 |
| $ | (290 | ) | $ | 1,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Compensation and benefits |
| $ | 26 |
| $ | 2,746 |
| $ | — |
| $ | 182 |
| $ | 236 |
| $ | 4,366 |
| $ | (182 | ) | $ | 7,374 |
|
Compensation and benefits—intercompany |
| 2 |
| — |
| — |
| 37 |
| 36 |
| (38 | ) | (37 | ) | — |
| ||||||||
Other expense |
| 29 |
| 934 |
| 1 |
| 112 |
| 143 |
| 4,288 |
| (112 | ) | 5,395 |
| ||||||||
Other expense—intercompany |
| 39 |
| 359 |
| (6 | ) | 48 |
| 65 |
| (457 | ) | (48 | ) | — |
| ||||||||
Total operating expenses |
| $ | 96 |
| $ | 4,039 |
| $ | (5 | ) | $ | 379 |
| $ | 480 |
| $ | 8,159 |
| $ | (379 | ) | $ | 12,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries |
| $ | 1,065 |
| $ | 925 |
| $ | 59 |
| $ | 504 |
| $ | 434 |
| $ | 6,623 |
| $ | (2,014 | ) | $ | 7,596 |
|
Income taxes (benefits) |
| (330 | ) | 285 |
| 25 |
| 189 |
| 162 |
| 2,161 |
| (189 | ) | 2,303 |
| ||||||||
Minority interest, net of taxes |
| — |
| — |
| — |
| — |
| — |
| 31 |
| — |
| 31 |
| ||||||||
Equities in undistributed income of subsidiaries |
| 3,870 |
| — |
| — |
| — |
| — |
| — |
| (3,870 | ) | — |
| ||||||||
Income from continuing operations |
| $ | 5,265 |
| $ | 640 |
| $ | 34 |
| $ | 315 |
| $ | 272 |
| $ | 4,431 |
| $ | (5,695 | ) | $ | 5,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income from discontinued operations, net of taxes |
| — |
| 21 |
| — |
| — |
| — |
| (18 | ) | — |
| 3 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income |
| $ | 5,265 |
| $ | 661 |
| $ | 34 |
| $ | 315 |
| $ | 272 |
| $ | 4,413 |
| $ | (5,695 | ) | $ | 5,265 |
|
CONDENSED CONSOLIDATING STATEMENT OF INCOME
|
| Six Months Ended June 30, 2007 |
| ||||||||||||||||||||||
In millions of dollars |
| Citigroup |
| CGMHI |
| CFI |
| CCC |
| Associates |
| Other |
| Consolidating |
| Citigroup |
| ||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Dividends from subsidiary banks and bank holding companies |
| $ | 6,836 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (6,836 | ) | $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest revenue |
| 196 |
| 15,222 |
| — |
| 3,206 |
| 3,761 |
| 39,551 |
| (3,206 | ) | 58,730 |
| ||||||||
Interest revenue—intercompany |
| 2,642 |
| 696 |
| 2,696 |
| 73 |
| 263 |
| (6,297 | ) | (73 | ) | — |
| ||||||||
Interest expense |
| 3,710 |
| 11,999 |
| 1,938 |
| 93 |
| 371 |
| 18,716 |
| (93 | ) | 36,734 |
| ||||||||
Interest expense—intercompany |
| (43 | ) | 2,526 |
| 396 |
| 1,034 |
| 1,368 |
| (4,247 | ) | (1,034 | ) | — |
| ||||||||
Net interest revenue |
| $ | (829 | ) | $ | 1,393 |
| $ | 362 |
| $ | 2,152 |
| $ | 2,285 |
| $ | 18,785 |
| $ | (2,152 | ) | $ | 21,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commissions and fees |
| $ | — |
| $ | 5,686 |
| $ | — |
| $ | 44 |
| $ | 87 |
| $ | 6,474 |
| $ | (44 | ) | $ | 12,247 |
|
Commissions and fees—intercompany |
| — |
| 39 |
| — |
| 10 |
| 10 |
| (49 | ) | (10 | ) | — |
| ||||||||
Principal transactions |
| (201 | ) | 2,313 |
| (472 | ) | — |
| 3 |
| 4,141 |
| — |
| 5,784 |
| ||||||||
Principal transactions—intercompany |
| (17 | ) | 13 |
| 151 |
| — |
| (38 | ) | (109 | ) | — |
| — |
| ||||||||
Other income |
| 966 |
| 2,350 |
| 136 |
| 220 |
| 345 |
| 8,265 |
| (220 | ) | 12,062 |
| ||||||||
Other income—intercompany |
| (826 | ) | 628 |
| (115 | ) | 13 |
| (43 | ) | 356 |
| (13 | ) | — |
| ||||||||
Total non-interest revenues |
| $ | (78 | ) | $ | 11,029 |
| $ | (300 | ) | $ | 287 |
| $ | 364 |
| $ | 19,078 |
| $ | (287 | ) | $ | 30,093 |
|
Total revenues, net of interest expense |
| $ | 5,929 |
| $ | 12,422 |
| $ | 62 |
| $ | 2,439 |
| $ | 2,649 |
| $ | 37,863 |
| $ | (9,275 | ) | $ | 52,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Provisions for credit losses and for benefits and claims |
| $ | — |
| $ | 24 |
| $ | — |
| $ | 828 |
| $ | 928 |
| $ | 4,732 |
| $ | (828 | ) | $ | 5,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Compensation and benefits |
| $ | 52 |
| $ | 7,004 |
| $ | — |
| $ | 331 |
| $ | 441 |
| $ | 10,124 |
| $ | (331 | ) | $ | 17,621 |
|
Compensation and benefits—intercompany |
| 6 |
| — |
| — |
| 81 |
| 81 |
| (87 | ) | (81 | ) | — |
| ||||||||
Other expense |
| 240 |
| 1,606 |
| 1 |
| 276 |
| 374 |
| 10,584 |
| (276 | ) | 12,805 |
| ||||||||
Other expense—intercompany |
| 113 |
| 876 |
| 29 |
| 151 |
| 188 |
| (1,206 | ) | (151 | ) | — |
| ||||||||
Total operating expenses |
| $ | 411 |
| $ | 9,486 |
| $ | 30 |
| $ | 839 |
| $ | 1,084 |
| $ | 19,415 |
| $ | (839 | ) | $ | 30,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries |
| $ | 5,518 |
| $ | 2,912 |
| $ | 32 |
| $ | 772 |
| $ | 637 |
| $ | 13,716 |
| $ | (7,608 | ) | $ | 15,979 |
|
Income taxes (benefits) |
| (561 | ) | 974 |
| 13 |
| 278 |
| 233 |
| 3,912 |
| (278 | ) | 4,571 |
| ||||||||
Minority interest, net of taxes |
| — |
| — |
| — |
| — |
| — |
| 170 |
| — |
| 170 |
| ||||||||
Equities in undistributed income of subsidiaries |
| 5,159 |
| — |
| — |
| — |
| — |
| — |
| (5,159 | ) | — |
| ||||||||
Income from continuing operations |
| $ | 11,238 |
| $ | 1,938 |
| $ | 19 |
| $ | 494 |
| $ | 404 |
| $ | 9,634 |
| $ | (12,489 | ) | $ | 11,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income from discontinued operations, net of taxes |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income |
| $ | 11,238 |
| $ | 1,938 |
| $ | 19 |
| $ | 494 |
| $ | 404 |
| $ | 9,634 |
| $ | (12,489 | ) | $ | 11,238 |
|
85
CONDENSED CONSOLIDATING STATEMENT OF INCOME
|
| Six Months Ended June 30, 2006 |
| Three Months Ended March 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
| Citigroup |
| CGMHI |
| CFI |
| CCC |
| Associates |
| Other |
| Consolidating |
| Citigroup |
| Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations | Consolidating adjustments | Citigroup consolidated | |||||||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies |
| $ | 3,963 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (3,963 | ) | $ | — |
| $ | 1,366 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,366 | ) | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Interest revenue |
| 193 |
| 11,340 |
| — |
| 2,866 |
| 3,399 |
| 30,513 |
| (2,866 | ) | 45,445 |
| 134 | 5,824 | — | 1,812 | 2,092 | 21,900 | (1,812 | ) | 29,950 | ||||||||||||||||||||||||
Interest revenue—intercompany |
| 1,932 |
| 221 |
| 1,327 |
| (10 | ) | 166 |
| (3,646 | ) | 10 |
| — |
| 1,306 | 445 | 1,412 | 11 | 151 | (3,314 | ) | (11 | ) | — | |||||||||||||||||||||||
Interest expense |
| 2,775 |
| 8,770 |
| 931 |
| 100 |
| 364 |
| 12,984 |
| (100 | ) | 25,824 |
| 2,291 | 4,063 | 961 | 41 | 175 | 8,987 | (41 | ) | 16,477 | ||||||||||||||||||||||||
Interest expense—intercompany |
| (40 | ) | 1,197 |
| 340 |
| 747 |
| 1,111 |
| (2,608 | ) | (747 | ) | — |
| (27 | ) | 1,406 | 108 | 624 | 693 | (2,180 | ) | (624 | ) | — | ||||||||||||||||||||||
Net interest revenue |
| $ | (610 | ) | $ | 1,594 |
| $ | 56 |
| $ | 2,009 |
| $ | 2,090 |
| $ | 16,491 |
| $ | (2,009 | ) | $ | 19,621 |
| $ | (824 | ) | $ | 800 | $ | 343 | $ | 1,158 | $ | 1,375 | $ | 11,779 | $ | (1,158 | ) | $ | 13,473 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Commissions and fees |
| $ | — |
| $ | 4,947 |
| $ | — |
| $ | 31 |
| $ | 80 |
| $ | 5,492 |
| $ | (31 | ) | $ | 10,519 |
| $ | — | $ | 2,233 | $ | — | $ | 20 | $ | 47 | $ | (609 | ) | $ | (20 | ) | $ | 1,671 | |||||||
Commissions and fees—intercompany |
| — |
| 144 |
| — |
| 22 |
| 22 |
| (166 | ) | (22 | ) | — |
| (10 | ) | 72 | — | 7 | 11 | (73 | ) | (7 | ) | — | ||||||||||||||||||||||
Principal transactions |
| 36 |
| 1,329 |
| 10 |
| — |
| 4 |
| 2,441 |
| — |
| 3,820 |
| 958 | (7,568 | ) | 816 | — | (4 | ) | (863 | ) | — | (6,661 | ) | |||||||||||||||||||||
Principal transactions—intercompany |
| 30 |
| 313 |
| (7 | ) | — |
| — |
| (336 | ) | — |
| — |
| (284 | ) | 176 | (582 | ) | — | 23 | 667 | — | — | |||||||||||||||||||||||
Other income |
| 750 |
| 2,002 |
| 151 |
| 223 |
| 287 |
| 7,215 |
| (223 | ) | 10,405 |
| (1,756 | ) | 964 | (66 | ) | 109 | 134 | 5,460 | (109 | ) | 4,736 | ||||||||||||||||||||||
Other income—intercompany |
| (733 | ) | 375 |
| (141 | ) | 10 |
| 7 |
| 492 |
| (10 | ) | — |
| 1,306 | 540 | 70 | 7 | 26 | (1,942 | ) | (7 | ) | — | |||||||||||||||||||||||
Total non-interest revenues |
| $ | 83 |
| $ | 9,110 |
| $ | 13 |
| $ | 286 |
| $ | 400 |
| $ | 15,138 |
| $ | (286 | ) | $ | 24,744 |
| $ | 214 | $ | (3,583 | ) | $ | 238 | $ | 143 | $ | 237 | $ | 2,640 | $ | (143 | ) | $ | (254 | ) | ||||||
Total revenues, net of interest expense |
| $ | 3,436 |
| $ | 10,704 |
| $ | 69 |
| $ | 2,295 |
| $ | 2,490 |
| $ | 31,629 |
| $ | (6,258 | ) | $ | 44,365 |
| $ | 756 | $ | (2,783 | ) | $ | 581 | $ | 1,301 | $ | 1,612 | $ | 14,419 | $ | (2,667 | ) | $ | 13,219 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Provisions for credit losses and for benefits and claims |
| $ | — |
| $ | 27 |
| $ | — |
| $ | 585 |
| $ | 666 |
| $ | 2,797 |
| $ | (585 | ) | $ | 3,490 |
| $ | — | $ | 16 | $ | — | $ | 989 | $ | 1,086 | $ | 4,924 | $ | (989 | ) | $ | 6,026 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Compensation and benefits |
| $ | 21 |
| $ | 6,213 |
| $ | — |
| $ | 380 |
| $ | 483 |
| $ | 8,920 |
| $ | (380 | ) | $ | 15,637 |
| $ | (7 | ) | $ | 2,804 | $ | — | $ | 198 | $ | 274 | $ | 6,009 | $ | (198 | ) | $ | 9,080 | |||||||
Compensation and benefits—intercompany |
| 4 |
| — |
| — |
| 72 |
| 72 |
| (76 | ) | (72 | ) | — |
| |||||||||||||||||||||||||||||||||
Compensation and benefits— intercompany | 2 | 236 | — | 49 | 50 | (288 | ) | (49 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Other expense |
| 65 |
| 1,841 |
| 1 |
| 261 |
| 334 |
| 8,249 |
| (261 | ) | 10,490 |
| 49 | 959 | — | 125 | 167 | 5,961 | (125 | ) | 7,136 | ||||||||||||||||||||||||
Other expense—intercompany |
| 73 |
| 802 |
| 14 |
| 93 |
| 127 |
| (1,016 | ) | (93 | ) | — |
| 33 | 329 | 15 | 81 | 104 | (481 | ) | (81 | ) | — | |||||||||||||||||||||||
Total operating expenses |
| $ | 163 |
| $ | 8,856 |
| $ | 15 |
| $ | 806 |
| $ | 1,016 |
| $ | 16,077 |
| $ | (806 | ) | $ | 26,127 |
| $ | 77 | $ | 4,328 | $ | 15 | $ | 453 | $ | 595 | $ | 11,201 | $ | (453 | ) | $ | 16,216 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries |
| $ | 3,273 |
| $ | 1,821 |
| $ | 54 |
| $ | 904 |
| $ | 808 |
| $ | 12,755 |
| $ | (4,867 | ) | $ | 14,748 |
| |||||||||||||||||||||||||
Income (loss) before taxes, minority interest, and equity in undistributed income of subsidiaries | $ | 679 | $ | (7,127 | ) | $ | 566 | $ | (141 | ) | $ | (69 | ) | $ | (1,706 | ) | $ | (1,225 | ) | $ | (9,023 | ) | ||||||||||||||||||||||||||||
Income taxes (benefits) |
| (536 | ) | 550 |
| 23 |
| 314 |
| 228 |
| 3,575 |
| (314 | ) | 3,840 |
| (437 | ) | (2,744 | ) | 200 | (45 | ) | (16 | ) | (894 | ) | 45 | (3,891 | ) | |||||||||||||||||||
Minority interest, net of taxes |
| — |
| — |
| — |
| — |
| — |
| 91 |
| — |
| 91 |
| — | — | — | — | — | (21 | ) | — | (21 | ) | |||||||||||||||||||||||
Equities in undistributed income of subsidiaries |
| $ | 7,095 |
| — |
| — |
| — |
| — |
| — |
| (7,095 | ) | — |
| (6,227 | ) | — | — | — | — | — | 6,227 | — | |||||||||||||||||||||||
Income from continuing operations |
| $ | 10,904 |
| $ | 1,271 |
| $ | 31 |
| $ | 590 |
| $ | 580 |
| $ | 9,089 |
| $ | (11,648 | ) | $ | 10,817 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Income from discontinued operations, net of taxes |
| — |
| 15 |
| — |
| — |
| — |
| 72 |
| — |
| 87 |
| |||||||||||||||||||||||||||||||||
Net income (loss) | $ | (5,111 | ) | $ | (4,383 | ) | $ | 366 | $ | (96 | ) | $ | (53 | ) | $ | (791 | ) | $ | 4,957 | $ | (5,111 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Net income |
| $ | 10,904 |
| $ | 1,286 |
| $ | 31 |
| $ | 590 |
| $ | 580 |
| $ | 9,161 |
| $ | (11,648 | ) | $ | 10,904 |
|
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| Three Months Ended March 31, 2007 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||
Revenues | ||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 2,805 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (2,805 | ) | $ | — | |||||||
Interest revenue | 97 | 7,282 | — | 1,524 | 1,791 | 19,004 | (1,524 | ) | 28,174 | |||||||||||||||
Interest revenue—intercompany | 1,284 | 295 | 1,245 | 37 | 123 | (2,947 | ) | (37 | ) | — | ||||||||||||||
Interest expense | 1,790 | 5,722 | 891 | 46 | 181 | 8,978 | (46 | ) | 17,562 | |||||||||||||||
Interest expense—intercompany | (13 | ) | 1,170 | 191 | 496 | 660 | (2,008 | ) | (496 | ) | — | |||||||||||||
Net interest revenue | $ | (396 | ) | $ | 685 | $ | 163 | $ | 1,019 | $ | 1,073 | $ | 9,087 | $ | (1,019 | ) | $ | 10,612 | ||||||
Commissions and fees | $ | — | $ | 2,847 | $ | — | $ | 18 | $ | 41 | $ | 2,714 | $ | (18 | ) | $ | 5,602 | |||||||
Commissions and fees—intercompany | — | 25 | — | 5 | 5 | (30 | ) | (5 | ) | — | ||||||||||||||
Principal transactions | 6 | 1,066 | (128 | ) | — | — | 2,224 | — | 3,168 | |||||||||||||||
Principal transactions—intercompany | 3 | 112 | 1 | — | — | (116 | ) | — | — | |||||||||||||||
Other income | 26 | 1,120 | 52 | 107 | 146 | 4,733 | (107 | ) | 6,077 | |||||||||||||||
Other income—intercompany | 41 | 382 | (44 | ) | 7 | (16 | ) | (363 | ) | (7 | ) | — | ||||||||||||
Total non-interest revenues | $ | 76 | $ | 5,552 | $ | (119 | ) | $ | 137 | $ | 176 | $ | 9,162 | $ | (137 | ) | $ | 14,847 | ||||||
Total revenues, net of interest expense | $ | 2,485 | $ | 6,237 | $ | 44 | $ | 1,156 | $ | 1,249 | $ | 18,249 | $ | (3,961 | ) | $ | 25,459 | |||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 7 | $ | — | $ | 426 | $ | 478 | $ | 2,482 | $ | (426 | ) | $ | 2,967 | |||||||
Expenses | ||||||||||||||||||||||||
Compensation and benefits | $ | 21 | $ | 3,613 | $ | — | $ | 160 | $ | 214 | $ | 4,851 | $ | (160 | ) | $ | 8,699 | |||||||
Compensation and benefits—intercompany | 2 | — | — | 40 | 41 | (43 | ) | (40 | ) | — | ||||||||||||||
Other expense | 114 | 988 | — | 155 | 206 | 5,564 | (155 | ) | 6,872 | |||||||||||||||
Other expense—intercompany | 26 | 425 | 21 | 77 | 95 | (567 | ) | (77 | ) | — | ||||||||||||||
Total operating expenses | $ | 163 | $ | 5,026 | $ | 21 | $ | 432 | $ | 556 | $ | 9,805 | $ | (432 | ) | $ | 15,571 | |||||||
Income before taxes, minority interest and equity in undistributed income of subsidiaries | $ | 2,322 | $ | 1,204 | $ | 23 | $ | 298 | $ | 215 | $ | 5,962 | $ | (3,103 | ) | $ | 6,921 | |||||||
Income taxes (benefits) | (241 | ) | 361 | 9 | 106 | 64 | 1,669 | (106 | ) | 1,862 | ||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 47 | — | 47 | ||||||||||||||||
Equities in undistributed income of subsidiaries | 2,449 | — | — | — | — | — | (2,449 | ) | — | |||||||||||||||
Net income | $ | 5,012 | $ | 843 | $ | 14 | $ | 192 | $ | 151 | $ | 4,246 | $ | (5,446 | ) | $ | 5,012 | |||||||
CONDENSED CONSOLIDATING BALANCE SHEET
|
| June 30, 2007 |
| ||||||||||||||||||||||
In millions of dollars |
| Citigroup |
| CGMHI |
| CFI |
| CCC |
| Associates |
| Other |
| Consolidating |
| Citigroup |
| ||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash and due from banks |
| $ | — |
| $ | 4,492 |
| $ | — |
| $ | 202 |
| $ | 315 |
| $ | 25,828 |
| $ | (202 | ) | $ | 30,635 |
|
Cash and due from banks—intercompany |
| 82 |
| 702 |
| 21 |
| 142 |
| 164 |
| (969 | ) | (142 | ) | — |
| ||||||||
Federal funds sold and resale agreements |
| — |
| 308,005 |
| — |
| — |
| — |
| 40,124 |
| — |
| 348,129 |
| ||||||||
Federal funds sold and resale agreements—intercompany |
| — |
| 12,179 |
| — |
| — |
| — |
| (12,179 | ) | — |
| — |
| ||||||||
Trading account assets |
| 44 |
| 361,228 |
| — |
| — |
| 31 |
| 177,013 |
| — |
| 538,316 |
| ||||||||
Trading account assets—intercompany |
| 998 |
| 8,739 |
| 1,228 |
| - |
| 33 |
| (10,998 | ) | — |
| — |
| ||||||||
Investments |
| 6,383 |
| 211 |
| — |
| 2,396 |
| 2,964 |
| 248,322 |
| (2,396 | ) | 257,880 |
| ||||||||
Loans, net of unearned income |
| — |
| 954 |
| — |
| 46,432 |
| 56,000 |
| 685,970 |
| (46,432 | ) | 742,924 |
| ||||||||
Loans, net of unearned income—intercompany |
| — |
| — |
| 119,192 |
| 7,869 |
| 11,368 |
| (130,560 | ) | (7,869 | ) | — |
| ||||||||
Allowance for loan losses |
| — |
| (73 | ) | — |
| (959 | ) | (1,109 | ) | (9,199 | ) | 959 |
| (10,381 | ) | ||||||||
Total loans, net |
| $ | — |
| $ | 881 |
| $ | 119,192 |
| $ | 53,342 |
| $ | 66,259 |
| $ | 546,211 |
| $ | (53,342 | ) | $ | 732,543 |
|
Advances to subsidiaries |
| 106,371 |
| — |
| — |
| — |
| — |
| (106,371 | ) | — |
| — |
| ||||||||
Investments in subsidiaries |
| 158,808 |
| — |
| — |
| — |
| — |
| — |
| (158,808 | ) | — |
| ||||||||
Other assets |
| 8,110 |
| 86,683 |
| 66 |
| 7,313 |
| 8,958 |
| 209,546 |
| (7,313 | ) | 313,363 |
| ||||||||
Other assets—intercompany |
| 4,433 |
| 19,924 |
| 3,774 |
| 312 |
| 530 |
| (28,661 | ) | (312 | ) | — |
| ||||||||
Total assets |
| $ | 285,229 |
| $ | 803,044 |
| $ | 124,281 |
| $ | 63,707 |
| $ | 79,254 |
| $ | 1,087,866 |
| $ | (222,515 | ) | $ | 2,220,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Deposits |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 771,761 |
| $ | — |
| $ | 771,761 |
|
Federal funds purchased and securities loaned or sold |
| — |
| 343,411 |
| — |
| — |
| — |
| 50,732 |
| — |
| 394,143 |
| ||||||||
Federal funds purchased and securities loaned or sold—intercompany |
| 210 |
| 3,183 |
| — |
| — |
| — |
| (3,393 | ) | — |
| — |
| ||||||||
Trading account liabilities |
| 6 |
| 152,029 |
| 182 |
| — |
| — |
| 65,775 |
| — |
| 217,992 |
| ||||||||
Trading account liabilities—intercompany |
| 94 |
| 4,991 |
| 195 |
| — |
| 37 |
| (5,317 | ) | — |
| — |
| ||||||||
Short-term borrowings |
| 7,557 |
| 22,622 |
| 55,114 |
| 223 |
| 1,464 |
| 80,382 |
| (223 | ) | 167,139 |
| ||||||||
Short-term borrowings—intercompany |
| — |
| 76,682 |
| 33,681 |
| 11,690 |
| 33,778 |
| (144,141 | ) | (11,690 | ) | — |
| ||||||||
Long-term debt |
| 140,446 |
| 29,148 |
| 30,930 |
| 3,141 |
| 14,000 |
| 125,553 |
| (3,141 | ) | 340,077 |
| ||||||||
Long-term debt—intercompany |
| 383 |
| 27,825 |
| 1,981 |
| 37,698 |
| 19,473 |
| (49,662 | ) | (37,698 | ) | — |
| ||||||||
Advances from subsidiaries |
| 503 |
| — |
| — |
| — |
| — |
| (503 | ) | — |
| — |
| ||||||||
Other liabilities |
| 6,480 |
| 112,768 |
| 314 |
| 3,925 |
| 3,868 |
| 78,570 |
| (3,925 | ) | 202,000 |
| ||||||||
Other liabilities—intercompany |
| 1,796 |
| 10,127 |
| 180 |
| 717 |
| 337 |
| (12,440 | ) | (717 | ) | — |
| ||||||||
Stockholders’ equity |
| 127,754 |
| 20,258 |
| 1,704 |
| 6,313 |
| 6,297 |
| 130,549 |
| (165,121 | ) | 127,754 |
| ||||||||
Total liabilities and stockholders’ equity |
| $ | 285,229 |
| $ | 803,044 |
| $ | 124,281 |
| $ | 63,707 |
| $ | 79,254 |
| $ | 1,087,866 |
| $ | (222,515 | ) | $ | 2,220,866 |
|
| March 31, 2008 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 | $ | 1 | $ | 3,690 | $ | — | $ | 207 | $ | 314 | $ | 26,832 | $ | (207 | ) | $ | 30,837 | ||||||||
Cash and due from banks—intercompany | 20 | 785 | 5 | 141 | 161 | (971 | ) | (141 | ) | — | |||||||||||||||
Federal funds sold and resale agreements | — | 213,454 | — | — | — | 25,552 | — | 239,006 | |||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 16,573 | — | — | — | (16,573 | ) | — | — | ||||||||||||||||
Trading account assets | 28 | 261,752 | 846 | — | 24 | 315,787 | — | 578,437 | |||||||||||||||||
Trading account assets—intercompany | 260 | 10,954 | 1,661 | — | 13 | (12,888 | ) | — | — | ||||||||||||||||
Investments | 14,380 | 506 | — | 2,302 | 2,837 | 186,432 | (2,302 | ) | 204,155 | ||||||||||||||||
Loans, net of unearned income | — | 756 | — | 50,032 | 59,136 | 729,951 | (50,032 | ) | 789,843 | ||||||||||||||||
Loans, net of unearned income—intercompany | — | — | 120,812 | 5,964 | 12,111 | (132,923 | ) | (5,964 | ) | — | |||||||||||||||
Allowance for loan losses | — | (84 | ) | — | (1,992 | ) | (2,201 | ) | (15,972 | ) | 1,992 | (18,257 | ) | ||||||||||||
Total loans, net | $ | — | $ | 672 | $ | 120,812 | $ | 54,004 | $ | 69,046 | $ | 581,056 | $ | (54,004 | ) | $ | 771,586 | ||||||||
Advances to subsidiaries | 126,313 | — | — | — | — | (126,313 | ) | — | — | ||||||||||||||||
Investments in subsidiaries | 162,273 | — | — | — | — | — | (162,273 | ) | — | ||||||||||||||||
Other assets | 8,955 | 94,792 | 62 | 5,687 | 7,278 | 264,740 | (5,687 | ) | 375,827 | ||||||||||||||||
Other assets—intercompany | 8,191 | 36,816 | 4,646 | 265 | 983 | (50,636 | ) | (265 | ) | — | |||||||||||||||
Total assets | $ | 320,421 | $ | 639,994 | $ | 128,032 | $ | 62,606 | $ | 80,656 | $ | 1,193,018 | $ | (224,879 | ) | $ | 2,199,848 | ||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||||
Deposits | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 831,208 | $ | — | $ | 831,208 | |||||||||
Federal funds purchased and securities loaned or sold | — | 226,964 | — | — | — | 52,597 | — | 279,561 | |||||||||||||||||
Federal funds purchased and securities loaned or sold—intercompany | — | 12,750 | — | — | — | (12,750 | ) | — | — | ||||||||||||||||
Trading account liabilities | — | 107,132 | 62 | — | — | 94,792 | — | 201,986 | |||||||||||||||||
Trading account liabilities—intercompany | 372 | 9,717 | 616 | — | — | (10,705 | ) | — | — | ||||||||||||||||
Short-term borrowings | 1,234 | 18,598 | 44,055 | — | 1,249 | 70,663 | — | 135,799 | |||||||||||||||||
Short-term borrowings—intercompany | — | 50,076 | 41,712 | 8,505 | 39,572 | (131,360 | ) | (8,505 | ) | — | |||||||||||||||
Long-term debt | 181,108 | 25,095 | 37,880 | 2,718 | 12,547 | 168,329 | (2,718 | ) | 424,959 | ||||||||||||||||
Long-term debt—intercompany | — | 43,786 | 856 | 42,343 | 18,802 | (63,444 | ) | (42,343 | ) | — | |||||||||||||||
Advances from subsidiaries | 2,552 | — | — | — | — | (2,552 | ) | — | — | ||||||||||||||||
Other liabilities | 4,313 | 106,974 | 381 | 2,065 | 2,047 | 84,401 | (2,065 | ) | 198,116 | ||||||||||||||||
Other liabilities—intercompany | 2,623 | 29,049 | 178 | 695 | 210 | (32,060 | ) | (695 | ) | — | |||||||||||||||
Stockholders' equity | 128,219 | 9,853 | 2,292 | 6,280 | 6,229 | 143,899 | (168,553 | ) | 128,219 | ||||||||||||||||
Total liabilities and stockholders' equity | $ | 320,421 | $ | 639,994 | $ | 128,032 | $ | 62,606 | $ | 80,656 | $ | 1,193,018 | $ | (224,879 | ) | $ | 2,199,848 | ||||||||
CONDENSED CONSOLIDATING BALANCE SHEET
|
| December 31, 2006 |
| ||||||||||||||||||||||
In millions of dollars |
| Citigroup |
| CGMHI |
| CFI |
| CCC |
| Associates |
| Other |
| Consolidating |
| Citigroup |
| ||||||||
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.
88
Condensed Consolidating Statements of Cash Flows
|
| Six Months Ended June 30, 2007 |
| ||||||||||||||||||||||
In millions of dollars |
| Citigroup |
| CGMHI |
| CFI |
| CCC |
| Associates |
| Other |
| Consolidating |
| Citigroup |
| ||||||||
Net cash provided by (used in) operating activities of continuing operations |
| $ | 4,625 |
| $(36,368 | ) | $(305 | ) | $ | 1,785 |
| $(796 | ) | $(7,710 | ) | $(1,785 | ) | $(40,554 | ) | ||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Change in loans |
| $ | — |
| $(22 | ) | $(25,728 | ) | $(2,912 | ) | $(3,778 | ) | $(145,700 | ) | $ | 2,912 |
| (175,228 | ) | ||||||
Proceeds from sales and securitizations of loans |
| — |
| — |
| — |
| — |
| — |
| 129,093 |
| — |
| 129,093 |
| ||||||||
Purchases of investments |
| (6,669 | ) | (211 | ) | — |
| (352 | ) | (839 | ) | (130,349 | ) | 352 |
| (138,068 | ) | ||||||||
Proceeds from sales of investments |
| 3,110 |
| — |
| — |
| 73 |
| 201 |
| 89,246 |
| (73 | ) | 92,557 |
| ||||||||
Proceeds from maturities of investments |
| 6,021 |
| — |
| — |
| 157 |
| 501 |
| 64,500 |
| (157 | ) | 71,022 |
| ||||||||
Changes in investments and advances—intercompany |
| (21,959 | ) | — |
| (10,378 | ) | 247 |
| (134 | ) | 32,471 |
| (247 | ) | — |
| ||||||||
Business acquisitions |
| — |
| — |
| — |
| — |
| — |
| (13,525 | ) | — |
| (13,525 | ) | ||||||||
Other investing activities |
| — |
| (1,547 | ) | 4 |
| — |
| — |
| (17,553 | ) | — |
| (19,096 | ) | ||||||||
Net cash (used in) provided by investing activities |
| $(19,497 | ) | $(1,780 | ) | $(36,102 | ) | $(2,787 | ) | $(4,049 | ) | $ | 8,183 |
| $ | 2,787 |
| $(53,245 | ) | ||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Dividends paid |
| $(5,387 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $(5,387 | ) | ||
Dividends paid—intercompany |
| — |
| (1,842 | ) | — |
| (4,900 | ) | (1,500 | ) | 3,342 |
| 4,900 |
| — |
| ||||||||
Issuance of common stock |
| 852 |
| — |
| — |
| — |
| — |
| — |
| — |
| 852 |
| ||||||||
Redemption or retirement of preferred stock |
| (400 | ) | — |
| — |
| — |
| — |
| — |
| — |
| (400 | ) | ||||||||
Treasury stock acquired |
| (653 | ) | — |
| — |
| — |
| — |
| — |
| — |
| (653 | ) | ||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net |
| 15,917 |
| (705 | ) | 13,328 |
| 237 |
| 778 |
| (3,424 | ) | (237 | ) | 25,894 |
| ||||||||
Proceeds/(Repayments) from issuance of long-term debt—intercompany, net |
| (16 | ) | 3,444 |
| (207 | ) | 4,648 |
| (4,876 | ) | 1,655 |
| (4,648 | ) | — |
| ||||||||
Change in deposits |
| — |
| — |
| — |
| — |
| — |
| 43,434 |
| — |
| 43,434 |
| ||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party |
| 7,525 |
| 8,520 |
| 11,389 |
| (977 | ) | 1,105 |
| 6,195 |
| 977 |
| 34,734 |
| ||||||||
Net change in short-term borrowings and other advances—intercompany |
| (2,062 | ) | 29,504 |
| 11,537 |
| 1,951 |
| 9,314 |
| (48,293 | ) | (1,951 | ) | — |
| ||||||||
Capital contributions from parent |
| — |
| — |
| 375 |
| — |
| — |
| (375 | ) | — |
| — |
| ||||||||
Other financing activities |
| (843 | ) | — |
| 6 |
| (1 | ) | — |
| (6 | ) | 1 |
| (843 | ) | ||||||||
Net cash provided by financing activities |
| $ | 14,933 |
| $ | 38,921 |
| $ | 36,428 |
| $ | 958 |
| $ | 4,821 |
| $ | 2,528 |
| $(958 | ) | $ | 97,631 |
| |
Effect of exchange rate changes on cash and due from banks |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 289 |
| $ | — |
| $ | 289 |
|
Net increase (decrease) in cash and due from banks |
| $ | 61 |
| $ | 773 |
| $ | 21 |
| $(44 | ) | $(24 | ) | $ | 3,290 |
| $ | 44 |
| $ | 4,121 |
| ||
Cash and due from banks at beginning of period |
| 21 |
| 4,421 |
| — |
| 388 |
| 503 |
| 21,569 |
| (388 | ) | 26,514 |
| ||||||||
Cash and due from banks at end of period from continuing operations |
| $ | 82 |
| $ | 5,194 |
| $ | 21 |
| $ | 344 |
| $ | 479 |
| $ | 24,859 |
| $(344 | ) | $ | 30,635 |
| |
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Income taxes |
| $(677 | ) | $(309 | ) | $(11 | ) | $ | 131 |
| $ | 42 |
| $ | 3,607 |
| $(131 | ) | $ | 2,652 |
| ||||
Interest |
| 3,007 |
| 14,927 |
| 2,210 |
| 738 |
| 230 |
| 13,360 |
| (738 | ) | 33,734 |
| ||||||||
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Transfers to repossessed assets |
| $ | — |
| $ | — |
| $ | — |
| $ | 567 |
| $ | 583 |
| $ | 299 |
| $(567 | ) | $ | 882 |
|
| December 31, 2007 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 | $ | — | $ | 4,405 | $ | 2 | $ | 182 | $ | 280 | $ | 33,519 | $ | (182 | ) | $ | 38,206 | ||||||||
Cash and due from banks—intercompany | 19 | 892 | — | 139 | 160 | (1,071 | ) | (139 | ) | — | |||||||||||||||
Federal funds sold and resale agreements | — | 242,771 | — | — | — | 31,295 | — | 274,066 | |||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 12,668 | — | — | — | (12,668 | ) | — | — | ||||||||||||||||
Trading account assets | 12 | 273,662 | 303 | — | 30 | 264,977 | — | 538,984 | |||||||||||||||||
Trading account assets—intercompany | 262 | 7,648 | 1,458 | — | 5 | (9,373 | ) | — | — | ||||||||||||||||
Investments | 10,934 | 431 | — | 2,275 | 2,813 | 200,830 | (2,275 | ) | 215,008 | ||||||||||||||||
Loans, net of unearned income | — | 758 | — | 49,705 | 58,944 | 718,291 | (49,705 | ) | 777,993 | ||||||||||||||||
Loans, net of unearned income—intercompany | — | — | 106,645 | 3,987 | 12,625 | (119,270 | ) | (3,987 | ) | — | |||||||||||||||
Allowance for loan losses | — | (79 | ) | — | (1,639 | ) | (1,828 | ) | (14,210 | ) | 1,639 | (16,117 | ) | ||||||||||||
Total loans, net | $ | — | $ | 679 | $ | 106,645 | $ | 52,053 | $ | 69,741 | $ | 584,811 | $ | (52,053 | ) | $ | 761,876 | ||||||||
Advances to subsidiaries | 111,155 | — | — | — | — | (111,155 | ) | — | — | ||||||||||||||||
Investments in subsidiaries | 166,017 | — | — | — | — | — | (166,017 | ) | — | ||||||||||||||||
Other assets | 7,804 | 88,333 | 76 | 5,552 | 7,227 | 256,051 | (5,552 | ) | 359,491 | ||||||||||||||||
Other assets—intercompany | 6,073 | 32,051 | 4,846 | 273 | 480 | (43,450 | ) | (273 | ) | — | |||||||||||||||
Total assets | $ | 302,276 | $ | 663,540 | $ | 113,330 | $ | 60,474 | $ | 80,736 | $ | 1,193,766 | $ | (226,491 | ) | $ | 2,187,631 | ||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||||
Deposits | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 826,230 | $ | — | $ | 826,230 | |||||||||
Federal funds purchased and securities loaned or sold | — | 260,129 | — | — | — | 44,114 | — | 304,243 | |||||||||||||||||
Federal funds purchased and securities loaned or sold—intercompany | 1,486 | 10,000 | — | — | — | (11,486 | ) | — | — | ||||||||||||||||
Trading account liabilities | — | 117,627 | 121 | — | — | 64,334 | — | 182,082 | |||||||||||||||||
Trading account liabilities—intercompany | 161 | 6,327 | 375 | — | 21 | (6,884 | ) | — | — | ||||||||||||||||
Short-term borrowings | 5,635 | 16,732 | 41,429 | — | 1,444 | 81,248 | — | 146,488 | |||||||||||||||||
Short-term borrowings—intercompany | — | 59,461 | 31,691 | 5,742 | 37,181 | (128,333 | ) | (5,742 | ) | — | |||||||||||||||
Long-term debt | 171,637 | 31,401 | 36,395 | 3,174 | 13,679 | 174,000 | (3,174 | ) | 427,112 | ||||||||||||||||
Long-term debt—intercompany | — | 39,606 | 957 | 42,293 | 19,838 | (60,401 | ) | (42,293 | ) | — | |||||||||||||||
Advances from subsidiaries | 3,555 | — | — | — | — | (3,555 | ) | — | — | ||||||||||||||||
Other liabilities | 4,580 | 98,425 | 268 | 2,027 | 1,960 | 82,645 | (2,027 | ) | 187,878 | ||||||||||||||||
Other liabilities—intercompany | 1,624 | 9,640 | 165 | 847 | 271 | (11,700 | ) | (847 | ) | — | |||||||||||||||
Stockholders' equity | 113,598 | 14,192 | 1,929 | 6,391 | 6,342 | 143,554 | (172,408 | ) | 113,598 | ||||||||||||||||
Total liabilities and stockholders' equity | $ | 302,276 | $ | 663,540 | $ | 113,330 | $ | 60,474 | $ | 80,736 | $ | 1,193,766 | $ | (226,491 | ) | $ | 2,187,631 | ||||||||
Condensed Consolidating Statements of Cash FlowsCONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
| Six Months Ended June 30, 2006 |
| Three Months Ended March 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
| Citigroup |
| CGMHI |
| CFI |
| CCC |
| Associates |
| Other |
| Consolidating |
| Citigroup |
| 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 |
| $ | 4,633 |
| $ | (2,985 | ) | $ | (19 | ) | $ | 1,631 |
| $ | 2,362 |
| $ | (886 | ) | $ | (1,631 | ) | $ | 3,105 |
| |||||||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 5,942 | $ | 28,583 | $ | (26 | ) | $ | 987 | $ | 593 | $ | (33,506 | ) | $ | (987 | ) | $ | 1,586 | |||||||||||||||||||||||||||||||
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Change in loans |
| $ | — |
| $ | (83 | ) | $ | — |
| $ | (1,097 | ) | $ | (1,394 | ) | $ | (184,322 | ) | $ | 1,097 |
| $ | (185,799 | ) | $ | — | $ | 54 | $ | (14,069 | ) | $ | (1,288 | ) | $ | (1,239 | ) | $ | (68,019 | ) | $ | 1,288 | $ | (83,273 | ) | ||||
Proceeds from sales and securitizations of loans |
| — |
| — |
| — |
| — |
| — |
| 129,468 |
| — |
| 129,468 |
| — | 19 | — | — | — | 67,506 | — | 67,525 | |||||||||||||||||||||||||
Purchases of investments |
| (12,947 | ) | — |
| — |
| (3,992 | ) | (4,914 | ) | (91,873 | ) | 3,992 |
| (109,734 | ) | (47,741 | ) | (75 | ) | — | (207 | ) | (322 | ) | (44,359 | ) | 207 | (92,497 | ) | |||||||||||||||||||
Proceeds from sales of investments |
| 2,659 |
| — |
| — |
| 528 |
| 834 |
| 30,451 |
| (528 | ) | 33,944 |
| 8,565 | — | — | 65 | 162 | 30,844 | (65 | ) | 39,571 | ||||||||||||||||||||||||
Proceeds from maturities of investments |
| 7,730 |
| — |
| — |
| 3,359 |
| 4,073 |
| 49,668 |
| (3,359 | ) | 61,471 |
| 35,988 | — | — | 90 | 98 | 22,763 | (90 | ) | 58,849 | ||||||||||||||||||||||||
Changes in investments and advances—intercompany |
| (6,021 | ) | — |
| (12,332 | ) | (2,948 | ) | (838 | ) | 19,191 |
| 2,948 |
| — |
| (16,236 | ) | — | — | (1,978 | ) | 514 | 15,722 | 1,978 | — | |||||||||||||||||||||||
Business acquisitions |
| — |
| (9 | ) | — |
| — |
| — |
| 9 |
| — |
| — |
| — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Other investing activities |
| — |
| 121 |
| — |
| — |
| — |
| (5,480 | ) | — |
| (5,359 | ) | — | (20,058 | ) | — | — | — | 16,527 | — | (3,531 | ) | |||||||||||||||||||||||
Net cash (used in) provided by investing activities |
| $ | (8,579 | ) | $ | 29 |
| $ | (12,332 | ) | $ | (4,150 | ) | $ | (2,239 | ) | $ | (52,888 | ) | $ | 4,150 |
| $ | (76,009 | ) | $ | (19,424 | ) | $ | (20,060 | ) | $ | (14,069 | ) | $ | (3,318 | ) | $ | (787 | ) | $ | 40,984 | $ | 3,318 | $ | (13,356 | ) | |||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Dividends paid |
| $ | (4,962 | ) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | (4,962 | ) | $ | (1,759 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (1,759 | ) | |||||||
Dividends paid—intercompany |
| — |
| (1,199 | ) | — |
| — |
| (35 | ) | 1,234 |
| — |
| — |
| |||||||||||||||||||||||||||||||||
Dividends paid-intercompany | — | (27 | ) | — | — | — | 27 | — | — | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock |
| 900 |
| — |
| — |
| — |
| — |
| — |
| — |
| 900 |
| 46 | — | — | — | — | — | — | 46 | |||||||||||||||||||||||||
Redemption or retirement of preferred stock |
| (125 | ) | — |
| — |
| — |
| — |
| — |
| — |
| (125 | ) | |||||||||||||||||||||||||||||||||
Issuance of preferred stock | 19,384 | — | — | — | — | — | — | 19,384 | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock acquired |
| (4,000 | ) | — |
| — |
| — |
| — |
| — |
| — |
| (4,000 | ) | (6 | ) | — | — | — | — | — | — | (6 | ) | |||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net |
| 9,620 |
| (5,586 | ) | 7,269 |
| (988 | ) | (441 | ) | 10,527 |
| 988 |
| 21,389 |
| 2,775 | (5,989 | ) | 1,318 | (456 | ) | (1,132 | ) | (4,574 | ) | 456 | (7,602 | ) | ||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—intercompany, net |
| 758 |
| 2,805 |
| — |
| 810 |
| (6,654 | ) | 3,091 |
| (810 | ) | — |
| |||||||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt-intercompany, net | — | 4,190 | — | 50 | (1,036 | ) | (3,154 | ) | (50 | ) | — | |||||||||||||||||||||||||||||||||||||||
Change in deposits |
| — |
| — |
| — |
| (1 | ) | — |
| 54,967 |
| 1 |
| 54,967 |
| — | — | — | — | — | 4,978 | — | 4,978 | |||||||||||||||||||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party |
| (2 | ) | 3,267 |
| (330 | ) | (1,520 | ) | (1,451 | ) | 4,167 |
| 1,520 |
| 5,651 |
| (4,213 | ) | 1,866 | 2,726 | — | 6 | (11,074 | ) | — | (10,689 | ) | ||||||||||||||||||||||
Net change in short-term borrowings and other advances—intercompany |
| 2,242 |
| 4,455 |
| 4,930 |
| 3,903 |
| 8,356 |
| (19,983 | ) | (3,903 | ) | — |
| (2,457 | ) | (9,385 | ) | 10,053 | 2,764 | 2,391 | (602 | ) | (2,764 | ) | — | |||||||||||||||||||||
Capital contributions from parent |
| — |
| — |
| 482 |
| 267 |
| 35 |
| (517 | ) | (267 | ) | — |
| — | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Other financing activities |
| (591 | ) | — |
| — |
| 2 |
| 1 |
| (1 | ) | (2 | ) | (591 | ) | (286 | ) | — | 1 | — | — | (1 | ) | — | (286 | ) | ||||||||||||||||||||||
Net cash provided by (used in) financing activities |
| $ | 3,840 |
| $ | 3,742 |
| $ | 12,351 |
| $ | 2,473 |
| $ | (189 | ) | $ | 53,485 |
| $ | (2,473 | ) | $ | 73,229 |
| $ | 13,484 | $ | (9,345 | ) | $ | 14,098 | $ | 2,358 | $ | 229 | $ | (14,400 | ) | $ | (2,358 | ) | $ | 4,066 | ||||||
Effect of exchange rate changes on cash and due from banks |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 354 |
| $ | — |
| $ | 354 |
| $ | — | $ | — | $ | — | $ | — | $ | — | $ | 335 | $ | — | $ | 335 | |||||||||
Net (decrease) increase in cash and due from banks |
| $ | (106 | ) | $ | 786 |
| $ | — |
| $ | (46 | ) | $ | (66 | ) | $ | 65 |
| $ | 46 |
| $ | 679 |
| |||||||||||||||||||||||||
Net increase (decrease) in cash and due from banks | $ | 2 | $ | (822 | ) | $ | 3 | $ | 27 | $ | 35 | $ | (6,587 | ) | $ | (27 | ) | $ | (7,369 | ) | ||||||||||||||||||||||||||||||
Cash and due from banks at beginning of period |
| 247 |
| 3,913 |
| 1 |
| 687 |
| 876 |
| 18,595 |
| (687 | ) | 23,632 |
| 19 | 5,297 | 2 | 321 | 440 | 32,448 | (321 | ) | 38,206 | ||||||||||||||||||||||||
Cash and due from banks at end of period from continuing operations |
| $ | 141 |
| $ | 4,699 |
| $ | 1 |
| $ | 641 |
| $ | 810 |
| $ | 18,660 |
| $ | (641 | ) | $ | 24,311 |
| |||||||||||||||||||||||||
Cash and due from banks at end of period | $ | 21 | $ | 4,475 | $ | 5 | $ | 348 | $ | 475 | $ | 25,861 | $ | (348 | ) | $ | 30,837 | |||||||||||||||||||||||||||||||||
Supplemental disclosure of cash flow information |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Cash paid during the year for: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Income taxes |
| $ | (409 | ) | $ | 111 |
| $ | — |
| $ | 280 |
| $ | 52 |
| $ | 2,394 |
| $ | (280 | ) | $ | 2,148 |
| $ | 1,033 | $ | (1,976 | ) | $ | 91 | $ | 36 | $ | 16 | $ | 695 | $ | (36 | ) | $ | (141 | ) | ||||||
Interest |
| 2,297 |
| 9,524 |
| 1,216 |
| 83 |
| 237 |
| 9,653 |
| (83 | ) | 22,927 |
| 2,458 | 6,143 | 1,119 | 682 | 93 | 7,307 | (682 | ) | 17,120 | ||||||||||||||||||||||||
Non-cash investing activities: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
Transfers to repossessed assets |
| $ | — |
| $ | — |
| $ | — |
| $ | 515 |
| $ | 530 |
| $ | 137 |
| $ | (515 | ) | $ | 667 |
| $ | — | $ | — | $ | — | $ | 380 | $ | 394 | $ | 372 | $ | (380 | ) | $ | 766 | ||||||||
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
| Three Months Ended March 31, 2007 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | |||||||||||||||||
Net cash provided by (used in) operating activities | $ | 849 | $ | (17,858 | ) | $ | 73 | $ | 710 | $ | 1,255 | $ | (2,736 | ) | $ | (710 | ) | $ | (18,417 | ) | |||||
Cash flows from investing activities | |||||||||||||||||||||||||
Change in loans | $ | — | $ | (13 | ) | $ | — | $ | (769 | ) | $ | (883 | ) | $ | (71,517 | ) | $ | 769 | $ | (72,413 | ) | ||||
Proceeds from sales and securitizations of loans | — | — | — | — | — | 61,333 | — | 61,333 | |||||||||||||||||
Purchases of investments | (4,147 | ) | — | — | (173 | ) | (401 | ) | (76,681 | ) | 173 | (81,229 | ) | ||||||||||||
Proceeds from sales of investments | 1,688 | — | — | 50 | 121 | 37,208 | (50 | ) | 39,017 | ||||||||||||||||
Proceeds from maturities of investments | 2,966 | — | — | 71 | 218 | 31,209 | (71 | ) | 34,393 | ||||||||||||||||
Changes in investments and advances—intercompany | (4,113 | ) | — | (10,537 | ) | 121 | 606 | 14,044 | (121 | ) | — | ||||||||||||||
Business acquisitions | — | — | — | — | — | (2,353 | ) | — | (2,353 | ) | |||||||||||||||
Other investing activities | — | 1,757 | — | — | — | (4,409 | ) | — | (2,652 | ) | |||||||||||||||
Net cash (used in) provided by investing activities | $ | (3,606 | ) | $ | 1,744 | $ | (10,537 | ) | $ | (700 | ) | $ | (339 | ) | $ | (11,166 | ) | $ | 700 | $ | (23,904 | ) | |||
Cash flows from financing activities | |||||||||||||||||||||||||
Dividends paid | $ | (2,698 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (2,698 | ) | |||||||
Dividends paid-intercompany | — | (1,036 | ) | — | — | — | 1,036 | — | — | ||||||||||||||||
Issuance of common stock | 394 | — | — | — | — | — | — | 394 | |||||||||||||||||
Treasury stock acquired | (645 | ) | — | — | — | — | — | — | (645 | ) | |||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 8,943 | (1,967 | ) | 6,080 | (128 | ) | 195 | (3,884 | ) | 128 | 9,367 | ||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt-intercompany, net | (369 | ) | 2,124 | — | 208 | (2,051 | ) | 296 | (208 | ) | — | ||||||||||||||
Change in deposits | — | — | — | — | — | 24,902 | — | 24,902 | |||||||||||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party | (4 | ) | 4,895 | (2,019 | ) | (934 | ) | (1,941 | ) | 8,787 | 934 | 9,718 | |||||||||||||
Net change in short-term borrowings and other advances—intercompany | (2,037 | ) | 12,417 | 6,320 | 787 | 2,821 | (19,521 | ) | (787 | ) | — | ||||||||||||||
Capital contributions from parent | — | — | 100 | — | — | (100 | ) | — | — | ||||||||||||||||
Other financing activities | (819 | ) | — | — | — | — | — | — | (819 | ) | |||||||||||||||
Net cash provided by (used in) financing activities | $ | 2,765 | $ | 16,433 | $ | 10,481 | $ | (67 | ) | $ | (976 | ) | $ | 11,516 | $ | 67 | $ | 40,219 | |||||||
Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 9 | $ | — | $ | 9 | |||||||||
Net increase (decrease) in cash and due from banks | $ | 8 | $ | 319 | $ | 17 | $ | (57 | ) | $ | (60 | ) | $ | (2,377 | ) | $ | 57 | $ | (2,093 | ) | |||||
Cash and due from banks at beginning of period | 21 | 4,421 | — | 388 | 503 | 21,569 | (388 | ) | 26,514 | ||||||||||||||||
Cash and due from banks at end of period | $ | 29 | $ | 4,740 | $ | 17 | $ | 331 | $ | 443 | $ | 19,192 | $ | (331 | ) | $ | 24,421 | ||||||||
Supplemental disclosure of cash flow information | |||||||||||||||||||||||||
Cash paid during the year for: | |||||||||||||||||||||||||
Income taxes | $ | (61 | ) | $ | 644 | $ | (20 | ) | $ | 34 | $ | 25 | $ | 1,238 | $ | (34 | ) | $ | 1,826 | ||||||
Interest | 1,718 | 6,921 | 1,078 | 738 | 116 | 5,499 | (738 | ) | 15,332 | ||||||||||||||||
Non-cash investing activities: | |||||||||||||||||||||||||
Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 308 | $ | 315 | $ | 138 | $ | (308 | ) | $ | 453 | ||||||||
90
The following information supplements and amends our discussion set forth under Part I, Item 3 “Legal Proceedings”"Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.
Enron Corp.
On June 6, 2007, the parties reachedApril 4, 2008, Citigroup announced an agreement in principle to settle BAYERISCHE LANDESBANK, ET AL. v. JPMORGAN CHASE BANK, ET AL.
Research
Customer Class Actions.
On May 3, 2007,actions filed by Enron in its Chapter 11 bankruptcy proceedings seeking to recover payments to Citigroup as alleged preferences or fraudulent conveyances, to disallow or equitably subordinate claims of Citigroup and Citigroup transferees on the District Court remanded DISHER V. CITIGROUP GLOBAL MARKETS, INC.,basis of alleged fraud, and to Illinois state court. On June 13, 2007,recover damages from Citigroup moved in state court to dismissfor allegedly aiding and abetting breaches of fiduciary duty. Under the action.
Parmalat
On May 16, 2007, the New Jersey Supreme Court denied Citigroup’s motion for leave to appeal the denial of its renewed motion to dismiss for forum non conveniens. On July 3, 2007, Parmalat moved for leave to amend its complaint.
In July 2007, the Milan prosecutor obtained indictments against numerous individuals, including a Citigroup employee, for alleged offenses under Italian law that arise outterms of the collapse of Parmalat.
On July 24, 2007,settlement (which was approved by the United States DistrictBankruptcy Court for the Southern District of New York on April 24, 2008), Citigroup will make a pretax payment of $1.66 billion to Enron, and will waive certain claims against Enron's estate. Enron also will allow specified Citigroup-related claims in the bankruptcy proceeding, including all of the bankruptcy claims of parties holding approximately $2.4 billion of Enron credit-linked notes ("CLNs"), and will release all claims against Citigroup. Citigroup separately agreed to settle an action brought by certain trusts that issued the CLNs in question, by the related indenture trustee and by certain holders of those securities. The amounts of both settlements are fully covered by Citigroup's existing litigation reserves.
On February 14, 2008, Citigroup agreed to settleConnecticut Resources Recovery Authority v.Lay, et al., an action brought by the Attorney General of Connecticut in connection with an Enron-related transaction; subsequently, the District Court dismissed the case on March 5, 2008. The amount paid to settle this action was covered by existing Citigroup litigation reserves.
Parmalat
InIn re Parmalat Securities Litigation, the Company filed a motion for summary judgment on February 29, 2008. The motion is pending.
InBondi v.Citigroup, pending in New Jersey Superior Court, the Company filed a motion for summary judgment with respect to each of plaintiff's claims and with respect to Citibank's counterclaims. Plaintiff also filed a motion for summary judgment with respect to Citibank's counterclaims. On April 15, 2008 the Court granted Citigroup’sthe Company's motion for summary judgment on all claims, except the claim relating to allegations of aiding and abetting Parmalat insiders in breaching their fiduciary duties to Parmalat, insofar as that claim pertains to the insiders' larceny from Parmalat. The Court also denied Bondi's motion for summary judgment on Citibank's counterclaim. Trial is set for May 5, 2008 on the remaining claim and Citibank's counterclaims.
In the criminal investigation into alleged bankruptcy offenses relating to the collapse of Parmalat pending in Parma, Italy, a preliminary hearing began on April 21, 2008 with respect to 10 current and former Company employees. The next hearing is scheduled for May 28, 2008, when it is expected that two additional former Company employees will be added to the proceedings.
Subprime Mortgage-Related Litigation
Derivative Actions. On February 5, 2008, the four derivative actions filed in Delaware Chancery Court were consolidated under the captionIn re Citigroup Inc. Shareholder Derivative Litigation. A consolidated amended derivative complaint was filed on February 19, 2008.
Other Matters. Putative class actions brought by shareholders of American Home Mortgage Investment Corp., pending in the Eastern District of New York, were consolidated on March 21, 2008. On April 4, 2008, lead plaintiff in the multi-district litigation filed a new putative class action complaint alleging violations of the securities laws arising out of underwriting activity by the Company and other defendants’ motion for judgmentinvestment banks, on behalf of American Home Mortgage. A consolidated amended complaint is scheduled to be filed by May 20, 2008.
Two of three putative class actions brought by shareholders of Countrywide Financial Corp. were consolidated under the captionIn re Countrywide Financial Corp. Securities Litigation. The third,Luther v.Countrywide Financial Corp., et al., was remanded to California state court on February 28, 2008.
On February 22, 2008, Citibank, N.A. filed a complaint against the City of Cleveland, Ohio seeking declaratory and injunctive relief on the pleadingsground that the City of Cleveland's public nuisance claim, asserted in a separate action, is preempted by federal law and dismissedmay not be asserted against national banks and their operating subsidiaries.
On April 14, 2008, a putative class action was filed against the claimsCompany in the Southern District of all foreign purchasersFlorida, alleging that the Company violated the federal securities laws and Florida state law in connection with its marketing of Parmalat securities for lackthe Falcon Strategies Two B hedge fund.
Interchange Fees
Citigroup Inc. and certain of subject matter jurisdiction.
Mutual Funds
In May 2007, CGMI finalized its settlement agreementsubsidiaries are defendants, together with the NYSEVisa, MasterCard, and various other banks, in actions filed on behalf of a putative class of retail merchants that accept Visa and MasterCard payment cards. The first of these actions was filed in June 2005, and the New Jersey Bureau of Securities on the matterlawsuits were subsequently consolidated for pretrial proceedings, together with related to its market-timing practices prior to September 2003.
IPO Securities Litigation
On May 18, 2007, the Second Circuit denied plaintiffs’ petition for rehearing en banc of the Second Circuit’s decision reversing the district court’s class certification.
IPO Antitrust Litigation
On June 18, 2007,lawsuits brought by individual plaintiffs against Visa and MasterCard, in the United States SupremeDistrict Court ruledfor
the Eastern District of New York under the captionIn re Payment Card Interchange Fee and Merchant Discount Litigation. On April 24, 2006, putative class plaintiffs filed a First Consolidated and Amended Class Action Complaint ("Consolidated Complaint"). The Consolidated Complaint alleges, among other things, that Defendants have engaged in conspiracies to set the securities law precludes applicationprice of interchange and merchant discount fees on credit and off-line debit card transactions, in violation of Section 1 of the Sherman Act and a California statute. The complaint also alleges additional federal antitrust lawsviolations by Defendants of Section 1 and Section 2 of the Sherman Act, including alleged unlawful contracts in restraint of trade pertaining to thevarious rules governing merchant conduct maintained by Visa or MasterCard, alleged unlawful tying and bundling arrangements, alleged unlawful exclusive dealing arrangements, and alleged unlawful maintenance of monopoly power by Visa. The District Court granted Defendants' motion to dismiss all claims asserted by plaintiffs, effectively terminating the litigation.
Other
for damages that pre-date January 1, 2004. On May 22, 2007,2006, the putative class plaintiffs filed a supplemental complaint against MasterCard and certain other bank defendants, including Citigroup Inc. and certain of its subsidiaries, alleging that MasterCard's initial public offering in 2006 violated Section 7 of the Clayton Act and Section 1 of the Sherman Act. The supplemental complaint also alleged that the MasterCard initial public offering was a fraudulent conveyance under New York Supreme Court denied approval ofstate law. The defendants to the proposed settlement in CARROLL v. WEILL, ET AL. On July 20, 2007, plaintiff movedsupplemental complaint filed a motion to dismiss its claims; the lawsuit without prejudice.magistrate has issued a report recommending denying the motion in part, and granting it in part with leave to amend, which is pending before the Court for decision. Discovery is ongoing, and plaintiffs are anticipated to file a motion seeking class certification on May 8, 2008.
Other Matters
Three putative class actions and one individual action have been filed against the Company and related entities and individuals in the Southern District of New York, asserting various claims under the federal securities laws and state common law arising out of plaintiffs' investments in auction rate securities. The Company, along with other industry participants, also has received a subpoena from a state governmental agency relating to auction rate securities. The Company is cooperating fully with that inquiry.
A purported class action complaint,Leber v.Citigroup Inc., et al., was filed against the Company and its administration and investment committees, alleging that defendants engaged in prohibited transactions and breached their fiduciary duties of loyalty and prudence by authorizing or causing the Citigroup 401(k) Plan to invest in Citigroup-affiliated mutual funds and to purchase services from Citigroup-affiliated entities. The complaint was brought on behalf of all participants in the Citigroup 401(k) Plan from 2001 through the present.
There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors”"Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c)Share Repurchases
Under its long-standing repurchase program, the Company buys back common shares in the market or otherwise from time to time. TheThis program is used for many purposes, including to offset dilution from stock-based compensation programs.
The following table summarizes the Company’sCompany's share repurchases during the first sixthree months of 2007:2008:
In millions, except per share amounts |
| Total Shares |
| Average Price |
| Dollar Value |
| ||
|
|
|
|
|
|
|
| ||
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 |
|
|
|
|
|
|
|
|
| ||
April 2007 |
|
|
|
|
|
|
| ||
Open market repurchases |
| — |
| — |
| $ | 6,767 |
| |
Employee transactions |
| 0.5 |
| $ | 52.38 |
| N/A |
| |
May 2007 |
|
|
|
|
|
|
| ||
Open market repurchases |
| — |
| — |
| $ | 6,767 |
| |
Employee transactions |
| 0.5 |
| $ | 54.23 |
| N/A |
| |
June 2007 |
|
|
|
|
|
|
| ||
Open market repurchases |
| 0.1 |
| $ | 51.42 |
| $ | 6,759 |
|
Employee transactions |
| 0.3 |
| $ | 53.83 |
| N/A |
| |
Second Quarter 2007 |
|
|
|
|
|
|
| ||
Open market repurchases |
| 0.1 |
| $ | 51.42 |
| $ | 6,759 |
|
Employee transactions |
| 1.3 |
| $ | 53.43 |
| N/A |
| |
Total Second Quarter 2007 |
| 1.4 |
| $ | 53.20 |
| $ | 6,759 |
|
|
|
|
|
|
|
|
| ||
Year-to-date 2007 |
|
|
|
|
|
|
| ||
Open market repurchases |
| 12.2 |
| $ | 53.34 |
| $ | 6,759 |
|
Employee transactions |
| 9.4 |
| $ | 54.39 |
| N/A |
| |
Total year-to-date 2007 |
| 21.6 |
| $ | 53.80 |
| $ | 6,759 |
|
In millions, except per share amounts | Total shares repurchased | Average price paid per share | Dollar value of remaining authorized repurchase program | ||||||
---|---|---|---|---|---|---|---|---|---|
January 2008 | |||||||||
Open market repurchases(1) | 0.2 | $ | 27.19 | $ | 6,743 | ||||
Employee transactions(2) | 4.5 | 25.18 | N/A | ||||||
February 2008 | |||||||||
Open market repurchases | — | $ | — | $ | 6,743 | ||||
Employee transactions | 0.3 | 28.14 | N/A | ||||||
March 2008 | |||||||||
Open market repurchases | — | $ | — | $ | 6,743 | ||||
Employee transactions | 0.2 | 22.77 | N/A | ||||||
First quarter 2008 | |||||||||
Open market repurchases | 0.2 | $ | 27.19 | $ | 6,743 | ||||
Employee transactions | 5.0 | 25.26 | N/A | ||||||
Total first quarter 2008 | 5.2 | $ | 25.31 | $ | 6,743 | ||||
Shares repurchased in the first quarter of 2008 relate to customer fails/errors.
Item 4. Submission of Matters to a Vote of Security Holders
N/A Not Citigroup's Annual Meeting of Stockholders was held on April 22, 2008. At the meeting:
Set forth below, with respect to each such matter, are the number of votes cast for or against, and where applicable, the number of abstentions and the number of broker non-votes.
| FOR | AGAINST | ABSTAINED | BROKER NON-VOTES | ||||
---|---|---|---|---|---|---|---|---|
(1) Election of Directors: | ||||||||
NOMINEE | ||||||||
C. Michael Armstrong | 3,820,417,775 | 522,161,209 | N/A | N/A | ||||
Alain J.P. Belda | 3,040,259,490 | 1,294,074,101 | N/A | N/A | ||||
Sir Winfried Bischoff | 4,002,698,728 | 342,064,865 | N/A | N/A | ||||
Kenneth T. Derr | 3,102,086,781 | 1,237,934,146 | N/A | N/A | ||||
John M. Deutch | 3,950,243,007 | 390,586,751 | N/A | N/A | ||||
Roberto Hernández Ramirez | 4,075,489,581 | 261,321,134 | N/A | N/A | ||||
Andrew N. Liveris | 4,008,777,045 | 326,484,533 | N/A | N/A | ||||
Anne Mulcahy | 3,330,413,156 | 1,012,940,300 | N/A | N/A | ||||
Vikram S. Pandit | 4,210,146,130 | 136,096,281 | N/A | N/A | ||||
Richard D. Parsons | 2,991,539,847 | 1,320,422,738 | N/A | N/A | ||||
Judith Rodin | 3,988,211,318 | 352,686,481 | N/A | N/A | ||||
Robert E. Rubin | 4,011,661,455 | 335,411,884 | N/A | N/A | ||||
Robert L. Ryan | 4,111,694,383 | 228,019,040 | N/A | N/A | ||||
Franklin A. Thomas | 4,064,472,435 | 277,220,558 | N/A | N/A | ||||
(2) Ratification of Independent Registered Public Accounting Firm | 4,229,370,453 | 120,318,220 | 60,621,974 | N/A | ||||
(3) Stockholder Proposal Requesting a report on prior governmental service of certain individuals. | 215,850,154 | 2,607,759,569 | 535,495,962 | 1,051,171,152 |
(4) Stockholder Proposal Requesting a report on political contributions was withdrawn. | ||||||||
(5) Stockholder Proposal Requesting that executive compensation be limited to 100 times the average compensation paid to worldwide employees. | 208,269,405 | 2,939,541,561 | 211,289,768 | 1,051,176,104 | ||||
(6) Stockholder Proposal Requesting that two candidates be nominated for each board position. | 169,779,291 | 2,888,044,042 | 301,276,978 | 1,051,176,526 | ||||
(7) Stockholder Proposal Requesting a report on the Equator Principles. | 132,998,595 | 2,580,931,368 | 645,170,121 | 1,051,176,754 | ||||
(8) Stockholder Proposal Requesting the adoption of certain employment principles for executive officers. | 1,093,707,179 | 1,944,578,784 | 320,815,371 | 1,051,175,502 | ||||
(9) Stockholder Proposal Requesting that Citi amend its GHG emissions policies. | 106,189,246 | 2,622,127,350 | 630,764,315 | 1,051,195,926 | ||||
(10) Stockholder Proposal Requesting a report on how investment policies address or could address human rights. | 261,472,163 | 2,452,138,033 | 645,476,153 | 1,051,190,489 | ||||
(11) Stockholder Proposal Requesting an independent board chairman. | 581,833,851 | 2,591,982,929 | 185,271,417 | 1,051,188,641 | ||||
(12) Stockholder Proposal Requesting an advisory vote to ratify executive compensation. | 1,277,659,624 | 1,772,367,063 | 309,062,004 | 1,051,188,146 |
See Exhibit Index.
Management Committee Long-Term Incentive Program
On July 17, 2007, the Personnel and Compensation Committee of Citigroup’s Board of Directors approved the Management Committee Long-Term Incentive Program (MC LTIP), under the terms of the shareholder-approved 1999 Stock Incentive Plan.
The MC LTIP provides all current members of the Citigroup Management Committee, including the CEO, CFO and the named executive officers in the Citigroup Proxy Statement an opportunity to earn stock awards based on Citigroup performance.
Each participant will receive an equity award that will be earned based on Citigroup’s performance for the period from July 1, 2007 to December 31, 2009. Three periods will be measured for performance (July 1, 2007 to December 31, 2007, full year 2008 and full year 2009). The ultimate value of the award will be based on Citigroup’s performance in each of these periods with respect to (1) Total Shareholder Return versus Citigroup’s current key competitors and (2) publicly stated Return on Equity (ROE) targets measured at the end of each calendar year. If, in any of the three performance periods, Citigroup’s total shareholder return does not exceed the median performance of the peer group, the Management Committee members will not receive award shares for that period.
The awards will generally vest after 30 months. In order to receive the shares, a participant generally must be a Citigroup employee on January 5, 2010.
The total estimated pretax expense is approximately $150 million and will be amortized over the 30-month vesting/performance period. The final expense for each of the 3 calendar years will be adjusted based on the results of the ROE tests.
SIGNATURES
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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 3rd2nd day of August, 2007.May, 2008.
| (Registrant) | ||||
By | |||||
|
Gary Crittenden | ||||
| |||||
Chief Financial Officer | |||||
| |||||
By |
|
John C. Gerspach | |||
| |||||
Controller and Chief Accounting Officer | |||||
|
3.01.1 |
93
|
| |
| Restated Certificate of Incorporation of Citigroup Inc. (the Company), incorporated by reference to Exhibit 4.01 to the | |
3.01.2 | ||
|
| |
3.01.3 | ||
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| |
3.01.4 | ||
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| |
3.01.5 | ||
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| |
3.01.6 | ||
|
| |
3.01.7 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series A, of the Company, incorporated by reference to Exhibit 3.01 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | |
3.01.8 |
| |
3.01.9 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series C, of the Company, incorporated by reference to Exhibit 3.03 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | |
3.01.10 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series D, of the Company, incorporated by reference to Exhibit 3.04 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | |
3.01.11 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series J, of the Company, incorporated by reference to Exhibit 3.05 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | |
3.01.12 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series K, of the Company, incorporated by reference to Exhibit 3.06 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | |
3.01.13 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series L1, of the Company, incorporated by reference to Exhibit 3.07 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | |
3.01.14 | Certificate of Designation of 7% Non-Cumulative Convertible Preferred Stock, Series N, of the Company, incorporated by reference to Exhibit 3.08 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | |
3.01.15 | Certificate of Designation of 6.5% Non-Cumulative Convertible Preferred Stock, Series T, of the Company, incorporated by reference to Exhibit 3.09 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | |
3.01.16 | Certificate of Designation of 8.125% Non-Cumulative Preferred Stock, Series AA, of the Company, incorporated by reference to Exhibit 3.10 to the Company's Current Report on Form 8-K filed January 25, 2008 (File No. 1-9924). | |
3.01.17 | Certificate of Designation of 8.40% Fixed Rate/Floating Rate Non-Cumulative Preferred Stock, Series E, of the Company, incorporated by reference to Exhibit 3.01 to the Company's Current Report on Form 8-K filed April 28, 2008 (File No. 1-9924). | |
3.02 | By-Laws of the Company, as amended, effective | |
10.01 | + | Deferral Agreement entered into by Michael S. Klein, dated December 29, 2006. |
12.01 | + |
|
|
| |
12.02 | + | |
|
| |
31.01 | + | |
|
| |
31.02 | + |
|
32.01 | + | |
|
| |
99.01 | + | |
|
|
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.
94