10-Q 1 a2180583z10-q.htm FORM 10-Q
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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 September 30, 2007

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)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý                Accelerated filer o                Non-accelerated filer o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o    No ý

        Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

Common stock outstanding as of September 30, 2007: 4,981,134,274

Available on the Web at www.citigroup.com




Citigroup Inc.

TABLE OF CONTENTS

Part I—Financial Information

 
   
  Page No.
Item 1.   Financial Statements:    

 

 

Consolidated Statement of Income (Unaudited)—Three and Nine Months Ended September 30, 2007 and 2006

 

50

 

 

Consolidated Balance Sheet—September 30, 2007 (Unaudited) and December 31, 2006

 

51

 

 

Consolidated Statement of Changes in Stockholders' Equity (Unaudited)—Nine Months Ended September 30, 2007 and 2006

 

52

 

 

Consolidated Statement of Cash Flows (Unaudited)—Nine Months Ended September 30, 2007 and 2006

 

53

 

 

Consolidated Balance Sheet—Citibank, N.A. and Subsidiaries September 30, 2007 (Unaudited) and December 31, 2006

 

54

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

55

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

5 - 47

 

 

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

 

30
        29 - 30
        75 - 77

Item 4.

 

Controls and Procedures

 

48

Part II—Other Information

Item 1.

 

Legal Proceedings

 

103

Item 1A.

 

Risk Factors

 

103

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

104

Item 6.

 

Exhibits

 

105

Signatures

 

106

Exhibit Index

 

107

2


THE COMPANY

        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 foreign authorities.

        This quarterly report on Form 10-Q should be read in conjunction with Citigroup's 2006 Annual Report on Form 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 telephone number is 212 559 1000. Additional information about Citigroup is available on the Company's Web site at www.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 SEC's web site contains reports, proxy and information statements, and other information regarding the Company at www.sec.gov.

        Citigroup was managed along the following segment and product lines through the third quarter of 2007:

GRAPHIC

The following are the six regions in which Citigroup operates. The regional results are fully reflected in the product results.

GRAPHIC


(1)
Disclosure includes Canada and Puerto Rico.

3


CITIGROUP INC. AND SUBSIDIARIES

SUMMARY OF SELECTED FINANCIAL DATA

        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 %                    
   
 
 
 
 
 
 

(1)
Discontinued operations relates to residual items from the Company's sale of Travelers Life & Annuity, which closed during the 2005 third quarter, and the Company's sale of substantially all of its Asset Management Business, which closed during the 2005 fourth quarter. See Note 2 on page 57.

(2)
The return on average common stockholders' equity is calculated using net income minus preferred stock dividends.

(3)
Risk capital is a measure of risk levels and the trade-off of risk and return. It is defined as the amount of capital required to absorb potential unexpected economic losses resulting from extremely severe events over a one-year time period. Return on risk capital is calculated as annualized income from continuing operations divided by average risk capital. Invested capital is defined as risk capital plus goodwill and intangible assets excluding mortgage servicing rights (which are a component of risk capital). Return on invested capital is calculated using income adjusted to exclude a net internal charge Citigroup levies on the goodwill and intangible assets of each business, offset by each business' share of the rebate of the goodwill and intangible asset charge. Return on risk capital and return on invested capital are non-GAAP performance measures; because they are measures of risk with no basis in GAAP, there is no comparable GAAP measure to which they can be reconciled. Management uses return on risk capital to assess businesses' operational performance and to allocate Citigroup's balance sheet and risk capital capacity. Return on invested capital is used to assess returns on potential acquisitions and to compare long-term performance of businesses with differing proportions of organic and acquired growth. See page 26 for a further discussion of risk capital.

(4)
Tier 1 Capital divided by adjusted average assets.

NM
Not meaningful

4


MANAGEMENT'S DISCUSSION AND ANALYSIS

THIRD QUARTER 2007 MANAGEMENT SUMMARY

        Income from continuing operations declined 58% to $2,212 billion and diluted EPS from continuing operations was down 58%. The write-downs of highly-leveraged loans, losses in our Fixed Income structured credit and credit trading business and higher credit costs in our Global Consumer business drove the earnings decline. Results include a $729 million pretax gain on the sale of Redecard shares.

        Revenues were $22.4 billion, up 5% from a year ago, primarily due to 29% growth in international revenues and partially offset by weakness in our Securities and Banking business, 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 Services had another record quarter, with revenues up 38%.

        Customer volume growth was strong, with average loans up 18%, average deposits up 20%, and average interest-earning assets up 36%. International Cards purchase sales were up 37%, while U.S. Cards sales were up 6%. In Global Wealth Management, client assets under fee-based management were up 38%. Branch activity included the opening or acquisition of 96 new branches during the quarter (47 internationally and 49 in the U.S.).

        Since October of 2006, ten international acquisitions have been announced, consistent with our goal of expanding our international franchise through targeted acquisitions. On October 2, 2007, we announced an agreement to acquire the remaining 32% public stake in Nikko Cordial in a share-for-share exchange using Citigroup stock.

        International businesses contributed 54% of the Company's revenue in the third quarter of 2007 and 79% of income, up from 44% and 43%, respectively, a year ago.

        Net interest revenue increased 24% from last year reflecting volume increases across all products. Net interest margin in the third quarter of 2007 was 2.36%, down 26 basis points from the third 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 33).

        Operating expenses increased 22% from the third quarter of 2006 driven by increased business volumes and acquisitions (which contributed 8%). The increase is due in large part to an unusually low level of expenses in the third quarter of 2006, which were the lowest in the last seven quarters, primarily reflecting reductions in advertising and marketing in U.S. Consumer, and lower expenses in Markets & Banking. Our business as usual expense growth of 14% was driven by higher business volumes throughout the franchise and the opening of more than 800 branches in the last 12 months. We are ahead of commitments on our Strategic Expense Initiatives. Expenses were down from the second quarter of 2007, primarily on lower compensation costs in Securities and Banking.

        Credit costs increased $2.98 billion from year-ago levels, primarily driven by an increase in net credit losses of $780 million and a net charge of $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 increase loan loss reserves. The $1.30 billion net charge compares to a net reserve release of $197 million in the prior-year period. The increase in credit costs primarily reflected a weakening of leading credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth, and a change in estimate of loan losses inherent in the portfolio 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 prior-year period. The increase in credit costs primarily reflected the impact of recent acquisitions, portfolio growth, and a change in estimate of loan losses. Markets & Banking credit costs increased $98 million, primarily reflecting higher net credit losses and a $123 million net charge to increase loan loss reserves for specific counterparties. Credit costs reflected a slight weakening in portfolio credit quality. The Global Consumer loss rate was 1.81%, a 32 basis-point increase from the third quarter of 2006. Corporate cash-basis loans increased 76% from year-ago levels to $1.218 billion.

        The Company's effective tax rate of 19.4% in the third quarter of 2007 reflects the tax benefits of permanent differences applied to the lower level of consolidated pretax earnings. These permanent differences primarily include the tax benefit for not providing U.S. income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested. The third quarter of 2006 effective tax rate of 27.4% included a $237 million tax reserve release in continuing operations relating to the resolution of the 2006 New York Tax Audits.

        Our stockholders' equity and trust preferred securities were $138.7 billion at September 30, 2007. We distributed $2.7 billion in dividends to shareholders during the quarter. Return on common equity was 6.9% for the quarter. Citigroup maintained its "well-capitalized" position with a Tier 1 Capital Ratio of 7.32% at 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

5


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 48.

EVENTS IN 2007 AND 2006

        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.

3Q07 Items Impacting the Securities and Banking Business

CDO- and CLO-Related Losses

        During the third quarter of 2007, unrealized losses of approximately $1.8 billion pre-tax, net of hedges, were recorded in the Securities and Banking business 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 the Securities and Banking business. 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 the Securities and Banking business.

Market Value Gains Due to the Change in Citigroup Credit Spreads

        SFAS 159 provides companies the ability to elect fair value accounting for many financial assets and liabilities. As part of Citigroup's adoption of this standard in the first quarter of 2007, the Company elected the fair value option on debt instruments that are provided to customers so that this debt and the associated assets the Company purchased to meet this liability are on the same fair value basis in earnings. At the end of the third quarter, $28.6 billion of debt related to customer products was classified as either short- or long-term debt on the Consolidated Balance Sheet.

        Under fair value accounting, we are required to use Citigroup credit spreads in determining the market value of any Citigroup liabilities for which the fair value option was elected, as well as for Citigroup trading liabilities such as derivatives. The inclusion of Citigroup credit spreads in valuing Citigroup's liabilities gave rise to a pre-tax gain of $466 million in the third quarter of 2007 and is reflected in the Securities and Banking business.

Credit Reserves

        During the third quarter of 2007, the Company recorded a net build of $2.24 billion to its credit reserves, including an increase in the allowance for unfunded lending commitments, consisting of a net build of $2.07 billion in Global Consumer and Global Wealth Management and $171 million in Markets & Banking.

        The build of $2.07 billion in Global Consumer and Global Wealth Management primarily reflected a weakening of leading credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth, recent acquisitions, and the change in estimate of loan losses.

        The build of $171 million in Markets & Banking primarily reflected loan loss reserves for specific counterparties. Credit costs reflected a slight weakening in portfolio credit quality.

6


        The net build to the Company's credit reserves in the third quarter of 2007 compares to the third quarter of 2006 net build of $37 million, which consisted of a net release/ utilization of $79 million in Global Consumer and Global Wealth Management, and a net build of $116 million in Markets & Banking.

Redecard IPO

        During July and August 2007, Citigroup (a 31.9% shareholder in Redecard S.A., the only merchant acquiring company for MasterCard in Brazil) sold approximately 48.8 million Redecard shares in connection with Redecard's initial public offering in Brazil. Following the sale of these shares, Citigroup retained approximately 23.9% ownership in Redecard. An after-tax gain of approximately $469 million ($729 million pretax) was recorded in Citigroup's third quarter of 2007 financial results in the International Cards business.

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's Securities and Banking, Global Wealth Management and Global Consumer Group businesses.

        On October 31, 2007, Citigroup announced a definitive agreement with Nikko Cordial to acquire all Nikko Cordial shares that Citigroup does not already own in exchange for shares of Citigroup. The agreement provides for the exchange ratio to be determined in mid-January 2008 and for the transaction to close on January 29, 2008. As of the date of the agreement, the transaction value for the acquisition of the remaining Nikko shares was approximately $4.6 billion.

        On October 29, 2007, Citigroup received approval from the Tokyo Stock Exchange (TSE) to list Citigroup's shares on the TSE effective on November 5, 2007.

Acquisition of Bisys

        On August 1, 2007, the Company completed its acquisition of Bisys Group, Inc. (Bisys) for $1.47 billion in cash. In addition, Bisys' shareholders received $18.2 million in the form of a special dividend paid by Bisys. Citigroup completed the sale of the Retirement and Insurance Services Divisions of Bisys to affiliates of J.C. Flowers & Co. LLC, making the net cost of the transaction to Citigroup approximately $800 million. Citigroup retained the Fund Services and Alternative Investment services businesses of Bisys which provides administrative services for hedge funds, mutual funds and private equity funds. Results for Bisys are included within Citigroup's Transaction Services business 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

7


participation by Citigroup in management of Banco de Chile, including board representation at both LQIF and Banco de Chile.

        The transaction is expected to close in the first quarter of 2008, and is subject to customary regulatory reviews. Citigroup will account for the investment in LQIF under the equity method of accounting.

Acquisition of Automated Trading Desk

        On October 3, 2007, Citigroup completed its acquisition of Automated Trading Desk (ATD), a leader in electronic market making and proprietary trading, for approximately $680 million ($102.6 million in cash and approximately 11.17 million shares of Citigroup stock). ATD will operate as a unit of Citigroup's Global Equities business, adding a network of broker/dealer customers to Citigroup's diverse base of institutional, broker/dealer and retail customers.

Resolution of 2006 Tax Audits

New York State and New York City

        In September 2006, Citigroup reached a settlement agreement with the New York State and New York City taxing authorities regarding various tax liabilities for the years 1998–2005 (referred to hereinafter as the "resolution of the 2006 New York Tax Audits").

        For the 2006 third quarter, the Company released $254 million from its tax contingency reserves, which resulted in increases of $237 million in after-tax income from continuing operations and $17 million in after-tax income from discontinued operations, which are reflected in the year-to-date 2006 totals.

Federal

        In March 2006, the Company received a notice from the Internal Revenue Service (IRS) that they had concluded the tax audit for the years 1999 through 2002 (referred to hereinafter as the "resolution of the 2006 Federal Tax Audit"). For the 2006 first quarter, the Company released a total of $657 million from its tax contingency reserves related to the resolution of the Federal Tax Audit, which are reflected in the segment and product year-to-date 2006 income tax expense disclosures.

        The following table summarizes the 2006 tax benefits, by business, from the resolution of the New York Tax Audits and Federal Tax Audit (collectively, the 2006 Tax Audits):

In millions of dollars

  New York City
and New York
State Audits
(2006 Third
Quarter)

  Federal
Audit
(2006 First
Quarter)

  Total
Global Consumer   $ 79   $ 290   $ 369
Markets & Banking     116     176     292
Global Wealth Management     34     13     47
Alternative Investments         58     58
Corporate/Other     8     61     69
   
 
 
Continuing Operations   $ 237   $ 598   $ 835
   
 
 
Discontinued Operations     17     59     76
   
 
 
Total   $ 254   $ 657   $ 911
   
 
 

Adoption of the Accounting for Share-Based Payments

        On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), "Share-Based Payment" (SFAS 123(R)), which replaced the existing SFAS 123 and superseded Accounting Principles Board (APB) Opinion No. 25. SFAS 123(R) requires companies to measure and record compensation expense for stock options and other share-based payments based on the instruments' fair value, reduced by expected forfeitures.

        In adopting this standard, the Company conformed to recent accounting guidance that restricted or deferred stock awards issued to retirement-eligible employees who meet certain age and service requirements must be either expensed on the grant date or accrued over a service period prior to the grant date. This charge consisted of $398 million after-tax ($648 million pretax) for the immediate expensing of awards granted to retirement-eligible employees in January 2006.

        The following table summarizes the SFAS 123(R) impact, by segment, on the first quarter of 2006 and year-to-date 2006 pretax compensation expense for stock awards granted to retirement-eligible employees in January 2006 ("the 2006 initial adoption of SFAS 123(R)"):

In millions of dollars

  2006 First Quarter
Global Consumer   $ 121
Markets & Banking     354
Global Wealth Management     145
Alternative Investments     7
Corporate/Other     21
   
Total   $ 648
   

        The Company recorded the quarterly accrual for the stock awards that were granted in January 2007 during each of the quarters in 2006. During the first, second and third quarters of 2007, the Company recorded the quarterly accrual for the estimated stock awards that will be granted in January 2008.

8


Fourth Quarter of 2007 Subsequent Event

Sub-prime Related Exposure in Securities 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 its Securities 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.

(1)
In the third quarter, Citi recorded declines in the aggregate of approximately $1.0 billion on a revenue basis in the lending and structuring business, and to a much lesser extent the trading positions described in footnote 2 below, and declines of approximately $0.5 billion on a revenue basis on its super senior exposures (approximately $0.3 billion greater on a revenue basis than the losses reported in Citi's October 15 earnings release). Citi also recorded declines in the third quarter of approximately $0.3 billion on a revenue basis on collateralized loan obligations warehouse inventory unrelated to sub-prime exposures.

(2)
S&B also has trading positions, both long and short, in U.S. sub-prime residential mortgage-backed securities (RMBS) and related products, including ABS CDOs, that are not included in these figures. The exposure from these positions is actively managed and hedged, although the effectiveness of the hedging products used may vary with material changes in market conditions. Since the end of the third quarter, such trading positions have not had material losses.

9


SEGMENT, PRODUCT AND REGIONAL—NET INCOME AND REVENUE

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

Citigroup Net Income—Segment and Product View

 
  Three Months Ended
September 30,

   
  Nine Months Ended
September 30,

   
 
In millions of dollars

  %
Change

  %
Change

 
  2007
  2006
  2007
  2006
 
Global Consumer                                  
  U.S. Cards   $ 852   $ 1,085   (21 )% $ 2,475   $ 2,889   (14 )%
  U.S. Retail Distribution     257     481   (47 )   1,098     1,564   (30 )
  U.S. Consumer Lending     (227 )   521   NM     573     1,428   (60 )
  U.S. Commercial Business     122     151   (19 )   394     415   (5 )
   
 
 
 
 
 
 
    Total U.S. Consumer(1)   $ 1,004   $ 2,238   (55 )% $ 4,540   $ 6,296   (28 )%
   
 
 
 
 
 
 
  International Cards   $ 647   $ 287   NM   $ 1,386   $ 906   53 %
  International Consumer Finance     (320 )   50   NM     (301 )   391   NM  
  International Retail Banking     552     701   (21 )   1,763     2,092   (16 )
   
 
 
 
 
 
 
    Total International Consumer   $ 879   $ 1,038   (15 )% $ 2,848   $ 3,389   (16 )%
   
 
 
 
 
 
 
Other   $ (100 ) $ (81 ) (23 )% $ (276 ) $ (240 ) (15 )%
   
 
 
 
 
 
 
    Total Global Consumer   $ 1,783   $ 3,195   (44 )% $ 7,112   $ 9,445   (25 )%
   
 
 
 
 
 
 
Markets & Banking                                  
  Securities and Banking   $ (290 ) $ 1,344   NM   $ 4,028   $ 4,374   (8 )%
  Transaction Services     590     385   53 %   1,551     1,048   48  
  Other     (20 )   (8 ) NM     154     (49 ) NM  
   
 
 
 
 
 
 
    Total Markets & Banking   $ 280   $ 1,721   (84 )% $ 5,733   $ 5,373   7 %
   
 
 
 
 
 
 
Global Wealth Management                                  
  Smith Barney   $ 379   $ 294   29 % $ 1,024   $ 700   46 %
  Private Bank     110     105   5     427     333   28  
   
 
 
 
 
 
 
    Total Global Wealth Management   $ 489   $ 399   23 % $ 1,451   $ 1,033   40 %
   
 
 
 
 
 
 
Alternative Investments   $ (67 ) $ 117   NM   $ 611   $ 727   (16 )%
Corporate/Other     (273 )   (129 ) NM     (1,457 )   (458 ) NM  
   
 
 
 
 
 
 
Income from Continuing Operations   $ 2,212   $ 5,303   (58 )% $ 13,450   $ 16,120   (17 )%
Income from Discontinued Operations(2)         202   (100 )       289   (100 )
   
 
 
 
 
 
 
Total Net Income   $ 2,212   $ 5,505   (60 )% $ 13,450   $ 16,409   (18 )%
   
 
 
 
 
 
 

(1)
U.S. disclosure includes Canada and Puerto Rico.

(2)
See footnote 2 on page 57.

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10


Citigroup Net Income—Regional View

 
   
  Three Months Ended
September 30,

   
  Nine Months Ended
September 30,

   
 
In millions of dollars

  % of
Total(1)

  %
Change

  %
Change

 
  2007
  2006
  2007
  2006
 
U.S.(2)                                      
  Global Consumer       $ 904   $ 2,157   (58 )% $ 4,264   $ 6,056   (30 )%
  Markets & Banking         (692 )   540   NM     1,291     1,802   (28 )
  Global Wealth Management         333     342   (3 )   1,029     860   20  
   
 
 
 
 
 
 
 
    Total U.S.   21 % $ 545   $ 3,039   (82 )% $ 6,584   $ 8,718   (24 )%
   
 
 
 
 
 
 
 
Mexico                                      
  Global Consumer       $ 244   $ 395   (38 )% $ 976   $ 1,128   (13 )%
  Markets & Banking         125     95   32     334     261   28  
  Global Wealth Management         10     9   11     37     27   37  
   
 
 
 
 
 
 
 
    Total Mexico   15 % $ 379   $ 499   (24 )% $ 1,347   $ 1,416   (5 )%
   
 
 
 
 
 
 
 
EMEA                                      
  Global Consumer       $ 58   $ 213   (73 )% $ 289   $ 613   (53 )%
  Markets & Banking         (25 )   489   NM     1,472     1,466    
  Global Wealth Management         4     7   (43 )   57     15   NM  
   
 
 
 
 
 
 
 
    Total EMEA   1 % $ 37   $ 709   (95 )% $ 1,818   $ 2,094   (13 )%
   
 
 
 
 
 
 
 
Japan                                      
  Global Consumer       $ (224 ) $ 79   NM   $ (147 ) $ 445   NM  
  Markets & Banking         (96 )   38   NM     63     195   (68 )%
  Global Wealth Management         60           90        
   
 
 
 
 
 
 
 
    Total Japan   (10 )% $ (260 ) $ 117   NM   $ 6   $ 640   (99 )%
   
 
 
 
 
 
 
 
Asia                                      
  Global Consumer       $ 334   $ 328   2 % $ 1,143   $ 1,034   11 %
  Markets & Banking         727     391   86     1,855     1,141   63  
  Global Wealth Management         79     38   NM     218     123   77  
   
 
 
 
 
 
 
 
    Total Asia   45 % $ 1,140   $ 757   51 % $ 3,216   $ 2,298   40 %
   
 
 
 
 
 
 
 
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  
   
 
 
 
 
 
 
 
    Total Latin America   28 % $ 711   $ 194   NM   $ 1,325   $ 685   93 %
   
 
 
 
 
 
 
 
Alternative Investments       $ (67 ) $ 117   NM   $ 611   $ 727   (16 )%
Corporate/Other         (273 )   (129 ) NM     (1,457 )   (458 ) NM  
   
 
 
 
 
 
 
 
Income from Continuing Operations       $ 2,212   $ 5,303   (58 )% $ 13,450   $ 16,120   (17 )%
Income from Discontinued Operations(3)             202   (100 )       289   (100 )
   
 
 
 
 
 
 
 
Total Net Income       $ 2,212   $ 5,505   (60 )% $ 13,450   $ 16,409   (18 )%
   
 
 
 
 
 
 
 
Total International   79 % $ 2,007   $ 2,276   (12 )% $ 7,712   $ 7,133   8 %
   
 
 
 
 
 
 
 

(1)
Third quarter of 2007 as a percent of total Citigroup net income, excluding Alternative Investments and Corporate/Other.

(2)
Excludes Alternative Investments and Corporate/Other, which are predominantly related to the U.S. The U.S. regional disclosure includes Canada and Puerto Rico. Global Consumer for the U.S. includes Other Consumer.

(3)
See footnote 2 on page 57.

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11


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 %
   
 
 
 
 
 
 

(1)
U.S. disclosure includes Canada and Puerto Rico.

12


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  
   
 
 
 
 
 
 
 
    Total U.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  
   
 
 
 
 
 
 
 
    Total Mexico   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  
   
 
 
 
 
 
 
 
    Total EMEA   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        
   
 
 
 
 
 
 
 
    Total Japan   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  
   
 
 
 
 
 
 
 
    Total Asia   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  
   
 
 
 
 
 
 
 
    Total Latin 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 %
   
 
 
 
 
 
 
 

(1)
Third quarter of 2007 as a percent of total Citigroup revenues, net of interest expense, excluding Alternative Investments and Corporate/Other.

(2)
Excludes Alternative Investments and Corporate/Other, which are predominantly related to the U.S. The U.S. regional disclosure includes Canada and Puerto Rico. Global Consumer for the U.S. includes Other Consumer.

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13


GLOBAL CONSUMER

        Citigroup's Global Consumer Group provides a wide array of banking, lending, insurance and investment services through a network of 8,294 branches, approximately 19,500 ATMs, 706 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.

 
  Three Months Ended
September 30,

   
  Nine Months Ended
September 30,

   
 
In millions of dollars

  %
Change

  %
Change

 
  2007
  2006
  2007
  2006
 
Net interest revenue   $ 8,285   $ 7,523   10 % $ 24,118   $ 22,228   9 %
Non-interest revenue     6,398     5,311   20     17,333     15,189   14  
   
 
 
 
 
 
 
Revenues, net of interest expense   $ 14,683   $ 12,834   14 % $ 41,451   $ 37,417   11 %
Operating expenses     7,506     6,316   19     21,329     19,052   12  
Provisions for loan losses and for benefits and claims     4,801     1,994   NM     10,256     5,311   93  
   
 
 
 
 
 
 
Income before taxes and minority interest   $ 2,376   $ 4,524   (47 )% $ 9,866   $ 13,054   (24 )%
Income taxes     568     1,312   (57 )   2,689     3,559   (24 )
Minority interest, net of taxes     25     17   47     65     50   30  
   
 
 
 
 
 
 
Net income   $ 1,783   $ 3,195   (44 )% $ 7,112   $ 9,445   (25 )%
   
 
 
 
 
 
 
Average assets (in billions of dollars)   $ 741   $ 620   20 % $ 731   $ 586   25 %
Return on assets     0.95 %   2.04 %       1.30 %   2.15 %    
Average risk capital(1)   $ 32,852   $ 27,938   18 % $ 32,701   $ 27,725   18 %
Return on risk capital(1)     22 %   45 %       29 %   46 %    
Return on invested capital(1)     11 %   21 %       15 %   21 %    
   
 
 
 
 
 
 
Key Indicators(in billions of dollars)                                  
Average loans   $ 502.6   $ 440.1   14 %                
Average deposits   $ 298.6   $ 253.9   18                  
Total branches     8,294     7,933   5 %                
   
 
 
 
 
 
 

(1)
See footnote 3 to the table on page 4.

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14


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15


U.S. CONSUMER

        U.S. Consumer is composed of four businesses: Cards, Retail Distribution, Consumer Lending and Commercial Businesswhich operate in the U.S., Canada and Puerto Rico.

 
  Three Months Ended
September 30,

   
  Nine Months Ended
September 30,

   
 
In millions of dollars

  %
Change

  %
Change

 
  2007
  2006
  2007
  2006
 
Net interest revenue   $ 4,252   $ 4,141   3 % $ 12,722   $ 12,468   2 %
Non-interest revenue     3,580     3,663   (2 )   10,602     10,169   4  
   
 
 
 
 
 
 
Revenues, net of interest expense   $ 7,832   $ 7,804     $ 23,324   $ 22,637   3 %
Operating expenses     3,710     3,426   8 %   10,983     10,546   4  
Provisions for loan losses and for benefits and claims     2,700     962   NM     5,674     2,690   NM  
   
 
 
 
 
 
 
Income before taxes and minority interest   $ 1,422   $ 3,416   (58 )% $ 6,667   $ 9,401   (29 )%
Income taxes     413     1,162   (64 )   2,100     3,060   (31 )
Minority interest, net of taxes     5     16   (69 )   27     45   (40 )
   
 
 
 
 
 
 
Net income   $ 1,004   $ 2,238   (55 )% $ 4,540   $ 6,296   (28 )%
   
 
 
 
 
 
 
Average assets (in billions of dollars)   $ 493   $ 422   17 % $ 501   $ 398   26 %
Return on assets     0.81 %   2.10 %       1.21 %   2.12 %    
Average risk capital(1)   $ 17,220   $ 15,312   12 % $ 17,748   $ 15,059   18 %
Return on risk capital(1)     23 %   58 %       34 %   56 %    
Return on invested capital(1)     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 %                
   
 
 
 
 
 
 

(1)
See footnote 3 to the table on page 4.

NM
Not meaningful

3Q07 vs. 3Q06

        Net Interest Revenue was 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 a shift in customer deposits to higher cost direct bank and time deposit balances, a mix toward lower-yielding mortgage assets, and the securitization of higher margin credit card receivables, partially offset by lower promotional credit card receivable balances.

        Non-Interest Revenue decreased 2% primarily due to the absence of pilot-year gain on sale of Mortgage-Backed Securities (MBS) in Consumer Lending, and lower securitization gains and a decline in the residual interest in Cards.

        Operating expenses increased primarily due to acquisitions and increased investment spending, including 49 new branch openings during the quarter (35 in CitiFinancial and 14 in Citibank) and lower marketing spending in the prior year.

        Provisions for loan losses and for benefits and claims increased substantially primarily reflecting weakening credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment and the change in estimate of loan losses. The increase in provision for loan losses also reflected the absence of loan loss reserve releases recorded in the prior year. The net credit loss ratio increased 22 basis points to 1.37%.

        The Net Income decline also reflected the absence of the 2006 third quarter $54 million tax benefit resulting from the resolution of the 2006 New York Tax Audits.

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 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.

        Operating expenses increased primarily due to acquisitions, increased investment spending related to the 124 new branch openings during the nine months of 2007 (80 in CitiFinancial and 44 in Citibank) and costs associated with Citibank Direct. The increase in 2007 was also favorably affected by the absence of the charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006. Higher volume-related expenses primarily reflected 14% growth in loan originations in Consumer Lending businesses.

16


        Provisions for loan losses and for benefits and claims increased primarily reflecting portfolio growth and weakening credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment 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 credit loss ratio increased 14 basis points to 1.31%.

        The Net income decline in 2007 also reflects the absence of $229 million tax benefit resulting from the resolution of the 2006 Tax Audits.

17


INTERNATIONAL CONSUMER

        International Consumer is composed of three businesses: Cards, Consumer Finance and Retail Banking. International Consumer operates in five regions: Mexico, Latin America, EMEA, Japan, and Asia.

 
  Three Months Ended
September 30,

   
  Nine Months
Ended September 30,

   
 
In millions of dollars

  %
Change

  %
Change

 
  2007
  2006
  2007
  2006
 
Net interest revenue   $ 4,072   $ 3,445   18 % $ 11,499   $ 9,921   16 %
Non-interest revenue     2,787     1,622   72     6,634     4,929   35  
   
 
 
 
 
 
 
Revenues, net of interest expense   $ 6,859   $ 5,067   35 % $ 18,133   $ 14,850   22 %
Operating expenses     3,627     2,769   31     9,867     8,091   22  
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   $ 1,131   $ 1,266   (11 )% $ 3,684   $ 4,138   (11 )%
Income taxes     232     227   2     798     744   7  
Minority interest, net of taxes     20     1   NM     38     5   NM  
   
 
 
 
 
 
 
Net income   $ 879   $ 1,038   (15 )% $ 2,848   $ 3,389   (16 )%
   
 
 
 
 
 
 
Revenues, net of interest expense, by region:                                  
  Mexico   $ 1,404   $ 1,238   13 % $ 4,135   $ 3,579   16 %
  EMEA     1,738     1,353   28     4,802     3,983   21  
  Japan—Cards and Retail Banking     368     195   89     871     571   53  
  Asia     1,520     1,209   26     4,343     3,642   19  
  Latin America     1,548     485   NM     2,909     1,282   NM  
   
 
 
 
 
 
 
Subtotal   $ 6,578   $ 4,480   47 % $ 17,060   $ 13,057   31 %
  Japan Consumer Finance   $ 281   $ 587   (52 ) $ 1,073   $ 1,793   (40 )
   
 
 
 
 
 
 
Total revenues   $ 6,859   $ 5,067   35 % $ 18,133   $ 14,850   22 %
   
 
 
 
 
 
 
Net income by region                                  
  Mexico   $ 244   $ 395   (38 )% $ 976   $ 1,128   (13 )%
  EMEA     58     213   (73 )   289     613   (53 )
  Japan—Cards and Retail Banking     64     42   52     165     139   19  
  Asia     334     328   2     1,143     1,034   11  
  Latin America     467     23   NM     587     169   NM  
   
 
 
 
 
 
 
Subtotal   $ 1,167   $ 1,001   17 % $ 3,160   $ 3,083   2 %
  Japan Consumer Finance   $ (288 ) $ 37   NM   $ (312 ) $ 306   NM  
   
 
 
 
 
 
 
Total net income   $ 879   $ 1,038   (15 )% $ 2,848   $ 3,389   (16 )%
   
 
 
 
 
 
 
Average assets (in billions of dollars)   $ 236   $ 187   26 % $ 219   $ 179   22 %
Return on assets     1.48 %   2.20 %       1.74 %   2.53 %    
Average risk capital(1)   $ 15,632   $ 12,626   24 % $ 14,953   $ 12,665   18 %
Return on risk capital(1)     22 %   33 %       25 %   36 %    
Return on invested capital(1)     11 %   16 %       13 %   17 %    
   
 
 
 
 
 
 
Key indicators(in billions of dollars)                                  
Average loans   $ 149.2   $ 116.1   29 %                
Average deposits   $ 175.7   $ 148.4   18 %                
EOP AUMs   $ 158.9   $ 123.1   29 %                
Total branches     4,812     4,580   5 %                
   
 
 
 
 
 
 

(1)
See footnote 3 to the table on page 4.

NM
Not meaningful

3Q07 vs. 3Q06

        Net Interest Revenue increased 18%. Growth was driven by higher average deposits and loans of 18% and 29%, respectively, as well as the impact of the acquisitions of Grupo Financiero Uno (GFU), Egg and Grupo Cuscatlan.

        Non-Interest Revenue increased 72%, primarily due to the gain on the sale of Redecard shares $(729 million pretax), a 37% increase in Card purchase sales and 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.

18


        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 acquisitions of GFU, Grupo Cuscatlan and Egg, and increased ownership in Nikko Cordial along with volume growth across the products and regions, the impact of foreign currency translation and continued investment spending driven by 316 branches opened or acquired. The increase in 2007 expenses was favorably affected by the absence of the charge related to the initial adoption of FAS 123(R) in the first quarter of 2006.

        Provisions for loan losses and for benefits and claims increased substantially, primarily due to portfolio growth, higher past due accounts in Mexico cards, the impact of recent acquisitions, and the change in estimate of loan losses.

        Net Income was also affected by the absence of prior-year tax benefit of $214 million primarily from APB 23, as well as the absence of a prior-year $99 million tax benefit resulting from the resolution of the 2006 Tax Audits.

19


MARKETS & BANKING

        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 includes Securities and Banking, Transaction Services and Other Markets & Banking.

 
  Three Months Ended
September 30,

   
  Nine Months Ended
September 30,

   
 
In millions of dollars

  %
Change

  %
Change

 
  2007
  2006
  2007
  2006
 
Net interest revenue   $ 3,359   $ 1,913   76 % $ 8,642   $ 6,294   37 %
Non-interest revenue     974     4,154   (77 )   13,609     13,813   (1 )
   
 
 
 
 
 
 
Revenues, net of interest expense   $ 4,333   $ 6,067   (29 )% $ 22,251   $ 20,107   11 %
Operating expenses     4,011     3,622   11     14,070     12,537   12  
Provision for credit losses     205     107   92     406     280   45  
   
 
 
 
 
 
 
Income before taxes And minority interest   $ 117   $ 2,338   (95 )% $ 7,775   $ 7,290   7 %
Income taxes     (142 )   598   NM     2,041     1,874   9  
Minority interest, net of taxes     (21 )   19   NM     1     43   (98 )
   
 
 
 
 
 
 
Net income   $ 280   $ 1,721   (84 )% $ 5,733   $ 5,373   7 %
   
 
 
 
 
 
 
Revenues, net of interest expense, by region:                                  
  U.S.   $ 37   $ 2,007   (98 )% $ 6,792   $ 7,733   (12 )%
  Mexico     247     197   25     657     582   13  
  EMEA     1,398     2,166   (35 )   7,218     6,505   11  
  Japan     133     177   (25 )   798     742   8  
  Asia     1,822     1,080   69     4,861     3,274   48  
  Latin America     696     440   58     1,925     1,271   51 %
   
 
 
 
 
 
 
Total revenues   $ 4,333   $ 6,067   (29 )% $ 22,251   $ 20,107   11 %
   
 
 
 
 
 
 
Net income by region:                                  
  U.S.   $ (692 ) $ 540   NM   $ 1,291   $ 1,802   (28 )%
  Mexico     125     95   32 %   334     261   28  
  EMEA     (25 )   489   NM     1,472     1,466    
  Japan     (96 )   38   NM     63     195   (68 )
  Asia     727     391   86     1,855     1,141   63  
  Latin America     241     168   43     718     508   41  
   
 
 
 
 
 
 
Total net income   $ 280   $ 1,721   (84 )% $ 5,733   $ 5,373   7 %
   
 
 
 
 
 
 
Average risk capital(1)   $ 31,812   $ 21,967   45 % $ 27,837   $ 21,438   30 %
Return on risk capital(1)     3 %   31 %       27 %   34 %    
Return on invested capital(1)     2 %   23 %       21 %   25 %    
   
 
 
 
 
 
 

(1)
See footnote 3 to the table on page 4.

NM
Not meaningful

3Q07 vs. 3Q06

        Revenues, net of interest expense, decreased due to a significant decline in Securities and Banking, which was partially offset by strong growth in Transaction 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 in Securities 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 increased revenues in Equity Markets, driven by strong growth globally, including cash trading, derivatives products, equity finance, convertibles and prime 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 and 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 CLO losses, and credit trading losses. Transaction Services revenues increased reflecting growth in liability balances and assets under custody, higher net interest margins in Cash Management and Securities and Funds Services.

20


        Operating expenses growth was primarily driven by higher business volumes and compensation costs related to acquisitions and increased business volumes. Expense growth in 2007 was favorably affected by the absence of a $354 million charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006 and a $300 million pretax release of litigation reserves in the second quarter of 2007.

        The provision for credit losses increased due to net charges of $431 million to increase loan loss reserves due to portfolio growth, including higher commitments to leveraged transactions and an increase in average loan tenor, as well as an increase in reserve requirements for specific counterparties. These changes compare to a $267 million net increase to loan loss reserves recorded in the prior-year period.

21


GLOBAL WEALTH MANAGEMENT

        Global Wealth Management is comprised of the Smith Barney Private Client businesses (including Citigroup Wealth Advisors, Nikko Cordial, Quilter and the legacy Citicorp Investment Services business), Citi Private Bank, Citi Investment Research and Citi Quilter.

 
  Three Months Ended
September 30,

   
  Nine Months Ended
September 30,

   
 
In millions of dollars

  %
Change

  %
Change

 
  2007
  2006
  2007
  2006
 
Net interest revenue   $ 539   $ 480   12 % $ 1,594   $ 1,384   15 %
Non-interest revenue     2,970     2,006   48     7,930     6,077   30  
   
 
 
 
 
 
 
Revenues, net of interest expense   $ 3,509   $ 2,486   41 % $ 9,524   $ 7,461   28 %
Operating expenses     2,614     1,894   38     7,171     5,910   21  
Provision for loan losses     56     16   NM     85     29   NM  
   
 
 
 
 
 
 
Income before taxes and minority interest   $ 839   $ 576   46 % $ 2,268   $ 1,522   49 %
Income taxes     312     177   76     762     489   56  
Minority interest, net of taxes     38           55        
   
 
 
 
 
 
 
Net income   $ 489   $ 399   23 % $ 1,451   $ 1,033   40 %
   
 
 
 
 
 
 
Revenues, net of interest expense, by region:                                  
  U.S.   $ 2,454   $ 2,153   14 % $ 7,278   $ 6,456   13 %
  Mexico     38     32   19     115     96   20  
  EMEA     139     83   67     384     241   59  
  Japan     547           833        
  Asia     277     171   62     753     532   42  
  Latin America     54     47   15     161     136   18  
   
 
 
 
 
 
 
Total revenues   $ 3,509   $ 2,486   41 % $ 9,524   $ 7,461   28 %
   
 
 
 
 
 
 
Net income by region:                                  
  U.S.   $ 333   $ 342   (3 )% $ 1,029   $ 860   20 %
  Mexico     10     9   11     37     27   37  
  EMEA     4     7   (43 )   57     15   NM  
  Japan     60           90        
  Asia     79     38   NM     218     123   77  
  Latin America     3     3       20     8   NM  
   
 
 
 
 
 
 
Total net income   $ 489   $ 399   23 % $ 1,451   $ 1,033   40 %
   
 
 
 
 
 
 
Average risk capital(1)   $ 3,180   $ 2,364   35 % $ 2,979   $ 2,423   23 %
Return on risk capital(1)     61 %   67 %       65 %   57 %    
Return on invested capital(1)     22 %   41 %       29 %   35 %    
   
 
 
 
 
 
 
Key indicators:(in billions of dollars)                                  
Total assets under fee-based management   $ 515   $ 374   38 %                
Total client assets(2)   $ 1,820   $ 1,362   34 %                
Net client asset flows   $ 8   $ 3   NM                  
Financial advisors (FA) / bankers(2)     15,458     13,601   14 %                
Annualized revenue per FA / banker (in thousands of dollars)   $ 897   $ 729   23 %                
Average deposits and other customer liability balances   $ 119   $ 106   12 %                
Average loans   $ 57   $ 43   33 %                
   
 
 
 
 
 
 

(1)
See footnote 3 to the table on page 4.

(2)
During the second quarter of 2007, U.S. Consumer's Retail Distribution transferred approximately $47 billion of Client Assets, 686 Financial Advisors and 79 branches to Smith Barney related to the consolidation of Citicorp Investment Services (CIS) into Smith Barney.

NM
Not meaningful

3Q07 vs. 3Q06

        Revenues, net of interest expense, increased 41%, 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 Capital Markets activity in Asia; and 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

22


30, 2006, driven by the Nikko Cordial and Quilter acquisitions, the CIS transfer, and hiring in the Private Bank. Annualized revenue per FA/banker of $897,000 increased 23% from the prior-year quarter.

        Operating expenses increased 38% in the third quarter of 2007, versus the prior-year quarter. The expense increase in 2007 was mainly driven by the Nikko Cordial and Quilter acquisitions, as well as higher variable compensation associated with increased business volumes.

        The provision for loan losses increased $40 million, driven by portfolio growth and a reserve increase for specific non-performing loan in the Private 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 in Asia, Latin America and EMEA; 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 a $145 million charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006.

        The provision for loan losses increased $56 million, primarily driven by portfolio growth and a reserve increase for specific non-performing loan in the Private Bank.

        Net income growth also reflected a $65 million APB 23 benefit in the Private Bank in 2007 and the absence of a $47 million tax benefit resulting from the 2006 Tax Audits.

23


ALTERNATIVE INVESTMENTS

        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.

 
  Three Months Ended
September 30,

   
  Nine Months Ended
September 30,

   
 
In millions of dollars

  %
Change

  %
Change

 
  2007
  2006
  2007
  2006
 
Net interest revenue   $ 25   $ 5   NM   $ 2   $ 1   100 %
Non-interest revenue     100     329   (70 )%   1,717     1,592   8  
   
 
 
 
 
 
 
Total revenues, net of interest expense   $ 125   $ 334   (63 )% $ 1,719   $ 1,593   8 %
   
 
 
 
 
 
 
Net realized and net change in unrealized gains   $ (121 ) $ 200   NM   $ 1,233   $ 1,238    
Fees, dividends and interest     144     58   NM     221     156   42 %
Other     (68 )   (21 ) NM     (153 )   (86 ) (78 )%
   
 
 
 
 
 
 
Total proprietary investment activities revenues     (45 )   237   NM     1,301     1,308   (1 )%
Client revenues(1)     170     97   75 %   418     285   47  
   
 
 
 
 
 
 
Total revenues, net of interest expense   $ 125   $ 334   (63 )% $ 1,719   $ 1,593   8 %
Operating expenses     238     137   74     633     517   22  
Provision for loan losses     (1 )             (13 ) 100  
   
 
 
 
 
 
 
Income before taxes and minority interest   $ (112 ) $ 197   NM   $ 1,086   $ 1,089    
   
 
 
 
 
 
 
Income taxes   $ (44 ) $ 70   NM   $ 391   $ 319   23 %
Minority interest, net of taxes     (1 )   10   NM     84     43   95  
   
 
 
 
 
 
 
Net income   $ (67 ) $ 117   NM   $ 611   $ 727   (16 )%
   
 
 
 
 
 
 
Average risk capital(2)
(in billions of dollars)
  $ 4.3   $ 4.0   8 % $ 4.1   $ 4.2   (2 )%
Return on risk capital(2)     (6 )%   12 %       20 %   23 %    
Return on invested capital(2)     (8 )%   8 %       17 %   20 %    
   
 
 
 
 
 
 
Revenue by product:                                  
Client(1)   $ 170   $ 97   75 % $ 418   $ 285   47 %
   
 
 
 
 
 
 
  Private Equity   $ 233   $ 56   NM   $ 1,305   $ 785   66 %
  Hedge Funds     (208 )   1   NM     (42 )   65   NM  
  Other     (70 )   180   NM     38     458   (92 )%
   
 
 
 
 
 
 
Proprietary   $ (45 ) $ 237   NM   $ 1,301   $ 1,308   (1 )%
   
 
 
 
 
 
 
Total   $ 125   $ 334   (63 )% $ 1,719   $ 1,593   8 %
   
 
 
 
 
 
 
Key indicators:(in billions of dollars)                                  
Capital under management:                                  
  Client   $ 50.4   $ 33.5   50 %                
  Proprietary     11.6     10.2   14 %                
   
 
 
 
 
 
 
Total   $ 62.0   $ 43.7   42 %                
   
 
 
 
 
 
 

(1)
Includes fee income.

(2)
See footnote 3 to the table on page 4.

NM Not meaningful

3Q07 vs. 3Q06

        Revenues, 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 $233 million, other investment activity of ($70) million and hedge funds of ($208) million. Private equity revenue increased $177 million from the 2006 third quarter, primarily driven by higher realized and unrealized gains. Hedge fund revenue declined by $209 million, largely due to a lower investment performance. Other investment activities revenue decreased $250 million from the 2006 third quarter, largely due to a lower market value on Legg Mason shares and the absence of prior-year gains from the sale of Citigroup's investment in MetLife shares. Client revenues increased $73 million, reflecting the acquisition of Old Lane and a 46% growth in average client capital under 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.

24


        Minority interest, net of taxes, in the third quarter of 2007 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 (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 nine months of 2006 reflects higher tax benefits for $58 million resulting from the resolution of the 2006 Federal Tax Audit.

25


CORPORATE/OTHER

        Corporate/Other includes treasury results, the 2007 restructuring charges, unallocated corporate expenses, offsets to certain line-item reclassifications reported in the business segments (inter-segment eliminations), the results of discontinued operations and unallocated taxes.

 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
In millions of dollars

 
  2007
  2006
  2007
  2006
 
Revenues, net of interest expense   $ (257 ) $ (299 ) $ (463 ) $ (791 )
Restructuring expense     35         1,475      
Other operating expense     157     (33 )   309     47  
Provision for loan losses             (1 )    
   
 
 
 
 
Loss from continuing operations before taxes and minority interest   $ (449 ) $ (266 ) $ (2,246 ) $ (838 )
Income tax benefits     (156 )   (137 )   (774 )   (381 )
Minority interest, net of taxes     (21 )       (15 )   1  
   
 
 
 
 
Loss from continuing operations   $ (273 ) $ (129 ) $ (1,457 ) $ (458 )
Income from discontinued operations         202         289  
   
 
 
 
 
Net income/(loss)   $ (273 ) $ 73   $ (1,457 ) $ (169 )
   
 
 
 
 

3Q07 vs. 3Q06

        Revenues, net of interest expense, increased, primarily due to improved treasury results, partially offset by Nikko Cordial losses and 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 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 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 $69 million relating to the resolution of the 2006 Tax 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 $76 million relating to the resolution of the 2006 Tax Audits. See Note 2 on page 57.

MANAGING GLOBAL RISK

        Citigroup's risk management framework balances strong corporate oversight with well-defined independent risk management functions within each business. The Citigroup risk management framework is described in Citigroup's 2006 Annual Report on Form 10-K.

RISK CAPITAL

        At September 30, 2007, June 30, 2007, and September 30, 2006, risk capital for Citigroup was composed of the following risk types:

In billions of dollars

  Sept. 30,
2007

  June 30,
2007

  Sept. 30,
2006

 
Credit risk   $ 45.5   $ 42.8   $ 36.1  
Market risk     30.6     28.9     18.8  
Operational risk     7.7     7.9     8.3  
Intersector diversification(1)     (5.4 )   (5.4 )   (6.1 )
   
 
 
 
Total Citigroup   $ 78.4   $ 74.2   $ 57.1  
   
 
 
 
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 %
   
 
 
 

(1)
Reduction in risk represents diversification between sectors.

        Average risk capital, return on risk capital and return on invested capital are provided for each segment and are disclosed on pages 14–24.

26


DETAILS OF CREDIT LOSS EXPERIENCE

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   $ 10,381   $ 9,510   $ 8,940   $ 8,979   $ 9,144  
   
 
 
 
 
 
Provision for loan losses                                
  Consumer   $ 4,623   $ 2,583   $ 2,443   $ 2,028   $ 1,736  
  Corporate     153     (63 )   263     85     57  
   
 
 
 
 
 
    $ 4,776   $ 2,520   $ 2,706   $ 2,113   $ 1,793  
   
 
 
 
 
 
Gross credit losses                                
Consumer                                
  In U.S. offices   $ 1,382   $ 1,264   $ 1,291   $ 1,223   $ 1,091  
  In offices outside the U.S.     1,617     1,346     1,341     1,309     1,227  
Corporate                                
  In U.S. offices     18     22     6     13     6  
  In offices outside the U.S.     74     30     29     97     38  
   
 
 
 
 
 
    $ 3,091   $ 2,662   $ 2,667   $ 2,642   $ 2,362  
   
 
 
 
 
 
Credit recoveries                                
Consumer                                
  In U.S. offices   $ 166   $ 175   $ 214   $ 165   $ 153  
  In offices outside the U.S.     279     343     286     307     350  
Corporate                                
  In U.S. offices     1     9     18     2     5  
  In offices outside the U.S.     59     80     40     26     48  
   
 
 
 
 
 
    $ 505   $ 607   $ 558   $ 500   $ 556  
   
 
 
 
 
 
Net credit losses                                
  In U.S. offices   $ 1,233   $ 1,102   $ 1,065   $ 1,069   $ 939  
  In offices outside the U.S.     1,353     953     1,044     1,073     867  
   
 
 
 
 
 
Total   $ 2,586   $ 2,055   $ 2,109   $ 2,142   $ 1,806  
   
 
 
 
 
 
Other—net(1)(2)(3)(4)(5)   $ 157   $ 406   $ (27 ) $ (10 ) $ (152 )
   
 
 
 
 
 
Allowance for loan losses at end of period   $ 12,728   $ 10,381   $ 9,510   $ 8,940   $ 8,979  
   
 
 
 
 
 
Allowance for unfunded lending commitments(6)   $ 1,150   $ 1,100   $ 1,100   $ 1,100   $ 1,100  
   
 
 
 
 
 
Total allowance for loan losses and unfunded lending commitments   $ 13,878   $ 11,481   $ 10,610   $ 10,040   $ 10,079  
   
 
 
 
 
 
Net consumer credit losses   $ 2,554   $ 2,092   $ 2,132   $ 2,060   $ 1,815  
As a percentage of average consumer loans     1.81 %   1.56 %   1.69 %   1.64 %   1.49 %
   
 
 
 
 
 
Net corporate credit losses/(recoveries)   $ 32   $ (37 ) $ (23 ) $ 82   $ (9 )
As a percentage of average corporate loans     0.02 %   NM     NM     0.05 %   NM  
   
 
 
 
 
 

(1)
The third quarter of 2007 primarily includes additions for purchase accounting adjustments related to the acquisition of Grupo Cuscatlan of $181 million offset by reductions of $73 million related to securitizations.

(2)
The second quarter of 2007 primarily includes additions to the loan loss reserve of $448 million related to the acquisition of Egg, partially offset by reductions of $70 million related to securitizations and $75 million related to a balance sheet reclassification to Loans held-for-sale in the U.S. Cards portfolio.

(3)
The first quarter of 2007 includes reductions to the loan loss reserve of $97 million related to a balance sheet reclass to Loans held-for-sale in the U.S. Cards portfolio and the addition of $75 million related to the acquisition of GFU.

(4)
The 2006 fourth quarter includes reductions to the loan loss reserve of $74 million related to securitizations.

(5)
The 2006 third quarter includes reductions to the loan loss reserve of $140 million related to securitizations and portfolio sales.

(6)
Represents additional credit loss reserves for unfunded corporate lending commitments and letters of credit recorded within Other Liabilities on the Consolidated Balance Sheet.

NM Not meaningful

27


Consumer Loan Balances, Net of Unearned Income

 
  End of Period
  Average
In billions of dollars

  Sept. 30,
2007

  June 30,
2007

  Sept. 30,
2006

  3rd Qtr.
2007

  2nd Qtr.
2007

  3rd Qtr.
2006

On-balance sheet(1)   $ 568.9   $ 548.6   $ 486.2   $ 558.7   $ 539.3   $ 483.1
Securitized receivables (all in U.S. Cards)     104.0     101.1     99.2     101.0     97.5     97.3
Credit card receivables held-for-sale(2)     3.0     2.9     0.6     3.0     3.3     0.5
   
 
 
 
 
 
Total managed(3)   $ 675.9   $ 652.6   $ 586.0   $ 662.7   $ 640.1   $ 580.9
   
 
 
 
 
 

(1)
Total loans and total average loans exclude certain interest and fees on credit cards of approximately $2 billion and $2 billion for the third quarter of 2007, approximately $2 billion and $2 billion for the second quarter of 2007, and approximately $2 billion and $2 billion for the third quarter of 2006, respectively, which are included in Consumer Loans on the Consolidated Balance Sheet.

(2)
Included in Other Assets on the Consolidated Balance Sheet.

(3)
This table presents loan information on a held basis and shows the impact of securitization to reconcile to a managed basis. Managed-basis reporting is a non-GAAP measure. Held-basis reporting is the related GAAP measure.

        Citigroup's total allowance for loans, leases and unfunded lending commitments of $13.878 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the Consumer portfolio was $9.200 billion at September 30, 2007, $7.206 billion at June 30, 2007 and $6.087 billion at September 30, 2006. The increase in the allowance for credit losses from September 30, 2006 of $3.113 billion included net builds of $2.839 billion.

        The build primarily reflected a weakening of leading credit indicators, including increased delinquencies on 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.

        On-balance sheet consumer loans of $568.9 billion increased $82.7 billion, or 17%, from September 30, 2006, primarily driven by U.S. Consumer Lending, U.S. Retail Distribution, International Cards, International Retail Banking and Global Wealth Management. Net credit losses, delinquencies and the related ratios are affected by the credit performance of the portfolios, including bankruptcies, unemployment, global economic conditions, portfolio growth and seasonal factors, as well as macro-economic and regulatory policies.

        The Company expects that credit costs in the fourth quarter of 2007 will increase compared to the fourth quarter of 2006 with the expectation that the U.S. consumer credit environment will continue to deteriorate causing higher credit costs.

28


EXPOSURE TO U.S. RESIDENTIAL REAL ESTATE

Sub-prime Related Exposure in Securities and Banking

        The Company has approximately $55 billion in U.S. sub-prime related direct exposures in its Securities 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.

(1)
S&B also has trading positions, both long and short, in U.S. sub-prime residential mortgage-backed securities (RMBS) and related products, including ABS CDOs, that are not included in the figures above. The exposure from these positions is actively managed and hedged, although the effectiveness of the hedging products used may vary with material changes in market conditions. Since the end of the third quarter, such trading positions have not had material losses.

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

Credit Exposure Arising from Derivatives and Foreign Exchange

        The following tables summarize by derivative type the notionals, receivables and payables held for trading and asset/liability management hedge purposes as of September 30, 2007 and December 31, 2006. A portion of the asset/liability management hedges are accounted for under SFAS 133, as described in Note 15 on page 75.

29


CITIGROUP DERIVATIVES

Notionals(1)

 
  Trading
Derivatives(2)

  Asset/Liability
Management Hedges(3)

In millions of dollars

  September 30,
2007

  December 31,
2006

  September 30,
2007

  December 31,
2006

Interest rate contracts                        
  Swaps   $ 17,668,498   $ 14,196,404   $ 702,664   $ 561,376
  Futures and forwards     2,104,898     1,824,205     113,710     75,374
  Written options     4,094,788     3,054,990     16,831     12,764
  Purchased options     4,254,835     2,953,122     132,006     35,420
   
 
 
 
Total interest rate contract notionals   $ 28,123,019   $ 22,028,721   $ 965,211   $ 684,934
   
 
 
 
Foreign exchange contracts                        
  Swaps   $ 1,009,341   $ 722,063   $ 74,495   $ 53,216
  Futures and forwards     2,495,058     2,068,310     42,869     42,675
  Written options     635,168     416,951     327     1,228
  Purchased options     611,682     404,859     621     1,246
   
 
 
 
Total foreign exchange contract notionals   $ 4,751,249   $ 3,612,183   $ 118,312   $ 98,365
   
 
 
 
Equity contracts                        
  Swaps   $ 159,733   $ 104,320   $   $
  Futures and forwards     37,481     36,362        
  Written options     641,920     387,781        
  Purchased options     588,452     355,891        
   
 
 
 
Total equity contract notionals   $ 1,427,586   $ 884,354   $   $
   
 
 
 
Commodity and other contracts                        
  Swaps   $ 40,624   $ 35,611   $   $
  Futures and forwards     56,114     17,433        
  Written options     21,895     11,991        
  Purchased options     28,761     16,904        
   
 
 
 
Total commodity and other contract notionals   $ 147,394   $ 81,939   $   $
   
 
 
 
Credit derivatives   $ 3,534,927   $ 1,944,980   $   $
   
 
 
 
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

 
In millions of dollars

  September 30,
2007

  December 31,
2006(4)

  September 30,
2007

  December 31,
2006(4)

 
Trading Derivatives(2)                          
  Interest rate contracts   $ 211,400   $ 168,872   $ 207,856   $ 168,793  
  Foreign exchange contracts     79,519     52,297     72,033     47,469  
  Equity contracts     35,958     26,883     76,138     52,980  
  Commodity and other contracts     7,078     5,387     7,019     5,776  
  Credit derivative     52,389     14,069     49,334     15,081  
   
 
 
 
 
    Total   $ 386,344   $ 267,508   $ 412,380   $ 290,099  
    Less: Netting agreements, cash collateral and market value adjustments     (301,186 )   (217,967 )   (298,465 )   (215,295 )
   
 
 
 
 
    Net Receivables/Payables   $ 85,158   $ 49,541   $ 113,915   $ 74,804  
   
 
 
 
 
Asset/Liability Management Hedges(3)                          
  Interest rate contracts   $ 1,614   $ 1,801   $ 4,951   $ 3,327  
  Foreign exchange contracts     6,350     3,660     1,328     947  
   
 
 
 
 
    Total   $ 7,964   $ 5,461   $ 6,279   $ 4,274  
   
 
 
 
 

(1)
Includes the notional amounts for long and short derivative positions.

(2)
Trading Derivatives include proprietary positions, as well as hedging derivatives instruments that do not qualify for hedge accounting in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).

(3)
Asset/Liability Management Hedges include only those end-user derivative instruments where the changes in market value are recorded to other assets or other liabilities.

(4)
Reclassified to conform to the current period's presentation.

30


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 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.

        The exposures in the following table represent the approximate annualized risk to Net 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.

        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 Not meaningful. A 100 basis point decrease in interest rates would imply negative rates for the Japanese yen yield curve.

        The changes in the U.S. dollar interest rate exposures from June 30, 2007 primarily reflect 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
(in millions of dollars)
  $ 74   $ (377 ) $ (779 ) $ 836   $ 409   $ (60 )
   
 
 
 
 
 
 

31


        For Citigroup's major trading centers, the aggregate pretax VAR in the trading portfolios was $135 million, $153 million, and $90 million at September 30, 2007, June 30, 2007, and September 30, 2006, respectively. Daily exposures averaged $141 million during the third quarter of 2007 and ranged from $126 million to $165 million.

        The following table summarizes VAR to Citigroup in the trading portfolios at September 30, 2007, June 30, 2007, and 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

  September 30,
2007

  Third Quarter
2007 Average

  June 30,
2007

  Second Quarter
2007 Average

  September 30,
2006

  Third Quarter
2006 Average

 
Interest rate   $ 96   $ 101   $ 117   $ 102   $ 89   $ 81  
Foreign exchange     28     29     32     31     28     26  
Equity     104     98     100     87     44     42  
Commodity     33     31     31     35     11     13  
Covariance adjustment     (126 )   (118 )   (127 )   (117 )   (82 )   (76 )
   
 
 
 
 
 
 
Total—All market risk factors, including general and specific risk   $ 135   $ 141   $ 153   $ 138   $ 90   $ 86  
   
 
 
 
 
 
 
Specific risk only component   $ 24   $ 26   $ 8   $ 11   $ 9   $ 10  
   
 
 
 
 
 
 
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:

 
  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

        The table below shows all countries where total cross-border outstandings exceed 0.75% of total Citigroup assets:

 
  September 30, 2007
  December 31, 2006
 
  Cross-Border Claims on Third Parties
   
   
   
   
   
 
  Investments
in and
Funding of
Local
Franchises

   
   
  Total
Cross-
Border
Out-
standings

   
(Amounts in
Billions of U.S.$)

  Banks
  Public
  Private
  Total
  Trading
and Short-
Term
Claims(1)

  Total
Cross-
Border Out-
standings

  Commit-
ments(2)

  Commit-
ments

India   $ 2.0   $ 0.9   $ 12.8   $ 15.7   $ 12.1   $ 20.0   $ 35.7   $ 1.4   $ 24.8   $ 0.7
Germany     18.9     5.6     10.4     34.9     32.0     0.7     35.6     52.2     38.6     43.6
United Kingdom     6.3     0.1     24.0     30.4     28.7         30.4     329.3     18.4     192.8
France     9.7     5.1     12.1     26.9     24.9         26.9     116.1     19.8     60.8
Netherlands     6.9     1.9     17.5     26.3     20.6         26.3     25.4     20.1     10.5
South Korea     0.9     0.1     4.2     5.2     5.1     16.1     21.3     9.0     19.7     11.4
Spain     3.1     5.3     8.9     17.3     16.1     3.6     20.9     7.3     19.7     6.8
Italy     1.8     8.8     4.3     14.9     14.4     0.5     15.4     6.0     18.6     4.0
   
 
 
 
 
 
 
 
 
 

(1)
Included in total cross-border claims on third parties.

(2)
Commitments (not included in total cross-border outstandings) include legally binding cross-border letters of credit and other commitments and contingencies as defined by the FFIEC. Effective March 31, 2006, the FFIEC revised the definition of commitments to include commitments to local residents that will be funded with local currency local liabilities.

32


INTEREST REVENUE/EXPENSE AND YIELDS

Average Rates–Interest Revenue, Interest Expense, and Net Interest Margin

GRAPHIC

In millions of dollars

  3rd Qtr.
2007

  2nd Qtr.
2007

  3rd Qtr.
2006

  % Change
3Q07 vs. 3Q06

Interest Revenue(1)   $ 32,961   $ 30,598   $ 24,729   33%
Interest Expense(2)     20,804     19,172     14,901   40    
   
 
 
 
Net Interest Revenue(1)   $ 12,157   $ 11,426   $ 9,828   24%
   
 
 
 
Interest Revenue—Average Rate     6.41%     6.43%     6.59%   (18)bps
Interest Expense—Average Rate     4.43%     4.43%     4.44%   (1)bps
Net Interest Margin (NIM)     2.36%     2.40%     2.62%   (26)bps
   
 
 
 
Interest Rate Benchmarks:                      
Federal Funds Rate—End of Period     4.75%     5.25%     5.25%   (50)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     4.74%     4.85%     4.89%   (15)bps
   
 
 
 
  10 Year vs. 2 Year Spread     35 bps     5 bps     (4)bps    
   
 
 
 

(1)
Excludes taxable equivalent adjustment (based on the U.S. Federal statutory tax rate of 35%) of $34 million, $45 million, and $14 million for the third quarter of 2007, the second quarter of 2007, and the third quarter of 2006, respectively.

(2)
Excludes expenses associated with hybrid financial instruments and beneficial interest in consolidated VIEs. These obligations are classified as Long-Term Debt and accounted for at fair value with changes recorded in Principal Transactions.

        A significant portion of the Company's business activities are based upon gathering deposits and borrowing money and then lending or investing those funds, including market-making activities in tradable securities. Net interest margin is calculated by dividing gross interest revenue less gross interest expense by average interest earning assets.

        During 2007, pressure on net interest margin continued. Net Interest Margin was mainly affected by the 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.

33


AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)

 
  Average Volume
  Interest Revenue
  % Average Rate
 
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                                                  
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)                                                  
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)     156,123     135,668     81,145     1,873     1,660     995   4.76   4.91   4.86  
   
 
 
 
 
 
 
 
 
 
Total   $ 369,561   $ 320,811   $ 247,671   $ 5,090   $ 4,662   $ 3,713   5.46 % 5.83 % 5.95 %
   
 
 
 
 
 
 
 
 
 
Trading account assets(7)(8)                                                  
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)     206,098     180,361     100,196     1,494     1,274     789   2.88   2.83   3.12  
   
 
 
 
 
 
 
 
 
 
Total   $ 487,688   $ 444,473   $ 284,295   $ 5,156   $ 4,385   $ 2,749   4.19 % 3.96 % 3.84 %
   
 
 
 
 
 
 
 
 
 
Investments(1)                                                  
In U.S. offices                                                  
  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     19,207     18,971     12,285     242     273     153   5.00   5.77   4.94  
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   $ 259,814   $ 281,342   $ 218,997   $ 3,357   $ 3,577   $ 2,606   5.13 % 5.10 % 4.72 %
   
 
 
 
 
 
 
 
 
 
Loans (net of unearned income)(9)                                                  
Consumer loans                                                  
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)     183,659     170,855     140,594     4,912     4,621     3,870   10.61   10.85   10.92  
   
 
 
 
 
 
 
 
 
 
Total consumer loans   $ 561,039   $ 541,617   $ 485,658   $ 12,747   $ 12,284   $ 11,134   9.01 % 9.10 % 9.10 %
   
 
 
 
 
 
 
 
 
 
Corporate loans                                                  
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)     163,003     152,545     130,212     3,832     3,361     2,728   9.33   8.84   8.31  
   
 
 
 
 
 
 
 
 
 
Total corporate loans   $ 202,349   $ 183,620   $ 158,816   $ 4,650   $ 3,969   $ 3,256   9.12 % 8.67 % 8.13 %
   
 
 
 
 
 
 
 
 
 
Total loans   $ 763,388   $ 725,237   $ 644,474   $ 17,397   $ 16,253   $ 14,390   9.04 % 8.99 % 8.86 %
   
 
 
 
 
 
 
 
 
 
Other interest-earning assets   $ 97,506   $ 82,459   $ 56,717   $ 1,087   $ 929   $ 681   4.42 % 4.52 % 4.76 %
   
 
 
 
 
 
 
 
 
 
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)     255,962     249,358     194,550                                
   
 
 
                               
Total assets   $ 2,296,752   $ 2,159,260   $ 1,684,212                                
   
 
 
                               

(1)
Interest revenue excludes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $34 million, $45 million, and $14 million for the third quarter of 2007, the second quarter of 2007, and the third quarter of 2006, respectively.

(2)
Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 15 on page 75.

(3)
Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)
Detailed Average Volume, Interest Revenue and Interest Expense exclude discontinued operations. See Note 2 on page 57.

(5)
Average rates reflect prevailing local interest rates, including inflationary effects and monetary correction in certain countries.

(6)
Average volumes of securities borrowed or purchased under agreements to resell are reported net pursuant to FIN 41 and Interest revenue excludes the impact of FIN 41.

(7)
The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest-bearing liabilities.

(8)
Interest expense on Trading account liabilities of Markets & Banking is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.

(9)
Includes cash-basis loans.

Reclassified to conform to the current period's presentation.

34


AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY,
AND NET INTEREST REVENUE(1)(2)(3)(4)

 
  Average Volume
  Interest Revenue
  % Average Rate
 
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                                                  
Deposits                                                  
In U. S. offices Savings deposits(5)   $ 148,736   $ 147,517   $ 134,486   $ 1,221   $ 1,178   $ 1,092   3.26 % 3.20 % 3.22 %
  Other time deposits     56,473     53,597     51,158     766     773     678   5.38   5.78   5.26  
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   $ 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)                                                  
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)     155,354     152,984     93,032     2,379     2,312     1,404   6.08   6.06   5.99  
   
 
 
 
 
 
 
 
 
 
Total   $ 428,281   $ 386,005   $ 281,084   $ 6,431   $ 5,912   $ 4,396   5.96 % 6.14 % 6.20 %
   
 
 
 
 
 
 
 
 
 
Trading account liabilities(8)(9)                                                  
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)     69,791     62,949     35,644     69     68     58   0.39   0.43   0.65  
   
 
 
 
 
 
 
 
 
 
Total   $ 117,854   $ 121,088   $ 73,245   $ 371   $ 380   $ 301   1.25 % 1.26 % 1.63 %
   
 
 
 
 
 
 
 
 
 
Short-term borrowings                                                  
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)     79,450     66,077     23,446     294     325     98   1.47   1.97   1.66  
   
 
 
 
 
 
 
 
 
 
Total   $ 266,736   $ 237,039   $ 144,949   $ 2,049   $ 1,937   $ 1,273   3.05 % 3.28 % 3.48 %
   
 
 
 
 
 
 
 
 
 
Long-term debt(10)                                                  
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)     43,627     37,391     24,416     577     442     358   5.25   4.74   5.82  
   
 
 
 
 
 
 
 
 
 
Total   $ 328,997   $ 304,887   $ 231,270   $ 4,414   $ 4,004   $ 3,160   5.32 % 5.27 % 5.42 %
   
 
 
 
 
 
 
 
 
 
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     13,683     11,234     11,127                                
Other non-interest-bearing liabilities(8)     293,310     287,371     224,739                                
   
 
 
                               
Total liabilities   $ 2,169,836   $ 2,034,609   $ 1,568,142                                
   
 
 
                               
Total stockholders' equity(11)   $ 126,916   $ 124,651   $ 116,070                                
   
 
 
                               
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(12)                                                  
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)     911,347     822,504     597,542     6,445     6,214     5,269   2.81 % 3.03 % 3.50 %
   
 
 
 
 
 
 
 
 
 
Total   $ 2,040,790   $ 1,909,902   $ 1,489,662   $ 12,157   $ 11,426   $ 9,828   2.36 % 2.40 % 2.62 %
   
 
 
 
 
 
 
 
 
 

(1)
Interest revenue excludes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $34 million, $45 million, and $14 million for the third quarter of 2007, the second quarter of 2007, and the third quarter of 2006, respectively.

(2)
Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 15 on page 75.

(3)
Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)
Detailed Average Volume, Interest Revenue and Interest Expense exclude discontinued operations. See Note 2 on page 57.

(5)
Savings deposits consist of Insured Money Market Rate accounts, NOW accounts, and other savings deposits.

(6)
Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(7)
Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 and Interest expense excludes the impact of FIN 41.

(8)
The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest-bearing liabilities.

(9)
Interest expense on Trading account liabilities of Markets & Banking is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.
(10)
Excludes hybrid financial instruments and beneficial interests in consolidated VIEs that are classified as long-term debt as these obligations are accounted for at fair value with changes recorded in Principal Transactions.

(11)
Includes stockholders' equity from discontinued operations.

(12)
Includes allocations for capital and funding costs based on the location of the asset.

Reclassified to conform to the current period's presentation.

35


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                      
   
 
 
 
 
 
 

(1)
Interest revenue excludes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $94 million and $68 million for the first nine months of 2007 and 2006, respectively.

(2)
Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 15 on page 75.

(3)
Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)
Detailed Average Volume, Interest Revenue and Interest Expense exclude discontinued operations. See Note 2 on page 57.

(5)
Average rates reflect prevailing local interest rates, including inflationary effects and monetary correction in certain countries.

(6)
Average volumes of securities borrowed or purchased under agreements to resell are reported net pursuant to FIN 41 and Interest revenue excludes the impact of FIN 41.

(7)
The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest-bearing liabilities.

(8)
Interest expense on Trading account liabilities of Markets & Banking is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.

(9)
Includes cash-basis loans.

Reclassified to conform to the current period's presentation.

36


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 %
   
 
 
 
 
 
 

(1)
Interest revenue excludes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $94 million and $68 million for the first nine months of 2007 and 2006, respectively.

(2)
Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 15 on page 75.

(3)
Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)
Detailed Average Volume, Interest Revenue and Interest Expense exclude discontinued operations. See Note 2 on page 57.

(5)
Savings deposits consist of Insured Money Market Rate accounts, NOW accounts, and other savings deposits.

(6)
Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(7)
Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 and Interest expense excludes the impact of FIN 41.

(8)
The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest-bearing liabilities.

(9)
Interest expense on Trading account liabilities of Markets & Banking is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.

(10)
Excludes hybrid financial instruments and beneficial interests in consolidated VIEs that are classified as long-term debt as these obligations are accounted for at fair value with changes recorded in Principal Transactions.

(11)
Includes stockholders' equity from discontinued operations.

(12)
Includes allocations for capital and funding costs based on the location of the asset.

Reclassified to conform to the current period's presentation.

37


ANALYSIS OF CHANGES IN INTEREST REVENUE(1)(2)(3)

 
  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:

   
In millions of dollars

  Average Volume
  Average Rate
  Net Change(2)
  Average Volume
  Average Rate
  Net Change(2)
Deposits with banks(4)   $ 101   $ (19 ) $ 82   $ 359   $ (75 ) $ 284
   
 
 
 
 
 
Federal funds sold and securities borrowed or purchased under agreements to resell                                    
In U.S. offices   $ 437   $ (222 ) $ 215   $ 720   $ (221 ) $ 499
In offices outside the U.S.(4)     246     (33 )   213     900     (22 )   878
   
 
 
 
 
 
Total   $ 683   $ (255 ) $ 428   $ 1,620   $ (243 ) $ 1,377
   
 
 
 
 
 
Trading account assets(5)                                    
In U.S. offices   $ 214   $ 337   $ 551   $ 1,200   $ 502   $ 1,702
In offices outside the U.S.(4)     186     34     220     772     (67 )   705
   
 
 
 
 
 
Total   $ 400   $ 371   $ 771   $ 1,972   $ 435   $ 2,407
   
 
 
 
 
 
Investments(1)                                    
In U.S. offices   $ (273 ) $ 19   $ (254 ) $ 354   $ 195   $ 549
In offices outside the U.S.(4)     (2 )   36     34     155     47   $ 202
   
 
 
 
 
 
Total   $ (275 ) $ 55   $ (220 ) $ 509   $ 242   $ 751
   
 
 
 
 
 
Loans—consumer                                    
In U.S. offices   $ 137   $ 35   $ 172   $ 672   $ (101 ) $ 571
In offices outside the U.S.(4)     343     (52 )   291     1,155     (113 )   1,042
   
 
 
 
 
 
Total   $ 480   $ (17 ) $ 463   $ 1,827   $ (214 ) $ 1,613
   
 
 
 
 
 
Loans—corporate                                    
In U.S. offices   $ 170   $ 40   $ 210   $ 217   $ 73   $ 290
In offices outside the U.S.(4)     238     233     471     743     361     1,104
   
 
 
 
 
 
Total   $ 408   $ 273   $ 681   $ 960   $ 434   $ 1,394
   
 
 
 
 
 
Total loans   $ 888   $ 256   $ 1,144   $ 2,787   $ 220   $ 3,007
   
 
 
 
 
 
Other interest-earning assets   $ 168   $ (10 ) $ 158   $ 458   $ (52 ) $ 406
   
 
 
 
 
 
Total interest revenue   $ 1,965   $ 398   $ 2,363   $ 7,705   $ 527   $ 8,232
   
 
 
 
 
 

(1)
The taxable equivalent adjustment is based on the U.S. Federal statutory tax rate of 35%, and is excluded from this presentation.

(2)
Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change.

(3)
Detailed Average Volume, Interest Revenue and Interest Expense exclude discontinued operations. See Note 2 on page 57.

(4)
Changes in average rates reflect changes in prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(5)
Interest expense on Trading account liabilities of Markets & Banking is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.

38


ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUE(1)(2)(3)

 
  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:

   
In millions of dollars

  Average Volume
  Average Rate
  Net Change(2)
  Average Volume
  Average Rate
  Net Change(2)
Deposits                                    
In U.S. offices   $ 40   $ (4 ) $ 36   $ 189   $ 28   $ 217
In offices outside the U.S.(4)     315     249     564     1,035     516     1,551
   
 
 
 
 
 
Total   $ 355   $ 245   $ 600   $ 1,224   $ 544   $ 1,768
   
 
 
 
 
 
Federal funds purchased and securities loaned or sold under agreements to repurchase                                    
In U.S. offices   $ 597   $ (145 ) $ 452   $ 1,272   $ (212 ) $ 1,060
In offices outside the U.S.(4)     36     31     67     954     21     975
   
 
 
 
 
 
Total   $ 633   $ (114 ) $ 519   $ 2,226   $ (191 ) $ 2,035
   
 
 
 
 
 
Trading account liabilities(5)                                    
In U.S. offices   $ (59 ) $ 49   $ (10 ) $ 66   $ (7 ) $ 59
In offices outside the U.S.(4)     7     (6 )   1     40     (29 )   11
   
 
 
 
 
 
Total   $ (52 ) $ 43   $ (9 ) $ 106   $ (36 ) $ 70
   
 
 
 
 
 
Short-term borrowings                                    
In U.S. offices   $ 153   $ (10 ) $ 143   $ 618   $ (38 ) $ 580
In offices outside the U.S.(4)     58     (89 )   (31 )   208     (12 )   196
   
 
 
 
 
 
Total   $ 211   $ (99 ) $ 112   $ 826   $ (50 ) $ 776
   
 
 
 
 
 
Long-term debt                                    
In U.S. offices   $ 240   $ 35   $ 275   $ 1,056   $ (21 ) $ 1,035
In offices outside the U.S.(4)     79     56     135     257     (38 )   219
   
 
 
 
 
 
Total   $ 319   $ 91   $ 410   $ 1,313   $ (59 ) $ 1,254
   
 
 
 
 
 
Total interest expense   $ 1,466   $ 166   $ 1,632   $ 5,695   $ 208   $ 5,903
   
 
 
 
 
 

Net interest revenue

 

$