SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | |
OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number 1-9924
Citigroup Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 52-1568099 (I.R.S. Employer Identification No.) | |
399 Park Avenue, New York, New York (Address of principal executive offices) | 10043 (Zip Code) | |
(212) 559-1000 (Registrant's telephone number, including area code) |
399 Park Avenue, New York, New York 10043(Address of principal executive offices) (Zip Code)
(212) 559-1000(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:
Common stock outstanding as of March 31,September 30, 2007: 4,946,439,0874,981,134,274
Available on the Web at www.citigroup.com
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Item 1. | Financial Statements: | |||
Consolidated Statement of Income (Unaudited) | ||||
Consolidated Balance | ||||
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) | ||||
Consolidated Statement of Cash Flows (Unaudited) | ||||
Consolidated Balance Sheet—Citibank, N.A. and Subsidiaries | ||||
Notes to Consolidated Financial Statements (Unaudited) | ||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||
Summary of Selected Financial Data | 4 | |||
Third Quarter of 2007 Management Summary | 5 | |||
Events in 2007 and 2006 | 6 | |||
Segment, Product and Regional Net Income and Net Revenues | 10 - 13 | |||
Risk Management | 31 | |||
Interest Revenue/Expense and Yields | 33 | |||
Capital Resources and Liquidity | 41 | |||
Off-Balance Sheet Arrangements | 45 | |||
Forward-Looking Statements | 48 | |||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||
29 - | ||||
75 - | ||||
Item 4. | Controls and Procedures | |||
Part II—Other Information | ||||
Item 1. | Legal Proceedings | |||
Item 1A. | Risk Factors | |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||
Item 6. | Exhibits | |||
Signatures | ||||
Exhibit Index |
Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company) is a diversified global financial services holding company. Our 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's subsidiaries are subject to supervision and examination by their respective federal, state and stateforeign authorities.
This quarterly report on Form 10-Q should be read in conjunction with Citigroup's 2006 Annual Report on Form 10-K.10-K and Citigroup's Quarterly Reports on Form 10-Q for the quarter ended March 31, 2007 and June 30, 2007. Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Financial Supplement that was filed as Exhibit 99.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission (SEC) on October 15, 2007.
The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043. The headquarters' telephone number is 212 559 1000. Additional information about Citigroup is available on the Company's Web site atwww.citigroup.com. Citigroup's annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to these reports are available free of charge through the Company's web site by clicking on the "Investor Relations" page and selecting "SEC Filings." The Securities and Exchange Commission (SEC)SEC's web site contains reports, proxy and information statements, and other information regarding the Company atwww.sec.gov.
Citigroup iswas managed along the following segment and product lines:lines through the third quarter of 2007:
The following are the six regions in which Citigroup operates. The regional results are fully reflected in the product results.
CITIGROUP INC. AND SUBSIDIARIES
SUMMARY OF SELECTED FINANCIAL DATA
| Three Months Ended March 31, | | |||||||
---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except per share amounts | % Change | ||||||||
2007 | 2006 | ||||||||
Net interest revenue | $ | 10,570 | $ | 9,766 | 8 | % | |||
Non-interest revenue | 14,889 | 12,417 | 20 | ||||||
Revenues, net of interest expense | $ | 25,459 | $ | 22,183 | 15 | % | |||
Restructuring expense | 1,377 | — | — | ||||||
Other operating expenses | 14,194 | 13,358 | 6 | ||||||
Provisions for credit losses and for benefits and claims | 2,967 | 1,673 | 77 | ||||||
Income from continuing operations before taxes and minority interest | $ | 6,921 | $ | 7,152 | (3 | )% | |||
Income taxes | 1,862 | 1,537 | 21 | ||||||
Minority interest, net of taxes | 47 | 60 | (22 | ) | |||||
Income from continuing operations | $ | 5,012 | $ | 5,555 | (10 | )% | |||
Income from discontinued operations, net of taxes(1) | — | 84 | NM | ||||||
Net Income | $ | 5,012 | $ | 5,639 | (11 | )% | |||
Earnings per share | |||||||||
Basic: | |||||||||
Income from continuing operations | $ | 1.02 | $ | 1.13 | (10 | )% | |||
Net income | 1.02 | 1.14 | (11 | ) | |||||
Diluted: | |||||||||
Income from continuing operations | 1.01 | 1.11 | (9 | ) | |||||
Net income | 1.01 | 1.12 | (10 | ) | |||||
Dividends declared per common share | $ | 0.54 | $ | 0.49 | 10 | ||||
At March 31: | |||||||||
Total assets | $ | 2,020,966 | $ | 1,586,201 | 27 | % | |||
Total deposits | 738,521 | 627,358 | 18 | ||||||
Long-term debt | 310,768 | 227,165 | 37 | ||||||
Mandatorily redeemable securities of subsidiary trusts | 9,440 | 6,166 | 53 | ||||||
Common stockholders' equity | 121,083 | 113,418 | 7 | ||||||
Total stockholders' equity | 122,083 | 114,418 | 7 | ||||||
Ratios: | |||||||||
Return on common stockholders' equity(2) | 17.1 | % | 20.3 | % | |||||
Return on risk capital(3) | 31 | % | 41 | % | |||||
Return on invested capital(3) | 17 | % | 20 | % | |||||
Tier 1 Capital | 8.26 | % | 8.60 | % | |||||
Total Capital | 11.48 | 11.80 | |||||||
Leverage(4) | 4.84 | 5.22 | |||||||
Common stockholders' equity to assets | 5.99 | % | 7.15 | % | |||||
Dividends declared(5) | 53.5 | % | 43.8 | % | |||||
Ratio of earnings to fixed charges and preferred stock dividends | 1.39x | 1.58x | |||||||
The Company has revised its financial results for the third quarter of 2007 from the results released in the Company's October 15, 2007 Earnings Release and Current Report on Form 8-K filing. The revision relates to the correction of the valuation on the Company's $43 billion in Asset-Backed Securities Collateralized Debt Obligations (ABS CDOs) super senior exposures (see page 6 and 9 for further detail). The impact of this correction is a $270 million reduction in Principal Transactions Revenue, a $166 million reduction in Net Income and a $0.03 reduction in Diluted Earnings per Share.
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except per share amounts | % Change | % Change | |||||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||||||
Net interest revenue | $ | 12,157 | $ | 9,828 | 24 | % | $ | 34,153 | $ | 29,449 | 16 | % | |||||
Non-interest revenue | 10,236 | 11,594 | (12 | ) | 40,329 | 36,338 | 11 | ||||||||||
Revenues, net of interest expense | $ | 22,393 | $ | 21,422 | 5 | % | $ | 74,482 | $ | 65,787 | 13 | % | |||||
Restructuring expense | 35 | — | — | 1,475 | — | — | |||||||||||
Other operating expenses | 14,526 | 11,936 | 22 | 43,512 | 38,063 | 14 | |||||||||||
Provisions for credit losses and for benefits and claims | 5,062 | 2,117 | NM | 10,746 | 5,607 | 92 | |||||||||||
Income from continuing operations before taxes and minority interest | $ | 2,770 | $ | 7,369 | (62 | )% | $ | 18,749 | $ | 22,117 | (15 | )% | |||||
Income taxes | 538 | 2,020 | (73 | ) | 5,109 | 5,860 | (13 | ) | |||||||||
Minority interest, net of taxes | 20 | 46 | (57 | ) | 190 | 137 | 39 | ||||||||||
Income from continuing operations | $ | 2,212 | $ | 5,303 | (58 | )% | $ | 13,450 | $ | 16,120 | (17 | )% | |||||
Income from discontinued operations, net of taxes(1) | — | 202 | (100 | ) | — | 289 | (100 | ) | |||||||||
Net Income | $ | 2,212 | $ | 5,505 | (60 | )% | $ | 13,450 | $ | 16,409 | (18 | )% | |||||
Earnings per share | |||||||||||||||||
Basic: | |||||||||||||||||
Income from continuing operations | $ | 0.45 | $ | 1.08 | (58 | )% | $ | 2.74 | $ | 3.28 | (16 | )% | |||||
Net income | 0.45 | 1.13 | (60 | ) | 2.74 | 3.34 | (18 | ) | |||||||||
Diluted: | |||||||||||||||||
Income from continuing operations | 0.44 | 1.06 | (58 | ) | 2.69 | 3.22 | (16 | ) | |||||||||
Net income | 0.44 | 1.10 | (60 | ) | 2.69 | 3.28 | (18 | ) | |||||||||
Dividends declared per common share | $ | 0.54 | $ | 0.49 | 10 | $ | 1.62 | $ | 1.47 | 10 | |||||||
At September 30: | |||||||||||||||||
Total assets | $ | 2,358,266 | $ | 1,746,248 | 35 | % | |||||||||||
Total deposits | 812,850 | 669,278 | 21 | ||||||||||||||
Long-term debt | 364,526 | 260,089 | 40 | ||||||||||||||
Mandatorily redeemable securities of subsidiary trusts | 11,542 | 7,992 | 44 | ||||||||||||||
Common stockholders' equity | 126,913 | 116,865 | 9 | ||||||||||||||
Total stockholders' equity | 127,113 | 117,865 | 8 | ||||||||||||||
Ratios: | |||||||||||||||||
Return on common stockholders' equity(2) | 6.9 | % | 18.9 | % | 14.6 | % | 19.3 | % | |||||||||
Return on risk capital(3) | 12 | % | 37 | % | 25 | % | 39 | % | |||||||||
Return on invested capital(3) | 7 | % | 19 | % | 15 | % | 19 | % | |||||||||
Tier 1 Capital | 7.32 | % | 8.64 | % | |||||||||||||
Total Capital | 10.61 | % | 11.88 | % | |||||||||||||
Leverage(4) | 4.13 | % | 5.24 | % | |||||||||||||
MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD QUARTER 2007 MANAGEMENT SUMMARY
Income from continuing operations of $5.012declined 58% to $2,212 billion in the first quarter of 2007 was down 10% from the first quarter of 2006. Dilutedand diluted EPS from continuing operations was down 9%58%. The write-downs of highly-leveraged loans, losses in our Fixed Income structured credit and credit trading business and higher credit costs in our Global Consumer business drove the earnings decline. Results for 2007 include an $871a $729 million after-tax (or $0.17 per share) restructuring charge relatedpretax gain on the sale of Redecard shares.
Revenues were $22.4 billion, up 5% from a year ago, primarily due to the Company's Structural Expense Review completed during the quarter.29% growth in international revenues and partially offset by weakness in ourSecurities and Bankingbusiness, where revenues were down 50%. International Consumer revenues were up 35% and International Global Wealth Management revenues more than doubled reflecting double-digit organic growth and results from Nikko Cordial. U.S. Consumer revenues were flat to a year-ago while Alternative Investments revenues declined 63%.Transaction Serviceshad another record quarter, with revenues up 38%.
Customer volume growth was strong, with average loans up 14%18%, average deposits up 19%20%, and average interest-earning assets up 25%36%.International Cardspurchase sales were up 37%, andwhileU.S. Cardssales were up 6%. In Global Wealth Management, client assets under fee-based management were up 12% from year-ago levels. U.S. debt, equity and equity-related underwriting increased 21% from year-ago levels.38%. Branch activity included the opening or acquisition of 9996 new branches during the quarter (48(47 internationally and 5149 in the U.S.).U.S. Cards accounts were up 14% and purchase sales were up 6%.
DuringSince October of 2006, ten international acquisitions have been announced, consistent with our goal of expanding our international franchise through targeted acquisitions. On October 2, 2007, we announced an agreement to acquire the firstremaining 32% public stake in Nikko Cordial in a share-for-share exchange using Citigroup stock.
International businesses contributed 54% of the Company's revenue in the third quarter of 2007 we continued to invest in expanding our distribution and enhancing our technology as we build a broad, strong foundation for future growth. We successfully completed our tender offer to become the majority (over 60%) shareholder79% of Nikko Cordialincome, up from 44% and closed several acquisitions, consistent with our efforts to drive growth through a balance of organic investment and targeted acquisitions and to expand internationally.
* Excludes Japan Automated Loan Machines (ALMs).
Revenues were a record $25.5 billion, up 15% from43%, respectively, a year ago, driven by Markets & Banking, up 23%. Our international operations recorded revenue growth of 18% in the quarter, with International Consumer up 14%, International Markets & Banking up 20%, and International Global Wealth Management up 32%. U.S. Consumer revenues grew 6%, while Alternative Investments revenues declined 17%.ago.
Net interest revenue increased 8%24% from last year as higher deposit and loan balances were offset by pressure on net interest margins.reflecting volume increases across all products. Net interest margin in the firstthird quarter of 2007 was 2.46%2.36%, down 3926 basis points from the firstthird quarter of 2006, as lower funding costs were offset by growth in lower-yielding assets in our trading businesses, and increased ownership in Nikko Cordial (see discussion of net interest margin on page 63)33).
Operating expenses increased 17%22% from the firstthird quarter of 2006. Excluding2006 driven by increased business volumes and acquisitions (which contributed 8%). The increase is due in large part to an unusually low level of expenses in the restructuring chargethird quarter of 2006, which were the lowest in 2007the last seven quarters, primarily reflecting reductions in advertising and marketing in U.S. Consumer, and lower expenses in Markets & Banking. Our business as usual expense growth of 14% was driven by higher business volumes throughout the franchise and the 2006 initial adoptionopening of SFAS 123(R), expensesmore than 800 branches in the last 12 months. We are ahead of commitments on our Strategic Expense Initiatives. Expenses were up 12%down from the prior year. The relationship between revenue growthsecond quarter of 2007, primarily on lower compensation costs inSecurities and expense growth, excluding the aforementioned impact of restructuring and SFAS 123(R), improved during the quarter. As our Structural Expense Review takes shape, we expect the pace of year-over-year expense growth (excluding acquisitions) to continue to moderate through 2007.Banking.
Income was diversified by segment and region, as shown in the charts below.
Credit costs increased $1.3$2.98 billion from a year ago,year-ago levels, primarily driven by an increase in net credit losses of $509$780 million and a net charge of $597$2.24 billion to increase loan loss reserves. In U.S. Consumer, higher credit costs reflected an increase in net credit losses of $278 million and a net charge of $1.30 billion to buildincrease loan loss reserves. The $597 million$1.30 billion net buildcharge compares to a net reserve release of $154$197 million in the prior-year period. The build wasincrease in credit costs primarily due toreflected a weakening of leading credit indicators, including increased reserves to reflect:delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth, and a change in estimate of loan losses inherent in the initial tenor portionportfolio but not yet visible in delinquencies (referred to hereinafter as the change in estimate of loan losses). In International Consumer, higher credit costs reflected an increase in net credit losses of $460 million and a net charge of $717 million to increase loan loss reserves. The $717 million net charge compares to a net charge of $101 million in the Consumer Loan Portfolio;prior-year period. The increase in credit costs primarily reflected the impact of recent acquisitions, portfolio growth, and increased delinquenciesa change in second mortgages, in theU.S. Consumer Lending mortgage portfolio; and portfolio growth inestimate of loan losses. Markets & Banking which includescredit costs increased $98 million, primarily reflecting higher commitmentsnet credit losses and a $123 million net charge to leveraged transactions and an increase loan loss reserves for specific counterparties. Credit costs reflected a slight weakening in average loan tenor.portfolio credit quality. The Global Consumer loss rate was 1.69%1.81%, a 2332 basis-point increase from the firstthird quarter of 2006. Corporate cash-basis loans increased 76% from year-ago levels to $1.218 billion.
The Company's effective tax rate was 26.9%of 19.4% in the firstthird quarter of 2007 reflectingreflects the impacts of the restructuring charge and $131 million in tax benefits of permanent differences applied to the lower level of consolidated pretax earnings. These permanent differences primarily include the tax benefit for not providing U.S. income taxes on the initial application under APB 23 relating toearnings of certain foreign subsidiaries' ability tosubsidiaries that are indefinitely reinvest their earnings abroad.invested. The 21.5%third quarter of 2006 effective tax rate of 27.4% included a $237 million tax reserve release in the first quarter of 2006 includes the tax benefit relatedcontinuing operations relating to the resolution of the Federal2006 New York Tax Audit.Audits.
Our stockholders' equity and trust preferred securities grew to $131.5were $138.7 billion at March 31,September 30, 2007. Stockholders' equity increased by $2.3 billion during the quarter to $122.1 billion. We distributed $2.7 billion in dividends to shareholders and repurchased $645 million of common stock during the quarter. As a result of the Company's recent acquisitions, the successful Nikko tender offer, and other growth opportunities, it is anticipated that we will not resume our share repurchase program during the remainder of the year. Return on common equity was 17.1%6.9% for the quarter. Citigroup maintained its "well-capitalized" position with a Tier 1 Capital Ratio of 8.26%7.32% at March 31,September 30, 2007.
In our U.S. Consumer business, revenue generated was affected by the market dislocation that also affected our fixed income business; however, the underlying business momentum that we have seen over the last few quarters continues to be very good. The Company expects that credit costs in the fourth quarter of 2007 will increase compared to the fourth quarter of 2006 with the expectation that the U.S. consumer credit environment will continue to deteriorate causing higher credit costs.
On October 12, 2007, we announced the formation of our Institutional Clients Group which combines our Markets & Banking and Alternative Investments businesses which will
enhance our ability to serve institutional clients across the entire capital market spectrum. Vikram Pandit will lead this newly formed Group.
On November 4, 2007, the Company announced significant declines since September 30, 2007 in the fair value of the approximately $55 billion in U.S. sub-prime related direct exposures in its Securities and Banking business. Citigroup estimates that, at the present time, the reduction in revenues attributable to these declines ranges from approximately $8 billion to $11 billion (representing a decline of approximately $5 billion to $7 billion in net income on an after-tax basis). See page 9 for a further discussion.
On November 4, 2007, the Company's Board of Directors announced that Charles Prince, Chairman and Chief Executive Officer, has elected to retire from Citigroup. Robert E. Rubin, Chairman of the Executive Committee of Citigroup and a member of the Board of Directors, will serve as Chairman of the Board. In addition, Sir Win Bischoff, Chairman of Citi Europe and a member of Citigroup's Business Heads, Operating and Management Committees, will serve as acting Chief Executive Officer (CEO). The Board also announced that The Board has designated a special committee consisting of Mr. Rubin, Alain J.P. Belda, Richard D. Parsons, and Franklin A. Thomas to conduct the search for a new CEO.
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 78.48.
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 48. Additional information regarding "Events in 2007 and 2006" is available in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007, and in the Company's Annual Report on Form 10-K for the year ended December 31, 2006.
Structural Expense Review3Q07 Items Impacting the Securities and Banking Business
CDO- and CLO-Related Losses
During the third quarter of 2007, unrealized losses of approximately $1.8 billion pre-tax, net of hedges, were recorded in theSecurities and Bankingbusiness due to a decline in value of sub-prime mortgage-backed securities warehoused for future collateralized debt obligation (CDO) securitizations, CDO positions, and leveraged loans warehoused for future collateralized loan obligation (CLO) securitizations.
The $1.8 billion pretax of net write-downs consisted of $1.0 billion on asset-backed CDOs (primarily taken on the Company's CDO inventory which totaled $2.7 billion at September 30, 2007 inclusive of the write-down), $0.5 billion on super senior tranches of CDOs (senior-most positions of the capital structure where the predominant collateral is sub-prime U.S. residential mortgage-backed securities) and $0.3 billion on CLOs.
Certain types of credit instruments, such as investments in CDOs, high-yield bonds, debt issued in leveraged buyout transactions, mortgage- and asset-backed securities, and short-term asset- backed commercial paper, became very illiquid in the third quarter of 2007 and this contributed to the declines in value of those securities.
Write-downs on Highly-Leveraged Loans and Commitments
During the third quarter of 2007, Citigroup recorded write downs of approximately $1.352 billion pre-tax, net of underwriting fees, on funded and unfunded highly-leveraged finance commitments in theSecurities and Bankingbusiness. Of this amount, approximately $901 million related to debt underwriting activities and $451 million related to lending activities. Write-downs were recorded on all highly-leveraged finance commitments where there was value impairment, regardless of the expected funding date.
Fixed Income Credit Trading Losses
During the third quarter of 2007, Citigroup recognized approximately $636 million in credit trading losses due to significant market volatility and the disruption of historical pricing relationships. This was primarily a result of the sharp decrease in the sub-prime markets in both North America and Europe. The resulting trading losses are reflected in theSecurities and Bankingbusiness.
Market Value Gains Due to the Change in Citigroup Credit Spreads
SFAS 159 provides companies the ability to elect fair value accounting for many financial assets and liabilities. As part of Citigroup's adoption of this standard in the first quarter of 2007, the Company completed a review of its structural expense baseelected the fair value option on debt instruments that are provided to customers so that this debt and the associated assets the Company purchased to meet this liability are on the same fair value basis in a Company-wide effort to create a more streamlined organization, reduce expense growth, and provide investment funds for future growth initiatives.
As a result of the review, a pretax restructuring charge of $1.4 billion ($871 million after-tax) was recorded in Corporate/Other during the first quarter of 2007. Additional pretax restructuring charges of $200 million are anticipated to be recognized byearnings. At the end of 2007. Separate from the restructuring charge, additional implementation coststhird quarter, $28.6 billion of approximately $100 million pretax are expected throughout 2007.
See Note 7debt related to customer products was classified as either short- or long-term debt on page 92 for additional information.
Adoption of SFAS 157—Fair Value Measurementsthe Consolidated Balance Sheet.
The Company elected to early-adopt SFAS No. 157,"Fair Value Measurements" (SFAS 157), as of January 1, 2007. SFAS 157 definesUnder fair value establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS 157 requires, among other things, Citigroup's valuation techniques usedaccounting, we are required to measure fair value to maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, SFAS 157 precludes the use of block discounts for instruments traded in an active market, which were previously applied to large holdings of publicly-traded equity securities, and requires the recognition of trade-date gains related to certain derivative trades that use unobservable inputsCitigroup credit spreads in determining the fair value. This guidance supersedes the guidance in EITF Issue No. 02-3,market value of any Citigroup liabilities for which prohibited the recognition of day-one gains on certain derivative trades when determining the fair value of instruments not traded in an active market. The cumulative effect of these two changes resulted in an increase to retained earnings of $75 million.
As a result of maximizing observable inputs as required by SFAS 157, Citigroup began to reflect external credit ratingsoption was elected, as well as other observable inputs when measuring the fair valuefor Citigroup trading liabilities such as derivatives. The inclusion of our derivative positions. The cumulative effect of making this derivative valuation adjustment wasCitigroup credit spreads in valuing Citigroup's liabilities gave rise to a pre-tax gain of $250$466 million after-tax ($402 million pre-tax, 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 105 for additional information.
Adoption of SFAS 159—Fair Value Option
In conjunction with the adoption of SFAS 157, the Company early-adopted SFAS 159,"The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), as of January 1, 2007. SFAS 159 provides an option for most financial assets and liabilities to be reported at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. After the initial adoption, the election is made at the acquisition of a financial asset, financial liability, or a firm commitment and it may not be revoked. Under the SFAS 159 transition provisions, the Company has elected to report certain financial instruments and other items at fair value on a contract-by-contract basis, with future changes in value reported in earnings. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that was caused by measuring hedged assets and liabilities that were previously required to use an accounting method other than fair value, while the related economic hedges were reported at fair value.
The adoption of SFAS 159 resulted in an after-tax decrease to January 1, 2007 retained earnings of $99 million ($157 million pretax).
��See Note 16 on page 105 for additional information.
Sale of MasterCard Shares
During the firstthird quarter of 2007 the Company recorded a $171 million after-tax gain ($268 million pretax) on the sale of approximately 2.955 million of the 4.947 million MasterCard Class B shares which were received by Citigroup as a part of the MasterCard initial public offering completedand is reflected in June 2006. The after-tax gain was recorded in the following businesses:Securities and Bankingbusiness.
In millions of dollars | Total | ||
---|---|---|---|
U.S. Cards | $ | 103 | |
International Cards | 42 | ||
International Retail Banking | 26 | ||
Total | $ | 171 | |
Credit Reserves
During the firstthird quarter of 2007, the Company recorded a net build of $597 million$2.24 billion to its credit reserves, including an increase in the allowance for unfunded lending commitments, consisting of a net build of $311 million$2.07 billion in Global Consumer and a net build of $286Global Wealth Management and $171 million in Markets & Banking.
The build of $311 million$2.07 billion in Global Consumer wasand Global Wealth Management primarily due toreflected a weakening of leading credit indicators, including increased reserves to reflect: adelinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth, recent acquisitions, and the change in estimate of loan losses inherent in the initial tenor portion of the Consumer Loan portfolio; increased delinquencies in second mortgages, and portfolio growth in theU.S. Consumer Lending mortgage portfolio. Additionally, market expansion in Mexico Cards and the integration of the Credicard portfolio in Brazil added to the increase.losses.
The build of $286$171 million in Markets & Banking was primarily inSecurities and Banking, which hadreflected loan loss reserves for specific counterparties. Credit costs reflected a $300 million reserve increase duringslight weakening in portfolio credit quality.
The net build to the Company's credit reserves in the third quarter dueof 2007 compares to portfolio growth which includes higher commitments to leveraged transactions and an increase in average loan tenor.
During the firstthird quarter of 2006 the Company recorded a net release/utilizationbuild of its credit reserves of $154$37 million, consistingwhich consisted of a net release/utilization of $187$79 million in Global Consumer and Global Wealth Management, and a net build of $33$116 million in Markets & Banking.
Redecard IPO
During July and August 2007, Citigroup (a 31.9% shareholder in Redecard S.A., the only merchant acquiring company for MasterCard in Brazil) sold approximately 48.8 million Redecard shares in connection with Redecard's initial public offering in Brazil. Following the sale of these shares, Citigroup retained approximately 23.9% ownership in Redecard. An after-tax gain of approximately $469 million ($729 million pretax) was recorded in Citigroup's third quarter of 2007 financial results in theInternational Cardsbusiness.
CAI's Structured Investment Vehicles (SIVs)
CAI's Global Credit Structures investment center is the investment manager for seven Structured Investment Vehicles (SIVs). SIVs are special purpose investment companies that seek to generate attractive risk-adjusted floating-rate returns through the use of financial leverage and credit management skills, while hedging interest rate and currency risks and managing credit, liquidity and operational risks. The basic investment strategy is to earn a spread between relatively inexpensive short-term funding (commercial paper and medium-term notes) and high quality asset portfolios with a medium-term duration, with the leverage effect providing attractive returns to junior note holders, who are third-party investors and who provide the capital to the SIVs.
Citigroup has no contractual obligation to provide liquidity facilities or guarantees to any of the Citi-advised SIVs and does not own any equity positions in the SIVs. The SIVs have no direct exposure to U.S. sub-prime assets and have approximately $70 million of indirect exposure to sub-prime assets through CDOs which are AAA rated and carry credit enhancements. Approximately 98% of the SIVs' assets are fully funded through the end of 2007. Beginning in July 2007, the SIVs which Citigroup advises sold more than $19 billion of SIV assets, bringing the combined assets of the Citigroup-advised SIVs to approximately $83 billion at September 30, 2007. See additional discussion on page 46.
The current lack of liquidity in the Asset-Backed Commercial Paper (ABCP) market and the resulting slowdown of the CP market for SIV-issued CP have put significant pressure on the ability of all SIVs, including the Citi-advised SIVs, to refinance maturing CP.
While Citigroup does not consolidate the assets of the SIVs, the Company has provided liquidity to the SIVs at arm's-length commercial terms totaling $10 billion of committed liquidity, $7.6 billion of which has been drawn as of October 31, 2007. Citigroup will not take actions that will require the Company to consolidate the SIVs.
Master Liquidity Enhancing Conduit (M-LEC)
In October 2007, Citigroup, J.P. Morgan Chase and Bank of America initiated a plan to back a new fund, called the Master Liquidity Enhancing Conduit (M-LEC) that intends to buy assets from SIVs advised by Citigroup and other third-party institutions. This is being done as part of an effort to avert the situation where the SIVs will be forced to liquidate significant amounts of mortgage-backed securities, resulting in a broad-based repricing of these assets in the market at steep discounts.
SIVs, including those advised by Citigroup, have experienced difficulties in refinancing maturing commercial paper and medium-term notes, due to reduced liquidity in the market for commercial paper.
Nikko Cordial
Citigroup began consolidating Nikko Cordial's financial results and the appropriate minority interest on May 9, 2007, when Nikko Cordial became a 61%-owned subsidiary. Citigroup later increased its ownership stake in Nikko Cordial to 68%. Nikko Cordial results are included within Citigroup'sSecurities and Banking, Global Wealth ManagementandGlobal Consumer Groupbusinesses.
On October 31, 2007, Citigroup announced a definitive agreement with Nikko Cordial to acquire all Nikko Cordial shares that Citigroup does not already own in exchange for shares of Citigroup. The agreement provides for the exchange ratio to be determined in mid-January 2008 and for the transaction to close on January 29, 2008. As of the date of the agreement, the transaction value for the acquisition of the remaining Nikko shares was approximately $4.6 billion.
On October 29, 2007, Citigroup received approval from the Tokyo Stock Exchange (TSE) to list Citigroup's shares on the TSE effective on November 5, 2007.
Acquisition of Bisys
On May 2,August 1, 2007, the Company announced an agreement to acquirecompleted its acquisition of Bisys Group, Inc. (Bisys) for $1.45 billion. At closing,$1.47 billion in cash. In addition, Bisys' shareholders received $18.2 million in the form of a special dividend paid by Bisys. Citigroup will sellcompleted the sale of the Retirement and Insurance Services Divisions of Bisys to affiliates of J.C. Flowers & Co. LLC, making the net cost of the transaction to Citigroup approximately $800 million. Citigroup will retainretained the Fund Services and Alternative Investment Services Divisionservices businesses of Bisys which provides administrative services for hedge funds, mutual funds and private equity funds. Results for Bisys are included within Citigroup'sTransaction Servicesbusiness from August 1, 2007 forward.
Agreement to Establish Partnership with Quiñenco—Banco de Chile
On July 19, 2007, Citigroup and Quiñenco entered into a definitive agreement to establish a strategic partnership that combines Citi operations in Chile with Banco de Chile's local banking franchise to create a banking and financial services institution with about 20% market share of the Chilean banking industry. The agreement gives Citigroup the option to acquire up to 50% of LQIF, the holding company through which Quiñenco controls Banco de Chile.
Under the agreement, Citigroup will initially acquire 18.77% interest in Banco de Chile through its approximate 32.85% stake in LQIF. In the initial phase, Citigroup will contribute Citigroup Chile and other assets (in cash or other businesses). As part of the overall transaction, Citigroup will also acquire the U.S. businesses of Banco de Chile. Citigroup has the option to acquire an additional 17.04% stake in LQIF within three years. The new partnership calls for active
participation by Citigroup in management of Banco de Chile, including board representation at both LQIF and Banco de Chile.
The transaction is expected to close in the second halffirst quarter of 20072008, and is subject to Bisys shareholder approval and to regulatory approvals in the U.S., Ireland and Bermuda. Bisys will be included within Citigroup'sTransaction Services business.
Tender Offer for Nikko Cordial
On April 26, 2007, Citigroup completed its successful tender offer to become the majority shareholder of Nikko Cordial Corporation in Japan. Approximately 541 million shares were tendered for approximately $7.7 billion. Following the May 9, 2007 scheduled closing date Citigroup will own a total ownership stake in excess of 60%. Once the tender offer is closed, Citigroup will consolidate Nikko and its operations with the minority stake disclosed as Minority Interest.
This acquisition accelerates Citigroup's growth strategy in the world's second largest economy and is intended to provide a broad base of global products and services to Nikko Cordial's client network.
Agreement to Acquire Old Lane Partners, L.P.
On April 13, 2007, the Company announced a definitive agreement to acquire 100% of the outstanding partnership interests in 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 capital under management and private equity commitments of approximately $4.5 billion. Old Lane will operate as part of Citigroup's Alternative Investments (CAI) business. Following the completion of the transaction, Old Lane's Vikram Pandit will become Chief Executive Officer of CAI. The transaction is subject to customary regulatory reviews and is expected to closereviews. Citigroup will account for the investment in LQIF under the third quarterequity method of 2007.accounting.
Acquisition of ABN AMRO Mortgage Group
On March 1, 2007, Citigroup acquired ABN AMRO Mortgage Group (AAMG), a subsidiary of LaSalle Bank Corporation and ABN AMRO Bank N.V. AAMG is a national originator and servicer of prime residential mortgage loans. As part of this acquisition, Citigroup purchased approximately $12 billion in assets, including $3 billion of mortgage servicing rights. The acquisition of AAMG added approximately 1.5 million servicing customers to theU.S. Consumer Lendingportfolio.
Asia Acquisitions
Acquisition of Bank of Overseas ChineseAutomated Trading Desk
On April 9, 2007, Citigroup announced the agreement to acquire 100% of Bank of Overseas Chinese (BOOC) in Taiwan for approximately $427 million, subject to certain closing adjustments. BOOC offers a broad suite of corporate banking, consumer 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's acquisition of BOOC is subject to shareholder and U.S. and Taiwanese regulatory approvals and is expected to close during the second half of 2007.
Strategic Investment and Cooperation Agreement with Guangdong Development Bank
On December 17, 2006, a Citigroup-led consortium acquired an 85.6% stake in Guangdong Development Bank ("GDB"). Citigroup's share is 20% of GDB and its investment of approximately $725 million is accounted for under the equity method.
In accordance with the parties' agreement, Citigroup will have significant management influence at GDB to enhance GDB's management team and corporate governance standards, instill operational and lending best practices, improve risk management and internal controls, upgrade GDB's information technology infrastructure, and further develop GDB's customer service and product offerings.
U.K. Market Expansion
Egg
On May 1,October 3, 2007, Citigroup completed its acquisition of Egg Banking plc (Egg)Automated Trading Desk (ATD), the world's largest pure online banka leader in electronic market making and one of the U.K.'s leading online financial services providers, from Prudential PLCproprietary trading, for approximately $1.127 billion. Egg has more than three$680 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.
Quilter
On March 1, 2007, the Company completed the acquisition of Quilter, a U.K. wealth advisory firm with over $10.9 billion of assets under management, from Morgan Stanley. Quilter has more than 18,000 clients and 300 staff located in 10 offices throughout the U.K., Ireland and the Channel Islands. Quilter's results are included within Global Wealth Management.
Central American Acquisitions
Grupo Cuscatlan
On December 13, 2006, Citigroup announced the agreement to acquire the subsidiaries of Grupo Cuscatlan for $1.51 billion($102.6 million in cash and stock from Corporacion UBC Internacional S.A. Grupo Cuscatlan is oneapproximately 11.17 million shares 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 Panama. This acquisition is subject to local country regulatory approvals and is expected to close during the second quarter of 2007.
Grupo Financiero Uno
On March 5, 2007, Citigroup completed its acquisition of Grupo Financiero Uno (GFU), the largest credit card issuer in Central America, and its affiliates.
The acquisition of GFU, with $2.2 billion in assets, expands the presencestock). ATD will operate as a unit of Citigroup's Latin America consumer franchise, enhances its credit cardGlobal Equities business, in the region and establishesadding a platform for regional growth in Consumer Finance and Retail Banking.
GFU has more than one million retail clients, representing 1.1 million credit card accounts, $1.3 billion in credit card receivables and $1.5 billion in deposits in Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama. GFU operates a distribution network of 75 branchesbroker/dealer customers to Citigroup's diverse base of institutional, broker/dealer and more than 100 mini-branches and points of sale.
EMEA Expansion
Purchase of 20% Equity Interest in Akbank
On January 9, 2007, Citigroup completed its purchase of a 20% equity interest in Akbank for approximately $3.1 billion. Akbank, the second-largest privately owned bank by assets in Turkey, is a premier, full-service retail commercial, corporate and private bank.
Sabanci Holding, a 34% owner of Akbank shares, and its subsidiaries have granted Citigroup a right of first refusal or first offer over the sale of any of their Akbank shares in the future. Subject to certain exceptions, including purchases from Sabanci Holding and its subsidiaries, Citigroup has otherwise agreed not to increase its percentage ownership in Akbank.customers.
Resolution of Federal2006 Tax AuditAudits
New York State and New York City
In September 2006, Citigroup reached a settlement agreement with the New York State and New York City taxing authorities regarding various tax liabilities for the years 1998–2005 (referred to hereinafter as the "resolution of the 2006 New York Tax Audits").
For the 2006 third quarter, the Company released $254 million from its tax contingency reserves, which resulted in increases of $237 million in after-tax income from continuing operations and $17 million in after-tax income from discontinued operations, which are reflected in the year-to-date 2006 totals.
Federal
In March 2006, the Company received a notice from the Internal Revenue Service (IRS) that they had concluded the tax audit for the years 1999 through 2002 (referred to hereinafter as the "resolution of the 2006 Federal Tax Audit"). For the 2006 first quarter, of 2006, the Company released a total of $657 million from its tax contingency reserves related to the resolution of the Federal Tax Audit.Audit, which are reflected in the segment and product year-to-date 2006 income tax expense disclosures.
The following table summarizes the 2006 first quarter tax benefits, by business, from the resolution of the New York Tax Audits and Federal Tax Audit:Audit (collectively, the 2006 Tax Audits):
In millions of dollars | Total | New York City and New York State Audits (2006 Third Quarter) | Federal Audit (2006 First Quarter) | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Global Consumer | $ | 290 | $ | 79 | $ | 290 | $ | 369 | ||||
Markets & Banking | 176 | 116 | 176 | 292 | ||||||||
Global Wealth Management | 13 | 34 | 13 | 47 | ||||||||
Alternative Investments | 58 | — | 58 | 58 | ||||||||
Corporate/Other | 61 | 8 | 61 | 69 | ||||||||
Continuing Operations | $ | 598 | $ | 237 | $ | 598 | $ | 835 | ||||
Discontinued Operations | 59 | 17 | 59 | 76 | ||||||||
Total | $ | 657 | $ | 254 | $ | 657 | $ | 911 | ||||
Adoption of the Accounting for Share-Based Payments
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),"Share-Based Payment" (SFAS(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 of 2006 and year-to-date 2006 pretax compensation expense for stock awards granted to retirement-eligible employees in January 2006 ("the 2006 initial adoption of SFAS 123(R)"):
In millions of dollars | 2006 First Quarter | ||
---|---|---|---|
Global Consumer | $ | 121 | |
Markets & Banking | 354 | ||
Global Wealth Management | 145 | ||
Alternative Investments | 7 | ||
Corporate/Other | 21 | ||
Total | $ | 648 | |
The Company recorded the quarterly accrual for the stock awards that were granted in January 2007 during each of the quarters in 2006. During the first, quartersecond and third quarters of 2007, the Company recorded the quarterly accrual for the estimated stock awards that will be granted in January 2008.
Fourth Quarter of 2007 Subsequent Event
Sub-prime Related Exposure inSecurities and Banking
On November 4, 2007, the Company announced significant declines since September 30, 2007 in the fair value of the approximately $55 billion in U.S. sub-prime related direct exposures in itsSecurities and Banking (S&B) business. Citi estimates that, at the present time, the reduction in revenues attributable to these declines ranges from approximately $8 billion to $11 billion (representing a decline of approximately $5 billion to $7 billion in net income on an after-tax basis).
These declines in the fair value of Citi's sub-prime related direct exposures followed a series of rating agency downgrades of sub-prime U.S. mortgage related assets and other market developments, which occurred after the end of the third quarter. The impact on Citi's financial results for the fourth quarter from changes in the fair value of these exposures will depend on future market developments and could differ materially from the range above.
Citi also announced that, while significant uncertainty continues to prevail in financial markets, it expects, taking into account maintaining its current dividend level, that its capital ratios will return within the range of targeted levels by the end of the second quarter of 2008. Accordingly, Citi has no plans to reduce its current dividend level.
The $55 billion in U.S. sub-prime direct exposure in S&B as of September 30, 2007 consisted of (a) approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and (b) approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities (ABS CDOs).
Lending and Structuring Exposures
Citi's approximately $11.7 billion of sub-prime related exposures in the lending and structuring business as of September 30, 2007 compares to approximately $13 billion of sub-prime related exposures in the lending and structuring business at the end of the second quarter and approximately $24 billion at the beginning of the year. (See Note 1 below.) The $11.7 billion of sub-prime related exposures includes approximately $2.7 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $4.2 billion of actively managed sub-prime loans purchased for resale or securitization at a discount to par primarily in the last six months, and approximately $4.8 billion of financing transactions with customers secured by sub-prime collateral. (See Note 2 below.) These amounts represent fair value determined based on observable transactions and other market data. Following the downgrades and market developments referred to above, the fair value of the CDO warehouse inventory and unsold tranches of ABS CDOs has declined significantly, while the declines in the fair value of the other sub-prime related exposures in the lending and structuring business have not been significant.
ABS CDO Super Senior Exposures
Citi's $43 billion in ABS CDO super senior exposures as of September 30, 2007 is backed primarily by sub-prime RMBS collateral. These exposures include approximately $25 billion in commercial paper principally secured by super senior tranches of high grade ABS CDOs and approximately $18 billion of super senior tranches of ABS CDOs, consisting of approximately $10 billion of high grade ABS CDOs, approximately $8 billion of mezzanine ABS CDOs and approximately $0.2 billion of ABS CDO-squared transactions. Although the principal collateral underlying these super senior tranches is U.S. sub-prime RMBS, as noted above, these exposures represent the most senior tranches of the capital structure of the ABS CDOs. These super senior tranches are not subject to valuation based on observable market transactions. Accordingly, fair value of these super senior exposures is based on estimates about, among other things, future housing prices to predict estimated cash flows, which are then discounted to a present value. The rating agency downgrades and market developments referred to above have led to changes in the appropriate discount rates applicable to these super senior tranches, which have resulted in significant declines in the estimates of the fair value of S&B super senior exposures.
Other Information
The fair value of S&B sub-prime related exposures depends on market conditions and assumptions that are subject to change over time. In addition, if sales of super senior tranches of ABS CDOs occur in the future, these sales might represent observable market transactions that could then be used to determine fair value of the S&B super senior exposures described above. As a result, the fair value of these exposures at the end of the fourth quarter will depend on future market developments.
Citi has provided specific targets for its two primary capital ratios: the Tier 1 capital ratio and the ratio of tangible common equity to risk-weighted managed assets (TCE/RWMA ratio). Those targets are 7.5% for Tier 1 and 6.5% for TCE/RWMA. At September 30, 2007, Citi had a Tier 1 ratio of 7.3% and a TCE/RWMA ratio of 5.9%.
Citi expects that market conditions will continue to evolve, and that the fair value of Citi's positions will frequently change.
SEGMENT, PRODUCT AND REGIONAL REGIONAL—NET INCOME AND REVENUE
The following tables show the net income (loss) and revenue for Citigroup's businesses on a segment and product view and on a regional view:
Citigroup Net Income—Segment and Product View
| | First Quarter | % Change | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | In millions of dollars | % Change | % Change | ||||||||||||||||||||||||||
2007 | 2006(1) | 1Q07 vs. 1Q06 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||
Global Consumer | Global Consumer | Global Consumer | ||||||||||||||||||||||||||||
U.S. Cards | $ | 897 | $ | 926 | (3 | )% | U.S. Cards | $ | 852 | $ | 1,085 | (21 | )% | $ | 2,475 | $ | 2,889 | (14 | )% | |||||||||||
U.S. Retail Distribution | 388 | 515 | (25 | ) | U.S. Retail Distribution | 257 | 481 | (47 | ) | 1,098 | 1,564 | (30 | ) | |||||||||||||||||
U.S. Consumer Lending | 359 | 437 | (18 | ) | U.S. Consumer Lending | (227 | ) | 521 | NM | 573 | 1,428 | (60 | ) | |||||||||||||||||
U.S. Commercial Business | 121 | 126 | (4 | ) | U.S. Commercial Business | 122 | 151 | (19 | ) | 394 | 415 | (5 | ) | |||||||||||||||||
Total U.S. Consumer(2) | $ | 1,765 | $ | 2,004 | (12 | )% | Total U.S. Consumer(1) | $ | 1,004 | $ | 2,238 | (55 | )% | $ | 4,540 | $ | 6,296 | (28 | )% | |||||||||||
International Cards | $ | 388 | $ | 291 | 33 | % | International Cards | $ | 647 | $ | 287 | NM | $ | 1,386 | $ | 906 | 53 | % | ||||||||||||
International Consumer Finance | 25 | 168 | (85 | ) | International Consumer Finance | (320 | ) | 50 | NM | (301 | ) | 391 | NM | |||||||||||||||||
International Retail Banking | 540 | 677 | (20 | ) | International Retail Banking | 552 | 701 | (21 | ) | 1,763 | 2,092 | (16 | ) | |||||||||||||||||
Total International Consumer | $ | 953 | $ | 1,136 | (16 | )% | Total International Consumer | $ | 879 | $ | 1,038 | (15 | )% | $ | 2,848 | $ | 3,389 | (16 | )% | |||||||||||
Other | $ | (85 | ) | $ | (67 | ) | (27 | )% | ||||||||||||||||||||||
Other | Other | $ | (100 | ) | $ | (81 | ) | (23 | )% | $ | (276 | ) | $ | (240 | ) | (15 | )% | |||||||||||||
Total Global Consumer | $ | 2,633 | $ | 3,073 | (14 | )% | Total Global Consumer | $ | 1,783 | $ | 3,195 | (44 | )% | $ | 7,112 | $ | 9,445 | (25 | )% | |||||||||||
Markets & Banking | Markets & Banking | Markets & Banking | ||||||||||||||||||||||||||||
Securities and Banking | $ | 2,173 | $ | 1,618 | 34 | % | Securities and Banking | $ | (290 | ) | $ | 1,344 | NM | $ | 4,028 | $ | 4,374 | (8 | )% | |||||||||||
Transaction Services | 447 | 323 | 38 | Transaction Services | 590 | 385 | 53 | % | 1,551 | 1,048 | 48 | |||||||||||||||||||
Other | 1 | (12 | ) | NM | Other | (20 | ) | (8 | ) | NM | 154 | (49 | ) | NM | ||||||||||||||||
Total Markets & Banking | $ | 2,621 | $ | 1,929 | 36 | % | Total Markets & Banking | $ | 280 | $ | 1,721 | (84 | )% | $ | 5,733 | $ | 5,373 | 7 | % | |||||||||||
Global Wealth Management | Global Wealth Management | Global Wealth Management | ||||||||||||||||||||||||||||
Smith Barney | $ | 324 | $ | 168 | 93 | % | Smith Barney | $ | 379 | $ | 294 | 29 | % | $ | 1,024 | $ | 700 | 46 | % | |||||||||||
Private Bank | 124 | �� | 119 | 4 | Private Bank | 110 | 105 | 5 | 427 | 333 | 28 | |||||||||||||||||||
Total Global Wealth Management | $ | 448 | $ | 287 | 56 | % | Total Global Wealth Management | $ | 489 | $ | 399 | 23 | % | $ | 1,451 | $ | 1,033 | 40 | % | |||||||||||
Alternative Investments | Alternative Investments | $ | 222 | $ | 353 | (37 | )% | Alternative Investments | $ | (67 | ) | $ | 117 | NM | $ | 611 | $ | 727 | (16 | )% | ||||||||||
Corporate/Other | Corporate/Other | (912 | ) | (87 | ) | NM | Corporate/Other | (273 | ) | (129 | ) | NM | (1,457 | ) | (458 | ) | NM | |||||||||||||
Income from Continuing Operations | Income from Continuing Operations | $ | 5,012 | $ | 5,555 | (10 | )% | Income from Continuing Operations | $ | 2,212 | $ | 5,303 | (58 | )% | $ | 13,450 | $ | 16,120 | (17 | )% | ||||||||||
Income from Discontinued Operations | Income from Discontinued Operations | — | 84 | NM | Income from Discontinued Operations | — | 202 | (100 | ) | — | 289 | (100 | ) | |||||||||||||||||
Total Net Income | Total Net Income | $ | 5,012 | $ | 5,639 | (11 | )% | Total Net Income | $ | 2,212 | $ | 5,505 | (60 | )% | $ | 13,450 | $ | 16,409 | (18 | )% | ||||||||||
Citigroup Net Income—Regional View
| | First Quarter | % Change | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | In millions of dollars | % of Total(1) | % Change | % Change | |||||||||||||||||||||||||||
2007 | 2006(1) | 1Q07 vs. 1Q06 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||||
U.S.(2) | U.S.(2) | U.S.(2) | ||||||||||||||||||||||||||||||
Global Consumer | $ | 1,680 | $ | 1,937 | (13 | )% | Global Consumer | $ | 904 | $ | 2,157 | (58 | )% | $ | 4,264 | $ | 6,056 | (30 | )% | |||||||||||||
Markets & Banking | 999 | 515 | 94 | Markets & Banking | (692 | ) | 540 | NM | 1,291 | 1,802 | (28 | ) | ||||||||||||||||||||
Global Wealth Management | 361 | 228 | 58 | Global Wealth Management | 333 | 342 | (3 | ) | 1,029 | 860 | 20 | |||||||||||||||||||||
TotalU.S. | $ | 3,040 | $ | 2,680 | 13 | % | TotalU.S. | 21 | % | $ | 545 | $ | 3,039 | (82 | )% | $ | 6,584 | $ | 8,718 | (24 | )% | |||||||||||
Mexico | Mexico | Mexico | ||||||||||||||||||||||||||||||
Global Consumer | $ | 372 | $ | 358 | 4 | % | ||||||||||||||||||||||||||
Markets & Banking | 114 | 78 | 46 | |||||||||||||||||||||||||||||
Global Wealth Management | 12 | 8 | 50 | |||||||||||||||||||||||||||||
TotalMexico | $ | 498 | $ | 444 | 12 | % | ||||||||||||||||||||||||||
Latin America | ||||||||||||||||||||||||||||||||
Global Consumer | $ | 70 | $ | 58 | 21 | % | Global Consumer | $ | 244 | $ | 395 | (38 | )% | $ | 976 | $ | 1,128 | (13 | )% | |||||||||||||
Markets & Banking | 218 | 202 | 8 | Markets & Banking | 125 | 95 | 32 | 334 | 261 | 28 | ||||||||||||||||||||||
Global Wealth Management | 3 | 3 | — | Global Wealth Management | 10 | 9 | 11 | 37 | 27 | 37 | ||||||||||||||||||||||
TotalLatin America | $ | 291 | $ | 263 | 11 | % | TotalMexico | 15 | % | $ | 379 | $ | 499 | (24 | )% | $ | 1,347 | $ | 1,416 | (5 | )% | |||||||||||
EMEA | EMEA | EMEA | ||||||||||||||||||||||||||||||
Global Consumer | $ | 83 | $ | 185 | (55 | )% | Global Consumer | $ | 58 | $ | 213 | (73 | )% | $ | 289 | $ | 613 | (53 | )% | |||||||||||||
Markets & Banking | 694 | 635 | 9 | Markets & Banking | (25 | ) | 489 | NM | 1,472 | 1,466 | — | |||||||||||||||||||||
Global Wealth Management | 7 | 3 | NM | Global Wealth Management | 4 | 7 | (43 | ) | 57 | 15 | NM | |||||||||||||||||||||
TotalEMEA | $ | 784 | $ | 823 | (5 | )% | TotalEMEA | 1 | % | $ | 37 | $ | 709 | (95 | )% | $ | 1,818 | $ | 2,094 | (13 | )% | |||||||||||
Japan | Japan | Japan | ||||||||||||||||||||||||||||||
Global Consumer | $ | 45 | $ | 188 | (76 | )% | Global Consumer | $ | (224 | ) | $ | 79 | NM | $ | (147 | ) | $ | 445 | NM | |||||||||||||
Markets & Banking | 35 | 85 | (59 | ) | Markets & Banking | (96 | ) | 38 | NM | 63 | 195 | (68 | )% | |||||||||||||||||||
Global Wealth Management | — | — | — | Global Wealth Management | 60 | — | — | 90 | — | — | ||||||||||||||||||||||
TotalJapan | $ | 80 | $ | 273 | (71 | )% | TotalJapan | (10 | )% | $ | (260 | ) | $ | 117 | NM | $ | 6 | $ | 640 | (99 | )% | |||||||||||
Asia | Asia | Asia | ||||||||||||||||||||||||||||||
Global Consumer | $ | 383 | $ | 347 | 10 | % | Global Consumer | $ | 334 | $ | 328 | 2 | % | $ | 1,143 | $ | 1,034 | 11 | % | |||||||||||||
Markets & Banking | 561 | 414 | 36 | Markets & Banking | 727 | 391 | 86 | 1,855 | 1,141 | 63 | ||||||||||||||||||||||
Global Wealth Management | 65 | 45 | 44 | Global Wealth Management | 79 | 38 | NM | 218 | 123 | 77 | ||||||||||||||||||||||
TotalAsia | $ | 1,009 | $ | 806 | 25 | % | TotalAsia | 45 | % | $ | 1,140 | $ | 757 | 51 | % | $ | 3,216 | $ | 2,298 | 40 | % | |||||||||||
Latin America | Latin America | |||||||||||||||||||||||||||||||
Global Consumer | $ | 467 | $ | 23 | NM | $ | 587 | $ | 169 | NM | ||||||||||||||||||||||
Markets & Banking | 241 | 168 | 43 | % | 718 | 508 | 41 | % | ||||||||||||||||||||||||
Global Wealth Management | 3 | 3 | — | 20 | 8 | NM | ||||||||||||||||||||||||||
TotalLatin America | 28 | % | $ | 711 | $ | 194 | NM | $ | 1,325 | $ | 685 | 93 | % | |||||||||||||||||||
Alternative Investments | Alternative Investments | $ | 222 | $ | 353 | (37 | )% | Alternative Investments | $ | (67 | ) | $ | 117 | NM | $ | 611 | $ | 727 | (16 | )% | ||||||||||||
Corporate/Other | Corporate/Other | (912 | ) | (87 | ) | NM | Corporate/Other | (273 | ) | (129 | ) | NM | (1,457 | ) | (458 | ) | NM | |||||||||||||||
Income from Continuing Operations | Income from Continuing Operations | $ | 5,012 | $ | 5,555 | (10 | )% | Income from Continuing Operations | $ | 2,212 | $ | 5,303 | (58 | )% | $ | 13,450 | $ | 16,120 | (17 | )% | ||||||||||||
Income from Discontinued Operations(3) | Income from Discontinued Operations(3) | — | 84 | NM | Income from Discontinued Operations(3) | — | 202 | (100 | ) | — | 289 | (100 | ) | |||||||||||||||||||
Total Net Income | Total Net Income | $ | 5,012 | $ | 5,639 | (11 | )% | Total Net Income | $ | 2,212 | $ | 5,505 | (60 | )% | $ | 13,450 | $ | 16,409 | (18 | )% | ||||||||||||
Total International | Total International | $ | 2,662 | $ | 2,609 | 2 | % | Total International | 79 | % | $ | 2,007 | $ | 2,276 | (12 | )% | $ | 7,712 | $ | 7,133 | 8 | % | ||||||||||
Citigroup Revenues—Segment and Product View
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | % Change | |||||||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||||||||
Global Consumer | |||||||||||||||||||
U.S. Cards | $ | 3,386 | $ | 3,452 | (2 | )% | $ | 9,861 | $ | 9,937 | (1 | )% | |||||||
U.S. Retail Distribution | 2,539 | 2,382 | 7 | 7,510 | 7,177 | 5 | |||||||||||||
U.S. Consumer Lending | 1,548 | 1,481 | 5 | 4,705 | 4,048 | 16 | |||||||||||||
U.S. Commercial Business | 359 | 489 | (27 | ) | 1,248 | 1,475 | (15 | ) | |||||||||||
Total U.S. Consumer(1) | $ | 7,832 | $ | 7,804 | — | $ | 23,324 | $ | 22,637 | 3 | % | ||||||||
International Cards | $ | 2,852 | $ | 1,519 | 88 | % | $ | 6,604 | $ | 4,309 | 53 | % | |||||||
International Consumer Finance | 782 | 998 | (22 | ) | 2,515 | 2,969 | (15 | ) | |||||||||||
International Retail Banking | 3,225 | 2,550 | 26 | 9,014 | 7,572 | 19 | |||||||||||||
Total International Consumer | $ | 6,859 | $ | 5,067 | 35 | % | $ | 18,133 | $ | 14,850 | 22 | % | |||||||
Other | $ | (8 | ) | $ | (37 | ) | 78 | % | $ | (6 | ) | $ | (70 | ) | 91 | % | |||
Total Global Consumer | $ | 14,683 | $ | 12,834 | 14 | % | $ | 41,451 | $ | 37,417 | 11 | % | |||||||
Markets & Banking | |||||||||||||||||||
Securities and Banking | $ | 2,270 | $ | 4,567 | (50 | )% | $ | 16,704 | $ | 15,732 | 6 | % | |||||||
Transaction Services | 2,063 | 1,500 | 38 | 5,548 | 4,377 | 27 | |||||||||||||
Other | — | — | — | (1 | ) | (2 | ) | 50 | |||||||||||
Total Markets & Banking | $ | 4,333 | $ | 6,067 | (29 | )% | $ | 22,251 | $ | 20,107 | 11 | % | |||||||
Global Wealth Management | |||||||||||||||||||
Smith Barney | $ | 2,892 | $ | 1,994 | 45 | % | $ | 7,749 | $ | 5,971 | 30 | % | |||||||
Private Bank | 617 | 492 | 25 | 1,775 | 1,490 | 19 | |||||||||||||
Total Global Wealth Management | $ | 3,509 | $ | 2,486 | 41 | % | $ | 9,524 | $ | 7,461 | 28 | % | |||||||
Alternative Investments | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | |||||||
Corporate/Other | (257 | ) | (299 | ) | 14 | (463 | ) | (791 | ) | 41 | |||||||||
Total Net Revenues | $ | 22,393 | $ | 21,422 | 5 | % | $ | 74,482 | $ | 65,787 | 13 | % | |||||||
(THIS PAGE INTENTIONALLY LEFT BLANK)Citigroup Revenues—Regional View
| | Three Months Ended September 30, | | Nine Months Ended September | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % of Total(1) | % Change | % Change | ||||||||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||||||||||
U.S.(2) | |||||||||||||||||||||
Global Consumer | $ | 7,824 | $ | 7,767 | 1 | % | $ | 23,318 | $ | 22,567 | 3 | % | |||||||||
Markets & Banking | 37 | 2,007 | (98 | ) | 6,792 | 7,733 | (12 | ) | |||||||||||||
Global Wealth Management | 2,454 | 2,153 | 14 | 7,278 | 6,456 | 13 | |||||||||||||||
TotalU.S. | 46 | % | $ | 10,315 | $ | 11,927 | (12 | )% | $ | 37,388 | $ | 36,756 | 2 | % | |||||||
Mexico | |||||||||||||||||||||
Global Consumer | $ | 1,404 | $ | 1,238 | 13 | % | $ | 4,135 | $ | 3,579 | 16 | % | |||||||||
Markets & Banking | 247 | 197 | 25 | 657 | 582 | 13 | |||||||||||||||
Global Wealth Management | 38 | 32 | 19 | 115 | 96 | 20 | |||||||||||||||
TotalMexico | 7 | % | $ | 1,689 | 1,467 | 15 | % | $ | 4,907 | $ | 4,257 | 15 | % | ||||||||
EMEA | |||||||||||||||||||||
Global Consumer | $ | 1,738 | $ | 1,353 | 28 | % | $ | 4,802 | $ | 3,983 | 21 | % | |||||||||
Markets & Banking | 1,398 | 2,166 | (33 | ) | 7,218 | 6,505 | 11 | ||||||||||||||
Global Wealth Management | 139 | 83 | 67 | 384 | 241 | 59 | |||||||||||||||
TotalEMEA | 15 | % | 3,275 | $ | 3,602 | (8 | )% | $ | 12,404 | $ | 10,729 | 16 | % | ||||||||
Japan | |||||||||||||||||||||
Global Consumer | $ | 649 | $ | 782 | (17 | )% | $ | 1,944 | $ | 2,364 | (18 | )% | |||||||||
Markets & Banking | 133 | 177 | (25 | ) | 798 | 742 | 8 | ||||||||||||||
Global Wealth Management | 547 | — | — | 833 | — | — | |||||||||||||||
TotalJapan | 6 | % | $ | 1,329 | $ | 959 | 39 | % | $ | 3,575 | $ | 3,106 | 15 | % | |||||||
Asia | |||||||||||||||||||||
Global Consumer | $ | 1,520 | $ | 1,209 | 26 | % | $ | 4,343 | $ | 3,642 | 19 | % | |||||||||
Markets & Banking | 1,822 | 1,080 | 69 | 4,861 | 3,274 | 48 | |||||||||||||||
Global Wealth Management | 277 | 171 | 62 | 753 | 532 | 42 | |||||||||||||||
TotalAsia | 16 | % | $ | 3,619 | $ | 2,460 | 47 | % | $ | 9,957 | $ | 7,448 | 34 | % | |||||||
Latin America | |||||||||||||||||||||
Global Consumer | $ | 1,548 | $ | 485 | NM | $ | 2,909 | $ | 1,282 | NM | |||||||||||
Markets & Banking | 696 | 440 | 58 | % | 1,925 | 1,271 | 51 | % | |||||||||||||
Global Wealth Management | 54 | 47 | 15 | 161 | 136 | 18 | |||||||||||||||
TotalLatin America | 10 | % | $ | 2,298 | $ | 972 | NM | $ | 4,995 | $ | 2,689 | 86 | % | ||||||||
Alternative Investments | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | |||||||||
Corporate/Other | (257 | ) | (299 | ) | 14 | (463 | ) | (791 | ) | 41 | |||||||||||
Total Net Revenues | $ | 22,393 | $ | 21,422 | 5 | % | $ | 74,482 | $ | 65,787 | 13 | % | |||||||||
Total International | 54 | % | $ | 12,210 | $ | 9,460 | 29 | % | $ | 35,838 | $ | 28,229 | 27 | % | |||||||
Citigroup's Global Consumer Group provides a wide array of banking, lending, insurance and investment services through a network of 8,1408,294 branches, approximately 19,10019,500 ATMs, 708706 Automated Loan Machines (ALMs), the Internet, telephone and mail, and the Primerica Financial Services salesforce. Global Consumer serves more than 200 million customer accounts, providing products and services to meet the financial needs of both individuals and small businesses.
| First Quarter | % Change | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | % Change | ||||||||||||||||||||||||
2007 | 2006 | 1Q07 vs. 1Q06 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||
Net interest revenue | $ | 7,644 | $ | 7,224 | 6 | % | $ | 8,285 | $ | 7,523 | 10 | % | $ | 24,118 | $ | 22,228 | 9 | % | ||||||||
Non-interest revenue | 5,462 | 4,731 | 15 | 6,398 | 5,311 | 20 | 17,333 | 15,189 | 14 | |||||||||||||||||
Revenues, net of interest expense | $ | 13,106 | $ | 11,955 | 10 | % | $ | 14,683 | $ | 12,834 | 14 | % | $ | 41,451 | $ | 37,417 | 11 | % | ||||||||
Operating expenses | 6,760 | 6,357 | 6 | 7,506 | 6,316 | 19 | 21,329 | 19,052 | 12 | |||||||||||||||||
Provisions for loan losses and for benefits and claims | 2,686 | 1,668 | 61 | 4,801 | 1,994 | NM | 10,256 | 5,311 | 93 | |||||||||||||||||
Income before taxes and minority interest | $ | 3,660 | $ | 3,930 | (7 | )% | $ | 2,376 | $ | 4,524 | (47 | )% | $ | 9,866 | $ | 13,054 | (24 | )% | ||||||||
Income taxes | 1,017 | 847 | 20 | 568 | 1,312 | (57 | ) | 2,689 | 3,559 | (24 | ) | |||||||||||||||
Minority interest, net of taxes | 10 | 10 | — | 25 | 17 | 47 | 65 | 50 | 30 | |||||||||||||||||
Net income | $ | 2,633 | $ | 3,073 | (14 | )% | $ | 1,783 | $ | 3,195 | (44 | )% | $ | 7,112 | $ | 9,445 | (25 | )% | ||||||||
Average assets(in billions of dollars) | $ | 709 | $ | 561 | 26 | % | $ | 741 | $ | 620 | 20 | % | $ | 731 | $ | 586 | 25 | % | ||||||||
Return on assets | 1.51 | % | 2.22 | % | 0.95 | % | 2.04 | % | 1.30 | % | 2.15 | % | ||||||||||||||
Average risk capital(1) | $ | 31,653 | $ | 27,714 | 14 | % | $ | 32,852 | $ | 27,938 | 18 | % | $ | 32,701 | $ | 27,725 | 18 | % | ||||||||
Return on risk capital(1) | 34 | % | 45 | % | 22 | % | 45 | % | 29 | % | 46 | % | ||||||||||||||
Return on invested capital(1) | 17 | % | 21 | % | 11 | % | 21 | % | 15 | % | 21 | % | ||||||||||||||
Key Indicators—(in billions of dollars) | ||||||||||||||||||||||||||
Average managed loans | $ | 566.0 | $ | 509.0 | 11 | % | ||||||||||||||||||||
Average loans | $ | 502.6 | $ | 440.1 | 14 | % | ||||||||||||||||||||
Average deposits | $ | 273.4 | $ | 243.6 | 12 | % | $ | 298.6 | $ | 253.9 | 18 | |||||||||||||||
EOP AUMs | $ | 222.2 | $ | 199.2 | 12 | % | ||||||||||||||||||||
Total branches | 8,140 | 7,440 | 9 | % | 8,294 | 7,933 | 5 | % | ||||||||||||||||||
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U.S. Consumer is composed of four businesses:Cards, Retail Distribution, Consumer Lending andCommercial Business.
| First Quarter | % Change | |||||||
---|---|---|---|---|---|---|---|---|---|
In millions of dollars | |||||||||
2007 | 2006 | 1Q07 vs. 1Q06 | |||||||
Net interest revenue | $ | 4,185 | $ | 4,138 | 1 | % | |||
Non-interest revenue | 3,529 | 3,122 | 13 | ||||||
Revenues, net of interest expense | $ | 7,714 | $ | 7,260 | 6 | % | |||
Operating expenses | 3,629 | 3,569 | 2 | ||||||
Provisions for loan losses and for benefits and claims | 1,470 | 901 | 63 | ||||||
Income before taxes and minority interest | $ | 2,615 | $ | 2,790 | (6 | )% | |||
Income taxes | 842 | 777 | 8 | ||||||
Minority interest, net of taxes | 8 | 9 | (11 | ) | |||||
Net income | $ | 1,765 | $ | 2,004 | (12 | )% | |||
Average assets(in billions of dollars) | $ | 499 | $ | 379 | 32 | % | |||
Return on assets | 1.43 | % | 2.14 | % | |||||
Average risk capital(1) | $ | 17,806 | $ | 15,069 | 18 | % | |||
Return on risk capital(1) | 40 | % | 54 | % | |||||
Return on invested capital(1) | 20 | % | 24 | % | |||||
Key Indicators—(in billions of dollars) | |||||||||
Average managed loans | $ | 440.0 | $ | 400.8 | 10 | % | |||
Average deposits | $ | 119.2 | $ | 99.1 | 20 | % | |||
EOP AUMs | $ | 83.3 | $ | 75.0 | 11 | % | |||
Total branches | 3,488 | 3,205 | 9 | % | |||||
U.S. Cards is one of the largest providers of credit cards in North America, with more than 150 million customer accountswhich operate in the United States,U.S., Canada and Puerto Rico. In addition to MasterCard (including Diners), Visa, and American Express,U.S. Cards is the largest provider of credit card services to the oil and gas industry and the leading provider of consumer private-label credit cards and commercial accounts on behalf of merchants such as The Home Depot, Federated, Sears, Dell Computer, Radio Shack, Staples and Zales Corporation.
Revenues are primarily generated from net interest revenue on receivables, interchange fees on purchase sales, securitization activities and other delinquency and servicing fees.
| First Quarter | % Change | |||||||
---|---|---|---|---|---|---|---|---|---|
In millions of dollars | |||||||||
2007 | 2006 | 1Q07 vs. 1Q06 | |||||||
Net interest revenue | $ | 1,031 | $ | 1,193 | (14 | )% | |||
Non-interest revenue | 2,263 | 2,041 | 11 | ||||||
Revenues, net of interest expense | $ | 3,294 | $ | 3,234 | 2 | % | |||
Operating expenses | 1,485 | 1,532 | (3 | ) | |||||
Provision for loan losses and for benefits and claims | 416 | 395 | 5 | ||||||
Income before taxes and minority interest | $ | 1,393 | $ | 1,307 | 7 | % | |||
Income taxes and minority interest, net of taxes | 496 | 381 | 30 | ||||||
Net income | $ | 897 | $ | 926 | (3 | )% | |||
Average assets(in billions of dollars) | $ | 63 | $ | 63 | — | ||||
Return on assets | 5.77 | % | 5.96 | % | |||||
Average risk capital(1) | $ | 5,452 | $ | 5,563 | (2 | )% | |||
Return on risk capital(1) | 67 | % | 68 | % | |||||
Return on invested capital(1) | 28 | % | 28 | % | |||||
Key indicators—on a managed basis: (in billions of dollars) | |||||||||
Return on managed assets | 2.37 | % | 2.59 | % | |||||
Purchase sales | $ | 72.4 | $ | 68.4 | 6 | % | |||
Managed average yield(2) | 14.22 | % | 14.16 | % | |||||
Managed net interest margin(2) | 10.11 | % | 10.48 | % | |||||
1Q07 vs. 1Q06
Net Interest Revenue decreased 14% reflecting the securitization of higher margin receivables and net interest margin compression, which was partially offset by higher risk-based fees.Non-Interest Revenue increased 11% primarily reflecting a $161 million pre-tax gain on the sale of MasterCard shares, 6% growth in purchase sales, and a higher level of securitized receivables.
Operating expenses decreased slightly, primarily reflecting the timing of advertising and marketing campaigns and the absence of the charge related to the 2006 initial adoption of SFAS 123(R).
Provision for loan losses and for benefits and claims increased, primarily reflecting a lower loan loss reserve release, partially offset by lower net credit losses. The net credit loss ratio increased 31 basis points to 4.58% primarily reflecting an increase in bankruptcy filings over unusually low filing levels experienced in the first quarter of 2006.
Net Income also reflected the absence of an $89 million tax benefit resulting from the resolution of the Federal Tax Audit from the first quarter of 2006.
U.S. Retail Distribution provides banking, lending, investment and insurance products and services to customers through 993 Citibank branches, 2,495 CitiFinancial branches, the Primerica Financial Services (PFS) sales force, the Internet, direct mail and telesales. Revenues are primarily derived from net interest revenue on loans and deposits, and fees on banking, insurance and investment products.
| First Quarter | % Change | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | 1Q07 vs. 1Q06 | |||||||
Net interest revenue | $ | 1,529 | $ | 1,451 | 5 | % | ||||
Non-interest revenue | 897 | 845 | 6 | |||||||
Revenues, net of interest expense | $ | 2,426 | $ | 2,296 | 6 | % | ||||
Operating expenses | 1,323 | 1,221 | 8 | |||||||
Provisions for loan losses and for benefits and claims | 522 | 387 | 35 | |||||||
Income before taxes | $ | 581 | $ | 688 | (16 | )% | ||||
Income taxes | 193 | 173 | 12 | |||||||
Net income | $ | 388 | $ | 515 | (25 | )% | ||||
Revenues, net of interest expense, by business: | ||||||||||
Citibank branches | $ | 781 | $ | 737 | 6 | % | ||||
CitiFinancial branches | 1,064 | 1,008 | 6 | |||||||
Primerica Financial Services | 581 | 551 | 5 | |||||||
Total revenues | $ | 2,426 | $ | 2,296 | 6 | % | ||||
Net income by business: | ||||||||||
Citibank branches | $ | 42 | $ | 100 | (58 | )% | ||||
CitiFinancial branches | 215 | 265 | (19 | ) | ||||||
Primerica Financial Services | 131 | 150 | (13 | ) | ||||||
Total net income | $ | 388 | $ | 515 | (25 | )% | ||||
Average assets (in billions of dollars) | $ | 74 | $ | 66 | 12 | % | ||||
Return on assets | 2.13 | % | 3.16 | % | ||||||
Average risk capital(1) | $ | 3,414 | $ | 3,459 | (1 | )% | ||||
Return on risk capital(1) | 46 | % | 60 | % | ||||||
Return on invested capital(1) | 18 | % | 23 | % | ||||||
Key indicators: (in billions of dollars) | ||||||||||
Average loans | $ | 47.6 | $ | 42.5 | 12 | % | ||||
Average deposits | $ | 98.2 | $ | 80.3 | 22 | % | ||||
EOP Investment AUMs | $ | 83.3 | $ | 75.0 | 11 | % | ||||
1Q07 vs. 1Q06
Net Interest Revenue increased primarily due to deposit and loan growth of 22% and 12%, respectively, which was partially offset by a decrease in net interest margin in higher cost deposits.Non-Interest Revenue increased as a result of higher investment product sales and higher insurance and banking fees.
Operating expense growth was primarily driven by higher volume-related expenses, increased investment spending related to the 51 new branch openings during the quarter (21 in Citibank and 30 in CitiFinancial), and costs associated with Citibank Direct. The increase in 2007 was affected favorably by the absence of the charge related to the 2006 initial adoption of SFAS 123(R).
Provisions for loan losses and for benefits and claims increased primarily due to higher customer volumes and the absence of a loan loss reserve release in the first quarter of 2006. The net credit loss ratio increased 19 basis points to 2.85%, primarily reflecting an increase in bankruptcy filings over unusually low filing levels experienced in the first quarter of 2006.
Deposit growth reflected balance increases in e-Savings accounts (which generated $12.9 billion in end-of-period deposits), certificates of deposit, partly rate-sensitive money market products and premium checking. Loan growth reflected improvements in all channels and products. Investment product sales increased 21%, driven by increased volumes.
Net income also reflected the absence of a $51 million tax reserve release resulting from the resolution of the Federal Tax Audit in the first quarter of 2006.
U.S. Consumer Lending provides home mortgages and home equity loans to prime and non-prime customers, auto financing to non-prime consumers and educational loans to students. Loans are originated throughout the United States and Canada through the Citibank, CitiFinancial andSmith Barney branch networks, Primerica Financial Services agents, third-party brokers, direct mail, the Internet and telesales. Loans are also purchased in the wholesale markets.U.S. Consumer Lending also provides mortgage servicing to a portfolio of mortgage loans owned by third parties. Revenues are composed of loan fees, net interest revenue and mortgage servicing fees.
| | First Quarter | % Change | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | % Change | % Change | |||||||||||||||||||||||||
In millions of dollars | 2007 | 2006 | 1Q07 vs. 1Q06 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||
Net interest revenue | Net interest revenue | $ | 1,350 | $ | 1,207 | 12 | % | $ | 4,252 | $ | 4,141 | 3 | % | $ | 12,722 | $ | 12,468 | 2 | % | ||||||||
Non-interest revenue | Non-interest revenue | 201 | 53 | NM | 3,580 | 3,663 | (2 | ) | 10,602 | 10,169 | 4 | ||||||||||||||||
Revenues, net of interest expense | Revenues, net of interest expense | $ | 1,551 | $ | 1,260 | 23 | % | $ | 7,832 | $ | 7,804 | — | $ | 23,324 | $ | 22,637 | 3 | % | |||||||||
Operating expenses | Operating expenses | 491 | 453 | 8 | 3,710 | 3,426 | 8 | % | 10,983 | 10,546 | 4 | ||||||||||||||||
Provisions for loan losses and for benefits and claims | Provisions for loan losses and for benefits and claims | 503 | 143 | NM | 2,700 | 962 | NM | 5,674 | 2,690 | NM | |||||||||||||||||
Income before taxes and minority interest | Income before taxes and minority interest | $ | 557 | $ | 664 | (16 | )% | $ | 1,422 | $ | 3,416 | (58 | )% | $ | 6,667 | $ | 9,401 | (29 | )% | ||||||||
Income taxes | Income taxes | 190 | 218 | (13 | ) | 413 | 1,162 | (64 | ) | 2,100 | 3,060 | (31 | ) | ||||||||||||||
Minority interest, net of taxes | Minority interest, net of taxes | 8 | 9 | (11 | ) | 5 | 16 | (69 | ) | 27 | 45 | (40 | ) | ||||||||||||||
Net income | Net income | $ | 359 | $ | 437 | (18 | )% | $ | 1,004 | $ | 2,238 | (55 | )% | $ | 4,540 | $ | 6,296 | (28 | )% | ||||||||
Revenues, net of interest expense, by business: | |||||||||||||||||||||||||||
Real Estate Lending | $ | 1,090 | $ | 843 | 29 | % | |||||||||||||||||||||
Student Loans | 112 | 117 | (4 | ) | |||||||||||||||||||||||
Auto | 349 | 300 | 16 | ||||||||||||||||||||||||
Total revenues | $ | 1,551 | $ | 1,260 | 23 | % | |||||||||||||||||||||
Net income by business: | |||||||||||||||||||||||||||
Real Estate Lending | $ | 297 | $ | 328 | (9 | )% | |||||||||||||||||||||
Student Loans | 29 | 38 | (24 | ) | |||||||||||||||||||||||
Auto | 33 | 71 | (54 | ) | |||||||||||||||||||||||
Total net income | $ | 359 | $ | 437 | (18 | )% | |||||||||||||||||||||
Average assets (in billions of dollars) | $ | 313 | $ | 209 | 50 | % | |||||||||||||||||||||
Average assets(in billions of dollars) | $ | 493 | $ | 422 | 17 | % | $ | 501 | $ | 398 | 26 | % | |||||||||||||||
Return on assets | Return on assets | 0.47 | % | 0.85 | % | 0.81 | % | 2.10 | % | 1.21 | % | 2.12 | % | ||||||||||||||
Average risk capital(1) | Average risk capital(1) | $ | 6,256 | $ | 3,732 | 68 | % | $ | 17,220 | $ | 15,312 | 12 | % | $ | 17,748 | $ | 15,059 | 18 | % | ||||||||
Return on risk capital(1) | Return on risk capital(1) | 23 | % | 47 | % | 23 | % | 58 | % | 34 | % | 56 | % | ||||||||||||||
Return on invested capital(1) | Return on invested capital(1) | 16 | % | 27 | % | 11 | % | 26 | % | 17 | % | 25 | % | ||||||||||||||
Key Indicators—(in billions of dollars) | |||||||||||||||||||||||||||
Average loans | $ | 353.4 | $ | 324.0 | 9 | % | |||||||||||||||||||||
Average deposits | $ | 122.9 | $ | 105.5 | 16 | % | |||||||||||||||||||||
Total branches | 3,482 | 3,353 | 4 | % | |||||||||||||||||||||||
U.S. Consumer Lending (Continued)
| First Quarter | % Change | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 1Q07 vs. 1Q06 | |||||||
Key indicators: (in billions of dollars) | ||||||||||
Net interest margin:(2) | ||||||||||
Real Estate Lending(3) | 1.89 | % | 2.13 | % | ||||||
Student Loans | 1.53 | % | 1.71 | % | ||||||
Auto | 8.18 | % | 9.22 | % | ||||||
Originations: | ||||||||||
Real Estate Lending | $ | 39.6 | $ | 32.4 | 22 | % | ||||
Student Loans | $ | 2.8 | $ | 2.9 | (3 | )% | ||||
Auto | $ | 3.1 | $ | 2.0 | 55 | |||||
1Q073Q07 vs. 1Q063Q06
Net Interest Revenue increased primarilywas 3% higher than the prior year, as growth in average deposits and loans of 16% and 9%, respectively, was partially offset by a decrease in net interest margins (interest revenue less interest expense divided by average interest-earning assets). Net interest margin declined due to average loan growtha shift in customer deposits to higher cost direct bank and time deposit balances, a mix toward lower-yielding mortgage assets, and the securitization of 16%,higher margin credit card receivables, partially offset by lower net interest margins.promotional credit card receivable balances.
Non-Interest Revenue increaseddecreased 2% primarily due to the absence of pilot-year gain on higher net servicing feessale of Mortgage-Backed Securities (MBS) inConsumer Lending, and higherlower securitization gains on sales of mortgage-backed securities. Average loan growth reflectedand a strong increasedecline in originations, with increasesthe residual interest in real estate and auto lending of 22% and 55%, respectively.Cards.
Operating expenses increased primarily due to higher loan origination volumes. The increaseacquisitions and increased investment spending, including 49 new branch openings during the quarter (35 in 2007 was affected favorably byCitiFinancial and 14 in Citibank) and lower marketing spending in the absence of the charge related to the 2006 initial adoption of SFAS 123(R).prior year.
Provisions for loan losses and for benefits and claims increased substantially primarily reflecting weakening credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as a result of increased net credit losses due to higher volumeswell as trends in the U.S. macro-economic environment and portfolio seasoning, increased loan loss reserves to reflect athe change in estimate of loan losses. The increase in provision for loan losses inherentalso reflected the absence of loan loss reserve releases recorded in the initial tenor portion of the portfolio, and increased delinquencies in second mortgages.prior year. The net credit loss ratio in real estate lending increased 1422 basis points to 0.33%1.37%.
TheNet incomeIncome decline also reflected the absence of a $31the 2006 third quarter $54 million tax reserve releasebenefit resulting from the resolution of the Federal2006 New York Tax AuditAudits.
2007 YTD vs. 2006 YTD
Net Interest Revenue was 2% better than the prior year, as growth in average deposits and loans of 19% and 9%, respectively, and higher risk-based fees in Cards, was partially offset by a decrease in net interest margin. Net interest margin declined due to a shift in customer deposits to higher cost direct bank and time deposit balances and the securitization of higher margin credit card receivables.
Non-Interest Revenue increased 4% primarily due to higher loan and deposit volumes and 6% growth in Card purchase sales. The increase also reflected a pretax gain on the sale of MasterCard shares of $246 million, the impact of the acquisition of ABN AMRO Mortgage Group in the first quarter of 2006.
2007, and growth in net servicing revenues. Second quarter of 2006 results also included $132 million pretax gain from the sale of upstate New York branches.
U.S. Commercial BusinessOperating expenses provides equipment leasing, financing, and banking servicesincreased primarily due to small- and middle-market businesses ($5 million to $500 million in annual revenues) and financing for investor-owned multifamily and commercial properties. Revenues are composed of net interest revenue and fees on loans and leases.
| First Quarter | % Change | |||||||
---|---|---|---|---|---|---|---|---|---|
In millions of dollars | |||||||||
2007 | 2006 | 1Q07 vs. 1Q06 | |||||||
Net interest revenue | $ | 275 | $ | 287 | (4 | )% | |||
Non-interest revenue | 168 | 183 | (8 | ) | |||||
Revenues, net of interest expense | $ | 443 | $ | 470 | (6 | )% | |||
Operating expenses | 330 | 363 | (9 | ) | |||||
Provision for loan losses | 29 | (24 | ) | NM | |||||
Income before taxes | $ | 84 | $ | 131 | (36 | )% | |||
Income taxes | (37 | ) | 5 | NM | |||||
Net income | $ | 121 | $ | 126 | (4 | )% | |||
Average assets(in billions of dollars) | $ | 49 | $ | 41 | 20 | % | |||
Return on assets | 1.00 | % | 1.25 | % | |||||
Average risk capital(1) | $ | 2,684 | $ | 2,315 | 16 | ||||
Return on risk capital(1) | 18 | % | 22 | % | |||||
Return on invested capital(1) | 10 | % | 11 | % | |||||
Key indicators:(in billions of dollars): | |||||||||
Average earning assets | $ | 38.5 | $ | 35.7 | 8 | % | |||
1Q07 vs. 1Q06
Net Interest Revenue declined 4% on continued net interest margin compression across several products, partially offset by higher volumes. Average deposits124 new branch openings during the nine months of 2007 (80 in CitiFinancial and average loans increased 12%44 in Citibank) and 8% respectively, while both experienced spread compression. Revenues also reflect ancosts associated with Citibank Direct. The increase in tax-advantaged transactions.
Operating expenses declined 9% primarily driven2007 was also favorably affected by improved expense controls and the prior-year impactabsence of the charge related to the initial adoption of SFAS 123(R) in the first quarter of $10 million.2006. Higher volume-related expenses primarily reflected 14% growth in loan originations in Consumer Lending businesses.
ProvisionProvisions for loan losses and for benefits and claimsincreased primarily reflecting a current periodportfolio growth and weakening credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment and the change in estimate of loan losses. The increase in provision for loan losses also reflects the absence of loan loss reserve releases recorded in the prior year, as well as an increase in bankruptcy filings in 2007 versus unusually low filing levels experienced in the first three quarters of 2006. The net build of $10 million andcredit loss ratio increased 14 basis points to 1.31%.
TheNet income decline in 2007 also reflects the absence of a prior-year loan loss reserve release$229 million tax benefit resulting from the resolution of $38 million.the 2006 Tax Audits.
International Consumer is comprisedcomposed of three businesses:Cards,Consumer Finance andRetail Banking. International Consumer operates in five geographies:regions:Mexico,Latin America,EMEA,Japan, andAsia.
| First Quarter | % Change | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||
2007 | 2006 | 1Q07 vs. 1Q06 | ||||||||
Net interest revenue | $ | 3,489 | $ | 3,133 | 11 | % | ||||
Non-interest revenue | 1,899 | 1,576 | 20 | |||||||
Revenues, net of interest expense | $ | 5,388 | $ | 4,709 | 14 | % | ||||
Operating expenses | 2,976 | 2,621 | 14 | |||||||
Provisions for loan losses and for benefits and claims | 1,216 | 767 | 59 | |||||||
Income before taxes and minority interest | $ | 1,196 | $ | 1,321 | (9 | )% | ||||
Income taxes | 241 | 184 | 31 | |||||||
Minority interest, net of taxes | 2 | 1 | 100 | |||||||
Net income | $ | 953 | $ | 1,136 | (16 | )% | ||||
Revenues, net of interest expense, by region: | ||||||||||
Mexico | $ | 1,377 | $ | 1,149 | 20 | % | ||||
Latin America | 591 | 326 | 81 | |||||||
EMEA | 1,446 | 1,270 | 14 | |||||||
Japan | 615 | 775 | (21 | ) | ||||||
Asia | 1,359 | 1,189 | 14 | |||||||
Total revenues | $ | 5,388 | $ | 4,709 | 14 | % | ||||
Net income by region | ||||||||||
Mexico | $ | 372 | $ | 358 | 4 | % | ||||
Latin America | 70 | 58 | 21 | |||||||
EMEA | 83 | 185 | (55 | ) | ||||||
Japan | 45 | 188 | (76 | ) | ||||||
Asia | 383 | 347 | 10 | |||||||
Total net income | $ | 953 | $ | 1,136 | (16 | )% | ||||
Average assets(in billions of dollars) | $ | 199 | $ | 173 | 15 | % | ||||
Return on assets | 1.94 | % | 2.66 | % | ||||||
Average risk capital(1) | $ | 13,847 | $ | 12,645 | 10 | % | ||||
Return on risk capital(1) | 28 | % | 36 | % | ||||||
Return on invested capital(1) | 14 | % | 18 | % | ||||||
Key indicators—(in billions of dollars) | ||||||||||
Average managed loans | $ | 126.0 | $ | 108.2 | 16 | % | ||||
Average deposits | $ | 154.2 | $ | 144.5 | 7 | % | ||||
EOP AUMs | $ | 138.9 | $ | 124.2 | 12 | % | ||||
Total branches | 4,652 | 4,235 | 10 | % | ||||||
International Cards provides MasterCard, Visa and Diners branded credit and charge cards, as well as private label cards and co-branded cards, to more than 30 million customer accounts in 43 countries outside of the U.S. and Canada. Revenues are primarily generated from net interest revenue on receivables, interchange fees on purchase sales and other delinquency and servicing fees.
| | First Quarter | % Change | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % Change | % Change | |||||||||||||||||||||||||
In millions of dollars | 2007 | 2006 | 1Q07 vs. 1Q06 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
Net interest revenue | Net interest revenue | $ | 1,121 | $ | 773 | 45 | % | Net interest revenue | $ | 4,072 | $ | 3,445 | 18 | % | $ | 11,499 | $ | 9,921 | 16 | % | ||||||||
Non-interest revenue | Non-interest revenue | 618 | 507 | 22 | Non-interest revenue | 2,787 | 1,622 | 72 | 6,634 | 4,929 | 35 | |||||||||||||||||
Revenues, net of interest expense | Revenues, net of interest expense | $ | 1,739 | $ | 1,280 | 36 | % | Revenues, net of interest expense | $ | 6,859 | $ | 5,067 | 35 | % | $ | 18,133 | $ | 14,850 | 22 | % | ||||||||
Operating expenses | Operating expenses | 819 | 617 | 33 | Operating expenses | 3,627 | 2,769 | 31 | 9,867 | 8,091 | 22 | �� | ||||||||||||||||
Provision for loan losses | 406 | 312 | 30 | |||||||||||||||||||||||||
Provisions for loan losses and for benefits and claims | Provisions for loan losses and for benefits and claims | 2,101 | 1,032 | NM | 4,582 | 2,621 | 75 | |||||||||||||||||||||
Income before taxes and minority interest | Income before taxes and minority interest | $ | 514 | $ | 351 | 46 | % | Income before taxes and minority interest | $ | 1,131 | $ | 1,266 | (11 | )% | $ | 3,684 | $ | 4,138 | (11 | )% | ||||||||
Income taxes and minority interest | 126 | 60 | NM | |||||||||||||||||||||||||
Income taxes | Income taxes | 232 | 227 | 2 | 798 | 744 | 7 | |||||||||||||||||||||
Minority interest, net of taxes | Minority interest, net of taxes | 20 | 1 | NM | 38 | 5 | NM | |||||||||||||||||||||
Net income | Net income | $ | 388 | $ | 291 | 33 | % | Net income | $ | 879 | $ | 1,038 | (15 | )% | $ | 2,848 | $ | 3,389 | (16 | )% | ||||||||
Revenues, net of interest expense, by region: | Revenues, net of interest expense, by region: | Revenues, net of interest expense, by region: | ||||||||||||||||||||||||||
Mexico | $ | 530 | $ | 405 | 31 | % | Mexico | $ | 1,404 | $ | 1,238 | 13 | % | $ | 4,135 | $ | 3,579 | 16 | % | |||||||||
Latin America | 326 | 96 | NM | EMEA | 1,738 | 1,353 | 28 | 4,802 | 3,983 | 21 | ||||||||||||||||||
EMEA | 375 | 294 | 28 | Japan—Cards and Retail Banking | 368 | 195 | 89 | 871 | 571 | 53 | ||||||||||||||||||
Japan | 62 | 70 | (11 | ) | Asia | 1,520 | 1,209 | 26 | 4,343 | 3,642 | 19 | |||||||||||||||||
Asia | 446 | 415 | 7 | Latin America | 1,548 | 485 | NM | 2,909 | 1,282 | NM | ||||||||||||||||||
Subtotal | Subtotal | $ | 6,578 | $ | 4,480 | 47 | % | $ | 17,060 | $ | 13,057 | 31 | % | |||||||||||||||
Japan Consumer Finance | $ | 281 | $ | 587 | (52 | ) | $ | 1,073 | $ | 1,793 | (40 | ) | ||||||||||||||||
Total revenues | Total revenues | $ | 1,739 | $ | 1,280 | 36 | % | Total revenues | $ | 6,859 | $ | 5,067 | 35 | % | $ | 18,133 | $ | 14,850 | 22 | % | ||||||||
Net income by region: | ||||||||||||||||||||||||||||
Net income by region | Net income by region | |||||||||||||||||||||||||||
Mexico | $ | 169 | $ | 149 | 13 | % | Mexico | $ | 244 | $ | 395 | (38 | )% | $ | 976 | $ | 1,128 | (13 | )% | |||||||||
Latin America | 66 | 35 | 89 | EMEA | 58 | 213 | (73 | ) | 289 | 613 | (53 | ) | ||||||||||||||||
EMEA | 46 | 32 | 44 | Japan—Cards and Retail Banking | 64 | 42 | 52 | 165 | 139 | 19 | ||||||||||||||||||
Japan | 9 | 21 | (57 | ) | Asia | 334 | 328 | 2 | 1,143 | 1,034 | 11 | |||||||||||||||||
Latin America | 467 | 23 | NM | 587 | 169 | NM | ||||||||||||||||||||||
Subtotal | Subtotal | $ | 1,167 | $ | 1,001 | 17 | % | $ | 3,160 | $ | 3,083 | 2 | % | |||||||||||||||
Asia | 98 | 54 | 81 | Japan Consumer Finance | $ | (288 | ) | $ | 37 | NM | $ | (312 | ) | $ | 306 | NM | ||||||||||||
Total net income | Total net income | $ | 388 | $ | 291 | 33 | % | Total net income | $ | 879 | $ | 1,038 | (15 | )% | $ | 2,848 | $ | 3,389 | (16 | )% | ||||||||
Average assets(in billions of dollars) | Average assets(in billions of dollars) | $ | 38 | $ | 28 | 36 | % | Average assets(in billions of dollars) | $ | 236 | $ | 187 | 26 | % | $ | 219 | $ | 179 | 22 | % | ||||||||
Return on assets | Return on assets | 4.14 | % | 4.21 | % | Return on assets | 1.48 | % | 2.20 | % | 1.74 | % | 2.53 | % | ||||||||||||||
Average risk capital(1) | Average risk capital(1) | $ | 2,537 | $ | 2,073 | 22 | % | Average risk capital(1) | $ | 15,632 | $ | 12,626 | 24 | % | $ | 14,953 | $ | 12,665 | 18 | % | ||||||||
Return on risk capital(1) | Return on risk capital(1) | 62 | % | 57 | % | Return on risk capital(1) | 22 | % | 33 | % | 25 | % | 36 | % | ||||||||||||||
Return on invested capital(1) | Return on invested capital(1) | 26 | % | 27 | % | Return on invested capital(1) | 11 | % | 16 | % | 13 | % | 17 | % | ||||||||||||||
Key indicators: (in billions of dollars): | ||||||||||||||||||||||||||||
Purchase sales | $ | 21.7 | $ | 17.4 | 25 | % | ||||||||||||||||||||||
Average yield(2) | 19.58 | % | 18.61 | % | ||||||||||||||||||||||||
Net interest margin(2) | 14.57 | % | 12.90 | % | ||||||||||||||||||||||||
Key indicators—(in billions of dollars) | Key indicators—(in billions of dollars) | |||||||||||||||||||||||||||
Average loans | Average loans | $ | 149.2 | $ | 116.1 | 29 | % | |||||||||||||||||||||
Average deposits | Average deposits | $ | 175.7 | $ | 148.4 | 18 | % | |||||||||||||||||||||
EOP AUMs | EOP AUMs | $ | 158.9 | $ | 123.1 | 29 | % | |||||||||||||||||||||
Total branches | Total branches | 4,812 | 4,580 | 5 | % | |||||||||||||||||||||||
1Q073Q07 vs. 1Q063Q06
Net Interest Revenue increased 45%18%. Growth was driven by growth inhigher average receivables,deposits and loans of 18% and 29%, respectively, as well as the CrediCard portfolio inLatin America, and the impact of the acquisitionacquisitions of Grupo Financiero Uno.Uno (GFU), Egg and Grupo Cuscatlan.
Non-Interest Revenue increased 22%72%, primarily due to a $66 million pre-taxthe gain on the sale of MasterCardRedecard shares and higher$(729 million pretax), a 37% increase in Card purchase sales of 25%, led by growth inLatin America,Asia, andEMEA. increased investment product sales. The positive impact of foreign currency translation also contributed to increases in revenues.
Operating expenses increased 31%, reflecting the acquisitions of GFU, Grupo Cuscatlan and Egg, and an increase in ownership in Nikko Cordial. Expense growth also reflects volume growth across the regions (excluding Japan Consumer Finance), the impact of foreign currency translation, write-downs of $152 million on customer intangibles and fixed assets and continued investment spending, including the opening of 47 branches.
Provisions for loan losses and for benefits and claims increased substantially, primarily due to the change in estimate of loan losses, portfolio growth, and the impact of recent acquisitions.
Net income was affected, in part, by the absence of the 2006 third quarter $24 million tax benefit resulting from the resolution of the 2006 New York Tax Audits.
Net income in Japan Consumer Finance declined significantly due to charges to increase reserves for customer refunds and credit losses, higher expenses due to write-downs on customer intangibles and fixed assets, and a decline in revenues primarily due to lower receivable balances. Financial results reflect recent adverse changes in the operating environment and the impact of consumer lending laws passed in the fourth quarter 2006.
Given the Company's recent experience with the level of Grey Zone related issues, the Company anticipates that the business will have net losses in 2007. The Company continues to analyze the prospects for this business thereafter in light of the difficult operating conditions.
Certain of the statements above are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 48.
2007 YTD vs. 2006 YTD
Net Interest Revenue increased 16% overall, 28% after excluding the impact of Japan Consumer Finance. Growth was driven by higher average receivables, as well as the impact of the acquisitions of GFU, Egg, Grupo Cuscatlan and CrediCard, and increased ownership in Nikko Cordial.
Non-Interest Revenue increased 35%, primarily due to the gain on sale of Redecard, a 31% increase in purchase sales, a 19% increase in investment product sales and growth across all regions. The positive impact of foreign currency translation and a pretax MasterCard gain of $53 million also contributed to the increase in revenues.
Operating expenses increased, reflecting the integration of the CrediCard portfolio and the acquisitionacquisitions of GFU, Grupo Financiero Uno,Cuscatlan and Egg, and increased ownership in Nikko Cordial along with volume growth across the products and regions, continued investment spending, higher customer activity, and the impact of foreign currency translation.translation and continued investment spending driven by 316 branches opened or acquired. The increase in 2007 expenses was favorably affected by the absence of the charge related to the 2006 initial adoption of SFASFAS 123(R).
Provision for loan losses increased 30% driven by portfolio growth, target market expansion inMexico and the integration of the CrediCard portfolio inLatin America, partially offset by the absence of a 2006 first quarter loan loss reserve build in Taiwan due to the industry-wide credit deterioration.
Net Income also reflected the absence of a 2006 first quarter $20 million tax benefit resulting from the resolution of the Federal Tax Audit.
Regional Net Income
Mexico income increased due to the gain on the sale of MasterCard shares, higher sales volumes, and average loans driven by portfolio growth and target market expansion, partially offset by higher expenses and volume related provision increases.EMEA income increased due to higher sales volumes and average loans.Latin America income increased primarily due to the CrediCard portfolio and the acquisition of Grupo Financiero Uno.Asia income increased due to higher average loan volumes and a decrease in credit costs related to credit conditions in Taiwan. Japan income declined due to lower revenues.
International Consumer Finance
International Consumer Finance provides community-based lending services through a branch network, centralized sales platforms and cross-selling initiatives withInternational Cards andInternational Retail Banking. As of March 31, 2007,International Consumer Finance maintained 2,377 sales points comprised of 1,669 branches in more than 25 countries, and 708 Automated Loan Machines (ALMs) inJapan.International Consumer Finance offers real-estate-secured loans, unsecured or partially secured personal loans, auto loans, and loans to finance consumer-goods purchases. Revenues are primarily derived from net interest revenue and fees on loan products.
| First Quarter | % Change | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | 1Q07 vs. 1Q06 | ||||||||
Net interest revenue | $ | 838 | $ | 921 | (9 | )% | |||||
Non-interest revenue | 52 | 41 | 27 | ||||||||
Revenues, net of interest expense | $ | 890 | $ | 962 | (7 | )% | |||||
Operating expenses | 407 | 419 | (3 | ) | |||||||
Provision for loan losses and for benefits and claims | 456 | 304 | 50 | ||||||||
Income before taxes and minority interest | $ | 27 | $ | 239 | (89 | )% | |||||
Income taxes | 2 | 71 | (97 | ) | |||||||
Net income | $ | 25 | $ | 168 | (85 | )% | |||||
Revenues, net of interest expense, by region: | |||||||||||
Mexico | $ | 70 | $ | 53 | 32 | % | |||||
EMEA | 203 | 184 | 10 | ||||||||
Asia (excluding Japan) | 140 | 98 | 43 | ||||||||
Latin America | 43 | 36 | 19 | ||||||||
Sub-total | $ | 456 | $ | 371 | 23 | % | |||||
Japan | $ | 434 | $ | 591 | (27 | )% | |||||
Total revenues | $ | 890 | $ | 962 | (7 | )% | |||||
Net income (loss) by region: | |||||||||||
Mexico | $ | 10 | $ | 10 | — | ||||||
EMEA | (3 | ) | 7 | NM | |||||||
Asia (excluding Japan) | 13 | 16 | (19 | )% | |||||||
Latin America | (4 | ) | — | NM | |||||||
Sub-total | $ | 16 | $ | 33 | (52 | )% | |||||
Japan | $ | 9 | $ | 135 | (93 | )% | |||||
Total net income | $ | 25 | $ | 168 | (85 | )% | |||||
Average assets(in billions of dollars) | $ | 29 | $ | 26 | 12 | % | |||||
Return on assets | 0.35 | % | 2.62 | % | |||||||
Average risk capital(1) | $ | 1,187 | $ | 1,165 | 2 | % | |||||
Return on risk capital(1) | 9 | % | 58 | % | |||||||
Return on invested capital(1) | 3 | % | 19 | % | |||||||
International Consumer Finance (Continued)
| First Quarter | % Change | ||||||
---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 1Q07 vs. 1Q06 | |||||
Key indicators: | ||||||||
Average yield(2) | 17.08 | % | 19.06 | % | ||||
Net interest margin(2) | 13.59 | % | 16.67 | % | ||||
Number of sales points: | ||||||||
Other branches | 1,618 | 1,263 | 28 | % | ||||
Japan branches | 51 | 325 | (84 | )% | ||||
Japan Automated Loan Machines | 708 | 731 | (3 | )% | ||||
Total | 2,377 | 2,319 | 3 | % | ||||
1Q07 vs. 1Q06
Net Interest Revenue declined, driven by lower results inJapan reflecting recent changes in the operating environment and the passage of changes to consumer lending laws in the 2006 fourth quarter. ExcludingJapan,Net Interest Revenue increased, driven by 25% growth in average loans and a stable net interest margin.Non-Interest Revenue increased primarily on higher insurance and other fees and the impact of foreign currency translation.
Operating expense decreased, primarily driven by lower expenses inJapan due to the repositioning of the business that included closing 84 branches and 101 automated loan machines during the quarter. ExcludingJapan, expenses increased reflecting higher volume related expenses, and higher investment spending driven by 29 branch openings.
Provision for loan losses increased primarily due to higher net credit losses inJapan due to legislative and other actions affecting the consumer finance industry. ExcludingJapan, increased credit costs were primarily inEMEA andAsia, driven by higher volumes, increased loan loss reserves due to portfolio growth and the absence of a prior-year release related to a portfolio sale.
The increase inaverage loans across all regions outside ofJapan was mainly driven by higher personal-loan and real-estate-secured portfolios. InJapan, average loans declined 6% due to the impact of foreign currency translation and narrowing of the target market related to the passing of changes to consumer lending laws.
International Retail Banking delivers a wide array of banking, lending, insurance and investment services through a network of local branches and electronic delivery systems, including ATMs, call centers and the Internet.International Retail Banking serves 53 million customer accounts for individuals and small businesses. Revenues are primarily derived from net interest revenue on deposits and loans, and fees on mortgage, banking, and investment products.
| First Quarter | % Change | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||
2007 | 2006 | 1Q07 vs. 1Q06 | ||||||||
Net interest revenue | $ | 1,530 | $ | 1,439 | 6 | % | ||||
Non-interest revenue | 1,229 | 1,028 | 20 | |||||||
Revenues, net of interest expense | $ | 2,759 | $ | 2,467 | 12 | % | ||||
Operating expenses | 1,750 | 1,585 | 10 | |||||||
Provisions for loan losses and for benefits and claims | 354 | 151 | NM | |||||||
Income before taxes and minority interest | $ | 655 | $ | 731 | (10 | )% | ||||
Income taxes and minority interest | 115 | 54 | NM | |||||||
Net income | $ | 540 | $ | 677 | (20 | )% | ||||
Revenues, net of interest expense, by region: | ||||||||||
Mexico | $ | 777 | $ | 691 | 12 | % | ||||
Latin America | 222 | 194 | 14 | |||||||
EMEA | 868 | 792 | 10 | |||||||
Japan | 119 | 114 | 4 | |||||||
Asia | 773 | 676 | 14 | |||||||
Total revenues | $ | 2,759 | $ | 2,467 | 12 | % | ||||
Net income by region: | ||||||||||
Mexico | $ | 193 | $ | 199 | (3 | )% | ||||
Latin America | 8 | 23 | (65 | ) | ||||||
EMEA | 40 | 146 | (73 | ) | ||||||
Japan | 27 | 32 | �� | (16 | ) | |||||
Asia | 272 | 277 | (2 | ) | ||||||
Total net income | $ | 540 | $ | 677 | (20 | )% | ||||
Average assets(in billions of dollars) | $ | 132 | $ | 119 | 11 | % | ||||
Return on assets | 1.66 | % | 2.31 | % | ||||||
Average risk capital(1) | $ | 10,123 | $ | 9,407 | 8 | % | ||||
Return on risk capital(1) | 22 | % | 29 | % | ||||||
Return on invested capital(1) | 13 | % | 15 | % | ||||||
International Retail Banking (Continued)
| First Quarter | % Change | |||||||
---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 1Q07 vs. 1Q06 | ||||||
Key indicators:(in billions of dollars): | |||||||||
Average deposits | $ | 154.2 | $ | 144.5 | 7 | % | |||
AUMs (EOP) | $ | 138.9 | $ | 124.2 | 12 | % | |||
Average loans | $ | 69.8 | $ | 61.5 | 13 | % | |||
1Q07 vs. 1Q06
Net Interest Revenue increased 6% driven by 7% growth in deposits, and 13% growth in average loans. The deposit growth was led by Asia, which increased 10%, while average loan growth was led by double-digit increases in Asia, EMEA, and Latin America. The Latin America increase includes the impact of the acquisition of Grupo Financiero Uno.Non-Interest Revenue increased 20% reflecting improvements in all regions, driven by an increase in investment product sales of 33%, led by an increase inAsia of 46%. Additionally, the increase was due to a $41 million pre-tax gain on the sale of MasterCard shares, and the acquisition of Akbank inEMEA. Assets under management grew by 12%.
Operating expenses increased due to higher investment spending, which included 19 new branch openings during the quarter and 85 branches acquired as part of the acquisition of Grupo Financiero Uno, leading towards a net increase of 336 branches from the first quarter of 2006. Higher advertising and marketing costs and higher business volumes additionally drove an increase in expenses. The increase in 2007 was favorably affected by the absence of the charge related to the 2006 initial adoption of SFAS 123(R).
Provisions for loan losses and for benefits and claims increased substantially, primarily due to portfolio growth, higher past due accounts in Mexico cards, the absenceimpact of the 2006 first quarter loan loss reserve release in Korea,recent acquisitions, and increased loan loss reserves to reflect athe change in estimate of loan losses inherent in the initial tenor portion of the portfolio. Additionally, the increase was due to lower net recoveries. The 90 days past-due ratio fell from 1.21% to 0.88%.losses.
Net Income was also reflectedaffected by the absence of prior-year tax benefit of $214 million primarily from APB 23, as well as the absence of a 2006 first quarterprior-year $99 million tax benefit inMexico of $72 million related to APB 23 benefits and a 2006 first quarter $55 million benefitresulting from tax reserve releases related to the resolution of the Federal2006 Tax Audit.
Regional Net Income
Mexico income declined, driven by the absence of tax benefits related to APB 23 in the 2006 first quarter, partially offset by lower expenses that included a decrease in profit sharing, higher fee revenues, and gain on the sale of MasterCard shares.Latin America income declined primarily due to higher expenses associated with growth in Brazil and the absence of 2006 first quarter tax benefits, partially offset by strong growth in loans and deposits, up 55% and 21%, respectively.EMEA income declined primarily due to higher expenses driven by increased business volume and investment spending tied to retail bank branch expansion, a reserve build to reflect a change in estimate of loan losses inherent in the initial tenor portion of the portfolio, and lower recoveries. Partially offsetting the decline was strong growth in loans and deposits, up 16% and 9%, respectively, stronger investment product sales, and the impact of foreign currency translation.Japan income declined due to lower average loans, higher loan loss reserve, and the absence of 2006 first quarter benefit related to the resolution of the Federal Tax Audit.Asia income declined primarily due to the absence of a 2006 first quarter loan loss reserve release in Korea, and increased loan loss reserves to reflect a change in estimate of loan losses inherent in the initial tenor portion of the portfolio, and increased investment spending related to retail bank branch expansion. Partially offsetting the decline was strong growth in loans and deposits, up 14% and 10%, respectively, and an increase in investment product sales of 46%.
Other Consumer
Other Consumer includes certain treasury and other unallocated staff functions and global marketing.
| First Quarter | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars | |||||||
2007 | 2006 | ||||||
Net interest revenue | $ | (30 | ) | $ | (47 | ) | |
Non-interest revenue | 34 | 33 | |||||
Revenues, net of interest expense | $ | 4 | $ | (14 | ) | ||
Operating expenses | 155 | 167 | |||||
Income (loss) before tax benefits | $ | (151 | ) | $ | (181 | ) | |
Income taxes (benefits) | (66 | ) | (114 | ) | |||
Net income (loss) | $ | (85 | ) | $ | (67 | ) | |
Revenues andexpenses reflect certain unallocated items that are not reported in the Global Consumer operating segments.
Thenet loss increase was primarily due to the absence of the 2006 first quarter tax benefit of $40 million reflecting the resolution of the Federal Tax Audit, partially offset by higher treasury results and lower unallocated expenses.Audits.
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.
| | First Quarter | % Change | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | In millions of dollars | % Change | % Change | ||||||||||||||||||||||||
2007 | 2006 | 1Q07 vs. 1Q06 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||
Net interest revenue | Net interest revenue | $ | 2,452 | $ | 2,234 | 10 | % | Net interest revenue | $ | 3,359 | $ | 1,913 | 76 | % | $ | 8,642 | $ | 6,294 | 37 | % | ||||||||
Non-interest revenue | Non-interest revenue | 6,505 | 5,045 | 29 | Non-interest revenue | 974 | 4,154 | (77 | ) | 13,609 | 13,813 | (1 | ) | |||||||||||||||
Revenues, net of interest expense | Revenues, net of interest expense | $ | 8,957 | $ | 7,279 | 23 | % | Revenues, net of interest expense | $ | 4,333 | $ | 6,067 | (29 | )% | $ | 22,251 | $ | 20,107 | 11 | % | ||||||||
Operating expenses | Operating expenses | 5,111 | 4,757 | 7 | Operating expenses | 4,011 | 3,622 | 11 | 14,070 | 12,537 | 12 | |||||||||||||||||
Provision for credit losses | Provision for credit losses | 263 | — | NM | Provision for credit losses | 205 | 107 | 92 | 406 | 280 | 45 | |||||||||||||||||
Income before taxes and minority interest | $ | 3,583 | $ | 2,522 | 42 | % | ||||||||||||||||||||||
Income before taxes And minority interest | Income before taxes And minority interest | $ | 117 | $ | 2,338 | (95 | )% | $ | 7,775 | $ | 7,290 | 7 | % | |||||||||||||||
Income taxes | Income taxes | 947 | 574 | 65 | Income taxes | (142 | ) | 598 | NM | 2,041 | 1,874 | 9 | ||||||||||||||||
Minority interest, net of taxes | Minority interest, net of taxes | 15 | 19 | (21 | ) | Minority interest, net of taxes | (21 | ) | 19 | NM | 1 | 43 | (98 | ) | ||||||||||||||
Net income | Net income | $ | 2,621 | $ | 1,929 | 36 | % | Net income | $ | 280 | $ | 1,721 | (84 | )% | $ | 5,733 | $ | 5,373 | 7 | % | ||||||||
Revenues, net of interest expense, by region: | Revenues, net of interest expense, by region: | Revenues, net of interest expense, by region: | ||||||||||||||||||||||||||
U.S. | $ | 3,714 | $ | 2,923 | 27 | % | U.S. | $ | 37 | $ | 2,007 | (98 | )% | $ | 6,792 | $ | 7,733 | (12 | )% | |||||||||
Mexico | 227 | 186 | 22 | Mexico | 247 | 197 | 25 | 657 | 582 | 13 | ||||||||||||||||||
Latin America | 573 | 446 | 28 | EMEA | 1,398 | 2,166 | (35 | ) | 7,218 | 6,505 | 11 | |||||||||||||||||
EMEA | 2,827 | 2,296 | 23 | Japan | 133 | 177 | (25 | ) | 798 | 742 | 8 | |||||||||||||||||
Japan | 212 | 296 | (28 | ) | Asia | 1,822 | 1,080 | 69 | 4,861 | 3,274 | 48 | |||||||||||||||||
Asia | 1,404 | 1,132 | 24 | Latin America | 696 | 440 | 58 | 1,925 | 1,271 | 51 | % | |||||||||||||||||
Total revenues | Total revenues | $ | 8,957 | $ | 7,279 | 23 | % | Total revenues | $ | 4,333 | $ | 6,067 | (29 | )% | $ | 22,251 | $ | 20,107 | 11 | % | ||||||||
Net income by region: | Net income by region: | Net income by region: | ||||||||||||||||||||||||||
U.S. | $ | 999 | $ | 515 | 94 | % | U.S. | $ | (692 | ) | $ | 540 | NM | $ | 1,291 | $ | 1,802 | (28 | )% | |||||||||
Mexico | 114 | 78 | 46 | Mexico | 125 | 95 | 32 | % | 334 | 261 | 28 | |||||||||||||||||
Latin America | 218 | 202 | 8 | EMEA | (25 | ) | 489 | NM | 1,472 | 1,466 | — | |||||||||||||||||
EMEA | 694 | 635 | 9 | Japan | (96 | ) | 38 | NM | 63 | 195 | (68 | ) | ||||||||||||||||
Japan | 35 | 85 | (59 | ) | Asia | 727 | 391 | 86 | 1,855 | 1,141 | 63 | |||||||||||||||||
Asia | 561 | 414 | 36 | Latin America | 241 | 168 | 43 | 718 | 508 | 41 | ||||||||||||||||||
Total net income | Total net income | $ | 2,621 | $ | 1,929 | 36 | % | Total net income | $ | 280 | $ | 1,721 | (84 | )% | $ | 5,733 | $ | 5,373 | 7 | % | ||||||||
Average risk capital(1) | Average risk capital(1) | $ | 24,143 | $ | 20,593 | 17 | % | Average risk capital(1) | $ | 31,812 | $ | 21,967 | 45 | % | $ | 27,837 | $ | 21,438 | 30 | % | ||||||||
Return on risk capital(1) | Return on risk capital(1) | 44 | % | 38 | % | Return on risk capital(1) | 3 | % | 31 | % | 27 | % | 34 | % | ||||||||||||||
Return on invested capital(1) | Return on invested capital(1) | 33 | % | 28 | % | Return on invested capital(1) | 2 | % | 23 | % | 21 | % | 25 | % | ||||||||||||||
Securities and Banking
Securities and Banking offers a wide array of investment and commercial banking services and products, including investment banking and advisory services, debt and equity trading, institutional brokerage, foreign exchange, structured products, derivatives, and lending.Securities and Banking revenue is generated primarily from fees for investment banking and advisory services, fees and spread on structured products, foreign exchange and derivatives, fees and interest on loans, and income earned on principal transactions.
| First Quarter | % Change | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||
2007 | 2006 | 1Q07 vs. 1Q06 | ||||||||
Net interest revenue | $ | 1,614 | $ | 1,571 | 3 | % | ||||
Non-interest revenue | 5,699 | 4,325 | 32 | |||||||
Revenues, net of interest expense | $ | 7,313 | $ | 5,896 | 24 | % | ||||
Operating expenses | 4,059 | 3,803 | 7 | |||||||
Provision for credit losses | 258 | (5 | ) | NM | ||||||
Income before taxes and minority interest | $ | 2,996 | $ | 2,098 | 43 | % | ||||
Income taxes | 812 | 461 | 76 | |||||||
Minority interest, net of taxes | 11 | 19 | (42 | ) | ||||||
Net income | $ | 2,173 | $ | 1,618 | 34 | % | ||||
Revenues, net of interest expense, by region: | ||||||||||
U.S. | $ | 3,382 | $ | 2,610 | 30 | % | ||||
Mexico | 166 | 138 | 20 | |||||||
Latin America | 399 | 300 | 33 | |||||||
EMEA | 2,229 | 1,808 | 23 | |||||||
Japan | 182 | 271 | (33 | ) | ||||||
Asia | 955 | 769 | 24 | |||||||
Total revenues | $ | 7,313 | $ | 5,896 | 24 | % | ||||
Net income by region: | ||||||||||
U.S. | $ | 966 | $ | 515 | 88 | % | ||||
Mexico | 91 | 64 | 42 | |||||||
Latin America | 161 | 151 | 7 | |||||||
EMEA | 546 | 530 | 3 | |||||||
Japan | 27 | 80 | (66 | ) | ||||||
Asia | 382 | 278 | 37 | |||||||
Total net income | $ | 2,173 | $ | 1,618 | 34 | % | ||||
Average risk capital(1) | $ | 22,701 | $ | 19,123 | 19 | % | ||||
Return on risk capital(1) | 39 | % | 34 | % | ||||||
Return on invested capital(1) | 30 | % | 26 | % | ||||||
Securities and Banking (Continued)
| First Quarter | % Change | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | 1Q07 vs. 1Q06 | ||||||||||
Revenue details: | |||||||||||||
Investment banking: | |||||||||||||
Advisory and other fees | $ | 429 | $ | 295 | 45 | % | |||||||
Equity underwriting | 523 | 286 | 83 | ||||||||||
Debt underwriting | 813 | 713 | 14 | ||||||||||
Gross Investment Banking | $ | 1,765 | $ | 1,294 | 36 | % | |||||||
Revenue allocated to the Global Wealth Management Segment: | |||||||||||||
Equity underwriting | $ | (136 | ) | $ | (42 | ) | NM | ||||||
Debt underwriting | (34 | ) | (36 | ) | 6 | % | |||||||
Total investment banking revenue | $ | 1,595 | $ | 1,216 | 31 | % | |||||||
Lending | 561 | 411 | 36 | ||||||||||
Equity markets | 1,483 | 1,179 | 26 | ||||||||||
Fixed income markets | 3,771 | 3,148 | 20 | ||||||||||
Other Securities and Banking(1) | (97 | ) | (58 | ) | (67 | ) | |||||||
Total Securities and Banking Revenue, net of interest expense(1) | $ | 7,313 | $ | 5,896 | 24 | % | |||||||
1Q073Q07 vs. 1Q063Q06
Revenues,net of interest expense, decreased due to a significant decline inSecurities and Banking, which was partially offset by strong growth inTransaction Services revenues.Securities and Banking revenues declined due to write-downs on highly-leveraged loans and commitments, CDO and CLO losses, and credit trading losses, related to dislocations in the mortgage-backed securities and credit markets. Decreased revenues in Fixed Income Markets, Debt Underwriting and Lending were partially offset by increased revenues in Equity Markets, Equity Underwriting and Advisory and other fees. Transaction Services revenues increased to a record level, driven by higher customer volumes, stable net interest margins and the acquisition of The Bisys Group, which closed in August 2007.
Operating expenses increased due to the acquisition of Grupo Cuscatlan, Ameriquest, Bisys, and increased ownership in Nikko Cordial, increased headcount, annual salary growth, increased legal expenses and higher business development costs offset by a decline in incentive compensation costs inSecurities and Banking.
The provision for credit losses increased driven by higher net credit losses and an increase in loan loss reserves for specific counterparties.
2007 YTD vs. 2006 YTD
Revenues,net of interest expense, increased, driven by broad-based volume improvements across products and regions and by the $402 million benefit of the SFAS 157 accounting adoption.increased revenues in Equity Markets, revenues increased, driven by strong growth globally, including cash trading, derivatives products, equity finance, convertibles and prime brokerage.brokerage, in Equity Underwriting, and in Advisory and other fees, and the $402 million benefit from the adoption of SFAS 157. Revenues decreased in Fixed Income Markets revenue increases were driven by improved results across all products, including interest rates and currencies,Debt Underwriting due to the dislocations in the mortgage-backed securities and credit markets in the third quarter of 2007, which resulted in write-downs on highly-leveraged loans, CDO and securitized products. Investment Banking revenueCLO losses, and credit trading losses.Transaction Services revenues increased reflecting growth was driven byin liability balances and assets under custody, higher equity underwritingnet interest margins in Cash Management and advisorySecurities and other fees.Funds Services.
Operating expenses growth was primarily driven by increased staffing and higher business volumes and compensation costs related to acquisitions and increased business volumes. TheExpense growth in 2007 was favorably affected by the absence of a $346$354 million charge related to the 2006 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 chargecharges of $286$431 million to increase loan loss reserves. The increase in loan loss reserves was driven bydue to portfolio growth, which includesincluding higher commitments to leveraged transactions and an increase in average loan tenor.
Regional Net Income
Net income in theU.S. increased, driven by double-digit revenue growth in Fixed Income Markets and Underwriting and Equity Markets and Underwritingtenor, as well as Advisory. Compensation expenses were almost flatan increase in reserve requirements for specific counterparties. These changes compare to last year due to the absence of the 2006 initial adoption of SFAS 123(R).
Mexicoa $267 million net income increased, driven by double-digit revenue growth in Fixed Income Markets and equity underwriting.
Latin America net income increased, driven by double-digit revenue growth in Fixed Income and Equity Markets. Revenue growth was partially offset by higher taxes due to the absence of prior-year tax benefits from the resolution of the Federal Tax Audit.
EMEA net income increased, driven by strong double-digit revenue growth across all major product lines and geographies on higher volumes and growth in customer activity. Results also include a $171 million pre-tax increase to loan loss reserves due to portfolio growth, which includes higher commitments to leveraged transactions and an increaserecorded in average loan tenor.the prior-year period.
Net income inJapan declined primarily due to lower results in Fixed Income Markets and Equity Underwriting. Net income inAsia increased, driven by double-digit revenue growth in Investment Banking and Lending.
Transaction Services
Transaction Services is comprised of Cash Management, Trade Services and Securities & Fund Services (SFS). Cash Management and Trade Services provide comprehensive cash management and trade finance for corporations and financial institutions worldwide. SFS provides custody and fund services to investors such as insurance companies and pension funds, clearing services to intermediaries such as broker-dealers, and depository and agency/trust services to multi-national corporations and governments globally. Revenue is generated from fees for transaction processing, net interest revenue on Trade Services loans and deposits in Cash Management and SFS, and fees on assets under custody in SFS.
| First Quarter | % Change | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | 1Q07 vs. 1Q06 | |||||||
Net interest revenue | $ | 838 | $ | 663 | 26 | % | ||||
Non-interest revenue | 807 | 719 | 12 | |||||||
Revenues, net of interest expense | $ | 1,645 | $ | 1,382 | 19 | % | ||||
Operating expenses | 1,037 | 949 | 9 | |||||||
Provision for credit losses | 5 | 5 | — | |||||||
Income before taxes and minority interest | $ | 603 | $ | 428 | 41 | % | ||||
Income taxes | 152 | 105 | 45 | |||||||
Minority interest, net of taxes | 4 | — | NM | |||||||
Net income | $ | 447 | $ | 323 | 38 | % | ||||
Revenues, net of interest expense, by region: | ||||||||||
U.S. | $ | 333 | $ | 312 | 7 | % | ||||
Mexico | 61 | 48 | 27 | |||||||
Latin America | 174 | 146 | 19 | |||||||
EMEA | 598 | 488 | 23 | |||||||
Japan | 30 | 25 | 20 | |||||||
Asia | 449 | 363 | 24 | |||||||
Total revenues | $ | 1,645 | $ | 1,382 | 19 | % | ||||
Net income by region: | ||||||||||
U.S. | $ | 33 | $ | 12 | NM | |||||
Mexico | 23 | 14 | 64 | % | ||||||
Latin America | 54 | 51 | 6 | |||||||
EMEA | 150 | 105 | 43 | |||||||
Japan | 8 | 5 | 60 | |||||||
Asia | 179 | 136 | 32 | |||||||
Total net income | $ | 447 | $ | 323 | 38 | % | ||||
Average risk capital(1) | $ | 1,442 | $ | 1,470 | (2 | )% | ||||
Return on risk capital(1) | 126 | % | 89 | % | ||||||
Return on invested capital(1) | 67 | % | 50 | % | ||||||
Transaction Services (Continued)
| First Quarter | % Change | |||||||
---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 1Q07 vs. 1Q06 | ||||||
Key indicators: | |||||||||
Average deposits and other customer liability balances(in billions of dollars) | $ | 213 | $ | 170 | 25 | % | |||
Assets under custody at year-end(in trillions of dollars) | 10.7 | 8.8 | 22 | % | |||||
Revenue details(in millions of dollars): | |||||||||
Cash management | $ | 981 | $ | 792 | 24 | % | |||
Securities and funds services | $ | 507 | $ | 438 | 16 | % | |||
Trade services & finance | $ | 157 | $ | 152 | 3 | % | |||
Total revenue, net of interest expense | $ | 1,645 | $ | 1,382 | 19 | % | |||
1Q07 vs. 1Q06
Revenues, net of interest expense, increased, reflecting growth in liability balances, assets under custody, and rising interest rates in Cash Management and SFS. Average liability balances grew 25% to $213 billion in the first quarter due to growth across all regions, reflecting positive flow from new and existing customers.
Cash Management revenue increased, reflecting growth across all regions, higher liability balances, rising interest rates, and increased revenues from new sales.
Securities & Funds Services revenue increased, reflecting growth across most regions with record new sales, increased liability balances, higher assets under custody, and transaction volumes. Assets under Custody reached $10.7 trillion, an increase of $1.9 trillion, or 22%, on continued momentum from new sales as well as global markets.
Trade Services & Finance revenue increased primarily due to growth in Asia Pacific, partially offset by EMEA andLatin America.
Operating expenses increased due to organic business growth, acquisitions, and investment spending.
Regional Net Income
Net income in theU.S. increased, primarily due to growth in liability balances and rising interest rates.
Mexico net income increased primarily due to growth in liability balances and rising interest rates.
Latin America net income increased primarily due to increased revenues from new sales, growth in liability balances and rising interest rates.
EMEA net income increased primarily due to increased revenue from new sales, growth in liability balances and assets under custody, rising interest rates and strong volumes, which drove growth in Cash Management, SFS, and Trade Services.
Asia net income increased primarily due to increased revenue from new sales, higher customer volumes, and growth in liability balances and assets under custody and rising interest rates.
Japan net income increased primarily due to increased revenue from new sales, growth in liability balances and assets under custody, and rising interest rates.
Other Markets & Banking
Other Markets & Banking includes offsets to certain line items reported in other Markets & Banking segments, certain non-recurring items and tax amounts not allocated to Markets & Banking products.
| First Quarter | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | |||||
Net interest revenue | — | — | |||||
Non-interest revenue | $ | (1 | ) | $ | 1 | ||
Revenues, net of interest expense | $ | (1 | ) | $ | 1 | ||
Operating expenses | 15 | 5 | |||||
Income (loss) before income taxes (benefits) | $ | (16 | ) | $ | (4 | ) | |
Income taxes (benefits) | (17 | ) | 8 | ||||
Net income (loss) | $ | 1 | $ | (12 | ) | ||
GLOBAL WEALTH MANAGEMENT
Global Wealth Management is comprised of theSmith Barney Private Client businesses (including Citigroup Wealth Advisors, outsideNikko Cordial, Quilter and the U.S.)legacy Citicorp Investment Services business), CitigroupCitiPrivate Bank, Citi Investment Research and Citigroup Investment Research.Citi Quilter.
| First Quarter | % Change | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | 1Q07 vs. 1Q06 | |||||||
Net interest revenue | $ | 529 | $ | 460 | 15 | % | ||||
Non-interest revenue | 2,289 | 2,023 | 13 | |||||||
Revenues, net of interest expense | $ | 2,818 | $ | 2,483 | 13 | % | ||||
Operating expenses | 2,102 | 2,055 | 2 | |||||||
Provision for loan losses | 17 | 5 | NM | |||||||
Income before taxes | $ | 699 | $ | 423 | 65 | % | ||||
Income taxes | 251 | 136 | 85 | |||||||
Net income | $ | 448 | $ | 287 | 56 | % | ||||
Revenues, net of interest expense by region: | ||||||||||
U.S. | $ | 2,385 | $ | 2,154 | 11 | % | ||||
Mexico | 36 | 31 | 16 | |||||||
Latin America | 55 | 43 | 28 | |||||||
EMEA | 108 | 75 | 44 | |||||||
Japan | — | — | — | |||||||
Asia | 234 | 180 | 30 | |||||||
Total revenues | $ | 2,818 | $ | 2,483 | 13 | % | ||||
Net income (loss) by region: | ||||||||||
U.S. | $ | 361 | $ | 228 | 58 | % | ||||
Mexico | 12 | 8 | 50 | |||||||
Latin America | 3 | 3 | — | |||||||
EMEA | 7 | 3 | NM | |||||||
Japan | — | — | — | |||||||
Asia | 65 | 45 | 44 | |||||||
Total net income | $ | 448 | $ | 287 | 56 | % | ||||
Average risk capital(1) | $ | 2,879 | $ | 2,539 | 13 | % | ||||
Return on risk capital(1) | 63 | % | 46 | % | ||||||
Return on invested capital(1) | 40 | % | 29 | % | ||||||
GLOBAL WEALTH MANAGEMENT (Continued)
| First Quarter | % Change | |||||||
---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 1Q07 vs. 1Q06 | ||||||
Key indicators:(in billions of dollars) | |||||||||
Total assets under fee-based management | $ | 418 | $ | 369 | 13 | % | |||
Total client assets | $ | 1,493 | $ | 1,347 | 11 | % | |||
Net client asset flows | $ | 6 | $ | 3 | 100 | % | |||
Financial advisors (FA) / bankers(actual number) | 13,605 | 13,837 | (2 | )% | |||||
Annualized revenue per FA / banker(in thousands of dollars) | $ | 837 | $ | 715 | 17 | % | |||
Average deposits and other customer liability balances | $ | 113 | $ | 99 | 14 | % | |||
Average loans | $ | 46 | $ | 40 | 15 | % | |||
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Smith Barney provides investment advice, financial planning and brokerage services to affluent individuals, companies, and non-profits through a network of more than 13,000 Financial Advisors in more than 600 offices, primarily in the U.S.Smith Barney generates revenue from managing client assets, acting as a broker for clients in the purchase and sale of securities, financing customers' securities transactions and other borrowing needs through lending, and through the sale of mutual funds and alternative investments.
| | First Quarter | % Change | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | % Change | % Change | |||||||||||||||||||||||||
In millions of dollars | 2007 | 2006 | 1Q07 vs. 1Q06 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||
Net interest revenue | Net interest revenue | $ | 285 | $ | 209 | 36 | % | Net interest revenue | $ | 539 | $ | 480 | 12 | % | $ | 1,594 | $ | 1,384 | 15 | % | ||||||||
Non-interest revenue | Non-interest revenue | 1,961 | 1,778 | 10 | Non-interest revenue | 2,970 | 2,006 | 48 | 7,930 | 6,077 | 30 | |||||||||||||||||
Revenues, net of interest expense | Revenues, net of interest expense | $ | 2,246 | $ | 1,987 | 13 | % | Revenues, net of interest expense | $ | 3,509 | $ | 2,486 | 41 | % | $ | 9,524 | $ | 7,461 | 28 | % | ||||||||
Operating expenses | Operating expenses | 1,724 | 1,720 | — | Operating expenses | 2,614 | 1,894 | 38 | 7,171 | 5,910 | 21 | |||||||||||||||||
Provisions for loan losses | — | 1 | (100 | ) | ||||||||||||||||||||||||
Provision for loan losses | Provision for loan losses | 56 | 16 | NM | 85 | 29 | NM | |||||||||||||||||||||
Income before taxes | $ | 522 | $ | 266 | 96 | % | ||||||||||||||||||||||
Income before taxes and minority interest | Income before taxes and minority interest | $ | 839 | $ | 576 | 46 | % | $ | 2,268 | $ | 1,522 | 49 | % | |||||||||||||||
Income taxes | Income taxes | 198 | 98 | NM | Income taxes | 312 | 177 | 76 | 762 | 489 | 56 | |||||||||||||||||
Minority interest, net of taxes | Minority interest, net of taxes | 38 | — | — | 55 | — | — | |||||||||||||||||||||
Net income | Net income | $ | 324 | $ | 168 | 93 | % | Net income | $ | 489 | $ | 399 | 23 | % | $ | 1,451 | $ | 1,033 | 40 | % | ||||||||
Revenues, net of interest expense by region: | ||||||||||||||||||||||||||||
Revenues, net of interest expense, by region: | Revenues, net of interest expense, by region: | |||||||||||||||||||||||||||
U.S. | $ | 2,184 | $ | 1,943 | 12 | % | U.S. | $ | 2,454 | $ | 2,153 | 14 | % | $ | 7,278 | $ | 6,456 | 13 | % | |||||||||
Mexico | — | — | — | Mexico | 38 | 32 | 19 | 115 | 96 | 20 | ||||||||||||||||||
Latin America | — | — | — | EMEA | 139 | 83 | 67 | 384 | 241 | 59 | ||||||||||||||||||
EMEA | 14 | 5 | NM | Japan | 547 | — | — | 833 | — | — | ||||||||||||||||||
Japan | — | — | — | Asia | 277 | 171 | 62 | 753 | 532 | 42 | ||||||||||||||||||
Asia | 48 | 39 | 23 | Latin America | 54 | 47 | 15 | 161 | 136 | 18 | ||||||||||||||||||
Total revenues | Total revenues | $ | 2,246 | $ | 1,987 | 13 | % | Total revenues | $ | 3,509 | $ | 2,486 | 41 | % | $ | 9,524 | $ | 7,461 | 28 | % | ||||||||
Net income (loss) by region: | ||||||||||||||||||||||||||||
Net income by region: | Net income by region: | |||||||||||||||||||||||||||
U.S. | $ | 318 | $ | 162 | 96 | % | U.S. | $ | 333 | $ | 342 | (3 | )% | $ | 1,029 | $ | 860 | 20 | % | |||||||||
Mexico | — | — | — | Mexico | 10 | 9 | 11 | 37 | 27 | 37 | ||||||||||||||||||
Latin America | — | — | — | EMEA | 4 | 7 | (43 | ) | 57 | 15 | NM | |||||||||||||||||
EMEA | (1 | ) | 1 | NM | Japan | 60 | — | — | 90 | — | — | |||||||||||||||||
Japan | — | — | — | Asia | 79 | 38 | NM | 218 | 123 | 77 | ||||||||||||||||||
Asia | 7 | 5 | 40 | Latin America | 3 | 3 | — | 20 | 8 | NM | ||||||||||||||||||
Total net income | Total net income | $ | 324 | $ | 168 | 93 | % | Total net income | $ | 489 | $ | 399 | 23 | % | $ | 1,451 | $ | 1,033 | 40 | % | ||||||||
Average risk capital(1) | Average risk capital(1) | $ | 1,743 | $ | 1,457 | 20 | % | Average risk capital(1) | $ | 3,180 | $ | 2,364 | 35 | % | $ | 2,979 | $ | 2,423 | 23 | % | ||||||||
Return on risk capital(1) | Return on risk capital(1) | 75 | % | 47 | % | Return on risk capital(1) | 61 | % | 67 | % | 65 | % | 57 | % | ||||||||||||||
Return on invested capital(1) | Return on invested capital(1) | 39 | % | 24 | % | Return on invested capital(1) | 22 | % | 41 | % | 29 | % | 35 | % | ||||||||||||||
Key indicators:(in billions of dollars) | Key indicators:(in billions of dollars) | |||||||||||||||||||||||||||
Total assets under fee-based management | Total assets under fee-based management | $ | 515 | $ | 374 | 38 | % | |||||||||||||||||||||
Total client assets(2) | Total client assets(2) | $ | 1,820 | $ | 1,362 | 34 | % | |||||||||||||||||||||
Net client asset flows | Net client asset flows | $ | 8 | $ | 3 | NM | ||||||||||||||||||||||
Financial advisors (FA) / bankers(2) | Financial advisors (FA) / bankers(2) | 15,458 | 13,601 | 14 | % | |||||||||||||||||||||||
Annualized revenue per FA / banker(in thousands of dollars) | Annualized revenue per FA / banker(in thousands of dollars) | $ | 897 | $ | 729 | 23 | % | |||||||||||||||||||||
Average deposits and other customer liability balances | Average deposits and other customer liability balances | $ | 119 | $ | 106 | 12 | % | |||||||||||||||||||||
Average loans | Average loans | $ | 57 | $ | 43 | 33 | % | |||||||||||||||||||||
Smith Barney (Continued)
| First Quarter | % Change | |||||||
---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 1Q07 vs. 1Q06 | ||||||
Key indicators:(in billions of dollars) | |||||||||
Total assets under fee-based management | $ | 362 | $ | 319 | 13 | % | |||
Total client assets | $ | 1,277 | $ | 1,167 | 9 | % | |||
Financial advisors (FA) (actual numbers) | 13,009 | 13,321 | (2 | )% | |||||
Annualized revenue per FA (in thousands of dollars) | $ | 697 | $ | 597 | 17 | % | |||
1Q07 vs. 1Q06
Smith Barney net income of $324 million inDuring the firstsecond quarter of 2007, increased $156 million, or 93%, from 2006.U.S. Consumer's
Revenues, net of interest expenseRetail Distribution, transferred approximately $47 billion of $2.246 billion in the first quarter of 2007 increased $259 million, or 13%, from the prior-year period, primarily dueClient Assets, 686 Financial Advisors and 79 branches to a 17% increase in fee-based revenues reflecting an advisory-based strategy and a 7% increase in transactional revenues due to higher syndicate sales.
Total assets under fee-based management were $362 billion as of March 31, 2007, up $43 billion, or 13%, from the prior-year period. Total client assets, including assets under fee-based management, of $1,277 billion in the first quarter of 2007 increased $110 billion, or 9%, compared to the prior-year quarter, reflecting organic growth and the addition of Quilter client assets as of March 31, 2007. Net inflows were $7 billion in the first quarter of 2007 compared to $3 billion in the prior-year quarter.Smith Barney had 13,009 financial advisors as of March 31, 2007, compared with 13,321 as of March 31, 2006. Annualized revenue per financial advisor of $697,000 increased 17% from the prior-year quarter.
Operating expenses of $1.724 billion in the first quarter of 2007 increased $4 million from the prior-year quarter. The expense increase in 2007 was favorably affected by the absence of the charge related to the 2006 initial adoptionconsolidation of SFAS 123(R) of $129 million. Excluding this charge, the increase in expenses was primarily driven by higher variable compensation associated with increased revenue.
Citicorp Investment Services (CIS) intoPrivate Bank
Private BankSmith Barney provides personalized wealth management services for high-net-worth clients in 33 countries and territories. These services include comprehensive investment management (investment funds management, capital markets solutions, and trust, fiduciary and custody services), investment finance (credit services including real estate financing, commitments and letters of credit) and banking services (deposit, checking and savings accounts, as well as cash management and other traditional banking services).
| First Quarter | % Change | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | 1Q07 vs. 1Q06 | |||||||
Net interest revenue | $ | 244 | $ | 251 | (3 | )% | ||||
Non-interest revenue | 328 | 245 | 34 | |||||||
Revenues, net of interest expense | $ | 572 | $ | 496 | 15 | % | ||||
Operating expenses | 378 | 335 | 13 | |||||||
Provision for loan losses | 17 | 4 | NM | |||||||
Income before taxes | $ | 177 | $ | 157 | 13 | % | ||||
Income taxes | 53 | 38 | 39 | |||||||
Net income | $ | 124 | $ | 119 | 4 | % | ||||
Revenues, net of interest expense, by region: | ||||||||||
U.S. | $ | 201 | $ | 211 | (4 | )% | ||||
Mexico | 36 | 31 | 16 | |||||||
Latin America | 55 | 43 | 28 | |||||||
EMEA | 94 | 70 | 34 | |||||||
Japan | — | — | — | |||||||
Asia | 186 | 141 | 31 | |||||||
Total revenues | $ | 572 | $ | 496 | 15 | % | ||||
Net income by region: | ||||||||||
U.S. | $ | 43 | $ | 66 | (35 | )% | ||||
Mexico | 12 | 8 | 50 | |||||||
Latin America | 3 | 3 | — | |||||||
EMEA | 8 | 2 | NM | |||||||
Japan | — | — | — | |||||||
Asia | 58 | 40 | 45 | |||||||
Total net income | $ | 124 | $ | 119 | 4 | % | ||||
Average risk capital(1) | $ | 1,136 | $ | 1,082 | 5 | % | ||||
Return on risk capital(1) | 44 | % | 45 | % | ||||||
Return on invested capital(1) | 40 | % | 42 | % | ||||||
Private Bank (Continued)
| First Quarter | % Change | |||||||
---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 1Q07 vs. 1Q06 | ||||||
Key indicators:(in billions of dollars) | |||||||||
Total assets under fee-based management | $ | 56 | $ | 50 | 12 | % | |||
Total client assets | $ | 216 | $ | 180 | 20 | % | |||
Net client asset flows | $ | (1 | ) | $ | — | — | |||
Bankers | 596 | 516 | 16 | % | |||||
Annualized revenue per bankers (in thousands of dollars) | $ | 4,047 | $ | 3,898 | 4 | % | |||
Average deposits and other customer liability balances | $ | 61 | $ | 48 | 27 | % | |||
Average loans | $ | 44 | $ | 38 | 16 | % | |||
1Q073Q07 vs. 1Q063Q06
Revenues, net of interest expense, increased due to41%, primarily reflecting increased ownership of Nikko Cordial; an increase in fee-based and recurring net interest revenue, reflecting the continued advisory-based strategy; an increase in international revenues, driven by strong growth acrossCapital Markets activity inAsia, EMEA, MexicoAsia; andLatin America. strong domestic branch transactional revenue and syndicate sales. Total assets under fee-based management were $515 billion at September 30, 2007, up 38% from the prior-year period.
Total client assets, including assets under fee-based management, increased 34%, reflecting organic growth and increased ownership of Nikko Cordial and Quilter client assets, as well as the transfer of CIS assets from U.S. Consumer in the second quarter of 2007. Global Wealth Management had 15,458 financial advisors/bankers as of September 30, 2007, compared with 13,601 as of September
U.S. revenue decreased, primarily30, 2006, driven by a decreasethe Nikko Cordial and Quilter acquisitions, the CIS transfer, and hiring in lending and banking spreads, partially offset by increases in lending and banking volumes.thePrivate Bank. Annualized revenue per FA/banker of $897,000 increased 23% from the prior-year quarter.
Operating expenses of $378 millionincreased 38% in the firstthird quarter of 2007, increased $43 million fromversus the prior-year quarter. The expense increase in 2007 was favorably affectedmainly driven by the Nikko Cordial and Quilter acquisitions, as well as higher variable compensation associated with increased business volumes.
Theprovision for loan losses increased $40 million, driven by portfolio growth and a reserve increase for specific non-performing loan in thePrivate Bank.
2007 YTD vs. 2006 YTD
Revenues, net of interest expense, increased 28%, primarily due to a strong increase in international revenues, driven by the Nikko Cordial and Quilter acquisitions; strong Capital Markets activity inAsia, Latin America andEMEA; and higher domestic syndicate sales. Net flows were $14 billion compared to $2 billion in the prior-year period.
Operating expenses increased 21%, driven by the Nikko Cordial and Quilter acquisitions and higher variable compensation associated with increased business volumes, as well as the absence of thea $145 million charge related to the 2006 initial adoption of SFAS 123(R) in the first quarter of $16 million. Excluding this charge, the increase in expenses was primarily driven by higher incentive compensation from higher revenue and investment spending to expand on-shore markets.2006.
TheProvisionprovision for loan losses increased $56 million, primarily due todriven by portfolio growth.growth and a reserve increase for specific non-performing loan in thePrivate Bank.
End of period client assets increased $36 billion, or 20%, while average loans increased $6 billion, or 16%, primarily inEMEANet income andgrowth also reflected a $65 million APB 23 benefit in theU.S.Private Bank in 2007 and the absence of a $47 million tax benefit resulting from the 2006 Tax Audits.
Alternative Investments (AI) manages capital on behalf of Citigroup, as well as for third-party institutional and high-net-worth investors. AI is an integrated alternative investment platform that manages a wide range of products across five asset classes, including private equity, hedge funds, real estate, structured products and managed futures. AI's business model is to enable its 14 investment centers to retain the entrepreneurial qualities required to capitalize on evolving opportunities, while benefiting from the intellectual, operational and financial resources of Citigroup.
| | First Quarter | % Change | | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | In millions of dollars | % Change | % Change | ||||||||||||||||||||||||
2007 | 2006 | 1Q07 vs. 1Q06 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||
Net interest revenue | Net interest revenue | $ | (20 | ) | $ | 3 | NM | Net interest revenue | $ | 25 | $ | 5 | NM | $ | 2 | $ | 1 | 100 | % | |||||||||
Non-interest revenue | Non-interest revenue | 582 | 672 | (13 | )% | Non-interest revenue | 100 | 329 | (70 | )% | 1,717 | 1,592 | 8 | |||||||||||||||
Total revenues, net of interest expense | Total revenues, net of interest expense | $ | 562 | $ | 675 | (17 | )% | Total revenues, net of interest expense | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | ||||||||
Net realized and net change in unrealized gains | Net realized and net change in unrealized gains | $ | 444 | $ | 563 | (21 | )% | Net realized and net change in unrealized gains | $ | (121 | ) | $ | 200 | NM | $ | 1,233 | $ | 1,238 | — | |||||||||
Fees, dividends and interest | Fees, dividends and interest | 35 | 49 | (29 | ) | Fees, dividends and interest | 144 | 58 | NM | 221 | 156 | 42 | % | |||||||||||||||
Other | Other | (43 | ) | (28 | ) | (54 | ) | Other | (68 | ) | (21 | ) | NM | (153 | ) | (86 | ) | (78 | )% | |||||||||
Total proprietary investment activities revenues | Total proprietary investment activities revenues | $ | 436 | $ | 584 | (25 | )% | Total proprietary investment activities revenues | (45 | ) | 237 | NM | 1,301 | 1,308 | (1 | )% | ||||||||||||
Client revenues(1) | Client revenues(1) | 126 | 91 | 38 | Client revenues(1) | 170 | 97 | 75 | % | 418 | 285 | 47 | ||||||||||||||||
Total revenues, net of interest expense | Total revenues, net of interest expense | $ | 562 | $ | 675 | (17 | )% | Total revenues, net of interest expense | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | ||||||||
Operating expenses | Operating expenses | 180 | 181 | (1 | ) | Operating expenses | 238 | 137 | 74 | 633 | 517 | 22 | ||||||||||||||||
Provision for loan losses | Provision for loan losses | 1 | — | NM | Provision for loan losses | (1 | ) | — | — | — | (13 | ) | 100 | |||||||||||||||
Income before taxes and minority interest | Income before taxes and minority interest | $ | 381 | $ | 494 | (23 | )% | Income before taxes and minority interest | $ | (112 | ) | $ | 197 | NM | $ | 1,086 | $ | 1,089 | — | |||||||||
Income taxes | Income taxes | $ | 138 | $ | 111 | 24 | % | Income taxes | $ | (44 | ) | $ | 70 | NM | $ | 391 | $ | 319 | 23 | % | ||||||||
Minority interest, net of taxes | Minority interest, net of taxes | 21 | 30 | (30 | ) | Minority interest, net of taxes | (1 | ) | 10 | NM | 84 | 43 | 95 | |||||||||||||||
Net income | Net income | $ | 222 | $ | 353 | (37 | )% | Net income | $ | (67 | ) | $ | 117 | NM | $ | 611 | $ | 727 | (16 | )% | ||||||||
Average risk capital(2) | $ | 4,086 | $ | 4,547 | (10 | )% | ||||||||||||||||||||||
Average risk capital(2) (in billions of dollars) | Average risk capital(2) (in billions of dollars) | $ | 4.3 | $ | 4.0 | 8 | % | $ | 4.1 | $ | 4.2 | (2 | )% | |||||||||||||||
Return on risk capital(2) | Return on risk capital(2) | 22 | % | 32 | % | Return on risk capital(2) | (6 | )% | 12 | % | 20 | % | 23 | % | ||||||||||||||
Return on invested capital(2) | Return on invested capital(2) | 19 | % | 28 | % | Return on invested capital(2) | (8 | )% | 8 | % | 17 | % | 20 | % | ||||||||||||||
Revenue by product: | Revenue by product: | Revenue by product: | ||||||||||||||||||||||||||
Client(1) | Client(1) | $ | 126 | $ | 91 | 38 | % | Client(1) | $ | 170 | $ | 97 | 75 | % | $ | 418 | $ | 285 | 47 | % | ||||||||
Private Equity | $ | 361 | $ | 213 | 69 | % | Private Equity | $ | 233 | $ | 56 | NM | $ | 1,305 | $ | 785 | 66 | % | ||||||||||
Hedge Funds | 47 | 107 | (56 | ) | Hedge Funds | (208 | ) | 1 | NM | (42 | ) | 65 | NM | |||||||||||||||
Other | 28 | 264 | (89 | ) | Other | (70 | ) | 180 | NM | 38 | 458 | (92 | )% | |||||||||||||||
Proprietary | Proprietary | $ | 436 | $ | 584 | (25 | )% | Proprietary | $ | (45 | ) | $ | 237 | NM | $ | 1,301 | $ | 1,308 | (1 | )% | ||||||||
Total | Total | $ | 562 | $ | 675 | (17 | )% | Total | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | ||||||||
Key indicators:(in billions of dollars) | Key indicators:(in billions of dollars) | |||||||||||||||||||||||||||
Capital under management: | Capital under management: | |||||||||||||||||||||||||||
Client | $ | 50.4 | $ | 33.5 | 50 | % | ||||||||||||||||||||||
Proprietary | 11.6 | 10.2 | 14 | % | ||||||||||||||||||||||||
Total | Total | $ | 62.0 | $ | 43.7 | 42 | % | |||||||||||||||||||||
NM
ALTERNATIVE INVESTMENTS (Continued)3Q07 vs. 3Q06
| First Quarter | % Change | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 1Q07 vs. 1Q06 | |||||||
Key indicators: (in billions of dollars) | ||||||||||
Capital under management: | ||||||||||
Client | $ | 42.9 | $ | 28.2 | 52 | % | ||||
Proprietary | 10.8 | 11.1 | (3 | ) | ||||||
Total | $ | 53.7 | $ | 39.3 | 37 | % | ||||
1Q07 vs. 1Q06Revenues, net of interest expense, decreased $209 million or 63%.
Total proprietary revenues, net of interest expense, for the third quarter of 2007 of ($45) million were composed of revenues from private equity of $361$233 million, hedge funds of $47 million and other investment activity of $28($70) million and hedge funds of ($208) million. Private equity revenue increased $148$177 million from the first2006 third quarter, of 2006, primarily driven by gains from the sale of portfolio assets.higher realized and unrealized gains. Hedge fund revenue declined $60by $209 million, largely due to a lower investment performance. Other investment activities revenue decreased $236$250 million from the first2006 third quarter, of 2006, largely due to a lower market value on Legg Mason shares and the absence of prior-year gains from the sale of Citigroup's investment in The Travelers Companies shares, partially offset by real estate investment returns. MetLife shares.Client revenues increased $35$73 million, reflecting increased management fees fromthe acquisition of Old Lane and a 52%46% growth in average client capital under management.management excluding Old Lane.
Operating expenses in the third quarter of 2007 of $238 million increased $101 million from the third quarter of 2006, primarily due to the inclusion of Old Lane, increased performance-driven compensation and higher employee-related expenses.
Minority interest, net of taxtaxes, declined onin the absencethird quarter of prior-year2007 of ($1) million decreased $11 million from the third quarter of 2006, primarily due to lower private equity gains related to underlying investments held by consolidated majority-owned legal entities. The impact of minority interest is reflected in fees, dividends, and interest, and net realized and net change in unrealized gains/gains (losses) consistent with proceeds received by minority interests.
Proprietary capital under management of $11.6 billion increased $1.4 billion from the third quarter 2006 due to new investments in private equity and hedge funds.
Client capital under management of $50.4 billion in the 2007 third quarter increased $16.9 billion from the 2006 third quarter, due to the inclusion of Old Lane and inflows from institutional and high-net-worth clients.
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.
2007 YTD vs. 2006 YTD
Revenues, net of interest expense, of $1.719 billion in the first nine months of 2007 increased $126 million, or 8%.
Total proprietary revenues, net of interest expense, for the first nine months of 2007 of $1.301 billion, were composed of revenues from private equity of $1.305 billion, other investment activity of $38 million and hedge funds of ($42) million. Private equity revenue increased $520 million from the first nine months of 2006, primarily driven by higher realized and unrealized gains. Hedge fund revenue decreased $107 million, largely due to lower investment performance. Other investment activities revenue decreased $420 million from the first nine months of 2006, largely due to the absence of gains from the liquidation during 2006 of Citigroup's investment in St. Paul shares and MetLife shares and a lower market value on Legg Mason shares. Client revenues increased $133 million, reflecting increased management fees from a 49% growth in average client capital under management excluding Old Lane.
Operating expenses in the first nine months of 2007 of $633 million increased $116 million from the first nine months of 2006, primarily due to increased performance-driven compensation, higher employee-related expenses and the inclusion of Old Lane.
Minority interest, net of taxes, in the first nine months of 2007 of $84 million increased $41 million from the first nine months of 2006, primarily due to higher private equity gains related to underlying investments held by consolidated majority-owned legal entities. The impact of minority interest is reflected in fees, dividends, and interest, and net realized gains (losses) consistent with proceeds received by minority interests.
Net Income in the first quarternine months of 2006 reflected areflects higher tax benefit ofbenefits for $58 million resulting from the resolution of the 2006 Federal Tax Audit.
Proprietary capital under management decreased $0.3 billion from the first quarter of 2006, primarily driven by the sale of Citigroup's remaining holdings of MetLife shares, which were partially offset by investments in hedge funds, private equity and real estate.
Client capital under management increased $14.7 billion, or 52%, from the first quarter of 2006 due to inflows from institutional and high-net-worth clients in private equity, real estate and hedge funds.
Beginning January 1, 2007, the change in fair value of the Company's Legg Mason securities are marked-to-market through earnings. See Notes 11 and 16 on page 95 and 105, respectively.
CORPORATE/OTHER
Corporate/Other includes treasury results, the 2007 first quarter restructuring charge,charges, unallocated corporate expenses, offsets to certain line-item reclassifications reported in the business segments (inter-segment eliminations), the results of discontinued operations and unallocated taxes.
| First Quarter | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||
Revenues, net of interest expense | $ | 16 | $ | (209 | ) | $ | (257 | ) | $ | (299 | ) | $ | (463 | ) | $ | (791 | ) | |||
Restructuring expense | 1,377 | — | 35 | — | 1,475 | — | ||||||||||||||
Other operating expense | 41 | 8 | 157 | (33 | ) | 309 | 47 | |||||||||||||
Operating expenses | 1,418 | 8 | ||||||||||||||||||
Provision for loan losses | — | — | (1 | ) | — | |||||||||||||||
Loss from continuing operations before taxes and minority interest | $ | (1,402 | ) | $ | (217 | ) | $ | (449 | ) | $ | (266 | ) | $ | (2,246 | ) | $ | (838 | ) | ||
Income tax benefits | (491 | ) | (131 | ) | (156 | ) | (137 | ) | (774 | ) | (381 | ) | ||||||||
Minority interest, net of taxes | 1 | 1 | (21 | ) | — | (15 | ) | 1 | ||||||||||||
Loss from continuing operations | $ | (912 | ) | $ | (87 | ) | $ | (273 | ) | $ | (129 | ) | $ | (1,457 | ) | $ | (458 | ) | ||
Income from discontinued operations | — | 84 | — | 202 | — | 289 | ||||||||||||||
Net loss | $ | (912 | ) | $ | (3 | ) | ||||||||||||||
Net income/(loss) | $ | (273 | ) | $ | 73 | $ | (1,457 | ) | $ | (169 | ) | |||||||||
1Q073Q07 vs. 1Q063Q06
Revenues, net of interest expense, increased, primarily due to a gain on the sale of certain corporate-owned assets and improved treasury results, as long-term funding rates decreased.partially offset by Nikko Cordial losses and higher intersegment eliminations.
Restructuring expense. See Note 7 on page 9262 for details on the 2007 first quarter 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 loss in the current year.
2007 YTD vs. 2006 YTD
Revenues, net of interest expense, increased, primarily due to improved treasury results and a gain on the sale of certain corporate-owned assets, partially offset by higher intersegment eliminations.
Restructuring expense. See Note 7 on page 62 for details on the 2007 restructuring charge.
Other operating expenses increased, primarily due to increased staffing, technology costs.and other unallocated expenses, partially offset by higher intersegment eliminations.
Income tax benefits increased due to the higher pretax loss in the current year, offset by a prior-year tax reserve release of $61$69 million relating to the resolution of the Federal2006 Tax Audit.Audits.
Discontinued operations represent the operations in the Company's Sale of the Asset Management Business to Legg Mason Inc., and the Sale of the Life Insurance and Annuities Business. For 2006, income from discontinued operations included a gain from the Sale of the Asset Management Business in Poland, as well as a tax reserve release of $59$76 million relating to the resolution of the Federal2006 Tax Audit.Audits. See Note 2 on page 87.57.
Citigroup's risk management framework balances strong corporate oversight with well-defined independent risk management functions within each business. The Citigroup risk management framework is described in Citigroup's 2006 Annual Report on Form 10-K.
The Citigroup Senior Risk Officer is responsible for:
The independent risk managers at the business level are responsible for establishing and implementing risk management policies and practices within their business, for overseeing the risk in their business, and for responding to the needs and issues of their business.
RISK CAPITAL
Risk capital is defined as the amount of capital required to absorb potential unexpected economic losses resulting from extremely severe events over a one-year time period.
Risk capital is used in the calculation of return on risk capital (RORC) and return on invested capital (ROIC).
RORC, calculated as annualized income from continuing operations divided by average risk capital, compares business income with the capital required to absorb the risks. It is used to assess businesses' operating performance and to determine incremental allocation of capital for organic growth.
ROIC is calculated using income adjusted to exclude a net internal funding cost Citigroup levies on the goodwill and intangible assets of each business. This adjusted annualized income is divided by the sum of each business's average risk capital, goodwill and intangible assets (excluding mortgage servicing rights, which are captured in risk capital). ROIC thus compares business income with the total invested capital—risk capital, goodwill and intangible assets—used to generate that income. ROIC is used to assess returns on potential acquisitions and divestitures, and to compare long-term performance of businesses with differing proportions of organic and acquired growth.
The drivers of "economic losses" are risks, which can be broadly categorized as credit risk (including cross-border risk), market risk and operational risk:
These risks are measured and aggregated within businesses and across Citigroup to facilitate the understanding of the Company's exposure to extreme downside events.
At March 31, 2007, December 31, 2006, and March 31,September 30, 2006, risk capital for Citigroup was composed of the following risk types:
In billions of dollars | Mar. 31, 2007 | Dec. 31, 2006 | Mar. 31, 2006 | Sept. 30, 2007 | June 30, 2007 | Sept. 30, 2006 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Credit risk | $ | 38.3 | $ | 36.7 | $ | 36.3 | $ | 45.5 | $ | 42.8 | $ | 36.1 | ||||||||
Market risk | 29.1 | 21.5 | 17.4 | 30.6 | 28.9 | 18.8 | ||||||||||||||
Operational risk | 7.9 | 8.0 | 8.1 | 7.7 | 7.9 | 8.3 | ||||||||||||||
Intersector diversification(1) | (6.3 | ) | (6.4 | ) | (5.7 | ) | (5.4 | ) | (5.4 | ) | (6.1 | ) | ||||||||
Total Citigroup | $ | 69.0 | $ | 59.8 | $ | 56.1 | $ | 78.4 | $ | 74.2 | $ | 57.1 | ||||||||
Return on risk capital (quarterly) | 31 | % | 35 | % | 41 | % | ||||||||||||||
Return on invested capital | 17 | % | 17 | % | 20 | % | ||||||||||||||
Return on risk capital (third quarter) | 12 | % | 37 | % | ||||||||||||||||
Return on invested capital (third quarter) | 7 | % | 19 | % | ||||||||||||||||
Return on risk capital (nine months) | 25 | % | 39 | % | ||||||||||||||||
Return on invested capital (nine months) | 15 | % | 19 | % | ||||||||||||||||
The increase in Citigroup's risk capital versus December 31, 2006 was primarily related to the 2007 first quarter methodology update for the implementation of SFAS 158, higher interest rate risk, the 2007 first quarter methodology update for market risk for proprietary investments, credit portfolio growth, and recent acquisitions and investments.
Average risk capital, return on risk capital and return on invested capital are provided for each segment and product and are disclosed on pages 14 - 44.
The increase in average risk capital compared to the first quarter of 2006 was primarily driven by increases in Global Consumer and Markets & Banking. Average risk capital of $31.7 billion in Global Consumer increased $3.9 billion, or 14%, driven mostly by higher interest rate risk and recent acquisitions and strategic investments. Average risk capital of $24.1 billion in Markets & Banking increased $3.6 billion, or 17%, driven mostly by portfolio growth, updated methodology for market risk for proprietary investments, higher interest rate risk, and the recent strategic investments.
CREDIT RISK MANAGEMENT PROCESS
Credit risk arises in many of the Company's business activities, including:
14–24.
DETAILS OF CREDIT LOSS EXPERIENCE
In millions of dollars | In millions of dollars | 1st Qtr. 2007 | 4th Qtr. 2006 | 3rd Qtr. 2006 | 2nd Qtr. 2006 | 1st Qtr. 2006 | In millions of dollars | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 1st Qtr. 2007 | 4th Qtr. 2006 | 3rd Qtr. 2006 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for loan losses at beginning of period | Allowance for loan losses at beginning of period | $ | 8,940 | $ | 8,979 | $ | 9,144 | $ | 9,505 | $ | 9,782 | Allowance for loan losses at beginning of period | $ | 10,381 | $ | 9,510 | $ | 8,940 | $ | 8,979 | $ | 9,144 | ||||||||||||
Provision for loan losses | Provision for loan losses | Provision for loan losses | ||||||||||||||||||||||||||||||||
Consumer | $ | 2,443 | $ | 2,028 | $ | 1,736 | $ | 1,426 | $ | 1,446 | Consumer | $ | 4,623 | $ | 2,583 | $ | 2,443 | $ | 2,028 | $ | 1,736 | |||||||||||||
Corporate | 263 | 85 | 57 | 10 | (50 | ) | Corporate | 153 | (63 | ) | 263 | 85 | 57 | |||||||||||||||||||||
$ | 2,706 | $ | 2,113 | $ | 1,793 | $ | 1,436 | $ | 1,396 | $ | 4,776 | $ | 2,520 | $ | 2,706 | $ | 2,113 | $ | 1,793 | |||||||||||||||
Gross credit losses | Gross credit losses | Gross credit losses | ||||||||||||||||||||||||||||||||
Consumer | Consumer | Consumer | ||||||||||||||||||||||||||||||||
In U.S. offices | $ | 1,291 | $ | 1,223 | $ | 1,091 | $ | 1,090 | $ | 1,105 | In U.S. offices | $ | 1,382 | $ | 1,264 | $ | 1,291 | $ | 1,223 | $ | 1,091 | |||||||||||||
In offices outside the U.S. | 1,341 | 1,309 | 1,227 | 1,145 | 1,037 | In offices outside the U.S. | 1,617 | 1,346 | 1,341 | 1,309 | 1,227 | |||||||||||||||||||||||
Corporate | Corporate | Corporate | ||||||||||||||||||||||||||||||||
In U.S. offices | 6 | 13 | 6 | 44 | 15 | In U.S. offices | 18 | 22 | 6 | 13 | 6 | |||||||||||||||||||||||
In offices outside the U.S. | 29 | 97 | 38 | 75 | 26 | In offices outside the U.S. | 74 | 30 | 29 | 97 | 38 | |||||||||||||||||||||||
$ | 2,667 | $ | 2,642 | $ | 2,362 | $ | 2,354 | $ | 2,183 | $ | 3,091 | $ | 2,662 | $ | 2,667 | $ | 2,642 | $ | 2,362 | |||||||||||||||
Credit recoveries | Credit recoveries | Credit recoveries | ||||||||||||||||||||||||||||||||
Consumer | Consumer | Consumer | ||||||||||||||||||||||||||||||||
In U.S. offices | $ | 214 | $ | 165 | $ | 153 | $ | 183 | $ | 190 | In U.S. offices | $ | 166 | $ | 175 | $ | 214 | $ | 165 | $ | 153 | |||||||||||||
In offices outside the U.S. | 286 | 307 | 350 | 298 | 319 | In offices outside the U.S. | 279 | 343 | 286 | 307 | 350 | |||||||||||||||||||||||
Corporate | Corporate | Corporate | ||||||||||||||||||||||||||||||||
In U.S. offices | 18 | 2 | 5 | 12 | 2 | In U.S. offices | 1 | 9 | 18 | 2 | 5 | |||||||||||||||||||||||
In offices outside the U.S. | 40 | 26 | 48 | 65 | 72 | In offices outside the U.S. | 59 | 80 | 40 | 26 | 48 | |||||||||||||||||||||||
$ | 558 | $ | 500 | $ | 556 | $ | 558 | $ | 583 | $ | 505 | $ | 607 | $ | 558 | $ | 500 | $ | 556 | |||||||||||||||
Net credit losses | Net credit losses | Net credit losses | ||||||||||||||||||||||||||||||||
In U.S. offices | $ | 1,065 | $ | 1,069 | $ | 939 | $ | 939 | $ | 928 | In U.S. offices | $ | 1,233 | $ | 1,102 | $ | 1,065 | $ | 1,069 | $ | 939 | |||||||||||||
In offices outside the U.S. | 1,044 | 1,073 | 867 | 857 | 672 | In offices outside the U.S. | 1,353 | 953 | 1,044 | 1,073 | 867 | |||||||||||||||||||||||
Total | Total | $ | 2,109 | $ | 2,142 | $ | 1,806 | $ | 1,796 | $ | 1,600 | Total | $ | 2,586 | $ | 2,055 | $ | 2,109 | $ | 2,142 | $ | 1,806 | ||||||||||||
Other—net(1)(2)(3)(4)(5) | Other—net(1)(2)(3)(4)(5) | $ | (27 | ) | $ | (10 | ) | $ | (152 | ) | $ | (1 | ) | $ | (73 | ) | Other—net(1)(2)(3)(4)(5) | $ | 157 | $ | 406 | $ | (27 | ) | $ | (10 | ) | $ | (152 | ) | ||||
Allowance for loan losses at end of period | Allowance for loan losses at end of period | $ | 9,510 | $ | 8,940 | $ | 8,979 | $ | 9,144 | $ | 9,505 | Allowance for loan losses at end of period | $ | 12,728 | $ | 10,381 | $ | 9,510 | $ | 8,940 | $ | 8,979 | ||||||||||||
Allowance for unfunded lending commitments(6) | Allowance for unfunded lending commitments(6) | $ | 1,100 | $ | 1,100 | $ | 1,100 | $ | 1,050 | $ | 900 | Allowance for unfunded lending commitments(6) | $ | 1,150 | $ | 1,100 | $ | 1,100 | $ | 1,100 | $ | 1,100 | ||||||||||||
Total allowance for loans and unfunded lending commitments | $ | 10,610 | $ | 10,040 | $ | 10,079 | $ | 10,194 | $ | 10,405 | ||||||||||||||||||||||||
Total allowance for loan losses and unfunded lending commitments | Total allowance for loan losses and unfunded lending commitments | $ | 13,878 | $ | 11,481 | $ | 10,610 | $ | 10,040 | $ | 10,079 | |||||||||||||||||||||||
Net consumer credit losses | Net consumer credit losses | $ | 2,132 | $ | 2,060 | $ | 1,815 | $ | 1,754 | $ | 1,633 | Net consumer credit losses | $ | 2,554 | $ | 2,092 | $ | 2,132 | $ | 2,060 | $ | 1,815 | ||||||||||||
As a percentage of average consumer loans | As a percentage of average consumer loans | 1.69 | % | 1.64 | % | 1.49 | % | 1.48 | % | 1.46 | % | As a percentage of average consumer loans | 1.81 | % | 1.56 | % | 1.69 | % | 1.64 | % | 1.49 | % | ||||||||||||
Net corporate credit losses/(recoveries) | Net corporate credit losses/(recoveries) | $ | (23 | ) | $ | 82 | $ | (9 | ) | $ | 42 | $ | (33 | ) | Net corporate credit losses/(recoveries) | $ | 32 | $ | (37 | ) | $ | (23 | ) | $ | 82 | $ | (9 | ) | ||||||
As a percentage of average corporate loans | As a percentage of average corporate loans | NM | 0.05 | % | NM | — | NM | As a percentage of average corporate loans | 0.02 | % | NM | NM | 0.05 | % | NM | |||||||||||||||||||
NM
CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS
In millions of dollars | Mar. 31 2007 | Dec. 31, 2006 | Sept. 30, 2006 | June 30, 2006 | Mar. 31, 2006 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate cash-basis loans | |||||||||||||||
Collateral dependent (at lower of cost or collateral value)(1) | $ | 19 | $ | 19 | $ | 15 | $ | — | $ | — | |||||
Other | 481 | 516 | 677 | 799 | 821 | ||||||||||
Total | $ | 500 | $ | 535 | $ | 692 | $ | 799 | $ | 821 | |||||
Corporate cash-basis loans | |||||||||||||||
In U.S. offices | $ | 38 | $ | 58 | $ | 23 | $ | 24 | $ | 65 | |||||
In offices outside the U.S. | 462 | 477 | 669 | 775 | 756 | ||||||||||
Total | $ | 500 | $ | 535 | $ | 692 | $ | 799 | $ | 821 | |||||
Renegotiated loans (includes Corporate and Commercial Business Loans) | $ | 26 | $ | 22 | $ | 23 | $ | 23 | $ | 30 | |||||
Consumer loans on which accrual of interest had been suspended | |||||||||||||||
In U.S. offices | $ | 2,501 | $ | 2,490 | $ | 2,231 | $ | 1,985 | $ | 2,088 | |||||
In offices outside the U.S. | 2,077 | 2,022 | 1,958 | 1,872 | 1,664 | ||||||||||
Total | $ | 4,578 | $ | 4,512 | $ | 4,189 | $ | 3,857 | $ | 3,752 | |||||
Accruing loans 90 or more days delinquent(2) | |||||||||||||||
In U.S. offices | $ | 2,374 | $ | 2,260 | $ | 2,576 | $ | 2,403 | $ | 2,531 | |||||
In offices outside the U.S. | 532 | 524 | 448 | 431 | 410 | ||||||||||
Total | $ | 2,906 | $ | 2,784 | $ | 3,024 | $ | 2,834 | $ | 2,941 | |||||
Other Real Estate Owned and Other Repossessed Assets
In millions of dollars | Mar. 31, 2007 | Dec. 31, 2006 | Sept. 30, 2006 | June 30, 2006 | Mar. 31, 2006 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Other real estate owned(1) | |||||||||||||||
Consumer | $ | 461 | $ | 385 | $ | 356 | $ | 324 | $ | 322 | |||||
Corporate | 348 | 316 | 193 | 171 | 144 | ||||||||||
Total other real estate owned | $ | 809 | $ | 701 | $ | 549 | $ | 495 | $ | 466 | |||||
Other repossessed assets(2) | $ | 77 | $ | 75 | $ | 62 | $ | 53 | $ | 52 | |||||
Citigroup's Consumer Loan portfolio is well diversified by both product and location.
In the Consumer portfolio, credit loss experience is often expressed in terms of annualized net credit losses as a percentage of average loans. Consumer loans are generally written off no later than a predetermined number of days past due on a contractual basis, or earlier in the event of bankruptcy.
U.S. Commercial Business includes loans and leases made principally to small- and middle-market businesses. These are placed on a non-accrual basis when it is determined that the payment of interest or principal is past due for 90 days or more, except when the loan is well secured and in the process of collection.
The following table summarizes delinquency and net credit loss experience in both the managed and on-balance sheet Consumer Loan portfolios. The managed loan portfolio includes held-for-sale and securitized credit card receivables, which affects onlyU.S. Cards from a product view andU.S. from a regional view. Although a managed basis presentation is not in conformity with GAAP, the Company believes managed credit statistics provide a representation of performance and key indicators of the credit card business that is consistent with the way management reviews operating performance and allocates resources. For example, theU.S. Cards business considers both on-balance sheet and securitized balances (together, its managed portfolio) when determining capital allocation and general management decisions and compensation. Furthermore, investors use information about the credit quality of the entire managed portfolio, as the results of both the on-balance sheet and securitized portfolios impact the overall performance of theU.S. Cards business. For a further discussion of managed-basis reporting, see Note 13 on page 98.
Consumer Loan Delinquency Amounts, Net Credit Losses, and Ratios
| Total Loans | 90 Days or More Past Due(1) | Average Loans | Net Credit Losses(1) | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except total and average loan amounts in billions Product View: | Mar. 31, 2007 | Mar. 31, 2007 | Dec. 31, 2006 | Mar. 31, 2006 | 1st Qtr. 2007 | 1st Qtr. 2007 | 4th Qtr. 2006 | 1st Qtr. 2006 | |||||||||||||||||||
U.S.: | |||||||||||||||||||||||||||
U.S. Cards | $ | 35.9 | $ | 587 | $ | 718 | $ | 958 | $ | 38.9 | $ | 439 | $ | 439 | $ | 446 | |||||||||||
Ratio | 1.63 | % | 1.61 | % | 2.39 | % | 4.58 | % | 4.30 | % | 4.27 | % | |||||||||||||||
U.S. Retail Distribution | 48.4 | 847 | 834 | 740 | 47.6 | 335 | 337 | 279 | |||||||||||||||||||
Ratio | 1.75 | % | 1.73 | % | 1.73 | % | 2.85 | % | 2.88 | % | 2.66 | % | |||||||||||||||
U.S. Consumer Lending | 218.6 | 3,026 | 2,870 | 2,411 | 216.6 | 286 | 258 | 176 | |||||||||||||||||||
Ratio | 1.38 | % | 1.36 | % | 1.25 | % | 0.53 | % | 0.49 | % | 0.38 | % | |||||||||||||||
U.S. Commercial Business | 37.6 | 195 | 149 | 151 | 36.6 | 19 | 23 | 14 | |||||||||||||||||||
Ratio | 0.52 | % | 0.41 | % | 0.44 | % | 0.21 | % | 0.25 | % | 0.17 | % | |||||||||||||||
International: | |||||||||||||||||||||||||||
International Cards | 32.2 | 736 | 709 | 535 | 31.2 | 384 | 402 | 218 | |||||||||||||||||||
Ratio | 2.29 | % | 2.29 | % | 2.22 | % | 4.99 | % | 5.39 | % | 3.64 | % | |||||||||||||||
International Consumer Finance | 25.3 | 592 | 608 | 437 | 25.0 | 430 | 380 | 319 | |||||||||||||||||||
Ratio | 2.34 | % | 2.43 | % | 1.93 | % | 6.98 | % | 6.05 | % | 5.78 | % | |||||||||||||||
International Retail Banking | 71.3 | 630 | 667 | 736 | 69.8 | 238 | 221 | 184 | |||||||||||||||||||
Ratio | 0.88 | % | 0.97 | % | 1.21 | % | 1.38 | % | 1.29 | % | 1.21 | % | |||||||||||||||
Private Bank(2) | 44.6 | 10 | 21 | 12 | 43.6 | — | — | (4 | ) | ||||||||||||||||||
Ratio | 0.02 | % | 0.05 | % | 0.03 | % | 0.00 | % | 0.00 | % | (0.04 | )% | |||||||||||||||
Other Consumer Loans | 2.7 | — | — | 43 | 2.6 | 1 | — | 1 | |||||||||||||||||||
On-Balance Sheet in Loans(3) | $ | 516.6 | $ | 6,623 | $ | 6,576 | $ | 6,023 | $ | 511.9 | $ | 2,132 | $ | 2,060 | $ | 1,633 | |||||||||||
Ratio | 1.28 | % | 1.29 | % | 1.31 | % | 1.69 | % | 1.64 | % | 1.46 | % | |||||||||||||||
Securitized receivables (all in U.S. Cards) | $ | 98.6 | $ | 1,528 | $ | 1,616 | $ | 1,403 | $ | 97.3 | $ | 1,150 | $ | 1,094 | $ | 871 | |||||||||||
Credit card receivables held-for-sale | 3.0 | 47 | — | — | 3.0 | — | — | 4 | |||||||||||||||||||
Managed Loans(4) | $ | 618.2 | $ | 8,198 | $ | 8,192 | $ | 7,426 | $ | 612.2 | $ | 3,282 | $ | 3,154 | $ | 2,508 | |||||||||||
Ratio | 1.33 | % | 1.34 | % | 1.34 | % | 2.17 | % | 2.09 | % | 1.85 | % | |||||||||||||||
Regional View: | |||||||||||||||||||||||||||
U.S. | $ | 371.5 | $ | 4,663 | $ | 4,584 | $ | 4,312 | $ | 370.2 | $ | 1,080 | $ | 1,058 | $ | 916 | |||||||||||
Ratio | 1.26 | % | 1.24 | % | 1.27 | % | 1.18 | % | 1.16 | % | 1.11 | % | |||||||||||||||
Mexico | 16.9 | 507 | 625 | 541 | 16.5 | 182 | 163 | 106 | |||||||||||||||||||
Ratio | 3.00 | % | 3.78 | % | 3.68 | % | 4.47 | % | 3.97 | % | 2.87 | % | |||||||||||||||
EMEA | 45.7 | 582 | 574 | 487 | 44.4 | 317 | 303 | 250 | |||||||||||||||||||
Ratio | 1.27 | % | 1.32 | % | 1.32 | % | 2.89 | % | 2.84 | % | 2.77 | % | |||||||||||||||
Japan | 10.9 | 227 | 235 | 170 | 11.0 | 313 | 273 | 223 | |||||||||||||||||||
Ratio | 2.08 | % | 2.08 | % | 1.48 | % | 11.57 | % | 9.43 | % | 7.83 | % | |||||||||||||||
Asia | 63.7 | 432 | 439 | 473 | 62.7 | 164 | 186 | 136 | |||||||||||||||||||
Ratio | 0.68 | % | 0.71 | % | 0.87 | % | 1.06 | % | 1.22 | % | 1.01 | % | |||||||||||||||
Latin America | 7.9 | 212 | 119 | 40 | 7.1 | 76 | 77 | 2 | |||||||||||||||||||
Ratio | 2.69 | % | 1.84 | % | 0.99 | % | 4.36 | % | 4.98 | % | 0.21 | % | |||||||||||||||
On-Balance Sheet in Loans(3) | $ | 516.6 | $ | 6,623 | $ | 6,576 | $ | 6,023 | $ | 511.9 | $ | 2,132 | $ | 2,060 | $ | 1,633 | |||||||||||
Ratio | 1.28 | % | 1.29 | % | 1.31 | % | 1.69 | % | 1.64 | % | 1.46 | % | |||||||||||||||
Securitized receivables (all in U.S. Cards) | $ | 98.6 | $ | 1,528 | $ | 1,616 | $ | 1,403 | $ | 97.3 | $ | 1,150 | $ | 1,094 | $ | 871 | |||||||||||
Credit card receivables held-for-sale | 3.0 | 47 | — | — | 3.0 | — | — | 4 | |||||||||||||||||||
Managed Loans(4) | $ | 618.2 | $ | 8,198 | $ | 8,192 | $ | 7,426 | $ | 612.2 | $ | 3,282 | $ | 3,154 | $ | 2,508 | |||||||||||
Ratio | 1.33 | % | 1.34 | % | 1.34 | % | 2.17 | % | 2.09 | % | 1.85 | % | |||||||||||||||
Consumer Loan Balances, Net of Unearned Income
| End of Period | Average | End of Period | Average | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Mar. 31, 2007 | Dec. 31, 2006 | Mar. 31, 2006 | 1st Qtr. 2007 | 4th Qtr 2006 | 1st Qtr. 2006 | Sept. 30, 2007 | June 30, 2007 | Sept. 30, 2006 | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | ||||||||||||||||||||||||
On-balance sheet(1) | $ | 516.6 | $ | 510.8 | $ | 459.4 | $ | 511.9 | $ | 498.0 | $ | 454.8 | $ | 568.9 | $ | 548.6 | $ | 486.2 | $ | 558.7 | $ | 539.3 | $ | 483.1 | ||||||||||||
Securitized receivables (all inU.S. Cards) | 98.6 | 99.5 | 95.9 | 97.3 | 99.1 | 94.7 | 104.0 | 101.1 | 99.2 | 101.0 | 97.5 | 97.3 | ||||||||||||||||||||||||
Credit card receivables held-for-sale(2) | 3.0 | — | — | 3.0 | 0.2 | 0.3 | 3.0 | 2.9 | 0.6 | 3.0 | 3.3 | 0.5 | ||||||||||||||||||||||||
Total managed(3) | $ | 618.2 | $ | 610.3 | $ | 555.3 | $ | 612.2 | $ | 597.3 | $ | 549.8 | $ | 675.9 | $ | 652.6 | $ | 586.0 | $ | 662.7 | $ | 640.1 | $ | 580.9 | ||||||||||||
Citigroup's total allowance for loans, leases and unfunded lending commitments of $10.610$13.878 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the Consumer portfolio was $6.338$9.200 billion at March 31,September 30, 2007, $6.006$7.206 billion at December 31, 2006June 30, 2007 and $6.647$6.087 billion at March 31,September 30, 2006. The decreaseincrease in the allowance for credit losses from March 31,September 30, 2006 of $309 million included:$3.113 billion included net builds of $2.839 billion.
The build primarily related toreflected a decline in bankruptcy filings due to the impactweakening of the change in bankruptcy legislationleading credit indicators, including increased delinquencies on
Offsetting these reductions in the allowance for credit losses was the impact of reserve builds of $856 million, primarily related to increased reserves to reflect: a change in estimate of loan losses inherent in the initial tenor portion of the Consumer Loan portfolio; increased delinquencies in second mortgages, and portfolio growth in theU.S. Consumer Lending mortgage portfolio. Additionally, market expansion in Mexico Cards, the integration of the Credicard portfolio in Brazil and increased reserves inJapan, primarily related to the change in the operating environment in the consumer finance business, and the passage on December 13, 2006, of changes to Japan's consumer lending laws, added to the increase. The acquisition of the CrediCard portfolio and the Grupo Financiero Uno business increased the allowance for credit losses by $84 million and $75 million, respectively inLatin America.losses.
On-balance sheet consumer loans of $516.6$568.9 billion increased $57.2$82.7 billion, or 12%17%, from March 31,September 30, 2006, primarily driven by growth in mortgage and other real-estate-secured loans in theU.S. Consumer Lending,,U.S. Commercial Business, andPrivate Bank businesses, as well as growth inU.S. Retail Distribution, International Cards, International Retail Banking and all International businesses.
Global Wealth Management. Net credit losses, delinquencies and the related ratios are affected by the credit performance of the portfolios, including bankruptcies, unemployment, global economic conditions, portfolio growth and seasonal factors, as well as macro-economic and regulatory policies.
The Company expects that credit costs in the fourth quarter of 2007 will increase compared to the fourth quarter of 2006 with the expectation that the U.S. consumer credit environment will continue to deteriorate causing higher credit costs.
EXPOSURE TO U.S. RESIDENTIAL REAL ESTATE
Sub-prime Related Exposure inSecurities and Banking
The Company has approximately $55 billion in U.S. sub-prime related direct exposures in itsSecurities and Banking (S&B) business.
The $55 billion in U.S. sub-prime direct exposure in S&B as of September 30, 2007 consisted of (a) approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and (b) approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities (ABS CDOs).
Lending and Structuring Exposures
The $11.7 billion of sub-prime related exposures includes approximately $2.7 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $4.2 billion of actively managed sub-prime loans purchased for resale or securitization at a discount to par primarily in the last six months, and approximately $4.8 billion of financing transactions with customers secured by sub-prime collateral. (See Note 1 below.) These amounts represent fair value determined based on observable transactions and other market data. Following the downgrades and market developments discussed on page 9, the fair value of the CDO warehouse inventory and unsold tranches of ABS CDOs has declined significantly, while the declines in the fair value of the other sub-prime related exposures in the lending and structuring business have not been significant.
ABS CDO Super Senior Exposures
Citi's $43 billion in ABS CDO super senior exposures as of September 30, 2007 is backed primarily by sub-prime RMBS collateral. These exposures include approximately $25 billion in commercial paper principally secured by super senior tranches of high grade ABS CDOs and approximately $18 billion of super senior tranches of ABS CDOs, consisting of approximately $10 billion of high grade ABS CDOs, approximately $8 billion of mezzanine ABS CDOs and approximately $0.2 billion of ABS CDO-squared transactions.
Although the principal collateral underlying these super senior tranches is U.S. sub-prime RMBS, as noted above, these exposures represent the most senior tranches of the capital structure of the ABS CDOs. These super senior tranches are not subject to valuation based on observable market transactions. Accordingly, fair value of these super senior exposures is based on estimates about, among other things, future housing prices to predict estimated cash flows, which are then discounted to a present value. The rating agency downgrades and market developments referred to above have led to changes in the appropriate discount rates applicable to these super senior tranches, which have resulted in significant declines in the estimates of the fair value of S&B super senior exposures.
U.S. Consumer Mortgage Lending
The Company's U.S. Consumer Mortgage portfolio consists of both first and second mortgages. As of September 30, 2007, the first mortgage portfolio totaled approximately $155 billion, of which 84% ($131 billion) had a FICO (Fair Isaac Corporation) credit score of at least 620 at origination; the other 16% ($24 billion) were originated in the FICO<620 category, which is one working definition for "sub-prime" mortgages in the industry. The Company observed higher delinquencies in the under 620 FICO category (at origination), as well as across some higher FICO bands during the third quarter of 2007.
In the Company's $62 billion second mortgage portfolio, the vast majority of loans are in the higher FICO categories. However, the Company has approximately 34% ($21 billion) of its portfolio in the category where LTV>=90% at origination, where higher levels of delinquencies were observed during the third quarter of 2007.
In light of increased delinquencies in both its first and second mortgage portfolios during the first nine months of 2007, the Company has increased reserves for loans in these portfolios during this period of 2007. There were minimal changes in the (origination FICO/LTV) composition of the U.S. Consumer Mortgage portfolio from June 30, 2007 to September 30, 2007. The disclosures above exclude approximately $21 billion of consumer mortgage loans in Global Wealth Management (GWM). The GWM loans are largely in the U.S. and do not have any sub-prime classifications.
CORPORATE CREDIT RISK
For corporate clients and investment banking activities across the organization, the credit process is grounded in a series of fundamental policies, including:
Credit Exposure Arising from Derivatives and Foreign Exchange
Citigroup uses derivatives as both an end-user for asset/liability management and in its client businesses. In Markets & Banking, Citigroup enters into derivatives for trading purposes or to enable customers to transfer, modify or reduce their interest rate, foreign exchange and other market risks. In addition, Citigroup uses derivatives and other instruments, primarily interest rate and foreign exchange products, as an end-user to manage interest rate risk relating to specific groups of interest-sensitive assets and liabilities. Also, foreign exchange contracts are used to hedge non-U.S. dollar denominated debt, net capital exposures and foreign exchange transactions.
The Company's credit exposure on derivatives and foreign exchange contracts is primarily to professional counterparties in the financial sector, arising from transactions with banks, investment banks, governments and central banks, and other financial institutions.
For purposes of managing credit exposure on derivative and foreign exchange contracts, particularly when looking at exposure to a single counterparty, the Company measures and monitors credit exposure taking into account the current mark-to-market value of each contract plus a prudent estimate of its potential change in value over its life. This measurement of the potential future exposure for each credit facility is based on a stressed simulation of market rates and generally takes into account legally enforceable risk-mitigating agreements for each obligor such as netting and margining.
For asset/liability management hedges that are subject to SFAS 133, the hedging derivative must be highly effective in accomplishing the hedge objective of offsetting either changes in the fair value or cash flows of the hedged item for the risk being hedged. Any ineffectiveness present in the hedge relationship is recognized in current earnings. The assessment of effectiveness excludes the changes in the value of the hedged item that are unrelated to the risks being hedged. Similarly, the assessment of effectiveness may exclude changes in the fair value of a derivative related to time value, which, if excluded, is recognized in current earnings.
The following tables summarize by derivative type the notionals, receivables and payables held for trading and asset/liability management hedge purposes as of March 31,September 30, 2007 and December 31, 2006. A portion of the asset/liability management hedges are accounted for under SFAS 133, andas described in Note 15 on page 102.75.
Notionals(1)
| | Trading Derivatives(2) | Asset/Liability Management Hedges(3) | | Trading Derivatives(2) | Asset/Liability Management Hedges(3) | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | March 31, 2007 | December 31, 2006 | March 31, 2007 | December 31, 2006 | In millions of dollars | September 30, 2007 | December 31, 2006 | September 30, 2007 | December 31, 2006 | ||||||||||||||||
Interest rate contracts | Interest rate contracts | Interest rate contracts | ||||||||||||||||||||||||
Swaps | $ | 15,127,660 | $ | 14,196,404 | $ | 584,647 | $ | 561,376 | Swaps | $ | 17,668,498 | $ | 14,196,404 | $ | 702,664 | $ | 561,376 | |||||||||
Futures and forwards | 2,115,956 | 1,824,205 | 132,102 | 75,374 | Futures and forwards | 2,104,898 | 1,824,205 | 113,710 | 75,374 | |||||||||||||||||
Written options | 4,018,792 | 3,054,990 | 31,078 | 12,764 | Written options | 4,094,788 | 3,054,990 | 16,831 | 12,764 | |||||||||||||||||
Purchased options | 3,986,488 | 2,953,122 | 62,645 | 35,420 | Purchased options | 4,254,835 | 2,953,122 | 132,006 | 35,420 | |||||||||||||||||
Total interest rate contract notionals | Total interest rate contract notionals | $ | 25,248,896 | $ | 22,028,721 | $ | 810,472 | $ | 684,934 | Total interest rate contract notionals | $ | 28,123,019 | $ | 22,028,721 | $ | 965,211 | $ | 684,934 | ||||||||
Foreign exchange contracts | Foreign exchange contracts | Foreign exchange contracts | ||||||||||||||||||||||||
Swaps | $ | 770,255 | $ | 722,063 | $ | 60,181 | $ | 53,216 | Swaps | $ | 1,009,341 | $ | 722,063 | $ | 74,495 | $ | 53,216 | |||||||||
Futures and forwards | 2,271,735 | 2,068,310 | 41,955 | 42,675 | Futures and forwards | 2,495,058 | 2,068,310 | 42,869 | 42,675 | |||||||||||||||||
Written options | 482,675 | 416,951 | 886 | 1,228 | Written options | 635,168 | 416,951 | 327 | 1,228 | |||||||||||||||||
Purchased options | 458,963 | 404,859 | 761 | 1,246 | Purchased options | 611,682 | 404,859 | 621 | 1,246 | |||||||||||||||||
Total foreign exchange contract notionals | Total foreign exchange contract notionals | $ | 3,983,628 | $ | 3,612,183 | $ | 103,783 | $ | 98,365 | Total foreign exchange contract notionals | $ | 4,751,249 | $ | 3,612,183 | $ | 118,312 | $ | 98,365 | ||||||||
Equity contracts | Equity contracts | Equity contracts | ||||||||||||||||||||||||
Swaps | $ | 127,252 | $ | 104,320 | $ | — | $ | — | Swaps | $ | 159,733 | $ | 104,320 | $ | — | $ | — | |||||||||
Futures and forwards | 26,921 | 36,362 | — | — | Futures and forwards | 37,481 | 36,362 | — | — | |||||||||||||||||
Written options | 584,088 | 387,781 | — | — | Written options | 641,920 | 387,781 | — | — | |||||||||||||||||
Purchased options | 541,841 | 355,891 | — | — | Purchased options | 588,452 | 355,891 | — | — | |||||||||||||||||
Total equity contract notionals | Total equity contract notionals | $ | 1,280,102 | $ | 884,354 | $ | — | $ | — | Total equity contract notionals | $ | 1,427,586 | $ | 884,354 | $ | — | $ | — | ||||||||
Commodity and other contracts | Commodity and other contracts | Commodity and other contracts | ||||||||||||||||||||||||
Swaps | $ | 41,146 | $ | 35,611 | $ | — | $ | — | Swaps | $ | 40,624 | $ | 35,611 | $ | — | $ | — | |||||||||
Futures and forwards | 45,005 | 17,433 | — | — | Futures and forwards | 56,114 | 17,433 | — | — | |||||||||||||||||
Written options | 15,407 | 11,991 | — | — | Written options | 21,895 | 11,991 | — | — | |||||||||||||||||
Purchased options | 16,869 | 16,904 | — | — | Purchased options | 28,761 | 16,904 | — | — | |||||||||||||||||
Total commodity and other contract notionals | Total commodity and other contract notionals | $ | 118,427 | $ | 81,939 | $ | — | $ | — | Total commodity and other contract notionals | $ | 147,394 | $ | 81,939 | $ | — | $ | — | ||||||||
Credit derivatives | Credit derivatives | $ | 2,467,859 | $ | 1,944,980 | $ | — | $ | — | Credit derivatives | $ | 3,534,927 | $ | 1,944,980 | $ | — | $ | — | ||||||||
Total derivative notionals | Total derivative notionals | $ | 33,098,912 | $ | 28,552,177 | $ | 914,255 | $ | 783,299 | Total derivative notionals | $ | 37,984,175 | $ | 28,552,177 | $ | 1,083,523 | $ | 783,299 | ||||||||
Mark-to-Market (MTM) Receivables/Payables
| | Derivatives Receivables—MTM | Derivatives Payables—MTM | | Derivatives Receivables—MTM | Derivatives Payables—MTM | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | March 31, 2007 | December 31, 2006 | March 31, 2007 | December 31, 2006 | In millions of dollars | September 30, 2007 | December 31, 2006(4) | September 30, 2007 | December 31, 2006(4) | ||||||||||||||||||||
Trading Derivatives(2) | Trading Derivatives(2) | Trading Derivatives(2) | ||||||||||||||||||||||||||||
Interest rate contracts | $ | 171,536 | $ | 167,521 | $ | 174,217 | $ | 166,119 | Interest rate contracts | $ | 211,400 | $ | 168,872 | $ | 207,856 | $ | 168,793 | |||||||||||||
Foreign exchange contracts | 45,871 | 52,297 | 41,430 | 47,469 | Foreign exchange contracts | 79,519 | 52,297 | 72,033 | 47,469 | |||||||||||||||||||||
Equity contracts | 28,281 | 26,883 | 53,154 | 52,980 | Equity contracts | 35,958 | 26,883 | 76,138 | 52,980 | |||||||||||||||||||||
Commodity and other contracts | 5,216 | 5,387 | 5,462 | 5,776 | Commodity and other contracts | 7,078 | 5,387 | 7,019 | 5,776 | |||||||||||||||||||||
Credit derivative | 20,078 | 14,069 | 20,621 | 15,081 | Credit derivative | 52,389 | 14,069 | 49,334 | 15,081 | |||||||||||||||||||||
Total | $ | 270,982 | $ | 266,157 | $ | 294,884 | $ | 287,425 | Total | $ | 386,344 | $ | 267,508 | $ | 412,380 | $ | 290,099 | |||||||||||||
Less: Netting agreements, cash collateral and market value adjustments | (224,516 | ) | (216,616 | ) | (220,693 | ) | (212,621 | ) | Less: Netting agreements, cash collateral and market value adjustments | (301,186 | ) | (217,967 | ) | (298,465 | ) | (215,295 | ) | |||||||||||||
Net Receivables/Payables | $ | 46,466 | $ | 49,541 | $ | 74,191 | $ | 74,804 | Net Receivables/Payables | $ | 85,158 | $ | 49,541 | $ | 113,915 | $ | 74,804 | |||||||||||||
Asset/Liability Management Hedges(3) | Asset/Liability Management Hedges(3) | Asset/Liability Management Hedges(3) | ||||||||||||||||||||||||||||
Interest rate contracts | $ | 1,837 | $ | 1,801 | $ | 4,816 | $ | 3,327 | Interest rate contracts | $ | 1,614 | $ | 1,801 | $ | 4,951 | $ | 3,327 | |||||||||||||
Foreign exchange contracts | 3,861 | 3,660 | 681 | 947 | Foreign exchange contracts | 6,350 | 3,660 | 1,328 | 947 | |||||||||||||||||||||
Total | $ | 5,698 | $ | 5,461 | $ | 5,497 | $ | 4,274 | Total | $ | 7,964 | $ | 5,461 | $ | 6,279 | $ | 4,274 | |||||||||||||
GLOBAL CORPORATE PORTFOLIO REVIEW
Corporate loans are identified as impaired and placed on a non-accrual basis (cash-basis) when it is determined that the payment of interest or principal is doubtful or when interest or principal is past due for 90 days or more; the exception is when the loan is well secured and in the process of collection. Impaired corporate loans are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans are written down to the lower of cost or collateral value, less disposal costs.
The following table summarizes corporate cash-basis loans and net credit losses:
In millions of dollars | Mar. 31, 2007 | Dec. 31, 2006 | Mar. 31, 2006 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Corporate cash-basis loans | ||||||||||
Securities and Banking | $ | 474 | $ | 500 | $ | 745 | ||||
Transaction Services | 26 | 35 | 76 | |||||||
Total corporate cash-basis loans(1) | $ | 500 | $ | 535 | $ | 821 | ||||
Net credit losses (recoveries) | ||||||||||
Securities and Banking | $ | (28 | ) | $ | 70 | $ | (34 | ) | ||
Transaction Services | 5 | 6 | 1 | |||||||
Alternative Investments | 1 | — | — | |||||||
Corporate/Other | (1 | ) | 6 | — | ||||||
Total net credit losses (recoveries) | $ | (23 | ) | $ | 82 | $ | (33 | ) | ||
Corporate allowance for loan losses | $ | 3,172 | $ | 2,934 | $ | 2,858 | ||||
Corporate allowance for credit losses on unfunded lending commitments(2) | 1,100 | 1,100 | 900 | |||||||
Total corporate allowance for loans and unfunded lending commitments | $ | 4,272 | $ | 4,034 | $ | 3,758 | ||||
As a percentage of total corporate loans(3) | 1.82 | % | 1.76 | % | 2.00 | % | ||||
Cash-basis loans on March 31, 2007 decreased $321 million as compared with March 31, 2006; $271 million of the decrease was inSecurities and Banking and $50 million was inTransaction Services.Securities and Banking decreased primarily due to decreases in KorAm, Europe, Mexico and the Philippines.
Cash-basis loans decreased $35 million as compared to December 31, 2006 due to decreases of $26 million inSecurities and Banking and $9 million inTransaction Services. Securities and Banking primarily reflected declining charge-offs in North America, Mexico and Poland.
Total corporate Other Real Estate Owned (OREO) was $348 million, $316 million and $144 million at March 31, 2007, December 31, 2006, and March 31, 2006, respectively. The $204 million increase from March 31, 2006 reflects net foreclosures in the U.S. real estate portfolio.
Total corporate loans outstanding at March 31, 2007 were $174 billion as compared to $166 billion and $143 billion at December 31, 2006 and March 31, 2006, respectively.
Total corporate net credit recovery of $23 million on March 31, 2007 decreased $10 million compared to March 31, 2006, primarily due to continued improvements in the overall credit environment. Total corporate net credit losses increased $105 million compared to the 2006 fourth quarter, primarily due to the absence of write-offs in the fourth quarter of 2006.
Citigroup's allowance for credit losses for loans, leases and lending commitments of $10.610 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the Corporate portfolio was $4.272 billion at March 31, 2007, compared to $3.758 billion at March 31, 2006 and $4.034 billion at December 31, 2006, respectively. The $514 million increase in the total allowance at March 31, 2007 from March 31, 2006 primarily reflects reserve builds related to unfunded lending commitments and increases in expected losses during the year. There was a $238 million increase in the total allowance at March 31, 2007 from December 31, 2006 primarily reflects an increase in the reserve for $300 million based on portfolio growth in Markets & Banking, which includes higher commitments to leveraged transactions and an increase in average loan tenor. Losses on corporate lending activities and the level of cash-basis loans can vary widely with respect to timing and amount, particularly within any narrowly defined business or loan type.
MARKET RISK MANAGEMENT PROCESS
Market risk encompasses liquidity risk and price risk, both of which arise in the normal course of business of a global financial intermediary. Liquidity risk is the risk that an entity may be unable to meet a financial commitment to a customer, creditor, or investor when due. Liquidity risk is discussed in the "Capital Resources and Liquidity" on page 68.41. Price risk is the earnings risk from changes in interest rates, foreign exchange rates, equity and commodity prices, and in their implied volatilities. Price risk arises in non-trading portfolios, as well as in trading portfolios.
Market risks are measured in accordance with established standards to ensure consistency across businesses and the ability to aggregate risk. Each business is required to establish, with approval from independent market risk management, a market risk limit framework, including risk measures and controls, that clearly defines approved risk profiles and is within the parameters of Citigroup's overall risk appetite.
In all cases, the businesses are ultimately responsible for the market risks they take and for remaining within their defined limits.
Non-Trading Portfolios
Interest Rate Risk
One of Citigroup's primary business functions is providing financial products that meet the needs of its customers. Loans and deposits are tailored to the customer's requirements with regard to tenor, index, and rate type. Net Interest Revenue (NIR) is the difference between the yield earned on the non-trading portfolio assets (including customer loans) and rate paid on the liabilities (including customer deposits or company borrowings). The NIR is affected by changes in the level of interest rates. For example:
NIR in the current period is the result of customer transactions and the related contractual rates originated in prior periods as well as new transactions in the current period; those prior period transactions will be impacted by changes in rates on floating rate assets and liabilities in the current period.
Due to the long-term nature of the portfolios, NIR will vary from quarter to quarter even assuming no change in the shape or level of the yield curve as the assets and liabilities reprice. These repricings are a function of implied forward interest rates, which represent the overall market's unbiased estimate of future interest rates and incorporate possible changes in the Federal Funds rate as well as the shape of the yield curve.
Interest Rate Risk Governance
The risks in Citigroup's non-traded portfolios are estimated using a common set of standards that define, measure, limit and report the market risk. Each business is required to establish, with approval from independent market risk management, a market risk limit framework that clearly defines approved risk profiles and is within the parameters of Citigroup's overall risk appetite. In all cases, the businesses are ultimately responsible for the market risks they take and for remaining within their defined limits. These limits are monitored by independent market risk, country and business Asset and Liability Committees (ALCOs) and the Global Finance and Asset and Liability Committee (FinALCO).
Interest Rate Risk Measurement
Citigroup's principal measure of risk to NIR is Interest Rate Exposure (IRE). IRE measures the change in expected NIR in each currency resulting solely from unanticipated changes in forward interest rates. Factors such as changes in volumes, spreads, margins and the impact of prior-period pricing decisions are not captured by IRE. IRE assumes that businesses make no additional changes in pricing or balances in response to the unanticipated rate changes.
IRE tests the impact on NIR resulting from unanticipated changes in forward interest rates. For example, if the current 90-day LIBOR rate is 3.00% and the one-year forward rate is 5.00% (i.e., the estimated 90-day LIBOR rate in one year), the +100bps IRE scenario measures the impact of the firm's NIR of a 100bps instantaneous change in the 90-day LIBOR, to 6% in one year).
The impact of changing prepayment rates on loan portfolios is incorporated into the results. For example, in the declining interest rate scenarios, it is assumed that mortgage portfolios prepay faster and income is reduced. In addition, in a rising interest rate scenario, portions of the deposit portfolio are assumed to experience rate increases that are less than the change in market interest rates.
Mitigation and Hedging of Risk
All financial institutions' financial performance is subject to some degree of risk due to changes in interest rates. In order to manage these risks effectively, Citigroup may modify pricing on new customer loans and deposits, enter into transactions with other institutions or enter into off-balance sheet derivative transactions that have the opposite risk exposures. Therefore, Citigroup regularly assesses the viability of strategies to reduce unacceptable risks to earnings and implements such strategies when the Company believes those actions are prudent. As information becomes available, Citigroup formulates strategies aimed at protecting earnings from the potential negative effects of changes in interest rates.
Citigroup employs additional measurements, including stress testing the impact of non-linear interest rate movements on the value of the balance sheet; the analysis of portfolio duration and volatility, particularly as they relate to mortgage
loans and mortgage-backed securities; and the potential impact of the change in the spread between different market indices.
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 per quarter) parallel change in rates as compared with the market forward interest rates in selected currencies.
| March 31, 2007 | December 31, 2006 | March 31, 2006 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Increase | Decrease | Increase | Decrease | Increase | Decrease | |||||||||||||
U.S. dollar | |||||||||||||||||||
Instantaneous change | $ | (677 | ) | $ | 470 | $ | (728 | ) | $ | 627 | $ | (435 | ) | $ | 585 | ||||
Gradual change | $ | (335 | ) | $ | 348 | $ | (349 | ) | $ | 360 | $ | (266 | ) | $ | 271 | ||||
Mexican peso | |||||||||||||||||||
Instantaneous change | $ | 21 | $ | (21 | ) | $ | 42 | $ | (43 | ) | $ | 91 | $ | (92 | ) | ||||
Gradual change | $ | 21 | $ | (21 | ) | $ | 41 | $ | (41 | ) | $ | 63 | $ | (63 | ) | ||||
Euro | |||||||||||||||||||
Instantaneous change | $ | (123 | ) | $ | 123 | $ | (91 | ) | $ | 91 | $ | (56 | ) | $ | 56 | ||||
Gradual change | $ | (57 | ) | $ | 57 | $ | (38 | ) | $ | 38 | $ | (15 | ) | $ | 15 | ||||
Japanese yen | |||||||||||||||||||
Instantaneous change | $ | (38 | ) | NM | $ | (32 | ) | NM | $ | (5 | ) | NM | |||||||
Gradual change | $ | (26 | ) | NM | $ | (21 | ) | NM | $ | 5 | NM | ||||||||
Pound sterling | |||||||||||||||||||
Instantaneous change | $ | (22 | ) | $ | 22 | $ | (41 | ) | $ | 41 | $ | (22 | ) | $ | 21 | ||||
Gradual change | $ | (11 | ) | $ | 11 | $ | (21 | ) | $ | 21 | $ | 5 | $ | (5 | ) | ||||
The exposures in the following tables do not include interest rate exposures (IRE) for Nikko Cordial due to the unavailability of information. Nikko Cordial's IRE exposure is primarily denominated in Japanese yen.
| September 30, 2007 | June 30, 2007 | September 30, 2006 | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | |||||||||||||||||||
Increase | Decrease | Increase | Decrease | Increase | Decrease | ||||||||||||||
U.S. dollar | |||||||||||||||||||
Instantaneous change | $ | (684 | ) | $ | 738 | $ | (572 | ) | $ | 553 | $ | (375 | ) | $ | 258 | ||||
Gradual change | $ | (337 | ) | $ | 372 | $ | (309 | ) | $ | 329 | $ | (234 | ) | $ | 231 | ||||
Mexican peso | |||||||||||||||||||
Instantaneous change | $ | 5 | $ | (5 | ) | $ | (29 | ) | $ | 29 | $ | 46 | $ | (46 | ) | ||||
Gradual change | $ | (1 | ) | $ | 1 | $ | (14 | ) | $ | 14 | $ | 35 | $ | (35 | ) | ||||
Euro | |||||||||||||||||||
Instantaneous change | $ | (92 | ) | $ | 92 | $ | (97 | ) | $ | 97 | $ | (80 | ) | $ | 80 | ||||
Gradual change | $ | (38 | ) | $ | 38 | $ | (43 | ) | $ | 43 | $ | (39 | ) | $ | 39 | ||||
Japanese yen | |||||||||||||||||||
Instantaneous change | $ | 58 | NM | $ | (9 | ) | NM | $ | (14 | ) | NM | ||||||||
Gradual change | $ | 43 | NM | $ | (5 | ) | NM | $ | (8 | ) | NM | ||||||||
Pound sterling | |||||||||||||||||||
Instantaneous change | $ | (5 | ) | $ | 5 | $ | (19 | ) | $ | 19 | $ | (27 | ) | $ | 27 | ||||
Gradual change | $ | 8 | $ | (8 | ) | $ | 3 | $ | (3 | ) | $ | (18 | ) | $ | 18 | ||||
NM
The changes in the U.S. dollar interest rate exposures from December 31, 2006June 30, 2007 primarily reflectsreflect movements in customer-related asset and liability mix, as well as Citigroup'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 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Overnight rate change (bp) | — | 100 | 200 | (200 | ) | (100 | ) | — | |||||||||||
10-year rate change (bp) | (100 | ) | — | 100 | (100 | ) | — | 100 | |||||||||||
Impact to net interest revenue | $ | 29 | $ | (380 | ) | $ | (851 | ) | $ | 649 | $ | 383 | $ | (252 | ) | ||||
(in millions of dollars) |
Trading Portfolios
Price risk in trading portfolios is monitored using a series of measures, including:
Factor sensitivities are expressed as the change in the value of a position for a defined change in a market risk factor, such as a change in the value of a Treasury bill for a one basis point change in interest rates. Citigroup's independent market risk management ensures that factor sensitivities are calculated, monitored and, in most cases, limited, for all relevant risks taken in a trading portfolio.
VAR estimates the potential decline in the value of a position or a portfolio under normal market conditions. The VAR method incorporates the factor sensitivities of the trading portfolio with the volatilities and correlations of those factors and is expressed as the risk to the Company over a one-day holding period, at a 99% confidence level. Citigroup's VAR is based on the volatilities of and correlations between a multitude of market risk factors as well as factors that track the specific issuer risk in debt and equity securities.
Stress testing is performed on trading portfolios on a regular basis to estimate the impact of extreme market movements. It is performed on both individual trading portfolios, as well as on aggregations of portfolios and businesses. Independent market risk management, in conjunction with the businesses, develops stress scenarios, reviews the output of periodic stress testing exercises, and uses the information to make judgments as to the ongoing appropriateness of exposure levels and limits.
Each trading portfolio has its own market risk limit framework, encompassing these measures and other controls, including permitted product lists and a new product approval process for complex products.
Risk capital for market risk in trading portfolios is based on an annualized VAR figure.
Total revenues of the trading business consist of:
| Scenario 1 | Scenario 2 | Scenario 3 | Scenario 4 | Scenario 5 | Scenario 6 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Overnight rate change (bp) | — | 100 | 200 | (200 | ) | (100 | ) | — | |||||||||||
10-year rate change (bp) | (100 | ) | — | 100 | (100 | ) | — | 100 | |||||||||||
Impact to net interest revenue (in millions of dollars) | $ | 74 | $ | (377 | ) | $ | (779 | ) | $ | 836 | $ | 409 | $ | (60 | ) | ||||
All trading positions are marked-to-market, with the result reflected in earnings. Citigroup periodically performs extensive back-testing of many hypothetical test portfolios as one check of the accuracy of its VAR. Back-testing is the process in which the daily VAR of a portfolio is compared to the actual daily change in the market value of its transactions. Back-testing is conducted to confirm that the daily market value losses in excess of 99% confidence level occur, on average, only 1% of the time. The VAR calculation for the hypothetical test portfolios, with different degrees of risk concentration, meets this statistical criteria. The level of price risk exposure at any given point in time depends on the market environment and expectations of future price and market movements, and will vary from period to period.$122$135 million, $106$153 million, and $106$90 million at March 31,September 30, 2007, December 31, 2006,June 30, 2007, and March 31,September 30, 2006, respectively. Daily exposures averaged $121$141 million during the firstthird quarter of 2007 and ranged from $100$126 million to $140$165 million.
The following table summarizes VAR to Citigroup in the trading portfolios at March 31,September 30, 2007, December 31, 2006,June 30, 2007, and March 31,September 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 | March 31, 2007 | First Quarter 2007 Average | December 31, 2006 | Fourth Quarter 2006 Average | March 31, 2006 | First Quarter 2006 Average | September 30, 2007 | Third Quarter 2007 Average | June 30, 2007 | Second Quarter 2007 Average | September 30, 2006 | Third Quarter 2006 Average | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest rate | $ | 99 | $ | 95 | $ | 81 | $ | 79 | $ | 95 | $ | 86 | $ | 96 | $ | 101 | $ | 117 | $ | 102 | $ | 89 | $ | 81 | ||||||||||||||
Foreign exchange | 29 | 28 | 27 | 30 | 29 | 23 | 28 | 29 | 32 | 31 | 28 | 26 | ||||||||||||||||||||||||||
Equity | 77 | 70 | 62 | 51 | 43 | 48 | 104 | 98 | 100 | 87 | 44 | 42 | ||||||||||||||||||||||||||
Commodity | 27 | 28 | 18 | 15 | 15 | 12 | 33 | 31 | 31 | 35 | 11 | 13 | ||||||||||||||||||||||||||
Covariance adjustment | (110 | ) | (100 | ) | (82 | ) | (79 | ) | (76 | ) | (67 | ) | (126 | ) | (118 | ) | (127 | ) | (117 | ) | (82 | ) | (76 | ) | ||||||||||||||
Total — All market risk factors, including general and specific risk | $ | 122 | $ | 121 | $ | 106 | $ | 96 | $ | 106 | $ | 102 | ||||||||||||||||||||||||||
Total—All market risk factors, including general and specific risk | $ | 135 | $ | 141 | $ | 153 | $ | 138 | $ | 90 | $ | 86 | ||||||||||||||||||||||||||
Specific risk only component | $ | 5 | $ | 12 | $ | 8 | $ | 12 | $ | 10 | $ | 11 | $ | 24 | $ | 26 | $ | 8 | $ | 11 | $ | 9 | $ | 10 | ||||||||||||||
Total — General market factors only | $ | 117 | $ | 109 | $ | 98 | $ | 84 | $ | 96 | $ | 91 | ||||||||||||||||||||||||||
Total—General market factors only | $ | 111 | $ | 115 | $ | 145 | $ | 127 | $ | 81 | $ | 76 | ||||||||||||||||||||||||||
The specific risk only component represents the level of equity and debt issuer-specific risk embedded in VAR. Citigroup's specific risk model conforms to the 4x-multiplier treatment approved by the Federal Reserve and is subject to extensive annual hypothetical back-testing.
The table below provides the range of VAR in each type of trading portfolio that was experienced during the quarters ended:
| March 31, 2007 | December 31, 2006 | March 31, 2006 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Low | High | Low | High | Low | High | ||||||||||||
Interest rate | $ | 71 | $ | 125 | $ | 64 | $ | 98 | $ | 69 | $ | 107 | ||||||
Foreign exchange | 21 | 35 | 23 | 45 | 16 | 34 | ||||||||||||
Equity | 55 | 85 | 41 | 65 | 42 | 58 | ||||||||||||
Commodity | 17 | 34 | 11 | 20 | 5 | 18 | ||||||||||||
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 process for operational risk includes the following steps:
The Operational Risk standards facilitate the effective communication of operational risk both within and across businesses. Information about the businesses' operational risk, historical losses, and the control environment is reported by each major business segment and functional area, and summarized for Senior Management and the Citigroup Board of Directors.
The RCSA 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 a business' activities are identified and the effectiveness of the key controls over those risks are evaluated and monitored. RCSA processes facilitate Citigroup's adherence to regulatory requirements, including Sarbanes-Oxley, FDICIA, the International Convergence of Capital Measurement and Capital Standards (Basel II), and other corporate initiatives, including Operational Risk Management and alignment of capital assessments with risk management objectives. The entire process is subject to audit by Citigroup's ARR, and the results of RCSA are included in periodic management reporting, including reporting to Senior Management and the Audit and Risk Management Committee.
Measurement and Basel II
To support advanced capital modeling and management, the businesses are required to capture relevant operational risk capital information. An enhanced version of the risk capital model for operational risk has been developed and implemented across the major business segments as a step toward readiness for Basel II capital calculations. 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
Citigroup continues to enhance a strategic framework for Information Security technology initiatives, and the Company is implementing enhancements to various Information Security programs across its businesses covering Information Security Risk Management, Security Incident Response and Electronic Transportable Media. The Company continues to implement tools to increase the effectiveness of its data protection and entitlement management programs. Additional monthly Information Security metrics were established to better assist the Information Technology Risk Officer in managing enterprise-wide risk. The Information Security Program complies with the Gramm-Leach-Bliley Act and other regulatory guidance.
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.
| September 30, 2007 | | | September 30, 2006 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30, 2007 | |||||||||||||||||
In millions of dollars | ||||||||||||||||||
Low | High | Low | High | Low | High | |||||||||||||
Interest rate | $ | 87 | $ | 119 | $ | 88 | $ | 128 | $ | 68 | $ | 106 | ||||||
Foreign exchange | 23 | 35 | 27 | 35 | 17 | 39 | ||||||||||||
Equity | 82 | 120 | 64 | 112 | 35 | 49 | ||||||||||||
Commodity | 24 | 41 | 24 | 49 | 9 | 18 | ||||||||||||
COUNTRY AND CROSS-BORDER RISK MANAGEMENT PROCESS
Country Risk
Country risk is the risk that an event in a foreign country will impair the value of Citigroup assets or will adversely affect the ability of obligors within that country to honor their obligations to Citigroup. Country risk events may include sovereign defaults, banking or currency crises, social instability, and changes in governmental policies (for example, expropriation, nationalization, confiscation of assets and other changes in legislation relating to international ownership). Country risk includes local franchise risk, credit risk, market risk, operational risk, and cross-border risk.
The Country risk management framework at Citigroup includes a number of tools and management processes designed to facilitate the ongoing analysis of individual countries and their risks. These include country risk rating models, scenario planning and stress testing, internal watch lists, and the Country Risk Committee process.
The Citigroup Country Risk Committee is the senior forum to evaluate the Company's total business footprint within a specific country franchise with emphasis on responses to current potential country risk events. The Committee is chaired by the Head of Global Country Risk Management and includes as its members senior risk management officers, senior regional business heads, and senior product heads. The Committee regularly reviews all risk exposures within a country, makes recommendations as to actions, and follows up to ensure appropriate accountability.
Cross-Border Risk
Cross-border risk is the risk that actions taken by a non-U.S. government may prevent the conversion of local currency into non-local currency and/or the transfer of funds outside of the country, thereby impacting the ability of the Company and its customers to transact business across borders. Examples of cross-border risk include actions taken by foreign governments such as exchange controls, debt moratoria, or restrictions on the remittance of funds. These actions might restrict the transfer of funds or the ability of the Company to obtain payment from customers on their contractual obligations.
Management oversight of cross-border risk is performed through a formal review process that includes annual setting of cross-border limits and/or exposures, monitoring of economic conditions globally, and the establishment of internal cross-border risk management policies.
Under Federal Financial Institutions Examination Council (FFIEC) regulatory guidelines, total reported cross-border outstandings include cross-border claims on third parties, as well as investments in and funding of local franchises. Cross-border claims on third parties (trade, short-term, and medium- and long-term claims) include cross-border loans, securities, deposits with banks, investments in affiliates, and other monetary assets, as well as net revaluation gains on foreign exchange and derivative products.
Cross-border outstandings are reported based on the country of the obligor or guarantor. Outstandings backed by cash collateral are assigned to the country in which the collateral is held. For securities received as collateral, cross-border outstandings are reported in the domicile of the issuer of the securities. Cross-border resale agreements are presented based on the domicile of the counterparty in accordance with FFIEC guidelines.
Investments in and funding of local franchises represent the excess of local country assets over local country liabilities. Local country assets are claims on local residents recorded by branches and majority-owned subsidiaries of Citigroup domiciled in the country, adjusted for externally guaranteed claims and certain collateral. Local country liabilities are obligations of non-U.S. branches and majority-owned subsidiaries of Citigroup for which no cross-border guarantee has been issued by another Citigroup office.
The table below shows all countries where total FFIEC cross-border outstandings exceed 0.75% of total Citigroup assets:
| March 31, 2007 | December 31, 2006 | September 30, 2007 | December 31, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cross-Border Claims on Third Parties | | | | | | Cross-Border Claims on Third Parties | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||
| Investments in and Funding of Local Franchises | Total Cross- Border Out- standings | | Total Cross- Border Out- standings | | Investments in and Funding of Local Franchises | | | Total Cross- Border Out- standings | | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Banks | Public | Private | Total | Trading and Short- Term Claims(1) | Commit- ments(2) | Commit- ments | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(Amounts in Billions of U.S.$) | Banks | Public | Private | Total | Trading and Short- Term Claims(1) | Investments in and Funding of Local Franchises | Total Cross- Border Out- standings | Commit- ments(2) | Total Cross- Border Out- standings | Commit- ments | ||||||||||||||||||||||||||||||||||||||||||||||||||
India | $ | 2.0 | $ | 0.9 | $ | 12.8 | $ | 15.7 | $ | 12.1 | $ | 35.7 | $ | 1.4 | $ | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||
Germany | $ | 19.3 | $ | 11.5 | $ | 8.8 | $ | 39.6 | $ | 35.8 | $ | 2.5 | $ | 42.1 | $ | 46.8 | $ | 38.6 | $ | 43.6 | 18.9 | 5.6 | 10.4 | 34.9 | 32.0 | 0.7 | 35.6 | 52.2 | 38.6 | 43.6 | ||||||||||||||||||||||||||||||
India | 1.0 | 0.1 | 8.6 | 9.7 | 7.3 | 17.8 | 27.5 | 8.3 | 24.8 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | 6.3 | 0.1 | 24.0 | 30.4 | 28.7 | — | 30.4 | 329.3 | 18.4 | 192.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
France | 9.7 | 5.1 | 12.1 | 26.9 | 24.9 | — | 26.9 | 116.1 | 19.8 | 60.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Netherlands | 9.9 | 3.2 | 12.7 | 25.8 | 22.9 | — | 25.8 | 13.6 | 20.1 | 10.5 | 6.9 | 1.9 | 17.5 | 26.3 | 20.6 | — | 26.3 | 25.4 | 20.1 | 10.5 | ||||||||||||||||||||||||||||||||||||||||
France | 7.6 | 5.6 | 12.5 | 25.7 | 23.3 | — | 25.7 | 77.1 | 19.8 | 60.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | 6.2 | 0.1 | 14.1 | 20.4 | 13.9 | — | 20.4 | 219.9 | 18.4 | 192.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
South Korea | 0.9 | 0.1 | 4.2 | 5.2 | 5.1 | 16.1 | 21.3 | 9.0 | 19.7 | 11.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Spain | 3.4 | 6.5 | 6.6 | 16.5 | 15.1 | 3.8 | 20.3 | 6.6 | 19.7 | 6.8 | 3.1 | 5.3 | 8.9 | 17.3 | 16.1 | 3.6 | 20.9 | 7.3 | 19.7 | 6.8 | ||||||||||||||||||||||||||||||||||||||||
South Korea | 0.9 | 1.2 | 3.7 | 5.8 | 5.8 | 14.3 | 20.1 | 10.1 | 19.7 | 11.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Italy | 2.3 | 9.5 | 4.0 | 15.8 | 15.3 | 0.7 | 16.5 | 4.7 | 18.6 | 4.0 | 1.8 | 8.8 | 4.3 | 14.9 | 14.4 | 0.5 | 15.4 | 6.0 | 18.6 | 4.0 | ||||||||||||||||||||||||||||||||||||||||
INTEREST REVENUE/EXPENSE AND YIELDS
Average Rates–Interest Revenue, Interest Expense, and Net Interest Margin
In millions of dollars | In millions of dollars | 1st Qtr. 2007 | 4th Qtr. 2006(1) | 1st Qtr. 2006 | % Change 1Q07 vs. 1Q06 | In millions of dollars | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | % Change 3Q07 vs. 3Q06 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest Revenue | Interest Revenue | $ | 28,132 | $ | 26,257 | $ | 21,873 | 29 | % | Interest Revenue | $ | 32,961 | $ | 30,598 | $ | 24,729 | 33% | ||||||||
Interest Expense | Interest Expense | 17,562 | 16,218 | 12,107 | 45 | Interest Expense | 20,804 | 19,172 | 14,901 | 40 | |||||||||||||||
Net Interest Revenue | Net Interest Revenue | $ | 10,570 | $ | 10,039 | $ | 9,766 | 8 | % | Net Interest Revenue | $ | 12,157 | $ | 11,426 | $ | 9,828 | 24% | ||||||||
Interest Revenue—Average Rate | Interest Revenue—Average Rate | 6.55 | % | 6.42 | % | 6.38 | % | 17 bps | Interest Revenue—Average Rate | 6.41% | 6.43% | 6.59% | (18)bps | ||||||||||||
Interest Expense—Average Rate | Interest Expense—Average Rate | 4.50 | % | 4.39 | % | 3.94 | % | 56 bps | Interest Expense—Average Rate | 4.43% | 4.43% | 4.44% | (1)bps | ||||||||||||
Net Interest Margin (NIM) | Net Interest Margin (NIM) | 2.46 | % | 2.45 | % | 2.85 | % | (39) bps | Net Interest Margin (NIM) | 2.36% | 2.40% | 2.62% | (26)bps | ||||||||||||
Interest Rate Benchmarks: | Interest Rate Benchmarks: | Interest Rate Benchmarks: | |||||||||||||||||||||||
Federal Funds Rate—End of Period | Federal Funds Rate—End of Period | 5.25 | % | 5.25 | % | 4.75 | % | 50 bps | Federal Funds Rate—End of Period | 4.75% | 5.25% | 5.25% | (50)bps | ||||||||||||
2 Year U.S. Treasury Note—Average Rate | 2 Year U.S. Treasury Note—Average Rate | 4.76 | % | 4.74 | % | 4.60 | % | 16 bps | 2 Year U.S. Treasury Note—Average Rate | 4.39% | 4.80% | 4.93% | (54)bps | ||||||||||||
10 Year U.S. Treasury Note—Average Rate | 10 Year U.S. Treasury Note—Average Rate | 4.68 | % | 4.63 | % | 4.57 | % | 11 bps | 10 Year U.S. Treasury Note—Average Rate | 4.74% | 4.85% | 4.89% | (15)bps | ||||||||||||
10 Year vs. 2 Year Spread | (8) bps | (11) bps | (3) bps | 10 Year vs. 2 Year Spread | 35 bps | 5 bps | (4)bps | ||||||||||||||||||
A significant portion of the Company's business activities isare based upon gathering deposits and borrowing money and then lending or investing those funds, including 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 2006 and into 2007, pressure on net interest margin continued, drivencontinued. Net Interest Margin was mainly affected by several factors. Interest expense increased due to both a rise in short-term interest rates and funding actions the Company has taken to lengthen its debt maturity profile.
The average rate on the Company's assets increased, but by less than the increase in average rates on borrowed funds or deposits.results of Nikko Cordial, which was consolidated from May 9, 2007 forward. The average rate on assets reflected a highly competitive loan pricing environment, as well as a shift in the Company's loan portfolio from higher-yielding credit card receivables to assets that carry lower yields, such as mortgages and home equity loans.
See pages 34–40 for a detailed analysis of Average Rates and Volumes.
AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)
| | Average Volume | Interest Revenue | % Average Rate | | Average Volume | Interest Revenue | % Average Rate | ||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | 1st Qtr. 2007 | 4th Qtr. 2006 | 1st Qtr. 2006 | 1st Qtr. 2007 | 4th Qtr. 2006 | 1st Qtr. 2006 | 1st Qtr. 2007 | 4th Qtr. 2006 | 1st Qtr. 2006 | In millions of dollars | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | ||||||||||||||||||||||||||||||||
Assets | Assets | Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits with banks(5) | Deposits with banks(5) | $ | 45,306 | $ | 40,598 | $ | 34,851 | $ | 709 | $ | 693 | $ | 489 | 6.35 | % | 6.77 | % | 5.69 | % | Deposits with banks(5) | $ | 62,833 | $ | 55,580 | $ | 37,508 | $ | 874 | $ | 792 | $ | 590 | 5.52 | % | 5.72 | % | 6.24 | % | ||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(6) | Federal funds sold and securities borrowed or purchased under agreements to resell(6) | Federal funds sold and securities borrowed or purchased under agreements to resell(6) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 184,069 | $ | 175,679 | $ | 159,327 | $ | 2,879 | $ | 2,735 | $ | 2,355 | 6.34 | % | 6.18 | % | 5.99 | % | In U.S. offices | $ | 213,438 | $ | 185,143 | $ | 166,526 | $ | 3,217 | $ | 3,002 | $ | 2,718 | 5.98 | % | 6.50 | % | 6.48 | % | ||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 109,226 | 90,138 | 81,709 | 1,410 | 1,149 | 850 | 5.24 | 5.06 | 4.22 | In offices outside the U.S.(5) | 156,123 | 135,668 | 81,145 | 1,873 | 1,660 | 995 | 4.76 | 4.91 | 4.86 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 293,295 | $ | 265,817 | $ | 241,036 | $ | 4,289 | $ | 3,884 | $ | 3,205 | 5.93 | % | 5.80 | % | 5.39 | % | Total | $ | 369,561 | $ | 320,811 | $ | 247,671 | $ | 5,090 | $ | 4,662 | $ | 3,713 | 5.46 | % | 5.83 | % | 5.95 | % | ||||||||||||||
Trading account assets(7) (8) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading account assets(7)(8) | Trading account assets(7)(8) | |||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 236,977 | $ | 213,644 | $ | 176,782 | $ | 2,822 | $ | 2,518 | $ | 1,886 | 4.83 | % | 4.68 | % | 4.33 | % | In U.S. offices | $ | 281,590 | $ | 264,112 | $ | 184,099 | $ | 3,662 | $ | 3,111 | $ | 1,960 | 5.16 | % | 4.72 | % | 4.22 | % | ||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 133,274 | 113,730 | 88,967 | 1,108 | 850 | 814 | 3.37 | 2.97 | 3.71 | In offices outside the U.S.(5) | 206,098 | 180,361 | 100,196 | 1,494 | 1,274 | 789 | 2.88 | 2.83 | 3.12 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 370,251 | $ | 327,374 | $ | 265,749 | $ | 3,930 | $ | 3,368 | $ | 2,700 | 4.30 | % | 4.08 | % | 4.12 | % | Total | $ | 487,688 | $ | 444,473 | $ | 284,295 | $ | 5,156 | $ | 4,385 | $ | 2,749 | 4.19 | % | 3.96 | % | 3.84 | % | ||||||||||||||
Investments(1) | Investments(1) | Investments(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | In U.S. offices | ||||||||||||||||||||||||||||||||||||||||||||||||||
Taxable | $ | 160,372 | $ | 148,601 | $ | 84,938 | $ | 2,000 | $ | 1,965 | $ | 784 | 5.06 | % | 5.25 | % | 3.74 | % | Taxable | $ | 127,706 | $ | 149,303 | $ | 105,713 | $ | 1,637 | $ | 1,860 | $ | 1,177 | 5.09 | % | 5.00 | % | 4.42 | % | |||||||||||||||
Exempt from U.S. income tax | 16,810 | 14,229 | 14,108 | 190 | 173 | 153 | 4.58 | 4.82 | 4.40 | Exempt from U.S. income tax | 19,207 | 18,971 | 12,285 | 242 | 273 | 153 | 5.00 | 5.77 | 4.94 | |||||||||||||||||||||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 107,079 | 103,993 | 92,431 | 1,350 | 1,344 | 1,119 | 5.11 | 5.13 | 4.91 | In offices outside the U.S.(5) | 112,901 | 113,068 | 100,999 | 1,478 | 1,444 | 1,276 | 5.19 | 5.12 | 5.01 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 284,261 | $ | 266,823 | $ | 191,477 | $ | 3,540 | $ | 3,482 | $ | 2,056 | 5.05 | % | 5.18 | % | 4.35 | % | Total | $ | 259,814 | $ | 281,342 | $ | 218,997 | $ | 3,357 | $ | 3,577 | $ | 2,606 | 5.13 | % | 5.10 | % | 4.72 | % | ||||||||||||||
Loans (net of unearned income)(9) | Loans (net of unearned income)(9) | Loans (net of unearned income)(9) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer loans | Consumer loans | Consumer loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 362,860 | $ | 353,174 | $ | 327,026 | $ | 7,458 | $ | 7,475 | $ | 6,662 | 8.34 | % | 8.40 | % | 8.26 | % | In U.S. offices | $ | 377,380 | $ | 370,762 | $ | 345,064 | $ | 7,835 | $ | 7,663 | $ | 7,264 | 8.24 | % | 8.29 | % | 8.35 | % | ||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 151,523 | 147,304 | 131,365 | 4,033 | 3,379 | 3,690 | 10.79 | 9.10 | 11.39 | In offices outside the U.S.(5) | 183,659 | 170,855 | 140,594 | 4,912 | 4,621 | 3,870 | 10.61 | 10.85 | 10.92 | ||||||||||||||||||||||||||||||||
Total consumer loans | Total consumer loans | $ | 514,383 | $ | 500,478 | $ | 458,391 | $ | 11,491 | $ | 10,854 | $ | 10,352 | 9.06 | % | 8.60 | % | 9.16 | % | Total consumer loans | $ | 561,039 | $ | 541,617 | $ | 485,658 | $ | 12,747 | $ | 12,284 | $ | 11,134 | 9.01 | % | 9.10 | % | 9.10 | % | ||||||||||||||
Corporate loans | Corporate loans | Corporate loans | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 28,685 | $ | 30,928 | $ | 27,181 | $ | 538 | $ | 542 | $ | 431 | 7.61 | % | 6.95 | % | 6.43 | % | In U.S. offices | $ | 39,346 | $ | 31,075 | $ | 28,604 | $ | 818 | $ | 608 | $ | 528 | 8.25 | % | 7.85 | % | 7.32 | % | ||||||||||||||
In offices outside the U.S.(5) | In offices outside the U.S.(5) | 136,103 | 132,729 | 111,961 | 2,906 | 2,775 | 2,035 | 8.66 | 8.29 | 7.37 | In offices outside the U.S.(5) | 163,003 | 152,545 | 130,212 | 3,832 | 3,361 | 2,728 | 9.33 | 8.84 | 8.31 | ||||||||||||||||||||||||||||||||
Total corporate loans | Total corporate loans | $ | 164,788 | $ | 163,657 | $ | 139,142 | $ | 3,444 | $ | 3,317 | $ | 2,466 | 8.48 | % | 8.04 | % | 7.19 | % | Total corporate loans | $ | 202,349 | $ | 183,620 | $ | 158,816 | $ | 4,650 | $ | 3,969 | $ | 3,256 | 9.12 | % | 8.67 | % | 8.13 | % | ||||||||||||||
Total loans | Total loans | $ | 679,171 | $ | 664,135 | $ | 597,533 | $ | 14,935 | $ | 14,171 | $ | 12,818 | 8.92 | % | 8.47 | % | 8.70 | % | Total loans | $ | 763,388 | $ | 725,237 | $ | 644,474 | $ | 17,397 | $ | 16,253 | $ | 14,390 | 9.04 | % | 8.99 | % | 8.86 | % | ||||||||||||||
Other interest-earning assets | Other interest-earning assets | $ | 68,379 | $ | 58,881 | $ | 59,208 | $ | 729 | $ | 659 | $ | 605 | 4.32 | % | 4.44 | % | 4.14 | % | Other interest-earning assets | $ | 97,506 | $ | 82,459 | $ | 56,717 | $ | 1,087 | $ | 929 | $ | 681 | 4.42 | % | 4.52 | % | 4.76 | % | ||||||||||||||
Total interest-earning assets | Total interest-earning assets | $ | 1,740,663 | $ | 1,623,628 | $ | 1,389,854 | $ | 28,132 | $ | 26,257 | $ | 21,873 | 6.55 | % | 6.42 | % | 6.38 | % | Total interest-earning assets | $ | 2,040,790 | $ | 1,909,902 | $ | 1,489,662 | $ | 32,961 | $ | 30,598 | $ | 24,729 | 6.41 | % | 6.43 | % | 6.59 | % | ||||||||||||||
Non-interest-earning assets(7) | Non-interest-earning assets(7) | 204,255 | 193,135 | 182,280 | Non-interest-earning assets(7) | 255,962 | 249,358 | 194,550 | ||||||||||||||||||||||||||||||||||||||||||||
Total assets from discontinued operations | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | Total assets | $ | 1,944,918 | $ | 1,816,763 | $ | 1,572,134 | Total assets | $ | 2,296,752 | $ | 2,159,260 | $ | 1,684,212 | ||||||||||||||||||||||||||||||||||||||
Reclassified to conform to the current period's presentation.
AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY,
AND NET INTEREST REVENUE(1)(2)(3)(4)
| | Average Volume | Interest Expense | % Average Rate | | Average Volume | Interest Revenue | % Average Rate | ||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | 1st Qtr. 2007 | 4th Qtr. 2006 | 1st Qtr. 2006 | 1st Qtr. 2007 | 4th Qtr. 2006 | 1st Qtr. 2006 | 1st Qtr. 2007 | 4th Qtr. 2006 | 1st Qtr. 2006 | In millions of dollars | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | 3rd Qtr. 2007 | 2nd Qtr. 2007 | 3rd Qtr. 2006 | ||||||||||||||||||||||||||||||||
Liabilities | Liabilities | Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | Deposits | Deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U. S. offices | ||||||||||||||||||||||||||||||||||||||||||||||||||||
In U. S. offices Savings deposits(5) | In U. S. offices Savings deposits(5) | $ | 148,736 | $ | 147,517 | $ | 134,486 | $ | 1,221 | $ | 1,178 | $ | 1,092 | 3.26 | % | 3.20 | % | 3.22 | % | |||||||||||||||||||||||||||||||||
Savings deposits(5) | $ | 145,259 | $ | 138,332 | $ | 132,268 | $ | 1,170 | $ | 1,094 | $ | 868 | 3.27 | % | 3.14 | % | 2.66 | % | Other time deposits | 56,473 | 53,597 | 51,158 | 766 | 773 | 678 | 5.38 | 5.78 | 5.26 | ||||||||||||||||||||||||
Other time deposits | 54,946 | 55,374 | 42,410 | 807 | 715 | 499 | 5.96 | 5.12 | 4.77 | |||||||||||||||||||||||||||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 448,074 | 433,273 | 370,421 | 4,581 | 4,368 | 3,138 | 4.15 | 4.00 | 3.44 | In offices outside the U.S.(6) | 515,766 | 485,871 | 416,084 | 5,552 | 4,988 | 4,001 | 4.27 | 4.12 | 3.81 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 648,279 | $ | 626,979 | $ | 545,099 | $ | 6,558 | $ | 6,177 | $ | 4,505 | 4.10 | % | 3.91 | % | 3.35 | % | Total | $ | 720,975 | $ | 686,985 | $ | 601,728 | $ | 7,539 | $ | 6,939 | $ | 5,771 | 4.15 | % | 4.05 | % | 3.81 | % | ||||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 237,732 | $ | 218,357 | $ | 185,147 | $ | 3,541 | $ | 3,234 | $ | 2,676 | 6.04 | % | 5.88 | % | 5.86 | % | In U.S. offices | $ | 272,927 | $ | 233,021 | $ | 188,052 | $ | 4,052 | $ | 3,600 | $ | 2,992 | 5.89 | % | 6.20 | % | 6.31 | % | ||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 128,641 | 105,222 | 88,086 | 1,942 | 1,600 | 1,223 | 6.12 | 6.03 | 5.63 | In offices outside the U.S.(6) | 155,354 | 152,984 | 93,032 | 2,379 | 2,312 | 1,404 | 6.08 | 6.06 | 5.99 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 366,373 | $ | 323,579 | $ | 273,233 | $ | 5,483 | $ | 4,834 | $ | 3,899 | 6.07 | % | 5.93 | % | 5.79 | % | Total | $ | 428,281 | $ | 386,005 | $ | 281,084 | $ | 6,431 | $ | 5,912 | $ | 4,396 | 5.96 | % | 6.14 | % | 6.20 | % | ||||||||||||||
Trading account liabilities(8) (9) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading account liabilities(8)(9) | Trading account liabilities(8)(9) | |||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 42,319 | $ | 39,557 | $ | 35,270 | $ | 235 | $ | 229 | $ | 192 | 2.25 | % | 2.30 | % | 2.21 | % | In U.S. offices | $ | 48,063 | $ | 58,139 | $ | 37,601 | $ | 302 | $ | 312 | $ | 243 | 2.49 | % | 2.15 | % | 2.56 | % | ||||||||||||||
In offices outside the U.S. (6) | In offices outside the U.S. (6) | 45,340 | 39,716 | 36,485 | 72 | 65 | 51 | 0.64 | 0.65 | 0.57 | In offices outside the U.S. (6) | 69,791 | 62,949 | 35,644 | 69 | 68 | 58 | 0.39 | 0.43 | 0.65 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 87,659 | $ | 79,273 | $ | 71,755 | $ | 307 | $ | 294 | $ | 243 | 1.42 | % | 1.47 | % | 1.37 | % | Total | $ | 117,854 | $ | 121,088 | $ | 73,245 | $ | 371 | $ | 380 | $ | 301 | 1.25 | % | 1.26 | % | 1.63 | % | ||||||||||||||
Short-term borrowings | Short-term borrowings | Short-term borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 143,544 | $ | 126,950 | $ | 113,351 | $ | 1,262 | $ | 1,283 | $ | 765 | 3.57 | % | 4.01 | % | 2.74 | % | In U.S. offices | $ | 187,286 | $ | 170,962 | $ | 121,503 | $ | 1,755 | $ | 1,612 | $ | 1,175 | 3.72 | % | 3.78 | % | 3.84 | % | ||||||||||||||
In offices outside the U.S. (6) | 40,835 | 32,238 | 18,179 | 202 | 159 | 200 | 2.01 | 1.96 | 4.46 | |||||||||||||||||||||||||||||||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 79,450 | 66,077 | 23,446 | 294 | 325 | 98 | 1.47 | 1.97 | 1.66 | ||||||||||||||||||||||||||||||||||||||||||
Total | Total | $ | 184,379 | $ | 159,188 | $ | 131,530 | $ | 1,464 | $ | 1,442 | $ | 965 | 3.22 | % | 3.59 | % | 2.98 | % | Total | $ | 266,736 | $ | 237,039 | $ | 144,949 | $ | 2,049 | $ | 1,937 | $ | 1,273 | 3.05 | % | 3.28 | % | 3.48 | % | ||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt(10) | Long-term debt(10) | |||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 263,894 | $ | 244,445 | $ | 195,640 | $ | 3,385 | $ | 3,129 | $ | 2,189 | 5.20 | % | 5.08 | % | 4.54 | % | In U.S. offices | $ | 285,370 | $ | 267,496 | $ | 206,854 | $ | 3,837 | $ | 3,562 | $ | 2,802 | 5.33 | % | 5.34 | % | 5.37 | % | ||||||||||||||
In offices outside the U.S. (6) | In offices outside the U.S. (6) | 32,591 | 30,630 | 29,546 | 365 | 342 | 306 | 4.54 | 4.43 | 4.20 | In offices outside the U.S. (6) | 43,627 | 37,391 | 24,416 | 577 | 442 | 358 | 5.25 | 4.74 | 5.82 | ||||||||||||||||||||||||||||||||
Total | Total | $ | 296,485 | $ | 275,075 | $ | 225,186 | $ | 3,750 | $ | 3,471 | $ | 2,495 | 5.13 | % | 5.01 | % | 4.49 | % | Total | $ | 328,997 | $ | 304,887 | $ | 231,270 | $ | 4,414 | $ | 4,004 | $ | 3,160 | 5.32 | % | 5.27 | % | 5.42 | % | ||||||||||||||
Total interest-bearing liabilities | Total interest-bearing liabilities | $ | 1,583,175 | $ | 1,464,094 | $ | 1,246,803 | $ | 17,562 | $ | 16,218 | $ | 12,107 | 4.50 | % | 4.39 | % | 3.94 | % | Total interest-bearing liabilities | $ | 1,862,843 | $ | 1,736,004 | $ | 1,332,276 | $ | 20,804 | $ | 19,172 | $ | 14,901 | 4.43 | % | 4.43 | % | 4.44 | % | ||||||||||||||
Demand deposits in U.S. offices | Demand deposits in U.S. offices | 11,157 | 10,979 | 10,044 | Demand deposits in U.S. offices | 13,683 | 11,234 | 11,127 | ||||||||||||||||||||||||||||||||||||||||||||
Other non-interest bearing liabilities(8) | 230,834 | 223,051 | 202,164 | |||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities from discontinued operations | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Other non-interest-bearing liabilities(8) | Other non-interest-bearing liabilities(8) | 293,310 | 287,371 | 224,739 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | Total liabilities | $ | 1,825,166 | $ | 1,698,124 | $ | 1,459,011 | Total liabilities | $ | 2,169,836 | $ | 2,034,609 | $ | 1,568,142 | ||||||||||||||||||||||||||||||||||||||
Total stockholders' equity(10) | $ | 119,752 | $ | 118,639 | $ | 113,123 | ||||||||||||||||||||||||||||||||||||||||||||||
Total stockholders' equity(11) | Total stockholders' equity(11) | $ | 126,916 | $ | 124,651 | $ | 116,070 | |||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 1,944,918 | $ | 1,816,763 | $ | 1,572,134 | Total liabilities and stockholders' equity | $ | 2,296,752 | $ | 2,159,260 | $ | 1,684,212 | ||||||||||||||||||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(11) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) | Net interest revenue as a percentage of average interest-earning assets(12) | |||||||||||||||||||||||||||||||||||||||||||||||||||
In U.S. offices | In U.S. offices | $ | 1,049,574 | $ | 987,247 | $ | 837,085 | $ | 4,976 | $ | 5,219 | $ | 4,940 | 1.92 | % | 2.10 | % | 2.39 | % | In U.S. offices | $ | 1,129,443 | $ | 1,087,398 | $ | 892,120 | $ | 5,712 | $ | 5,212 | $ | 4,559 | 2.01 | % | 1.92 | % | 2.03 | % | ||||||||||||||
In offices outside the U.S.(6) | In offices outside the U.S.(6) | 691,089 | 636,381 | 552,769 | 5,594 | 4,820 | 4,826 | 3.28 | 3.00 | 3.54 | In offices outside the U.S.(6) | 911,347 | 822,504 | 597,542 | 6,445 | 6,214 | 5,269 | 2.81 | % | 3.03 | % | 3.50 | % | |||||||||||||||||||||||||||||
Total | Total | $ | 1,740,663 | $ | 1,623,628 | $ | 1,389,854 | $ | 10,570 | $ | 10,039 | $ | 9,766 | 2.46 | % | 2.45 | % | 2.85 | % | Total | $ | 2,040,790 | $ | 1,909,902 | $ | 1,489,662 | $ | 12,157 | $ | 11,426 | $ | 9,828 | 2.36 | % | 2.40 | % | 2.62 | % | ||||||||||||||
Reclassified to conform to the current period's presentation.
AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)
| Average Volume | Interest Revenue | % Average Rate | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Nine Months 2007 | Nine Months 2006 | Nine Months 2007 | Nine Months 2006 | Nine Months 2007 | Nine Months 2006 | ||||||||||||
Assets | ||||||||||||||||||
Deposits with banks(5) | $ | 54,573 | $ | 37,103 | $ | 2,375 | $ | 1,596 | 5.82 | % | 5.75 | % | ||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(6) | ||||||||||||||||||
In U.S. offices | $ | 194,217 | $ | 163,043 | $ | 9,098 | $ | 7,523 | 6.26 | % | 6.17 | % | ||||||
In offices outside the U.S.(5) | 133,672 | 83,553 | 4,943 | 2,792 | 4.94 | 4.47 | ||||||||||||
Total | $ | 327,889 | $ | 246,596 | $ | 14,041 | $ | 10,315 | 5.73 | % | 5.59 | % | ||||||
Trading account assets(7)(8) | ||||||||||||||||||
In U.S. offices | $ | 260,893 | $ | 180,765 | $ | 9,595 | $ | 6,019 | 4.92 | % | 4.45 | % | ||||||
In offices outside the U.S.(5) | 173,244 | 96,269 | 3,876 | 2,478 | 2.99 | 3.44 | ||||||||||||
Total | $ | 434,137 | $ | 277,034 | $ | 13,471 | $ | 8,497 | 4.15 | % | 4.10 | % | ||||||
Investments(1) | ||||||||||||||||||
In U.S. offices | ||||||||||||||||||
Taxable | $ | 145,794 | $ | 91,981 | $ | 5,497 | $ | 2,834 | 5.04 | % | 4.12 | % | ||||||
Exempt from U.S. income tax | 18,329 | 13,954 | 705 | 488 | 5.14 | 4.68 | ||||||||||||
In offices outside the U.S.(5) | 111,016 | 96,856 | 4,272 | 3,595 | 5.14 | 4.96 | ||||||||||||
Total | $ | 275,139 | $ | 202,791 | $ | 10,474 | $ | 6,917 | 5.09 | % | 4.56 | % | ||||||
Loans (net of unearned income)(9) | ||||||||||||||||||
Consumer loans | ||||||||||||||||||
In U.S. offices | $ | 370,334 | $ | 337,362 | $ | 22,956 | $ | 20,997 | 8.29 | % | 8.32 | % | ||||||
In offices outside the U.S.(5) | 168,679 | 136,203 | 13,566 | 11,394 | 10.75 | 11.18 | ||||||||||||
Total consumer loans | $ | 539,013 | $ | 473,565 | $ | 36,522 | $ | 32,391 | 9.06 | % | 9.14 | % | ||||||
Corporate loans | ||||||||||||||||||
In U.S. offices | $ | 33,035 | $ | 27,175 | $ | 1,964 | $ | 1,399 | 7.95 | % | 6.88 | % | ||||||
In offices outside the U.S.(5) | 150,551 | 121,706 | 10,099 | 7,061 | 8.97 | 7.76 | ||||||||||||
Total corporate loans | $ | 183,586 | $ | 148,881 | $ | 12,063 | $ | 8,460 | 8.79 | % | 7.60 | % | ||||||
Total loans | $ | 722,599 | $ | 622,446 | $ | 48,585 | $ | 40,851 | 8.99 | % | 8.77 | % | ||||||
Other interest-earning assets | $ | 82,781 | $ | 57,003 | $ | 2,745 | $ | 1,998 | 4.43 | % | 4.69 | % | ||||||
Total interest-earning assets | $ | 1,897,118 | $ | 1,442,973 | $ | 91,691 | $ | 70,174 | 6.46 | % | 6.50 | % | ||||||
Non-interest-earning assets(7) | 236,525 | 190,833 | ||||||||||||||||
Total assets | $ | 2,133,643 | $ | 1,633,806 | ||||||||||||||
Reclassified to conform to the current period's presentation.
AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY, AND NET INTEREST REVENUE(1)(2)(3)(4)
| Average Volume | Interest Expense | % Average Rate | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Nine Months 2007 | Nine Months 2006 | Nine Months 2007 | Nine Months 2006 | Nine Months 2007 | Nine Months 2006 | ||||||||||||
Liabilities | ||||||||||||||||||
Deposits | ||||||||||||||||||
In U. S. offices | ||||||||||||||||||
Savings deposits(5) | $ | 147,171 | $ | 133,571 | $ | 3,569 | $ | 2,962 | 3.24 | % | 2.96 | % | ||||||
Other time deposits | 55,005 | 46,286 | 2,346 | 1,756 | 5.70 | 5.07 | ||||||||||||
In offices outside the U.S.(6) | 483,237 | 393,770 | 15,121 | 10,762 | 4.18 | 3.65 | ||||||||||||
Total | $ | 685,413 | $ | 573,627 | $ | 21,036 | $ | 15,480 | 4.10 | % | 3.61 | % | ||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | ||||||||||||||||||
In U.S. offices | $ | 247,893 | $ | 186,848 | $ | 11,193 | $ | 8,623 | 6.04 | % | 6.17 | % | ||||||
In offices outside the U.S. (6) | 145,660 | 92,842 | 6,633 | 3,991 | 6.09 | 5.75 | ||||||||||||
Total | $ | 393,553 | $ | 279,690 | $ | 17,826 | $ | 12,614 | 6.06 | % | 6.03 | % | ||||||
Trading account liabilities(8) (9) | ||||||||||||||||||
In U.S. offices | $ | 49,507 | $ | 36,125 | $ | 849 | $ | 662 | 2.29 | % | 2.45 | % | ||||||
In offices outside the U.S. (6) | 59,360 | 37,164 | 209 | 163 | 0.47 | 0.59 | ||||||||||||
Total | $ | 108,867 | $ | 73,289 | $ | 1,058 | $ | 825 | 1.30 | % | 1.51 | % | ||||||
Short-term borrowings | ||||||||||||||||||
In U.S. offices | $ | 167,264 | $ | 117,847 | $ | 4,629 | $ | 2,912 | 3.70 | % | 3.30 | % | ||||||
In offices outside the U.S. (6) | 62,121 | 22,375 | 821 | 455 | 1.77 | 2.72 | ||||||||||||
Total | $ | 229,385 | $ | 140,222 | $ | 5,450 | $ | 3,367 | 3.18 | % | 3.21 | % | ||||||
Long-term debt(10) | ||||||||||||||||||
In U.S. offices | $ | 268,566 | $ | 197,575 | $ | 10,784 | $ | 7,467 | 5.37 | % | 5.05 | % | ||||||
In offices outside the U.S. (6) | 36,034 | 24,225 | 1,384 | 972 | 5.14 | 5.36 | ||||||||||||
Total | $ | 304,600 | $ | 221,800 | $ | 12,168 | $ | 8,439 | 5.34 | % | 5.09 | % | ||||||
Total interest-bearing liabilities | $ | 1,721,818 | $ | 1,288,628 | $ | 57,538 | $ | 40,725 | 4.47 | % | 4.23 | % | ||||||
Demand deposits in U.S. offices | 12,025 | 10,999 | ||||||||||||||||
Other non-interest-bearing liabilities(8) | 276,028 | 219,637 | ||||||||||||||||
Total liabilities | $ | 2,009,870 | $ | 1,519,264 | ||||||||||||||
Total stockholders' equity(11) | $ | 123,773 | $ | 114,542 | ||||||||||||||
Total liabilities and stockholders' equity | $ | 2,133,643 | $ | 1,633,806 | ||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) | ||||||||||||||||||
In U.S. offices | $ | 1,088,805 | $ | 862,756 | $ | 15,900 | $ | 14,172 | 1.95 | % | 2.20 | % | ||||||
In offices outside the U.S.(6) | 808,313 | 580,217 | 18,253 | 15,277 | 3.02 | 3.52 | ||||||||||||
Total | $ | 1,897,118 | $ | 1,442,973 | $ | 34,153 | $ | 29,449 | 2.41 | % | 2.73 | % | ||||||
Reclassified to conform to the current period's presentation.
ANALYSIS OF CHANGES IN INTEREST REVENUE(1)(2)(3)
| 1st Qtr. 2007 vs. 4th Qtr. 2006 | 1st Qtr. 2007 vs. 1st Qtr. 2006 | 3rd Qtr. 2007 vs. 2nd Qtr. 2007 | 3rd Qtr. 2007 vs. 3rd Qtr. 2006 | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | ||||||||||||||||||||||||||||
In millions of dollars | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | ||||||||||||||||||||||||
Deposits with banks(4) | $ | 76 | $ | (60 | ) | $ | 16 | $ | 159 | $ | 61 | $ | 220 | $ | 101 | $ | (19 | ) | $ | 82 | $ | 359 | $ | (75 | ) | $ | 284 | |||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | ||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 131 | $ | 13 | $ | 144 | $ | 381 | $ | 143 | $ | 524 | $ | 437 | $ | (222 | ) | $ | 215 | $ | 720 | $ | (221 | ) | $ | 499 | ||||||||||
In offices outside the U.S.(4) | 246 | 15 | 261 | 326 | 234 | 560 | 246 | (33 | ) | 213 | 900 | (22 | ) | 878 | ||||||||||||||||||||||
Total | $ | 377 | $ | 28 | $ | 405 | $ | 707 | $ | 377 | $ | 1,084 | $ | 683 | $ | (255 | ) | $ | 428 | $ | 1,620 | $ | (243 | ) | $ | 1,377 | ||||||||||
Trading account assets(5) | ||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 278 | $ | 26 | $ | 304 | $ | 698 | $ | 238 | $ | 936 | $ | 214 | $ | 337 | $ | 551 | $ | 1,200 | $ | 502 | $ | 1,702 | ||||||||||||
In offices outside the U.S.(4) | 156 | 102 | 258 | 374 | (80 | ) | 294 | 186 | 34 | 220 | 772 | (67 | ) | 705 | ||||||||||||||||||||||
Total | $ | 434 | $ | 128 | $ | 562 | $ | 1,072 | $ | 158 | $ | 1,230 | $ | 400 | $ | 371 | $ | 771 | $ | 1,972 | $ | 435 | $ | 2,407 | ||||||||||||
Investments(1) | ||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 182 | $ | (130 | ) | $ | 52 | $ | 902 | $ | 351 | $ | 1,253 | $ | (273 | ) | $ | 19 | $ | (254 | ) | $ | 354 | $ | 195 | $ | 549 | |||||||||
In offices outside the U.S.(4) | 39 | (33 | ) | 6 | 184 | 47 | 231 | (2 | ) | 36 | 34 | 155 | 47 | $ | 202 | |||||||||||||||||||||
Total | $ | 221 | $ | (163 | ) | $ | 58 | $ | 1,086 | $ | 398 | $ | 1,484 | $ | (275 | ) | $ | 55 | $ | (220 | ) | $ | 509 | $ | 242 | $ | 751 | |||||||||
Loans—consumer | ||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 202 | $ | (219 | ) | $ | (17 | ) | $ | 736 | $ | 60 | $ | 796 | $ | 137 | $ | 35 | $ | 172 | $ | 672 | $ | (101 | ) | $ | 571 | |||||||||
In offices outside the U.S.(4) | 99 | 555 | 654 | 544 | (201 | ) | 343 | 343 | (52 | ) | 291 | 1,155 | (113 | ) | 1,042 | |||||||||||||||||||||
Total | $ | 301 | $ | 336 | $ | 637 | $ | 1,280 | $ | (141 | ) | $ | 1,139 | $ | 480 | $ | (17 | ) | $ | 463 | $ | 1,827 | $ | (214 | ) | $ | 1,613 | |||||||||
Loans—corporate | ||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | (41 | ) | $ | 37 | $ | (4 | ) | $ | 25 | $ | 82 | $ | 107 | $ | 170 | $ | 40 | $ | 210 | $ | 217 | $ | 73 | $ | 290 | ||||||||||
In offices outside the U.S.(4) | 72 | 59 | 131 | 481 | 390 | 871 | 238 | 233 | 471 | 743 | 361 | 1,104 | ||||||||||||||||||||||||
Total | $ | 31 | $ | 96 | $ | 127 | $ | 506 | $ | 472 | $ | 978 | $ | 408 | $ | 273 | $ | 681 | $ | 960 | $ | 434 | $ | 1,394 | ||||||||||||
Total loans | $ | 332 | $ | 432 | $ | 764 | $ | 1,786 | $ | 331 | $ | 2,117 | $ | 888 | $ | 256 | $ | 1,144 | $ | 2,787 | $ | 220 | $ | 3,007 | ||||||||||||
Other interest-earning assets | $ | 102 | $ | (32 | ) | $ | 70 | $ | 97 | $ | 27 | $ | 124 | $ | 168 | $ | (10 | ) | $ | 158 | $ | 458 | $ | (52 | ) | $ | 406 | |||||||||
Total interest revenue | $ | 1,542 | $ | 333 | $ | 1,875 | $ | 4,907 | $ | 1,352 | $ | 6,259 | $ | 1,965 | $ | 398 | $ | 2,363 | $ | 7,705 | $ | 527 | $ | 8,232 | ||||||||||||
ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUE(1)(2)(3)
| 1st Qtr. 2007 vs. 4th Qtr. 2006 | 1st Qtr. 2007 vs. 1st Qtr. 2006 | 3rd Qtr. 2007 vs. 2nd Qtr. 2007 | 3rd Qtr. 2007 vs. 3rd Qtr. 2006 | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | Increase (Decrease) Due to Change in: | | ||||||||||||||||||||||||||||
In millions of dollars | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | Average Volume | Average Rate | Net Change(2) | ||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 62 | $ | 106 | $ | 168 | $ | 219 | $ | 391 | $ | 610 | $ | 40 | $ | (4 | ) | $ | 36 | $ | 189 | $ | 28 | $ | 217 | |||||||||||
In offices outside the U.S.(4) | 151 | 62 | 213 | 726 | 717 | 1,443 | 315 | 249 | 564 | 1,035 | 516 | 1,551 | ||||||||||||||||||||||||
Total | $ | 213 | $ | 168 | $ | 381 | $ | 945 | $ | 1,108 | $ | 2,053 | $ | 355 | $ | 245 | $ | 600 | $ | 1,224 | $ | 544 | $ | 1,768 | ||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | �� | |||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 288 | $ | 19 | $ | 307 | $ | 781 | $ | 84 | $ | 865 | $ | 597 | $ | (145 | ) | $ | 452 | $ | 1,272 | $ | (212 | ) | $ | 1,060 | ||||||||||
In offices outside the U.S.(4) | 354 | (12 | ) | 342 | 604 | 115 | 719 | 36 | 31 | 67 | 954 | 21 | 975 | |||||||||||||||||||||||
Total | $ | 642 | $ | 7 | $ | 649 | $ | 1,385 | $ | 199 | $ | 1,584 | $ | 633 | $ | (114 | ) | $ | 519 | $ | 2,226 | $ | (191 | ) | $ | 2,035 | ||||||||||
Trading account liabilities(5) | ||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 16 | $ | (10 | ) | $ | 6 | $ | 39 | $ | 4 | $ | 43 | $ | (59 | ) | $ | 49 | $ | (10 | ) | $ | 66 | $ | (7 | ) | $ | 59 | ||||||||
In offices outside the U.S.(4) | 9 | (2 | ) | 7 | 14 | 7 | 21 | 7 | (6 | ) | 1 | 40 | (29 | ) | 11 | |||||||||||||||||||||
Total | $ | 25 | $ | (12 | ) | $ | 13 | $ | 53 | $ | 11 | $ | 64 | $ | (52 | ) | $ | 43 | $ | (9 | ) | $ | 106 | $ | (36 | ) | $ | 70 | ||||||||
Short-term borrowings | ||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 157 | $ | (178 | ) | $ | (21 | ) | $ | 233 | $ | 264 | $ | 497 | $ | 153 | $ | (10 | ) | $ | 143 | $ | 618 | $ | (38 | ) | $ | 580 | ||||||||
In offices outside the U.S.(4) | 42 | 1 | 43 | 154 | (152 | ) | 2 | 58 | (89 | ) | (31 | ) | 208 | (12 | ) | 196 | ||||||||||||||||||||
Total | $ | 199 | $ | (177 | ) | $ | 22 | $ | 387 | $ | 112 | $ | 499 | $ | 211 | $ | (99 | ) | $ | 112 | $ | 826 | $ | (50 | ) | $ | 776 | |||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||
In U.S. offices | $ | 249 | $ | 7 | $ | 256 | $ | 842 | $ | 354 | $ | 1,196 | $ | 240 | $ | 35 | $ | 275 | $ | 1,056 | $ | (21 | ) | $ | 1,035 | |||||||||||
In offices outside the U.S.(4) | 22 | 1 | 23 | 33 | 26 | 59 | 79 | 56 | 135 | 257 | (38 | ) | 219 | |||||||||||||||||||||||
Total | $ | 271 | $ | 8 | $ | 279 | $ | 875 | $ | 380 | $ | 1,255 | $ | 319 | $ | 91 | $ | 410 | $ | 1,313 | $ | (59 | ) | $ | 1,254 | |||||||||||
Total interest expense | $ | 1,350 | $ | (6 | ) | $ | 1,344 | $ | 3,645 | $ | 1,810 | $ | 5,455 | $ | 1,466 | $ | 166 | $ | 1,632 | $ | 5,695 | $ | 208 | $ | 5,903 | |||||||||||
Net interest revenue | $ | 192 | $ | 339 | $ | 531 | $ | 1,262 | $ | (458 | ) | $ | 804 | $ | 499 | $ | 232 | $ | 731 | $ | 2,010 | $ | 319 | $ | 2,329 | |||||||||||
ANALYSIS OF CHANGES IN INTEREST REVENUE, INTEREST EXPENSE, AND NET INTEREST REVENUE(1)(2)(3)
| Nine Months 2007 vs. Nine Months 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) Due to Change in: | | |||||||
In millions of dollars | Average Volume | Average Rate | Net Change(2) | ||||||
Deposits with banks(4) | $ | 760 | $ | 19 | $ | 779 | |||
Federal funds sold and securities borrowed or purchased under agreements to resell | |||||||||
In U.S. offices | $ | 1,459 | $ | 116 | $ | 1,575 | |||
In offices outside the U.S.(4) | 1,826 | 325 | 2,151 | ||||||
Total | $ | 3,285 | $ | 441 | $ | 3,726 | |||
Trading account assets(5) | |||||||||
In U.S. offices | $ | 2,894 | $ | 682 | $ | 3,576 | |||
In offices outside the U.S.(4) | 1,759 | (361 | ) | 1,398 | |||||
Total | $ | 4,653 | $ | 321 | $ | 4,974 | |||
Investments(1) | |||||||||
In U.S. offices | $ | 2,097 | $ | 783 | $ | 2,880 | |||
In offices outside the U.S.(4) | 541 | 136 | 677 | ||||||
Total | $ | 2,638 | $ | 919 | $ | 3,557 | |||
Loans—consumer | |||||||||
In U.S. offices | $ | 2,044 | $ | (85 | ) | $ | 1,959 | ||
In offices outside the U.S.(4) | 2,626 | (454 | ) | 2,172 | |||||
Total | $ | 4,670 | $ | (539 | ) | $ | 4,131 | ||
Loans—corporate | |||||||||
In U.S. offices | $ | 329 | $ | 236 | $ | 565 | |||
In offices outside the U.S.(4) | 1,831 | 1,207 | 3,038 | ||||||
Total | $ | 2,160 | $ | 1,443 | $ | 3,603 | |||
Total loans | $ | 6,830 | $ | 904 | $ | 7,734 | |||
Other interest-earning assets | $ | 860 | $ | (113 | ) | $ | 747 | ||
Total interest revenue | $ | 19,026 | $ | 2,491 | $ | 21,517 | |||
Deposits | |||||||||
In U.S. offices | $ | 620 | $ | 577 | $ | 1,197 | |||
In offices outside the U.S.(4) | 2,662 | 1,697 | 4,359 | ||||||
Total | $ | 3,282 | $ | 2,274 | $ | 5,556 | |||
Federal funds purchased and securities loaned or sold under agreements to repurchase | |||||||||
In U.S. offices | $ | 2,760 | $ | (190 | ) | $ | 2,570 | ||
In offices outside the U.S.(4) | 2,392 | 250 | 2,642 | ||||||
Total | $ | 5,152 | $ | 60 | $ | 5,212 | |||
Trading account liabilities(5) | |||||||||
In U.S. offices | $ | 232 | $ | (45 | ) | $ | 187 | ||
In offices outside the U.S.(4) | 83 | (37 | ) | 46 | |||||
Total | $ | 315 | $ | (82 | ) | $ | 233 | ||
Short-term borrowings | |||||||||
In U.S. offices | $ | 1,335 | $ | 382 | $ | 1,717 | |||
In offices outside the U.S.(4) | 572 | (206 | ) | 366 | |||||
Total | $ | 1,907 | $ | 176 | $ | 2,083 | |||
Long-term debt | |||||||||
In U.S. offices | $ | 2,826 | $ | 491 | $ | 3,317 | |||
In offices outside the U.S.(4) | 455 | (43 | ) | 412 | |||||
Total | $ | 3,281 | $ | 448 | $ | 3,729 | |||
Total interest expense | $ | 13,937 | $ | 2,876 | $ | 16,813 | |||
Net interest revenue | $ | 5,089 | $ | (385 | ) | $ | 4,704 | ||
CAPITAL RESOURCES AND LIQUIDITY
CAPITAL RESOURCES
Overview
Capital is generated principally via earnings, issuance of common and preferred stock and subordinated debt, and equity issued as a result of employee benefit plans. It is used primarily to support asset growth in the Company's businesses. Excess capital is used to pay dividends to shareholders, support acquisitions, and repurchase stock.
Citigroup's capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company's risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is frequently reviewed at the entity and country level.
Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup's Global Finance and Asset and Liability Committee (FinALCO). This Committee includes Citigroup's Chairman and Chief Executive Officer, Chief Financial Officer, Head of Corporate Finance and Treasury, Senior Risk Officer, the business segment CEOs, and other senior managers. The Committee's responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; reviewing the funding and capital markets plan for Citigroup; monitoring interest rate risk, corporate and bank liquidity, and the impact of currency translation on non-U.S. earnings and capital; and reviewing and recommending share repurchase levels and dividends on preferred and common stock. The FinALCO has established capital targets for Citigroup and for significant subsidiaries. These targets exceed the regulatory standards.
Capital Ratios
Citigroup is subject to risk-based capital ratio guidelines issued by the FRB. Capital adequacy is measured via two risk-based ratios, Tier 1 and Total Capital (Tier 1 + Tier 2 Capital). Tier 1 Capital is considered core capital while Total Capital also includes other items such as subordinated debt and loan loss reserves. Both measures of capital are stated as a percent of risk-adjusted assets. Risk-adjusted assets are measured primarily on their perceived credit risk and include certain off-balance sheet exposures, such as unfunded loan commitments and letters of credit and the notional amounts of derivative and foreign exchange contracts. Citigroup is also subject to the Leverage Ratio requirement, a non-risk-based asset ratio, which is defined as Tier 1 Capital as a percentage of adjusted average assets.
To be "well capitalized" under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 Capital Ratio of at least 6%, a Total Capital Ratio of at least 10%, and a Leverage Ratio of at least 3%, and not be subject to an FRB directive to maintain higher capital levels.
As noted in the following table, Citigroup maintained a "well capitalized" position during the first threenine months of 2007 and the full year of 2006.2006:
Citigroup Regulatory Capital Ratios(1)
| March 31, 2007(3) | December 31, 2006 | Sept. 30, 2007(3) | June 30, 2007(3) | Dec. 31, 2006 | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital | 8.26 | % | 8.59 | % | 7.32 | % | 7.91 | % | 8.59 | % | ||
Total Capital (Tier 1 and Tier 2) | 11.48 | 11.65 | 10.61 | % | 11.23 | 11.65 | ||||||
Leverage(2) | 4.84 | 5.16 | 4.13 | % | 4.37 | 5.16 | ||||||
Components of Capital Under Regulatory Guidelines
In millions of dollars | In millions of dollars | March 31, 2007 | December 31, 2006 | Sept. 30, 2007 | June 30, 2007 | Dec. 31, 2006 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital | Tier 1 Capital | |||||||||||||||||
Common stockholders' equity | Common stockholders' equity | $ | 121,083 | $ | 118,783 | $ | 126,913 | $ | 127,154 | $ | 118,783 | |||||||
Qualifying perpetual preferred stock | Qualifying perpetual preferred stock | 1,000 | 1,000 | — | 400 | 1,000 | ||||||||||||
Qualifying mandatorily redeemable securities of subsidiary trusts | Qualifying mandatorily redeemable securities of subsidiary trusts | 9,440 | 9,579 | 11,542 | 10,095 | 9,579 | ||||||||||||
Minority interest | Minority interest | 1,124 | 1,107 | 3,899 | 3,889 | 1,107 | ||||||||||||
Less: Net unrealized gains on securities available-for-sale(1) | (1,251 | ) | (943 | ) | ||||||||||||||
Less: Accumulated net losses on cash flow hedges, net of tax | 500 | 61 | ||||||||||||||||
Less: Net unrealized (gains) on securities available-for-sale(1) | (682 | ) | (248 | ) | (943 | ) | ||||||||||||
Less: Accumulated net (gains) losses on cash flow hedges, net of tax | 1,457 | (546 | ) | 61 | ||||||||||||||
Less: Pension liability adjustment, net of tax(2) | Less: Pension liability adjustment, net of tax(2) | 1,570 | 1,647 | 1,403 | 1,526 | 1,647 | ||||||||||||
Less: Cumulative effect included in fair value of financial liabilities attributable to creditworthiness, net of tax(3) | (222 | ) | — | |||||||||||||||
Less: Cumulative effect included in fair value of financial liabilities attributable to credit- worthiness, net of tax(3) | (664 | ) | (138 | ) | — | |||||||||||||
Less: Intangible assets: | Less: Intangible assets: | |||||||||||||||||
Goodwill | (34,380 | ) | (33,415 | ) | ||||||||||||||
Other disallowed intangible assets | (6,589 | ) | (6,127 | ) | ||||||||||||||
Goodwill | (39,949 | ) | (39,231 | ) | (33,415 | ) | ||||||||||||
Other disallowed intangible assets | (9,892 | ) | (8,981 | ) | (6,127 | ) | ||||||||||||
Other | Other | (853 | ) | (793 | ) | (1,657 | ) | (1,485 | ) | (793 | ) | |||||||
Total Tier 1 Capital | Total Tier 1 Capital | $ | 91,422 | $ | 90,899 | $ | 92,370 | $ | 92,435 | $ | 90,899 | |||||||
Tier 2 Capital | Tier 2 Capital | |||||||||||||||||
Allowance for credit losses(4) | Allowance for credit losses(4) | $ | 10,604 | $ | 10,034 | $ | 13,872 | $ | 11,475 | $ | 10,034 | |||||||
Qualifying debt(5) | Qualifying debt(5) | 24,447 | 21,891 | 26,657 | 26,593 | 21,891 | ||||||||||||
Unrealized marketable equity securities gains(1) | Unrealized marketable equity securities gains(1) | 562 | 436 | 924 | 747 | 436 | ||||||||||||
Total Tier 2 Capital | Total Tier 2 Capital | $ | 35,613 | $ | 32,361 | $ | 41,453 | $ | 38,815 | $ | 32,361 | |||||||
Total Capital (Tier 1 and Tier 2) | Total Capital (Tier 1 and Tier 2) | $ | 127,035 | $ | 123,260 | $ | 133,823 | $ | 131,250 | $ | 123,260 | |||||||
Risk-Adjusted Assets(6) | Risk-Adjusted Assets(6) | $ | 1,106,961 | $ | 1,057,872 | $ | 1,261,790 | $ | 1,168,380 | $ | 1,057,872 | |||||||
Common stockholders' equity increased approximately $2.3$8.1 billion during the first three monthsto $126.9 billion, representing 5.4% of total assets as of September 30, 2007 to $121.1 billion at March 31, 2007, representing 6.0% of assets. This compares tofrom $118.8 billion and 6.3% at year-endDecember 31, 2006.
Common Equity
The table below summarizes the change in common stockholders' equity:
In billions of dollars | | | ||||||
---|---|---|---|---|---|---|---|---|
Common Equity, December 31, 2006 | $ | 118.8 | $ | 118.8 | ||||
Adjustment to opening retained earnings balance, net of tax(1) | (0.2 | ) | ||||||
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 | 0.1 | ||||||
Net income | 5.0 | 13.5 | ||||||
Employee benefit plans and other activities | 1.0 | 2.7 | ||||||
Dividends | (2.7 | ) | (8.1 | ) | ||||
Issuance of shares for Grupo Cuscatlan acquisition | 0.8 | |||||||
Treasury stock acquired | (0.6 | ) | (0.7 | ) | ||||
Net change in Accumulated other comprehensive income (loss), net of tax | (0.3 | ) | — | |||||
Common Equity, March 31, 2007 | $ | 121.1 | ||||||
Common Equity, September 30, 2007 | $ | 126.9 | ||||||
See NoteNotes 1 and Note 16 on pages 8555 and 105,77, respectively.
The decrease in the common stockholders' equity ratio during the threenine months ended March 31,September 30, 2007 reflected the above items and a 7.3%25.2% increase in total assets.
On April 17, 2006, the Board of Directors authorized up to an additional $10 billion in share repurchases. As of March 31,September 30, 2007, $6.8$6.7 billion remained under authorized repurchase programs after the repurchase of $645$663 million and $7.0 billion in shares during the threenine months ended March 31,September 30, 2007 and full year 2006, respectively. As a result of the Company's recent acquisitions, the successfulpending Nikko tender offer,Cordial transaction, and other growth opportunities, it is anticipated that the Company will not resume its share repurchase program for the remainder of the year.until capital ratios improve. This is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 78.48. For further details, see "Unregistered Sales of Equity Securities and Use of Proceeds" on page 123.104.
On June 18, 2007, Citigroup redeemed for cash shares of its 6.365% Cumulative Preferred Stock, Series F, at the redemption price of $50 per depository share plus accrued dividends to the date of redemption. Because notice for redemption of these shares occurred prior to June 30, 2007 quarter-end, they did not qualify as Tier 1 Capital at June 30, 2007.
On July 11, 2007, Citigroup redeemed for cash shares of its 6.213% Cumulative Preferred Stock, Series G, at the redemption price of $50 per depository share plus accrued dividends to the date of redemption. Because notice for redemption of these shares occurred prior to June 30, 2007 quarter-end, they did not qualify as Tier 1 Capital at June 30, 2007.
On September 10, 2007, Citigroup redeemed for cash shares of its 6.231% Cumulative Preferred Stock, Series H, at the redemption price of $50 per depository share plus accrued dividends to the date of redemption.
On October 9, 2007, Citigroup redeemed for cash shares of its 5.864% Cumulative Preferred Stock, Series M, at the redemption price of $50 per depository share plus accrued dividends to the date of redemption. Because notice for redemption of these shares occurred prior to quarter-end, they did not qualify as Tier 1 Capital at September 30, 2007.
The table below summarizes the Company's repurchase activity:
In millions, except per share amounts | Total Common Shares Repurchased | Dollar Value of Shares Repurchased | Average Price Paid per Share | Dollar Value of Remaining Authorized Repurchase Program | Total Common Shares Repurchased | Dollar Value of Shares Repurchased | Average Price Paid per Share | Dollar Value of Remaining Authorized Repurchase Program | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
First quarter 2006 | 42.9 | $ | 2,000 | $ | 46.58 | $ | 2,412 | 42.9 | $ | 2,000 | $ | 46.58 | $ | 2,412 | ||||||||||
Second quarter 2006 | 40.8 | 2,000 | 48.98 | 10,412 | (1) | 40.8 | 2,000 | 48.98 | 10,412 | (1) | ||||||||||||||
Third quarter 2006 | 40.9 | 2,000 | 48.90 | 8,412 | 40.9 | 2,000 | 48.90 | 8,412 | ||||||||||||||||
Fourth quarter 2006 | 19.4 | 1,000 | 51.66 | 7,412 | 19.4 | 1,000 | 51.66 | 7,412 | ||||||||||||||||
Total 2006 | 144.0 | $ | 7,000 | $ | 48.60 | $ | 7,412 | 144.0 | $ | 7,000 | $ | 48.60 | $ | 7,412 | ||||||||||
First quarter 2007 | 12.1 | $ | 645 | $ | 53.37 | $ | 6,767 | 12.1 | $ | 645 | $ | 53.37 | $ | 6,767 | ||||||||||
Second quarter 2007(2) | 0.1 | 8 | 51.42 | 6,759 | ||||||||||||||||||||
Third quarter 2007(2)(3) | 0.2 | 10 | 46.95 | 6,749 | ||||||||||||||||||||
Total year-to-date 2007 | 12.4 | $ | 663 | $ | 53.24 | $ | 6,749 | |||||||||||||||||
Mandatorily Redeemable Securities of Subsidiary Trusts
Total mandatorily redeemable securities of subsidiary trusts (trust preferred securities), which qualify as Tier 1 Capital, were $9.440 billion at March 31, 2007, as compared to $9.579 billion at December 31, 2006. On March 18, 2007 and March 26, 2007, Citigroup redeemed for cash all of the $23 million and $25 million Trust Preferred Securities of Adam Statutory Trust I and Adam Statutory Trust II, respectively, at the redemption price of $1,000 per preferred security plus any accrued distribution up to but excluding the date of redemption.
On March 6, 2007, Citigroup issued $1.000 billion of Enhanced Trust Preferred Securities (Citigroup Capital XVII). An additional $100 million was issued, related to this Trust, on March 14, 2007. See Note 12 on page 95 for details on Citigroup Capital XVII.
On February 15, 2007, Citigroup redeemed for cash all of the $300 million Trust Preferred Securities of Citicorp Capital I, $450 million of Citicorp Capital II, and $400 million of Citigroup Capital II, at the redemption price of $1,000 per preferred security plus any accrued distribution up to, but excluding, the date of redemption.
On April 23, 2007, Citigroup redeemed for cash all of the $22 million Trust Preferred Securities of Adam Capital Trust II at the redemption price of $1,000 per preferred security plus any accrued distribution up to but excluding the date of redemption.
The FRB has issued a final rule, with an effective date of April 11, 2005, which retains trust preferred securities in Tier 1 Capital of Bank Holding Companies (BHCs), but with stricter quantitative limits and clearer qualitative standards. Under the rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements included in Tier 1 Capital of internationally active banking organizations, such as Citigroup, would be limited to 15% of Tier 1 Capital elements, net of goodwill less any associated deferred tax liability. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 Capital, subject to restrictions. Under this rule, Citigroup currently would have less than 12% against the limit. The FRB has granted interim capital relief for the impact of adopting SFAS 158.
The FRB and the FFIEC may propose amendments to, and issue interpretations of, risk-based capital guidelines and reporting instructions. These may affect reported capital ratios and net risk-adjusted assets.*
Capital Resources of Citigroup's Depository Institutions
Bank Consolidation Project: During 2006, Citigroup began and completed the majority of its bank consolidation project, which called for the merger of its twelve U.S.-insured depository institutions into four, as well as the reorganization of its U.S. mortgage banking business. The first phase of this project was completed in July 2006, when CitiFinancial Credit Company (CCC), an indirect wholly owned subsidiary of Citigroup, transferred its ownership of Citicorp Trust Bank, fsb to Citigroup. The second phase occurred in October 2006, when Citigroup reduced its overall number of U.S.-insured depository institutions from twelve to five. Also during this phase, Citibank, N.A. transferred its investment in Citibank (South Dakota), N.A. (the Company's primary banking entity responsible for U.S. credit card activities) to Citigroup. In addition, a majority of the Company's U.S. consumer mortgage lending activity was consolidated within Citibank, N.A. as Citibank (West), FSB, Citibank Texas, N.A., Citibank, FSB and Citibank Delaware were merged into Citibank, N.A. The final phase of this consolidation project is expected to be completed at a later date with the merger of Citibank (Banamex USA) into Citibank, N.A.Regulatory Capital Ratios(1)
Benefits achieved from reducing the number of depository institutions included optimized capital efficiency, enhanced flexibility of operations as a result of Citibank, N.A.'s larger capital base, reduced regulatory complexity and improved customer relationships.
Capital Ratios of Depository Institutions: Citigroup's subsidiary depository institutions in the United States are subject to risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are similar to the FRB's guidelines. To be "well capitalized" under federal bank regulatory agency definitions, Citigroup's depository institutions must have a Tier 1 Capital Ratio of at least 6%, a Total Capital (Tier 1 + Tier 2 Capital) Ratio of at least 10% and a Leverage Ratio of at least 5%, and not be subject to a regulatory directive to meet and maintain higher capital levels. At March 31,September 30, 2007, all of Citigroup's subsidiary depository institutions were "well capitalized" under the federal regulatory agencies' definitions, including Citigroup's primary depository institution, Citibank, N.A., as noted in the tables on the next page.following table:
Citibank, N.A. Regulatory Capital Ratios(1)
| Mar. 31, 2007(3) | Dec. 31, 2006 | Sept. 30, 2007(2) | June 30, 2007(2) | Dec. 31, 2006 | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital | 8.13 | % | 8.32 | % | 8.22 | % | 8.21 | % | 8.32 | % | ||
Total Capital (Tier 1 and Tier 2) | 12.05 | 12.39 | 12.30 | 12.24 | 12.39 | |||||||
Leverage | 5.97 | 6.09 | 6.31 | 5.83 | 6.09 | |||||||
Citibank, N.A. Components of Capital Under Regulatory Guidelines(1)
In billions of dollars | Mar. 31, 2007(2) | Dec. 31, 2006 | ||||
---|---|---|---|---|---|---|
Tier 1 Capital | $ | 62.2 | $ | 59.9 | ||
Total Capital (Tier 1 and Tier 2) | 92.2 | 89.1 | ||||
Citibank, N.A. Components of Capital Under Regulatory Guidelines(1)
In billions of dollars | Sept. 30, 2007(2) | June 30, 2007(2) | Dec. 31, 2006 | ||||||
---|---|---|---|---|---|---|---|---|---|
Tier 1 Capital | $ | 73.3 | $ | 67.0 | $ | 59.9 | |||
Total Capital (Tier 1 and Tier 2) | 109.6 | 99.9 | 89.1 | ||||||
Citibank, N.A. had net income for the first threethird quarter of 2007 and for the nine months ended March 31,September 30, 2007 amounting to $2.2 billion.of $1.6 billion and $6.8 billion, respectively. During the third quarter of 2007 and for the nine months ended September 30, 2007, Citibank received contributions from parent company of $6.1 billion and $11.8 billion, respectively.
Citibank, N.A. did not issue any additional subordinated notes duringDuring the first quarternine months of 2007. For the2007 and full year 2006, Citibank N.A. issued an additional $4.2 billion and $7.8 billion, respectively, of subordinated notes to Citicorp Holdings Inc. that qualify for inclusion in Citibank, N.A.'s Tier 2 Capital. Total subordinated notes issued to Citicorp Holdings Inc. that were outstanding at March 31,September 30, 2007 and December 31, 2006 and included in Citibank, N.A.'s Tier 2 Capital amounted to $27.2 billion and $23.0 billion.billion, respectively.
Broker-Dealer Subsidiaries
The Company's broker-dealer subsidiaries—includingAt September 30, 2007, Citigroup Global Markets Inc. (CGMI), an indirect wholly owned subsidiary of Citigroup Global Markets Holdings, Inc. (CGMHI)—are subject to various securities and commodities regulations and capital adequacy requirements of the regulatory and exchange authorities of the countries in which they operate. The Company's U.S. registered broker-dealer subsidiaries are subject to the Securities and Exchange Commission's Net Capital Rule, Rule 15c3-1 (the Net Capital Rule) under the Exchange Act.
As a registered broker-dealer, CGMI is subject to the SEC's Net Capital Rule. Under the Net Capital Rule, CGMI is required to maintain minimum net capital equal to 2% of aggregate debit items, as defined. Under NYSE regulations, CGMI may be required to reduce its business if its net capital is less than 4% of aggregate debit items and may also be prohibited from expanding its business or paying cash dividends if resulting net capital would be less than 5% of aggregate debit items. Furthermore, the Net Capital Rule does not permit withdrawal of equity or subordinated capital if the resulting net capital would be less than 5% of aggregate debit items.
During the third quarter of 2006, the SEC granted CGMI approval to compute net capital in accordance with the provisions of Appendix E of the Net Capital Rule. This methodology allows CGMI to compute market risk capital charges using internal Value-at-Risk models. Under Appendix E, CGMI is also required to hold tentative net capital in excess of $1 billion and net capital in excess of $500 million. The firm is also required to notify the SEC in the event that its tentative net capital is less than $5 billion.
Compliance with the Net Capital Rule could limit those operations of CGMI that require the intensive use of capital, such as underwriting and trading activities and the financing of customer account balances, and also restrict CGMHI's ability to withdraw capital from its broker-dealer subsidiaries, which in turn could limit CGMHI's ability to pay dividends and make payments on its debt.
At March 31, 2007, CGMI, had net capital, computed in accordance with the Net Capital Rule, of $7.5$6.2 billion, which exceeded the minimum requirement by $6.8$5.3 billion.
In addition, certain of the Company'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's broker-dealer subsidiaries were in compliance with their capital requirements at March 31,September 30, 2007.
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 September 30, 2005,July 20, 2007, the U.S. banking regulators delayedannounced that the U.S. implementation of Basel II by one year.in the U.S. should be technically consistent in most aspects with the international version. This should lead to the finalization of a rule for implementing the advanced approaches for computing Citigroup's risk-based capital requirements under Basel II. The current U.S. implementation timetable consistsis expected to consist of parallel calculations under the current regulatory capital regime (Basel I) and Basel II, starting January 1, 2008, and an implementation transition period, starting January 1, 2009 through year-end 2011 or possibly later. The U.S. regulators have also reserved the right to change how Basel II is applied in the U.S., following a review at the end of the second year of the transitional period, and to retain the existing Prompt Corrective Action and leverage capital requirements applicable to U.S. banking organizations. The new timetable, clarifications, and other proposals are set forth in a notice of proposed rulemaking (NPR) issued on September 25, 2006, which contains a number of material differences from the international version of Basel II.
Citigroup continues to monitor, analyze and comment on the developing capital standards in the U.S. and in countries where Citigroup has a significant presence, in order to assess their collective impact and allocate project management and funding resources accordingly.
Certain of the statements above are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 48.
Overview
At September 30, 2007, at the Holding Company level for Citigroup, for CGMHI, and for the Combined Holding Company and CGMHI, Citigroup maintainsmaintained sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing the unsecured markets.
Management of Liquidity
Management of liquidity at Citigroup is the responsibility of the Head of Corporate Finance and Treasury. A uniform liquidity risk management policy exists for Citigroup and its major operating subsidiaries. Under this policy, there is a single set of standards for the measurement of liquidity risk in order to ensure consistency across businesses, stability in methodologies and transparency of risk. Management of liquidity at each operating subsidiary and/or country is performed on a daily basis and is monitored by Corporate Treasury and independent risk management.
The basis of Citigroup's liquidity management is strong decentralized liquidity management at each of its principal operating subsidiaries and in each of its countries, combined with an active corporate oversight function. As discussed in "Capital Resources and Liquidity" on page 68, Citigroup's FinALCO undertakes this oversight responsibility, along with the Head of Corporate Finance and Treasury. One of the objectives of the FinALCO is to monitor and review the overall liquidity and balance sheet positions of Citigroup and its principal subsidiaries. Similarly, Asset and Liability Committees are also established for each country and/or major line of business.
Monitoring Liquidity
Each principal operating subsidiary and/or country must prepare an annual funding and liquidity plan for review by the Head of Corporate Finance and Treasury and approval by independent risk management. The funding and liquidity plan includes analysis of the balance sheet, as well as the economic and business conditions impacting the liquidity of the major operating subsidiary and/or country. As part of the funding and liquidity plan, liquidity limits, liquidity ratios, market triggers, and assumptions for periodic stress tests are established and approved.
Liquidity Limits
Liquidity limits establish boundaries for market access in business-as-usual conditions and are monitored against the liquidity position on a daily basis. These limits are established based on the size of the balance sheet, depth of the market, experience level of local management, stability of the liabilities, and liquidity of the assets. Finally, the limits are subject to the evaluation of the entities' stress test results. Generally, limits are established such that in stress scenarios, entities are self-funded or net providers of liquidity.
Liquidity Ratios
A series of standard corporate-wide liquidity ratios have been established to monitor the structural elements of Citigroup's liquidity. For bank entities, these include cash capital (defined as core deposits, long-term debt, and capital compared with illiquid assets), liquid assets against liquidity gaps, core deposits to loans, long-term assets to long-term liabilities, and deposits to loans. Several measures exist to review potential concentrations of funding by individual name, product, industry, or geography. At the Holding Company level for Citigroup, for CGMHI and for the Combined Holding Company and CGMHI, ratios are established for liquid assets against short-term obligations. Triggers for management discussion, which may result in other actions, have been established against these ratios. In addition, each individual major operating subsidiary or country establishes targets against these ratios and may monitor other ratios as approved in its funding and liquidity plan.
Market Triggers
Market triggers are internal or external market or economic factors that may imply a change to market liquidity or Citigroup's access to the markets. Citigroup market triggers are monitored by the Head of Corporate Finance and Treasury and the Head of Risk Oversight and are discussed in the FinALCO. Appropriate market triggers are also established and monitored for each major operating subsidiary and/or country as part of the funding and liquidity plans. Local triggers are reviewed with the local country or business ALCO and independent risk management.
Stress Testing
Simulated liquidity stress testing is periodically performed for each major operating subsidiary and/or country. The scenarios include assumptions about significant changes in key funding sources, credit ratings, contingent uses of funding, and political and economic conditions in certain countries. The results of stress tests of individual countries and operating subsidiaries are reviewed to ensure that each individual major operating subsidiary or country is either self-funded or a net provider of liquidity. In addition, a Contingency Funding Plan is prepared on a periodic basis for Citigroup. The plan includes detailed policies, procedures, roles and responsibilities, and the results of corporate stress tests. The product of these stress tests is a series of alternatives that can be used by the Head of Corporate Finance and Treasury in a liquidity event.
CGMHI monitors liquidity by tracking asset levels, collateral and funding availability to maintain flexibility to meet its financial commitments. As a policy, CGMHI attempts to maintain sufficient capital and funding sources in order to have the capacity to finance itself on a fully collateralized basis in the event that its access to uncollateralized financing is temporarily impaired. This is documented in CGMHI's contingency funding plan. This plan is reviewed periodically to keep the funding options current and in line with market conditions. The management of this plan includes an analysis used to determine CGMHI's ability to withstand varying levels of stress, including rating downgrades, which could impact its liquidation horizons and required margins. CGMHI maintains liquidity reserves of cash and loan value of unencumbered securities in excess of its outstanding short-term uncollateralized liabilities. This is monitored on a daily basis. CGMHI also ensures that long-term illiquid assets are funded with long-term liabilities.
FUNDING
Overview
As a financial holding company, substantially all of Citigroup's net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agency requirements that also impact their capitalization levels.
At September 30, 2007, long-term debt and commercial paper outstanding for Citigroup parent company, CGMHI, Citigroup Funding Inc. and Citigroup's other subsidiaries were as follows:
In billions of dollars | Citigroup Parent Company | CGMHI | Citigroup Funding Inc. | Other Citigroup Subsidiaries | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term debt | $ | 154.0 | $ | 28.9 | $ | 33.6 | $ | 148.0 | (1) | ||||
Commercial paper | $ | — | $ | — | $ | 46.3 | $ | 2.2 | |||||
See Note 12 on page 66 for further detail on long-term debt and commercial paper outstanding.
Citigroup's ability to access the capital markets and other sources of wholesale funds, as well as the cost of these funds, is highly dependent on its credit ratings. The accompanying chart shows the ratings for Citigroup at September 30, 2007. The outlook for all of Citigroup's ratings is "stable."
Banking Subsidiaries
There are various legal limitations on the ability of Citigroup's subsidiary depository institutions to extend credit, pay dividends or otherwise supply funds to Citigroup and its nonbank subsidiaries. The approval of the Office of the Comptroller of the Currency, in the case of national banks, or the Office of Thrift Supervision, in the case of federal savings banks, is required if total dividends declared in any calendar year exceed amounts specified by the applicable agency's regulations. State-chartered depository institutions are subject to dividend limitations imposed by applicable state law.
As of March 31,September 30, 2007, Citigroup's subsidiary depository institutions can declare dividends to their parent companies, without regulatory approval, of approximately $13.2$17.9 billion. In determining the dividends, each depository institution must also consider its effect on applicable risk-based capital and Leverage Ratio requirements, as well as policy statements of the federal regulatory agencies that indicate that banking organizations should generally pay dividends out of current operating earnings. Consistent with these considerations, Citigroup estimates that, as of March 31,September 30, 2007, its subsidiary depository institutions can distribute dividends to Citigroup of approximately $10.1$15.2 billion of the available $13.2$17.9 billion.
Non-Banking Subsidiaries
Citigroup also receives dividends from its nonbank subsidiaries. These nonbank subsidiaries are generally not subject to regulatory restrictions on dividends.
As discussed in "Capital Resources and Liquidity" on page 68, the ability of CGMHI to declare dividends can be restricted by capital considerations of its broker-dealer subsidiaries.
During 2007, it is not anticipated that any restrictions on the subsidiaries' dividending capability will restrict Citigroup's ability to meet its obligations as and when they become due.*
Sources of Funding
Primary sources of funding for Citigroup and its principal subsidiaries include:
Citigroup and its principal subsidiaries also generate funds through securitizing financial assets, including credit card receivables and single-family or multi-family residences. See Note 13 on page 98 for additional information about securitization activities. Finally, Citigroup's net earnings provide a significant source of funding to the corporation.
Citigroup's funding sources are well diversified across funding types and geography, a benefit of the strength of the global franchise. Funding for the parent and its major operating subsidiaries includes a large geographically diverse retail and corporate deposit base of $738.5 billion. A significant portion of these deposits has been, and is expected to be, long-term and stable and is considered core.
Citigroup and its subsidiaries have a significant presence in the global capital markets. Citigroup primarily conducts its capital markets funding activities within two legal entities: (i) Citigroup Inc., which issues long-term debt, medium-term notes, trust preferred securities, and preferred and common stock; and (ii) Citigroup Funding Inc. (CFI), a first-tier subsidiary of Citigroup, which issues commercial paper, medium- term notes and structured equity-linked and credit-linked notes, all of which are guaranteed by Citigroup.
Citigroup also guarantees various debt obligations of CGMHI, Associates and CitiFinancial Credit Company, the latter two being indirect subsidiaries of Citigroup. In addition, Citigroup guarantees various debt obligations of Citigroup Finance Canada Inc. (CFCI), a wholly owned subsidiary of Associates. CFCI continues to issue debt in the Canadian market supported by a Citigroup guarantee. See Note 20 on page 115 for further discussions. Other significant elements of long-term debt in the Consolidated Balance Sheet include collateralized advances from the Federal Home Loan Bank system, asset-backed outstandings, and certain borrowings of foreign subsidiaries.
CGMHI's consolidated balance sheet is highly liquid, with the vast majority of its assets consisting of marketable securities and collateralized short-term financing agreements arising from securities transactions. The highly liquid nature of these assets provides CGMHI with flexibility in financing and managing its business. CGMHI monitors and evaluates the adequacy of its capital and borrowing base on a daily basis to maintain liquidity, and to ensure that its capital base supports the regulatory capital requirements of its subsidiaries.
Citigroup uses its funding to service debt obligations, to pay dividends to its stockholders, to support organic growth, to fund acquisitions and to repurchase its shares, pursuant to Board of Directors approved plans.
Each of Citigroup's major operating subsidiaries finances its operations on a basis consistent with its capitalization, regulatory structure and the environment in which it operates. Particular attention is paid to those businesses that for tax, sovereign risk, or regulatory reasons cannot be freely and readily funded in the international markets.
Citigroup's borrowings are diversified by geography, investor, instrument and currency. Decisions regarding the ultimate currency and interest rate profile of funding generated through these borrowings can be separated from the actual issuance through the use of derivative financial products.
At March 31, 2007, long-term debt and commercial paper outstanding for Citigroup Parent Company, CGMHI, Citigroup Funding Inc. and Citigroup's other subsidiaries were as follows:
In billions of dollars | Citigroup Parent Company | CGMHI | Citigroup Funding Inc. | Other Citigroup Subsidiaries | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Long-term debt | $ | 134.9 | $ | 28.4 | $ | 24.5 | $ | 123.0 | (1) | ||||
Commercial paper | — | — | $ | 39.7 | $ | 0.9 |
See Note 12 on page 95 for further detail on long-term debt and commercial paper outstanding.
Citigroup's ability to access the capital markets and other sources of wholesale funds, as well as the cost of these funds, is highly dependent on its credit ratings. The accompanying chart indicates the current ratings for Citigroup.
Citigroup's Debt Ratings as of March 31,September 30, 2007
| Citigroup Inc. | Citigroup Funding Inc. | Citibank, N.A. | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Senior Debt | Subordinated Debt | Commercial Paper | Senior Debt | Subordinated Debt | Commercial Paper | Short- Term | |||||||||
Fitch Ratings | AA+ | AA | F1+ | AA+ | AA | F1+ | AA+ | F1+ | ||||||||
Moody's Investors Service | Aa2 | P-1 | Aa1 | Aa2 | P-1 | Aaa | P-1 | |||||||||
Standard & Poor's | AA | AA- | A-1+ | AA | AA- | A-1+ | AA+ | A-1+ |
On February 14, 2007, Standard & Poor's upgraded the ratings of Citigroup and certain rated subsidiaries. The senior debt ratings of Citigroup and Citigroup Funding Inc. (CFI) were upgraded to "AA" from "AA-." The subordinated debt ratings of Citigroup and Citigroup Funding Inc. (CFI) were upgraded to "AA-" from "A+." The long-term rating of Citibank, N.A. was upgraded to "AA+" from "AA." The outlook for all of Citigroup's ratings is "stable."
Some of Citigroup's nonbank subsidiaries, including CGMHI, have credit facilities with Citigroup's subsidiary depository institutions, including Citibank, N.A. Borrowings under these facilities must be secured in accordance with Section 23A of the Federal Reserve Act. There are various legal restrictions on the extent to which a bank holding company and certain of its nonbank subsidiaries can borrow or obtain credit from Citigroup's subsidiary depository institutions or engage in certain other transactions with them. In general, these restrictions require that transactions be on arm's-length terms and be secured by designated amounts of specified collateral. See Note 12 on page 95.
OFF-BALANCE SHEET ARRANGEMENTS
Overview
Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs), lines and letters of credit, and loan commitments.
The securitization process enhances the liquidity of the financial markets, may spread credit and interest rate risk among several market participants, and makes new funds available to extend credit to consumers and commercial entities.
Uses of SPEs
In order to execute securitizations, the Company uses SPEs. An SPE is an entity in the form of a trust or other legal vehicle designed to fulfill a specific limited need of the company that organized it.
The principal uses of SPEs are to obtain liquidity and favorable capital treatment by securitizing certain of Citigroup's financial assets, to assist clients in securitizing their financial assets, and to create investment products for clients. SPEs may be organized as trusts, partnerships, or corporations. In a securitization, the company transferring assets to an SPE converts those assets into cash before they would have been realized in the normal course of business, through the SPE's issuing debt and equity instruments, certificates, commercial paper, and other notes of indebtedness. Investors usually have recourse to the assets in the SPE and often benefit from other credit enhancements, such as a collateral account or overcollateralization in the form of excess assets in the SPE, or from a liquidity facility, such as a line of credit or asset purchase agreement. Accordingly, the SPE can typically obtain a more favorable credit rating from rating agencies than the transferor could obtain for its own debt issuances, resulting in less expensive financing costs. The SPE may also enter into derivative contracts in order to convert the yield or currency of the underlying assets to match the needs of the SPE investors, or to limit or change the credit risk of the SPE. Citigroup may be the counterparty to these derivatives.
SPEs may be Qualifying SPEs (QSPEs) or variable interest entities (VIEs) or neither. A VIE is a type of SPE that does not have sufficient equity to finance its activities without additional subordinated financial support from third parties. Its investors may not have the power to make significant decisions about the entity's operations, or investors may not share pro rata in the entity's expected returns or losses. The Company's credit card receivable and mortgage loan securitizations are organized as QSPEs and are, therefore, not VIEs subject to FASB Interpretation No. 46, "Consolidation of Variable Interest Entities (revised December 2003)," (FIN 46-R). When an entity is deemed a VIE under FIN 46-R, the entity in question must be consolidated by the primary beneficiary; however, the Company is not the primary beneficiary of most of these entities and as such does not consolidate most of them.
Securitization of Citigroup's Assets
In some of these off-balance sheet arrangements, including credit card receivable and mortgage loan securitizations, Citigroup is securitizing assets that were previously recorded on its Consolidated Balance Sheet. A summary of certain cash flows received from and paid to securitization trusts is included in Note 13 to the Consolidated Financial Statements on page 98.68.
Credit Card Receivables
Credit card receivables are securitized through trusts, which are established to purchase the receivables. Citigroup sells receivables into the trusts on a non-recourse basis. Credit card securitizations are revolving securitizations; that is, as customers pay their credit card balances, the cash proceeds are used to purchase new receivables and replenish the receivables in the trust. CGMI is one of several underwriters that distribute securities issued by the trusts to investors. The Company relies on securitizations to fund a significant portion of its managedU.S. Cards business, which includes both on-balance sheet and securitized receivables.
The following table reflects amounts related to the Company's securitized credit card receivables at March 31,September 30, 2007 and December 31, 2006:
In billions of dollars | Mar. 31, 2007 | Dec. 31, 2006 | Sept. 30, 2007 | Dec. 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Principal amount of credit card receivables in trusts | $ | 108.9 | $ | 112.4 | $ | 116.0 | $ | 112.4 | ||||
Ownership interests in principal amount of trust credit card receivables: | ||||||||||||
Sold to investors via trust-issued securities | 93.8 | 93.1 | 99.2 | 93.1 | ||||||||
Retained by Citigroup as trust-issued securities | 3.3 | 5.1 | 3.6 | 5.1 | ||||||||
Retained by Citigroup via non-certificated interest recorded as consumer loans | 11.8 | 14.2 | 13.2 | 14.2 | ||||||||
Total ownership interests in principal amount of trust credit card receivables | $ | 108.9 | $ | 112.4 | $ | 116.0 | $ | 112.4 | ||||
Other amounts recorded on the balance sheet related to interests retained in the trusts: | ||||||||||||
Amounts receivable from trusts | $ | 4.5 | $ | 4.5 | $ | 4.4 | $ | 4.5 | ||||
Amounts payable to trusts | 1.8 | 1.7 | 1.6 | 1.7 | ||||||||
Residual interest retained in trust cash flows | 2.7 | 2.5 | 2.7 | 2.5 | ||||||||
In the firstthird quarters of 2007 and 2006, the Company recorded net gains from securitization of credit card receivables of $248$74 million and $171$264 million, respectively, and $470 million and $719 million in the first nine months of 2007 and 2006, respectively. Net gains reflect the following:
See Note 13 on page 9868 for additional information regarding the Company's securitization activities.
Mortgages and Other Assets
The Company provides a wide range of mortgage and other loan products to its customers. In addition to providing a source of liquidity and less expensive funding, securitizing these assets also reduces the Company's credit exposure to the borrowers. The Company's mortgage loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchasers of the securities issued by the trust. In addition to servicing rights, the Company also retains a residual interest in its student loan and other asset securitizations, consisting of securities and interest-only strips that arise from the calculation of gain or loss at the time assets are sold to the SPE. The Company recognized gains related to the securitization of mortgages and other assets of $44$60 million and $51$110 million in the third quarters of 2007 and 2006, respectively, and $249 million and $263 million in the first quartersnine months of 2007 and 2006, respectively.
Securitization of Client Assets
The Company acts as an intermediary for its corporate clients, assisting them in obtaining liquidity by selling their trade receivables or other financial assets to an SPE.
In addition, Citigroup administers several third-party-owned, special purpose, multi-seller finance companiesasset-backed commercial paper conduits that purchase pools of trade receivables, credit card receivables, and other financial assets from its clients. As administrator of these multi-seller finance companies, the Company provides accounting, funding, and operations services to these conduits butconduits. The Company has no ownership interest. Generally,interest in the clients continue to serviceconduits. In the transferred assets. The conduits' asset purchases are funded by issuingevent of liquidity problems in the commercial paper and medium-term notes. Clients absorbmarket, the first losses ofCompany's asset purchase agreements require the Company to purchase only high quality performing assets from the conduits by providing collateral in the form of excess assets or holding a residual interest. The Company, along with other financial institutions, provides liquidity facilities, such as commercial paper backstop lines of credit to the conduits. The Company also provides loss enhancement in the form of letters of credit and other guarantees. All fees are charged on a market basis.at their fair values.
At March 31,September 30, 2007 and December 31, 2006, total assets and liabilities in the unconsolidated asset-backed commercial paper conduits were $74$73.3 billion and $66$66.3 billion, respectively.
Creation of Other Investment and Financing Products
The Company has established SIVs, which issue junior notes, medium-term notes and short-term commercial paper to fund the purchase of high quality assets. The SIVs provide a return to their investors based on the net spread between the cost to issue the short-term debt and the return realized by the medium-term assets. The Company acts as investment manager for the SIVs, but is not contractually obligated to provide liquidity facilities or guarantees to the SIVs.
The following tables summarize the seven Citigroup-advised SIVs as of September 30, 2007 and the aggregate asset mix and credit quality of the SIV assets. See page 7 for a further discussion.
In billions of dollars | |||||||||
---|---|---|---|---|---|---|---|---|---|
SIV | Assets | CP Funding | Medium Term Notes | ||||||
Beta | $ | 19.3 | $ | 2.6 | $ | 15.7 | |||
Centauri | 20.1 | 2.9 | 16.1 | ||||||
Dorada | 11.0 | 2.2 | 8.1 | ||||||
Five | 13.2 | 5.5 | 7.1 | ||||||
Sedna | 13.4 | 5.6 | 7.0 | ||||||
Zela | 4.1 | 2.7 | 1.2 | ||||||
Vetra | 2.0 | 1.4 | 0.5 | ||||||
Total | $ | 83.1 | $ | 22.9 | $ | 55.7 | |||
| | Average Credit Quality(1)(2) | |||||||
---|---|---|---|---|---|---|---|---|---|
| Average Asset Mix | ||||||||
| Aaa | Aa | A | ||||||
Financial Institutions Debt | 58 | % | 12 | % | 44 | % | 2 | % | |
Structured Finance | |||||||||
MBS—Non-U.S. residential | 11 | % | 11 | % | — | — | |||
CBOs, CLOs, CDOs | 8 | % | 8 | % | — | — | |||
MBS—U.S. residential | 7 | % | 7 | % | — | — | |||
CMBS | 6 | % | 6 | % | — | — | |||
Student loans | 5 | % | 5 | % | — | — | |||
Credit cards | 4 | % | 4 | % | — | — | |||
Other | 1 | % | 1 | % | — | — | |||
Total Structured Finance | 42 | % | 42 | % | — | — | |||
Total | 100 | % | 54 | % | 44 | % | 2 | % | |
The Company packages and securitizes assets purchased in the financial markets in order to create new securitysecurities offerings, including arbitrage collateralized debt obligations (CDOs)CDOs and synthetic CDOs for institutional clients and retail customers, which match the clients' investment needs and preferences. An arbitrage CDO is an investment vehicle designed to take advantage of the difference between the yield on a portfolio of selected assets and the cost of funding the CDO through the sale of notes to investors. Arbitrage CDOs are classified as either "cash flow" CDOs, in which the vehicle passes on cash flows from a relatively static pool of assets, or "market value" CDOs, where the pool of assets is actively managed by a third party. In a synthetic CDO, the entity enters into derivative transactions which provide a return similar to a cash instrument to the entity, rather than the entity's actually purchasing the cash instrument. Typically these instruments diversify investors' risk to a pool of assets as compared with investments in individual assets. The VIEs, which are issuers of
At September 30, 2007 and December 31, 2006, unconsolidated CDO securities, are generally organized as limited liability corporations. The Company typically receives fees for structuring and/or distributing the securities sold to investors. In some cases,assets where the Company may repackage the investment with higher-rated debt CDO securities or U.S. Treasury securities to provide a greater or a very high degree of certainty of the return of invested principal. A third-party manager is typically retained by the VIE to select collateral for inclusion in the poolhas significant involvement totaled $84.2 billion and then actively manage it, or, in other cases, only to manage work-out credits. The Company may also provide other financial services and/or products to the VIEs for market-rate fees. These may include: the provision of liquidity or contingent liquidity facilities, interest rate or foreign exchange hedges and credit derivative instruments, as well as the purchasing and warehousing of securities until they are sold to the SPE. The Company is not the primary beneficiary of these VIEs under FIN 46-R due to its limited continuing involvement and, as a result, we do not consolidate their assets and liabilities in our financial statements.$52.1 billion, respectively.
See Note 13 on page 9868 for additional information about off-balance sheet arrangements.
Credit Commitments and Lines of Credit
The table below summarizes Citigroup's credit commitments as of March 31,September 30, 2007 and December 31, 2006.
In millions of dollars | March 31, 2007 | December 31, 2006 | Sept. 30, 2007 | Dec. 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Financial standby letters of credit and foreign office guarantees | $ | 83,568 | $ | 72,548 | $ | 87,387 | $ | 72,548 | ||||
Performance standby letters of credit and foreign office guarantees | 15,861 | 15,802 | 16,479 | 15,802 | ||||||||
Commercial and similar letters of credit | 7,969 | 7,861 | 9,177 | 7,861 | ||||||||
One- to four-family residential mortgages | 5,669 | 3,457 | 7,424 | 3,457 | ||||||||
Revolving open-end loans secured by one- to four-family residential properties | 33,528 | 32,449 | 35,967 | 32,449 | ||||||||
Commercial real estate, construction and land development | 4,875 | 4,007 | 5,387 | 4,007 | ||||||||
Credit card lines(1) | 1,006,204 | 987,409 | 1,030,123 | 987,409 | ||||||||
Commercial and other consumer loan commitments(2) | 469,403 | 439,931 | 513,668 | 439,931 | ||||||||
Total | $ | 1,627,077 | $ | 1,563,464 | $ | 1,705,612 | $ | 1,563,464 | ||||
Highly-Leveraged Financing Commitments
Included in the line item "Commercial and other consumer loan commitments" in the table above are highly-leveraged financing commitments which are agreements that provide funding to a borrower with higher levels of debt (measured by the ratio of debt capital to equity capital of the borrower) than is generally considered normal for other companies. Highly-leveraged financing is commonly employed in corporate acquisitions, management buy-outs and similar transactions.
As a result, debt service (that is, principal and interest payments) absorbs a significant portion of the cash flows generated by the borrower's business. Consequently, the risk that the borrower may not be able to service its debt obligations is greater. However, to compensate for this risk, the interest rate and fees charged for this type of financing is generally higher.
Citigroup manages the risk associated with highly-leveraged financings it has entered into by selling a majority of its exposures to the market prior to or shortly after funding. In certain cases, all or a portion of a highly-leveraged financing to be retained is hedged with credit derivatives or other hedging instruments. Thus, when a highly-leveraged financing is funded, Citigroup records the resulting loan as follows:
Prior to funding, highly-leveraged financing commitments are assessed for impairment in accordance with SFAS 5 and losses are recorded when they are probable and reasonably estimable. For the portion of loan commitments that relate to loans that will be held-for-investment, loss estimates are made based on the borrower's ability to repay the facility according to its contractual terms. For the portion of loan commitments that relate to loans that will be held-for-sale, loss estimates are made in reference to current conditions in the resale market (both interest rate risk and credit risk are considered in the estimate). Loan origination, commitment, underwriting, other fees have been netted against the impairment losses.
Due to the dislocation of the credit markets during the quarter, liquidity in the market for highly-leveraged financings has declined significantly. Consequently, Citigroup has been unable to sell a number of highly-leveraged financings that it entered into during the quarter, resulting in total exposure of $57 billion as of September 30, 2007 ($19 billion for funded and $38 billion for unfunded commitments). The reduction in liquidity has resulted in Citigroup's recognizing total losses on such products during the quarter of $1.4 billion pre-tax of which $552 million is on funded highly-leveraged loans and $800 million on unfunded highly-leveraged financing commitments.
CORPORATE GOVERNANCE AND CONTROLS AND PROCEDURES
Corporate Governance
Citigroup has a Code of Conduct that maintains the Company's commitment to the highest standards of conduct. The Company has established an ethics hotline for employees. The Code of Conduct is supplemented by a Code of Ethics for Financial Professionals (including finance, accounting, treasury, tax and investor relations professionals) that applies worldwide.
Both the Code of Conduct and the Code of Ethics for Financial Professionals can be found on the Citigroup Web site, www.citigroup.com, by clicking on the "Corporate Governance" page. The Company's Corporate Governance Guidelines and the charters for the Audit and Risk Management Committee, the Nomination and Governance Committee, the Personnel and Compensation Committee, and the Public Affairs Committee of the Board are also available under the "Corporate Governance" page, or by writing to Citigroup Inc., Corporate Governance, 425 Park Avenue, 2nd Floor, New York, New York 10043.
Controls and Procedures
Disclosure
The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed under the Exchange Act securities laws is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), to allow for timely decisions regarding required disclosure and appropriate SEC filings.
The Company's Disclosure Committee is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Company's external disclosures.
The Company's management, with the participation of the Company's CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31,September 30, 2007 and, based on that evaluation, the CEO and CFO have concluded that at that date the Company's disclosure controls and procedures were effective.
Financial Reporting
The Company'sinternal control over financial reporting is a process under the supervision of the CEO and CFO, and effected by Citigroup's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. These controls include policies and procedures that:
Citigroup has had a longstanding process whereby business and financial officers throughout the Company attest to the accuracy of financial information reported in corporate systems as well as the effectiveness of internal controls over financial reporting and disclosure processes.
There were no changes in the Company's internal control over financial reporting during the fiscal quarter ended March 31,September 30, 2007 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
In this Quarterly Report on Form 10-Q, the Company uses certain forward-looking statements when describing future business conditions. The Company's actual results may differ materially from those included in the forward-looking statements and are indicated by words such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar expressions, or future or conditional verbs such as "will," "should," "would," and "could."
These forward-looking statements involve external risks and uncertainties including, but not limited, to those described in the Company's 2006 Annual Report on Form 10-K section entitled "Risk Factors": economic conditions; credit, market and liquidity risk; competition; country risk; operational risk; U.S. fiscal policies; reputational and legal risk; and certain regulatory considerations. Risks and uncertainties disclosed in this 10-Q include, but are not limited to:
TABLE OF CONTENTS
| Page No. | ||
---|---|---|---|
Financial Statements: | |||
Consolidated Statement of Income (Unaudited)—Three and Nine Months Ended | |||
Consolidated Balance Sheet— | |||
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)— | |||
Consolidated Statement of Cash Flows (Unaudited)— | |||
Consolidated Balance Sheet—Citibank, N.A. and Subsidiaries | |||
Notes to Consolidated Financial Statements (Unaudited): | |||
Note 1—Basis of Presentation | |||
Note 2—Discontinued Operations | |||
Note 3—Business Segments | |||
Note 4—Interest Revenue and Expense | |||
Note 5—Commissions and Fees | |||
Note 6—Retirement Benefits | |||
Note 7—Restructuring | |||
Note 8—Earnings Per Share | |||
Note 9—Trading Account Assets and Liabilities | |||
Note 10—Goodwill and Intangible Assets | |||
Note 11—Investments | |||
Note 12—Debt | |||
Note 13—Securitizations and Variable Interest Entities | |||
Note 14—Changes in Accumulated Other Comprehensive Income (Loss) ("AOCI") | |||
Note 15—Derivatives Activities | |||
Note 16—Fair Value | |||
Note 17—Guarantees and Credit Commitments | |||
Note 18—Contingencies | |||
Note 19—Citibank, N.A. and Subsidiaries Statement of Changes in Stockholder's Equity (Unaudited) | |||
Note 20—Condensed Consolidating Financial Statement Schedules | |||
Note 21—Fourth Quarter of 2007 Subsequent Event | 102 |
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
| Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except per share amounts | ||||||||||||||||||||
2007 | 2006(1) | 2007 | 2006(1) | 2007 | 2006(1) | |||||||||||||||
Revenues | ||||||||||||||||||||
Interest revenue | $ | 28,132 | $ | 21,873 | $ | 32,961 | $ | 24,729 | $ | 91,691 | $ | 70,174 | ||||||||
Interest expense | 17,562 | 12,107 | 20,804 | 14,901 | 57,538 | 40,725 | ||||||||||||||
Net interest revenue | $ | 10,570 | $ | 9,766 | $ | 12,157 | $ | 9,828 | $ | 34,153 | $ | 29,449 | ||||||||
Commissions and fees | $ | 5,773 | $ | 5,188 | $ | 4,053 | $ | 3,920 | $ | 16,287 | $ | 14,321 | ||||||||
Principal transactions | 2,997 | 2,117 | (244 | ) | 2,014 | 5,553 | 5,952 | |||||||||||||
Administration and other fiduciary fees | 1,949 | 1,705 | 2,468 | 1,670 | 6,658 | 5,082 | ||||||||||||||
Realized gains (losses) from sales of investments | 473 | 379 | 263 | 304 | 855 | 985 | ||||||||||||||
Insurance premiums | 838 | 770 | 893 | 819 | 2,577 | 2,389 | ||||||||||||||
Other revenue | 2,859 | 2,258 | 2,803 | 2,867 | 8,399 | 7,609 | ||||||||||||||
Total non-interest revenues | $ | 14,889 | $ | 12,417 | $ | 10,236 | $ | 11,594 | $ | 40,329 | $ | 36,338 | ||||||||
Total revenues, net of interest expense | $ | 25,459 | $ | 22,183 | $ | 22,393 | $ | 21,422 | $ | 74,482 | $ | 65,787 | ||||||||
Provision for credit losses and for benefits and claims | ||||||||||||||||||||
Provision for loan losses | $ | 2,706 | $ | 1,396 | $ | 4,776 | $ | 1,793 | $ | 10,002 | $ | 4,625 | ||||||||
Policyholder benefits and claims | 261 | 227 | 236 | 274 | 694 | 732 | ||||||||||||||
Provision for unfunded lending commitments | — | 50 | 50 | 50 | 50 | 250 | ||||||||||||||
Total provision for credit losses and for benefits and claims | $ | 2,967 | $ | 1,673 | $ | 5,062 | $ | 2,117 | $ | 10,746 | $ | 5,607 | ||||||||
Operating expenses | ||||||||||||||||||||
Compensation and benefits | $ | 8,699 | $ | 8,263 | $ | 7,730 | $ | 6,718 | $ | 25,351 | $ | 22,355 | ||||||||
Net occupancy expense | 1,529 | 1,382 | 1,748 | 1,435 | 4,880 | 4,228 | ||||||||||||||
Technology/communication expense | 979 | 886 | 1,166 | 948 | 3,288 | 2,768 | ||||||||||||||
Advertising and marketing expense | 617 | 603 | 800 | 574 | 2,184 | 1,829 | ||||||||||||||
Restructuring expense | 1,377 | — | 35 | — | 1,475 | — | ||||||||||||||
Other operating expenses | 2,370 | 2,224 | 3,082 | 2,261 | 7,809 | 6,883 | ||||||||||||||
Total operating expenses | $ | 15,571 | $ | 13,358 | $ | 14,561 | $ | 11,936 | $ | 44,987 | $ | 38,063 | ||||||||
Income from continuing operations before income taxes and minority interest | $ | 6,921 | $ | 7,152 | $ | 2,770 | $ | 7,369 | $ | 18,749 | $ | 22,117 | ||||||||
Provision for income taxes | 1,862 | 1,537 | 538 | 2,020 | 5,109 | 5,860 | ||||||||||||||
Minority interest, net of taxes | 47 | 60 | 20 | 46 | 190 | 137 | ||||||||||||||
Income from continuing operations | $ | 5,012 | $ | 5,555 | $ | 2,212 | $ | 5,303 | $ | 13,450 | $ | 16,120 | ||||||||
Discontinued operations | ||||||||||||||||||||
Income from discontinued operations | $ | — | $ | 1 | $ | — | $ | 26 | $ | — | $ | 27 | ||||||||
Gain on sale | — | 21 | — | 198 | — | 219 | ||||||||||||||
Provision (benefit) for income taxes and minority interest, net of taxes | — | (62 | ) | — | 22 | — | (43 | ) | ||||||||||||
Income from discontinued operations, net of taxes | $ | — | $ | 84 | $ | — | $ | 202 | $ | — | $ | 289 | ||||||||
Net income | $ | 5,012 | $ | 5,639 | $ | 2,212 | $ | 5,505 | $ | 13,450 | $ | 16,409 | ||||||||
Basic earnings per share(2) | ||||||||||||||||||||
Income from continuing operations | $ | 1.02 | $ | 1.13 | $ | 0.45 | $ | 1.08 | $ | 2.74 | $ | 3.28 | ||||||||
Income from discontinued operations, net of taxes | — | 0.02 | — | 0.04 | — | 0.06 | ||||||||||||||
Net Income | $ | 1.02 | $ | 1.14 | ||||||||||||||||
Net income | $ | 0.45 | $ | 1.13 | $ | 2.74 | $ | 3.34 | ||||||||||||
Weighted average common shares outstanding | 4,877.0 | 4,920.7 | 4,916.1 | 4,875.5 | 4,897.1 | 4,898.4 | ||||||||||||||
Diluted earnings per share(2) | ||||||||||||||||||||
Income from continuing operations | $ | 1.01 | $ | 1.11 | $ | 0.44 | $ | 1.06 | $ | 2.69 | $ | 3.22 | ||||||||
Income from discontinued operations, net of taxes | — | 0.02 | — | 0.04 | — | 0.06 | ||||||||||||||
Net income | $ | 1.01 | $ | 1.12 | $ | 0.44 | $ | 1.10 | $ | 2.69 | $ | 3.28 | ||||||||
Adjusted weighted average common shares outstanding | 4,967.9 | 5,007.9 | 5,010.9 | 4,978.6 | 4,990.6 | 4,992.2 | ||||||||||||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
In millions of dollars, except shares | In millions of dollars, except shares | March 31, 2007 (Unaudited) | December 31, 2006 | In millions of dollars, except shares | September 30, 2007 | December 31, 2006 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | |||||||||||||
Assets | Assets | Assets | ||||||||||||||
Cash and due from banks (including segregated cash and other deposits) | Cash and due from banks (including segregated cash and other deposits) | $ | 24,421 | $ | 26,514 | Cash and due from banks (including segregated cash and other deposits) | $ | 38,226 | $ | 26,514 | ||||||
Deposits with banks | 44,906 | 42,522 | ||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell (including $78,113 at fair value as of March 31, 2007) | 303,925 | 282,817 | ||||||||||||||
Deposits at interest with banks | Deposits at interest with banks | 58,713 | 42,522 | |||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell (including $125,329 at fair value as of September 30, 2007) | Federal funds sold and securities borrowed or purchased under agreements to resell (including $125,329 at fair value as of September 30, 2007) | 383,217 | 282,817 | |||||||||||||
Brokerage receivables | Brokerage receivables | 51,976 | 44,445 | Brokerage receivables | 69,062 | 44,445 | ||||||||||
Trading account assets (including $167,214 and $125,231 pledged to creditors at March 31, 2007 and December 31, 2006, respectively) | 460,065 | 393,925 | ||||||||||||||
Investments (including $21,018 and $16,355 pledged to creditors as of March 31, 2007 and December 31, 2006, respectively) | 286,567 | 273,591 | ||||||||||||||
Trading account assets (including $150,068 and $125,231 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | Trading account assets (including $150,068 and $125,231 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | 581,220 | 393,925 | |||||||||||||
Investments (including $16,899 and $16,355 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | Investments (including $16,899 and $16,355 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | 240,828 | 273,591 | |||||||||||||
Loans, net of unearned income | Loans, net of unearned income | Loans, net of unearned income | ||||||||||||||
Consumer | 519,105 | 512,921 | Consumer | 570,891 | 512,921 | |||||||||||
Corporate (including $1,832 and $384 at fair value as of March 31, 2007 and December 31, 2006, respectively) | 174,239 | 166,271 | Corporate (including $2,771 and $384 at fair value as of September 30, 2007 and December 31, 2006, respectively) | 203,078 | 166,271 | |||||||||||
Loans, net of unearned income | Loans, net of unearned income | $ | 693,344 | $ | 679,192 | Loans, net of unearned income | $ | 773,969 | $ | 679,192 | ||||||
Allowance for loan losses | (9,510 | ) | (8,940 | ) | Allowance for loan losses | (12,728 | ) | (8,940 | ) | |||||||
Total loans, net | Total loans, net | $ | 683,834 | $ | 670,252 | Total loans, net | $ | 761,241 | $ | 670,252 | ||||||
Goodwill | Goodwill | 34,380 | 33,415 | Goodwill | 39,949 | 33,415 | ||||||||||
Intangible assets | Intangible assets | 19,330 | 15,901 | Intangible assets | 23,651 | 15,901 | ||||||||||
Other assets (including $13,375 at fair value as of March 31, 2007) | 111,562 | 100,936 | ||||||||||||||
Other assets (including $22,788 at fair value as of September 30, 2007) | Other assets (including $22,788 at fair value as of September 30, 2007) | 162,159 | 100,936 | |||||||||||||
Total assets | Total assets | $ | 2,020,966 | $ | 1,884,318 | Total assets | $ | 2,358,266 | $ | 1,884,318 | ||||||
Liabilities | Liabilities | Liabilities | ||||||||||||||
Non-interest-bearing deposits in U.S. offices | $ | 39,296 | $ | 38,615 | Non-interest-bearing deposits in U.S. offices | $ | 38,842 | $ | 38,615 | |||||||
Interest-bearing deposits in U.S. offices (including $584 and $366 at fair value As of March 31, 2007 and December 31, 2006, respectively) | 198,840 | 195,002 | Interest-bearing deposits in U.S. offices (including $1,160 and $366 at fair value as of September 30, 2007 and December 31, 2006, respectively) | 211,147 | 195,002 | |||||||||||
Non-interest-bearing deposits in offices outside the U.S. | 36,328 | 35,149 | Non-interest-bearing deposits in offices outside the U.S. | 43,052 | 35,149 | |||||||||||
Interest-bearing deposits in offices outside the U.S. (including $1,470 and $472 at fair value at March 31, 2007 and December 31, 2006, respectively) | 464,057 | 443,275 | Interest-bearing deposits in offices outside the U.S. (including $2,301 and $472 at fair value as of September 30, 2007 and December 31, 2006, respectively) | 519,809 | 443,275 | |||||||||||
Total deposits | Total deposits | $ | 738,521 | $ | 712,041 | Total deposits | $ | 812,850 | $ | 712,041 | ||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase (including $180,846 at fair value as of March 31, 2007) | 393,670 | 349,235 | ||||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase (including $313,353 at fair value as of September 30, 2007) | Federal funds purchased and securities loaned or sold under agreements to repurchase (including $313,353 at fair value as of September 30, 2007) | 440,369 | 349,235 | |||||||||||||
Brokerage payables | Brokerage payables | 88,722 | 85,119 | Brokerage payables | 94,830 | 85,119 | ||||||||||
Trading account liabilities | Trading account liabilities | 173,902 | 145,887 | Trading account liabilities | 215,623 | 145,887 | ||||||||||
Short-term borrowings (including $14,304 and $2,012 at fair value as of March 31, 2007 and December 31, 2006, respectively) | 111,179 | 100,833 | ||||||||||||||
Long-term debt (including $31,237 and $9,439 at fair value as of March 31, 2007 and December 31, 2006, respectively) | 310,768 | 288,494 | ||||||||||||||
Other liabilities (including $962 at fair value as of March 31, 2007) | 82,121 | 82,926 | ||||||||||||||
Short-term borrowings (including $9,261 and $2,012 at fair value as of September 30, 2007 and December 31, 2006, respectively) | Short-term borrowings (including $9,261 and $2,012 at fair value as of September 30, 2007 and December 31, 2006, respectively) | 194,304 | 100,833 | |||||||||||||
Long-term debt (including $31,805 and $9,439 at fair value as of September 30, 2007 and December 31, 2006, respectively) | Long-term debt (including $31,805 and $9,439 at fair value as of September 30, 2007 and December 31, 2006, respectively) | 364,526 | 288,494 | |||||||||||||
Other liabilities (including $947 at fair value as of September 30, 2007) | Other liabilities (including $947 at fair value as of September 30, 2007) | 108,651 | 82,926 | |||||||||||||
Total liabilities | Total liabilities | $ | 1,898,883 | $ | 1,764,535 | Total liabilities | $ | 2,231,153 | $ | 1,764,535 | ||||||
Stockholders' equity | Stockholders' equity | Stockholders' equity | ||||||||||||||
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value | Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value | $ | 1,000 | $ | 1,000 | Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value | $ | 200 | $ | 1,000 | ||||||
Common stock ($.01 par value; authorized shares: 15 billion), issued shares—5,477,416,086 shares at March 31, 2007 and at December 31, 2006 | 55 | 55 | ||||||||||||||
Common stock ($.01 par value; authorized shares: 15 billion), issued shares—5,477,416,086 shares at September 30, 2007 and at December 31, 2006 | Common stock ($.01 par value; authorized shares: 15 billion), issued shares—5,477,416,086 shares at September 30, 2007 and at December 31, 2006 | 55 | 55 | |||||||||||||
Additional paid-in capital | Additional paid-in capital | 17,341 | 18,253 | Additional paid-in capital | 18,297 | 18,253 | ||||||||||
Retained earnings | Retained earnings | 131,395 | 129,267 | Retained earnings | 134,445 | 129,267 | ||||||||||
Treasury stock, at cost:March 31, 2007—530,976,999 shares and December 31, 2006—565,422,301 shares | (23,833 | ) | (25,092 | ) | ||||||||||||
Treasury stock, at cost:September 30, 2007—496,281,812 shares and December 31, 2006—565,422,301 shares | Treasury stock, at cost:September 30, 2007—496,281,812 shares and December 31, 2006—565,422,301 shares | (22,329 | ) | (25,092 | ) | |||||||||||
Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (3,875 | ) | (3,700 | ) | Accumulated other comprehensive income (loss) | (3,555 | ) | (3,700 | ) | ||||||
Total stockholders' equity | Total stockholders' equity | $ | 122,083 | $ | 119,783 | Total stockholders' equity | $ | 127,113 | $ | 119,783 | ||||||
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 2,020,966 | $ | 1,884,318 | Total liabilities and stockholders' equity | $ | 2,358,266 | $ | 1,884,318 | ||||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
| Three Months Ended March 31, | Nine Months Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except shares in thousands | ||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||
Preferred stock at aggregate liquidation value | ||||||||||||||
Balance, beginning of period | $ | 1,000 | $ | 1,125 | $ | 1,000 | $ | 1,125 | ||||||
Redemption or retirement of preferred stock | — | (125 | ) | (800 | ) | (125 | ) | |||||||
Balance, end of period | $ | 1,000 | $ | 1,000 | $ | 200 | $ | 1,000 | ||||||
Common stock and additional paid-in capital | ||||||||||||||
Balance, beginning of period | $ | 18,308 | $ | 17,538 | $ | 18,308 | $ | 17,538 | ||||||
Employee benefit plans | (913 | ) | (365 | ) | (74 | ) | 341 | |||||||
Issuance of shares for Grupo Cuscatlan acquisition | 118 | — | ||||||||||||
Other | 1 | 1 | — | 1 | ||||||||||
Balance, end of period | $ | 17,396 | $ | 17,174 | $ | 18,352 | $ | 17,880 | ||||||
Retained earnings | ||||||||||||||
Balance, beginning of period | $ | 129,267 | $ | 117,555 | $ | 129,267 | $ | 117,555 | ||||||
Adjustment to opening balance, net of tax(1) | (186 | ) | — | (186 | ) | — | ||||||||
Adjusted balance, beginning of period | $ | 129,081 | $ | 117,555 | $ | 129,081 | $ | 117,555 | ||||||
Net income | 5,012 | 5,639 | 13,450 | 16,409 | ||||||||||
Common dividends(2) | (2,682 | ) | (2,474 | ) | (8,043 | ) | (7,371 | ) | ||||||
Preferred dividends | (16 | ) | (17 | ) | (43 | ) | (49 | ) | ||||||
Balance, end of period | $ | 131,395 | $ | 120,703 | $ | 134,445 | $ | 126,544 | ||||||
Treasury stock, at cost | ||||||||||||||
Balance, beginning of period | $ | (25,092 | ) | $ | (21,149 | ) | $ | (25,092 | ) | $ | (21,149 | ) | ||
Issuance of shares pursuant to employee benefit plans | 1,904 | 1,391 | 2,763 | 2,406 | ||||||||||
Treasury stock acquired(3) | (645 | ) | (2,000 | ) | (663 | ) | (6,000 | ) | ||||||
Issuance of shares for Grupo Cuscatlan acquisition | 637 | — | ||||||||||||
Other | — | 5 | 26 | 6 | ||||||||||
Balance, end of period | $ | (23,833 | ) | $ | (21,753 | ) | $ | (22,329 | ) | $ | (24,737 | ) | ||
Accumulated other comprehensive income (loss) | ||||||||||||||
Balance, beginning of period | $ | (3,700 | ) | $ | (2,532 | ) | $ | (3,700 | ) | $ | (2,532 | ) | ||
Adjustment to opening balance, net of tax(4) | 149 | — | 149 | — | ||||||||||
Adjusted balance, beginning of period | $ | (3,551 | ) | $ | (2,532 | ) | $ | (3,551 | ) | $ | (2,532 | ) | ||
Net change in unrealized gains and losses on investment securities, net of tax | 159 | (356 | ) | (410 | ) | (83 | ) | |||||||
Net change in cash flow hedges, net of tax | (439 | ) | 206 | (1,396 | ) | (680 | ) | |||||||
Net change in foreign currency translation adjustment, net of tax | (121 | ) | (28 | ) | 1,558 | 474 | ||||||||
Pension liability adjustment, net of tax | 77 | 4 | 244 | (1 | ) | |||||||||
Net change in Accumulated other comprehensive income (loss) | $ | (324 | ) | $ | (174 | ) | $ | (4 | ) | $ | (290 | ) | ||
Balance, end of period | $ | (3,875 | ) | $ | (2,706 | ) | $ | (3,555 | ) | $ | (2,822 | ) | ||
Total common stockholders' equity (shares outstanding: 4,946,439 at March 31, 2007 and 4,971,241 at December 31, 2006) | $ | 121,083 | $ | 113,418 | ||||||||||
Total common stockholders' equity (shares outstanding: 4,981,134 at September 30, 2007 and 4,971,241 at December 31, 2006) | $ | 126,913 | $ | 116,865 | ||||||||||
Total stockholders' equity | $ | 122,083 | $ | 114,418 | $ | 127,113 | $ | 117,865 | ||||||
Comprehensive income | ||||||||||||||
Net income | $ | 5,012 | $ | 5,639 | $ | 13,450 | $ | 16,409 | ||||||
Net change in Accumulated other comprehensive income (loss) | (324 | ) | (174 | ) | (4 | ) | (290 | ) | ||||||
Total comprehensive income | $ | 4,688 | $ | 5,465 | $ | 13,446 | $ | 16,119 | ||||||
See NoteNotes 1 and Note 16 on pages 8555 and 105,77, respectively.
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
| | Three Months Ended March 31, | | Nine Months Ended September 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | |||||||||||||||
In millions of dollars | 2007 | 2006(1) | 2007 | 2006(1) | ||||||||||||
Cash flows from operating activities of continuing operations | Cash flows from operating activities of continuing operations | Cash flows from operating activities of continuing operations | ||||||||||||||
Net income | Net income | $ | 5,012 | $ | 5,639 | Net income | $ | 13,450 | $ | 16,409 | ||||||
Income from discontinued operations, net of taxes and minority interest | — | 84 | Income from discontinued operations, net of taxes and minority interest | — | 289 | |||||||||||
Income from continuing operations | Income from continuing operations | $ | 5,012 | $ | 5,555 | Income from continuing operations | $ | 13,450 | $ | 16,120 | ||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities of continuing operations | Adjustments to reconcile net income to net cash (used in) provided by operating activities of continuing operations | 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 | 79 | 70 | Amortization of deferred policy acquisition costs and present value of future profits | 281 | 212 | |||||||||||
Additions to deferred policy acquisition costs | (110 | ) | (88 | ) | Additions to deferred policy acquisition costs | (358 | ) | (279 | ) | |||||||
Depreciation and amortization | 573 | 599 | Depreciation and amortization | 1,808 | 1,833 | |||||||||||
Provision for credit losses | 2,706 | 1,446 | Provision for credit losses | 10,052 | 4,875 | |||||||||||
Change in trading account assets | (66,140 | ) | (32,315 | ) | Change in trading account assets | (150,371 | ) | (55,329 | ) | |||||||
Change in trading account liabilities | 28,015 | 23,780 | Change in trading account liabilities | 54,434 | 17,768 | |||||||||||
Change in federal funds sold and securities borrowed or purchased under agreements to resell | (21,108 | ) | (22,088 | ) | Change in federal funds sold and securities borrowed or purchased under agreements to resell | (71,008 | ) | (45,163 | ) | |||||||
Change in federal funds purchased and securities loaned or sold under agreements to repurchase | 44,435 | 37,148 | Change in federal funds purchased and securities loaned or sold under agreements to repurchase | 79,143 | 77,703 | |||||||||||
Change in brokerage receivables net of brokerage payables | (3,928 | ) | (526 | ) | Change in brokerage receivables net of brokerage payables | (16,633 | ) | 28,088 | ||||||||
Net gains from sales of investments | (473 | ) | (379 | ) | Net gains from sales of investments | (855 | ) | (985 | ) | |||||||
Change in loans held for sale | (1,513 | ) | (1,725 | ) | Change in loans held-for-sale | (28,908 | ) | (1,674 | ) | |||||||
Other, net | (5,965 | ) | (8,307 | ) | Other, net | (1,842 | ) | (5,528 | ) | |||||||
Total adjustments | Total adjustments | $ | (23,429 | ) | $ | (2,385 | ) | Total adjustments | $ | (124,257 | ) | $ | 21,521 | |||
Net cash (used in) provided by operating activities of continuing operations | Net cash (used in) provided by operating activities of continuing operations | $ | (18,417 | ) | $ | 3,170 | Net cash (used in) provided by operating activities of continuing operations | $ | (110,807 | ) | $ | 37,641 | ||||
Cash flows from investing activities of continuing operations | Cash flows from investing activities of continuing operations | Cash flows from investing activities of continuing operations | ||||||||||||||
Change in deposits at interest with banks | Change in deposits at interest with banks | $ | (2,384 | ) | $ | (1,575 | ) | Change in deposits at interest with banks | $ | (6,563 | ) | $ | (2,294 | ) | ||
Change in loans | Change in loans | (72,413 | ) | (85,820 | ) | Change in loans | (275,915 | ) | (257,099 | ) | ||||||
Proceeds from sales and securitizations of loans | Proceeds from sales and securitizations of loans | 61,333 | 63,397 | Proceeds from sales and securitizations of loans | 196,938 | 180,427 | ||||||||||
Purchases of investments | Purchases of investments | (81,229 | ) | (63,425 | ) | Purchases of investments | (202,646 | ) | (212,486 | ) | ||||||
Proceeds from sales of investments | Proceeds from sales of investments | 39,017 | 17,444 | Proceeds from sales of investments | 147,573 | 53,740 | ||||||||||
Proceeds from maturities of investments | Proceeds from maturities of investments | 34,393 | 32,402 | Proceeds from maturities of investments | 100,577 | 90,163 | ||||||||||
Other investments, primarily short-term, net | — | (44 | ) | |||||||||||||
Capital expenditures on premises and equipment | Capital expenditures on premises and equipment | (784 | ) | (875 | ) | Capital expenditures on premises and equipment | (2,804 | ) | (2,713 | ) | ||||||
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets | Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets | 516 | 525 | Proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets | 1,949 | 1,126 | ||||||||||
Business acquisitions | Business acquisitions | (2,353 | ) | — | Business acquisitions | (15,186 | ) | — | ||||||||
Net cash used in investing activities of continuing operations | Net cash used in investing activities of continuing operations | $ | (23,904 | ) | $ | (37,971 | ) | Net cash used in investing activities of continuing operations | $ | (56,077 | ) | $ | (149,136 | ) | ||
Cash flows from financing activities of continuing operations | Cash flows from financing activities of continuing operations | Cash flows from financing activities of continuing operations | ||||||||||||||
Dividends paid | Dividends paid | $ | (2,698 | ) | $ | (2,491 | ) | Dividends paid | $ | (8,086 | ) | $ | (7,420 | ) | ||
Issuance of common stock | Issuance of common stock | 394 | 258 | Issuance of common stock | 1,007 | 1,210 | ||||||||||
Redemption or retirement of preferred stock | Redemption or retirement of preferred stock | — | (125 | ) | Redemption or retirement of preferred stock | (800 | ) | (125 | ) | |||||||
Treasury stock acquired | Treasury stock acquired | (645 | ) | (2,000 | ) | Treasury stock acquired | (663 | ) | (6,000 | ) | ||||||
Stock tendered for payment of withholding taxes | Stock tendered for payment of withholding taxes | (819 | ) | (569 | ) | Stock tendered for payment of withholding taxes | (926 | ) | (659 | ) | ||||||
Issuance of long-term debt | Issuance of long-term debt | 34,760 | 25,040 | Issuance of long-term debt | 89,657 | 74,719 | ||||||||||
Payments and redemptions of long-term debt | Payments and redemptions of long-term debt | (25,393 | ) | (14,425 | ) | Payments and redemptions of long-term debt | (49,989 | ) | (33,705 | ) | ||||||
Change in deposits | Change in deposits | 24,902 | 35,530 | Change in deposits | 84,523 | 78,440 | ||||||||||
Change in short-term borrowings | Change in short-term borrowings | 9,718 | (8,800 | ) | Change in short-term borrowings | 63,063 | 3,571 | |||||||||
Net cash provided by financing activities of continuing operations | Net cash provided by financing activities of continuing operations | $ | 40,219 | $ | 32,418 | Net cash provided by financing activities of continuing operations | $ | 177,786 | $ | 110,031 | ||||||
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | $ | 9 | $ | 162 | Effect of exchange rate changes on cash and cash equivalents | $ | 810 | $ | 375 | ||||||
Change in cash and due from banks | Change in cash and due from banks | $ | (2,093 | ) | $ | (2,221 | ) | Change in cash and due from banks | $ | 11,712 | $ | (1,089 | ) | |||
Cash and due from banks at beginning of period | Cash and due from banks at beginning of period | $ | 26,514 | $ | 23,632 | Cash and due from banks at beginning of period | $ | 26,514 | $ | 23,632 | ||||||
Cash and due from banks at end of period | Cash and due from banks at end of period | $ | 24,421 | 21,411 | Cash and due from banks at end of period | $ | 38,226 | $ | 22,543 | |||||||
Supplemental disclosure of cash flow information for continuing operations | Supplemental disclosure of cash flow information for continuing operations | Supplemental disclosure of cash flow information for continuing operations | ||||||||||||||
Cash paid during the period for income taxes | Cash paid during the period for income taxes | $ | 1,826 | $ | 1,017 | Cash paid during the period for income taxes | $ | 4,623 | $ | 5,387 | ||||||
Cash paid during the period for interest | Cash paid during the period for interest | $ | 15,332 | 11,150 | Cash paid during the period for interest | $ | 53,158 | $ | 37,235 | |||||||
Non-cash investing activities | Non-cash investing activities | Non-cash investing activities | ||||||||||||||
Transfers to repossessed assets | Transfers to repossessed assets | $ | 453 | $ | 358 | Transfers to repossessed assets | $ | 1,539 | $ | 1,017 | ||||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIBANK, N.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
In millions of dollars, except shares | In millions of dollars, except shares | March 31, 2007 (Unaudited) | December 31, 2006(1) | In millions of dollars, except shares | September 30, 2007 | December 31, 2006 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | |||||||||||||
Assets | Assets | Assets | ||||||||||||||
Cash and due from banks | Cash and due from banks | $ | 17,516 | $ | 18,917 | Cash and due from banks | $ | 28,601 | $ | 18,917 | ||||||
Deposits with banks | Deposits with banks | 40,777 | 38,377 | Deposits with banks | 46,826 | 38,377 | ||||||||||
Federal funds sold and securities purchased under agreements to resell | Federal funds sold and securities purchased under agreements to resell | 10,869 | 9,219 | Federal funds sold and securities purchased under agreements to resell | 18,815 | 9,219 | ||||||||||
Trading account assets (including $241 and $117 pledged to creditors at March 31, 2007 and December 31, 2006, respectively) | 105,980 | 103,945 | ||||||||||||||
Investments (including $2,154 and $1,953 pledged to creditors at March 31, 2007 and December 31, 2006, respectively) | 227,860 | 215,222 | ||||||||||||||
Trading account assets (including $347 and $117 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | Trading account assets (including $347 and $117 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | 182,992 | 103,945 | |||||||||||||
Investments (including $1,969 and $1,953 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | Investments (including $1,969 and $1,953 pledged to creditors as of September 30, 2007 and December 31, 2006, respectively) | 178,325 | 215,222 | |||||||||||||
Loans, net of unearned income | Loans, net of unearned income | 579,223 | 558,952 | Loans, net of unearned income | 645,927 | 558,952 | ||||||||||
Allowance for loan losses | (5,854 | ) | (5,152 | ) | ||||||||||||
Allowance for loan losses | Allowance for loan losses | (8,262 | ) | (5,152 | ) | |||||||||||
Total loans, net | Total loans, net | $ | 573,369 | $ | 553,800 | Total loans, net | $ | 637,665 | $ | 553,800 | ||||||
Goodwill | Goodwill | 14,938 | 13,799 | Goodwill | 18,805 | 13,799 | ||||||||||
Intangible assets | Intangible assets | 10,631 | 6,984 | Intangible assets | 12,052 | 6,984 | ||||||||||
Premises and equipment, net | Premises and equipment, net | 7,235 | 7,090 | Premises and equipment, net | 7,593 | 7,090 | ||||||||||
Interest and fees receivable | Interest and fees receivable | 8,054 | 7,354 | Interest and fees receivable | 8,773 | 7,354 | ||||||||||
Other assets | Other assets | 59,720 | 44,790 | Other assets | 92,878 | 44,790 | ||||||||||
Total assets | Total assets | $ | 1,076,949 | $ | 1,019,497 | Total assets | $ | 1,233,325 | $ | 1,019,497 | ||||||
Liabilities | Liabilities | Liabilities | ||||||||||||||
Non-interest-bearing deposits in U.S. offices | $ | 39,463 | $ | 38,663 | Non-interest-bearing deposits in U.S. offices | $ | 38,524 | $ | 38,663 | |||||||
Interest-bearing deposits in U.S. offices | 165,774 | 167,015 | Interest-bearing deposits in U.S. offices | 176,184 | 167,015 | |||||||||||
Non-interest-bearing deposits in offices outside the U.S. | 32,762 | 31,169 | Non-interest-bearing deposits in offices outside the U.S. | 39,424 | 31,169 | |||||||||||
Interest-bearing deposits in offices outside the U.S. | 452,806 | 428,896 | Interest-bearing deposits in offices outside the U.S. | 519,329 | 428,896 | |||||||||||
Total deposits | Total deposits | $ | 690,805 | $ | 665,743 | Total deposits | $ | 773,461 | $ | 665,743 | ||||||
Trading account liabilities | Trading account liabilities | 44,774 | 43,136 | Trading account liabilities | 64,653 | 43,136 | ||||||||||
Purchased funds and other borrowings | Purchased funds and other borrowings | 90,784 | 73,081 | Purchased funds and other borrowings | 108,190 | 73,081 | ||||||||||
Accrued taxes and other expense | Accrued taxes and other expense | 10,448 | 10,777 | Accrued taxes and other expense | 13,541 | 10,777 | ||||||||||
Long-term debt and subordinated notes | Long-term debt and subordinated notes | 124,139 | 115,833 | Long-term debt and subordinated notes | 142,923 | 115,833 | ||||||||||
Other liabilities | Other liabilities | 38,697 | 37,774 | Other liabilities | 39,345 | 37,774 | ||||||||||
Total liabilities | Total liabilities | $ | 999,647 | $ | 946,344 | Total liabilities | $ | 1,142,113 | $ | 946,344 | ||||||
Stockholder's equity | Stockholder's equity | Stockholder's equity | ||||||||||||||
Capital stock ($20 par value) outstanding shares: 37,534,553 in each period | Capital stock ($20 par value) outstanding shares: 37,534,553 in each period | $ | 751 | $ | 751 | Capital stock ($20 par value) outstanding shares: 37,534,553 in each period | $ | 751 | $ | 751 | ||||||
Surplus | Surplus | 45,794 | 43,753 | Surplus | 55,607 | 43,753 | ||||||||||
Retained earnings | Retained earnings | 32,399 | 30,358 | Retained earnings | 36,501 | 30,358 | ||||||||||
Accumulated other comprehensive income (loss)(2) | (1,642 | ) | (1,709 | ) | ||||||||||||
Accumulated other comprehensive income (loss)(1) | Accumulated other comprehensive income (loss)(1) | (1,647 | ) | (1,709 | ) | |||||||||||
Total stockholder's equity | Total stockholder's equity | $ | 77,302 | $ | 73,153 | Total stockholder's equity | $ | 91,212 | $ | 73,153 | ||||||
Total liabilities and stockholder's equity | Total liabilities and stockholder's equity | $ | 1,076,949 | $ | 1,019,497 | Total liabilities and stockholder's equity | $ | 1,233,325 | $ | 1,019,497 | ||||||
See Notes to the Unaudited Consolidated Financial Statements.
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements as of March 31,September 30, 2007 and for the three-month periodthree- and nine-month periods ended March 31,September 30, 2007 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 2006 Annual Report on Form 10-K.
Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles, but is not required for interim reporting purposes, has been condensed or omitted.
Management must make estimates and assumptions that affect the Consolidated Financial Statements and the related footnote disclosures. While management makes its best judgment, actual results could differ from those estimates.
Certain reclassifications have been made to the prior-period's financial statements to conform to the current period's presentation.
Significant Accounting Policies
The Company's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The Company has identified five policies as being significant because they require management to make subjective and/or complex judgments about matters that are inherently uncertain. These policies relate to Valuations of Financial Instruments, Allowance for Credit Losses, Securitizations, Income Taxes and Legal Reserves. The Company, in consultation with the Audit and Risk Management Committee of the Board of Directors, has reviewed and approved these significant accounting policies, which are further described in the Company's 2006 Annual Report on Form 10-K.
Accounting Changes
Fair Value Measurements (SFAS 157)
The Company elected to early-adopt SFAS 157, "Fair Value Measurements" (SFAS 157), as of January 1, 2007. SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS 157 requires, among other things, Citigroup's valuation techniques used to measure fair value to maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, SFAS 157 precludes the use of block discounts for instruments traded in an active market, which were previously applied to large holdings of publicly-traded equity securities, and requires the recognition of trade-date gains related to certain derivative trades that use unobservable inputs in determining the fair value. This guidance supersedes the guidance in EITF Issue No. 02-3, which prohibited the recognition of day-one gains on certain derivative trades when determining the fair value of instruments not traded in an active market. The cumulative effect of these two changes resulted in an increase to January 1, 2007 retained earnings of $75 million.
In moving to maximize the use of observable inputs as required by SFAS 157, Citigroup began to reflect external credit ratings as well as other observable inputs when measuring the fair value of our derivative positions. The cumulative effect of making this derivative valuation adjustment was a gain of $250 million after-tax ($402 million pre-tax,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 10577 for additional information.
Fair Value Option (SFAS 159)
In conjunction with the adoption of SFAS 157, the Company early-adopted SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), as of January 1, 2007. SFAS 159 provides an option for most financial assets and liabilities to be reported at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. After the initial adoption, the election is made at the acquisition of a financial asset, financial liability, or a firm commitment and it may not be revoked. Under the SFAS 159 transition provisions, the Company has elected to report certain financial instruments and other items at fair value on a contract-by-contract basis, with future changes in value reported in earnings. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that was caused by measuring hedged assets and liabilities that were previously required to use an accounting method other than fair value, while the related economic hedges were reported at fair value.
The adoption of SFAS 159 resulted in a decrease to January 1, 2007 retained earnings of $99 million.
See Note 16 on page 10577 for additional information.
Accounting for Uncertainty in Income Taxes
In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), which sets out a framework for preparers to use to determine the appropriate level of tax reserves to maintain for uncertain tax positions. This interpretation of FASB Statement No. 109 uses a two-step approach wherein a tax benefit is recognized if a position is more likely than not to be sustained. The amount of the benefit is then measured to be the highest tax benefit that is greater than 50 percent likely to be realized. FIN 48 also sets out disclosure requirements to enhance transparency of an entity's tax reserves.
Citigroup adopted FIN 48 as of January 1, 2007, that resultedresulting in a decrease to January 1, 2007 retained earnings of $14 million.
The total unrecognized tax benefits as of January 1, 2007 iswere $3.1 billion. There was no material change to this balance during the first, quartersecond or third quarters of 2007. The total amount of unrecognized tax benefits as of January 1, 2007 that would affect the effective tax rate iswas $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 iswas approximately $510 million ($320 million net of tax). There was no material change to this balance during the first, quartersecond or third quarters of 2007. The Company classifies interest and penalties as income tax expense. The Company is currently under audit by the IRS and other major taxing jurisdictions around the world. It is thus reasonably possible that significant changes in the gross balance of unrecognized tax benefits may occur within the next 12 months (an estimate of the range of such gross changes cannot be made), but the Company does not expect such audits to result in amounts that would cause a significant change to its effective tax rate.
The following are the major tax jurisdictions in which the Company and its affiliates operate and the earliest tax year subject to examination:
Jurisdiction | Tax year | ||
---|---|---|---|
United States | 2003 | ||
Mexico | 2004 | ||
New York State and City | 2005 | (1) | |
United Kingdom | 1998 | ||
Germany | 2000 | ||
Korea | 2001 |
Leveraged Leases
On January 1, 2007, the Company adopted FASB Staff Position FAS No. 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leverage Lease Transaction" (FSP 13-2), which provides guidance regarding changes or projected changes in the timing of cash flows relating to income taxes generated by a leveraged lease transaction.
Leveraged leases can provide significant tax benefits to the lessor, primarily as a result of the timing of tax payments. Since changes in the timing and/or amount of these tax benefits may have a significant effect on the cash flows of a lease transaction, a lessor, in accordance with FSP 13-2, will be required to perform a recalculation of a leveraged lease when there is a change or projected change in the timing of the realization of tax benefits generated by that lease. Previously, Citigroup did not recalculate the tax benefits if only the timing of cash flows hashad changed.
The adoption of FSP 13-2 resulted in a decrease to January 1, 2007 retained earnings of $148 million. This decrease to retained earnings will be recognized in earnings over the remaining lives of the leases as tax benefits are realized.
Stock-Based Compensation
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), ""Share-Based Payment"Payment" (SFAS 123(R)), which replaced the existing SFAS 123 and APB 25, ""Accounting for Stock Issued to Employees."Employees." SFAS 123(R) requires companies to measure compensation expense for stock options and other share-based payments based on the instruments' grant date fair value, and to record expense based on that fair value reduced by expected forfeitures.
The Company maintains a number of incentive programs in which equity awards are granted to eligible employees. The most significant of the programs offered is the Capital Accumulation Program (CAP). Under the CAP program, the Company grants deferred and restricted shares to eligible employees. The program provides that employees who meet certain age plus years-of-service requirements (retirement-eligible employees) may terminate active employment and continue vesting in their awards provided they comply with specified non-compete provisions. For awards granted to retirement-eligible employees prior to the adoption of SFAS 123(R), the Company has been and will continue to amortize the compensation cost of these awards over the full vesting periods. Awards granted to retirement-eligible employees after the adoption of SFAS 123(R) must be either expensed on the grant date or accrued in the year prior to the grant date.
The impact to 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 accrual of the awards that were granted in January 2007.
In adopting SFAS 123(R), the Company began to recognize compensation expense for restricted or deferred stock awards net of estimated forfeitures. Previously, the effects of forfeitures were recorded as they occurred.
Accounting for Certain Hybrid Financial Instruments
On January 1, 2006, the Company elected to early-adopt, primarily on a prospective basis, SFAS No. 155, ""Accounting for Certain Hybrid Financial Instruments"Instruments" (SFAS 155). In accordance with this standard, hybrid financial instruments—such as structured notes containing embedded derivatives that otherwise would require bifurcation, as well as certain interest-only instruments—may be accounted for at fair value 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. The impact of adopting this standard was not material.
Accounting for Servicing of Financial Assets
On January 1, 2006, the Company elected to early-adopt SFAS No. 156, "" Accounting for Servicing of Financial Assets"Assets(SFAS" (SFAS 156). This pronouncement requires all servicing rights to be initially recognized at fair value. Subsequent to initial recognition, it permits a one-time irrevocable election to remeasure each class of servicing rights at fair value, with the changes in fair value being 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.
Future Application of Accounting Standards
Investment Company Audit Guide (SOP 07-1)
In July 2007, the AICPA issued Statement of Position 07-1,Clarification of the Scope of the Audit and Accounting Guide for Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies (SOP 07-1), which was expected to be effective for fiscal years beginning on or after December 15, 2007. However, the FASB has recently proposed to delay the effective date indefinitely. The proposal to delay the effectiveness is exposed for a 30-day comment period. SOP 07-1 sets forth more stringent criteria for qualifying as an investment company than does the predecessor Audit Guide. In addition, SOP 07-1 establishes new criteria for a parent company or 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.
Potential Amendments to Various Current Accounting Standards
The FASB is currently working on amendments to the existing accounting standards governing asset transfers and fair value measurements in business combinations and impairment tests. Upon completion of these standards, the Company will need to reevaluate its accounting and disclosures. Due to the ongoing deliberations of the standard setters, the Company is unable to accurately determine the effect of future amendments or proposals at this time.
2. Discontinued Operations
Sale of the Asset Management Business
On December 1, 2005, the Company completed the sale of substantially all of its Asset Management Business, which had total assets of approximately $1.4 billion and liabilities of approximately $0.6 billion at the closing date, to Legg Mason, Inc. (Legg Mason) in exchange for Legg Mason's broker-dealer and capital markets businesses, $2.298 billion of Legg Mason's common and preferred shares (valued as of the closing date), and $500 million in cash. This cash was obtained via a lending facility provided by Citigroup Markets & Banking business. The transaction did not include Citigroup's asset management business inMexico, its retirement services business inLatin America (both of which are included inInternational Retail Banking) or its interest in the CitiStreet joint venture (which is included inSmith Barney). The total value of the transaction at the time of closing was approximately $4.369 billion, resulting in an after-tax gain to Citigroup of approximately $2.082 billion ($3.404 billion pretax, which was reported in discontinued operations).
Concurrently, Citigroup sold Legg Mason's capital markets business to Stifel Financial Corp. The business consisted of areas in which Citigroup already had full capabilities, including investment banking, institutional equity sales and trading, taxable fixed income sales and trading, and research. No gain or loss was recognized from this transaction. (The transactions described in these two paragraphsabove are referred to as the "Sale of the Asset Management Business.")
In connection with this sale, Citigroup and Legg Mason entered into a three-year agreement under which Citigroup will continue to offer its clients Asset Management's products, will become the primary retail distributor of the Legg Mason funds managed by Legg Mason Capital Management Inc., and may also distribute other Legg Mason products. These products will be offered primarily through Citigroup's Global Wealth Management businesses,Smith Barney andPrivate Bank, as well as through Primerica and Citibank. The distribution of these products will be subject to applicable requirements of law and Citigroup's suitability standards and product requirements.
Upon completion of the Sale of the Asset Management Business, Citigroup added 1,226 financial advisors in 124 branch offices to its Global Wealth Management Business.
On January 31, 2006, the Company completed the sale of its Asset Management Business within Bank Handlowy (an indirect banking subsidiary of Citigroup located in Poland) to Legg Mason. 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 Alternative Investments.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.
Results for all of the businesses included in the Sale of the Asset Management Business, including the gain, are reported as discontinued operations for all periods presented. In connection with the adoption of SFAS 159, changes in the market value of the Legg Mason shares are recorded in Trading account assets and in current earnings. Prior to the adoption of this pronouncement, changes in the market value of the Legg Mason shares were included in the Consolidated Statement of Changes in Stockholders' Equity within Accumulated other comprehensive income (net change in unrealized gains and losses on investment securities, net of taxes). Any effects on the Company's current earnings related to these securities, such as dividend revenue, are included in the results of Alternative Investments.
The following is summarized financial information for discontinued operations related to the Sale of the Asset Management Business:
| Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | ||||||||||||||||||
In millions of dollars | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
$ | — | $ | 21 | $ | — | $ | 83 | $ | — | $ | 104 | |||||||||
Income (loss) from discontinued operations | $ | — | $ | (1 | ) | $ | — | $ | — | $ | — | ($ | 1 | ) | ||||||
Gain on sale | — | 21 | — | 83 | — | 104 | ||||||||||||||
Provision for income taxes and minority interest, net of taxes | — | 10 | — | 17 | — | 24 | ||||||||||||||
Income from discontinued operations, net of taxes | $ | — | $ | 10 | $ | — | $ | 66 | $ | — | $ | 79 | ||||||||
Sale of the Life Insurance & Annuities Business
On July 1, 2005, the Company completed the sale of Citigroup's Travelers Life & Annuity and substantially all of Citigroup's international insurance businesses to MetLife, Inc. (MetLife). The businesses sold were the primary vehicles through which Citigroup engaged in the Life Insurance & Annuities Business, which had total assets of approximately $93.2 billion and liabilities of approximately $83.8 billion.
Citigroup received $1.0 billion in MetLife equity securities and $10.830 billion in cash, which resulted in an after-tax gain of approximately $2.120 billion ($3.386 billion pretax), which was reported in discontinued operations.
This transaction encompassed Travelers Life & Annuity's U.S. businesses and its international operations other than Citigroup's life insurance business inMexico (which is now included withinInternational Retail Banking). International operations included wholly owned insurance companies in the United Kingdom, Belgium, Australia, Brazil, Argentina, and Poland; joint ventures in Japan and Hong Kong; and offices in China. This transaction also included Citigroup's Argentine pension business. (The transaction described in the preceding threetwo paragraphs is referred to as the "Sale of the Life Insurance & Annuities Business.")
In connection with the Sale of the Life Insurance & Annuities Business, Citigroup and MetLife entered into 10-year agreements under which Travelers Life & Annuity and MetLife products will be made available through certain Citigroup distribution channels.
During the first quarter of 2006, $15 million of the total $657 million federal tax contingency reserve release was reported within discontinued operations as it related to the Life Insurance & Annuities Business sold to MetLife.
In July 2006, Citigroup recognized an $85 million after-tax gain from the sale of MetLife shares. This gain was reported withinin 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 withinin discontinued operations as it related to the Life Insurance & Annuities Business sold to MetLife.
Results for all of the businesses included in the Sale of the Life Insurance & Annuities Business are reported as discontinued operations for all periods presented.
Summarized financial information for discontinued operations related to the Sale of the Life Insurance & Annuities Business is as follows:
| Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | ||||||||||||||||||
In millions of dollars | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
$ | — | $ | — | $ | — | $ | 115 | $ | — | $ | 115 | |||||||||
Income from discontinued operations | $ | — | $ | 2 | $ | — | $ | 26 | $ | — | 28 | |||||||||
Gain on sale | — | 115 | — | 115 | ||||||||||||||||
Provision (benefit) for income taxes | — | (28 | ) | — | 5 | — | (23 | ) | ||||||||||||
Income from discontinued operations, net of taxes | $ | — | $ | 30 | $ | — | $ | 136 | $ | — | $ | 166 | ||||||||
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 withinin the results for discontinued operations.
Combined Results for Discontinued Operations
Summarized financial information for the Life Insurance and Annuities Business, the Asset Management Business, and Travelers Property Casualty Corp. is as follows:
| Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | ||||||||||||||||||
In millions of dollars | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
$ | — | $ | 21 | $ | — | $ | 198 | $ | — | $ | 219 | |||||||||
Income from discontinued operations | $ | — | $ | 1 | $ | — | $ | 26 | $ | — | $ | 27 | ||||||||
Gain on sale | — | 21 | — | 198 | — | 219 | ||||||||||||||
Provision (benefit) for income taxes and minority interest, net of taxes | — | (62 | ) | — | 22 | — | (43 | ) | ||||||||||||
Income from discontinued operations, net of taxes | $ | — | $ | 84 | $ | — | $ | 202 | $ | — | $ | 289 | ||||||||
The following table presents certain information regarding the Company's continuing operations by segment:
| Revenues, Net of Interest Expense | Provision (Benefit) for Income Taxes | Income (Loss) from Continuing Operations(1) | Identifiable Assets | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars, except identifiable assets in billions | First Quarter | Mar. 31, | Dec. 31, | |||||||||||||||||||||
2007 | 2006 | 2007 | 2006(2) | 2007 | 2006(2) | 2007 | 2006 | |||||||||||||||||
Global Consumer | $ | 13,106 | $ | 11,955 | $ | 1,017 | $ | 847 | $ | 2,633 | $ | 3,073 | $ | 736 | $ | 702 | ||||||||
Markets & Banking | 8,957 | 7,279 | 947 | 574 | 2,621 | 1,929 | 1,180 | 1,078 | ||||||||||||||||
Global Wealth Management | 2,818 | 2,483 | 251 | 136 | 448 | 287 | 70 | 66 | ||||||||||||||||
Alternative Investments | 562 | 675 | 138 | 111 | 222 | 353 | 12 | 12 | ||||||||||||||||
Corporate/Other(3) | 16 | (209 | ) | (491 | ) | (131 | ) | (912 | ) | (87 | ) | 23 | 26 | |||||||||||
Total | $ | 25,459 | $ | 22,183 | $ | 1,862 | $ | 1,537 | $ | 5,012 | $ | 5,555 | $ | 2,021 | $ | 1,884 | ||||||||
| Revenues, Net of Interest Expense | Provision (Benefit) for Income Taxes | Income (Loss) from Continuing Operations(1) | Identifiable Assets | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, | | | |||||||||||||||||||||
In millions of dollars, except identifiable assets in billions | Sept. 30, 2007 | Dec. 31, 2006 | ||||||||||||||||||||||
2007 | 2006 | 2007 | 2006(2) | 2007 | 2006(2) | |||||||||||||||||||
Global Consumer | $ | 14,683 | $ | 12,834 | $ | 568 | $ | 1,312 | $ | 1,783 | $ | 3,195 | $ | 745 | $ | 702 | ||||||||
Markets & Banking | 4,333 | 6,067 | (142 | ) | 598 | 280 | 1,721 | 1,229 | 1,078 | |||||||||||||||
Global Wealth Management | 3,509 | 2,486 | 312 | 177 | 489 | 399 | 103 | 66 | ||||||||||||||||
Alternative Investments | 125 | 334 | (44 | ) | 70 | (67 | ) | 117 | 21 | 12 | ||||||||||||||
Corporate/Other(3) | (257 | ) | (299 | ) | (156 | ) | (137 | ) | (273 | ) | (129 | ) | 37 | 26 | ||||||||||
Total | $ | 22,393 | $ | 21,422 | $ | 538 | $ | 2,020 | $ | 2,212 | $ | 5,303 | $ | 2,135 | $ | 1,884 | ||||||||
| Revenues, Net of Interest Expense | Provision (Benefit) for Income Taxes | Income (Loss) from Continuing Operations(1) | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, | ||||||||||||||||||
In millions of dollars | |||||||||||||||||||
2007 | 2006 | 2007 | 2006(2) | 2007 | 2006(2) | ||||||||||||||
Global Consumer | $ | 41,451 | $ | 37,417 | $ | 2,689 | $ | 3,559 | $ | 7,112 | $ | 9,445 | |||||||
Markets & Banking | 22,251 | 20,107 | 2,041 | 1,874 | 5,733 | 5,373 | |||||||||||||
Global Wealth Management | 9,524 | 7,461 | 762 | 489 | 1,451 | 1,033 | |||||||||||||
Alternative Investments | 1,719 | 1,593 | 391 | 319 | 611 | 727 | |||||||||||||
Corporate/Other(3) | (463 | ) | (791 | ) | (774 | ) | (381 | ) | (1,457 | ) | (458 | ) | |||||||
Total | $ | 74,482 | $ | 65,787 | $ | 5,109 | $ | 5,860 | $ | 13,450 | $ | 16,120 | |||||||
4. Interest Revenue and Expense
For the three-monththree- and nine-month periods ending March 31,ended September 30, 2007 and 2006, interest revenue and expense consisted of the following:
| Three Months Ended March 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||||||||||
2007 | 2006(1) | 2007 | 2006(1) | 2007 | 2006(1) | |||||||||||||
Interest revenue | ||||||||||||||||||
Loan interest, including fees | $ | 14,935 | $ | 12,818 | $ | 17,397 | $ | 14,390 | $ | 48,585 | $ | 40,851 | ||||||
Deposits with banks | 709 | 489 | 874 | 590 | 2,375 | 1,596 | ||||||||||||
Federal funds sold and securities purchased under agreements to resell | 4,289 | 3,205 | 5,090 | 3,713 | 14,041 | 10,315 | ||||||||||||
Investments, including dividends | 3,540 | 2,056 | 3,357 | 2,606 | 10,474 | 6,917 | ||||||||||||
Trading account assets(2) | 3,930 | 2,700 | 5,156 | 2,749 | 13,471 | 8,497 | ||||||||||||
Other interest | 729 | 605 | 1,087 | 681 | 2,745 | 1,998 | ||||||||||||
Total interest revenue | $ | 28,132 | $ | 21,873 | $ | 32,961 | $ | 24,729 | $ | 91,691 | $ | 70,174 | ||||||
Interest expense | ||||||||||||||||||
Deposits | $ | 6,558 | $ | 4,505 | $ | 7,539 | $ | 5,771 | $ | 21,036 | $ | 15,480 | ||||||
Trading account liabilities(2) | 307 | 243 | 371 | 301 | 1,058 | 825 | ||||||||||||
Short-term debt and other liabilities | 6,947 | 4,864 | 8,480 | 5,669 | 23,276 | 15,981 | ||||||||||||
Long-term debt | 3,750 | 2,495 | 4,414 | 3,160 | 12,168 | 8,439 | ||||||||||||
Total interest expense | $ | 17,562 | $ | 12,107 | $ | 20,804 | $ | 14,901 | $ | 57,538 | $ | 40,725 | ||||||
Net interest revenue | $ | 10,570 | $ | 9,766 | $ | 12,157 | $ | 9,828 | $ | 34,153 | $ | 29,449 | ||||||
Provision for loan losses | 2,706 | 1,396 | 4,776 | 1,793 | 10,002 | 4,625 | ||||||||||||
Net interest revenue after provision for loan losses | $ | 7,864 | $ | 8,370 | $ | 7,381 | $ | 8,035 | $ | 24,151 | $ | 24,824 | ||||||
5. Commissions and Fees
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-related fees including brokerage services, and custody and trust services; insurance fees and commissions.
The following table presents commissions and fees revenue for the three-monththree- and nine-month periods ended March 31,September 30, 2007 and 2006.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | ||||||||||||||||||
2007 | 2006(1) | 2007 | 2006(1) | 2007 | 2006(1) | |||||||||||||
Credit cards and bank cards | $ | 1,270 | $ | 1,266 | $ | 1,325 | $ | 1,328 | $ | 3,837 | $ | 3,897 | ||||||
Investment banking | 1,561 | 1,010 | 1,161 | 924 | 3,976 | 2,914 | ||||||||||||
Smith Barney | 774 | 717 | 817 | 702 | 2,394 | 2,184 | ||||||||||||
Markets & Banking trading-related | 686 | 655 | 717 | 527 | 2,001 | 1,887 | ||||||||||||
Nikko Cordial-related(2) | 269 | — | 532 | — | ||||||||||||||
Checking-related | 287 | 248 | 331 | 257 | 923 | 756 | ||||||||||||
Transaction services | 231 | 209 | 318 | 218 | 800 | 636 | ||||||||||||
Corporate finance | 295 | 170 | ||||||||||||||||
Loan servicing(2) | 261 | 568 | ||||||||||||||||
Corporate finance(3) | (1,076 | ) | 139 | (595 | ) | 511 | ||||||||||||
Loan servicing(4) | (268 | ) | (431 | ) | 1,219 | 573 | ||||||||||||
Primerica | 116 | 96 | 112 | 96 | 341 | 298 | ||||||||||||
Other Consumer | 216 | 159 | 181 | 100 | 519 | 429 | ||||||||||||
Other Markets & Banking | 57 | 56 | 108 | 42 | 249 | 147 | ||||||||||||
Other | 19 | 34 | 58 | 18 | 91 | 89 | ||||||||||||
Total commissions and fees | $ | 5,773 | $ | 5,188 | $ | 4,053 | $ | 3,920 | $ | 16,287 | $ | 14,321 | ||||||
The Company has several non-contributory defined benefit pension plans covering substantially all U.S. employees and has various defined benefit pension and termination indemnity plans covering employees outside the United States. The U.S. defined benefit plan provides benefits under a cash balance formula. Employees satisfying certain age and service requirements remain covered by a prior final pay formula. The Company also offers postretirement health care and life insurance benefits to certain eligible U.S. retired employees, as well as to certain eligible employees outside the United States. For information on the Company's Retirement Benefit Plans and Pension Assumptions, see Citigroup's 2006 Annual Report on Form 10-K.
The following table summarizestables summarize the components of the net expense recognized in the Consolidated Statement of Income for the three and nine months ended March 31,September 30, 2007 and 2006.
Net Expense
| | Three Months Ended March 31, | | Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Pension Plans | Postretirement Benefit Plans | | 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 | In millions of dollars | ||||||||||||||||||||||||||||||||||||||||||
In millions of dollars | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||||||||||||
Benefits earned during the period | $ | 67 | $ | 68 | $ | 44 | $ | 43 | $ | 1 | $ | 1 | $ | 6 | $ | 4 | Benefits earned during the period | $ | 92 | $ | 60 | $ | 49 | $ | 33 | $ | — | $ | — | $ | 9 | $ | 8 | |||||||||||||||||||
Interest cost on benefit obligation | Interest cost on benefit obligation | 163 | 157 | 74 | 68 | 15 | 16 | 18 | 14 | Interest cost on benefit obligation | 155 | 158 | 80 | 67 | 14 | 16 | 21 | 20 | ||||||||||||||||||||||||||||||||||
Expected return on plan assets | Expected return on plan assets | (222 | ) | (212 | ) | (107 | ) | (84 | ) | (3 | ) | (3 | ) | (24 | ) | (14 | ) | Expected return on plan assets | (222 | ) | (210 | ) | (133 | ) | (118 | ) | (2 | ) | (4 | ) | (30 | ) | (31 | ) | ||||||||||||||||||
Curtailment gain associated with plan amendments | Curtailment gain associated with plan amendments | — | (80 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Amortization of unrecognized: | Amortization of unrecognized: | Amortization of unrecognized: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net transition obligation | — | — | 1 | — | — | — | — | — | Net transition obligation | — | — | 1 | 1 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Prior service cost | (1 | ) | (6 | ) | — | 1 | (1 | ) | (1 | ) | — | — | Prior service cost (benefit) | (1 | ) | (2 | ) | 1 | — | — | (1 | ) | — | — | ||||||||||||||||||||||||||||
Net actuarial loss | 27 | 44 | 13 | 14 | 1 | 3 | 2 | 2 | Net actuarial loss | 9 | 52 | 3 | 10 | — | — | 6 | 3 | |||||||||||||||||||||||||||||||||||
Net expense | $ | 34 | $ | 51 | $ | 25 | $ | 42 | $ | 13 | $ | 16 | $ | 2 | $ | 6 | ||||||||||||||||||||||||||||||||||||
Net expense/(Benefit) | Net expense/(Benefit) | $ | 33 | $ | (22 | ) | $ | 1 | $ | (7 | ) | $ | 12 | $ | 11 | $ | 6 | $ | — | |||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Pension Plans | Postretirement Benefit Plans | ||||||||||||||||||||||||
| U.S. Plans(1)(2) | Plans Outside U.S. | U.S. Plans | Plans Outside U.S. | ||||||||||||||||||||||
In millions of dollars | ||||||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||
Benefits earned during the period | $ | 226 | $ | 195 | $ | 139 | $ | 121 | $ | 1 | $ | 1 | $ | 20 | $ | 16 | ||||||||||
Interest cost on benefit obligation | 481 | 473 | 229 | 203 | 44 | 46 | 56 | 48 | ||||||||||||||||||
Expected return on plan assets | (667 | ) | (634 | ) | (349 | ) | (286 | ) | (8 | ) | (10 | ) | (77 | ) | (58 | ) | ||||||||||
Curtailment gain associated with plan amendments | — | (80 | ) | — | — | — | — | — | — | |||||||||||||||||
Amortization of unrecognized: | ||||||||||||||||||||||||||
Net transition obligation | — | — | 2 | 1 | — | — | — | — | ||||||||||||||||||
Prior service cost | (2 | ) | (14 | ) | 2 | 1 | (2 | ) | (3 | ) | — | — | ||||||||||||||
Net actuarial loss | 63 | 139 | 28 | 38 | 2 | 6 | 10 | 6 | ||||||||||||||||||
Net expense | $ | 101 | $ | 79 | $ | 51 | $ | 78 | $ | 37 | $ | 40 | $ | 9 | $ | 12 | ||||||||||
Employer Contributions
Citigroup's pension funding policy for U.S. plans and non-U.S. plans is generally to fund to applicable minimum funding requirements, rather than to the amounts of accumulated benefit obligations. For the U.S. plans, the Company may increase its contributions above the minimum required contribution under the Employee Retirement Income Security Act of 1974 (ERISA), if appropriate to its tax and cash position and the plan's funded position. At March 31,September 30, 2007 and December 31, 2006, 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 $43$85 million as of March 31,September 30, 2007. Citigroup presently anticipates contributing an additional $120$29 million to fund its non-U.S. plans in 2007 for a total of $163$114 million.
7. Restructuring
During the first quarter of 2007, the Company completed a review of its structural expense base in a Company-wide effort to create a more streamlined organization, reduce expense growth and provide investment funds for future growth initiatives.
The primary goals of the 2007 Structural Expense Review are as follow:follows:
In March For the three and nine months ended September 30, 2007, Citigroup recorded a pre-taxpretax restructuring charge of $1.377$35 million and $1.475 billion, in accordance with SFAS No. 146,"Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146). This pronouncement permits charges recorded under other accounting standards to be presented along with those recorded under SFAS 146 in a separate line, Restructuring expense, on the Consolidated Statement of Income, provided those costs are incurred in connection with a restructuring event. The charge included $961 million related to employee severance, of which $950 million is accounted for in accordance with SFAS No. 112,"Employer's Accounting for Post Employment Benefits" (SFAS 112), and $11 million accounted for in accordance with SFAS 146, $352 million related to the write-down to estimated salvage value of assets available for disposal accounted for in accordance with SFAS No. 144,"Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144), $25 million related to exiting leasehold and other contractual obligations, and $39 million related to other costs (including employee termination costs). The severance costs reflect the accrual to eliminate approximately 17,300 positions, after considering attrition and redeployment within the Company.respectively.
The implementation of these restructuring initiatives also caused certain related premises and equipment assets to become redundant. The remaining depreciable lives of these assets were shortened, and accelerated depreciation charges will beginbegan in the second quarter of 2007 in addition to normal scheduled depreciation.
Additional charges totaling approximately $200$32 million pre-tax,pretax are anticipated to be recorded by the end of 2007. Of this charge, $16 million is attributable to Global Consumer, $11 million to Global Wealth Management and $5 million to Corporate/Other.
Separate fromThe following table details the Company's restructuring reserves.
| Severance | | | | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | SFAS 112(1) | SFAS 146(2) | Contract Termination Costs | Asset Write Downs(3) | Employee Termination Cost | Total Citigroup | ||||||||||||||
Total Citigroup (pretax) | ||||||||||||||||||||
Original restructuring charge, First quarter of 2007 | $ | 950 | $ | 11 | $ | 25 | $ | 352 | $ | 39 | $ | 1,377 | ||||||||
Utilization | — | — | — | (268 | ) | — | (268 | ) | ||||||||||||
Balance at March 31, 2007 | $ | 950 | $ | 11 | $ | 25 | $ | 84 | $ | 39 | $ | 1,109 | ||||||||
Second quarter of 2007: | ||||||||||||||||||||
Additional Charge | $ | 8 | $ | 12 | $ | 23 | $ | 19 | $ | 1 | $ | 63 | ||||||||
Foreign exchange | 8 | — | 1 | — | — | 9 | ||||||||||||||
Utilization | (197 | ) | (18 | ) | (12 | ) | (72 | ) | (4 | ) | (303 | ) | ||||||||
Balance at June 30, 2007 | $ | 769 | $ | 5 | $ | 37 | $ | 31 | $ | 36 | $ | 878 | ||||||||
Third quarter of 2007: | ||||||||||||||||||||
Additional Charge | $ | 11 | $ | 14 | $ | — | $ | — | $ | 10 | $ | 35 | ||||||||
Foreign exchange | 8 | — | 1 | — | — | 9 | ||||||||||||||
Utilization | (195 | ) | (13 | ) | (9 | ) | (10 | ) | (23 | ) | (250 | ) | ||||||||
Balance at September 30, 2007 | $ | 593 | $ | 6 | $ | 29 | $ | 21 | $ | 23 | $ | 672 | ||||||||
The severance costs noted above reflect the accrual to eliminate approximately 17,300 positions, after considering attrition and redeployment within the Company.
The total restructuring reserve balance as of September 30, 2007 and the restructuring charge, additional implementation costs related to these initiatives of approximately $100 million pretaxcharges for the three- and nine-month periods then ended are expected throughout 2007.
The status of the 2007 Structural Expense Review is summarizedpresented below by business segment. These charges were included in the following table:
Restructuring Reserve Activity
In millions of dollars | | |||
---|---|---|---|---|
Original restructuring charge | $ | 1,377 | ||
First quarter 2007 utilization | (268 | ) | ||
Reserve balance at March 31, 2007 | $ | 1,109 | ||
The utilization of the 2007Corporate/Other segment because this company-wide restructuring reserve resulted from non-cash charges related to the write-off of assets, primarily intangible assets.was a corporate initiative.
| | Restructuring Charges | |||||||
---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Ending Balance September 30, 2007 | Three Months Ended September 30, 2007 | Nine Months Ended September 30, 2007 | ||||||
Global Consumer | $ | 433 | $ | 18 | $ | 977 | |||
Markets & Banking | 112 | 6 | 288 | ||||||
Global Wealth Management | 46 | 10 | 89 | ||||||
Alternative Investments | 5 | — | 7 | ||||||
Corporate/Other | 76 | 1 | 114 | ||||||
Total Citigroup (pretax) | $ | 672 | $ | 35 | $ | 1,475 | |||
The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the three and nine months ended March 31,September 30, 2007 and 2006:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions, except per share amounts | ||||||||||||||||||||
March 31, 2007 | March 31, 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||
Income from continuing operations | $ | 5,012 | $ | 5,555 | $ | 2,212 | $ | 5,303 | $ | 13,450 | $ | 16,120 | ||||||||
Discontinued operations | — | 84 | — | 202 | — | 289 | ||||||||||||||
Preferred dividends | (16 | ) | (16 | ) | (6 | ) | (16 | ) | (36 | ) | (48 | ) | ||||||||
Income available to common stockholders for basic EPS | 4,996 | 5,623 | 2,206 | 5,489 | 13,414 | 16,361 | ||||||||||||||
Effect of dilutive securities | — | — | — | — | — | — | ||||||||||||||
Income available to common stockholders for diluted EPS | $ | 4,996 | $ | 5,623 | $ | 2,206 | $ | 5,489 | $ | 13,414 | $ | 16,361 | ||||||||
Weighted average common shares outstanding applicable to basic EPS | 4,877.0 | 4,920.7 | 4,916.1 | 4,875.5 | 4,897.1 | 4,898.4 | ||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||
Options | 26.7 | 27.3 | 15.2 | 25.7 | 22.4 | 27.0 | ||||||||||||||
Restricted and deferred stock | 64.2 | 59.9 | 79.6 | 77.4 | 71.1 | 66.8 | ||||||||||||||
Adjusted weighted average common shares outstanding applicable to diluted EPS | 4,967.9 | 5,007.9 | 5,010.9 | 4,978.6 | 4,990.6 | 4,992.2 | ||||||||||||||
Basic earnings per share(1) | ||||||||||||||||||||
Basic earnings per share(1) | ||||||||||||||||||||
Income from continuing operations | $ | 1.02 | $ | 1.13 | $ | 0.45 | $ | 1.08 | $ | 2.74 | $ | 3.28 | ||||||||
Discontinued operations | — | 0.02 | — | 0.04 | — | 0.06 | ||||||||||||||
Net income | $ | 1.02 | $ | 1.14 | $ | 0.45 | $ | 1.13 | $ | 2.74 | $ | 3.34 | ||||||||
Diluted earnings per share(1) | ||||||||||||||||||||
Diluted earnings per share(1) | ||||||||||||||||||||
Income from continuing operations | $ | 1.01 | $ | 1.11 | $ | 0.44 | $ | 1.06 | $ | 2.69 | $ | 3.22 | ||||||||
Discontinued operations | — | 0.02 | — | 0.04 | — | 0.06 | ||||||||||||||
Net income | $ | 1.01 | $ | 1.12 | $ | 0.44 | $ | 1.10 | $ | 2.69 | $ | 3.28 | ||||||||
9. Trading Account Assets and Liabilities
Trading account assets and liabilities, at fair value, consisted of the following:
In millions of dollars | March 31, 2007 | December 31, 2006 | September 30, 2007 | December 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Trading account assets | ||||||||||||
U.S. Treasury and federal agency securities | $ | 60,885 | $ | 44,661 | $ | 49,376 | $ | 44,661 | ||||
State and municipal securities | 17,099 | 17,358 | 18,072 | 17,358 | ||||||||
Foreign government securities | 46,978 | 33,057 | 63,757 | 33,057 | ||||||||
Corporate and other debt securities | 98,771 | 93,891 | 157,858 | 93,891 | ||||||||
Derivatives(1) | 46,466 | 49,541 | ||||||||||
Derivatives(1) | 85,158 | 49,541 | ||||||||||
Equity securities | 106,203 | 92,518 | 124,496 | 92,518 | ||||||||
Mortgage loans and collateralized mortgage securities | 45,814 | 37,104 | 43,356 | 37,104 | ||||||||
Other | 37,849 | 25,795 | 39,147 | 25,795 | ||||||||
Total trading account assets | $ | 460,065 | $ | 393,925 | $ | 581,220 | $ | 393,925 | ||||
Trading account liabilities | ||||||||||||
Securities sold, not yet purchased | $ | 99,711 | $ | 71,083 | $ | 101,708 | $ | 71,083 | ||||
Derivatives(1) | 74,191 | 74,804 | ||||||||||
Derivatives(1) | 113,915 | 74,804 | ||||||||||
Total trading account liabilities | $ | 173,902 | $ | 145,887 | $ | 215,623 | $ | 145,887 | ||||
10. Goodwill and Intangible Assets
The changes in goodwill during the first threenine months of 2007 were as follows:
In millions of dollars | Goodwill | Goodwill | ||||||
---|---|---|---|---|---|---|---|---|
Balance at December 31, 2006 | $ | 33,415 | $ | 33,415 | ||||
Acquisition of Grupo Financiero Uno | 865 | |||||||
Acquisition of GFU | 865 | |||||||
Acquisition of Quilter | 268 | 268 | ||||||
Foreign exchange translation and other | (168 | ) | (168 | ) | ||||
Balance at March 31, 2007 | $ | 34,380 | $ | 34,380 | ||||
Acquisition of Nikko Cordial | 2,162 | |||||||
Acquisition of Grupo Cuscatlan | 610 | |||||||
Acquisition of Egg | 1,542 | |||||||
Foreign exchange translation and other | 537 | |||||||
Balance at June 30, 2007 | $ | 39,231 | ||||||
Purchase accounting adjustments—Nikko Cordial(1) | (1,545 | ) | ||||||
Purchase accounting adjustments—Grupo Cuscatlan | 311 | |||||||
Purchase accounting adjustments—Egg | 114 | |||||||
Acquisition of Old Lane | 506 | |||||||
Acquisition of Bisys | 872 | |||||||
Foreign exchange translation and other | 460 | |||||||
Balance at September 30, 2007 | $ | 39,949 | ||||||
During the first quarterthree quarters of 2007, no goodwill was written off due to impairment.
The changes in intangible assets during the first threenine months of 2007 were as follows:
In millions of dollars | Net Carrying Amount at December 31, 2006 | Acquisitions | Amortization | FX & Other(1) | Impairments(2) | Net Carrying Amount at March 31, 2007 | Net Carrying Amount at December 31, 2006 | Acquisitions | Amortization | FX & Other(1) | Impairments(2) | Net Carrying Amount at September 30, 2007 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Purchased credit card relationships | $ | 4,879 | $ | 92 | $ | (151 | ) | $ | 7 | $ | (35 | ) | $ | 4,792 | $ | 4,879 | $ | 200 | $ | (445 | ) | $ | 45 | $ | (35 | ) | $ | 4,644 | ||||||||
Core deposit intangibles | 734 | 45 | (22 | ) | 14 | — | 771 | 734 | 203 | (76 | ) | 19 | — | 880 | ||||||||||||||||||||||
Other customer relationships | 389 | — | (16 | ) | (23 | ) | (127 | ) | 223 | 389 | 1,748 | (95 | ) | 405 | (180 | ) | 2,267 | |||||||||||||||||||
Present value of future profits | 181 | — | (1 | ) | — | — | 180 | 181 | — | (7 | ) | — | — | 174 | ||||||||||||||||||||||
Indefinite-lived intangible assets | 639 | — | — | (5 | ) | (73 | ) | 561 | 639 | 557 | — | 432 | (73 | ) | 1,555 | |||||||||||||||||||||
Other | 3,640 | 387 | (62 | ) | 6 | — | 3,971 | 3,640 | 648 | (206 | ) | 92 | — | 4,174 | ||||||||||||||||||||||
Intangible assets carried at fair value(3) | 5,439 | 3,119 | — | 274 | — | 8,832 | ||||||||||||||||||||||||||||||
Mortgage servicing rights | 5,439 | 3,404 | — | 1,114 | — | 9,957 | ||||||||||||||||||||||||||||||
Total intangible assets | $ | 15,901 | $ | 3,643 | $ | (252 | ) | $ | 273 | $ | (235 | ) | $ | 19,330 | $ | 15,901 | $ | 6,760 | $ | (829 | ) | $ | 2,107 | $ | (288 | ) | $ | 23,651 | ||||||||
The components of intangible assets were as follows:
| March 31, 2007 | December 31, 2006 | | September 30, 2007 | | December 31, 2006 | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||
Purchased credit card relationships | $ | 8,488 | $ | 3,696 | $ | 4,792 | $ | 8,391 | $ | 3,512 | $ | 4,879 | $ | 8,559 | $ | 3,915 | $ | 4,644 | $ | 8,391 | $ | 3,512 | $ | 4,879 | ||||||||||||
Core deposit intangibles | 1,295 | 524 | 771 | 1,223 | 489 | 734 | 1,466 | 586 | 880 | 1,223 | 489 | 734 | ||||||||||||||||||||||||
Other customer relationships | 860 | 637 | 223 | 1,044 | 655 | 389 | 2,466 | 199 | 2,267 | 1,044 | 655 | 389 | ||||||||||||||||||||||||
Present value of future profits | 427 | 247 | 180 | 428 | 247 | 181 | 427 | 253 | 174 | 428 | 247 | 181 | ||||||||||||||||||||||||
Other(1) | 4,836 | 865 | 3,971 | 4,445 | 805 | 3,640 | 5,292 | 1,118 | 4,174 | 4,445 | 805 | 3,640 | ||||||||||||||||||||||||
Total amortizing intangible assets | $ | 15,906 | $ | 5,969 | $ | 9,937 | $ | 15,531 | $ | 5,708 | $ | 9,823 | $ | 18,210 | $ | 6,071 | $ | 12,139 | $ | 15,531 | $ | 5,708 | $ | 9,823 | ||||||||||||
Indefinite-lived intangible assets | 561 | N/A | 561 | 639 | N/A | 639 | 1,555 | N/A | 1,555 | 639 | N/A | 639 | ||||||||||||||||||||||||
Intangible assets carried at fair value(2) | $ | 8,832 | N/A | 8,832 | $ | 5,439 | N/A | 5,439 | ||||||||||||||||||||||||||||
Mortgage servicing rights | $ | 9,957 | N/A | $ | 9,957 | $ | 5,439 | N/A | 5,439 | |||||||||||||||||||||||||||
Total intangible assets | $ | 25,299 | $ | 5,969 | $ | 19,330 | $ | 21,609 | $ | 5,708 | $ | 15,901 | $ | 29,722 | $ | 6,071 | $ | 23,651 | $ | 21,609 | $ | 5,708 | $ | 15,901 | ||||||||||||
N/A
11. Investments
In millions of dollars | March 31, 2007 | December 31, 2006 | ||||
---|---|---|---|---|---|---|
Fixed income securities, substantially all available-for-sale at fair value | $ | 266,399 | $ | 254,107 | ||
Equity securities | 20,131 | 19,447 | ||||
Other | 37 | 37 | ||||
Total | $ | 286,567 | $ | 273,591 | ||
In millions of dollars | September 30, 2007 | December 31, 2006(1) | ||||
---|---|---|---|---|---|---|
Securities available-for-sale | $ | 217,350 | $ | 258,087 | ||
Non-marketable equity securities carried at fair value(2) | 15,770 | 10,662 | ||||
Non-marketable equity securities carried at cost(3) | 7,620 | 4,804 | ||||
Debt securities held to maturity(4) | 1 | 1 | ||||
Other | 87 | 37 | ||||
Total Investments | $ | 240,828 | $ | 273,591 | ||
The amortized cost and fair value of investments in fixed incomedebt and equity securities at March 31,September 30, 2007 and December 31, 2006 were as follows:
| March 31, 2007 | December 31, 2006(1)(2) | September 30, 2007 | December 31, 2006(1)(5) | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||||||
Fixed income securities held to maturity(3) | $ | 1 | $ | — | $ | — | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||||||||||||
Fixed income securities available-for-sale | ||||||||||||||||||||||||||||||||||||
Securities available-for-sale | ||||||||||||||||||||||||||||||||||||
Mortgage-backed securities, principally obligations of U.S. Federal agencies | $ | 89,051 | $ | 268 | $ | 231 | $ | 89,088 | $ | 82,443 | $ | 82,413 | $ | 57,080 | $ | 69 | $ | 927 | $ | 56,222 | $ | 82,443 | $ | 82,413 | ||||||||||||
U.S. Treasury and Federal agencies | 22,616 | 16 | 239 | 22,393 | 24,872 | 24,531 | 18,293 | 51 | 165 | 18,179 | 24,872 | 24,531 | ||||||||||||||||||||||||
State and municipal | 18,054 | 436 | 34 | 18,456 | 15,152 | 15,654 | 18,430 | 269 | 220 | 18,479 | 15,152 | 15,654 | ||||||||||||||||||||||||
Foreign government | 81,069 | 579 | 479 | 81,169 | 73,943 | 73,783 | 74,775 | 407 | 518 | 74,664 | 73,943 | 73,783 | ||||||||||||||||||||||||
U.S. corporate | 32,407 | 312 | 227 | 32,492 | 32,311 | 32,455 | 33,200 | 142 | 303 | 33,039 | 32,311 | 32,455 | ||||||||||||||||||||||||
Other debt securities | 22,758 | 78 | 36 | 22,800 | 25,071 | 25,270 | ||||||||||||||||||||||||||||||
Other debt securities(6) | 13,090 | 77 | 99 | 13,068 | 25,071 | 25,270 | ||||||||||||||||||||||||||||||
Marketable equity securities available-for-sale(7) | 1,646 | 2,062 | 9 | 3,699 | 3,011 | 3,981 | ||||||||||||||||||||||||||||||
Total fixed income securities available-for-sale(4) | $ | 265,956 | $ | 1,689 | $ | 1,246 | $ | 266,399 | $ | 253,793 | $ | 254,107 | ||||||||||||||||||||||||
Total securities available-for-sale | $ | 216,514 | $ | 3,077 | $ | 2,241 | $ | 217,350 | $ | 256,803 | $ | 258,087 | ||||||||||||||||||||||||
Equity securities(5)(6) | $ | 18,882 | $ | 1,252 | $ | 3 | $ | 20,131 | $ | 18,477 | $ | 19,447 | ||||||||||||||||||||||||
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 March 31,September 30, 2007, the total assets of Citigroup's consolidated Feeder funds amounted to approximately $3.6$1.8 billion. Citigroup has not consolidated approximately $8.0$5.9 billion of additional assets and liabilities recorded in the related Master Funds' financial statements.
Short-term borrowings consist of commercial paper and other short-term borrowings as follows:
In millions of dollars | In millions of dollars | March 31, 2007 | December 31, 2006 | In millions of dollars | September 30, 2007 | December 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Commercial paper | Commercial paper | Commercial paper | ||||||||||||
Citigroup Funding Inc. | $ | 39,745 | $ | 41,767 | Citigroup Funding Inc. | $ | 46,341 | $ | 41,767 | |||||
Other Citigroup Subsidiaries | 866 | 1,928 | Other Citigroup subsidiaries | 2,179 | 1,928 | |||||||||
$ | 40,611 | $ | 43,695 | $ | 48,520 | $ | 43,695 | |||||||
Other short-term borrowings(1) | Other short-term borrowings(1) | 70,568 | 57,138 | Other short-term borrowings(1) | 145,784 | 57,138 | ||||||||
Total short-term borrowings | Total short-term borrowings | $ | 111,179 | $ | 100,833 | Total short-term borrowings | $ | 194,304 | $ | 100,833 | ||||
Borrowings under bank lines of credit may be at interest rates based on LIBOR, CD rates, the prime rate, or bids submitted by the banks. Citigroup pays commitment fees for its lines of credit.
Some of Citigroup's nonbank subsidiaries have credit facilities with Citigroup's subsidiary depository institutions, including Citibank, N.A. Borrowings under these facilities must be collateralized in accordance with Section 23A of the Federal Reserve Act.
Long-term debt, including its current portion, consisted of the following:
In millions of dollars | March 31, 2007 | December 31, 2006 | September 30, 2007 | December 31, 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Citigroup Parent Company | $ | 134,915 | $ | 125,350 | $ | 153,986 | $ | 125,350 | ||||
Other Citigroup Subsidiaries(1) | 122,969 | 115,578 | 148,029 | 115,578 | ||||||||
Citigroup Global Markets Holdings Inc.(2) | 28,419 | 28,719 | 28,904 | 28,719 | ||||||||
Citigroup Funding Inc.(3)(4) | 24,465 | 18,847 | 33,607 | 18,847 | ||||||||
Total long-term debt | $ | 310,768 | $ | 288,494 | $ | 364,526 | $ | 288,494 | ||||
CGMHI has a syndicated five-year committed uncollateralized revolving line of credit facility with unaffiliated banks totaling $3.0 billion, which matures in 2011. CGMHI also has three-year and one-year bilateral facilities totaling $575 million$1.375 billion with unaffiliated banks with borrowings maturing on various dates in 2008 and 2009. At March 31,September 30, 2007, there were no outstanding borrowings under thesethe full $3.0 billion of the syndicated five-year facility was drawn as well as $1.3 billion of the bilateral facilities.
CGMHI also has committed long-term financing facilities with unaffiliated banks. At March 31,September 30, 2007, CGMHI had drawn down the full $1.78$2.075 billion available under these facilities, of which $1.08 billion is guaranteed by Citigroup. A bank can terminate these facilities by giving CGMHI prior notice (generally one year). CGMHI also has substantial borrowing arrangements consisting of facilities that CGMHI has been advised are available, but where no contractual lending obligation exists. These arrangements are reviewed on an ongoing basis to ensure flexibility in meeting CGMHI's short-term requirements.
The Company issues both fixed and variable rate debt in a range of currencies. It uses derivative contracts, primarily interest rate swaps, to effectively convert a portion of its fixed rate debt to variable rate debt and variable rate debt to fixed rate debt. The maturity structure of the derivatives generally corresponds to the maturity structure of the debt being hedged. In addition, the Company uses other derivative contracts to manage the foreign exchange impact of certain debt issuances.
Long-term debt at March 31,September 30, 2007 and December 31, 2006 includes $9,601$11,702 million and $9,775 million, respectively, of junior subordinated debt. The Company formed statutory business trusts under the laws of the state of Delaware, which exist for the exclusive purposes of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust; (ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of its parent; and
(iii) engaging in only those activities necessary or incidental thereto. Upon approval from the Federal Reserve, Citigroup has the right to redeem these securities.
Citigroup has contractually agreed not to redeem or 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, and (iii) the 6.35% Enhanced Trust Preferred Securities of Citigroup Capital XVII before March 15, 2057, (iv) the 6.829% Fixed Rate/Floating Rate Enhanced Trust Preferred Securities of Citigroup Capital XVIII before June 28, 2047 and (v) the 7.250% Enhanced Trust Preferred Securities of Citigroup Capital XIX before August 15, 2047 unless certain conditions, described in Exhibit 4.03 to Citigroup's Current Report on Form 8-K filed on September 18, 2006, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on November 28, 2006, and in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on March 8, 2007, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on July 2, 2007, and in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on August 17, 2007, respectively, are met. These agreements are for the benefit of the holders of Citigroup's 6.00% Junior Subordinated Deferrable Interest Debentures due 2034.
For Regulatory Capital purposes, these Trust Securities remain a component of Tier 1 Capital. See "Capital Resources and Liquidity" on page 68.41.
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' common securities. These subsidiary trusts' obligations are fully and unconditionally guaranteed by Citigroup.
The following table summarizes the financial structure of each of the Company's subsidiary trusts at March 31,September 30, 2007:
| | | | | | Junior Subordinated Debentures Owned by Trust | | | | | | Junior Subordinated Debentures Owned by Trust | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Trust Securities with Distributions Guaranteed by Citigroup: | | | | | | |||||||||||||||||||||||||||||||
| | | | Common Shares Issued to Parent | Junior Subordinated Debentures Owned by Trust | | | | | Common Shares Issued to Parent | ||||||||||||||||||||||||||
Issuance Date | Securities Issued | Liquidation Value | Coupon Rate | Issuance Date | Securities Issued | Liquidation Value | Coupon Rate | Amount(1) | Maturity | Redeemable by Issuer Beginning | ||||||||||||||||||||||||||
In millions of dollars, except share amounts | ||||||||||||||||||||||||||||||||||||
Citigroup Capital III | Dec. 1996 | 200,000 | $ | 200 | 7.625 | % | 6,186 | $ | 206 | Dec. 1, 2036 | Not redeemable | 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 | ||||||||||||||||||
Adam Capital Trust II(2) | Apr. 2002 | 22,000 | 22 | 6 mo. LIB +370 bp. | 681 | 23 | Apr. 22, 2032 | Apr. 22, 2007 | ||||||||||||||||||||||||||||
Citigroup Capital XVIII | June 2007 | 500,000 | 1,019 | 6.829 | % | 50 | 1,019 | June 28, 2067 | June 28, 2017 | |||||||||||||||||||||||||||
Citigroup Capital XIX | August 2007 | 49,000,000 | 1,225 | 7.250 | % | 20 | 1,226 | Aug. 15, 2067 | Aug. 15, 2012 | |||||||||||||||||||||||||||
Adam Capital Trust III(2) | Dec. 2002 | 17,500 | 18 | 3 mo. LIB +335 bp. | 542 | 18 | Jan. 07, 2033 | Jan. 07, 2008 | Dec. 2002 | 17,500 | 18 | 3 mo. LIB +335 bp. | 542 | 18 | Jan. 07, 2033 | Jan. 07, 2008 | ||||||||||||||||||||
Adam Statutory Trust III(2) | Dec. 2002 | 25,000 | 25 | 3 mo. LIB +325 bp. | 774 | 26 | Dec. 26, 2032 | Dec. 26, 2007 | Dec. 2002 | 25,000 | 25 | 3 mo. LIB +325 bp. | 774 | 26 | Dec. 26, 2032 | Dec. 26, 2007 | ||||||||||||||||||||
Adam Statutory Trust IV(2) | Sept. 2003 | 40,000 | 40 | 3 mo. LIB +295 bp. | 1,238 | 41 | Sept. 17, 2033 | Sept. 17, 2008 | Sept. 2003 | 40,000 | 40 | 3 mo. LIB +295 bp. | 1,238 | 41 | Sept. 17, 2033 | Sept. 17, 2008 | ||||||||||||||||||||
Adam Statutory Trust V(2) | Mar. 2004 | 35,000 | 35 | 3 mo. LIB +279 bp. | 1,083 | 36 | Mar. 17, 2034 | Mar. 17, 2009 | Mar. 2004 | 35,000 | 35 | 3 mo. LIB +279 bp. | 1,083 | 36 | Mar. 17, 2034 | Mar. 17, 2009 | ||||||||||||||||||||
Total obligated | $ | 9,540 | $ | 9,701 | $ | 11,762 | $ | 11,923 | ||||||||||||||||||||||||||||
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 and AdamCitigroup Capital Trust II,XVIII, on which distributions are payable semiannually.
On March 18, 2007 and March 26, 2007, Citigroup redeemed for cash all of the $23 million and $25 million Trust Preferred Securities of Adam Statutory Trust I and Adam Statutory Trust II, respectively, at the redemption price of $1,000 per preferred security plus any accrued distributiondistributions up to but excluding the date of redemption.
On March 6, 2007, Citigroup issued $1.000 billion of Enhanced Trust Preferred Securities (Citigroup Capital XVII). An additional $100 million was issued, related to this Trust, on March 14, 2007.
On February 15, 2007, Citigroup redeemed for cash all of the $300 million Trust Preferred Securities of Citicorp Capital I, $450 million of Citicorp Capital II, and $400 million of Citigroup Capital II, at the redemption price of $1,000 per preferred security plus any accrued distributiondistributions up to but excluding the date of redemption.
On April 23, 2007, Citigroup redeemed for cash all of the $22 million Trust Preferred Securities of Adam Capital Trust II at the redemption price of $1,000 per preferred security plus any accrued distributiondistributions up to but excluding the date of redemption.
13. Securitizations and Variable Interest Entities
The Company primarily securitizes credit card receivables and mortgages. Other types of assets securitized include corporate debt securities, auto loans, and student loans.
After securitization of credit card receivables, the Company continues to maintain credit card customer account relationships and provides servicing for receivables transferred to the trusts. The Company also arranges for third parties to provide credit enhancement to the trusts, including cash collateral accounts, subordinated securities and letters of credit. As specifiedThe Company also retains an interest in somethe residual cash flows of the sale agreements,securitized credit card receivables. The residual cash flows are the net revenue collected each month is accumulated up to a predetermined maximum amount, and is available overfinance charge collections on the remaining termsecuritized receivables reduced by payment of that transaction to make payments of yield,investor coupon on trust securities, servicing fees, and transaction costs in the event that net credit losses. The residual cash flows from the receivables are not sufficient. Once the predetermined amount is reached, net revenue is recognized byperiodically remitted to the Citigroup subsidiary that sold the receivables.receivables, assuming certain trust performance measures that protect the investors of the trust are met. A residual interest asset, which is an estimate of the amount and timing of these future residual cash collections, and gain on sale are recognized at the time receivables are sold.
The Company provides a wide range of mortgage and other loan products to a diverse customer base. In connection with the securitization of these loans, the servicing rights entitle the Company to a future stream of cash flows based on the outstanding principal balances of the loans and the contractual servicing fee. Failure to service the loans in accordance with contractual requirements may lead to a termination of the servicing rights and the loss of future servicing fees. In non-recourse servicing, the principal credit risk to the Company is the cost of temporary advances of funds. In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans such as FNMA or FHLMC or with a private investor, insurer, or guarantor. Losses on recourse servicing occur primarily when foreclosure sale proceeds of the property underlying a defaulted mortgage are less than the outstanding principal balance and accrued interest of the loan and the cost of holding and disposing of the underlying property. The Company's mortgage loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchaser of the securities issued by the trust.
| Three Months Ended September 30, 2007 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||
Proceeds from new securitizations | $ | 7.1 | $ | 26.4 | $ | 7.5 | $ | 12.4 | $ | — | |||||
Proceeds from collections reinvested in new receivables | 58.1 | — | — | — | 0.3 | ||||||||||
Contractual servicing fees received | 0.6 | 0.5 | — | — | — | ||||||||||
Cash flows received on retained interests and other net cash flows | 2.1 | 0.1 | — | — | — | ||||||||||
| Three Months Ended September 30, 2006 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||
Proceeds from new securitizations | $ | 2.5 | $ | 18.7 | $ | 6.0 | $ | 9.2 | $ | 2.6 | |||||
Proceeds from collections reinvested in new receivables | 54.8 | — | — | — | 0.5 | ||||||||||
Contractual servicing fees received | 0.5 | 0.3 | — | — | — | ||||||||||
Cash flows received on retained interests and other net cash flows | 2.1 | — | — | — | — | ||||||||||
The Company also originates and sells first mortgage loans in the ordinary course of its mortgage banking activities. The Company sells some of these loans to the Government National Mortgage Association (GNMA) with the servicing rights retained. GNMA has the primary recourse obligation on the individual loans; however, GNMA's recourse obligation is capped at a fixed amount per loan. Any losses above that fixed amount are borne by Citigroup as the seller/servicer.
The following table summarizes certain cash flows received from and paid to securitization trusts during the three months ended March 31, 2007 and 2006:
| Three Months Ended March 31, 2007 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||
Proceeds from new securitizations | $ | 6.3 | $ | 26.9 | $ | 16.5 | $ | 13.1 | $ | — | |||||
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 | — | — | — | — | ||||||||||
| Three Months Ended March 31, 2006 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||
Proceeds from new securitizations | $ | 6.8 | $ | 12.1 | $ | 5.1 | $ | 7.6 | $ | 0.1 | |||||
Proceeds from collections reinvested in new receivables | 53.9 | — | — | — | 0.1 | ||||||||||
Contractual servicing fees received | 0.5 | 0.2 | — | — | — | ||||||||||
Cash flows received on retained interests and other net cash flows | 2.4 | — | — | — | — | ||||||||||
| Nine Months Ended September 30, 2007 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||
Proceeds from new securitizations | $ | 19.7 | $ | 83.0 | $ | 37.1 | $ | 35.7 | $ | 1.5 | |||||
Proceeds from collections reinvested in new receivables | 165.8 | — | — | — | 1.6 | ||||||||||
Contractual servicing fees received | 1.7 | 1.3 | — | — | 0.1 | ||||||||||
Cash flows received on retained interests and other net cash flows | 6.3 | 0.2 | — | — | 0.1 | ||||||||||
| Nine Months Ended September 30, 2006 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||
Proceeds from new securitizations | $ | 16.9 | $ | 50.0 | $ | 19.0 | $ | 25.8 | $ | 2.8 | |||||
Proceeds from collections reinvested in new receivables | 161.8 | — | — | — | 0.9 | ||||||||||
Contractual servicing fees received | 1.6 | 0.7 | — | — | — | ||||||||||
Cash flows received on retained interests and other net cash flows | 6.5 | — | — | — | — | ||||||||||
The Company recognized gains on securitizations of U.S. Consumer mortgages of $31$46 million and $30$21 million for the three-month periods ended March 31,September 30, 2007 and 2006, respectively, and $129 million and $55 million during the first nine months of 2007 and 2006, respectively. In the firstthird quarter of 2007 and 2006, the Company recorded gains of $248$74 million and $171$264 million related to the securitization of credit card receivables.receivables, and $470 million and $719 million for the nine months ended September 30, 2007 and 2006, respectively. Gains recognized on the securitization of Markets & Banking and other assets during the first three monthsthird quarter of 2007 and 2006 were $13$15 million and $21$89 million, respectively, and $120 million and $203 million for the nine months ended 2007 and 2006, respectively.
Key assumptions used for securitizations of credit cards, mortgages, and other asset securitizations during the three months ended March 31,September 30, 2007 and 2006 in measuring the fair value of retained interests at the date of sale or securitization follow:
| Three Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | |||||
Discount rate | 12.8% to | 4.1% to 27.9% | 5.6% to 27.9% | N/A | ||||||
Constant prepayment rate | 15.0% to 52.5% | 10.0% to 26.0% | N/A | |||||||
Anticipated net credit losses | 3.7% to | 24.0% to 100.0% | N/A | N/A |
| Three Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | |||||
Discount rate | 12.0% to | 5.0% to 26.0% | 0.4% to 21.0% | |||||||
Constant prepayment rate | 9.0% to 43.0% | 14.0% to 33.0% | ||||||||
Anticipated net credit losses | 0.0% to 40.0% | N/A |
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 March 31,September 30, 2007, the key assumptions used to value retained interests and the sensitivity of the fair value to adverse changes of 10% and 20% in each of the key assumptions were as follows:
Key assumptions at March 31,September 30, 2007
| March 31, 2007 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Credit Cards | U.S. Consumer Mortgages(1) | Markets & Banking Mortgages | Markets & Banking Other | Other(2) | |||||
Discount rate | 12.8% to 16.2% | 11.0% | 4.1% to 27.9% | 5.6% to 27.9% | 6.0% to 10.7% | |||||
Constant prepayment rate | 6.7% to 21.0% | 11.7% | 15.0% to 52.5% | 10.0% to 26.0% | 5.6% to 20.1% | |||||
Anticipated net credit losses | 3.7% to 5.9% | 0.0% | 24.0% to 100.0% | N/A | 1.1% | |||||
Weighted average life years | 11 to 12 Months | 6.1 years | 6.5 to 21.2 | 6.5 to 9.8 | 7 years |
September 30, 2007 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Credit Cards | U.S. Consumer Mortgages(1) | Markets & Banking Mortgages | Markets & Banking Other | Other(2) | ||||||
Discount rate | 13.3% to 16.8% | 11.5% | 4.1% to 27.9% | 5.6% to 27.9% | 10.7% to 12.7% | |||||
Constant prepayment rate | 7.2% to 21.5% | 10.0% | 15.0% to 52.5% | 10.0% to 26.0% | 3.4% to 11.2% | |||||
Anticipated net credit losses | 3.8% to 5.9% | N/A | 24.0% to 100.0% | N/A | 0.3% to 1.1% | |||||
Weighted average life | 10.7 to 11.0 months | 6.9 years | 6.5 to 21.2 years | 6.5 to 9.8 years | 4 to 8 years |
| | March 31, 2007 | | September 30, 2007 | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | In millions of dollars | Credit Cards | U.S. Consumer Mortgages | Markets & Banking Mortgages | Markets & Banking Other | Other(1) | ||||||||||||||||||||||
Carrying value of retained interests | Carrying value of retained interests | $ | 7,246 | $ | 9,842 | $ | 3,559 | $ | 7,587 | $ | 1,372 | Carrying value of retained interests | $ | 11,105 | $ | 11,230 | $ | 3,849 | $ | 37,835 | $ | 1,395 | ||||||||||||
Discount Rates | Discount Rates | Discount Rates | ||||||||||||||||||||||||||||||||
10% | $ | (66 | ) | $ | (260 | ) | $ | (28 | ) | $ | (19 | ) | $ | (24 | ) | 10% | $ | (62 | ) | $ | (317 | ) | $ | (37 | ) | $ | (19 | ) | $ | (26 | ) | |||
20% | (130 | ) | (505 | ) | (54 | ) | (37 | ) | (47 | ) | 20% | (122 | ) | (620 | ) | (72 | ) | (37 | ) | (51 | ) | |||||||||||||
Constant prepayment rate | Constant prepayment rate | Constant prepayment rate | ||||||||||||||||||||||||||||||||
10% | $ | (235 | ) | $ | (474 | ) | $ | (10 | ) | $ | (1 | ) | $ | (15 | ) | 10% | $ | (234 | ) | $ | (491 | ) | $ | (21 | ) | $ | (1 | ) | $ | (13 | ) | |||
20% | (443 | ) | (903 | ) | (25 | ) | (1 | ) | (28 | ) | 20% | (440 | ) | (938 | ) | (46 | ) | (1 | ) | (27 | ) | |||||||||||||
Anticipated net credit losses | Anticipated net credit losses | Anticipated net credit losses | ||||||||||||||||||||||||||||||||
10% | $ | (396 | ) | $ | (8 | ) | $ | (36 | ) | N/A | $ | (5 | ) | 10% | $ | (404 | ) | $ | (8 | ) | $ | (53 | ) | $ | — | $ | (6 | ) | ||||||
20% | (789 | ) | (15 | ) | (67 | ) | N/A | (10 | ) | 20% | (805 | ) | (16 | ) | (101 | ) | — | (13 | ) | |||||||||||||||
Managed Loans
After securitization of credit card receivables, the Company continues to maintain credit card customer account relationships and provides servicing for receivables transferred to the trusts. As a result, the Company considers the securitized credit card receivables to be part of the business it manages.
The following tables present a reconciliation between the managed basis and on-balance sheet credit card portfolios and the related delinquencies (loans which are 90 days or more past due) at March 31,September 30, 2007 and December 31, 2006, and credit losses, net of recoveries for the three-month and nine-month periods ended March 31,September 30, 2007 and 2006.
In millions of dollars, except loans in billions | Mar. 31, 2007 | Dec. 31, 2006 | ||||
---|---|---|---|---|---|---|
Principal amounts, at period end | ||||||
On-balance sheet loans | $ | 68.1 | $ | 75.5 | ||
Securitized amounts | 98.6 | 99.5 | ||||
Loans held-for-sale | 3.0 | — | ||||
Total managed | $ | 169.7 | $ | 175.0 | ||
Delinquencies, at period end | ||||||
On balance sheet loans | $ | 1,323 | $ | 1,427 | ||
Securitized amounts | 1,528 | 1,616 | ||||
Loans held-for-sale | 47 | — | ||||
Total managed | $ | 2,898 | $ | 3,043 | ||
| Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|---|
Credit losses, net of recoveries | 2007 | 2006 | |||||
On-balance sheet loans | $ | 823 | $ | 664 | |||
Securitized amounts | 1,150 | 871 | |||||
Loans held-for-sale | — | 4 | |||||
Total managed | $ | 1,973 | $ | 1,539 | |||
In billions of dollars | Sept. 30, 2007 | Dec. 31, 2006 | ||||
---|---|---|---|---|---|---|
Principal amounts, at period end | ||||||
On-balance sheet loans | $ | 78.3 | $ | 75.5 | ||
Securitized amounts | 104.0 | 99.5 | ||||
Loans held-for-sale | 3.0 | — | ||||
Total managed | $ | 185.3 | $ | 175.0 | ||
In millions of dollars | ||||||
Delinquencies, at period end | ||||||
On balance sheet loans | $ | 1,589 | $ | 1,427 | ||
Securitized amounts | 1,595 | 1,616 | ||||
Loans held-for-sale | 40 | — | ||||
Total managed | $ | 3,224 | $ | 3,043 | ||
| Three Months Ended Sept. 30, | ||||||
---|---|---|---|---|---|---|---|
| 2007 | 2006 | |||||
Credit losses, net of recoveries | |||||||
On-balance sheet loans | $ | 993 | $ | 803 | |||
Securitized amounts | 1,174 | 1,051 | |||||
Loans held-for-sale | — | 1 | |||||
Total managed | $ | 2,167 | $ | 1,855 | |||
| Nine Months Ended Sept. 30, | ||||||
---|---|---|---|---|---|---|---|
| 2007 | 2006 | |||||
Credit losses, net of recoveries | |||||||
On-balance sheet loans | $ | 2,621 | $ | 2,247 | |||
Securitized amounts | 3,481 | 2,891 | |||||
Loans held-for-sale | — | 5 | |||||
Total managed | $ | 6,102 | $ | 5,143 | |||
The fair value of capitalized mortgage loan servicing rights (MSRs) was $8.8$10.0 billion, $5.4$10.1 billion and $5.0$5.5 billion at March 31,September 30, 2007, December 31, 2006June 30, 2007 and March 31,September 30, 2006, respectively.
The following table summarizes the changes in capitalized MSRs:
| Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars | 2007 | 2006 | |||||
Balance, beginning of period | $ | 5,439 | $ | 4,339 | |||
Originations | 427 | 176 | |||||
Purchases | 3,119 | 162 | |||||
Changes in fair value of MSRs due to changes in inputs and assumptions | 125 | 515 | |||||
Other changes(1) | (278 | ) | (237 | ) | |||
Balance, end of period | $ | 8,832 | $ | 4,955 | |||
| Three Months Ended Sept. 30, | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars | |||||||
2007 | 2006 | ||||||
Balance, beginning of period | $ | 10,072 | $ | 5,565 | |||
Originations | 477 | 294 | |||||
Purchases | 271 | 345 | |||||
Changes in fair value of MSRs due to changes in inputs and assumptions | (555 | ) | — | ||||
Other changes(1) | (308 | ) | (748 | ) | |||
Balance, end of period | $ | 9,957 | $ | 5,456 | |||
| Nine Months Ended Sept. 30, | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars | |||||||
2007 | 2006 | ||||||
Balance, beginning of period | $ | 5,439 | $ | 4,339 | |||
Originations | 1,438 | 778 | |||||
Purchases | 3,404 | 673 | |||||
Changes in fair value of MSRs due to changes in inputs and assumptions | 611 | — | |||||
Other changes(1) | (935 | ) | (334 | ) | |||
Balance, end of period | $ | 9,957 | $ | 5,456 | |||
The market for MSRs is not sufficiently liquid to provide participants with quoted market prices. Therefore, the Company 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' 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's model validation policies. Refer to key assumptions at March 31,September 30, 2007 on page 9970 for the key assumptions used in the MSR valuation process.
The fair value of the MSRs is primarily affected by changes in prepayments that result from shifts in mortgage interest rates. In managing this risk, the Company hedges a significant portion of the value of its MSRs through the use of interest rate derivative contracts, forward purchase commitments of mortgage-backed securities, and purchased securities classified as trading. The amount of contractually specified servicing fees, late fees and ancillary fees earned were $287$481 million, $16$24 million and $12$16 million, respectively, for the firstthird quarter of 2007; and $242$264 million, $14 million and $10$11 million, respectively, for the firstthird quarter of 2006. These fees are classified in the Consolidated Statement of Income as Commissions and Fees.
Variable Interest Entities
FASB Interpretation No. 46-R, "Consolidation of Variable Interest Entities" (FIN 46-R) applies to those entities which have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights, rights to receive the expected residual returns of the entity, and obligation to absorb the expected losses of the entity). Those investors who provide the additional support necessary to finance the VIE are variable interest holders in the entity. The variable interest holder, if any, that will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both, is deemed to be the primary beneficiary and must consolidate the VIE.
The following table represents the carrying amounts and classification of consolidated assets that are collateral for VIE obligations, including VIEs that were consolidated prior to the implementation of FIN 46-R under existing guidance and VIEs that the Company became involved with after July 1, 2003:
In billions of dollars | March 31, 2007 | December 31, 2006 | ||||
---|---|---|---|---|---|---|
Cash | $ | 0.6 | $ | 0.5 | ||
Trading account assets | 33.8 | 31.6 | ||||
Investments | 11.7 | 10.1 | ||||
Loans | 6.9 | 6.8 | ||||
Other assets | 5.8 | 5.7 | ||||
Total assets of consolidated VIEs | $ | 58.8 | $ | 54.7 | ||
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 $58.8 billion and $54.7 billion of total assets of VIEs consolidated by the Company at March 31, 2007 and December 31, 2006, respectively, $23.2 billion and $39.2 billion represent structured transactions where the Company packages and securitizes assets purchased in the financial markets or from clients in orderIn billions of dollars Sept. 30,
2007 December 31,
2006(1)Cash $ 1.7 $ 0.5 Trading account assets 24.5 16.7 Investments 27.0 25.0 Loans 9.5 6.8 Other assets 4.2 5.7 Total assets of consolidated VIEs $ 66.9 $ 54.7
The Company may provide various products and services to the VIEs. It may provide liquidity facilities, may be a party to derivative contracts with VIEs, may provide loss enhancement in the form of letters of credit and other guarantees to the VIEs, may be the investment manager, and
may also have an ownership interest or other investment in certain VIEs. All of these facts and circumstances are taken into consideration when determining whether the Company has significant variable interests that would deem it the primary beneficiary and, therefore, require consolidation of the related VIE. In general, the investors in the obligations of consolidated VIEs have recourse only to the assets of the VIEs and do not have recourse to the Company, except where the Company has provided a guarantee to the investors or is the counterparty to a derivative transaction involving the VIE.
The consolidated VIEs included in the table above represent hundreds of separate entities with which the Company is involved and include VIEs consolidated as a result of adopting FIN 46-R and FIN 46. Of the $66.9 billion and $54.7 billion of total assets of VIEs consolidated by the Company at September 30, 2007 and December 31, 2006, respectively, $17.7 billion and $39.2 billion represent structured transactions where the Company packages and securitizes assets purchased in the financial markets or from clients in order to create new security offerings and financing opportunities for clients; $46.9 billion and $13.1 billion represent investment vehicles that were established to provide a return to the investors in the vehicles; and $2.2 billion and
$2.4 billion represent vehicles that hold lease receivables and equipment as collateral to issue debt securities, thus obtaining secured financing at favorable interest rates.
In addition to the VIEs that are consolidated in accordance with FIN 46-R, the Company has significant variable interests in certain other VIEs that are not consolidated because the Company is not the primary beneficiary. These include multi-seller finance companies,asset-backed commercial paper conduits, structured investment vehicles (SIVs), collateralized debt obligations (CDOs), structured finance transactions, and numerous investment funds. In addition to these VIEs, the Company issues preferred securities to third- party investors through trust vehicles as a source of funding and regulatory capital, which were deconsolidated duringcapital.
The following table represents the 2004 first quarter. The Company's liabilities tototal assets of unconsolidated VIEs where the deconsolidated trust are included in long-term debt.Company has significant involvement:
In billions of dollars | Sept. 30, 2007 | Dec. 31, 2006 | ||||
---|---|---|---|---|---|---|
Asset-backed commercial paper (ABCP) conduits | $ | 73.3 | $ | 66.3 | ||
Structured investment vehicles (SIVs) | 83.1 | 79.5 | ||||
Other investment vehicles | 27.0 | 42.6 | ||||
Collateralized debt obligations (CDOs) | 84.2 | 52.1 | ||||
Mortgage-related transactions | 11.9 | 2.7 | ||||
Trust preferred securities | 11.7 | 9.8 | ||||
Structured finance and other | 52.2 | 41.1 | ||||
Total assets of significant unconsolidated VIEs | $ | 343.4 | $ | 294.1 | ||
Asset-Backed Commercial Paper Conduits
The Company administers several third-party-owned, special purpose, multi-seller finance companiesasset-backed commercial paper conduits that purchase pools of trade receivables, credit cards,card receivables, and other financial assets from multiple third-party clients of the Company. As administrator of these multi-seller finance companies, the Company provides accounting, funding, and operations services to these conduits. Generally, the Company has no ownership interest in the conduits. The sellers continue to service the transferred assets.assets they transferred. The conduits' asset purchases are funded by issuing commercial paper and medium-term notes. The sellers absorb the first losses of the conduits by providing collateral in the form of excess assets. Typically, the issuance of commercial paper is done on a revolving basis, in which the maturing paper is retired with the funds received from issuing new commercial paper at current market terms. The Company, along with other financial institutions, provides liquidity facilities, such as liquidity asset purchase agreements and commercial paper backstop lines of credit to the conduits.conduits, which offer an alternative source of funding should the conduit be unable to replace fully the maturing commercial paper in the commercial paper market. In the event of liquidity problems in the commercial paper market, the Company's asset purchase agreements require the Company to purchase only high quality performing assets from the conduits at their fair values. The Company also provides loss enhancement in the form of letters of credit and other guarantees. All fees are charged on a market basis.
During 2003, toTo comply with FIN 46-R, many of the conduits issued "first loss" subordinated notes such that one third-party investor in each conduit would be deemed the primary beneficiary and would consolidate the conduit. At March 31, 2007
A SIV is a special purpose investment company, which holds high quality asset portfolios that are funded through the issuance of junior notes, medium-term notes and December 31, 2006, totalshort-term commercial paper. The junior notes are subject to the "first loss" risk of the vehicle. The spread between the short-term funding (commercial paper and medium-term notes) and high quality asset portfolios provides a leveraged return to the junior note holders. SIVs are subject to liquidity and refinancing risk and must repay a significant portion of maturing commercial paper and medium-term notes through the issuance of new debt. Should a SIV not be able to meet its funding needs due to a lack of liquidity in the market, it may be forced to sell assets at a time when prices are depressed.
CAI's Global Credit Structures investment center is the investment manager for seven SIVs. Citigroup has no contractual obligation to provide liquidity facilities or guarantees to any of the Citi-advised SIVs. Citigroup is not the primary beneficiary of any of the Citi-advised SIVs and therefore does not include the SIVs in unconsolidated conduits were $74.3 billion and $66.3 billion, respectively.its consolidated financial statements.
Collateralized Debt Obligations
The Company also packages and securitizes assets purchased in the financial markets in order to create new security offerings, including arbitrage CDOs and synthetic CDOs for institutional clients and retail customers, thatwhich match the clients' investment needs and preferences. An arbitrage CDO is an investment vehicle designed to take advantage of the difference between the yield on a portfolio of selected assets and the cost of funding the CDO through the sale of notes to investors. Arbitrage CDOs are classified as either "cash flow" CDOs, in which the vehicle passes on cash flows from a relatively static pool of assets, or "market value" CDOs, where the pool of assets is actively managed by a third party. In a synthetic CDO, the entity enters into derivative transactions which provide a return similar to a cash instrument to the entity, rather than the entity's actually purchasing the cash instrument. Typically, these instruments diversify investors' risk to a pool of assets as compared with investments in an individual asset. The VIEs, which are issuers of CDO securities, are generally organized as limited liability corporations. The Company typically receives fees for structuring and/or distributing the securities sold to investors. In some cases, the Company may repackage the investment with higher rated debt CDO securities or U.S. Treasury securities to provide a greater or a very high degree of certainty of the return of invested principal. A third-party manager is typically retained by the VIE to select collateral for inclusion in the pool and then actively manage it, or, in other cases, only to manage work-out credits. The Company may also provide other financial services and/or products to the
VIEs for market-rate fees. These may include: the provision of liquidity or contingent liquidity facilities; interest rate or foreign exchange hedges and credit derivative instruments; and the purchasing and warehousing of securities until they are sold to the SPE. The Company is not the primary beneficiary of these VIEs under FIN 46-R due to its limited continuing involvement and, as a result, does not consolidate their assets and liabilities in its financial statements.
In additionTrust Preferred Securities
Trust preferred securities are issued by entities which were formed by the Company and 100% of whose common stock belongs to the conduits discussedCompany. The proceeds obtained by the trust from the issuance of these securities are used to purchase long-term notes (generally 30 or 60 years) issued or guaranteed by the Company. These trusts are considered to be VIEs, as defined above, the following table represents the assets of unconsolidated VIEs whereand are not consolidated by the Company has significant involvement:under FIN 46-R. The Company is not deemed to be the primary beneficiary due to its limited exposure to the risks of the entity. For further discussion regarding these securities, see Note 12 on page 66.
In billions of dollars | March 31, 2007 | December 31, 2006 | ||||
---|---|---|---|---|---|---|
CDO-type transactions | $ | 67.2 | $ | 52.1 | ||
Investment-related transactions | 135.1 | 122.1 | ||||
Trust preferred securities | 9.6 | 9.8 | ||||
Mortgage-related transactions | 1.9 | 2.7 | ||||
Structured finance and other | 35.6 | 41.1 | ||||
Total assets of significant unconsolidated VIEs | $ | 249.4 | $ | 227.8 | ||
Other VIEs
The Company has also established a number of investment funds as opportunities for qualified employees to invest in venture capital investments. The Company acts as investment manager to these funds and may provide employees with financing on both a recourse and non-recourse basis for a portion of the employees' investment commitments.
In addition, the Company administers numerous personal estate trusts. The Company may act as trustee and may also be the investment manager for the trust assets.
As mentioned above, the Company may, along with other financial institutions, provide liquidity facilities, such as commercial paper backstop lines of credit to the VIEs. The Company may be a party to derivative contracts with VIEs, may provide loss enhancement in the form of letters of credit and other guarantees to the VIEs, may be the investment manager, and may also have an ownership interest in certain VIEs. Although actual losses are not expected to be material, theThe Company's maximum exposure to loss as a result of its involvement with VIEs that are not consolidated was $108$141 billion and $109 billion at March 31,September 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 interest in the VIEs. In addition,This maximum amount of exposure bears no relationship to the Company may be party to other derivative contracts with VIEs. Exposures that are considered to be guarantees are also included in Note 17anticipated losses on page 111.these exposures.
| Maximum Exposure | ||||||
---|---|---|---|---|---|---|---|
In billions of dollars | September 30, 2007 | December 31, 2006 | |||||
Asset-backed commercial paper | |||||||
Conduits | $ | 69 | $ | 56 | |||
Structured Investment | |||||||
Vehicles (SIVs)(1) | 3 | — | |||||
Collateralized debt obligations | 43 | 34 | |||||
Other structured financing arrangements | 26 | 19 | |||||
Total | $ | 141 | $ | 109 | |||
14. Changes in Accumulated Other Comprehensive Income (Loss) ("AOCI")
Changes in each component of AOCI for the three-month period ended March 31,first, second and third quarters of 2007 were as follows:
In millions of dollars | Net Unrealized Gains on Investment Securities | Foreign Currency Translation Adjustment | Cash Flow Hedges | Pension Liability Adjustment | Accumulated Other Comprehensive Income (Loss) | Net Unrealized Gains on Investment Securities | Foreign Currency Translation Adjustment | Cash Flow Hedges | Pension Liability Adjustment | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance, December 31, 2006 | $ | 943 | $ | (2,796 | ) | $ | (61 | ) | $ | (1,786 | ) | $ | (3,700 | ) | $ | 943 | $ | (2,796 | ) | $ | (61 | ) | $ | (1,786 | ) | $ | (3,700 | ) | ||||
Adjustment to opening balance, net of tax | 149 | — | — | — | 149 | 149 | — | — | — | 149 | ||||||||||||||||||||||
Adjusted balance, beginning of year | $ | 1,092 | $ | (2,796 | ) | $ | (61 | ) | $ | (1,786 | ) | $ | (3,551 | ) | $ | 1,092 | $ | (2,796 | ) | $ | (61 | ) | $ | (1,786 | ) | $ | (3,551 | ) | ||||
Increase in net unrealized gains on investment securities, net of tax | 466 | — | — | — | 466 | 466 | — | — | — | 466 | ||||||||||||||||||||||
Less: Reclassification adjustment for gains included in net income, net of tax | (307 | ) | — | — | — | (307 | ) | (307 | ) | — | — | — | (307 | ) | ||||||||||||||||||
Foreign currency translation adjustment, net of tax | — | (121 | ) | — | — | (121 | ) | — | (121 | ) | — | — | (121 | ) | ||||||||||||||||||
Cash flow hedges, net of tax | — | — | (439 | ) | — | (439 | ) | — | — | (439 | ) | — | (439 | ) | ||||||||||||||||||
Pension liability adjustment, net of tax | — | — | — | 77 | 77 | — | — | — | 77 | 77 | ||||||||||||||||||||||
Change | $ | 159 | $ | (121 | ) | $ | (439 | ) | $ | 77 | $ | (324 | ) | |||||||||||||||||||
Balance, March 31, 2007 | $ | 1,251 | $ | (2,917 | ) | $ | (500 | ) | $ | (1,709 | ) | $ | (3,875 | ) | ||||||||||||||||||
Decrease in net unrealized gains on investment securities, net of tax(3) | (926 | ) | — | — | — | (926 | ) | |||||||||||||||||||||||||
Less: Reclassification adjustment for gains included in net income, net of tax | (77 | ) | — | — | — | (77 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustment, net of tax(4) | — | 818 | — | — | 818 | |||||||||||||||||||||||||||
Cash flow hedges, net of tax(5) | — | — | 1,046 | — | 1,046 | |||||||||||||||||||||||||||
Pension liability adjustment, net of tax | — | — | — | 44 | 44 | |||||||||||||||||||||||||||
Change | $ | (1,003 | ) | $ | 818 | $ | 1,046 | $ | 44 | $ | 905 | |||||||||||||||||||||
Balance, June 30, 2007 | $ | 248 | $ | (2,099 | ) | $ | 546 | $ | (1,665 | ) | $ | (2,970 | ) | |||||||||||||||||||
Increase in net unrealized gains on investment securities, net of tax | 605 | — | — | — | 605 | |||||||||||||||||||||||||||
Less: Reclassification adjustment for gains included in net income, net of tax | (171 | ) | — | — | — | (171 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustment, net of tax(6) | — | 861 | — | — | 861 | |||||||||||||||||||||||||||
Cash flow hedges, net of tax(7) | — | — | (2,003 | ) | — | (2,003 | ) | |||||||||||||||||||||||||
Pension liability adjustment, net of tax | — | — | — | 123 | 123 | |||||||||||||||||||||||||||
Current period change | $ | 159 | $ | (121 | ) | $ | (439 | ) | $ | 77 | $ | (324 | ) | $ | 434 | $ | 861 | $ | (2,003 | ) | $ | 123 | $ | (585 | ) | |||||||
Balance, March 31, 2007 | $ | 1,251 | $ | (2,917 | ) | $ | (500 | ) | $ | (1,709 | ) | $ | (3,875 | ) | ||||||||||||||||||
Balance, September 30, 2007 | $ | 682 | $ | (1,238 | ) | $ | (1,457 | ) | $ | (1,542 | ) | $ | (3,555 | ) | ||||||||||||||||||
15. Derivatives Activities
In the ordinary course of business, Citigroup enters into various types of derivative transactions. These derivative transactions include:
Citigroup enters into these derivative contracts for the following reasons:
payments to a net variable-rate basis. This strategy is the most common form of an interest rate hedge, as it minimizes interest cost in certain yield curve environments. Derivatives are also used to manage risks inherent in specific groups of on-balance sheet assets and liabilities, including investments, corporate and consumer loans, deposit liabilities, as well as other interest-sensitive assets and liabilities, as well as credit card securitizations, redemptions and sales.liabilities. In addition, foreign exchange contracts are used to hedge non-U.S. dollar denominated debt, available-for-sale securities, net capital exposures and foreign exchange transactions.
Citigroup accounts for its hedging activity in accordance with SFAS 133. As a general rule, SFAS 133 hedge accounting is permitted for those situations where the Company is exposed to a particular risk, such as interest rate or foreign exchange risk, that causes changes in the fair value of an asset or liability, or variability in the expected future cash flows of an existing asset, liability, or a forecasted transaction.transaction that may affect earnings.
Derivative contracts hedging the risks associated with the changes in fair value are referred to asfair value hedges, while
contracts hedging the risks affecting the expected future cash flows are calledcash flow hedges. Hedges that utilize derivatives to manage the foreign exchange risk associated with equity investments in non-U.S. dollar functional currency foreign subsidiaries are callednet investment hedges.
All derivatives are reported on the balance sheet at fair value. If certain hedging criteria specified in SFAS 133 are met, including testing for hedginghedge effectiveness, special hedge accounting may be applied. The hedge effectiveness assessment methodologies for similar hedges are performed in a similar manner and are used consistently throughout the hedging relationships. For fair value hedges, the changes in value of the hedging derivative, as well as the changes in value of the related hedged item, due to the risk being hedged, are reflected in current earnings. For cash flow hedges and net investment hedges, the changes in value of the hedging derivative are reflected in Accumulated other comprehensive income (loss) in stockholders' equity, to the extent the hedge was effective. Hedge ineffectiveness, in either case, is reflected in current earnings.
Continuing with the example referred to above, the fixed rate long-term note is recorded at amortized cost under current U.S. GAAP. However, by electing to use SFAS 133 hedge accounting, the carrying value of this note is adjusted for changes in the benchmark floatinginterest rate, with any changes in fair value recorded in current earnings. The related interest rate swap is also recorded on the balance sheet at fair value, with any changes in fair value attributable to changes in interest rates reflected in earnings. Thus, any ineffectiveness resulting from the hedging relationship is recorded in current earnings. Alternatively, an economic-basiseconomic hedge, which does not meet the SFAS 133 hedging criteria, would involve only recording the derivative at fair value on the balance sheet, with its associated changes in value recorded in earnings. The note would continue to be carried at amortized cost and, therefore, current earnings would be impacted only by the interest rate shifts that cause the change in the swap's value. This type of hedge is undertaken when SFAS 133 hedge requirements cannot be achieved in an efficient and cost-effective manner.achieved.
Fair value hedges
Citigroup also hedges exposure to changes in the fair value of fixed-rate assets, including available-for-sale securities reverse repurchase agreements and inter-bank placements. The hedging instruments mainly used are receive-variable, pay-fixed interest rate swaps for the remaining hedged asset categories. Most of these fair value hedging relationships use dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis, while others use regression analysis.
For a limited number of fair value hedges of benchmark interest rate risk, Citigroup uses the "shortcut" method as
SFAS 133 allows the Company to assume no ineffectiveness if the hedging relationship involves an interest-bearing financial asset or liability and an interest rate swap. In order to assume no ineffectiveness, Citigroup ensures that all the shortcut method requirements of SFAS 133 for these types of hedging relationships are met.
Cash flow hedges
Citigroup also hedges variable cash flows resulting from investments in floating-rate available-for-sale securities, loans and receivables, as well as rollovers of short-term certificates of deposit.securities. Variable cash flows from those assets are converted to fixed-rate cash flows by entering into receive-fixed, pay-variable interest rate swaps. These cash flow hedging relationships use regression or dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an
ongoing basis. Efforts are made initially to align the terms of the derivatives to those hedged forecasted cash flows. As a result, the amount of hedge ineffectiveness is not significant.
Citigroup also hedges the forecasted purchase of mortgage-backed securities and designates the overall change in the purchase price as a hedged risk. The assessment of effectiveness is based on ensuring that the critical terms of the hedging instrument and the hedged item match exactly.
Net investment hedges
Consistent with SFAS No. 52, "Foreign Currency Translation" (SFAS 52), SFAS 133 allows hedging of the foreign currency risk of a net investment in a foreign operation. Citigroup primarily uses foreign currency forward contracts, short-term borrowings, and to a lesser extent foreign currency future contractsforwards, swaps and foreign-currency-denominated debt instruments to manage the foreign exchange risk associated with Citigroup's equity investments in several non-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 any ineffective portion of net investment hedges is immediately recorded in earnings.
For derivatives used in net investment hedges, Citigroup follows the forward rate method from FASB Derivative Implementation Group Issue H8. According to that method, all changes in fair value, including changes related to the forward
rate component of the foreign currency forward contracts, are recorded in the cumulative translation adjustment account. For foreign currency-denominated debt instruments that are designated as hedges of net investments, the translation gain or loss that is recorded in the cumulative translation adjustment account is based on the spot exchange rate between the functional currency of the respective subsidiary and the U.S. dollar, which is the functional currency of Citigroup.
Achieving hedge accounting in compliance with SFAS 133 guidelines is extremely complex. Key aspects of achieving SFAS 133 hedge accounting are documentation of hedging strategy and hedge effectiveness at the hedge inception and substantiating hedge effectiveness on an ongoing basis. A derivative must be highly effective in accomplishing the hedge objective of offsetting either changes in the fair value or cash flows of the hedged item for the risk being hedged. Any ineffectiveness in the hedge relationship is recognized in current earnings. The assessment of effectiveness excludes changes in the value of the hedged item that are unrelated to the risks being hedged. Similarly, the assessment of effectiveness may exclude changes in the fair value of a derivative related to time value that, if excluded, are recognized in current earnings.
The following table summarizes certain information related to the Company's hedging activities for the three and nine months ended March 31,September 30, 2007 and 2006:
| | Three Months Ended March 31, | | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | In millions of dollars | |||||||||||||||||||||
In millions of dollars | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
Fair value hedges | Fair value hedges | Fair value hedges | ||||||||||||||||||||
Hedge ineffectiveness recognized in earnings | $ | 17 | $ | 66 | Hedge ineffectiveness recognized in earnings | $ | 85 | $ | (2 | ) | $ | 93 | $ | 287 | ||||||||
Net gain excluded from assessment of effectiveness | 82 | 19 | Net gain excluded from assessment of effectiveness | 120 | 69 | 375 | 199 | |||||||||||||||
Cash flow hedges | Cash flow hedges | Cash flow hedges | ||||||||||||||||||||
Hedge ineffectiveness recognized in earnings | — | (10 | ) | Hedge ineffectiveness recognized in earnings | — | — | — | (18 | ) | |||||||||||||
Net gain excluded from assessment of effectiveness | — | — | Net gain excluded from assessment of effectiveness | — | — | — | — | |||||||||||||||
Net investment hedges | Net investment hedges | Net investment hedges | ||||||||||||||||||||
Net loss included in foreign currency translation adjustment within Accumulated other comprehensive income (loss) | $ | (23 | ) | $ | (114 | ) | Net loss included in foreign currency translation adjustment within Accumulated other comprehensive income (loss) | $ | (572 | ) | $ | (178 | ) | $ | (716 | ) | $ | (320 | ) | |||
The change in Accumulated other comprehensive income (loss) from cash flow hedges for the three and nine months ended March 31,September 30, 2007 and 2006 can be summarized as follows (after-tax):
In millions of dollars | 2007 | 2006 | 2007 | 2006 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at January 1, | $ | (61 | ) | $ | 612 | $ | (61 | ) | $ | 612 | ||||
Net gain (loss) from cash flow hedges | (347 | ) | 317 | (347 | ) | 321 | ||||||||
Net amounts reclassified to earnings | (92 | ) | (111 | ) | (92 | ) | (115 | ) | ||||||
Balance at March 31, | $ | (500 | ) | $ | 818 | $ | (500 | ) | $ | 818 | ||||
Net gain from cash flow hedges | 1,127 | 462 | ||||||||||||
Net amounts reclassified to earnings | (81 | ) | (157 | ) | ||||||||||
Balance at June 30, | $ | 546 | $ | 1,123 | ||||||||||
Net loss from cash flow hedges | (1,949 | ) | (1,005 | ) | ||||||||||
Net amounts reclassified to earnings | (54 | ) | (186 | ) | ||||||||||
Balance at September 30, | $ | (1,457 | ) | $ | (68 | ) | ||||||||
Derivatives may expose Citigroup to market, credit or liquidity risks in excess of the amounts recorded on the Consolidated Balance Sheet. Market risk on a derivative product is the exposure created by potential fluctuations in interest rates, foreign exchange rates and other values, and is a function of the type of product, the volume of transactions, the tenor and terms of the agreement, and the underlying volatility. Credit risk is the exposure to loss in the event of nonperformance by the other party to the transaction where the value of any collateral held is not adequate to cover such losses. The recognition in earnings of unrealized gains on these transactions is subject to management's assessment as to collectibility. Liquidity risk is the potential exposure that arises when the size of the derivative position may not be able to be rapidly adjusted in periods of high volatility and financial stress at a reasonable cost.
16. Fair Value
Effective January 1, 2007, the Company adopted SFAS 157 and SFAS 159. Both standards address aspects of the expanding application of fair value accounting.
Fair Value Measurements (SFAS 157)
SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS 157, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In addition, SFAS 157 precludes the use of block discounts when measuring the fair value of instruments traded in an active market, which were previously applied to large holdings of publicly traded equity securities. It also requires recognition of trade-date gains related to certain derivative transactions whose fair value has been determined using unobservable market inputs. This guidance supersedes the guidance in Emerging Issues Task Force Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities" (EITF Issue 02-3), which prohibited the recognition of trade-date gains for such derivative transactions when determining the fair value of instruments not traded in an active market. The cumulative effect of these two changes resulted in an increase to January 1, 2007 retained earnings of $75 million after-tax.
In moving to maximize the use of observable inputs as required by SFAS 157, the Company has made some amendments to the techniques used in measuring the fair value of derivative positions. These amendments change the way that the probability of default of a counterparty is factored into the valuation of derivative positions, include for the first time the impact of Citigroup's own credit standing on liabilities measured at fair value, and also eliminate the portfolio servicing adjustment that is no longer necessary under SFAS 157. The cumulative effect of these amendments to derivative valuation techniques was a gain of $250 million after-tax $(402 million pretax) included in 2007 first quarter earnings, all of which was recorded in the Markets & Banking business.
The Company holds fixed income and equity securities, derivatives, investments in private equity, 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. There is no allowance for loan losses relating to loans carried at fair value.
The Company 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:
The following table presents for each of these hierarchy levels, the Company's assets and liabilities that are measured at fair value at March 31, 2007.
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(1) | $ | — | $ | 158,808 | $ | 16 | $ | (80,711 | ) | $ | 78,113 | |||||
Trading account assets | ||||||||||||||||
Trading securities | 174,885 | 203,369 | 35,345 | — | 413,599 | |||||||||||
Derivatives | 6,796 | 257,551 | 6,635 | (224,516 | ) | 46,466 | ||||||||||
Investments | 102,832 | 165,298 | 12,653 | — | 280,783 | |||||||||||
Loans and leases(2) | — | 1,832 | — | — | 1,832 | |||||||||||
Other financial assets | ||||||||||||||||
Measured on a recurring basis | — | 4,456 | 8,919 | — | 13,375 | |||||||||||
Measured on a non-recurring basis(3) | — | 12,612 | 3,568 | — | 16,180 | |||||||||||
Liabilities | ||||||||||||||||
Interest-bearing deposits | — | 1,947 | 107 | — | 2,054 | |||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(1) | — | 255,387 | 6,278 | (80,819 | ) | 180,846 | ||||||||||
Trading account liabilities | ||||||||||||||||
Securities sold not yet purchased | 98,021 | 1,256 | 434 | — | 99,711 | |||||||||||
Derivatives | 9,955 | 279,528 | 5,401 | (220,693 | ) | 74,191 | ||||||||||
Short-term borrowings | — | 12,415 | 1,889 | — | 14,304 | |||||||||||
Long-term debt | — | 29,888 | 1,349 | — | 31,237 | |||||||||||
Other financial liabilities | ||||||||||||||||
Measured on a recurring basis | — | 954 | 8 | — | 962 | |||||||||||
The following table presents the changes in the Level 3 fair value category for the three months ended March 31, 2007:
| | 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 | Dec. 31, 2006 | Principal transactions | Other(1)(2) | March 31, 2007 | |||||||||||||||||||
Assets | |||||||||||||||||||||||
Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 | $ | — | |||||||||
Trading account assets | |||||||||||||||||||||||
Trading securities | 21,727 | 1,866 | 80 | 7,651 | 4,021 | 35,345 | 832 | ||||||||||||||||
Derivatives (gross) | 9,136 | 4,884 | — | (3,385 | ) | (4,000 | ) | 6,635 | 4,014 | ||||||||||||||
Investments | 11,468 | — | 183 | 580 | 422 | 12,653 | 27 | ||||||||||||||||
Other financial assets | |||||||||||||||||||||||
Measured on a recurring basis | 5,558 | — | 269 | (418 | ) | 3,510 | 8,919 | 265 | |||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | 60 | — | 1 | — | 46 | 107 | 2 | ||||||||||||||||
Securities sold under agreements to repurchase | 6,350 | (72 | ) | — | — | (144 | ) | 6,278 | (72 | ) | |||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold not yet purchased | 467 | (12 | ) | — | (2,285 | ) | 2,240 | 434 | (15 | ) | |||||||||||||
Derivatives (gross) | 7,768 | (1,222 | ) | — | (3,778 | ) | 189 | 5,401 | (687 | ) | |||||||||||||
Short-term borrowings | 397 | 8 | — | — | 1,500 | 1,889 | 2 | ||||||||||||||||
Long-term debt | 1,693 | — | — | — | (344 | ) | 1,349 | — | |||||||||||||||
Other financial liabilities measured on a recurring basis | — | — | — | — | 8 | 8 | — | ||||||||||||||||
Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159)
On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159 or fair value option accounting). 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 Company also elected to early-adopt the fair value accounting provisions permitted under SFAS 155 and SFAS 156. In accordance with SFAS 155, which was primarily adopted on a prospective basis, hybrid financial instruments—such as structured notes containing embedded derivatives that otherwise would require bifurcation, as well as certain interest-only instruments—may be accounted for at fair value if the Company makes an irrevocable election to do so on an instrument-by-instrument basis. The changes in fair value are recorded in current earnings. Additional discussion regarding the 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 13 on page 68 for further discussions regarding the accounting and reporting of mortgage servicing rights.
Fair Value Hierarchy
Statement 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. In accordance with SFAS 157, these two types of inputs have created the following fair value hierarchy:
This hierarchy requires the use of observable market data when available.
Determination of Fair Value
The Company measures fair value using the procedures set out below for all assets and liabilities measured at fair value, irrespective of whether they are carried at fair value as a result of an election under SFAS 159, SFAS 156, or SFAS 155 or whether they were previously carried at fair value pursuant to other accounting guidelines.
When available, the Company generally uses quoted market prices to determine fair value, and classifies such items within Level 1. In some cases where a market price is available the Company will make use of acceptable practical expedients (such as matrix pricing) to calculate fair value, in which case the items are classified within Level 2.
If observable transactions and other market data are not available, fair value is based upon internally developed models that use, where possible, current market-based or independently-sourced market parameters such as interest rates, currency rates, option volatilities etc. Items valued using internally generated models are classified according to the lowest level input or value driver that is most significant to the valuation. Thus, an item may be classified in Level 3 even though there may be significant inputs that are readily observable.
If observable transactions and other market data are not available, the valuation model used generally depends on the specific asset or liability being valued. The determination of fair value considers various factors including interest rate yield curves, time value and volatility factors, underlying options, warrants and derivatives and price activity for equivalent synthetic instruments. For fixed income securities and derivatives, as well as mortgage servicing rights and residual interests in securitizations, the Company generally uses a discounted cash flow analysis using discount rates commensurate with the credit quality and duration of the investment. For loans, valuations are generally based upon observable market prices for similar instruments, including bonds, credit derivatives and loans with similar credit characteristics. For loans that are expected to be securitized, fair value is estimated based upon observable pricing of asset-backed securities with similar collateral. In determining the value of the Company's obligations, various factors are considered depending on the nature of the liability. These factors may include closing exchange or over-the-counter market price quotations, time value and volatility factors underlying options, warrants, and derivatives, and price activity for equivalent or synthetic instruments.
In order to ensure that the fair value of financial instruments is calculated appropriately the Company adjusts the 'base valuations' calculated using the methodologies described above for a number of parameters that market participants would consider in determining fair value. The adjustments are applied consistently over time and are summarized below:
The Company's processes include a number of key controls that are designed to ensure that fair value is calculated appropriately. Such controls include a model validation policy requiring that models that provide values used in financial statements be validated by qualified personnel independent from those who created the models and escalation procedures to ensure that valuations using unverifiable inputs are identified and monitored on a regular basis by senior management.
The following table presents, as of September 30, 2007, those positions selected for fair value accounting in accordance with SFAS 159, SFAS 156, and SFAS 155, as well as the changes in fair value for the three-and nine-month periods then ended.
| | Changes in Fair Value Gains/(Losses) | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Quarter-to-Date | Year-to-Date | |||||||||||||||
In millions of dollars | September 30, 2007 | Principal Transactions | Other | Principal Transactions | Other | |||||||||||||
Assets | ||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | ||||||||||||||||||
Selected portfolios of securities purchased under agreements to resell, securities borrowed(1) | $ | 125,329 | $ | 713 | $ | — | $ | 675 | $ | — | ||||||||
Trading account assets: | ||||||||||||||||||
Legg Mason convertible preferred equity securities originally classified as available-for-sale | 707 | (118 | ) | — | (90 | ) | — | |||||||||||
Selected letters of credit hedged by credit default swaps or participation notes | 3 | (10 | ) | — | (8 | ) | — | |||||||||||
Certain credit products | 25,128 | (772 | ) | — | (592 | ) | — | |||||||||||
Residual interest retained from asset securitizations | 2,351 | 14 | — | 215 | — | |||||||||||||
Total trading account assets | 28,189 | (886 | ) | — | (475 | ) | — | |||||||||||
Investments: | ||||||||||||||||||
Certain investments in private equity and real estate ventures | 479 | — | 22 | — | 44 | |||||||||||||
Certain equity method investments | 2,011 | — | (19 | ) | — | 69 | ||||||||||||
Other | 99 | — | 1 | — | 7 | |||||||||||||
Total investments | 2,589 | — | 4 | — | 120 | |||||||||||||
Loans: | ||||||||||||||||||
Certain credit products | 2,085 | 4 | — | 37 | — | |||||||||||||
Certain hybrid financial instruments | 686 | (3 | ) | — | (69 | ) | — | |||||||||||
Total loans | 2,771 | 1 | — | (32 | ) | — | ||||||||||||
Other assets: | ||||||||||||||||||
Certain mortgage loans held-for-sale | 5,184 | — | 42 | — | 42 | |||||||||||||
Mortgage servicing rights | 9,957 | — | (863 | ) | — | (324 | ) | |||||||||||
Total other assets | 15,141 | — | (821 | ) | — | (282 | ) | |||||||||||
Total | $ | 174,019 | ($ | 172 | ) | ($ | 817 | ) | $ | 168 | ($ | 162 | ) | |||||
Liabilities | ||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||
Certain structured liabilities | $ | 233 | $ | — | $ | — | $ | 3 | $ | — | ||||||||
Certain hybrid financial instruments | 3,228 | 38 | — | 84 | — | |||||||||||||
Total interest-bearing deposits | 3,461 | 38 | — | 87 | — | |||||||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | ||||||||||||||||||
Selected portfolios of securities sold under agreements to repurchase, securities loaned(1) | 313,353 | (170 | ) | — | (128 | ) | — | |||||||||||
Trading account liabilities: | ||||||||||||||||||
Certain hybrid financial instruments | 7,235 | (84 | ) | — | (317 | ) | — | |||||||||||
Short-term borrowings: | ||||||||||||||||||
Certain non-collateralized short-term borrowings | 5,271 | (18 | ) | — | (3 | ) | — | |||||||||||
Certain hybrid financial instruments | 3,990 | 13 | — | 31 | — | |||||||||||||
Total short-term borrowings | 9,261 | (5 | ) | — | 28 | — | ||||||||||||
Long-term debt: | ||||||||||||||||||
Certain structured liabilities | 2,613 | (33 | ) | — | 47 | — | ||||||||||||
Certain non-structured liabilities | 3,126 | (33 | ) | — | 8 | — | ||||||||||||
Certain hybrid financial instruments | 26,066 | 96 | — | 683 | — | |||||||||||||
Total long-term debt | 31,805 | 30 | — | 738 | — | |||||||||||||
Total | $ | 365,115 | $ | (191 | ) | $ | — | $ | 408 | $ | — | |||||||
The fair value of liabilities for which the fair value option was elected was impacted by the widening of the Company's credit spread. The estimated change in the fair value of these liabilities due to such changes in the Company's own credit risk (or instrument-specific credit risk) was a gain of $112 million and $241 million for the quarter and nine months ended September 30,
2007, respectively. Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the Company's current observable credit spreads into the discounted cash flow analysis used to value the relevant liability.
Impact toon retained earnings forof certain fair value elections in accordance with SFAS 159
Effective January 1, 2007, the Company early adopted SFAS 159 for certain eligible financial instruments. Detailed below are the December 31, 2006 carrying values prior to adoption of SFAS 159, the transition adjustments booked to opening retained earnings and the fair values (that is, the carrying values at January 1, 2007 after adoption) for those items that were selected for fair value option accounting and that had an impact on retained earnings:
In millions of dollars | December 31, 2006 (Carrying value prior to adoption) | Cumulative-effect Adjustment to January 1, 2007 Retained earnings-gain (loss) | January 1, 2007 Fair Value (Carrying value after adoption) | 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 | 167,525 | 25 | 167,550 | 167,525 | 25 | 167,550 | ||||||||||||
Selected portfolios of securities sold under agreements to repurchase | 237,788 | 40 | 237,748 | 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's Asset Management business in December 2005. We hold these shares as a non-strategic investment for long-term appreciation and, therefore, selected fair value option accounting in anticipation of the January 2008 implementation of the proposed Investment Company Audit Guide Statement of Position 07-1, "Clarification of the Scope of Audit and Accounting GuideAudits of Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investment Companies" (SOP). In October 2007, the FASB proposed to delay the implementation of the SOP indefinitely.
Under the current investment company accounting model, investments held in investment company vehicles are recorded at full fair value (where changes in fair value are recorded in earnings) and are not subject to consolidation guidelines. Under the proposed SOP, non-strategic investments not held in investment companies, which are deemed similar to non-strategic investments held in Citigroup's investment companies, must be accounted for at full fair value in order for Citigroup to retain investment company accounting in the Company's Consolidated Financial Statements. If investment company accounting requirements cannot be met (for example, if we failed to account for similar non-strategic investments at fair value with changes in value recorded in earnings), Citigroup would be required to account for each investment in the investment company under other relevant accounting standards, including consolidation of majority-owned or controlled investees. We believe that Citigroup's consolidation of non-strategic investments would not provide meaningful information and would confuse readers of our financial statements. Therefore, we have utilized the fair value option to migrate the Legg shares from available-for-sale (where changes in fair value are recorded in Accumulated other comprehensive income (loss)) to a full fair value model (where changes in value are recorded in earnings). On a prospective basis, as we acquire non-strategic public or private equity investments, we will consider electing fair value accounting for investments that are similar to those held in our investment companies.
Prior to the election of fair value option accounting, thesethe shares were classified as available-for-sale securities with the unrealized loss of $232 million as of December 31, 2006 included in Accumulated other comprehensive income (loss). In connection with the Company's adoption of SFAS 159, this unrealized loss was recorded as a reduction of January 1, 2007 retained earnings as part of the cumulative-effect adjustment. We have no intention of selling the Legg shares prior to our previously estimated recovery period. The Legg shares, which have a fair value of $707 million as of September 30, 2007, are now included in Trading account assets on Citigroup's Consolidated Balance Sheet. The decrease in market value for the 2007 first quarter of $7 million pretax was reported with Principal transactions in the Company's Consolidated Statement of Income. Dividends are included in Interest revenue.
Selected portfolios of securities purchased under agreements to resell, securities borrowed, securities sold under agreements to repurchase, securities loaned, and certain non-collateralized short-term borrowings
The Company has elected the fair value option retrospectively for our United States and United Kingdom portfolios of fixed income securities purchased under agreements to resell and
fixed income securities sold under agreements to repurchase (and relatedcertain non-collateralized short-term borrowings). The fair value option was also elected prospectively from April 2007 for certain portfolios of fixed income securities lending and borrowing transactions based in Japan. In each case, the election was made because these positions are managed on a fair value basis. Specifically, related interest rate risk is managed on a portfolio basis, primarily with derivative instruments that are accounted for at fair value through earnings. Previously, these positions were accounted for on thean accrual basis.
The cumulative effect of $58 million pretax ($37 million after-tax) from adopting the fair value option for the U.S. and U.K. portfolios was recorded as an increase in the January 1, 2007 retained earnings balance. $25 million pretaxThe September 30, 2007 net balance of that cumulative effect related to
$125.3 billion for securities purchased under agreements to resell while $40 million pretax related toand securities borrowed and $313.4 billion for securities sold under agreements to repurchase offset by a reductionand securities loaned are included in their respective accounts in the Consolidated Balance Sheet. The uncollateralized short-term borrowings of $7 million pretax for non-collateralized short-term borrowings. The change$5.3 billion are recorded in that account in the Consolidated Balance Sheet.
Changes in fair value for the first quarter of 2007, a $111 million pretax gain, wastransactions in these portfolios are recorded in Principal transactions on the Company's Consolidated Statement of Income, $137 million gain related to securities purchased under agreement to resell, offset by a $23 million loss for securities sold under an agreement to repurchase, and a $3 million loss for related non-collateralized short-term borrowings.
transactions. The related interest incomerevenue 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.
The March 31, 2007 gross balance of $159 billion for securities purchased under agreements to resell and $262 billion for securities sold under agreements to repurchase are included in their respective accounts in the Consolidated Balance Sheet. Furthermore, uncollateralized short-term borrowings of $4 billion are recorded in that account in the Consolidated Balance Sheet.
Selected letters of credit and revolving loans hedged by credit default swaps or participation notes
The Company has elected fair value option accounting for certain letters of credit that are hedged with derivative instruments or participation notes. Upon electing the fair value option, the related portions of the allowance for loan losses and the allowance for unfunded lending commitments were reversed. Citigroup elected the fair value option for these transactions because the risk is managed on a fair value basis, and to mitigate accounting mismatchesmismatches.
The cumulative effect of $14 million pretax ($9 million after-tax) from adopting fair value option accounting was recorded as an increase in the January 1, 2007 retained earnings balance. The 2007 first quarter change in fair value for these items was a pretax gain of $1.7 million. This change in fair value as well as the receipt of related fees was reported as Principal transactions in the Company's Consolidated Statement of IncomeIncome.
The notional amount of these unfunded letters of credit was $1.9$1.4 billion as of March 31,September 30, 2007. The amount funded was insignificant and, accordingly,with no amounts were 90 days or more past due, or on a non-accrual status at March 31,September 30, 2007.
These items have been classified appropriately in Trading account assets or Trading account liabilities on the Consolidated Balance Sheet.
Various miscellaneous eligible items
Several miscellaneous eligible items currentlypreviously classified as available-for-sale securities were selected for fair value option accounting. These items were selected in preparation for the adoption of the Investment Company Audit Guide SOP, as discussed above.previously discussed.
Other items for which the fair value option was selected in accordance with SFAS 159
The Company has elected fair value option for the following eligible items, which did not affect opening retained earnings but may impact future earnings:
Certain loancredit products
Citigroup has elected the fair value option for certain originated and purchased loans, including certain unfunded loan products, such as guarantees and letters of credit, executed by Citigroup's trading businesses. None of these credit products are highly leveraged financing commitments. Significant groups of transactions include loans and unfunded loan products that will either be sold or securitized in the near term, or where the economic risks are hedged with derivative instruments. Citigroup has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex or inappropriate; to align accounting with the transaction's business purpose;complex; and to achieve operational simplifications. Fair value was not elected for most lending transactions across the Company, including where those management objectives would not be met.
The balances for these loan products, which are classified with Trading account assets or Loans, were $15.7$25.1 billion and $2.1 billion as of September 30, 2007, respectively. The aggregate unpaid principal balances exceeded the aggregate fair values by $1.1 billion as of March 31, 2007, respectively. The aggregate fair value exceeded the aggregate unpaid principal balance by $61 million as of March 31,September 30, 2007. $137$81 million of these loans were 90 days or more past due, while none were on a non-accrual basis. Upon electingFor those loans that are on a non-accrual basis, the aggregate unpaid principal balances exceeded the aggregate fair values by $34 million as of September 30, 2007.
In addition, $141 million of unfunded loan commitments related to certain credit products selected for fair value option, the related portionaccounting were outstanding as of the Allowance for loan losses was reversed.September 30, 2007.
The changeChanges in fair value for the selected loans, which was a pretax gain of $247 million during the 2007 first quarter, was recordedfunded and unfunded credit products are classified in Principal transactions in the Company's Consolidated Statement of Income. $224 million related to those loans classified in Trading account assets and $23 million to those classified in Loans. $185 million of this gain was offset by fair value losses recognized with hedging derivatives, which were primarily total return swaps. Substantially all of the $224 million change in fair value related to loans in Trading account assets is considered to be related to specific credit risk as substantially all of the related loans are floating rate, while none of the $23 million change applicable to those loans classified as such related to specific credit risk.
Related interest income continues to berevenue is measured based on the contractual interest rates and reported as interest incomerevenue on trading account assets or loans depending on their balance sheet classifications. The changes in fair value during the third quarter 2007 due to instrument-specific credit risk totaled to a loss of $136 million.
Certain investments in private equity and real estate ventures
Citigroup invests in private equity and real estate ventures for the purpose of earning investment returns and for capital appreciation. The Company has elected the fair value option for certain of these ventures in anticipation of the January 20082009 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 full fair value. See previous discussion ofregarding the SOP above.SOP. The fair value option brings
consistency in the accounting and evaluation of certain of
these investments. As required by SFAS 159, all investments (debt and equity) in such real estate entities are accounted for at fair value.
These investments, which totaled $288$479 million as of March 31,September 30, 2007, are classified as Investments on Citigroup's Consolidated Balance Sheet. Changes in the fair valuevalues of these investments during the 2007 first quarter wereare classified in Other revenue as a loss of $3 million in the Company's Consolidated Statement of Income.
Certain structured liabilities
The Company has elected the fair value option for certain structured liabilities whose performance is linked to structured interest rates, inflation or currency risks ("structured liabilities"), but do not qualify for the fair value election under SFAS 155. This election is applicable only to structured liabilities originated after January 1, 2007.
The Company has elected the fair value option for structured liabilities, because these exposures are considered to be trading-related positions and, therefore, are managed on a fair value basis. These positions will continue to be classified as debt, deposits or derivatives according to their legal structureform on the Company's Consolidated Balance Sheet. The outstanding balancebalances for these structured liabilities, accounted for under the fair value option, which are classified as long-termInterest-bearing deposits and Long-term debt on the Consolidated Balance Sheet, is $199are $233 million and $2.6 billion as of March 31, 2007.September 30, 2007, respectively.
The change in fair value forFor these structured liabilities classified as Long-term debt for which the fair value option has been elected, was a pretax gainthe aggregate unpaid principal balance exceeds the aggregate fair value of $9such instruments by $48 million duringas of September 30, 2007.
The change in fair value for these structured liabilities is reported in Principal transactions in the Company's Consolidated Statement of Income.
Related interest expense is measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.
Certain non-structured liabilities
The Company has elected the fair value option for certain non-structured liabilities with fixed and non-structured floating interest rates ("non-structured liabilities"). The Company has elected the fair value option where the interest rate risk of such liabilities is economically hedged with derivative contracts or the proceeds are used to purchase financial assets that will also be fair valued. The election has been made to mitigate accounting mismatches and to achieve operational simplifications. These positions are reported in Long-term debt on the Company's Consolidated Balance Sheet. The balances of these non-structured liabilities as of September 30, 2007 first quarter. This gain wasis $3.1 billion.
For these non-structured liabilities classified as Long-term debt for which the fair value option has been elected, the aggregate fair value exceeds the aggregate unpaid principal balance of such instruments by $26 million as of September 30, 2007.
The change in fair value for these non-structured liabilities is reported in Principal transactions in the Company's Consolidated Statement of Income.
Related interest expense continues to be measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.
The difference between the aggregate fair value of structured liabilities for which the fair value option has been elected and the aggregate unpaid principal balance of such instruments is $9 million as of March 31, 2007.
Certain equity method investments
Citigroup adopted fair value accounting for various non-strategic investments in leveraged buyout funds and other hedge funds that previously were required to be accounted for under the equity method. Management elected fair value accounting to reduce operational and accounting complexity, in particular related to the expectedfuture implementation of the Investment Company Audit Guide SOP. BecauseSince 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 investment 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'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 under fair value accounting).accounting. Thus, thethis fair value election had no impact on opening retained earnings.
These fund investments, which totaled $961 million,$2.0 billion as of September 30, 2007, are classified as Other AssetsInvestments on the Consolidated Balance Sheet. Changes in the fair valuevalues of
these investments during the 2007 first quarter wereare classified in Other revenue as a pretax gain of $39 million in the Consolidated Statement of Income.
Certain mortgage loans held-for-sale
Citigroup has elected the fair value option for certain purchased and originated prime fixed-rate and conforming adjustable-rate first mortgage loans held-for-sale. These loans are intended for sale or securitization and are hedged with derivative instruments. The Company has elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplifications. The fair value option was not elected for loans held for investment, as those loans are not hedged with derivative instruments. This election was effective for applicable instruments originated or purchased since September 1, 2007.
The balance for these mortgage loans held-for-sale, classified as Other assets, was $5.2 billion as of September 30, 2007. The aggregate fair value exceeded the unpaid principal balances by $36 million as of September 30, 2007. None of these loans were 90 days or more past due, nor were any on a non-accrual basis.
The changes in fair values of these mortgage loans held-for-sale is reported in Other revenue in the Company's Consolidated Statement of Income. The changes in fair value during the third quarter 2007 due to instrument-specific credit risk were immaterial. Related interest income continues to be measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.
Items selected for fair value accounting in accordance with SFAS 155 and SFAS 156
Certain hybrid financial instruments
The Company has elected to apply fair value accounting under SFAS 155 for certain hybrid financial assets and liabilities whose performance is linked to risks other than interest rate, foreign exchange or inflation (e.g., equity, credit or commodity risks). In addition, the Company has elected fair value accounting under SFAS 155 for residual interests retained from securitizing certain financial assets. These elections are applicable only to those transactions originated after January 1, 2006.
The Company has elected fair value accounting for these instruments, because these exposures are considered to be trading-related positions and, therefore, are managed on a fair value basis. In addition, the accounting for these instruments is simplified under a fair value approach as it eliminates the complicated operational requirements of bifurcating the embedded derivatives from the host contracts and accounting for each separately. The hybrid financial instruments are classified as loans, deposits, trading liabilities (for pre-paid derivatives) or debt on the Company's Consolidated Balance Sheet according to their legal form, while residual interests in certain securitizations are classified as trading account assets.
The outstanding balances for these hybrid financial instruments classified in Loans is $686 million, while $3.2 billion is in Interest-bearing deposits, $7.2 billion in Trading account liabilities, $4.0 billion in Short-term borrowings and $26.1 billion in Long-term debt on the Consolidated Balance Sheet as of September 30, 2007. In addition, $2.4 billion was reported in Trading account assets for the residual interests in securitizations.
For hybrid financial instruments for which fair value accounting has been elected under SFAS 155 and that are classified as Long-term debt, the aggregate fair value exceeds the aggregate unpaid principal balance by $852 million as of September 30, 2007, while the difference for those instruments classified as Loans is immaterial.
Changes in fair value for hybrid financial instruments, which in most cases includes a component for accrued interest, are recorded in Principal transactions in the Company's Consolidated Statement of Income. Interest accruals for certain hybrid instruments classified as trading assets are recorded separately from the change in fair value as interest revenue in the Company's Consolidated Statement of Income.
Mortgage servicing rights
On January 1, 2006, the Company elected to early-adopt fair value accounting under SFAS 156 for mortgage servicing rights (MSRs). The fair value for these MSRs is determined using an option-adjusted spread valuation approach. This approach consists of projecting servicing cash flows under multiple interest rate scenarios, and discounting these cash flows using risk-adjusted discount rates. The model assumptions used in the valuation of MSRs include mortgage prepayment speeds and discount rates. The fair value of MSRs is primarily affected by changes in prepayments that result from shifts in mortgage interest rates. In managing this risk, the Company hedges a significant portion of the values of its MSRs through the use of interest rate derivative contracts, forward purchase commitments of mortgage-backed securities, and purchased securities classified as trading. See Note 13 on page 68 for further discussions regarding the accounting and reporting of MSRs.
These MSRs, which totaled $10.0 billion as of September 30, 2007, are classified as Intangible assets on Citigroup's Consolidated Balance Sheet. Changes in fair value for MSRs are recorded in Commissions and fees in the Company's Consolidated Statement of Income.
Items Measured at Fair Value on a Recurring Basis
The following table presents for each of the fair value hierarchy levels, the Company's assets and liabilities that are measured at fair value on a recurring basis at September 30, 2007. The Company often hedges positions that have been classified in the Level 3 category with financial instruments that have been classified as Level 1 or Level 2. The Company also hedges items classified in the Level 3 category with instruments also classified in Level 3 of the fair value hierarchy. The effects of these hedges are presented gross in the following table.
In millions of dollars | Level 1 | Level 2 | Level 3 | Gross Inventory | Netting(1) | Net balance | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | |||||||||||||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell | $ | — | $ | 183,383 | $ | 16 | $ | 183,399 | $ | (58,070 | ) | $ | 125,329 | ||||||
Trading account assets | |||||||||||||||||||
Trading securities | 176,316 | 239,074 | 80,672 | 496,062 | — | 496,062 | |||||||||||||
Derivatives | 7,943 | 355,681 | 22,720 | 386,344 | (301,186 | ) | 85,158 | ||||||||||||
Investments | 66,435 | 146,128 | 20,644 | 233,207 | — | 233,207 | |||||||||||||
Loans(2) | — | 2,769 | 2 | 2,771 | — | 2,771 | |||||||||||||
Mortgage servicing rights | — | — | 9,957 | 9,957 | — | 9,957 | |||||||||||||
Other financial assets measured on a recurring basis | $ | 8 | $ | 11,999 | $ | 824 | $ | 12,831 | $ | — | $ | 12,831 | |||||||
Total Assets | $ | 250,702 | $ | 939,034 | $ | 134,835 | $ | 1,324,571 | $ | (359,256 | ) | $ | 965,315 | ||||||
Liabilities | |||||||||||||||||||
Interest-bearing deposits | $ | — | $ | 3,372 | $ | 89 | $ | 3,461 | $ | — | $ | 3,461 | |||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | — | 364,936 | 6,487 | 371,423 | (58,070 | ) | 313,353 | ||||||||||||
Trading account liabilities | |||||||||||||||||||
Securities sold not yet purchased | 89,043 | 11,771 | 894 | 101,708 | — | 101,708 | |||||||||||||
Derivatives | 8,307 | 382,912 | 21,161 | 412,380 | (298,465 | ) | 113,915 | ||||||||||||
Short-term borrowings | — | 3,225 | 6,036 | 9,261 | — | 9,261 | |||||||||||||
Long-term debt | — | 26,118 | 5,687 | 31,805 | — | 31,805 | |||||||||||||
Other financial liabilities measured on a recurring basis | — | 946 | 1 | 947 | — | 947 | |||||||||||||
Total Liabilities | $ | 97,350 | $ | 793,280 | $ | 40,355 | $ | 930,985 | $ | (356,535 | ) | $ | 574,450 | ||||||
The following tables present the changes in the Level 3 fair value category for the three and nine months ended September 30, 2007. The Company classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.
The Company often hedges positions with offsetting positions that are classified in a different level. For example, the gains and losses for assets and liabilities in the Level 3 category presented in the tables below do not reflect the effect of offsetting losses and gains on hedging instruments that have been classified by the Company in the Level 1 and Level 2 categories. The Company also hedges items classified in the Level 3 category with instruments also classified in Level 3 of the fair value hierarchy. The effects of these hedges are presented gross in the following table.
| | Net realized/unrealized gains(losses) included in | | | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Unrealized gains (losses) still held(3) | ||||||||||||||||||
| | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | |||||||||||||||||||
In millions of dollars | June 30, 2007 | Principal transactions | Other(1) (2) | September 30, 2007 | |||||||||||||||||||
Assets | |||||||||||||||||||||||
Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 | $ | — | |||||||||
Trading account assets | |||||||||||||||||||||||
Trading securities | 42,945 | (1,609 | ) | — | 8,938 | 30,398 | 80,672 | (1,813 | ) | ||||||||||||||
Derivatives, net(4) | (1,184 | ) | 1,325 | — | 2,248 | (830 | ) | 1,559 | 1,464 | ||||||||||||||
Investments | 20,201 | — | 372 | 495 | (424 | ) | 20,644 | 106 | |||||||||||||||
Loans | 1,195 | — | — | (1,252 | ) | 59 | 2 | — | |||||||||||||||
Mortgage servicing rights | 10,072 | — | (267 | ) | — | 152 | 9,957 | (325 | ) | ||||||||||||||
Other financial assets measured on a recurring basis | 1,106 | — | 15 | — | 29 | 1,150 | 10 | ||||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | $ | 90 | $ | — | $ | — | $ | — | $ | (1 | ) | $ | 89 | $ | (3 | ) | |||||||
Securities sold under agreements to repurchase | 6,241 | (86 | ) | — | — | 160 | 6,487 | (81 | ) | ||||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold not yet purchased | 653 | (58 | ) | — | 46 | 137 | 894 | (41 | ) | ||||||||||||||
Short-term borrowings | 2,652 | — | (21 | ) | 1,831 | 1,532 | 6,036 | 14 | |||||||||||||||
Long-term debt | 1,804 | (92 | ) | 3,637 | 154 | 5,687 | (85 | ) | |||||||||||||||
Other financial liabilities measured on a recurring basis | 31 | — | 1 | — | (29 | ) | 1 | — |
| | Net realized/unrealized gains(losses) included in | | | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Unrealized gains (losses) still held(3) | ||||||||||||||||||
| | Transfers in and/or out of Level 3 | Purchases, issuances and settlements | | |||||||||||||||||||
In millions of dollars | January 1, 2007 | Principal transactions | Other(1) (2) | September 30, 2007 | |||||||||||||||||||
Assets | |||||||||||||||||||||||
Securities purchased under agreements to resell | $ | 16 | $ | — | $ | — | $ | — | $ | — | $ | 16 | $ | — | |||||||||
Trading account assets | |||||||||||||||||||||||
Trading securities | 22,415 | (1,485 | ) | — | 14,020 | 45,722 | 80,672 | (2,136 | ) | ||||||||||||||
Derivatives, net(4) | 1,875 | 2,010 | — | 1,142 | (3,468 | ) | 1,559 | (53 | ) | ||||||||||||||
Investments | 11,468 | — | 1,221 | 1,508 | 6,447 | 20,644 | 314 | ||||||||||||||||
Loans | — | (8 | ) | — | (793 | ) | 803 | 2 | — | ||||||||||||||
Mortgage servicing rights | 5,439 | — | 1,257 | — | 3,261 | 9,957 | 1,257 | ||||||||||||||||
Other financial assets measured on a recurring basis | 948 | — | 24 | — | 178 | 1,150 | 3 | ||||||||||||||||
Liabilities | |||||||||||||||||||||||
Interest-bearing deposits | $ | 60 | $ | 12 | $ | — | $ | (33 | ) | $ | 74 | $ | 89 | $ | (4 | ) | |||||||
Securities sold under agreements to repurchase | 6,778 | (97 | ) | — | 84 | (472 | ) | 6,487 | (50 | ) | |||||||||||||
Trading account liabilities | |||||||||||||||||||||||
Securities sold not yet purchased | 467 | (22 | ) | — | (167 | ) | 572 | 894 | (138 | ) | |||||||||||||
Short-term borrowings | 2,214 | 9 | (21 | ) | 1,483 | 2,327 | 6,036 | — | |||||||||||||||
Long-term debt | 1,693 | (11 | ) | (92 | ) | 3,729 | 162 | 5,687 | (70 | ) | |||||||||||||
Other financial liabilities measured on a recurring basis | — | — | (23 | ) | (1 | ) | (21 | ) | 1 | — |
Components of Level 3
The following are the major components of the Level 3 fair value hierarchy:
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a non-recurring basis and therefore are not included in the tables above. These include assets such as loans held-for-sale that are measured at the lower of cost or market (LOCOM) that were recognized at fair value below cost at the end of the period. Assets measured at cost that have been written down to fair value during the period as a result of an impairment are also included.
As of September 30, 2007, loans held-for-sale carried at LOCOM with an aggregate cost of $20.9 billion were written down to fair value totaling $19.8 billion, of which $4.7 billion and $15.1 billion were determined based on Level 2 and Level 3 inputs, respectively. For both the three and nine months ended September 30, 2007, the resulting charges taken on loans held-for-sale carried at fair value below cost were $1.1 billion. For loans that are expected to be securitized that are carried at LOCOM, the inputs used to measure fair value include observable prices of asset-backed securities with similar collateral. These prices are adjusted to account for securitization uncertainties including portfolio composition, market conditions and liquidity.
Customer relationship intangibles and fixed assets in the Japan Consumer Finance business were written down to their fair value of zero, resulting in an impairment charge of $152 million pre-tax ($98 million after-tax). For those assets that were written down due to impairment, fair value measurements were determined based upon discounted expected cash flows or a comparison to liquidation prices of comparable assets.
17. Guarantees and Credit Commitments
Guarantees
The Company provides a variety of guarantees and indemnifications to Citigroup customers to enhance their credit standing and enable them to complete a wide variety of business transactions. The following table summarizes at March 31,September 30, 2007 and December 31, 2006 all of the Company's guarantees and indemnifications, where management believes the guarantees and indemnifications are related to an asset, liability, or equity security of the guaranteed parties at the inception of the contract. The maximum potential amount of future payments represents the notional amounts that could be lost under the guarantees and indemnifications if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collateral held or pledged. Such amounts bear no relationship to the anticipated losses on these guarantees and indemnifications and greatly exceed anticipated losses.
The following tables present information about the Company's guarantees at March 31,September 30, 2007 and December 31, 2006:
| 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) | ||||||||
2007 | ||||||||||||
Financial standby letters of credit | $ | 57.9 | $ | 25.7 | $ | 83.6 | $ | 117.4 | ||||
Performance guarantees | 11.3 | 4.6 | 15.9 | 47.5 | ||||||||
Derivative instruments | 29.8 | 982.7 | 1,012 | 21,630 | ||||||||
Loans sold with recourse | — | 1.6 | 1.6 | 50.9 | ||||||||
Securities lending indemnifications(1) | 144.2 | — | 144.2 | — | ||||||||
Credit card merchant processing(1) | 54.2 | — | 54.2 | — | ||||||||
Custody indemnifications(1) | — | 55.6 | 55.6 | — | ||||||||
Total | $ | 297.4 | $ | 1,070.2 | $ | 1,367.6 | $ | 21,845.8 | ||||
| Maximum Potential Amount of Future Payments | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars at December 31, except carrying value in millions | Expire Within 1 Year | Expire After 1 Year | Total Amount Outstanding | Carrying Value (in millions) | ||||||||
2006 | ||||||||||||
Financial standby letters of credit(2) | $ | 46.7 | $ | 25.8 | $ | 72.5 | $ | 179.3 | ||||
Performance guarantees(2) | 11.2 | 4.6 | 15.8 | 47.2 | ||||||||
Derivative instruments | 42.0 | 916.6 | 958.6 | 16,836.0 | ||||||||
Loans sold with recourse | — | 1.6 | 1.6 | 51.9 | ||||||||
Securities lending indemnifications(1) | 110.7 | — | 110.7 | — | ||||||||
Credit card merchant processing(1) | 52.3 | — | 52.3 | — | ||||||||
Custody indemnifications(1) | — | 54.4 | 54.4 | — | ||||||||
Total | $ | 262.9 | $ | 1,003.0 | $ | 1,265.9 | $ | 17,114.4 | ||||
| Maximum Potential Amount of Future Payments | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars at September 30, except carrying value in millions | Expire Within 1 Year | Expire After 1 Year | Total Amount Outstanding | Carrying Value | ||||||||
| | | | (in millions) | ||||||||
2007 | ||||||||||||
Financial standby letters of credit | $ | 57.8 | $ | 29.6 | $ | 87.4 | $ | 191.7 | ||||
Performance guarantees | 10.2 | 6.3 | 16.5 | 51.2 | ||||||||
Derivative instruments | 50.7 | 1,332.0 | 1,382.7 | 53,624.8 | ||||||||
Loans sold with recourse | — | 1.6 | 1.6 | 48.9 | ||||||||
Securities lending indemnifications(1) | 153.0 | — | 153.0 | — | ||||||||
Credit card merchant processing(1) | 60.5 | — | 60.5 | — | ||||||||
Custody indemnifications(1) | — | 56.4 | 56.4 | — | ||||||||
Total | $ | 332.2 | $ | 1,425.9 | $ | 1,758.1 | $ | 53,916.6 | ||||
| Maximum Potential Amount of Future Payments | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars at December 31, except carrying value in millions | Expire Within 1 Year | Expire After 1 Year | Total Amount Outstanding | Carrying Value | ||||||||
| | | | (in millions) | ||||||||
2006 | ||||||||||||
Financial standby letters of credit(2) | $ | 46.7 | $ | 25.8 | $ | 72.5 | $ | 179.3 | ||||
Performance guarantees(2) | 11.2 | 4.6 | 15.8 | 47.2 | ||||||||
Derivative instruments | 42.0 | 916.6 | 958.6 | 16,836.0 | ||||||||
Loans sold with recourse | — | 1.6 | 1.6 | 51.9 | ||||||||
Securities lending indemnifications(1) | 110.7 | — | 110.7 | — | ||||||||
Credit card merchant processing(1) | 52.3 | — | 52.3 | — | ||||||||
Custody indemnifications(1) | — | 54.4 | 54.4 | — | ||||||||
Total | $ | 262.9 | $ | 1,003.0 | $ | 1,265.9 | $ | 17,114.4 | ||||
Financial Standby Letters of Credit
Citigroup issues standby letters of credit which substitute its own credit for that of the borrower. If a letter of credit is drawn down, the borrower is obligated to repay Citigroup. Standby letters of credit protect a third party from defaults on contractual obligations. Financial standby letters of credit include guarantees of payment of insurance premiums and reinsurance risks that support industrial revenue bond underwriting and settlement of payment obligations to clearing houses, and thatalso support options and purchases of securities or in lieu of escrow deposit accounts. Financial standbys also backstop loans, credit facilities, promissory notes and trade acceptances.
Performance Guarantees
Performance guarantees and letters of credit are issued to guarantee a customer's tender bid on a construction or systems installation project or to guarantee completion of such projects in accordance with contract terms. They are also issued to support a customer's obligation to supply specified products, commodities, or maintenance or warranty services to a third party.
Derivative Instruments
Derivatives are financial instruments whose cash flows are based on a notional amount or an underlying instrument, where there is little or no initial investment, and whose terms require or permit net settlement. The main use of derivatives is to reduce risk for one party while offering the potential for high return (at increased risk) to another. Financial institutions often act as intermediaries for their clients, helping clients reduce their risks. However, derivatives may also be used to take a risk position. Derivative instruments include credit default swaps, total return swaps, written foreign exchange options, written put options, and written equity warrants.
Loans Sold with Recourse
Loans sold with recourse represent the Company's obligations to reimburse the buyers for loan losses under certain circumstances. Recourse refers to the clause in a sales agreement under which a lender will fully reimburse the buyer/investor for any losses resulting from the purchased loans. This may be accomplished by the seller's taking back any loans that become delinquent.
Securities Lending Indemnifications
Owners of securities frequently lend those securities for a fee to other parties who may sell them short or deliver them to another party to satisfy some other obligation. Banks may administer such securities lending programs for their clients. Securities lending indemnifications are issued by the bank to guarantee that a securities lending customer will be made whole in the event that the security borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of the security.
Credit Card Merchant Processing
Credit card merchant processing guarantees represent the Company's indirect obligations in connection with the processing of private label and bankcard transactions on behalf of merchants.
Custody Indemnifications
Custody indemnifications are issued to guarantee that custody clients will be made whole in the event that a third-party subcustodian fails to safeguard clients' assets. Beginning with the 2006 third quarter, the scope of the custody indemnifications was broadened to cover all clients' assets held by third-party subcustodians.
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 cardholder's favor, the third party holds the primary
contingent liability to credit or refund the amount to the cardholder and charge back the transaction to the merchant. If the third party is unable to collect this amount from the merchant, it bears the loss for the amount of the credit or refund paid to the cardholder.
The Company continues to have the primary contingent liability with respect to its portfolio of private label merchants. The risk of loss is mitigated as the cash flows between the third party or the Company and the merchant are settled on a net basis and the third party or the Company has the right to offset any payments with cash flows otherwise due to the merchant. To further mitigate this risk, the third party or the Company may require a merchant to make an escrow deposit, delay settlement, or include event triggers to provide the third party or the Company with more financial and operational control in the event of the financial deterioration of the merchant, or require various credit enhancements (including letters of credit and bank guarantees). In the unlikely event that a private label merchant is unable to deliver products, services or a refund to its private label cardholders, Citigroup is contingently liable to credit or refund cardholders. In addition, although a third party holds the primary contingent liability with respect to the processing of bankcard transactions, in the event that the third party does not have sufficient collateral from the merchant or sufficient financial resources of its own to provide the credit or refunds to the cardholders, Citigroup would be liable to credit or refund the cardholders.
The Company's maximum potential contingent liability related to both bankcard and private label merchant processing services is estimated to be the total volume of credit card transactions that meet the requirements to be valid chargeback transactions at any given time. At March 31,September 30, 2007 and December 31, 2006, this maximum potential exposure was estimated to be $54$61 billion and $52 billion, respectively.
However, the Company believes that the maximum exposure is not representative of the actual potential loss exposure, based on the Company's historical experience and its position as a secondary guarantor (in the case of bankcards). In most cases, this contingent liability is unlikely to arise, as most products and services are delivered when purchased and amounts are refunded when items are returned to merchants. The Company assesses the probability and amount of its contingent liability related to merchant processing based on the financial strength of the primary guarantor (in the case of bankcards) and the extent and nature of unresolved chargebacks and its historical loss experience. At MarchSeptember 31, 2007 and December 31, 2006, the estimated losses incurred and the carrying amounts of the Company's contingent obligations related to merchant processing activities were immaterial.
In addition, the Company, through its credit card business, provides various cardholder protection programs on several of its card products, including programs that provide insurance coverage for rental cars, coverage for certain losses associated with purchased products, price protection for certain purchases and protection for lost luggage. These guarantees are not included in the table, above, since the total outstanding amount of the guarantees and the Company's maximum exposure to loss cannot be quantified. The protection is limited to certain types of purchases and certain types of losses and it is not possible to quantify the purchases that would qualify for these benefits at any given time. Actual losses related to these programs were not material during the first quarters of 2007 and 2006. 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 March 31,September 30, 2007, the actual and estimated losses incurred and the carrying value of the Company's obligations related to these programs were immaterial.
In the normal course of business, the Company provides standard representations and warranties to counterparties in contracts in connection with numerous transactions and also provides indemnifications that protect the counterparties to the contracts in the event that additional taxes are owed due either to a change in the tax law or an adverse interpretation of the tax law. Counterparties to these transactions provide the Company with comparable indemnifications. While such representations, warranties and tax indemnifications are essential components of many contractual relationships, they do not represent the underlying business purpose for the transactions. The indemnification clauses are often standard contractual terms related to the Company's own performance
under the terms of a contract and are entered into in the normal course of business based on an assessment that the risk of loss is remote. Often these clauses are intended to ensure that terms of a contract are met at inception (for example, that loans transferred to a counterparty in a sales transaction did in fact meet the conditions specified in the contract at the transfer date). No compensation is received for these standard representations and warranties, and it is not possible to determine their fair value because they rarely, if ever, result in a payment. In many cases, there are no stated or notional amounts included in the indemnification clauses and the contingencies potentially triggering the obligation to indemnify have not occurred and are not expected to occur. There are no amounts reflected on the Consolidated Balance Sheet as of March 31,September 30, 2007 and December 31, 2006, related to these indemnifications and they are not included in the table above.table.
In addition, the Company is a member of or shareholder in hundreds of value transfer networks (VTNs) (payment clearing and settlement systems as well as securities exchanges) around the world. As a condition of membership, many of these VTNs require that members stand ready to backstop the net effect on the VTNs of a member's default on its obligations. The Company's potential obligations as a shareholder or member of VTN associations are excluded from the scope of FIN 45, since the shareholders and members represent subordinated classes of investors in the VTNs. Accordingly, the Company's participation in VTNs is not reported in the table above and there are no amounts reflected on the Consolidated Balance Sheet as of March 31,September 30, 2007 or December 31, 2006 for potential obligations that could arise from the Company's involvement with VTN associations.
At March 31,September 30, 2007 and December 31, 2006, the carrying amounts of the liabilities related to the guarantees and indemnifications included in the table above amounted to approximately $22$54 billion and $17 billion, respectively. The carrying value of derivative instruments is included in either tradingTrading liabilities or otherOther liabilities, depending upon whether the derivative was entered into for trading or non-trading purposes. The carrying value of financial and performance guarantees is included in otherOther liabilities. For loans sold with
recourse, the carrying value of the liability is included in otherOther liabilities. In addition, at March 31,September 30, 2007 and December 31, 2006, otherOther liabilities on the Consolidated Balance Sheet include an allowance for credit losses of $1.15 billion and $1.1 billion, respectively, relating to letters of credit and unfunded lending commitments.
In addition to the collateral available in respect of the credit card merchant processing contingent liability discussed above, the Company has collateral available to reimburse potential losses on its other guarantees. Cash collateral available to the Company to reimburse losses realized under these guarantees and indemnifications amounted to $105$110 billion and $92 billion at March 31,September 30, 2007 and December 31, 2006, respectively. Securities and other marketable assets held as collateral amounted to $55$53 billion and $42 billion and letters of credit in favor of the Company held as collateral amounted to $160$233 million and $142 million at March 31,September 30, 2007 and December 31, 2006, respectively. Other property may also be available to the Company to cover losses under certain guarantees and indemnifications; however, the value of such property has not been determined.
Credit Commitments
The table below summarizes Citigroup's other commitments as of September 30, 2007 and December 31, 2006.
In millions of dollars | September 30, 2007 | December 31, 2006 | ||||
---|---|---|---|---|---|---|
Commercial and similar letters of credit | $ | 9,177 | $ | 7,861 | ||
One- to four-family residential mortgages | 7,424 | 3,457 | ||||
Revolving open-end loans secured by one- to four-family residential properties | 35,967 | 32,449 | ||||
Commercial real estate, construction and land development | 5,387 | 4,007 | ||||
Credit card lines | 1,030,123 | 987,409 | ||||
Commercial and other consumer loan commitments | 513,668 | 439,931 | ||||
Total | $ | 1,601,746 | $ | 1,475,114 | ||
Commercial and similar letter of credit
A commercial letter of credit is an instrument by which Citigroup substitutes its credit for that of a customer to enable the customers to finance the purchase of goods or to incur other commitments. Citigroup issues a letter on behalf of its client to a supplier and agrees to pay them upon presentation of documentary evidence that the supplier has performed in accordance with the terms of the letter of credit. When drawn, the customer then is required to reimburse Citigroup.
One- to four-family residential mortgages
A one-to-four family residential mortgage commitment is a written confirmation from Citigroup to a seller of a property that the bank will advance the specified sums enabling the buyer to complete the purchase.
Revolving open-end loans secured by one- to four-family residential properties
Revolving open-end loans secured by one- to four-family residential properties are essentially home equity lines of credit. A home equity line of credit is a loan secured by a primary residence or second home to the extent of the excess of fair market value over the debt outstanding for the first mortgage.
Credit card lines
Citigroup provides credit to customers by issuing credit cards. The credit card lines are unconditionally cancellable by the issuer.
Commercial and other consumer loan commitments
Commercial and other consumer loan commitments include commercial commitments to make or purchase loans, to purchase third-party receivables, and to provide note issuance or revolving underwriting facilities. Amounts include $282 billion and $251 billion with original maturity of less than one year at September 30, 2007 and December 31, 2006, respectively.
In addition, included in this line item are highly-leveraged financing commitments which are agreements that provide funding to a borrower with higher levels of debt (measured by the ratio of debt capital to equity capital of the borrower) than is generally considered normal for other companies. This type of financing is commonly employed in corporate acquisitions, management buy-outs and similar transactions.
18. Contingencies
As described in the "Legal Proceedings" discussion on page 122,103, the Company has been a defendant in numerous lawsuits and other legal proceedings arising out of alleged misconduct in connection with:
�� As of March 31,September 30, 2007, the Company's litigation reserve for these matters, net of amounts previously paid or not yet paid but committed to be paid in connection with the Enron class action settlement and other settlements arising out of these matters, was approximately $3.2$2.8 billion.
The Company believes that this reserve is adequate to meet all of its remaining exposure for these matters. However, in view of the large number of these matters, the uncertainties of the timing and outcome of this type of litigation, the novel issues presented, and the significant amounts involved, it is possible that the ultimate costs of these matters may exceed or be below the reserve. The Company will continue to defend itself vigorously in these cases, and seek to resolve them in the manner management believes is in the best interests of the Company.
In addition, in the ordinary course of business, Citigroup and its subsidiaries are defendants or co-defendants or parties in various litigation and regulatory matters incidental to and typical of the businesses in which they are engaged. In the opinion of the Company's management, the ultimate resolution of these legal and regulatory proceedings would not be likely to have a material adverse effect on the consolidated financial condition of the Company but, if involving monetary liability, may be material to the Company's operating results for any particular period.
19. Citibank, N.A. and SubsidiariesStatement of Changes in Stockholder's Equity
| Three Months Ended March 31, | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars, except shares | 2007 | 2006(1) | |||||
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 | |||
Surplus | |||||||
Balance, beginning of period | $ | 43,753 | $ | 37,978 | |||
Capital contribution from parent company | 2,030 | 170 | |||||
Employee benefit plans | 11 | 36 | |||||
Other | — | 4 | |||||
Balance, end of period | $ | 45,794 | $ | 38,188 | |||
Retained earnings | |||||||
Balance, beginning of period | $ | 30,358 | $ | 24,062 | |||
Adjustment to opening balance, net of tax(2) | (96 | ) | — | ||||
Adjusted balance, beginning of period | $ | 30,262 | $ | 24,062 | |||
Net income | 2,155 | 2,632 | |||||
Dividends paid | (18 | ) | (1,308 | ) | |||
Balance, end of period | $ | 32,399 | $ | 25,386 | |||
Accumulated other comprehensive income (loss) | |||||||
Balance, beginning of period | $ | (1,709 | ) | $ | (2,550 | ) | |
Adjustment to opening balance, net of tax(3) | (1 | ) | — | ||||
Adjusted balance, beginning of period | $ | (1,710 | ) | $ | (2,550 | ) | |
Net change in unrealized gains (losses) on investment securities, available-for-sale, net of tax | 130 | (130 | ) | ||||
Net change in foreign currency translation adjustment, net of tax | 141 | 313 | |||||
Net change for cash flow hedges, net of tax | (270 | ) | 144 | ||||
Pension liability adjustment, net of tax | 67 | 4 | |||||
Net change in Accumulated other comprehensive income | $ | 68 | $ | 331 | |||
Balance, end of period | ($ | 1,642 | ) | ($ | 2,219 | ) | |
Total stockholder's equity | |||||||
Balance, beginning of period | $ | 73,153 | $ | 60,241 | |||
Adjustment to opening balance, net of tax(2) (3) | (97 | ) | — | ||||
Adjusted balance, beginning of period | $ | 73,056 | $ | 60,241 | |||
Changes during the period, net | 4,246 | 1,865 | |||||
Balance, end of period | $ | 77,302 | $ | 62,106 | |||
Comprehensive income | |||||||
Net income | $ | 2,155 | $ | 2,632 | |||
Net change in Accumulated other comprehensive income (loss) | 68 | 331 | |||||
Total comprehensive income | $ | 2,223 | $ | 2,963 | |||
The March 31, 2006 Statement of Changes in Stockholder's Equity for Citibank, N.A. and Subsidiaries has been restated in accordance with SFAS No. 141, "(Unaudited)Business Combinations" (SFAS 141), to reflect the impact of the bank consolidation project in which several affiliates were transferred between Citibank, N.A. and other affiliates under the common control of Citigroup. See Note 20 on page 114 for a full description of the bank consolidation project.
| Nine Months Ended September 30, | ||||||
---|---|---|---|---|---|---|---|
In millions of dollars, except shares | |||||||
2007 | 2006 | ||||||
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 | |||
Surplus | |||||||
Balance, beginning of period | $ | 43,753 | $ | 37,978 | |||
Capital contribution from parent company | 11,794 | 1,546 | |||||
Employee benefit plans | 30 | 115 | |||||
Other | 30 | 10 | |||||
Balance, end of period | $ | 55,607 | $ | 39,649 | |||
Retained earnings | |||||||
Balance, beginning of period | $ | 30,358 | $ | 24,062 | |||
Adjustment to opening balance, net of tax(1) | (96 | ) | — | ||||
Adjusted balance, beginning of period | $ | 30,262 | $ | 24,062 | |||
Net income | 6,821 | 7,457 | |||||
Dividends paid | (582 | ) | (2,928 | ) | |||
Balance, end of period | $ | 36,501 | $ | 28,591 | |||
Accumulated other comprehensive income (loss) | |||||||
Balance, beginning of period | $ | (1,709 | ) | $ | (2,550 | ) | |
Adjustment to opening balance, net of tax(2) | (1 | ) | — | ||||
Adjusted balance, beginning of period | $ | (1,710 | ) | $ | (2,550 | ) | |
Net change in unrealized gains (losses) on investment securities, available-for-sale, net of tax | (741 | ) | 225 | ||||
Net change in foreign currency translation adjustment, net of tax | 1,688 | 1,158 | |||||
Net change for cash flow hedges, net of tax | (972 | ) | (418 | ) | |||
Pension liability adjustment, net of tax | 88 | (2 | ) | ||||
Net change in Accumulated other comprehensive income | $ | 63 | $ | 963 | |||
Balance, end of period | $ | (1,647 | ) | $ | (1,587 | ) | |
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 | 18,156 | 7,163 | |||||
Balance, end of period | $ | 91,212 | $ | 67,404 | |||
Comprehensive income | |||||||
Net income | $ | 6,821 | $ | 7,457 | |||
Net change in Accumulated other comprehensive income | 63 | 963 | |||||
Total comprehensive income | $ | 6,884 | $ | 8,420 | |||
See NoteNotes 1 and Note 16 on pages 8555 and 105,77, respectively.
Reclassified to conform to the current period's presentation.
20. Condensed Consolidating Financial Statement Schedules
These condensed consolidating financial statement schedules are presented for purposes of additional analysis but should be considered in relation to the consolidated financial statements of Citigroup taken as a whole.
Bank Consolidation Project
During 2006, Citigroup began and completed a majority of its bank consolidation project, which called for the merger of its 12 U.S.-insured depository institutions into four, as well as the reorganization of its U.S. mortgage banking business. The first phase of this project was completed in July 2006, when CitiFinancial Credit Company (CCC), an indirect wholly owned subsidiary of Citigroup, transferred its ownership of Citicorp Trust Bank, fsb to Citigroup. The second phase occurred in October 2006, when Citigroup reduced its overall number of U.S.-insured depository institutions from twelve to five. Also during this phase, Citibank, N.A. transferred its investment in Citibank (South Dakota), N.A. (the Company's primary banking entity responsible for U.S. credit card activities) to Citigroup. In addition, a majority of the Company's U.S. consumer mortgage lending activity was consolidated within Citibank, N.A. as Citibank (West), FSB, Citibank Texas, N.A., Citibank, FSB and Citibank Delaware were merged into Citibank, N.A. The final phase of this consolidation project is expected to be completed at a later date with the merger of Citibank (Banamex USA) into Citibank, N.A.
Citigroup Parent Company
The holding company, Citigroup Inc.
Citigroup Global Markets Holdings Inc. (CGMHI)
Citigroup guarantees various debt obligations of CGMHI as well as all of the outstanding debt obligations under CGMHI's publicly-issued debt.
Citigroup Funding Inc. (CFI)
CFI is a first-tier subsidiary of Citigroup, which issues commercial paper, medium-term notes and structured equity-linked and credit-linked notes, all of which are guaranteed by Citigroup.
CitiFinancial Credit Company (CCC)
An indirect wholly owned subsidiary of Citigroup. CCC is a wholly owned subsidiary of Associates. Citigroup has issued a full and unconditional guarantee of the outstanding indebtedness of CCC.
Associates First Capital Corporation (Associates)
A wholly owned subsidiary of Citigroup. Citigroup has issued a full and unconditional guarantee of the outstanding long-term debt securities and commercial paper of Associates. In addition, Citigroup guaranteed various debt obligations of Citigroup Finance Canada Inc. (CFCI), a wholly owned subsidiary of Associates. CFCI continues to issue debt in the Canadian market supported by a Citigroup guarantee. Associates is the immediate parent company of CCC.
Other Citigroup Subsidiaries
Includes all other subsidiaries of Citigroup, intercompany eliminations, and income/loss from discontinued operations.
Consolidating Adjustments
Includes Citigroup parent company elimination of distributed and undistributed income of subsidiaries, investment in subsidiaries and the elimination of CCC, which is included in the Associates column.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| Three Months Ended September 30, 2007 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | |||||||||||||||||
Revenues | |||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 910 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (910 | ) | $ | — | ||||||||
Interest revenue | 103 | 8,716 | 4 | 1,743 | 2,010 | 22,128 | (1,743 | ) | 32,961 | ||||||||||||||||
Interest revenue—intercompany | 1,423 | 390 | 1,739 | 32 | 197 | (3,749 | ) | (32 | ) | — | |||||||||||||||
Interest expense | 2,043 | 6,798 | 1,322 | 44 | 189 | 10,452 | (44 | ) | 20,804 | ||||||||||||||||
Interest expense—intercompany | (26 | ) | 1,581 | 125 | 616 | 779 | (2,459 | ) | (616 | ) | — | ||||||||||||||
Net interest revenue | $ | (491 | ) | $ | 727 | $ | 296 | $ | 1,115 | $ | 1,239 | $ | 10,386 | $ | (1,115 | ) | $ | 12,157 | |||||||
Commissions and fees | $ | — | $ | 2,449 | $ | — | $ | 31 | $ | 53 | $ | 1,551 | $ | (31 | ) | $ | 4,053 | ||||||||
Commissions and fees—intercompany | — | 56 | — | 4 | 6 | (62 | ) | (4 | ) | — | |||||||||||||||
Principal transactions | 292 | (3,213 | ) | 60 | — | 1 | 2,616 | — | (244 | ) | |||||||||||||||
Principal transactions—intercompany | 83 | 1,098 | (313 | ) | — | 7 | (875 | ) | — | — | |||||||||||||||
Other income | (1,097 | ) | 1,096 | (17 | ) | 121 | 159 | 6,286 | (121 | ) | 6,427 | ||||||||||||||
Other income—intercompany | 821 | 451 | 26 | 7 | 4 | (1,302 | ) | (7 | ) | — | |||||||||||||||
Total non-interest revenues | $ | 99 | $ | 1,937 | $ | (244 | ) | $ | 163 | $ | 230 | $ | 8,214 | $ | (163 | ) | $ | 10,236 | |||||||
Total revenues, net of interest expense | $ | 518 | $ | 2,664 | $ | 52 | $ | 1,278 | $ | 1,469 | $ | 18,600 | $ | (2,188 | ) | $ | 22,393 | ||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 5 | $ | — | $ | 759 | $ | 839 | $ | 4,218 | $ | (759 | ) | $ | 5,062 | ||||||||
Expenses | |||||||||||||||||||||||||
Compensation and benefits | $ | 47 | $ | 1,812 | $ | — | $ | 176 | $ | 226 | $ | 5,645 | $ | (176 | ) | $ | 7,730 | ||||||||
Compensation and benefits—intercompany | 2 | 1 | — | 39 | 40 | (43 | ) | (39 | ) | — | |||||||||||||||
Other expense | 84 | 1,011 | 1 | 123 | 167 | 5,568 | (123 | ) | 6,831 | ||||||||||||||||
Other expense—intercompany | 62 | 512 | 14 | 73 | 114 | (702 | ) | (73 | ) | — | |||||||||||||||
Total operating expenses | $ | 195 | $ | 3,336 | $ | 15 | $ | 411 | $ | 547 | $ | 10,468 | $ | (411 | ) | $ | 14,561 | ||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries | $ | 323 | $ | (677 | ) | $ | 37 | $ | 108 | $ | 83 | $ | 3,914 | $ | (1,018 | ) | $ | 2,770 | |||||||
Income taxes (benefits) | (296 | ) | (253 | ) | 10 | 42 | 19 | 1,058 | (42 | ) | 538 | ||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 20 | — | 20 | |||||||||||||||||
Equities in undistributed income of subsidiaries | 1,593 | — | — | — | — | — | (1,593 | ) | — | ||||||||||||||||
Income from continuing operations | $ | 2,212 | $ | (424 | ) | $ | 27 | $ | 66 | $ | 64 | $ | 2,836 | $ | (2,569 | ) | $ | 2,212 | |||||||
Income from discontinued operations, net of taxes | — | — | — | — | — | — | — | — | |||||||||||||||||
Net income | $ | 2,212 | $ | (424 | ) | $ | 27 | $ | 66 | $ | 64 | $ | 2,836 | $ | (2,569 | ) | $ | 2,212 | |||||||
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| Three Months Ended March 31, 2007 | Three Months Ended September 30, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 2,805 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (2,805 | ) | $ | — | $ | 5,202 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (5,202 | ) | $ | — | ||||||||||||||
Interest revenue | 97 | 7,282 | — | 1,524 | 1,791 | 18,962 | (1,524 | ) | 28,132 | 132 | 5,847 | — | 1,518 | 1,800 | 16,950 | (1,518 | ) | 24,729 | ||||||||||||||||||||||||||||||
Interest revenue—intercompany | 1,284 | 295 | 1,245 | 37 | 123 | (2,947 | ) | (37 | ) | — | 1,095 | 136 | 892 | 54 | 121 | (2,244 | ) | (54 | ) | — | ||||||||||||||||||||||||||||
Interest expense | 1,790 | 5,722 | 891 | 46 | 181 | 8,978 | (46 | ) | 17,562 | 1,579 | 4,827 | 593 | 45 | 182 | 7,720 | (45 | ) | 14,901 | ||||||||||||||||||||||||||||||
Interest expense—intercompany | (13 | ) | 1,170 | 191 | 496 | 660 | (2,008 | ) | (496 | ) | — | 3 | 767 | 210 | 480 | 673 | (1,653 | ) | (480 | ) | — | |||||||||||||||||||||||||||
Net interest revenue | $ | (396 | ) | $ | 685 | $ | 163 | $ | 1,019 | $ | 1,073 | $ | 9,045 | $ | (1,019 | ) | $ | 10,570 | $ | (355 | ) | $ | 389 | $ | 89 | $ | 1,047 | $ | 1,066 | $ | 8,639 | $ | (1,047 | ) | $ | 9,828 | ||||||||||||
Commissions and fees | $ | — | $ | 3,018 | $ | — | $ | 18 | $ | 41 | $ | 2,714 | $ | (18 | ) | $ | 5,773 | $ | — | $ | 2,152 | $ | — | $ | 17 | $ | 39 | $ | 1,729 | $ | (17 | ) | $ | 3,920 | ||||||||||||||
Commissions and fees—intercompany | — | 25 | — | 5 | 5 | (30 | ) | (5 | ) | — | — | 89 | — | 13 | 12 | (101 | ) | (13 | ) | — | ||||||||||||||||||||||||||||
Principal transactions | 6 | 895 | (128 | ) | — | — | 2,224 | — | 2,997 | (8 | ) | 2,214 | (106 | ) | — | 1 | (87 | ) | — | 2,014 | ||||||||||||||||||||||||||||
Principal transactions—intercompany | 3 | 112 | 1 | — | — | (116 | ) | — | — | (31 | ) | (1,166 | ) | 69 | — | — | 1,128 | — | — | |||||||||||||||||||||||||||||
Other income | 26 | 1,120 | 52 | 107 | 146 | 4,775 | (107 | ) | 6,119 | (563 | ) | 584 | (63 | ) | 108 | 159 | 5,543 | (108 | ) | 5,660 | ||||||||||||||||||||||||||||
Other income—intercompany | 41 | 382 | (44 | ) | 7 | (16 | ) | (363 | ) | (7 | ) | — | 551 | 546 | 84 | 6 | 6 | (1,187 | ) | (6 | ) | — | ||||||||||||||||||||||||||
Total non-interest revenues | $ | 76 | $ | 5,552 | $ | (119 | ) | $ | 137 | $ | 176 | $ | 9,204 | $ | (137 | ) | $ | 14,889 | $ | (51 | ) | $ | 4,419 | $ | (16 | ) | $ | 144 | $ | 217 | $ | 7,025 | $ | (144 | ) | $ | 11,594 | |||||||||||
Total revenues, net of interest expense | $ | 2,485 | $ | 6,237 | $ | 44 | $ | 1,156 | $ | 1,249 | $ | 18,249 | $ | (3,961 | ) | $ | 25,459 | $ | 4,796 | $ | 4,808 | $ | 73 | $ | 1,191 | $ | 1,283 | $ | 15,664 | $ | (6,393 | ) | $ | 21,422 | ||||||||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 7 | $ | — | $ | 426 | $ | 478 | $ | 2,482 | $ | (426 | ) | $ | 2,967 | $ | — | $ | 6 | $ | — | $ | 294 | $ | 350 | $ | 1,761 | $ | (294 | ) | $ | 2,117 | ||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and benefits | $ | 21 | $ | 3,613 | $ | — | $ | 160 | $ | 214 | $ | 4,851 | $ | (160 | ) | $ | 8,699 | $ | 31 | $ | 2,232 | $ | — | $ | 195 | $ | 247 | $ | 4,208 | $ | (195 | ) | $ | 6,718 | ||||||||||||||
Compensation and benefits—intercompany | 2 | — | — | 40 | 41 | (43 | ) | (40 | ) | — | 2 | 1 | — | 32 | 33 | (36 | ) | (32 | ) | — | ||||||||||||||||||||||||||||
Other expense | 114 | 988 | — | 155 | 206 | 5,564 | (155 | ) | 6,872 | 36 | 829 | — | 126 | 175 | 4,178 | (126 | ) | 5,218 | ||||||||||||||||||||||||||||||
Other expense—intercompany | 26 | 425 | 21 | 77 | 95 | (567 | ) | (77 | ) | — | 43 | 396 | 18 | 44 | 61 | (518 | ) | (44 | ) | — | ||||||||||||||||||||||||||||
Total operating expenses | $ | 163 | $ | 5,026 | $ | 21 | $ | 432 | $ | 556 | $ | 9,805 | $ | (432 | ) | $ | 15,571 | $ | 112 | $ | 3,458 | $ | 18 | $ | 397 | $ | 516 | $ | 7,832 | $ | (397 | ) | $ | 11,936 | ||||||||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries | $ | 2,322 | $ | 1,204 | $ | 23 | $ | 298 | $ | 215 | $ | 5,962 | $ | (3,103 | ) | $ | 6,921 | $ | 4,684 | $ | 1,344 | $ | 55 | $ | 500 | $ | 417 | $ | 6,071 | $ | (5,702 | ) | $ | 7,369 | ||||||||||||||
Income taxes (benefits) | (241 | ) | 361 | 9 | 106 | 64 | 1,669 | (106 | ) | 1,862 | (204 | ) | 415 | 20 | 185 | 149 | 1,640 | (185 | ) | 2,020 | ||||||||||||||||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 47 | — | 47 | — | — | — | — | — | 46 | — | 46 | ||||||||||||||||||||||||||||||||
Equities in undistributed income of subsidiaries | 2,449 | — | — | — | — | — | (2,449 | ) | — | 617 | — | — | — | — | — | (617 | ) | — | ||||||||||||||||||||||||||||||
Income from continuing operations | $ | 5,012 | $ | 843 | $ | 14 | $ | 192 | $ | 151 | $ | 4,246 | $ | (5,446 | ) | $ | 5,012 | $ | 5,505 | $ | 929 | $ | 35 | $ | 315 | $ | 268 | $ | 4,385 | $ | (6,134 | ) | $ | 5,303 | ||||||||||||||
Income from discontinued operations, net of taxes | — | — | — | — | — | — | — | — | — | 69 | — | — | — | 133 | — | 202 | ||||||||||||||||||||||||||||||||
Net income | $ | 5,012 | $ | 843 | $ | 14 | $ | 192 | $ | 151 | $ | 4,246 | $ | (5,446 | ) | $ | 5,012 | $ | 5,505 | $ | 998 | $ | 35 | $ | 315 | $ | 268 | $ | 4,518 | $ | (6,134 | ) | $ | 5,505 | ||||||||||||||
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| Three Months Ended March 31, 2006 | Nine Months Ended September 30, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 2,453 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (2,453 | ) | $ | — | $ | 7,746 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (7,746 | ) | $ | — | ||||||||||||||
Interest revenue | 91 | 5,409 | — | 1,399 | 1,659 | 14,714 | (1,399 | ) | 21,873 | 299 | 23,938 | 4 | 4,949 | 5,771 | 61,679 | (4,949 | ) | 91,691 | ||||||||||||||||||||||||||||||
Interest revenue—intercompany | 927 | 109 | 569 | (18 | ) | 79 | (1,684 | ) | 18 | — | 4,065 | 1,086 | 4,435 | 105 | 460 | (10,046 | ) | (105 | ) | — | ||||||||||||||||||||||||||||
Interest expense | 1,329 | 4,094 | 428 | 52 | 181 | 6,075 | (52 | ) | 12,107 | 5,753 | 18,797 | 3,260 | 137 | 560 | 29,168 | (137 | ) | 57,538 | ||||||||||||||||||||||||||||||
Interest expense—intercompany | (33 | ) | 561 | 130 | 350 | 524 | (1,182 | ) | (350 | ) | — | (69 | ) | 4,107 | 521 | 1,650 | 2,147 | (6,706 | ) | (1,650 | ) | — | ||||||||||||||||||||||||||
Net interest revenue | $ | (278 | ) | $ | 863 | $ | 11 | $ | 979 | $ | 1,033 | $ | 8,137 | $ | (979 | ) | $ | 9,766 | $ | (1,320 | ) | $ | 2,120 | $ | 658 | $ | 3,267 | $ | 3,524 | $ | 29,171 | $ | (3,267 | ) | $ | 34,153 | ||||||||||||
Commissions and fees | $ | — | $ | 2,377 | $ | — | $ | 14 | $ | 38 | $ | 2,773 | $ | (14 | ) | $ | 5,188 | $ | — | $ | 8,122 | $ | — | $ | 75 | $ | 140 | $ | 8,025 | $ | (75 | ) | $ | 16,287 | ||||||||||||||
Commissions and fees—intercompany | — | 77 | — | 11 | 11 | (88 | ) | (11 | ) | — | — | 95 | — | 14 | 16 | (111 | ) | (14 | ) | — | ||||||||||||||||||||||||||||
Principal transactions | 16 | 1,466 | (123 | ) | — | — | 758 | — | 2,117 | 91 | (887 | ) | (412 | ) | — | 4 | 6,757 | — | 5,553 | |||||||||||||||||||||||||||||
Principal transactions—intercompany | 15 | (336 | ) | 130 | — | — | 191 | — | — | 66 | 1,111 | (162 | ) | — | (31 | ) | (984 | ) | — | — | ||||||||||||||||||||||||||||
Other income | 503 | 1,073 | 65 | 113 | 162 | 3,309 | (113 | ) | 5,112 | (131 | ) | 3,446 | 119 | 341 | 504 | 14,551 | (341 | ) | 18,489 | |||||||||||||||||||||||||||||
Other income—intercompany | (434 | ) | 214 | (68 | ) | 5 | 3 | 285 | (5 | ) | — | (5 | ) | 1,079 | (89 | ) | 20 | (39 | ) | (946 | ) | (20 | ) | — | ||||||||||||||||||||||||
Total non-interest revenues | $ | 100 | $ | 4,871 | $ | 4 | $ | 143 | $ | 214 | $ | 7,228 | $ | (143 | ) | $ | 12,417 | $ | 21 | $ | 12,966 | $ | (544 | ) | $ | 450 | $ | 594 | $ | 27,292 | $ | (450 | ) | $ | 40,329 | |||||||||||||
Total revenues, net of interest expense | $ | 2,275 | $ | 5,734 | $ | 15 | $ | 1,122 | $ | 1,247 | $ | 15,365 | $ | (3,575 | ) | $ | 22,183 | $ | 6,447 | $ | 15,086 | $ | 114 | $ | 3,717 | $ | 4,118 | $ | 56,463 | $ | (11,463 | ) | $ | 74,482 | ||||||||||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 21 | $ | — | $ | 295 | $ | 337 | $ | 1,315 | $ | (295 | ) | $ | 1,673 | $ | — | $ | 29 | $ | — | $ | 1,587 | $ | 1,767 | $ | 8,950 | $ | (1,587 | ) | $ | 10,746 | ||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and benefits | $ | (5 | ) | $ | 3,467 | $ | — | $ | 198 | $ | 247 | $ | 4,554 | $ | (198 | ) | $ | 8,263 | $ | 99 | $ | 8,816 | $ | — | $ | 507 | $ | 667 | $ | 15,769 | $ | (507 | ) | $ | 25,351 | |||||||||||||
Compensation and benefits—intercompany | 2 | — | — | 35 | 36 | (38 | ) | (35 | ) | — | 8 | 1 | — | 120 | 121 | (130 | ) | (120 | ) | — | ||||||||||||||||||||||||||||
Other expense | 36 | 907 | — | 149 | 191 | 3,961 | (149 | ) | 5,095 | 324 | 2,617 | 2 | 399 | 541 | 16,152 | (399 | ) | 19,636 | ||||||||||||||||||||||||||||||
Other expense—intercompany | 34 | 443 | 20 | 45 | 62 | (559 | ) | (45 | ) | — | 175 | 1,388 | 43 | 224 | 302 | (1,908 | ) | (224 | ) | — | ||||||||||||||||||||||||||||
Total operating expenses | $ | 67 | $ | 4,817 | $ | 20 | $ | 427 | $ | 536 | $ | 7,918 | $ | (427 | ) | $ | 13,358 | $ | 606 | $ | 12,822 | $ | 45 | $ | 1,250 | $ | 1,631 | $ | 29,883 | $ | (1,250 | ) | $ | 44,987 | ||||||||||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries | $ | 2,208 | $ | 896 | $ | (5 | ) | $ | 400 | $ | 374 | $ | 6,132 | $ | (2,853 | ) | $ | 7,152 | $ | 5,841 | $ | 2,235 | $ | 69 | $ | 880 | $ | 720 | $ | 17,630 | $ | (8,626 | ) | $ | 18,749 | |||||||||||||
Income taxes (benefits) | (206 | ) | 265 | (2 | ) | 125 | 66 | 1,414 | (125 | ) | 1,537 | (857 | ) | 721 | 23 | 320 | 252 | 4,970 | (320 | ) | 5,109 | |||||||||||||||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 60 | — | 60 | — | — | — | — | — | 190 | — | 190 | ||||||||||||||||||||||||||||||||
Equities in undistributed income of subsidiaries | 3,225 | — | — | — | — | — | (3,225 | ) | — | 6,752 | — | — | — | — | — | (6,752 | ) | — | ||||||||||||||||||||||||||||||
Income from continuing operations | $ | 5,639 | $ | 631 | $ | (3 | ) | $ | 275 | $ | 308 | $ | 4,658 | $ | (5,953 | ) | $ | 5,555 | $ | 13,450 | $ | 1,514 | $ | 46 | $ | 560 | $ | 468 | $ | 12,470 | $ | (15,058 | ) | $ | 13,450 | |||||||||||||
Income from discontinued operations, net of taxes | — | (6 | ) | — | — | — | 90 | — | 84 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Net income | $ | 5,639 | $ | 625 | $ | (3 | ) | $ | 275 | $ | 308 | $ | 4,748 | $ | (5,953 | ) | $ | 5,639 | $ | 13,450 | $ | 1,514 | $ | 46 | $ | 560 | $ | 468 | $ | 12,470 | $ | (15,058 | ) | $ | 13,450 | |||||||||||||
CONDENSED CONSOLIDATING STATEMENT OF INCOME
| Nine Months Ended September 30, 2006 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries, eliminations and income from discontinued operations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||
Revenues | ||||||||||||||||||||||||
Dividends from subsidiary banks and bank holding companies | $ | 9,165 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (9,165 | ) | $ | — | |||||||
Interest revenue | 325 | 17,187 | — | 4,384 | 5,199 | 47,463 | (4,384 | ) | 70,174 | |||||||||||||||
Interest revenue—intercompany | 3,027 | 357 | 2,219 | 44 | 287 | (5,890 | ) | (44 | ) | — | ||||||||||||||
Interest expense | 4,354 | 13,597 | 1,524 | 145 | 546 | 20,704 | (145 | ) | 40,725 | |||||||||||||||
Interest expense—intercompany | (37 | ) | 1,964 | 550 | 1,227 | 1,784 | (4,261 | ) | (1,227 | ) | — | |||||||||||||
Net interest revenue | $ | (965 | ) | $ | 1,983 | $ | 145 | $ | 3,056 | $ | 3,156 | $ | 25,130 | $ | (3,056 | ) | $ | 29,449 | ||||||
Commissions and fees | — | $ | 6,981 | — | $ | 48 | $ | 119 | $ | 7,221 | $ | (48 | ) | $ | 14,321 | |||||||||
Commissions and fees—intercompany | — | 233 | — | 35 | 34 | (267 | ) | (35 | ) | — | ||||||||||||||
Principal transactions | 28 | 3,661 | (96 | ) | — | 5 | 2,354 | — | 5,952 | |||||||||||||||
Principal transactions—intercompany | (1 | ) | (853 | ) | 62 | — | — | 792 | — | — | ||||||||||||||
Other income | 187 | 2,586 | 88 | 331 | 446 | 12,758 | (331 | ) | 16,065 | |||||||||||||||
Other income—intercompany | (182 | ) | 921 | (57 | ) | 16 | 13 | (695 | ) | (16 | ) | — | ||||||||||||
Total non-interest revenues | $ | 32 | $ | 13,529 | $ | (3 | ) | $ | 430 | $ | 617 | $ | 22,163 | $ | (430 | ) | $ | 36,338 | ||||||
Total revenues, net of interest expense | $ | 8,232 | $ | 15,512 | $ | 142 | $ | 3,486 | $ | 3,773 | $ | 47,293 | $ | (12,651 | ) | $ | 65,787 | |||||||
Provisions for credit losses and for benefits and claims | $ | — | $ | 33 | $ | — | $ | 879 | $ | 1,016 | $ | 4,558 | $ | (879 | ) | $ | 5,607 | |||||||
Expenses | ||||||||||||||||||||||||
Compensation and benefits | $ | 52 | $ | 8,445 | $ | — | $ | 575 | $ | 730 | $ | 13,128 | $ | (575 | ) | $ | 22,355 | |||||||
Compensation and benefits—intercompany | 6 | 1 | — | 104 | 105 | (112 | ) | (104 | ) | — | ||||||||||||||
Other expense | 101 | 2,670 | 1 | 387 | 509 | 12,427 | (387 | ) | 15,708 | |||||||||||||||
Other expense—intercompany | 116 | 1,198 | 32 | 137 | 188 | (1,534 | ) | (137 | ) | — | ||||||||||||||
Total operating expenses | $ | 275 | $ | 12,314 | $ | 33 | $ | 1,203 | $ | 1,532 | $ | 23,909 | $ | (1,203 | ) | $ | 38,063 | |||||||
Income from continuing operations before taxes, minority interest and equity in undistributed income of subsidiaries | $ | 7,957 | $ | 3,165 | $ | 109 | $ | 1,404 | $ | 1,225 | $ | 18,826 | $ | (10,569 | ) | $ | 22,117 | |||||||
Income taxes (benefits) | (740 | ) | 965 | 43 | 499 | 377 | 5,215 | (499 | ) | 5,860 | ||||||||||||||
Minority interest, net of taxes | — | — | — | — | — | 137 | — | 137 | ||||||||||||||||
Equities in undistributed income of subsidiaries | 7,712 | — | — | — | — | — | (7,712 | ) | — | |||||||||||||||
Income from continuing operations | $ | 16,409 | $ | 2,200 | $ | 66 | $ | 905 | $ | 848 | $ | 13,474 | $ | (17,782 | ) | $ | 16,120 | |||||||
Income from discontinued operations, net of taxes | — | 84 | — | — | — | 205 | — | 289 | ||||||||||||||||
Net income | $ | 16,409 | $ | 2,284 | $ | 66 | $ | 905 | $ | 848 | $ | 13,679 | $ | (17,782 | ) | $ | 16,409 | |||||||
CONDENSED CONSOLIDATING BALANCE SHEET
| September 30, 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 | $ | — | $ | 5,196 | $ | 52 | $ | 239 | $ | 339 | $ | 32,639 | $ | (239 | ) | $ | 38,226 | ||||||||
Cash and due from banks—intercompany | 35 | 864 | — | 140 | 159 | (1,058 | ) | (140 | ) | — | |||||||||||||||
Federal funds sold and resale agreements | — | 338,085 | — | — | — | 45,132 | — | 383,217 | |||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 14,146 | — | — | — | (14,146 | ) | — | — | ||||||||||||||||
Trading account assets | 21 | 348,280 | 120 | 10 | 41 | 232,758 | (10 | ) | 581,220 | ||||||||||||||||
Trading account assets—intercompany | 723 | 8,065 | 1,588 | — | 13 | (10,389 | ) | — | — | ||||||||||||||||
Investments | 7,082 | 425 | — | 2,488 | 3,110 | 230,211 | (2,488 | ) | 240,828 | ||||||||||||||||
Loans, net of unearned income | — | 826 | — | 48,113 | 57,178 | 715,965 | (48,113 | ) | 773,969 | ||||||||||||||||
Loans, net of unearned income—intercompany | — | — | 122,460 | 8,219 | 14,171 | (136,631 | ) | (8,219 | ) | — | |||||||||||||||
Allowance for loan losses | — | (74 | ) | — | (1,268 | ) | (1,428 | ) | (11,226 | ) | 1,268 | (12,728 | ) | ||||||||||||
Total loans, net | $ | — | $ | 752 | $ | 122,460 | $ | 55,064 | $ | 69,921 | $ | 568,108 | $ | (55,064 | ) | $ | 761,241 | ||||||||
Advances to subsidiaries | 107,369 | — | — | — | — | (107,369 | ) | — | — | ||||||||||||||||
Investments in subsidiaries | 166,908 | — | — | — | — | — | (166,908 | ) | — | ||||||||||||||||
Other assets | 10,570 | 89,231 | 76 | 5,327 | 6,998 | 246,659 | (5,327 | ) | 353,534 | ||||||||||||||||
Other assets—intercompany | 5,246 | 32,804 | 4,206 | 316 | 893 | (43,149 | ) | (316 | ) | — | |||||||||||||||
Total assets | $ | 297,954 | $ | 837,848 | $ | 128,502 | $ | 63,584 | $ | 81,474 | $ | 1,179,396 | $ | (230,492 | ) | $ | 2,358,266 | ||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||||||
Deposits | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 812,850 | $ | — | $ | 812,850 | |||||||||
Federal funds purchased and securities loaned or sold | — | 383,976 | — | — | — | 56,393 | — | 440,369 | |||||||||||||||||
Federal funds purchased and securities loaned or sold—intercompany | — | 2,752 | — | — | — | (2,752 | ) | — | — | ||||||||||||||||
Trading account liabilities | 5 | 142,073 | 103 | — | — | 73,442 | — | 215,623 | |||||||||||||||||
Trading account liabilities—intercompany | 49 | 5,896 | 263 | — | 26 | (6,234 | ) | — | — | ||||||||||||||||
Short-term borrowings | 5,444 | 26,808 | 52,611 | — | 1,574 | 107,867 | — | 194,304 | |||||||||||||||||
Short-term borrowings—intercompany | — | 77,740 | 38,619 | 10,486 | 40,630 | (156,989 | ) | (10,486 | ) | — | |||||||||||||||
Long-term debt | 153,986 | 28,904 | 33,607 | 3,338 | 14,286 | 133,743 | (3,338 | ) | 364,526 | ||||||||||||||||
Long-term debt—intercompany | — | 30,756 | 1,017 | 40,751 | 16,248 | (48,021 | ) | (40,751 | ) | — | |||||||||||||||
Advances from subsidiaries | 1,174 | — | — | — | — | (1,174 | ) | — | — | ||||||||||||||||
Other liabilities | 8,295 | 107,594 | 291 | 2,032 | 2,069 | 85,232 | (2,032 | ) | 203,481 | ||||||||||||||||
Other liabilities—intercompany | 1,888 | 11,449 | 260 | 587 | 248 | (13,845 | ) | (587 | ) | — | |||||||||||||||
Stockholders' equity | 127,113 | 19,900 | 1,731 | 6,390 | 6,393 | 138,884 | (173,298 | ) | 127,113 | ||||||||||||||||
Total liabilities and stockholders' equity | $ | 297,954 | $ | 837,848 | $ | 128,502 | $ | 63,584 | $ | 81,474 | $ | 1,179,396 | $ | (230,492 | ) | $ | 2,358,266 | ||||||||
CONDENSED CONSOLIDATING BALANCE SHEET
| March 31, 2007 | December 31, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | $ | — | $ | 4,206 | $ | 17 | $ | 184 | $ | 286 | $ | 19,912 | $ | (184 | ) | $ | 24,421 | $ | — | $ | 3,752 | $ | — | $ | 216 | $ | 313 | $ | 22,449 | $ | (216 | ) | $ | 26,514 | ||||||||||||||||
Cash and due from banks—intercompany | 29 | 534 | — | 147 | 157 | (720 | ) | (147 | ) | — | 21 | 669 | — | 172 | 190 | (880 | ) | (172 | ) | — | ||||||||||||||||||||||||||||||
Federal funds sold and resale agreements | — | 292,729 | — | — | — | 11,196 | — | 303,925 | — | 269,949 | — | — | — | 12,868 | — | 282,817 | ||||||||||||||||||||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 9,124 | — | — | — | (9,124 | ) | — | — | — | 5,720 | — | — | — | (5,720 | ) | — | — | ||||||||||||||||||||||||||||||||
Trading account assets | 37 | 342,504 | — | — | 37 | 117,487 | — | 460,065 | 38 | 281,290 | — | — | 36 | 112,561 | — | 393,925 | ||||||||||||||||||||||||||||||||||
Trading account assets—intercompany | 352 | 6,755 | 766 | — | 8 | (7,881 | ) | — | — | 224 | 6,257 | 1 | — | 9 | (6,491 | ) | — | — | ||||||||||||||||||||||||||||||||
Investments | 8,604 | — | — | 2,348 | 2,883 | 275,080 | (2,348 | ) | 286,567 | 9,088 | — | — | 2,290 | 2,808 | 261,695 | (2,290 | ) | 273,591 | ||||||||||||||||||||||||||||||||
Loans, net of unearned income | — | 945 | — | 44,900 | 53,765 | 638,634 | (44,900 | ) | 693,344 | — | 932 | — | 44,809 | 53,614 | 624,646 | (44,809 | ) | 679,192 | ||||||||||||||||||||||||||||||||
Loans, net of unearned income—intercompany | — | — | 35,623 | 7,996 | 10,234 | (45,857 | ) | (7,996 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Loans, net of unearned income—Intercompany | — | — | 83,308 | 8,116 | 11,234 | (94,542 | ) | (8,116 | ) | — | ||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses | — | (63 | ) | — | (959 | ) | (1,106 | ) | (8,341 | ) | 959 | (9,510 | ) | — | (60 | ) | — | (954 | ) | (1,099 | ) | (7,781 | ) | 954 | (8,940 | ) | ||||||||||||||||||||||||
Total loans, net | $ | — | $ | 882 | $ | 35,623 | $ | 51,937 | $ | 62,893 | $ | 584,436 | $ | (51,937 | ) | $ | 683,834 | $ | — | $ | 872 | $ | 83,308 | $ | 51,971 | $ | 63,749 | $ | 522,323 | $ | (51,971 | ) | $ | 670,252 | ||||||||||||||||
Advances to subsidiaries | 94,225 | — | — | — | — | (94,225 | ) | — | — | 90,112 | — | — | — | — | (90,112 | ) | — | — | ||||||||||||||||||||||||||||||||
Investments in subsidiaries | 151,077 | — | — | — | — | — | (151,077 | ) | — | 146,904 | — | — | — | — | — | (146,904 | ) | — | ||||||||||||||||||||||||||||||||
Other assets | 8,770 | 70,692 | 59 | 5,193 | 6,702 | 175,931 | (5,193 | ) | 262,154 | 8,234 | 66,761 | 552 | 4,708 | 6,208 | 155,464 | (4,708 | ) | 237,219 | ||||||||||||||||||||||||||||||||
Other assets—intercompany | 4,461 | 15,091 | 62,415 | 270 | 392 | (82,359 | ) | (270 | ) | — | 2,969 | 16,153 | 4,241 | 260 | 388 | (23,751 | ) | (260 | ) | — | ||||||||||||||||||||||||||||||
Total assets | $ | 267,555 | $ | 742,517 | $ | 98,880 | $ | 60,079 | $ | 73,358 | $ | 989,733 | $ | (211,156 | ) | $ | 2,020,966 | $ | 257,590 | $ | 651,423 | $ | 88,102 | $ | 59,617 | $ | 73,701 | $ | 960,406 | $ | (206,521 | ) | $ | 1,884,318 | ||||||||||||||||
Liabilities and stockholders' equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 738,521 | $ | — | $ | 738,521 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 712,041 | $ | — | $ | 712,041 | ||||||||||||||||||
Federal funds purchased and securities loaned or sold | — | 347,232 | — | — | — | 46,438 | — | 393,670 | — | 304,470 | — | — | — | 44,765 | — | 349,235 | ||||||||||||||||||||||||||||||||||
Federal funds purchased and securities loaned or sold—intercompany | 1,624 | 3,454 | — | — | — | (5,078 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Federal funds purchased and securities loaned or sold—Intercompany | 1,910 | 2,283 | — | — | — | (4,193 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
Trading account liabilities | 5 | 131,093 | 196 | — | — | 42,608 | — | 173,902 | 5 | 106,174 | 51 | — | — | 39,657 | — | 145,887 | ||||||||||||||||||||||||||||||||||
Trading account liabilities—intercompany | 90 | 3,081 | 222 | — | — | (3,393 | ) | — | — | 128 | 2,829 | 93 | — | — | (3,050 | ) | — | — | ||||||||||||||||||||||||||||||||
Short-term borrowings | 28 | 18,997 | 41,681 | 266 | 1,196 | 49,277 | (266 | ) | 111,179 | 32 | 14,102 | 43,345 | 1,201 | 3,137 | 40,217 | (1,201 | ) | 100,833 | ||||||||||||||||||||||||||||||||
Short-term borrowings—intercompany | — | 59,595 | 28,458 | 10,526 | 27,054 | (115,107 | ) | (10,526 | ) | — | — | 47,178 | 22,494 | 9,739 | 24,130 | (93,802 | ) | (9,739 | ) | — | ||||||||||||||||||||||||||||||
Long-term debt | 134,915 | 28,419 | 24,465 | 2,776 | 13,422 | 109,547 | (2,776 | ) | 310,768 | 125,350 | 28,719 | 18,847 | 2,904 | 13,222 | 102,356 | (2,904 | ) | 288,494 | ||||||||||||||||||||||||||||||||
Long-term debt—intercompany | 30 | 26,170 | 2,106 | 33,258 | 22,298 | (50,604 | ) | (33,258 | ) | — | 399 | 24,038 | 1,644 | 33,050 | 24,349 | (50,430 | ) | (33,050 | ) | — | ||||||||||||||||||||||||||||||
Advances from subsidiaries | 528 | — | — | — | — | (528 | ) | — | — | 2,565 | — | — | — | — | (2,565 | ) | — | — | ||||||||||||||||||||||||||||||||
Other liabilities | 7,013 | 96,796 | 121 | 1,892 | 1,665 | 65,248 | (1,892 | ) | 170,843 | 6,246 | 95,113 | 139 | 1,362 | 1,194 | 65,353 | (1,362 | ) | 168,045 | ||||||||||||||||||||||||||||||||
Other liabilities—intercompany | 1,239 | 7,772 | 207 | 438 | 231 | (9,449 | ) | (438 | ) | — | 1,172 | 6,498 | 179 | 628 | 334 | (8,183 | ) | (628 | ) | — | ||||||||||||||||||||||||||||||
Stockholders' equity | 122,083 | 19,908 | 1,424 | 10,923 | 7,492 | 122,253 | (162,000 | ) | 122,083 | 119,783 | 20,019 | 1,310 | 10,733 | 7,335 | 118,240 | (157,637 | ) | 119,783 | ||||||||||||||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 267,555 | $ | 742,517 | $ | 98,880 | $ | 60,079 | $ | 73,358 | $ | 989,733 | $ | (211,156 | ) | $ | 2,020,966 | $ | 257,590 | $ | 651,423 | $ | 88,102 | $ | 59,617 | $ | 73,701 | $ | 960,406 | $ | (206,521 | ) | $ | 1,884,318 | ||||||||||||||||
Reclassified to conform to the current period's presentation.
CONDENSED CONSOLIDATING BALANCE SHEETCondensed Consolidating Statements of Cash Flows
| December 31, 2006 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | |||||||||||||||||
Assets | |||||||||||||||||||||||||
Cash and due from banks | $ | — | $ | 3,752 | $ | — | $ | 216 | $ | 313 | $ | 22,449 | $ | (216 | ) | $ | 26,514 | ||||||||
Cash and due from banks—intercompany | 21 | 669 | — | 172 | 190 | (880 | ) | (172 | ) | — | |||||||||||||||
Federal funds sold and resale agreements | — | 269,949 | — | — | — | 12,868 | — | 282,817 | |||||||||||||||||
Federal funds sold and resale agreements—intercompany | — | 5,720 | — | — | — | (5,720 | ) | — | — | ||||||||||||||||
Trading account assets | 38 | 281,290 | — | — | 36 | 112,561 | — | 393,925 | |||||||||||||||||
Trading account assets—intercompany | 224 | 6,257 | 1 | — | 9 | (6,491 | ) | — | — | ||||||||||||||||
Investments | 9,088 | — | — | 2,290 | 2,808 | 261,695 | (2,290 | ) | 273,591 | ||||||||||||||||
Loans, net of unearned income | — | 932 | — | 44,809 | 53,614 | 624,646 | (44,809 | ) | 679,192 | ||||||||||||||||
Loans, net of unearned income—Intercompany | — | — | 36,206 | 8,116 | 11,234 | (47,440 | ) | (8,116 | ) | — | |||||||||||||||
Allowance for loan losses | — | (60 | ) | — | (954 | ) | (1,099 | ) | (7,781 | ) | 954 | (8,940 | ) | ||||||||||||
Total loans, net | $ | — | $ | 872 | $ | 36,206 | $ | 51,971 | $ | 63,749 | $ | 569,425 | $ | (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 | 51,343 | 260 | 388 | (70,853 | ) | (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 | ||||||||
| Nine Months Ended September 30, 2007 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | |||||||||||||||||
Net cash provided by (used in) operating activities of continuing operations | $ | 927 | $ | (39,555 | ) | $ | (62 | ) | $ | 2,791 | $ | 2,063 | $ | (74,180 | ) | $ | (2,791 | ) | $ | (110,807 | ) | ||||
Cash flows from investing activities | |||||||||||||||||||||||||
Change in loans | $ | — | $ | 106 | $ | (41,717 | ) | $ | (5,278 | ) | $ | (5,714 | ) | $ | (228,590 | ) | $ | 5,278 | $ | (275,915 | ) | ||||
Proceeds from sales and securitizations of loans | — | — | — | — | — | 196,938 | — | 196,938 | |||||||||||||||||
Purchases of investments | (8,277 | ) | (425 | ) | — | (546 | ) | (1,279 | ) | (192,665 | ) | 546 | (202,646 | ) | |||||||||||
Proceeds from sales of investments | 3,958 | — | — | 109 | 428 | 143,187 | (109 | ) | 147,573 | ||||||||||||||||
Proceeds from maturities of investments | 6,171 | — | — | 237 | 612 | 93,794 | (237 | ) | 100,577 | ||||||||||||||||
Changes in investments and advances—intercompany | (20,593 | ) | — | — | (103 | ) | (2,937 | ) | 23,530 | 103 | — | ||||||||||||||
Business acquisitions | — | — | — | — | — | (15,186 | ) | — | (15,186 | ) | |||||||||||||||
Other investing activities | — | (5,120 | ) | — | — | — | (2,298 | ) | — | (7,418 | ) | ||||||||||||||
Net cash (used in) provided by investing activities | $ | (18,741 | ) | $ | (5,439 | ) | $ | (41,717 | ) | $ | (5,581 | ) | $ | (8,890 | ) | $ | 18,710 | $ | 5,581 | $ | (56,077 | ) | |||
Cash flows from financing activities | |||||||||||||||||||||||||
Dividends paid | $ | (8,086 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (8,086 | ) | |||||||
Dividends paid-intercompany | — | (1,868 | ) | — | (4,900 | ) | (1,500 | ) | 3,368 | 4,900 | — | ||||||||||||||
Issuance of common stock | 1,007 | — | — | — | — | — | — | 1,007 | |||||||||||||||||
Redemption or retirement of preferred stock | (800 | ) | — | — | — | — | — | — | (800 | ) | |||||||||||||||
Treasury stock acquired | (663 | ) | — | — | — | — | — | — | (663 | ) | |||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 23,674 | (1,127 | ) | 15,580 | 434 | 1,064 | 477 | (434 | ) | 39,668 | |||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt-intercompany, net | (399 | ) | 6,360 | 1,319 | 7,701 | (8,101 | ) | 821 | (7,701 | ) | — | ||||||||||||||
Change in deposits | — | — | — | — | — | 84,523 | — | 84,523 | |||||||||||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party | 5,412 | 12,706 | 9,187 | (1,200 | ) | (807 | ) | 36,565 | 1,200 | 63,063 | |||||||||||||||
Net change in short-term borrowings and other advances—intercompany | (1,391 | ) | 30,562 | 15,370 | 747 | 16,166 | (60,707 | ) | (747 | ) | — | ||||||||||||||
Capital contributions from parent | — | — | 375 | — | — | (375 | ) | — | — | ||||||||||||||||
Other financing activities | (926 | ) | — | — | (1 | ) | — | — | 1 | (926 | ) | ||||||||||||||
Net cash provided by financing activities | $ | 17,828 | $ | 46,633 | $ | 41,831 | $ | 2,781 | $ | 6,822 | $ | 64,672 | $ | (2,781 | ) | $ | 177,786 | ||||||||
Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 810 | $ | — | $ | 810 | |||||||||
Net increase (decrease) in cash and due from banks | $ | 14 | $ | 1,639 | $ | 52 | $ | (9 | ) | $ | (5 | ) | $ | 10,012 | $ | 9 | $ | 11,712 | |||||||
Cash and due from banks at beginning of period | 21 | 4,421 | — | 388 | 503 | 21,569 | (388 | ) | 26,514 | ||||||||||||||||
Cash and due from banks at end of period from continuing operations | $ | 35 | $ | 6,060 | $ | 52 | $ | 379 | $ | 498 | $ | 31,581 | $ | (379 | ) | $ | 38,226 | ||||||||
Supplemental disclosure of cash flow information | |||||||||||||||||||||||||
Cash paid during the year for: | |||||||||||||||||||||||||
Income taxes | $ | (1,733 | ) | $ | 366 | $ | (10 | ) | $ | 558 | $ | 45 | $ | 5,955 | $ | (558 | ) | $ | 4,623 | ||||||
Interest | $ | 5,058 | $ | 22,397 | $ | 4,848 | $ | 1,876 | $ | 324 | $ | 20,531 | $ | (1,876 | ) | $ | 53,158 | ||||||||
Non-cash investing activities: | |||||||||||||||||||||||||
Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 857 | $ | 880 | $ | 659 | $ | (857 | ) | $ | 1,539 | ||||||||
Reclassified to conform to the current period's presentation.
Condensed Consolidating Statements of Cash Flows
| Three Months Ended March 31, 2007 | Nine Months Ended September 30, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | Citigroup parent company | CGMHI | CFI | CCC | Associates | Other Citigroup subsidiaries and eliminations | Consolidating adjustments | Citigroup Consolidated | ||||||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities of continuing operations | $ | 849 | $ | (17,858 | ) | $ | 73 | $ | 710 | $ | 1,255 | $ | (2,736 | ) | $ | (710 | ) | $ | (18,417 | ) | $ | 9,449 | $ | (66 | ) | $ | (153 | ) | $ | 4,128 | $ | 4,524 | $ | 23,887 | $ | (4,128 | ) | $ | 37,641 | |||||||||||
Cash flows from investing activities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Change in loans | $ | — | $ | (13 | ) | $ | — | $ | (769 | ) | $ | (883 | ) | $ | (71,517 | ) | $ | 769 | $ | (72,413 | ) | $ | — | $ | 31 | $ | — | $ | (4,122 | ) | $ | (4,443 | ) | $ | (252,687 | ) | $ | 4,122 | $ | (257,099 | ) | |||||||||
Proceeds from sales and securitizations of loans | — | — | — | — | — | 61,333 | — | 61,333 | — | — | — | — | — | 180,427 | — | 180,427 | ||||||||||||||||||||||||||||||||||
Purchases of investments | (4,147 | ) | — | — | (173 | ) | (401 | ) | (76,681 | ) | 173 | (81,229 | ) | (13,499 | ) | — | — | (4,147 | ) | (5,523 | ) | (193,464 | ) | 4,147 | (212,486 | ) | ||||||||||||||||||||||||
Proceeds from sales of investments | 1,688 | — | — | 50 | 121 | 37,208 | (50 | ) | 39,017 | 3,543 | — | — | 636 | 1,076 | 49,121 | (636 | ) | 53,740 | ||||||||||||||||||||||||||||||||
Proceeds from maturities of investments | 2,966 | — | — | 71 | 218 | 31,209 | (71 | ) | 34,393 | 8,173 | — | — | 3,378 | 4,331 | 77,659 | (3,378 | ) | 90,163 | ||||||||||||||||||||||||||||||||
Changes in investments and advances—intercompany | (4,113 | ) | — | (10,537 | ) | 121 | 606 | 14,044 | (121 | ) | — | (11,008 | ) | — | (20,942 | ) | (2,614 | ) | (1,008 | ) | 32,958 | 2,614 | — | |||||||||||||||||||||||||||
Business acquisitions | — | — | — | — | — | (2,353 | ) | — | (2,353 | ) | — | (9 | ) | — | — | — | 9 | — | — | |||||||||||||||||||||||||||||||
Other investing activities | — | 1,757 | — | — | — | (4,409 | ) | — | (2,652 | ) | — | (45 | ) | — | — | — | (3,836 | ) | �� | — | (3,881 | ) | ||||||||||||||||||||||||||||
Net cash (used in) provided by investing activities | $ | (3,606 | ) | $ | 1,744 | $ | (10,537 | ) | $ | (700 | ) | $ | (339 | ) | $ | (11,166 | ) | $ | 700 | $ | (23,904 | ) | ||||||||||||||||||||||||||||
Net cash used in investing activities | $ | (12,791 | ) | $ | (23 | ) | $ | (20,942 | ) | $ | (6,869 | ) | $ | (5,567 | ) | $ | (109,813 | ) | $ | 6,869 | $ | (149,136 | ) | |||||||||||||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | $ | (2,698 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (2,698 | ) | $ | (7,420 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (7,420 | ) | ||||||||||||||
Dividends paid—intercompany | — | (1,036 | ) | — | — | — | 1,036 | — | — | |||||||||||||||||||||||||||||||||||||||||
Dividends paid-intercompany | — | (3,666 | ) | — | — | (160 | ) | 3,826 | — | — | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | 394 | — | — | — | — | — | — | 394 | 1,210 | — | — | — | — | — | — | 1,210 | ||||||||||||||||||||||||||||||||||
Redemption or retirement of preferred stock | (125 | ) | — | — | — | — | — | — | (125 | ) | ||||||||||||||||||||||||||||||||||||||||
Treasury stock acquired | (645 | ) | — | — | — | — | — | — | (645 | ) | (6,000 | ) | — | — | — | — | — | — | (6,000 | ) | ||||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 8,943 | (1,967 | ) | 6,080 | (128 | ) | 195 | (3,884 | ) | 128 | 9,367 | 12,884 | (8,485 | ) | 10,708 | (1,090 | ) | (658 | ) | 26,565 | 1,090 | 41,014 | ||||||||||||||||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—intercompany, net | (369 | ) | 2,124 | — | 208 | (2,051 | ) | 296 | (208 | ) | — | 1,104 | 4,968 | — | 3,232 | (7,779 | ) | 1,707 | (3,232 | ) | — | |||||||||||||||||||||||||||||
Change in deposits | — | — | — | — | — | 24,902 | — | 24,902 | — | — | — | (1 | ) | — | 78,440 | 1 | 78,440 | |||||||||||||||||||||||||||||||||
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 | (2 | ) | (1,062 | ) | 670 | (1,520 | ) | (2,368 | ) | 6,333 | 1,520 | 3,571 | ||||||||||||||||||||||||||
Net change in short-term borrowings and other advances—intercompany | (2,037 | ) | 12,417 | 6,320 | 787 | 2,821 | (19,521 | ) | (787 | ) | — | 2,139 | 8,789 | 8,967 | 1,507 | 11,273 | (31,168 | ) | (1,507 | ) | — | |||||||||||||||||||||||||||||
Capital contributions from parent | — | — | 100 | — | — | (100 | ) | — | — | — | — | 750 | — | 301 | (1,051 | ) | — | — | ||||||||||||||||||||||||||||||||
Other financing activities | (819 | ) | — | — | — | — | — | — | (819 | ) | (659 | ) | — | — | 270 | 2 | (2 | ) | (270 | ) | (659 | ) | ||||||||||||||||||||||||||||
Net cash provided by (used in) financing activities | $ | 2,765 | $ | 16,433 | $ | 10,481 | $ | (67 | ) | $ | (976 | ) | $ | 11,516 | $ | 67 | $ | 40,219 | ||||||||||||||||||||||||||||||||
Net cash provided by financing activities | $ | 3,131 | $ | 544 | $ | 21,095 | $ | 2,398 | $ | 611 | $ | 84,650 | $ | (2,398 | ) | $ | 110,031 | |||||||||||||||||||||||||||||||||
Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 9 | $ | — | $ | 9 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 375 | — | $ | 375 | |||||||||||||||||||
Net increase (decrease) in cash and due from banks | $ | 8 | $ | 319 | $ | 17 | $ | (57 | ) | $ | (60 | ) | $ | (2,377 | ) | $ | 57 | $ | (2,093 | ) | ||||||||||||||||||||||||||||||
Net (decrease)/increase in cash and due from banks | $ | (211 | ) | $ | 455 | $ | — | $ | (343 | ) | $ | (432 | ) | $ | (901 | ) | $ | 343 | $ | (1,089 | ) | |||||||||||||||||||||||||||||
Cash and due from banks at beginning of period | 21 | 4,421 | — | 388 | 503 | 21,569 | (388 | ) | 26,514 | 247 | 3,913 | 1 | 687 | 876 | 18,595 | $ | (687 | ) | 23,632 | |||||||||||||||||||||||||||||||
Cash and due from banks at end of period from continuing operations | $ | 29 | $ | 4,740 | $ | 17 | $ | 331 | $ | 443 | $ | 19,192 | $ | (331 | ) | $ | 24,421 | $ | 36 | $ | 4,368 | $ | 1 | $ | 344 | $ | 444 | $ | 17,694 | $ | (344 | ) | $ | 22,543 | ||||||||||||||||
Supplemental disclosure of cash flow information | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cash paid during the year for: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Income taxes | $ | (61 | ) | $ | 644 | $ | (20 | ) | $ | 34 | $ | 25 | $ | 1,238 | $ | (34 | ) | $ | 1,826 | $ | (690 | ) | $ | 1,489 | $ | 29 | $ | 483 | $ | 64 | $ | 4,495 | $ | (483 | ) | $ | 5,387 | |||||||||||||
Interest | 1,718 | 6,921 | 1,078 | 738 | 116 | 5,499 | (738 | ) | 15,332 | $ | 4,009 | $ | 15,069 | $ | 2,027 | $ | 138 | $ | 369 | $ | 15,761 | $ | (138 | ) | 37,235 | |||||||||||||||||||||||||
Non-cash investing activities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 308 | $ | 315 | $ | 138 | $ | (308 | ) | $ | 453 | $ | — | $ | — | $ | — | $ | 779 | $ | 799 | $ | 218 | $ | (779 | ) | $ | 1,017 | ||||||||||||||||
Condensed Consolidating Statements21. Fourth Quarter 2007 Subsequent Event
Sub-prime Related Exposure inSecurities and Banking
On November 4, 2007, the Company announced significant declines since September 30, 2007 in the fair value of Cash Flowsthe approximately $55 billion in U.S. sub-prime related direct exposures in itsSecurities and Banking (S&B) business. Citi estimates that, at the present time, the reduction in revenues attributable to these declines ranges from approximately $8 billion to $11 billion (representing a decline of approximately $5 billion to $7 billion in net income on an after-tax basis).
| Three Months Ended March 31, 2006 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 of continuing operations | $ | 1,781 | $ | 4,101 | $ | (103 | ) | $ | 897 | $ | 1,591 | $ | (4,200 | ) | $ | (897 | ) | $ | 3,170 | ||||||
Cash flows from investing activities | |||||||||||||||||||||||||
Change in loans | $ | — | $ | (97 | ) | $ | — | $ | 300 | $ | 357 | $ | (86,080 | ) | $ | (300 | ) | $ | (85,820 | ) | |||||
Proceeds from sales and securitizations of loans | — | — | — | — | — | 63,397 | — | 63,397 | |||||||||||||||||
Purchases of investments | (8,136 | ) | — | — | (2,054 | ) | (2,630 | ) | (52,659 | ) | 2,054 | (63,425 | ) | ||||||||||||
Proceeds from sales of investments | 520 | — | — | 341 | 542 | 16,382 | (341 | ) | 17,444 | ||||||||||||||||
Proceeds from maturities of investments | 6,000 | — | — | 1,634 | 2,083 | 24,319 | (1,634 | ) | 32,402 | ||||||||||||||||
Changes in investments and advances—intercompany | (2,509 | ) | — | (3,234 | ) | 7 | 345 | 5,398 | (7 | ) | — | ||||||||||||||
Business acquisitions | — | (9 | ) | — | — | — | 9 | — | — | ||||||||||||||||
Other investing activities | — | (481 | ) | — | — | — | (1,488 | ) | — | (1,969 | ) | ||||||||||||||
Net cash (used in) provided by investing activities | $ | (4,125 | ) | $ | (587 | ) | $ | (3,234 | ) | $ | 228 | $ | 697 | $ | (30,722 | ) | $ | (228 | ) | $ | (37,971 | ) | |||
Cash flows from financing activities | |||||||||||||||||||||||||
Dividends paid | $ | (2,491 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (2,491 | ) | |||||||
Dividends paid-intercompany | — | (620 | ) | — | — | (35 | ) | 655 | — | — | |||||||||||||||
Issuance of common stock | 258 | — | — | — | — | — | — | 258 | |||||||||||||||||
Redemption or retirement of preferred stock | (125 | ) | — | — | — | — | — | — | (125 | ) | |||||||||||||||
Treasury stock acquired | (2,000 | ) | — | — | — | — | — | — | (2,000 | ) | |||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—third-party, net | 6,222 | (4,353 | ) | 5,126 | (119 | ) | (114 | ) | 3,734 | 119 | 10,615 | ||||||||||||||
Proceeds/(Repayments) from issuance of long-term debt—intercompany, net | 516 | 1,725 | — | (420 | ) | (1,398 | ) | (843 | ) | 420 | — | ||||||||||||||
Change in deposits | — | — | — | (1 | ) | — | 35,530 | 1 | 35,530 | ||||||||||||||||
Net change in short-term borrowings and other investment banking and brokerage borrowings—third-party | (1 | ) | (2,457 | ) | (7,766 | ) | (1,520 | ) | (1,208 | ) | 2,632 | 1,520 | (8,800 | ) | |||||||||||
Net change in short-term borrowings and other advances—intercompany | 397 | 1,700 | 5,495 | 767 | 343 | (7,935 | ) | (767 | ) | — | |||||||||||||||
Capital contributions from parent | — | — | 482 | 108 | 35 | (517 | ) | (108 | ) | — | |||||||||||||||
Other financing activities | (569 | ) | — | — | 1 | 1 | (1 | ) | (1 | ) | (569 | ) | |||||||||||||
Net cash provided by (used in) financing activities | $ | 2,207 | $ | (4,005 | ) | $ | 3,337 | $ | (1,184 | ) | $ | (2,376 | ) | $ | 33,255 | $ | 1,184 | $ | 32,418 | ||||||
Effect of exchange rate changes on cash and due from banks | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 162 | $ | — | $ | 162 | |||||||||
Net decrease in cash and due from banks | $ | (137 | ) | $ | (491 | ) | $ | — | $ | (59 | ) | $ | (88 | ) | $ | (1,505 | ) | $ | 59 | $ | (2,221 | ) | |||
Cash and due from banks at beginning of period | 247 | 3,913 | 1 | 687 | 876 | 18,595 | (687 | ) | 23,632 | ||||||||||||||||
Cash and due from banks at end of period from continuing operations | $ | 110 | $ | 3,422 | $ | 1 | $ | 628 | $ | 788 | $ | 17,090 | $ | (628 | ) | $ | 21,411 | ||||||||
Supplemental disclosure of cash flow information | |||||||||||||||||||||||||
Cash paid during the year for: | |||||||||||||||||||||||||
Income taxes | $ | 33 | $ | 1,526 | $ | — | $ | (23 | ) | $ | (10 | ) | $ | (532 | ) | $ | 23 | $ | 1,017 | ||||||
Interest | 1,206 | 4,478 | 524 | 167 | 122 | 4,820 | (167 | ) | 11,150 | ||||||||||||||||
Non-cash investing activities: | |||||||||||||||||||||||||
Transfers to repossessed assets | $ | — | $ | — | $ | — | $ | 278 | $ | 284 | $ | 74 | $ | (278 | ) | $ | 358 | ||||||||
These declines in the fair value of Citi's sub-prime related direct exposures followed a series of rating agency downgrades of sub-prime U.S. mortgage related assets and other market developments, which occurred after the end of the third quarter. The impact on Citi's financial results for the fourth quarter from changes in the fair value of these exposures will depend on future market developments and could differ materially from the range above.
The $55 billion in U.S. sub-prime direct exposure in S&B as of September 30, 2007 consisted of (a) approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and (b) approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities (ABS CDOs).
Lending and Structuring Exposures
Citi's approximately $11.7 billion of sub-prime related exposures in the lending and structuring business as of September��30, 2007 compares to approximately $13 billion of sub-prime related exposures in the lending and structuring business at the end of the second quarter and approximately $24 billion at the beginning of the year. The $11.7 billion of sub-prime related exposures includes approximately $2.7 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $4.2 billion of actively managed sub-prime loans purchased for resale or securitization at a discount to par primarily in the last six months, and approximately $4.8 billion of financing transactions with customers secured by sub-prime collateral. These amounts represent fair value determined based on observable transactions and other market data. Following the downgrades and market developments referred to above, the fair value of the CDO warehouse inventory and unsold tranches of ABS CDOs has declined significantly, while the declines in the fair value of the other sub-prime related exposures in the lending and structuring business have not been significant.
ABS CDO Super Senior Exposures
Citi's $43 billion in ABS CDO super senior exposures as of September 30, 2007 is backed primarily by sub-prime RMBS collateral. These exposures include approximately $25 billion in commercial paper principally secured by super senior tranches of high grade ABS CDOs and approximately $18 billion of super senior tranches of ABS CDOs, consisting of approximately $10 billion of high grade ABS CDOs, approximately $8 billion of mezzanine ABS CDOs and approximately $0.2 billion of ABS CDO-squared transactions.
Although the principal collateral underlying these super senior tranches is U.S. sub-prime RMBS, as noted above, these exposures represent the most senior tranches of the capital structure of the ABS CDOs. These super senior tranches are not subject to valuation based on observable market transactions. Accordingly, fair value of these super senior exposures is based on estimates about, among other things, future housing prices to predict estimated cash flows, which are then discounted to a present value. The rating agency downgrades and market developments referred to above have led to changes in the appropriate discount rates applicable to these super senior tranches, which have resulted in significant declines in the estimates of the fair value of S&B super senior exposures.
Item 1. Legal Proceedings
The following information supplements and amends our discussion set forth under Part I, Item 3 "Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.2006, as updated by our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007.
Enron Corp.
Following the decision of the Court of Appeals for the Fifth Circuit on March 19, 2007, reversing the District Court's certification of a class in NEWBY, et al. v. ENRON CORP., et al., the District Court, on March 20, 2007, stayed all actions coordinated or consolidated with NEWBY in which plaintiffs asserted claims under Section 10(b) of the Securities Exchange Act of 1934 against financial institutions.
Research
Telecommunications Research Class Actions.
On March 23,August 27, 2007, the District Court approved Citigroup's settlementfor the Southern District of a putative class action, LOS ANGELES CITY EMPLOYEES RETIREMENT ASSOCIATION v. CITIGROUP, which assertedNew York in IN RE ENRON CORP. reversed the rulings of the federal bankruptcy court that certain bankruptcy claims underheld by Citigroup transferees could be equitably subordinated or disallowed solely because of the Securities Exchange Actalleged misconduct of 1934 concerning Salomon Smith Barney's equity research coverage of Focal Communications.
Customer Class Actions.
In DISHER V. CITIGROUP GLOBAL MARKETS INC., on March 2, 2007, the District Court vacated its 2005 order dismissing the caseCitigroup, and remanded the action to Illinois state court.for further proceedings.
Parmalat
On March 9,August 8, 2007, the Parma prosecutors completed their preliminary investigation and accused 13 Citigroup employees of criminal bankruptcy offenses under Italian law, arising out of the collapse of Parmalat.
On October 2, 2007, the New Jersey Superior Court, Appellate Division,trial court in BONDI v. CITIGROUP denied Citigroup's motion for leave to appeal the denial of its renewed motion to dismiss the complaint in BONDI V. CITIGROUP on the ground of forforum non conveniens. On March 26, 2007, Citigroup filedconveniens and set a motion for leave to appeal with the New Jersey Supreme Court; that motion is pending.trial date of May 5, 2008.
IPO Securities Litigation
On April 6,August 14, 2007, plaintiffs filed amended complaints in the Second Circuit panel that reversedsix focus cases as well as amended master allegations for all cases in the district court's class certification decision denied plaintiffs' petition for rehearing. The companion petition for rehearing en banc remains pending beforecoordinated proceedings. On September 27, 2007, plaintiffs filed a motion to certify new classes in the Second Circuit.
Other
In IN RE: CITIGROUP PENSION PLAN ERISA LITIGATION, on April 4, 2007, the District Court denied defendants' motion for entry of a partial final judgment, for permission to file an interlocutory appeal from the summary judgment order, and for a stay of proceedings.
In CARROLL v. WEILL, ET AL., the New York Supreme Court held fairness hearings on the proposed settlement on February 28 and March 1, 2007.six focus cases.
Item 1A. Risk Factors
There are no material changes from the risk factors set forth under Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In addition, on August 23, 2007, the Company issued to GSB Investments and HG/F, respectively, 9,974 and 2,493 shares of Company common stock. These shares were issued in satisfaction of the rights of GSB Investments and HG/F to receive shares of Company common stock in respect of $587,342 of federal income tax benefits realized by the Company.
Both the August 2, 2007 and the August 23, 2007 issuances were made in reliance upon an exemption from the registration requirements of the Securities Act of 1933 provided by Section 4(2) thereof. GSB Investments and HG/F made certain representations to the Company as to investment intent and that they possessed a sufficient level of financial sophistication. The unregistered shares are subject to restrictions on transfer absent registration under or in compliance with the Securities Act of 1933.
Under its long-standing repurchase program, (which was expanded by $10 billion in the 2006 second quarter as noted below), the Company buys back common shares in the market or otherwise from time to time. The program is used for many purposes, including to offset dilution from stock-based compensation programs.
The following table summarizes the Company's share repurchases during the first threenine months of 2007:
In millions, except per share amounts | Total Shares Repurchased | Average Price Paid per Share | Dollar Value of Remaining Authorized Repurchase Program | ||||||
---|---|---|---|---|---|---|---|---|---|
January 2007 | |||||||||
Open market repurchases(1) | 2.9 | $ | 54.49 | $ | 7,254 | ||||
Employee transactions(2) | 6.8 | $ | 54.53 | N/A | |||||
February 2007 | |||||||||
Open market repurchases | 7.3 | $ | 53.71 | $ | 6,860 | ||||
Employee transactions | 0.4 | $ | 54.29 | N/A | |||||
March 2007 | |||||||||
Open market repurchases | 1.9 | $ | 50.29 | $ | 6,767 | ||||
Employee transactions | 0.9 | $ | 54.76 | N/A | |||||
First Quarter 2007 | |||||||||
Open market repurchases | 12.1 | $ | 53.37 | $ | 6,767 | ||||
Employee transactions | 8.1 | $ | 54.55 | N/A | |||||
Total First Quarter 2007 | 20.2 | $ | 53.85 | $ | 6,767 | ||||
In millions, except per share amounts | Total Shares Repurchased | Average Price Paid per Share | Dollar Value of Remaining Authorized Repurchase Program | ||||||
---|---|---|---|---|---|---|---|---|---|
First Quarter 2007 | |||||||||
Open market repurchases(1) | 12.1 | $ | 53.37 | $ | 6,767 | ||||
Employee transactions(2) | 8.1 | $ | 54.55 | N/A | |||||
Total First Quarter 2007 | 20.2 | $ | 53.85 | $ | 6,767 | ||||
Second Quarter 2007 | |||||||||
Open market repurchases(3) | 0.1 | $ | 51.42 | $ | 6,759 | ||||
Employee transactions | 1.3 | $ | 53.43 | N/A | |||||
Total Second Quarter 2007 | 1.4 | $ | 53.20 | $ | 6,759 | ||||
July 2007 | |||||||||
Open market repurchases(3) | — | — | $ | 6,759 | |||||
Employee transactions | 2.2 | $ | 52.04 | N/A | |||||
August 2007 | |||||||||
Open market repurchases(3) | 0.2 | $ | 46.83 | $ | 6,749 | ||||
Employee transactions | 0.3 | $ | 49.97 | N/A | |||||
September 2007 | |||||||||
Open market repurchases(3) | — | — | $ | 6,749 | |||||
Employee transactions | 0.1 | $ | 48.84 | N/A | |||||
Third Quarter 2007 | |||||||||
Open market repurchases(3) | 0.2 | $ | 46.95 | $ | 6,749 | ||||
Employee transactions | 2.6 | $ | 51.69 | N/A | |||||
Total Third Quarter 2007 | 2.8 | $ | 51.34 | $ | 6,749 | ||||
Year-to-date 2007 | |||||||||
Open market repurchases | 12.4 | $ | 53.24 | $ | 6,749 | ||||
Employee transactions | 12.0 | $ | 53.82 | N/A | |||||
Total year-to-date 2007 | 24.4 | $ | 53.52 | $ | 6,749 | ||||
N/A Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Citigroup's Annual Meeting of Stockholders was held on April 17, 2007. At the meeting:
The number of votes cast for, against or withheld, and the number of abstentions with respect to each such matter is set forth below, as are the number of broker non-votes, where applicable.
| FOR | AGAINST | ABSTAIN | BROKER NON-VOTES | ||||
---|---|---|---|---|---|---|---|---|
(1) Election of Directors: | ||||||||
NOMINEE | ||||||||
C. Michael Armstrong | 4,150,454,249 | 120,163,488 | 46,861,332 | |||||
Alain J.P. Belda | 4,160,910,252 | 109,707,763 | 46,866,535 | |||||
George David | 4,202,727,104 | 67,919,899 | 46,837,554 | |||||
Kenneth T. Derr | 4,134,957,833 | 162,251,923 | 20,274,788 | |||||
John M. Deutch | 4,152,146,631 | 117,721,359 | 47,616,561 | |||||
Roberto Hernández Ramirez | 4,169,798,806 | 100,482,090 | 47,203,847 | |||||
Klaus Kleinfeld | 4,175,239,630 | 95,279,329 | 46,965,638 | |||||
Andrew N. Liveris | 4,202,761,803 | 67,658,587 | 47,064,399 | |||||
Anne Mulcahy | 4,177,473,457 | 94,917,447 | 45,093,864 | |||||
Richard D. Parsons | 4,005,464,792 | 266,702,615 | 45,319,797 | |||||
Charles Prince | 4,119,288,816 | 152,244,657 | 45,951,307 | |||||
Judith Rodin | 4,195,276,630 | 75,715,601 | 46,492,549 | |||||
Robert E. Rubin | 4,165,193,389 | 109,962,087 | 42,327,965 | |||||
Franklin A. Thomas | 4,156,669,331 | 112,119,979 | 48,689,224 | |||||
(2) Ratification of Independent Registered Public Accounting Firm | 4,172,091,417 | 107,811,429 | 37,583,440 | |||||
(3) Stockholder Proposal Requesting a Report on Prior Governmental Service of Certain Individuals | 171,435,798 | 2,826,567,343 | 479,202,952 | 840,272,976 | ||||
(4) Stockholder Proposal Requesting a Report on Political Contributions | 875,138,389 | 2,008,231,317 | 593,887,347 | 840,222,016 |
| FOR | AGAINST | ABSTAIN | BROKER NON-VOTES | ||||
---|---|---|---|---|---|---|---|---|
(5) Stockholder Proposal Requesting a Report on Charitable Contributions | 264,111,642 | 2,677,424,647 | 535,670,167 | 840,272,613 | ||||
(6) Stockholder Proposal Requesting an Advisory Resolution to Ratify Executive Compensation | 1,474,115,104 | 1,713,686,408 | 238,551,235 | 891,126,322 | ||||
(7) Stockholder Proposal Requesting that the Chairman of the Board Have no Management Duties, Titles or Responsibilities | 716,308,894 | 2,709,442,838 | 51,502,618 | 840,224,719 | ||||
(8) Stockholder Proposal Requesting Cumulative Voting | 622,349,193 | 2,800,531,750 | 54,388,525 | 840,209,601 | ||||
(9) Stockholder Proposal Requesting that Stockholders Have the Right to Call Special Shareholder Meetings | 2,071,546,407 | 1,245,612,951 | 160,087,812 | 840,231,899 |
Item 6. Exhibits
See Exhibit Index.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 4th5th day of May,November, 2007.
CITIGROUP INC. (Registrant) | ||||
By | /s/ GARY CRITTENDEN Gary Crittenden Chief Financial Officer (Principal Financial Officer) | |||
By | /s/ JOHN C. GERSPACH John C. Gerspach Controller and Chief Accounting Officer (Principal Accounting Officer) |
Exhibit Number | Description of Exhibit | |
---|---|---|
3.01.1 | Restated Certificate of Incorporation of Citigroup Inc. (the Company), incorporated by reference to Exhibit 4.01 to the Company's Registration Statement on Form S-3 filed December 15, 1998 (No. 333-68949). | |
3.01.2 | Certificate of Designation of 5.321% Cumulative Preferred Stock, Series YY, of the Company, incorporated by reference to Exhibit 4.45 to Amendment No. 1 to the Company's Registration Statement on Form S-3 filed January 22, 1999 (No. 333-68949). | |
3.01.3 | Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated April 18, 2000, incorporated by reference to Exhibit 3.01.3 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2000 (File No. | |
3.01.4 | Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated April 17, 2001, incorporated by reference to Exhibit 3.01.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001 (File No. | |
3.01.5 | Certificate of Designation of 6.767% Cumulative Preferred Stock, Series YYY, of the Company, incorporated by reference to Exhibit 3.01.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (File 1-9924). | |
3.01.6 | Certificate of Amendment to the Restated Certificate of Incorporation of the Company dated April 18, 2006, incorporated by reference to Exhibit 3.01.6 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2006 (File No. 1-9924). | |
3.02 | By-Laws of the Company, as amended, effective | |
+ | Form of Citigroup Inc. Non-Employee Directors Compensation Plan (effective as of January 1, 2008). | |
10.02 | + | Form of Citigroup Equity Award Agreement (effective November 1, 2007). |
10.03 | + | Form of Citigroup Reload Stock Option Grant Notification (effective November 1, 2007). |
10.04 | ||
+ | Calculation of Ratio of Income to Fixed Charges. | |
+ | Calculation of Ratio of Income to Fixed Charges (including preferred stock dividends). | |
+ | Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
+ | Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
+ | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
+ | Residual Value Obligation Certificate. |
The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. The Company will furnish copies of any such instrument to the Securities and Exchange Commission upon request.