10-K 1 citi_10k.htm ANNUAL REPORT citi_10k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2009
 
Commission file number 1-9924
 
Citigroup Inc.
(Exact name of registrant as specified in its charter)
 
Delaware 52-1568099
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
    
399 Park Avenue, New York, NY 10043
(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: (212) 559-1000
 
Securities registered pursuant to Section 12(b) of the Act: See Exhibit 99.02
 
Securities registered pursuant to Section 12(g) of the Act: none
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  X  Yes  ¨  No
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  ¨  Yes  X  No
 
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.  X  Yes  ¨  No
 
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).   X  Yes  ¨  No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨ 
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
X  Large accelerated filer ¨  Accelerated filer ¨  Non-accelerated filer ¨  Smaller reporting company
    (Do not check if a smaller reporting company)  

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨  Yes  X  No
 
The aggregate market value of Citigroup Inc. common stock held by non-affiliates of Citigroup Inc. on June 30, 2009 was approximately $16.3 billion.
 
Number of shares of common stock outstanding on January 31, 2010: 28,476,886,087
 
Documents Incorporated by Reference: Portions of the Registrant’s Proxy Statement for the annual meeting of stockholders scheduled to be held on April 20, 2010, are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
 
1
 


10-K CROSS-REFERENCE INDEX
 

This Annual Report on Form 10-K incorporates the requirements of the accounting profession and the Securities and Exchange Commission, including a comprehensive explanation of 2009 results.
 
Form 10-K
Item Number Page
 
Part I
 
1.      Business 4-38, 42, 105-114,
148, 259-262
 
1A.   Risk Factors 54-60
 
1B. Unresolved Staff Comments Not Applicable
 
2. Properties 262
 
3. Legal Proceedings 263-266
 
4. Submission of Matters to a Vote of
Security Holders Not Applicable
 
Part II
 
5. Market for Registrant’s Common
Equity, Related Stockholder
Matters, and Issuer Purchases of
Equity Securities 45-46, 154, 257,
  267, 269-270
 
6. Selected Financial Data 13
 
7. Management’s Discussion and
Analysis of Financial Condition
and Results of Operations 4-53, 61-104
 
7A. Quantitative and Qualitative
Disclosures About Market Risk 61-102,149-150,
  171-191,
195-238
 
8. Financial Statements and
Supplementary Data 120-258
 
9. Changes in and Disagreements  
with Accountants on Accounting
and Financial Disclosure Not Applicable
 
9A. Controls and Procedures 115-116
 
9B. Other Information Not Applicable
 
Part III
 
10.     Directors, Executive Officers and
Corporate Governance 268, 270, 272*
 
11. Executive Compensation **
 
12. Security Ownership of Certain
Beneficial Owners and
Management and Related
Stockholder Matters ***
 
13.   Certain Relationships and Related
 
Transactions, and Director
Independence
****
 
14. Principal Accounting Fees and
Services *****
 
Part IV  
   
15. Exhibits and Financial Statement  
Schedules 273

*         For additional information regarding Citigroup’s Directors, see “Corporate Governance,” “Proposal 1: Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for Citigroup’s Annual Meeting of Stockholders scheduled to be held on April 20, 2010, to be filed with the SEC (the Proxy Statement), incorporated herein by reference.
** See “Executive Compensation—The Personnel and Compensation Committee Report,” “Compensation Discussion and Analysis” and “Compensation Tables” in the Proxy Statement, incorporated herein by reference.
*** See “About the Annual Meeting,” “Stock Ownership” and “Proposal 3: Approval of Citigroup 2010 Stock Incentive Plan” in the Proxy Statement, incorporated herein by reference.
**** See “Corporate Governance—Director Independence,” “Certain Transactions and Relationships, Compensation Committee Interlocks and Insider Participation,” “Indebtedness,” “Proposal 1: Election of Directors” and “Executive Compensation” in the Proxy Statement, incorporated herein by reference.
***** See “Proposal 2: Ratification of Selection of Independent Registered Public Accounting Firm” in the Proxy Statement, incorporated herein by reference.


2
 


CITIGROUP’S 2009 ANNUAL REPORT ON FORM 10-K
 
 
OVERVIEW 4
CITIGROUP SEGMENTS AND REGIONS 5
MANAGEMENT’S DISCUSSION AND ANALYSIS
       OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS 7
EXECUTIVE SUMMARY 7
       2010 Business Outlook 11
RESULTS OF OPERATIONS 13
FIVE-YEAR SUMMARY OF SELECTED
       FINANCIAL DATA 13
SEGMENT, BUSINESS AND PRODUCT
       INCOME (LOSS) AND REVENUES 14
       Citigroup Income (Loss) 14
       Citigroup Revenues 15
CITICORP 16
       Regional Consumer Banking 17
       North America Regional Consumer Banking 18
       EMEA Regional Consumer Banking 20
       Latin America Regional Consumer Banking 22
       Asia Regional Consumer Banking 24
       Institutional Clients Group 26
       Securities and Banking 27
       Transaction Services 29
CITI HOLDINGS 30
       Brokerage and Asset Management 31
       Local Consumer Lending 32
       Special Asset Pool 35
CORPORATE/OTHER 38
BALANCE SHEET REVIEW 39
       Segment Balance Sheet at December 31, 2009 42
CAPITAL RESOURCES AND LIQUIDITY 43
       Capital Resources 43
       Funding and Liquidity 48
OFF-BALANCE-SHEET ARRANGEMENTS 52
CONTRACTUAL OBLIGATIONS 53
RISK FACTORS 54
MANAGING GLOBAL RISK 61
       Risk Management—Overview 61
       Risk Aggregation and Stress Testing 62
       Risk Capital 62
       Credit Risk 63
              Loan and Credit Overview 63
              2010 Credit Outlook 63
              Loans Outstanding 64
              Details of Credit Loss Experience 65
              Non-Accrual Assets 66
              Foregone Interest Revenue on Loans 68
              Corporate Loans 68
              Consumer Loan Delinquency Amounts and Ratios 70
              Consumer Loan Net Credit Losses and Ratios 71
              Consumer Loan Modification Programs 72
              U.S. Consumer Lending 73
              Corporate Loan Details 82
              U.S. Subprime-Related Direct Exposure in Citi Holdings—  
                     Special Asset Pool 85
              Direct Exposure to Monolines 87
              Highly Leveraged Financial Transactions 88
       Market Risk 89
              Average Balances and Interest Rates—Assets 94
              Average Balances and Interest Rates—Liabilities and
                     Equity, and Net Interest Revenue 95
              Analysis of Changes in Interest Revenue 96
              Analysis of Changes in Interest Expense and 
                     Net Interest Revenue
97
       Operational Risk 98
       Country and FFIEC Cross-Border Risk Management Process 99
       Country and Cross-Border Risk 99
DERIVATIVES 100
PENSION AND POSTRETIREMENT PLANS 103
SIGNIFICANT ACCOUNTING POLICIES AND
       SIGNIFICANT ESTIMATES 105
       Valuations of Financial Instruments 105
       Allowance for Credit Losses 107
       Securitizations 107
       Goodwill 110
       Income Taxes 112
       Legal Reserves 113
       Accounting Changes and Future Application of
              Accounting Standards 113
FORWARD-LOOKING INFORMATION 114
CONTROLS AND PROCEDURES 115
MANAGEMENT’S REPORT ON INTERNAL
       CONTROL OVER FINANCIAL REPORTING 116
REPORT OF INDEPENDENT REGISTERED
       PUBLIC ACCOUNTING FIRMINTERNAL
       CONTROL OVER FINANCIAL REPORTING 117
REPORT OF INDEPENDENT REGISTERED
       PUBLIC ACCOUNTING FIRM
       CONSOLIDATED FINANCIAL STATEMENTS 118
FINANCIAL STATEMENTS AND NOTES TABLE
       OF CONTENTS 119
CONSOLIDATED FINANCIAL STATEMENTS 120
NOTES TO CONSOLIDATED FINANCIAL
       STATEMENTS 126
FINANCIAL DATA SUPPLEMENT (Unaudited) 258
       Ratios 258
       Average Deposit Liabilities in Offices Outside the U.S. 258
       Maturity Profile of Time Deposits ($100,000 or more)  
       in U.S. Offices 258
       Short-Term and Other Borrowings 258
SUPERVISION AND REGULATION 259
CUSTOMERS 261
COMPETITION 262
PROPERTIES 262
LEGAL PROCEEDINGS 263
UNREGISTERED SALES OF EQUITY;
       PURCHASES OF EQUITY SECURITIES;
       DIVIDENDS
267
CORPORATE INFORMATION 270
CITIGROUP BOARD OF DIRECTORS 272


3
 


OVERVIEW
 
Citigroups history dates back to the founding of Citibank in 1812. Citigroup’s original corporate predecessor was incorporated in 1988 under the laws of the State of Delaware. Following a series of transactions over a number of years, Citigroup Inc. was formed in 1998 upon the merger of Citicorp and Travelers Group Inc.
     Citigroup is now a global diversified financial services holding company whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services. Citi has approximately 200 million customer accounts and does business in more than 140 countries.
     Citigroup currently operates, for management reporting purposes, via two primary business segments: Citicorp, consisting of our Regional Consumer Banking businesses and Institutional Clients Group; and Citi Holdings, consisting of our Brokerage and Asset Management and Local Consumer Lending businesses, and a Special Asset Pool. There is also a third segment, Corporate/Other. For a further description of the business segments and the products and services they provide, see “Citigroup Segments” below, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 4 to the Consolidated Financial Statements.
     Throughout this report, “Citigroup” and “Citi” refer to Citigroup Inc. and its consolidated subsidiaries.

 
4
 


     As described above, Citigroup is managed pursuant to the following segments:
 
 
     *Note: See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Citi Holdings” for a discussion of certain assets, totaling approximately $61 billion, that will be moved from Citi Holdings to Citicorp during the first quarter of 2010.
 
     The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results above.
 
 
(1) Asia includes Japan, Latin America includes Mexico, and North America comprises the U.S., Canada and Puerto Rico.
 
5
 


OVERVIEW (Continued)
 
On December 23, 2009, Citigroup repaid $20 billion of trust preferred securities held by the U.S. Treasury under the U.S. government’s Troubled Asset Relief Program (TARP) and exited from the loss-sharing agreement, which covered a specified pool of assets, with the U.S. Treasury, FDIC and the Federal Reserve Bank of New York. In connection with the exiting from the loss-sharing agreement, $1.8 billion of the approximately $7.1 billion of additional trust preferred securities held by the U.S. Treasury and FDIC was cancelled. As a result of the repayment of TARP and the exit from the loss-sharing agreement, effective in 2010, Citi is no longer deemed to be a beneficiary of “exceptional financial assistance” under TARP.
    Following these transactions, as of December 31, 2009 (i) the U.S. Treasury continued to hold approximately 7.7 billion shares, or approximately 27%, of Citi’s common stock, (ii) the U.S. Treasury and FDIC continue to hold an aggregate of approximately $5.3 billion of Citi’s trust preferred securities, and (iii) the U.S. Treasury continues to hold three warrants exercisable for an aggregate of approximately 465.1 million shares of Citi’s common stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Executive Summary—Repayment of TARP and Exit from Loss-Sharing Agreement; Common and Preferred Stock Activities” for additional information.
    At December 31, 2009, Citi had approximately 265,300 full-time employees and 3,700 part-time employees. At December 31, 2008, Citi had approximately 322,800 full-time and 4,100 part-time employees.
    Additional information about Citigroup is available on the company’s Web site at www.citigroup.com. Citigroup’s recent annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, as well as its other filings with the Securities and Exchange Commission (SEC) are available free of charge through the Web site by clicking on the “Investors” page and selecting “All SEC Filings.” The SEC Web site also contains reports, proxy and information statements, and other information regarding Citi, at www.sec.gov.
 
                 
    Please see “Risk Factors” below for a discussion of certain risks and uncertainties that could materially impact Citigroup’s financial condition and results of operations.
     

    Certain reclassifications have been made to the prior periods’ financial statements to conform to the current period’s presentation.

 
6
 


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
EXECUTIVE SUMMARY
 
Introduction
Citigroup is a global diversified financial services holding company whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking, credit cards, corporate and investment banking, securities brokerage and wealth management. Citigroup has approximately 200 million customer accounts and does business in more than 140 countries.
    In response to the dramatic and profound changes in the market environment that became increasingly apparent through 2008, in early 2009, Citigroup decided to increase the focus on its core businesses and reorganized into three business segments for management and reporting purposes: Citicorp (Regional Consumer Banking and Institutional Clients Group); Citi Holdings (Brokerage and Asset Management, Local Consumer Lending, and Special Asset Pool); and Corporate/Other (Treasury, corporate expenses). Citi believes the realignment allows it to enhance the capabilities and performance of Citigroup’s core assets, through Citicorp, as well as to tighten its focus on risk management and reduce and realize value from its non-core assets, through Citi Holdings.
    Citigroup reported a net loss for 2009 of $1.6 billion, as compared to a $27.7 billion loss in 2008. Diluted EPS was a loss of $0.80 per share in 2009, versus a loss of $5.63 per share in 2008, and net revenue was $80.3 billion in 2009, versus $51.6 billion in 2008. Net interest revenue declined by $4.8 billion to $48.9 billion in 2009, generally as a result of lower average interest-earning assets, as the company continued its focus on de-risking its balance sheet and decreasing its total assets. Non-interest revenues improved by approximately $33.5 billion to $31.4 billion in 2009, primarily due to lower negative revenue marks in 2009. The decrease in net loss from year to year was primarily attributable to lower revenue marks in 2009 compared with 2008 (a pretax loss of $3.4 billion in 2009 versus a pretax loss of $38.5 billion in 2008), the $11.1 billion pretax Smith Barney gain on sale recorded in the second quarter of 2009 and a $1.4 billion pretax gain related to the exchange offers recognized in the third quarter of 2009. Partially offsetting these items were increasing credit loss provisions during the year and a $10.1 billion pretax loss associated with the repayment of TARP and the exit from the loss-sharing agreement with the U.S. government. Additionally, 2008 included a $9.6 billion pretax goodwill impairment, a $0.9 billion pretax impairment related to Nikko Asset Management, and $3.3 billion pretax of restructuring/repositioning charges. Continued strength of the core Citi franchise was demonstrated by
strong revenues in Securities and Banking (S&B) (up 23% from 2008 levels, excluding credit value adjustments (CVA)) and continued stability in both the retail and institutional deposit bases. At December 31, 2009, total deposits were $836 billion, up 8% from December 31, 2008.
    Despite very difficult market and economic conditions, Citicorp remained profitable with $14.8 billion in income from continuing operations in 2009 versus $6.2 billion in 2008, reflecting the strength of the underlying franchise, continued client focus, cost management and strengthened risk management. Citi Holdings recorded a loss of $8.2 billion in 2009 versus a $36.0 billion loss in 2008 as substantial reductions in negative revenue marks, cost cuts and the Smith Barney gain more than offset continued increases in credit costs within Local Consumer Lending. The gain related to the exchange offers and loss associated with TARP repayment and exiting the loss-sharing agreement was recorded in Corporate/Other.
    Citigroup’s 2009 financial results include the impact of 18 divestitures completed in 2009, including Smith Barney, Nikko Cordial Securities and Nikko Asset Management, and 19 divestitures completed in 2008, including Citi’s German retail banking operations, CitiCapital and Redecard. These divestitures were completed in accordance with Citi’s strategy of exiting non-core businesses, while optimizing value for shareholders.
    Citi’s effective tax rate on continuing operations in 2009 was 86%, versus 39% in 2008. The tax provision reflected a benefit arising from a higher proportion of income earned and indefinitely reinvested in countries with relatively lower tax rates, which accounted for 26 percentage points of the differential between the federal statutory tax rate and Citi’s effective tax rate in 2009, as well as a higher proportion of income from tax-advantaged sources.
 
Repayment of TARP and Exit from Loss-Sharing Agreement; Common and Preferred Stock Activities
 
Background
In October and December 2008, Citigroup raised $25 billion and $20 billion, respectively, through the sale of preferred stock and warrants to purchase common stock to the U.S. Treasury as part of TARP. In January 2009, Citi issued approximately $7.1 billion of preferred stock to the U.S. Treasury and FDIC, as well as a warrant to purchase common stock to the U.S. Treasury, as consideration for the loss-sharing agreement with the U.S. Treasury, FDIC and the Federal Reserve Bank of New York covering a specified pool of Citigroup assets.
    Pursuant to Citigroup’s exchange offers consummated in July 2009, the $25 billion of TARP preferred stock issued to the U.S. Treasury in October 2008 was exchanged for approximately 7.7 billion shares of Citigroup common stock. At the same time, the $20 billion of TARP preferred stock issued to the U.S. Treasury in December 2008 and the approximately $7.1 billion of 

 
7
 


preferred stock issued to the U.S. Treasury and FDIC as consideration for the loss-sharing agreement were exchanged for trust preferred securities. Prior to the exchange of the preferred stock held by the U.S. government pursuant to the exchange offers, Citigroup paid the U.S. government approximately $2.2 billion in preferred dividends on its investment in Citi, and has subsequently paid approximately $800 million in interest on the trust preferred securities issued pursuant to the exchange offers.
 
Repayment of TARP and Exit from loss-sharing agreement
On December 23, 2009, Citigroup repaid the $20 billion of TARP trust preferred securities held by the U.S. Treasury and exited the loss-sharing agreement. In connection with the exit of the loss-sharing agreement, $1.8 billion of the trust preferred securities held by the U.S. Treasury out of the approximately $7.1 billion of trust preferred securities issued in consideration for such agreement to the U.S. Treasury and FDIC was cancelled.
    In connection with the repayment of TARP in December 2009, Citigroup raised an aggregate of approximately $20.3 billion in common equity.  On December 22, 2009 Citigroup issued $17.0 billion of common stock, or approximately 5.4 billion shares, and $3.5 billion of tangible equity units (T-DECs) of which approximately $2.8 billion was recorded as common equity and $0.7 billion was recorded as long-term debt. On December 29, 2009, Citigroup raised an additional approximate $0.6 billion of common stock, or approximately 185 million shares, pursuant to exercise of the underwriters’ overallotment option. In addition, in January 2010, Citigroup issued $1.7 billion of common stock equivalents to its employees in lieu of cash compensation they would have otherwise received. Subject to shareholder approval at Citi’s annual shareholder meeting scheduled to be held on April 20, 2010, the common stock equivalents will be converted into common stock.
    Following the repayment of TARP and exit from the loss-sharing agreement, as of December 31, 2009, the U.S. Treasury continues to hold approximately 7.7 billion shares, or approximately 27.0%, of Citi’s common stock, not including the exercise of the warrants issued to the U.S. Treasury that remain outstanding, as described below. The U.S. Treasury has indicated that it intends to sell its holding in Citi common stock in 2010, subject to a 90-day lock-up period expiring on March 16, 2010. In addition, the U.S. Treasury and FDIC continue to hold an aggregate of approximately $5.3 billion of the trust preferred securities originally issued by Citi as consideration for the loss-sharing agreement.
    As a result of Citi’s repayment of the $20 billion of TARP trust preferred securities and the exit of the loss-sharing agreement, effective in 2010, Citi is no longer deemed to be a beneficiary of “exceptional financial assistance” under TARP.
Common stock warrants issued to the U.S. Treasury
The three warrants issued to the U.S. Treasury as part of TARP and the loss-sharing agreement remain outstanding as of December 31, 2009 following Citi’s repayment of TARP and exit from the loss-sharing agreement.
    Each of the warrants has a term of 10 years from the date of issuance. The warrant issued to the U.S. Treasury in October 2008 has an exercise price of $17.85 per share and is exercisable for approximately 210.1 million shares of common stock. The warrant issued to the U.S. Treasury in December 2008 has an exercise price of $10.61 per share and is exercisable for approximately 188.5 million shares of common stock. The warrant issued to the U.S. Treasury as part of the loss-sharing agreement in January 2009 also has an exercise price of $10.61 and is exercisable for approximately 66.5 million shares of common stock.

 
8
 


    The following table summarizes Citigroup’s issuances, exchanges and repayments of preferred and common stock and trust preferred securities during 2008 and 2009:
 
            Common stock     Citigroup
and additional common stock
In millions of dollars, shares in millions Preferred stock paid-in capital outstanding
    Balance, December 31, 2007 $ $ 18,062 4,995
First quarter 2008 Issuance of $12.5 billion of convertible preferred stock
    in a private offering, $3.2 billion of convertible
      preferred stock in a public offering, and $3.7 billion
       of non-convertible preferred stock in public
       offerings 19,384
Issuance of shares for Nikko Cordial acquisition   (3,485 ) 175
    Other activity (primarily employee benefit plans)          (3,391 )  
Second quarter 2008 Issuance of shares for Nikko Cordial acquisition   (15 )
  Issuance of $8.0 billion of preferred stock in a public
       offering and $4.9 billion of common stock 8,040 4,911 194
Other activity (primarily employee benefit plans) 569  
Third quarter 2008 Other activity (primarily employee benefit plans) 290
Fourth quarter 2008 Issuance of $45 billion of preferred stock and warrants
       under TARP 43,203 1,797
  Preferred stock Series H discount accretion 37
Other activity (primarily employee benefit plans) 484   86
Balance, December 31, 2008 $ 70,664 $ 19,222 5,450
First quarter 2009 U.S. government loss-sharing agreement; issuance of
       $7.1 billion of preferred stock and warrants 3,530 88
  Reset of convertible preferred stock conversion price 1,285
Preferred stock Series H discount accretion 52
Other activity (primarily employee benefit plans) (4,013 ) 63
Balance, end of period $ 74,246 $ 16,582 5,513
Second quarter 2009 Preferred stock Series H discount accretion 55
  Other activity (primarily employee benefit plans)   138 (5 )
Balance, end of period $ 74,301 $ 16,720 5,508
Third quarter 2009 (1) Exchange offers:    
       Private investors (12,500 ) 21,839 3,846
       Public investors—convertible preferred stock (3,146 ) 5,136 823
       Public investors—non-convertible preferred stock (11,465 ) 9,149 3,351
       Public investors—trust preferred securities 4,532 1,660
       U.S. government matching of private exchange offer (11,924 ) 10,653 3,846
         U.S. government matching of public exchange offer (11,926 ) 10,654 3,846
    U.S. government TARP preferred stock converted to
       trust preferred securities (19,514 )
       Preferred stock held by U.S. Treasury and FDIC related
           to loss-sharing agreement (converted to trust preferred securities) (3,530 )
Preferred stock Series H discount accretion 16
Other activity (primarily employee benefit plans) 349 (16 )
Balance, end of period $ 312 $ 79,032 22,864
Fourth quarter 2009 Issuance of new common equity and tangible equity units (T-DECs) pursuant  
       to repayment of TARP and exiting of loss-sharing agreement   20,298 5,582
Other activity (primarily employee benefit plans) (902 ) 37
Balance, December 31, 2009 $ 312 $ 98,428 28,483

(1)        In addition to the U.S. government exchanges, pursuant to the exchange offers, private holders of approximately $12.5 billion aggregate liquidation value of Citi preferred stock exchanged such preferred stock for approximately 3.8 billion shares of Citi common stock. In addition, public holders of approximately $20.3 billion aggregate liquidation value of Citi preferred stock and trust preferred securities exchanged such securities for approximately 5.8 billion shares of Citi common stock.
 
9
 


Business Environment
The business environment for financial services firms continued to be challenging in 2009, particularly for firms with significant exposure to consumer credit. U.S. unemployment reached 10.1%, GDP continued to contract through the second quarter, housing markets remained weak, and personal and business bankruptcies increased. These factors drove substantial increases in credit costs across consumer and corporate portfolios. Credit spreads continued to widen earlier in the year, driving further declines in the value of credit-sensitive financial instruments. Equity markets were also very weak during early 2009. At its low point in March 2009, the S&P 500 had declined 55% from December 31, 2007 levels.
    While these trends were negative for the economy and the financial services industry as a whole, they were accompanied by very high levels of volatility and wide spreads within fixed income markets during the first quarter of 2009, which provided substantial trading opportunities. As a result, fixed income capital markets businesses achieved high levels of revenue and profitability during the first quarter, offsetting some of the substantial credit losses incurred in consumer-oriented businesses, including mortgages and cards.
    Beginning in late 2008, significant U.S. government actions were implemented to help stabilize the U.S. economy and restore confidence in the capital markets. The U.S. government had available over $700 billion to invest in financial institutions, including $45 billion in Citi, through TARP. In early 2009, a $787 billion stimulus bill was signed into law. A number of additional programs helped further stimulate demand in 2009, including the U.S. government’s first-time home buyer credit programs. The U.S. government also directly supported the capital markets through various programs, including the Term Asset-Backed Securities Loan Facility (TALF) and the Temporary Liquidity Guarantee Program (TLGP), and through substantial direct purchases of mortgage-backed securities. These actions, combined with continued accommodative monetary policy on the part of the Federal Reserve Board, helped keep home mortgage rates near historic lows and worked to facilitate the continued flow of credit to consumers.
    Late in 2009, some early positive economic signs were observed. U.S. GDP growth was positive in the third and fourth quarters. The S&P 500 finished the year up 23% from December 31, 2008, and up 67% from the trough level in March 2009, though still down 24% from December 31, 2007. Credit spreads, while still elevated, tightened significantly from peak levels in the early part of 2009. In the second half of the year, Citi began to observe some very early signs of stabilization and, in some areas, moderation in U.S. consumer credit trends as net credit losses declined sequentially during the third and fourth quarters, though remaining quite elevated. In addition,
improving economic and market trends led to relatively stronger advisory and equity underwriting volumes in the fourth quarter. On the other hand, lower levels of market volatility and volumes resulted in diminished trading opportunities, which led to significant sequential declines in S&B revenues in the second half of the year. In certain key markets in Asia and Latin America, improvement in the labor markets and overall economic recovery was earlier, and somewhat stronger, than that observed in the U.S. Citi observed improving credit trends in key markets including South Korea, Mexico, Australia, Singapore and India, driven by improving economic conditions as well as Citi’s loss mitigation efforts. Further, while EMEA continued to be affected by a challenging economic environment, labor markets began to show some improvement, particularly in Russia and Turkey, and there were some early signs of financial stability returning to some of Citi’s key markets in the region.
    While some economic and market improvements were observed in late 2009, Citi remains cautious, particularly with respect to its North American businesses, as U.S. unemployment remains high at 10.0% as of December 31, 2009, and housing markets remain relatively weak. In addition, there remains significant uncertainty regarding the pace of economic recovery and the impact of the U.S. government’s unwinding of its extensive economic and market supports, which may accelerate in 2010. See “2010 Business Outlook” below.
 
Citigroup's Actions in Response to Market Challenges
During 2009, Citigroup sought to respond to market challenges and the profound changes in the market environment—changes in funding markets, operating models and client needs—including:
 
Citi restructured into two primary operating segments—Citicorp and Citi Holdings.
As described above, Citicorp comprises Citi’s core franchise, while Citi Holdings consists of non-core businesses and assets that Citi intends to exit as quickly as practicable while seeking to optimize value for shareholders.
 
Citigroup continued to reduce operating expenses and headcount.
Citi’s ongoing operating expenses in the fourth quarter of 2009 totaled $12.3 billion, down from $15.1 billion (excluding the goodwill impairment charge) in the fourth quarter of 2008 and $15.7 billion in the fourth quarter of 2007. The decline in expenses was primarily driven by divestitures and re-engineering efforts. In addition, Citi reduced headcount by over 100,000 to approximately 265,000 at December 31, 2009, compared to 375,000 at peak levels in 2007.

 
10
 


Citigroup strengthened its balance sheet.
  • Citi increased its common capital ratios.
    Citi significantly increased its Tier 1 Common and Tangible Common Equity (TCE) ratios during 2009, primarily as a result of its exchange offers completed in the third quarter of 2009. At December 31, 2009, Citi’s Tier 1 Common ratio was 9.6% and its TCE ratio was 10.9%, compared to 2.3% and 3.1% at December 31, 2008, respectively. In addition, Citi’s Tier 1 Capital ratio was 11.7% at December 31, 2009. Tier 1 Common and related ratios are measures used and relied on by U.S. banking regulators; however, Tier 1 Common, TCE and related ratios are non-GAAP financial measures for SEC purposes. See “Capital Resources and Liquidity—Capital Resources” for additional information on these measures.
     
  • Citi improved its liquidity position.
    Citigroup lengthened the maturity structure of its liabilities, increased balances of cash and highly liquid securities, continued to grow its deposit base, raised substantial equity capital and reduced illiquid assets, primarily in Citi Holdings. As a result, structural liquidity (defined as deposits, long-term debt and equity as a percentage of total assets) grew to 73% as of December 31, 2009, compared to 66% at December 31, 2008 and 63% at December 31, 2007. Citigroup had $193 billion of cash and deposits with banks as of December 31, 2009. Citi currently anticipates issuing less than $15 billion of Citigroup-level long-term debt in 2010 (down from $85 billion in 2009) due to its current strong liquidity position and anticipated asset reductions within Citi Holdings.
     
  • Citi continued to de-risk and decrease the amount of its total assets.
    Citi’s total assets were approximately $1.86 trillion as of December 31, 2009, down from approximately $1.94 trillion at December 31, 2008 and $2.19 trillion at December 31, 2007. Consistent with Citi’s strategy, Citi Holdings now represents less than 30% of Citi’s total assets as of December 31, 2009, compared to 41% at the start of 2008. While Citi made progress in de-risking and decreasing total assets, particularly in Citi Holdings, these actions, together with an expansion of the Company’s loss mitigation efforts and declining yields in the trading book, resulted in a 9% reduction in net interest revenue in 2009 versus 2008 and a decrease in Citi’s net interest margin (NIM) to 2.65% at December 31, 2009 compared to 3.26% at December 31, 2008.
Citigroup increased its allowance for loan losses.
During 2009, Citi added a net build of $8.0 billion to its allowance for loan losses. The allowance for loan losses was $36 billion at December 31, 2009, or 6.1% of loans, compared to $29.6 billion, or 4.3% of loans, at year-end 2008. With the adoption of SFAS 166 and 167 in the first quarter of 2010, loan loss reserves would have been $49.4 billion, or 6.6% of loans, each as of December 31, 2009 and based on current estimates. The consumer loan loss reserve was $28.4 billion at December 31, 2009, representing 14.1 months of concurrent charge-off coverage, versus 13.1 months at December 31, 2008.
 
Citi began to make selected investments in its core businesses.
Within Regional Consumer Banking, Citi began making selected investments in its core businesses in the latter part of 2009. For example, in Asia, Citi invested in new customer acquisition in the emerging affluent segment and in card usage promotion. In Latin America, Citi invested in card account acquisition, with a focus on higher-quality new accounts, consistent with portfolio repositioning objectives. Citigroup also continued to invest in consumer banking technology, for example, in banking products in markets such as Singapore, Hong Kong and South Korea, where mobile phones and mobile banking have intersected in ways not yet seen in the U.S. Within Transaction Services, Citi continued to invest in technology to support its global network, including its investor services suite of products, prepaid and commercial cards offerings and launch of a new front end online banking technology that provides a diverse set of functionality beyond traditional transaction management and reporting. These and similar investments have increased, and will likely continue to increase, Citi’s operating expenses.
 
2010 BUSINESS OUTLOOK
While showing signs of improvement, the macroeconomic environment going into 2010 remains challenging, with U.S. unemployment still elevated. The U.S. government has indicated its intention to continue scaling back programs put in place to support the market during 2008 and 2009. The impact of the U.S. government’s exit from many of these programs is a source of uncertainty in 2010, as is the future course of monetary policy. In addition, the potential impact of new laws and regulations (e.g., The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act)), potential new capital standards, and other legislative and regulatory initiatives is a source of significant additional uncertainty regarding the business and market environment.

11
 


    Citigroup is maintaining a cautious stance in light of this uncertain market environment and continued macroeconomic headwinds. As it enters 2010, Citi is focused on maintaining high levels of capital and liquidity, rigorous risk management practices and cost discipline. In Citi Holdings, Citi will continue to focus on reducing assets, which could result in lower revenues and operating expenses in 2010. In Citicorp, the focus will remain on serving the company’s core institutional, corporate and retail client base in the U.S. and around the world. Citi will continue to focus on credit loss mitigation and expense control, and may continue to invest in areas such as Asia and Latin America, where economic recovery and growth appear to be taking hold. Operating expenses may grow modestly in Citicorp in 2010, as a portion of the cost reductions achieved in Citi Holdings is re-invested in the core franchise.
    Credit costs will likely remain a significant driver of Citigroup’s results in 2010, particularly in North America, where credit trends will largely depend on the broader macroeconomic environment, as well as the impact
of industry factors such as CARD Act implementation and the outcome of the Home Affordable Modification Program (HAMP) and other loss mitigation efforts. See “Results of Operations—Citicorp—North America Regional Consumer Banking,” “—Citi Holdings—Local Consumer Lending” and  “Managing Global Risk—Credit Risk” for additional information. Citi expects U.S. consumer net credit losses to increase modestly in the first quarter of 2010 from fourth quarter 2009 levels, due in part to expected seasonal patterns, after which there may be some slight improvement. However, net credit losses in the second half of 2010 will be dependent on the macroeconomic environment and success of the company’s ongoing loss mitigation efforts. Changes to Citigroup’s consumer loan loss reserve balances will continue to reflect the losses embedded in Citi’s consumer loan portfolio due to underlying credit trends as well as the impact of Citi’s forbearance programs. Citi currently expects NIM to remain under pressure due to its enhanced liquidity position and ongoing de-risking of the balance sheet.

 
12
 


RESULTS OF OPERATIONS
 
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA Citigroup Inc. and Consolidated Subsidiaries

In millions of dollars, except per-share amounts, ratios and direct staff 2009  (1) 2008 2007 2006 2005
Net interest revenue $ 48,914          $ 53,749          $ 45,389          $ 37,928          $ 37,494
Non-interest revenue 31,371 (2,150 ) 31,911 48,399 42,583
Revenues, net of interest expense $ 80,285 $ 51,599 $ 77,300 $ 86,327 $ 80,077
Operating expenses 47,822 69,240 58,737 50,301 43,549
Provisions for credit losses and for benefits and claims 40,262 34,714 17,917 7,537 7,971
Income (loss) from continuing operations before income taxes $ (7,799 ) $ (52,355 ) $ 646 $ 28,489 $ 28,557
Income taxes (benefits) (6,733 ) (20,326 ) (2,546 ) 7,749 8,787
Income (loss) from continuing operations $ (1,066 ) $ (32,029 ) $ 3,192 $ 20,740 $ 19,770
Income (loss) from discontinued operations, net of taxes (2) (445 ) 4,002 708 1,087 5,417
Cumulative effect of accounting change, net of taxes (3) (49 )
Net income (loss) before attribution of noncontrolling interests $ (1,511 ) $ (28,027 ) $ 3,900 $ 21,827 $ 25,138
Net income (loss) attributable to noncontrolling interests 95 (343 ) 283 289 549
Citigroup’s net income (loss) $ (1,606 ) $ (27,684 ) $ 3,617 $ 21,538 $ 24,589
Earnings per share
                               
Basic:
Income (loss) from continuing operations $ (0.76 ) $ (6.39 ) $ 0.53 $ 4.07 $ 3.69
Net income (loss) (0.80 ) (5.63 ) 0.68 4.29 4.74
                                  
Diluted:
Income (loss) from continuing operations $ (0.76 ) $ (6.39 ) $ 0.53 $ 4.05 $ 3.67
Net income (loss) (0.80 ) (5.63 ) 0.67 4.27 4.71
Dividends declared per common share $ 0.01 $ 1.12 $ 2.16 $ 1.96 $ 1.76
At December 31
Total assets $ 1,856,646 $ 1,938,470 $ 2,187,480 $ 1,884,167 $ 1,493,886
Total deposits 835,903 774,185 826,230 712,041 591,828
Long-term debt 364,019 359,593 427,112 288,494 217,499
Mandatorily redeemable securities of subsidiary trusts 19,345 24,060 23,756 9,775 6,459
Common stockholders’ equity 152,388 70,966 113,447 118,632 111,261
Total stockholders’ equity 152,700 141,630 113,447 119,632 112,386
Direct staff (in thousands) 265 323 375 327 296
Ratios:
Return on common stockholders’ equity (4) (9.4 )% (28.8 )% 2.9 % 18.8 % 22.4 %
Return on total stockholders’ equity (4) (1.1 ) (20.9 ) 3.0 18.7 22.2
Tier 1 Capital 11.67 % 11.92 % 7.12 % 8.59 % 8.79 %
Total Capital 15.25 15.70 10.70 11.65 12.02
Leverage (5) 6.89 6.08 4.03 5.16 5.35
Common stockholders’ equity to assets 8.21 % 3.66 % 5.19 % 6.30 % 7.45 %
Total stockholders’ equity to assets   8.22   7.31   5.19 6.35   7.52
Dividend payout ratio (6) NM   NM   322.4   45.9   37.4  
Book value per common share $ 5.35 $ 13.02 $ 22.71   $ 24.15 $ 22.34
Ratio of earnings to fixed charges and preferred stock dividends NM NM 1.01 x 1.50 x 1.79 x

(1)        On January 1, 2009, Citigroup adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (now ASC 810-10-45-15, Consolidation: Noncontrolling Interest in a Subsidiary), and FSP EITF 03- 6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (now ASC 260-10-45-59A, Earnings Per Share: Participating Securities and the Two-Class Method). All prior periods have been restated to conform to the current period’s presentation.
(2) Discontinued operations for 2005 to 2009 reflect the sale of Nikko Cordial Securities to Sumitomo Mitsui Banking Corporation, the sale of Citigroup’s German retail banking operations to Crédit Mutuel, and the sale of CitiCapital’s equipment finance unit to General Electric. In addition, discontinued operations for 2005 and 2006 include the operations and associated gain on sale of substantially all of Citigroup’s asset management business, the majority of which closed on December 1, 2005. Discontinued operations from 2005 and 2006 also include the operations and associated gain on sale of Citigroup’s Travelers Life & Annuity, substantially all of Citigroup’s international insurance business and Citigroup’s Argentine pension business to MetLife Inc., which closed on July 1, 2005. See Note 3 to the Consolidated Financial Statements.
(3) Accounting change of $(49) million in 2005 represents the adoption of Financial Accounting Standards Board (FASB) Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143 (FIN 47) (now ASC 410-20, Asset Retirement and Environmental Obligations: Asset Retirement Obligations).
(4) The return on average common stockholders’ equity is calculated using net income less preferred stock dividends divided by average common stockholders’ equity. The return on total stockholders’ equity is calculated using net income divided by average stockholders’ equity.
(5) Tier 1 Capital divided by each year’s fourth quarter adjusted average total assets (hereinafter as adjusted average total assets).
(6) Dividends declared per common share as a percentage of net income per diluted share.
NM Not meaningful
 
13
 


SEGMENT, BUSINESS AND PRODUCTINCOME (LOSS) AND REVENUES
 
The following tables show the income (loss) and revenues for Citigroup on a segment, business and product view:
 
CITIGROUP INCOME (LOSS)
 
                           % Change          % Change
In millions of dollars 2009 2008 2007 2009 vs. 2008 2008 vs. 2007
Income (loss) from Continuing Operations
CITICORP
Regional Consumer Banking
    North America $ 354 $ (1,578 ) $ 1,867 NM NM
    EMEA (209 ) 50 96 NM (48 )%
    Latin America 323 (3,348 ) 1,616 NM NM
    Asia 1,423 1,736 2,010 (18 )% (14 )
       Total $ 1,891 $ (3,140 ) $ 5,589 NM NM
Securities and Banking
    North America $ 2,417 $ 2,275 $ 1,687 6 % 35 %
    EMEA 3,393 656 1,595 NM (59 )
    Latin America 1,512 1,048 1,436 44 (27 )
    Asia 1,830 1,973 1,795 (7 ) 10
       Total $ 9,152 $ 5,952 $ 6,513 54 % (9 )%
Transaction Services
    North America $ 615 $ 323 $ 209 90 % 55 %
    EMEA 1,287 1,246 816 3 53
    Latin America 604 588 463 3 27
    Asia 1,230 1,196 968 3 24
       Total $ 3,736 $ 3,353 $ 2,456 11 % 37 %
    Institutional Clients Group $ 12,888 $ 9,305 $ 8,969 39 % 4 %
Total Citicorp $ 14,779 $ 6,165 $ 14,558 NM (58 )%
CITI HOLDINGS
Brokerage and Asset Management $ 7,107 $ (764 ) $ 1,707 NM NM
Local Consumer Lending (10,043 ) (8,254 ) 1,712 (22 )% NM
Special Asset Pool (5,303 ) (26,994 ) (12,111 ) 80 NM
Total Citi Holdings $ (8,239 ) $ (36,012 ) $ (8,692 ) 77 % NM
Corporate/Other $ (7,606 ) $ (2,182 ) $ (2,674 ) NM 18 %
Income (loss) from continuing operations $ (1,066 ) $ (32,029 ) $ 3,192 97 % NM
Discontinued operations $ (445 ) $ 4,002   $ 708   NM   NM
Net income (loss) attributable to noncontrolling interests 95 (343 ) 283 NM NM  
Citigroup’s net income (loss) $ (1,606 ) $ (27,684 ) $ 3,617 94 % NM

NM Not meaningful
 
14
 


CITIGROUP REVENUES
 
                           % Change          % Change
In millions of dollars 2009 2008 2007 2009 vs. 2008 2008 vs. 2007
CITICORP
 
Regional Consumer Banking
    North America $ 7,246 $ 7,764 $ 9,773 (7 )% (21 )%
    EMEA 1,555 1,865 1,587 (17 ) 18
    Latin America 7,354 8,758 8,279 (16 ) 6
    Asia 6,616 7,287 7,004 (9 ) 4
       Total $ 22,771 $ 25,674 $ 26,643 (11 )% (4 )%
Securities and Banking
    North America $ 9,400 $ 10,987 $ 8,998 (14 )% 22 %
    EMEA 10,035 6,006 7,756 67 (23 )
    Latin America 3,411 2,369 3,161 44 (25 )
    Asia 4,800 5,573 5,441 (14 ) 2
       Total $ 27,646 $ 24,935 $ 25,356 11 % (2 )%
Transaction Services
    North America $ 2,526 $ 2,161 $ 1,646 17 % 31 %
    EMEA 3,389 3,677 2,999 (8 ) 23
    Latin America 1,373 1,439 1,199 (5 ) 20
    Asia 2,501 2,669 2,254 (6 ) 18
       Total $ 9,789 $ 9,946 $ 8,098 (2 )% 23 %
    Institutional Clients Group $ 37,435 $ 34,881 $ 33,454 7 % 4 %
       Total Citicorp $ 60,206 $ 60,555 $ 60,097 (1 )% 1 %
CITI HOLDINGS      
 
Brokerage and Asset Management $ 15,135 $ 8,423 $ 10,659 80 % (21 )%
Local Consumer Lending 19,182 24,453   26,750 (22 ) (9 )
Special Asset Pool (3,682 ) (39,574 ) (17,896 ) 91 NM
Total Citi Holdings $ 30,635 $ (6,698 ) $ 19,513 NM   NM  
Corporate/Other $ (10,556 ) $ (2,258 ) $ (2,310 ) NM 2 %
Total net revenues $ 80,285 $ 51,599 $ 77,300 56 % (33 )%

NM Not meaningful
 
15
 


CITICORP
 
Citicorp is the company’s global bank for consumers and businesses and represents Citi’s core franchise. Citicorp is focused on providing best-in-class products and services to customers and leveraging Citigroup’s unparalleled global network. Citicorp is physically present in nearly 100 countries, many for over 100 years, and offers services in over 140 countries. Citi believes this global network provides a strong foundation for servicing the broad financial services needs of large multinational clients and for meeting the needs of retail, private banking and commercial customers around the world. Citigroup’s global footprint provides coverage of the world’s emerging economies, which the company believes represents a strong area of growth. As discussed in the “Executive Summary,” Citicorp remained profitable in 2008 and 2009, despite very difficult market conditions. At December 31, 2009, Citicorp had approximately $1.1 trillion of assets and $731 billion of deposits, representing approximately 60% of Citi’s total assets and approximately 90% of its deposits.
   Citicorp consists of the following businesses: Regional Consumer Banking (which includes retail banking and Citi-branded cards in four regions—North America, EMEA, Latin America and Asia) and Institutional Clients Group (which includes Securities and Banking and Transaction Services).
 
                           % Change          % Change
In millions of dollars 2009 2008 2007 2009 vs. 2008 2008 vs. 2007
    Net interest revenue $ 33,263 $ 33,970 $ 25,600 (2 )% 33 %
    Non-interest revenue 26,943 26,585 34,497 1 (23 )
Total revenues, net of interest expense $ 60,206 $ 60,555 $ 60,097 (1 )% 1 %
Provisions for credit losses and for benefits and claims
    Net credit losses $ 6,079 $ 4,941 $ 2,700 23 % 83 %
    Credit reserve build 2,562 3,219 1,069 (20 ) NM
    Provision for loan losses $ 8,641 $ 8,160 $ 3,769 6 % NM
    Provision for benefits and claims 48 6 16 NM (63 )%
    Provision for unfunded lending commitments 138 (191 ) 79 NM NM
       Total provisions for credit losses and for benefits and claims $ 8,827 $ 7,975 $ 3,864 11 % NM
Total operating expenses $ 31,725 $ 43,533 $ 36,437 (27 )% 19 %
Income from continuing operations before taxes $ 19,654 $ 9,047 $ 19,796 NM (54 )%
Provisions for income taxes 4,875 2,882 5,238 69 % (45 )
Income from continuing operations $ 14,779 $ 6,165 $ 14,558 NM (58 )%
Net income attributable to noncontrolling interests   68 29 63 NM (54 )
Citicorp’s net income $ 14,711 $ 6,136   $ 14,495 NM (58 )%
Balance sheet data (in billions of dollars)
   
Total EOP assets $ 1,079 $ 1,002 $ 1,222 8 % (18 )%
Average assets $ 1,035 $ 1,256 $ 1,353 (18 )% (7 )%
Total EOP deposits $ 731 $ 673 $ 733 9 % (8 )%

NM Not meaningful
 
16
 


REGIONAL CONSUMER BANKING
 
Regional Consumer Banking (RCB) consists of Citigroup’s four regional consumer banks that provide traditional banking services to retail customers. RCB also contains Citigroup’s branded cards business and small commercial banking business. RCB is a globally diversified business with nearly 4,000 branches in 39 countries around the world. During 2009, 68% of total RCB revenues were from outside North America. Additionally, the majority of international revenues and loans were from emerging economies in Asia, Latin America, and Central and Eastern Europe. At year-end 2009, RCB had $213 billion of assets and $290 billion of deposits.
 
                           % Change          % Change
In millions of dollars 2009 2008 2007 2009 vs. 2008 2008 vs. 2007
Net interest revenue $ 15,524 $ 16,230 $ 13,896 (4 )% 17 %
Non-interest revenue 7,247 9,444 12,747 (23 ) (26 )
Total revenues, net of interest expense $ 22,771 $ 25,674 $ 26,643 (11 )% (4 )%
Total operating expenses $ 14,157 $ 22,578 $ 15,625 (37 )% 44 %
    Net credit losses $ 5,356 $ 4,024 $ 2,390 33 % 68 %
    Credit reserve build 1,705 2,070 902 (18 ) NM
    Provision for benefits and claims 48 6 15 NM (60 )
Provisions for loan losses and for benefits and claims $ 7,109 $ 6,100 $ 3,307 17 % 84 %
Income (loss) from continuing operations before taxes $ 1,505 $ (3,004 ) $ 7,711 NM NM
Income taxes (benefits) (386 ) 136 2,122 NM (94 )%
Income (loss) from continuing operations $ 1,891 $ (3,140 ) $ 5,589 NM NM
Net income attributable to noncontrolling interests 11 18 (100 )% (39 )%
Net income (loss) $ 1,891 $ (3,151 ) $ 5,571 NM NM
Average assets (in billions of dollars) $ 196 $ 219 $ 199 (11 )% 10 %
Return on assets 0.96 % (1.44 )% 2.80 %
Average deposits (in billions of dollars) $ 271 $ 267 $ 256 1 % 4 %
Net credit losses as a percentage of average loans 4.47 % 3.15 % 2.08 %
Revenue by business
    Retail banking $ 12,799 $ 13,700 $ 12,871 (7 )% 6 %
    Citi-branded cards 9,972   11,974 13,772 (17 ) (13 )
       Total $ 22,771 $ 25,674   $ 26,643   (11 )% (4 )%
Income (loss) from continuing operations by business        
    Retail banking $ 2,006 $ (3,965 ) $ 2,400 NM   NM
    Citi-branded cards (115 )   825 3,189 NM (74 )%
       Total $ 1,891 $ (3,140 ) $ 5,589 NM NM

NM Not meaningful
 
17
 


NORTH AMERICA REGIONAL CONSUMER BANKING
 
North America Regional Consumer Banking (NA RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses in the U.S. NA RCB’s approximately 1,000 retail bank branches and 12 million retail customer accounts are largely concentrated in the greater metropolitan areas of New York, Los Angeles, San Francisco, Chicago, Miami, Washington, D.C., Boston, Philadelphia, and the larger cities in Texas. At December 31, 2009, NA RCB had approximately $7.2 billion of retail banking loans and $143.7 billion of deposits. In addition, NA RCB had approximately 23.1 million Citi-branded credit card accounts, with $82.7 billion in outstanding loan balances on a managed basis.
 
                           % Change          % Change
In millions of dollars 2009 2008 2007 2009 vs. 2008 2008 vs. 2007
Net interest revenue $ 4,559 $ 3,662 $ 3,019 24 % 21 %
Non-interest revenue 2,687 4,102 6,754 (34 ) (39 )
Total revenues, net of interest expense $ 7,246 $ 7,764 $ 9,773 (7 )% (21 )%
Total operating expenses $ 5,359 $ 8,388 $ 6,401 (36 )% 31 %
    Net credit losses $ 1,151 $ 615 $ 450 87 % 37 %
    Credit reserve build/(release) 446 463 96 (4 ) NM
    Provisions for benefits and claims 48 5 (3 ) NM NM
Provision for loan losses and for benefits and claims $ 1,645 $ 1,083 $ 543 52 % 99 %
Income (loss) from continuing operations before taxes 242 $ (1,707 ) $ 2,829 NM NM
Income taxes (benefits) (112 ) (129 ) 962 13 % NM
Income (loss) from continuing operations $ 354 $ (1,578 ) $ 1,867 NM NM
Net income (loss) attributable to noncontrolling interests
Net income (loss) $ 354 $ (1,578 ) $ 1,867 NM NM
Average assets (in billions of dollars) $ 34 $ 36 $ 39 (6 )% (8 )%
Average deposits (in billions of dollars) $ 137 $ 123 $ 120 11 % 3 %
Net credit losses as a percentage of average loans 5.84 % 3.60 % 2.68 %
Revenue by business  
    Retail banking $ 3,907 $ 3,770 $ 3,301 4 % 14 %
    Citi-branded cards   3,339 3,994 6,472 (16 ) (38 )
       Total $ 7,246 $ 7,764   $ 9,773 (7 )% (21 )%
Income (loss) from continuing operations by business  
    Retail banking $ 429   $ (1,788 ) $ 111 NM   NM  
    Citi-branded cards (75 ) 210 1,756 NM (88 )%
       Total $ 354 $ (1,578 ) $ 1,867 NM NM

NM Not meaningful
 
2009 vs. 2008
Revenues, net of interest expense declined 7%, primarily reflecting higher credit losses in the securitization trusts, which were offset by higher credit-card-securitization revenue, higher net interest margin in cards and higher volumes in retail banking.
    Net interest revenue was up 24%, driven by the impact of pricing actions and lower funding costs in Citi-branded cards, and by higher deposit volumes in retail banking, with average deposits up 11% from the prior year.
    Non-interest revenue declined 34%, driven by higher credit losses flowing through the securitization trusts partially offset by securitization revenue, and by the absence of a $349 million gain on the sale of Visa shares and a $170 million gain from a cards portfolio sale in the prior year.
    Operating expenses declined 36% from the prior year. Excluding a 2008 goodwill impairment charge of $2.3 billion, expenses were down 12% reflecting the benefits from re-engineering efforts, lower marketing costs, and the absence of $217 million in repositioning charges in the prior year offset by the absence of a prior-year $159 million Visa litigation reserve release.
    Provisions for loan losses and for benefits and claims increased $562 million, or 52%, primarily due to rising net credit losses in both cards and retail banking. Continued weakening of leading credit indicators and trends in the macroeconomic environment, including rising unemployment and higher bankruptcy filings, primarily drove higher credit costs. The cards managed net credit loss ratio increased 386 basis points to 9.58%, while the retail banking net credit loss ratio increased 75 basis points to 4.29% (see the “Managed Presentations” section below).

 
18
 


2008 vs. 2007
Revenues, net of interest expense decreased 21%, driven by lower securitization revenue and higher credit losses in the securitization trusts, which were partially offset by higher net interest margin in cards and higher revenues in retail banking. Lower securitization revenue was mainly driven by a write-down of $1.1 billion in the residual interest in securitized balances. The residual interest was primarily affected by deterioration in the projected credit loss assumption used to value the asset.
    Net interest revenue was up 21%, mainly driven by lower funding costs.
    Non-interest revenue decreased 39%, primarily due to lower securitization revenue, higher credit losses in the securitization trusts, and the absence of a $297 million gain on the sale of MasterCard shares in 2007. This decline was partially offset by a $349 million gain on the sale of Visa shares and a $170 million gain from a cards portfolio sale in 2008.
    Operating expenses increased 31%, primarily driven by a $2.3 billion goodwill impairment charge in 2008. Excluding the charge, expenses were down 5% mainly reflecting the absence of a $292 million Visa litigation-related charge in 2007 and a $159 million Visa litigation reserve release in 2008, partially offset by $217 million repositioning charges in 2008.
    Provisions for loan losses and for benefits and claims increased $540 million driven by higher net credit losses, up $165 million, and a higher loan loss reserve build, up $367 million, in both cards and retail banking. Higher credit costs reflected a weakening of leading credit indicators, including the continued acceleration in the rate at which delinquent cards customers advanced to write-off, as well as trends in the macroeconomic environment, including the housing market downturn and rising unemployment. The cards managed net credit loss ratio increased 191 basis points to 5.72%, while the retail banking net credit loss ratio increased 14 basis points to 3.54%.
 
Managed Presentations
Managed-basis (Managed) presentations detail certain non-GAAP financial measures. Managed presentations (applicable only to North American branded and retail partner credit card operations in NA RCB and Citi HoldingsLocal Consumer Lending, respectively, as there are no deconsolidated credit card securitizations in any other region) include results from both the on-balance-sheet loans and off-balance-sheet loans, and exclude the impact of credit card securitizations activity. Managed presentations assume that securitized loans have not been sold and present the results of the securitized loans in the same manner as Citigroup’s owned loans. Citigroup believes that Managed presentations are useful to investors because they are widely used by analysts and investors within the credit card industry. Managed presentations are commonly used by other companies within the financial services industry. See also the “2010 Outlook” for NA RCB below.
 
2009                2008                2007
Managed credit losses as
    a percentage of average
    managed loans 9.14 % 5.62 % 3.81 %
Impact from credit card  
    securitizations 3.30 % 2.02 % 1.13 %
Net credit losses as a  
    percentage of average loans 5.84 % 3.60 % 2.68 %
2010 Outlook
In 2010, NA RCB is expected to continue to operate in a challenging economic and credit environment. Revenues will be affected by the continued U.S. economic downturn that has impacted customer demand and credit performance, as well as by legislative and regulatory changes. Both retail banking and cards will continue to focus on tight expense control, productivity improvements, and effective credit management. With high levels of unemployment and bankruptcy filings in 2010, net credit losses, delinquencies and defaults are expected to remain at elevated levels during the year.
    NA RCB results will also continue to be impacted by Citi’s continued implementation of the CARD Act as well as the company’s loss mitigation and forbearance programs, particularly in Citi’s card and U.S. mortgage businesses. The majority of the provisions of the CARD Act will have taken effect by February 2010. The CARD Act implementation began to impact card revenues in the fourth quarter of 2009 as lower net interest rate revenue due to such implementation was partially mitigated by pricing actions. Management within NA RCB continues to review and revise the company’s credit card business model to implement the required changes of the CARD Act, and this will likely continue throughout 2010. While management of NA RCB believes that it can mitigate a portion of the impact of the CARD Act, Citi currently estimates that the net impact of the CARD Act on NA RCB revenues for 2010 could be a reduction of approximately $400 to $600 million. See also “Results of Operations—Citi Holdings—Local Consumer Lending” and “Managing Global Risk—Credit Risk” below.
    In addition, on January 1, 2010, Citi adopted SFAS No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 (SFAS 166) and SFAS No. 167 Amendments to FASB Interpretation No. 46(R) (SFAS 167). These new accounting standards will be applied prospectively and will require consolidation of certain credit card securitization trusts and the elimination of sale accounting for transfers of credit card receivables to those trusts. Under previous accounting standards, transfers of credit card receivables to the securitization trusts were accounted for as sales. Consequently, beginning in 2010, the financial results of NA RCB will vary from previously reported financial results prepared under the amended accounting standards. See Note 1 to the Consolidated Financial Statements for a discussion of “Future Application of Accounting Standards” for further detail.

 
19
 


EMEA REGIONAL CONSUMER BANKING
 
EMEA Regional Consumer Banking (EMEA RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses, primarily in Central and Eastern Europe, the Middle East and Africa. Western Europe retail banking is included in Citi Holdings. EMEA RCB has repositioned its business, shifting from a strategy of widespread distribution to a focused strategy concentrating on larger urban markets within the region. An exception is Bank Handlowy, which has a mass market presence in Poland. The countries in which EMEA RCB has the largest presence are Poland, Turkey, Russia and the United Arab Emirates. At December 31, 2009, EMEA RCB had approximately 341 retail bank branches with approximately 4.2 million customer accounts, $5.2 billion in retail banking loans and $10.1 billion in deposits. In addition, the business had approximately 2.7 million Citi-branded card accounts with $3.0 billion in outstanding loan balances.
 
                                        % Change           % Change
In millions of dollars 2009 2008 2007 2009 vs. 2008 2008 vs. 2007
Net interest revenue $ 979 $ 1,269 $ 967 (23 )% 31 %
Non-interest revenue 576 596 620 (3 ) (4 )
Total revenues, net of interest expense $ 1,555 $ 1,865 $ 1,587 (17 )% 18 %
Total operating expenses $ 1,094 $ 1,500 $ 1,265 (27 )% 19 %
       Net credit losses $ 487 $ 237 $ 113 NM NM
       Credit reserve build/(release) 307 75 96 NM (22 )%
Provisions for loan losses $ 794 $ 312 $ 209 NM 49 %
Income (loss) from continuing operations before taxes $ (333 ) $ 53 $ 113 NM (53 )%
Income taxes (benefits) (124 ) 3 17 NM (82 )
Income (loss) from continuing operations $ (209 ) $ 50 $ 96 NM (48 )%
Net income attributable to noncontrolling interests 12 18 (100 )% (33 )
Net income (loss) $ (209 ) $ 38 $ 78 NM (51 )%
Average assets (in billions of dollars) $ 11 $ 13 $ 10 (15 )% 30 %
Return on assets (1.90 )% 0.29 % 0.78 %
Average deposits (in billions of dollars) $ 9 $ 11 $ 9 (18 )% 22 %
Net credit losses as a percentage of average loans 5.81 % 2.48 % 1.56 %
Revenue by business
       Retail banking $ 889 $ 1,160 $ 1,039 (23 )% 12 %
       Citi-branded cards 666 705 548 (6 ) 29
              Total $ 1,555 $ 1,865 $ 1,587 (17 )% 18 %
Income (loss) from continuing operations by business
       Retail banking $ (179 ) $ (57 ) $ (8 ) NM NM
       Citi-branded cards (30 ) 107 104 NM 3 %
              Total $ (209 ) $ 50 $ 96 NM (48 )%
 
NM Not meaningful
 
2009 vs. 2008
Revenues, net of interest expense
declined 17%. More than half of the revenue decline is attributable to the impact of FX translation. Other drivers included lower wealth-management and lending revenues due to lower volumes and spread compression from credit tightening initiatives. Investment sales declined by 26% due to market conditions at the start of the year with assets under management increasing by 9% by year end.
     Net interest revenue was 23% lower than the prior year due to external competitive pressure on rates and higher funding costs, with average loans for retail banking down 18% and average deposits down 18%.
     Non-interest revenue decreased by 3%, primarily due to the impact of FX translation. Excluding FX there was marginal growth.
     Operating expenses declined 27%, reflecting expense control actions, lower marketing expenses and the impact of FX translation. Cost savings were achieved by branch closures, headcount reductions and process re-engineering efforts. 
     Provisions for loan losses increased $482 million to $794 million. Net credit losses increased from $237 million to $487 million, while the loan loss reserve build increased from $75 million to $307 million. Higher credit costs reflected continued credit deterioration across the region.


20
 


2008 vs. 2007
Revenues, net of interest
expense increased 18% due to growth in the size of the portfolio across Central and Eastern Europe and the Middle East. Investment sales declined by 39% with assets under management declining by 42% as a result of market conditions in the second half of 2008. 
     Net interest revenue was 31% higher than the prior year due to growth in the size of the portfolio across Central and Eastern Europe and the Middle East and growth in revolving balances. Average loans for retail banking were up 26%, cards were up 49% and average deposits were up 22%. 
     Non-interest revenue decreased by 4% due to reduced investment revenue as a result of market conditions.
     Operating expenses increased 19%, reflecting growth in the portfolio and repositioning charges. 
     Provisions for loan losses increased 49% to $312 million. Net credit losses increased from $113 million to $237 million, while the Loan loss reserve build decreased by 22% to $75 million. Credit costs increased as a result of market conditions driving deterioration in the portfolio.
2010 Outlook
During 2010, EMEA RCB businesses are expected to operate in an environment of continued challenging economic and credit conditions. While key business drivers, including deposits, investment sales and card purchase sales, began to show some signs of improvement during the latter part of 2009, continued positive developments, if any, will depend on the success of EMEA RCB’s strategy of concentrated focus on larger urban markets. Credit quality is currently anticipated to improve modestly with remedial programs and tighter origination standards reducing both delinquencies and credit losses, with some continued pockets of weakness in Poland and Hungary. Loan and card volume growth will continue to be controlled, driven by tighter origination standards.


21
 


LATIN AMERICA REGIONAL CONSUMER BANKING
 
Latin America Regional Consumer Banking (LATAM RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses, with the largest presence in Mexico and Brazil. LATAM RCB includes branch networks throughout Latin America as well as Banamex, Mexico’s second largest bank with over 1,700 branches. At December 31, 2009, LATAM RCB had approximately 2,216 retail branches, with 16.6 million customer accounts, $18.2 billion in retail banking loan balances and $41.4 billion in deposits. In addition, the business had approximately 12.2 million Citi-branded card accounts with $12.2 billion in outstanding loan balances.
 
                                                      % Change           % Change  
In millions of dollars     2009     2008     2007   2009 vs. 2008   2008 vs. 2007  
Net interest revenue   $ 5,303   $ 6,391   $ 5,567   (17 )% 15 %
Non-interest revenue     2,051     2,367     2,712   (13 ) (13 )
Total revenues, net of interest expense   $ 7,354   $ 8,758   $ 8,279   (16 )% 6 %
Total operating expenses   $ 4,232   $ 8,857   $ 4,503   (52 )% 97 %
       Net credit losses   $ 2,435   $ 2,205   $ 1,189   10 % 85 %
       Credit reserve build/(release)     458     1,116     504   (59 ) NM  
       Provision for benefits and claims         1     18   (100 ) (94 )
Provisions for loan losses and for benefits and claims   $ 2,893   $ 3,322   $ 1,711   (13 )% 94 %
Income (loss) from continuing operations before taxes   $ 229   $ (3,421 ) $ 2,065   NM   NM  
Income taxes (benefits)     (94 )   (73 )   449   (29 )% NM  
Income (loss) from continuing operations   $ 323   $ (3,348 ) $ 1,616   NM   NM  
Net income attributable to noncontrolling interests             1     (100 )%
Net income (loss)   $ 323   $ (3,348 ) $ 1,615   NM   NM  
Average assets (in billions of dollars)     61   $ 76   $ 63   (20 )% 21 %
Return on assets     0.53 %   (4.41 )%   2.56 %        
Average deposits (in billions of dollars)   $ 36   $ 40   $ 38   (10 )% 5 %
Net credit losses as a percentage of average loans     8.60 %   7.11 %   4.57 %        
Revenue by business                            
       Retail banking   $ 3,872   $ 4,097   $ 3,979   (5 )% 3 %
       Citi-branded cards     3,482     4,661     4,300   (25 ) 8  
              Total   $ 7,354   $ 8,758   $ 8,279   (16 )% 6 %
Income (loss) from continuing operations by business                            
       Retail banking   $ 547   $ (3,500 ) $ 812   NM   NM  
       Citi-branded cards     (224 )   152     804   NM   (81 )%
              Total   $ 323   $ (3,348 ) $ 1,616   NM   NM  
 
NM Not meaningful
 
2009 vs. 2008
Revenues, net of interest expense declined 16%, driven by the impact of FX translation as well as lower activity in the branded cards business. 
     Net interest revenue decreased 17%, mainly driven by FX translation impact as well as lower volumes and spread compression in the branded cards business that offset the growth in loans, deposits and investment products in the retail business. 
     Non interest revenue decreased 13%, driven also by FX impact and lower branded cards fee income from lower customer activity.
     Operating expenses decreased 52%, primarily driven by the absence of a goodwill impairment charge of $4.3 billion in 2008, the benefit associated with the FX impact and saves from restructuring actions implemented primarily at the end of 2008. The $125 million related to 2008 restructuring charges was offset by an expense benefit of $257 million related to a legal vehicle restructuring in 2008. Expenses increased slightly in the fourth quarter of 2009 primarily due to selected marketing and investment spending. 
     Provisions for loan losses and for benefits and claims decreased 13% primarily reflecting lower loan loss reserve builds as a result of lower volumes, improved portfolio quality and lower net credit losses in the branded cards portfolio primarily in Mexico due to repositioning in the portfolio.


22
 


2008 vs. 2007
Revenues, net of interest expense increased 6% compared to the prior year, associated with higher volumes and partially offset by the extraordinary gains recorded in 2007: a $235 million gain on the sale of Visa shares and a $78 million gain on the sale of MasterCard shares. 
     Net interest revenue increased 15% driven by higher volumes in both the branded cards and retail businesses. 
     Non-interest revenue declined, driven by the 2007 Visa and MasterCard extraordinary gains.
     Operating expenses growth of 97% was mainly driven by goodwill impairment of $4.3 billion in 2008, and to a lesser extent, restructuring charges of $125 million. Partially offsetting these increases was a $257 million expense benefit related to a legal vehicle restructuring.
     Provisions for loan losses and for benefits and claims increased 94%, primarily driven by higher loan loss reserve builds in 2008 reflecting portfolio growth and market conditions.
2010 Outlook
Improving economic conditions across the region, including the level of exchange rates, the credit environment and unemployment rates, are currently expected to have a positive impact on LATAM RCB performance in 2010. However, LATAM RCB results will depend on overall macroeconomic conditions in the region as well as the impact of loss mitigation efforts and the repositioning of the portfolio. 
     During the fourth quarter of 2009, LATAM RCB began to increase investments in card account acquisition, with a focus on higher-quality accounts. This step may begin to contribute to account and card revenue growth in 2010. While the business anticipates continued selective marketing and investment spending during the year, management of LATAM RCB currently expects that overall operating expenses will continue to reflect re-engineering efforts.
     In addition, Mexico’s Ministry of Finance has publicly stated that the U.S. government ownership stake in Citigroup does not violate Mexican law barring indirect foreign government ownership of Mexican affiliate banks. The Mexican Senate has asked the Mexican Supreme Court to determine the constitutionality of the Ministry’s interpretation. The Mexican Supreme Court is considering and will issue a resolution on the matter. Neither Citi, Banamex nor the U.S. government is a party to this proceeding.

 
23
 


ASIA REGIONAL CONSUMER BANKING
 
Asia Regional Consumer Banking (Asia RCB) provides traditional banking and Citi-branded card services to retail customers and small to mid-size businesses, with the largest Citi presence in South Korea, Australia, Singapore, India, Taiwan, Malaysia, Japan and Hong Kong. At December 31, 2009, Asia RCB had approximately 633 retail branches, $94.5 billion in customer deposits, 15.8 million customer accounts and $50.1 billion in retail banking loans. In addition, the business had approximately 15.1 million Citi-branded card accounts with $17.7 billion in outstanding loan balances at December 31, 2009.
 
                                                      % Change           % Change  
In millions of dollars     2009     2008     2007   2009 vs. 2008   2008 vs. 2007  
Net interest revenue   $ 4,683   $ 4,908   $ 4,343   (5 )% 13 %
Non-interest revenue     1,933     2,379     2,661   (19 ) (11 )
Total revenues, net of interest expense   $ 6,616   $ 7,287   $ 7,004   (9 )% 4 %
Total operating expenses   $ 3,472   $ 3,833   $ 3,456   (9 )% 11 %
       Net credit losses   $ 1,283   $ 967   $ 638   33 % 52 %
       Credit reserve build     494     416     206   19   NM  
Provisions for loan losses and for benefits and claims   $ 1,777   $ 1,383   $ 844   28 % 64 %
Income from continuing operations before taxes   $ 1,367   $ 2,071   $ 2,704   (34 )% (23 )%
Income taxes (benefits)     (56 )   335     694   NM   (52 )
Income from continuing operations   $ 1,423   $ 1,736   $ 2,010   (18 )% (14 )%
Net (loss) attributable to noncontrolling interests         (1 )   (1 ) 100    
Net income   $ 1,423   $ 1,737   $ 2,011   (18 )% (14 )%
Average assets (in billions of dollars)   $ 90   $ 94   $ 88   (4 )% 7 %
Return on assets     1.58 %   1.85 %   2.29 %        
Average deposits (in billions of dollars)   $ 89   $ 93   $ 89   (4 )% 4 %
Net credit losses as a percentage of average loans     2.02 %   1.38 %   0.98 %        
Revenue by business                            
       Retail banking   $ 4,131   $ 4,673   $ 4,552   (12 )% 3 %
       Citi-branded cards     2,485     2,614     2,452   (5 ) 7 %
              Total   $ 6,616   $ 7,287   $ 7,004   (9 )% 4 %
Income from continuing operations by business                            
       Retail banking   $ 1,209   $ 1,380   $ 1,485   (12 )% (7 )
       Citi-branded cards     214     356     525   (40 ) (32 )
              Total   $ 1,423   $ 1,736   $ 2,010   (18 )% (14 )%
 
NM Not meaningful
 
2009 vs. 2008
Revenues, net of interest expense declined 9%, driven by the absence of the gain on Visa shares in the prior year, lower investment product revenues and cards purchase sales, lower spreads, and the impact of FX translation. 
     Net interest revenue was 5% lower than the prior year. Average loans and deposits were down 10% and 4%, respectively, in each case partly due to the impact of FX translation. 
     Non-interest revenue declined 19%, primarily due to the decline in investment revenues, lower cards purchase sales, the absence of the gain on Visa shares and the impact of FX translation.
     Operating expenses declined 9%, reflecting the benefits of re-engineering efforts and the impact of FX translation. Expenses increased slightly in the fourth quarter of 2009 primarily due to selected marketing and investment spending. 
     Provisions for loan losses and for benefits and claims increased 28%, mainly due to the impact of a higher credit reserve build and an increase in net credit losses partially offset by the impact of FX translation. In the first half of the year, rising credit losses were particularly apparent in the portfolios in India and South Korea. However, delinquencies improved in recent periods and net credit losses flattened as the region showed early signs of economic recovery and increased levels of customer activity.

 
24
 


2008 vs. 2007
Revenues, net of interest expense increased 4%, driven by higher cards purchase sales and higher loan and deposit volumes, partially offset by lower gains on Visa shares than the prior year and a 47% decline in investment sales. 
     Net interest revenue was 13% higher than the prior year reflecting higher card balances, higher average loans and deposits, and better spreads. 
     Non-interest revenue declined 11%, primarily due to the lower gains on Visa shares than the prior year and the decline in investment sales, partially offset by higher cards purchase sales.
     Operating expenses increased 11%, reflecting higher business volume and restructuring expenses in 2008.
     Provisions for loan losses and for benefits and claims increased 64%, mainly due to higher net credit losses and higher credit reserve builds, reflective of the overall economic environment in the region.
2010 Outlook
The 2010 performance of Asia RCB will continue to be driven by improving macroeconomic conditions in the region, supported by continued investment spending in the business and product capability. Asia RCB anticipates continued investment in expanded retail distribution, an enhanced wealth management offering and increased expenditure on card promotion and account acquisition, which could result in an increase in year-on-year expenses. While Asia RCB currently expects credit trends, including declining net credit losses and improving delinquencies, to continue in 2010, credit trends in the region will also be affected by the pace of recovery in the U.S. and European Union.

 
25
 


INSTITUTIONAL CLIENTS GROUP
 
Institutional Clients Group (ICG) includes Securities and Banking and Transaction Services. ICG provides corporate, institutional and high-net-worth clients with a full range of products and services, including cash management, trading, underwriting, lending and advisory services, around the world. ICG’s international presence is supported by trading floors in approximately 75 countries and a proprietary network within Transaction Services in over 90 countries. At December 31, 2009, ICG had approximately $866 billion of assets and $442 billion of deposits.
 
                                                      % Change           % Change  
In millions of dollars     2009     2008     2007   2009 vs. 2008   2008 vs. 2007  
Commissions and fees   $ 2,075   $ 2,876   $ 3,156   (28 )% (9 )%
Administration and other fiduciary fees     4,964     5,413     5,014   (8 ) 8  
Investment banking     4,685     3,329     5,399   41   (38 )
Principal transactions     6,001     6,544     7,012   (8 ) (7 )
Other     1,971     (1,021 )   1,169   NM   NM  
       Total non-interest revenue   $ 19,696   $ 17,141   $ 21,750   15 % (21 )%
       Net interest revenue (including dividends)     17,739     17,740     11,704     52  
Total revenues, net of interest expense   $ 37,435   $ 34,881   $ 33,454   7 % 4 %
Total operating expenses     17,568     20,955     20,812   (16 ) 1  
       Net credit losses     723     917     310   (21 ) NM  
       Provision for unfunded lending commitments     138     (191 )   79   NM   NM  
       Credit reserve build     857     1,149     167   (25 ) NM  
       Provision for benefits and claims             1     (100 )
Provisions for loan losses and benefits and claims   $ 1,718   $ 1,875   $ 557   (8 )% NM  
Income from continuing operations before taxes   $ 18,149   $ 12,051   $ 12,085   51 %  
Income taxes     5,261     2,746     3,116   92   (12 )%
Income from continuing operations   $ 12,888   $ 9,305   $ 8,969   39 % 4 %
Net income attributable to noncontrolling interests     68     18     45   NM   (60 )
Net income   $ 12,820   $ 9,287   $ 8,924   38 % 4 %
Average assets (in billions of dollars)   $ 839   $ 1,037   $ 1,154   (19 )% (10 )%
Return on assets     1.53 %   0.90 %   0.77 %        
Revenues by region                            
       North America   $ 11,926   $ 13,148   $ 10,644   (9 )% 24 %
       EMEA     13,424     9,683     10,755   39   (10 )
       Latin America     4,784     3,808     4,360   26   (13 )
       Asia     7,301     8,242     7,695   (11 ) 7  
Total   $ 37,435   $ 34,881   $ 33,454   7 % 4 %
Income from continuing operations by region                            
       North America   $ 3,032   $ 2,598   $ 1,896   17 % 37 %
       EMEA     4,680     1,902     2,411   NM   (21 )
       Latin America     2,116     1,636     1,899   29   (14 )
       Asia     3,060     3,169     2,763   (3 ) 15  
Total   $ 12,888   $ 9,305   $ 8,969   39 % 4 %
Average loans by region (in billions of dollars)                            
       North America   $ 45   $ 50   $ 51   (10 )% (2 )%
       EMEA     44     54     56   (19 ) (4 )
       Latin America     21     24     26   (13 ) (8 )
       Asia     28     37     38   (24 ) (3 )
Total   $ 138   $ 165   $ 171   (16 )% (4 )%
 
NM Not meaningful
 
26
 


SECURITIES AND BANKING
 
Securities and Banking (S&B) offers a wide array of investment and commercial banking services and products for corporations, governments, institutional and retail investors, and ultra-high-net worth individuals. S&B includes investment banking and advisory services, lending, debt and equity sales and trading, institutional brokerage, foreign exchange, structured products, cash instruments and related derivatives, and private banking. S&B revenue is generated primarily from fees for investment banking and advisory services, fees and interest on loans, fees and spread on foreign exchange, structured products, cash instruments and related derivatives, income earned on principal transactions, and fees and spreads on private banking services.
 
                                                      % Change           % Change  
In millions of dollars     2009     2008     2007   2009 vs. 2008   2008 vs. 2007  
Net interest revenue   $ 12,088   $ 12,255   $ 7,450   (1 )% 64 %
Non-interest revenue     15,558     12,680     17,906   23   (29 )
Revenues, net of interest expense   $ 27,646   $ 24,935   $ 25,356   11 % (2 )%
Total operating expenses     13,053     15,799     16,178   (17 ) (2 )
       Net credit losses     720     899     306   (20 ) NM  
       Provisions for unfunded lending commitments     138     (185 )   79   NM   NM  
       Credit reserve build     853     1,126     201   (24 ) NM  
       Provisions for benefits and claims             1     (100 )
Provisions for loan losses and benefits and claims   $ 1,711   $ 1,840   $ 587   (7 )% NM  
Income before taxes and noncontrolling interests   $ 12,882   $ 7,296   $ 8,591   77 % (15 )%
Income taxes     3,730     1,344     2,078   NM   (35 )
Income from continuing operations     9,152     5,952     6,513   54   (9 )
Net income (loss) attributable to noncontrolling interests     55     (13 )   25   NM   NM  
Net income   $ 9,097   $ 5,965   $ 6,488   53 % (8 )%
Average assets (in billions of dollars)   $ 779   $ 966   $ 1,085   (19 )% (11 )%
Return on assets     1.17 %   0.62 %   0.60 %        
Revenues by region                            
       North America   $ 9,400   $ 10,987   $ 8,998   (14 )% 22 %
       EMEA     10,035     6,006     7,756   67   (23 )
       Latin America     3,411     2,369     3,161   44   (25 )
       Asia     4,800     5,573     5,441   (14 ) 2  
Total revenues   $ 27,646   $ 24,935   $ 25,356   11 % (2 )%
Net income from continuing operations by region                            
       North America   $ 2,417   $ 2,275   $ 1,687   6 % 35 %
       EMEA     3,393     656     1,595   NM   (59 )
       Latin America     1,512     1,048     1,436   44   (27 )
       Asia     1,830     1,973     1,795   (7 ) 10  
Total net income from continuing operations   $ 9,152   $ 5,952   $ 6,513   54 % (9 )%
Securities and Banking revenue details                            
       Total investment banking   $ 4,763   $ 3,245   $ 5,570   47 % (42 )%
       Lending     (2,153 )   4,220     1,814   NM   NM  
       Equity markets     3,182     2,878     5,202   11   (45 )
       Fixed income markets     21,540     14,395     11,507   50   25  
       Private bank     2,054     2,309     2,473   (11 ) (7 )
       Other Securities and Banking     (1,740 )   (2,112 )   (1,210 ) 18   (75 )
Total Securities and Banking revenues   $ 27,646   $ 24,935   $ 25,356   11 % (2 )%
 
NM Not meaningful
 
27
 


2009 vs. 2008
Revenues, net of interest expense increased 11% or $2.7 billion, as markets began to recover in the early part of 2009, bringing back higher levels of volume activity and higher levels of liquidity, which began to decline again in the third quarter of 2009. The growth in revenue in the early part of the year was mainly due to a $7.1 billion increase in fixed income markets, reflecting strong trading opportunities across all asset classes in the first half of 2009, and a $1.5 billion increase in investment banking revenue primarily from increases in debt and equity underwriting activities reflecting higher transaction volumes from depressed 2008 levels. These increases were offset by a $6.4 billion decrease in lending revenue primarily from losses on credit default swap hedges. Excluding the 2009 and 2008 CVA impact, as indicated in the table below, revenues increased 23% or $5.5 billion.
     Operating expenses decreased 17%, or $2.7 billion. Excluding the 2008 repositioning and restructuring charges and the 2009 litigation reserve release, operating expenses declined 11% or $1.6 billion, mainly as a result of headcount reductions and benefits from expense management.
     Provisions for loan losses and for benefits and claims decreased 7% or $129 million, to $1.7 billion, mainly due to lower credit reserve builds and net credit losses, due to an improved credit environment, particularly in the latter part of the year.
 
2008 vs. 2007
Revenues, net of interest expense decreased 2% or $0.4 billion reflecting the overall difficult market conditions. Excluding the 2008 and 2007 CVA impact, revenues decreased 3% or $0.6 billion. The reduction in revenue was primarily due to a decrease in investment banking revenue of $2.3 billion to $3.2 billion, mainly in debt and equity underwriting, reflecting lower volumes, and a decrease in equity markets revenue of $2.3 billion to $2.9 billion due to extremely high volatility and reduced levels of activity. These reductions were offset by an increase in fixed income markets of $2.9 billion to $14.4 billion due to strong performance in interest rates and currencies, and an increase in lending revenue of $2.4 billion to $4.2 billion mainly from gains on credit default swap hedges. 
     Operating expenses decreased by 2% or $0.4 billion. Excluding the 2008 and 2007 repositioning and restructuring charges and the 2007 litigation reserve reversal, operating expenses decreased by 7% or $1.1 billion driven by headcount reduction and lower performance-based incentives.
     Provisions for credit losses and for benefits and claims increased $1.3 billion to $1.8 billion mainly from higher credit reserve builds and net credit losses offset by a lower provision for unfunded lending commitments due to deterioration in the credit environment.
Certain Revenues Impacting Securities and Banking
Items that impacted S&B revenues during 2009 and 2008 are set forth in the table below.
 
    Pretax revenue  
In millions of dollars   2009          2008  
Private equity and equity investments   $ 201     $ (377 )
Alt-A mortgages (1) (2)     321       (737 )
Commercial real estate (CRE) positions (1) (3)     68       270  
CVA on Citi debt liabilities under fair value option     (3,974 )     4,325  
CVA on derivatives positions, excluding monoline insurers     2,204       (3,292 )
Total significant revenue items   $ (1,180 )   $ 189  
 
(1)        Net of hedges.
(2)   For these purposes, Alt-A mortgage securities are non-agency residential mortgage-backed securities (RMBS) where (i) the underlying collateral has weighted average FICO scores between 680 and 720 or (ii) for instances where FICO scores are greater than 720, RMBS have 30% or less of the underlying collateral composed of full documentation loans. See “Managing Global Risk—Credit Risk—U.S. Consumer Mortgage Lending.”
(3)   S&B’s commercial real estate exposure is split into three categories of assets: held at fair value; held-to-maturity/held-for-investment; and equity. See “Managing Global Risk—Credit Risk—Exposure to Commercial Real Estate” section for a further discussion.
 
     In the table above, 2009 includes a $330 million pretax adjustment to the CVA balance, which reduced pretax revenues for the year, reflecting a correction of an error related to prior periods. See “Significant Accounting Policies and Significant Estimates below and Notes 1 and 34 to the Consolidated Financial Statements for a further discussion of this adjustment.
 
2010 Outlook
The 2010 outlook for S&B will depend on the level of client activity and on macroeconomic conditions, market valuations and volatility, interest rates and other market factors. Management of S&B currently expects to maintain client activity throughout 2010 and to operate in market conditions that offer moderate volatility and increased liquidity. 
     Operating expenses will benefit from continued re-engineering and expense management initiatives, but will be offset by investments in talent and infrastructure to support growth.

 
28
 


TRANSACTION SERVICES
 
Transaction Services is composed of Treasury and Trade Solutions (TTS) and Securities and Fund Services (SFS). TTS provides comprehensive cash management and trade finance for corporations, financial institutions and public sector entities worldwide. SFS provides custody and funds services to investors such as insurance companies and mutual funds, clearing services to intermediaries such as broker-dealers, and depository and agency/trust services to multinational corporations and governments globally. Revenue is generated from net interest revenue on deposits in TTS and SFS, as well as trade loans and from fees for transaction processing and fees on assets under custody in SFS.
 
                                                      % Change           % Change  
In millions of dollars     2009     2008     2007   2009 vs. 2008   2008 vs. 2007  
Net interest revenue   $ 5,651   $ 5,485   $ 4,254   3 % 29 %
Non-interest revenue     4,138     4,461     3,844   (7 ) 16  
Total revenues, net of interest expense   $ 9,789   $ 9,946   $ 8,098   (2 )% 23 %
Total operating expenses     4,515     5,156     4,634   (12 ) 11  
Provisions for credit losses and for benefits and claims     7     35     (30 ) (80 ) NM  
Income before taxes and noncontrolling interests   $ 5,267   $ 4,755   $ 3,494   11 % 36 %
Income taxes     1,531     1,402     1,038   9   35  
Income from continuing operations     3,736     3,353     2,456   11   37  
Net income attributable to noncontrolling interests     13     31     20   (58 ) 55  
Net income   $ 3,723   $ 3,322   $ 2,436   12 % 36 %
Average assets (in billions of dollars)   $ 60   $ 71   $ 69   (15 )% 3 %
Return on assets     6.21 %   4.68 %   3.53 %        
Revenues by region                            
       North America   $ 2,526   $ 2,161   $ 1,646   17 % 31 %
       EMEA     3,389     3,677     2,999   (8 ) 23  
       Latin America     1,373     1,439     1,199   (5 ) 20  
       Asia     2,501     2,669     2,254   (6 ) 18  
Total revenues   $ 9,789   $ 9,946   $ 8,098   (2 )% 23 %
Income from continuing operations by region                            
       North America   $ 615   $ 323   $ 209   90 % 55 %
       EMEA     1,287     1,246     816   3   53  
       Latin America     604     588     463   3   27  
       Asia     1,230     1,196     968   3   24  
Total net income from continuing operations   $ 3,736   $ 3,353   $ 2,456   11 % 37 %
Key indicators (in billions of dollars)                            
Average deposits and other customer liability balances   $ 303   $ 280   $ 246   8 % 14 %
EOP assets under custody (in trillions of dollars)     12.1     11.0     13.1   10   (16 )
 
NM Not meaningful
 
2009 vs. 2008
Revenues, net of interest expense declined 2% compared to 2008 as strong growth in balances was more than offset by lower spreads driven by low interest rates globally.
     Average deposits and other customer liability balances grew 8%, driven by strong growth in all regions.
     Treasury and Trade Solutions revenues grew 7% as a result of strong growth in balances and higher trade revenues.
     Securities and Funds Services revenues declined 18%, attributable to reductions in asset valuations and volumes. 
     Operating expenses declined 12%, mainly as a result of headcount reductions and successful execution of reengineering initiatives.
     Cost of credit declined 80%, which was primarily attributable to overall portfolio management.
     Net income increased 12%, leading to a record net income, with growth across all regions reflecting benefits of continued re-engineering and expense management efforts.
2008 vs. 2007
Revenues, net of interest expense grew 23% driven by new business and implementations, growth in customer liability balances, increased transaction volumes and the impact of acquisitions.
     Average deposits and other customer liability balances grew 14% driven by success of new business growth and implementations.
     Treasury and Trade Solutions revenues grew 26% as a result of strong liability and fee growth as well as increased client penetration.
     Securities and Funds Services revenues grew 17% as a result of increased assets under custody, volumes and liability balances.
 
2010 Outlook
Transaction Services business performance will continue to be impacted in 2010 by levels of interest rates, economic activity, volatility in global capital markets, foreign exchange and market valuations globally. Levels of client activity and client cash and security flows are key factors dependent on macroeconomic conditions. Transaction Services intends to continue to invest in technology to support its global network, as well as investments to build out its investor services suite of products aimed at large, under-penetrated markets for middle and back office outsourcing among a range of investors. These and similar investments could lead to increasing operating expenses.


29
 


CITI HOLDINGS
 
Citi Holdings contains businesses and portfolios of assets that Citigroup has determined are not central to its core Citicorp business. These noncore businesses tend to be more asset-intensive and reliant on wholesale funding and also may be product-driven rather than client-driven. Citi intends to exit these businesses as quickly as practicable yet in an economically rational manner through business divestitures, portfolio run-off and asset sales. Citi has made substantial progress divesting and exiting businesses from Citi Holdings, having completed 15 divestitures in 2009, including Smith Barney, Nikko Cordial Securities, Nikko Asset Management Financial Institution Credit Card business (FI) and Diners Club North America. Citi Holdings’ assets have been reduced by nearly 40%, or $351 billion, from the peak level of $898 billion in the first quarter of 2008 to $547 billion at year-end 2009. Citi Holdings’ assets represented less than 30% of Citi’s assets as of December 31, 2009. Asset reductions from Citi Holdings have the combined benefits of further fortifying Citigroup’s capital base, lowering risk, simplifying the organization and allowing Citi to allocate capital to fund long-term strategic businesses.
     Citi Holdings consists of the following businesses: Brokerage and Asset Management; Local Consumer Lending; and Special Asset Pool.
     With Citi’s exit from the loss-sharing agreement with the U.S. government in December 2009, the Company conducted a broad review of the Citi Holdings asset base to determine which assets are strategically important to Citicorp. As a result of this analysis, approximately $61 billion of assets will be moved from Citi Holdings into Citicorp in the first quarter of 2010. The assets consist primarily of approximately $34 billion of U.S. mortgages that will be transferred to NA RCB, approximately $19 billion of commercial and corporate loans and securities related to core Citicorp clients, of which approximately $17 billion will be moved to S&B and the remainder to NA RCB, and approximately $5.0 billion of assets related to Citi’s Mexico asset management business that will be moved to LATAM RCB.
 
                                                      % Change           % Change  
In millions of dollars     2009     2008     2007   2009 vs. 2008   2008 vs. 2007  
Net interest revenue   $ 17,314   $ 22,459   $ 21,797   (23 )% 3 %
Non-interest revenue     13,321     (29,157 )   (2,284 ) NM   NM  
Total revenues, net of interest expense   $ 30,635   $ (6,698 ) $ 19,513   NM   NM  
Provisions for credit losses and for benefits and claims                            
Net credit losses   $ 24,660   $ 14,070   $ 7,230   75 % 95 %
Credit reserve build     5,457     11,444     5,836   (52 ) 96  
Provision for loan losses   $ 30,117   $ 25,514   $ 13,066   18 % 95 %
Provision for benefits and claims     1,210     1,396     919   (13 ) 52  
Provision for unfunded lending commitments     109     (172 )   71   NM   NM  
Total provisions for credit losses and for benefits and claims   $ 31,436   $ 26,738