Overview

        The Company's U.S. consumer mortgage portfolio consists of both first lien and second lien mortgages, managed primarily by Local Consumer Lending (LCL) within Citi Holdings. However, $0.5 billion of first lien mortgages and $1.7 billion of second lien mortgages are reported in Citicorp. As of September 30, 2009, the U.S. first lien mortgage portfolio totaled approximately $122 billion while the U.S. second lien mortgage portfolio was approximately $53 billion.

        Data appearing throughout this report, including in the tables below, have been sourced from the Company's risk systems and, as such, may not reconcile with Citi's disclosures elsewhere generally due to differences in methodology and/or inconsistencies or variations in the manner in which information is captured. In addition, while the Company's risk management function continually reviews and refines its data capture and processing systems, certain Fair Isaac Corporation (FICO) and loan-to-value (LTV) data on the Company's mortgage portfolio is not available. The Company has noted such variations or inabilities to capture data, as applicable, below where material.

        It is generally the Company's credit risk policy not to offer option ARMs/negative amortizing mortgage products to its customers. Option ARMs/negative amortizing mortgages represent a very insignificant portion of total balances that were acquired only incidentally as part of prior portfolio and business purchases.

        A portion of loans in the Company's U.S. mortgage portfolio currently requires a payment to satisfy only the current accrued interest for the payment period or an interest-only payment. The Company's mortgage portfolio includes approximately $30 billion of first and second lien home equity lines of credit (HELOCs) with the interest-only payment feature that are still within their revolving period and have not commenced amortization. The interest-only payment feature during the revolving period is standard for the HELOC product across the industry. The first mortgage portfolio also contains approximately $35 billion of mostly adjustable rate mortgages (ARMs) that are currently required to make an interest-only payment. These loans will be required to make a fully amortizing payment upon expiration of their interest-only payment period, and most will do so within a few years of origination. Borrowers that are currently required to make an interest only payment cannot select a lower payment that will negatively amortize the loan. First mortgage loans with the interest-only payment feature are primarily to high credit quality borrowers that have on average significantly higher refreshed FICO scores than other loans in the first mortgage portfolio.

Overview

        Generally, capital is generated by earnings from Citi's operating businesses. Primarily as a result of the exchange offers, Citigroup increased its Tier 1 Common by $63 billion from the second quarter of 2009 to $90 billion. In addition, the Company's Tangible Common Equity (TCE) increased by $62 billion from the second quarter of 2009 to $102 billion at September 30, 2009. Tier 1 Common, TCE and related ratios are used and relied on by the Company's banking regulators as a measure of capital adequacy, but are considered "non-GAAP financial measures" for SEC purposes. See "Capital Ratios," "Components of Capital Under Regulatory Guidelines" and "Tangible Common Equity" below for additional information on these measures.

        The Company may also augment its capital through issuances of common stock, convertible preferred stock, preferred stock, subordinated debt underlying trust preferred securities, and equity issued through awards under employee benefit plans. Future business results of the Company, including events such as corporate dispositions, also affect the Company's capital levels. Moreover, changes that the FASB has adopted regarding off-balance sheet assets, consolidation and sale treatment will have an incremental impact on Citi's capital ratios. For more information on this, see Note 1 "Future Application of Accounting Standards" and Note 15 to the Consolidated Financial Statements, including "Funding, Liquidity Facilities and Subordinate Interests."

        Capital is used primarily to support assets in the Company's businesses and to absorb expected and unexpected market, credit or operational losses. While capital may be used for other purposes, such as to pay dividends or repurchase common stock, the Company's ability to utilize its capital for these purposes is currently restricted due to its participation in TARP and other government programs, as explained more fully in the Company's 2008 Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q for the quarters ended June 30, 2009 and March 31, 2009, respectively.

        Citigroup's capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company's risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is reviewed at the consolidated, legal entity and country level.

        Senior management oversees the capital management process mainly through Citigroup's Finance and Asset and Liability Committee (FinALCO). The Committee is composed of the senior-most management of Citigroup for the purpose of engaging management in decision-making and related discussions on capital and liquidity matters. Among other things, the Committee's responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; determining appropriate asset levels and return hurdles for Citigroup and individual businesses; reviewing the funding and capital markets plan for Citigroup; and monitoring interest-rate risk, corporate and bank liquidity and the impact of currency translation on non-U.S. earnings and capital.

Overview

        Because Citigroup is a bank holding company, substantially all of its net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Citigroup's liquidity management is structured to optimize the free flow of funds through the Company's legal and regulatory structure; however, various constraints, discussed below, limit certain subsidiaries' dividend-paying abilities. Consistent with these constraints, Citigroup's primary objectives for liquidity management are established by entity and in aggregate across three main operating entities, as follows: (i) Citigroup, as the parent holding company; (ii) banking subsidiaries; and (iii) non-banking subsidiaries.

Overview

        Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs). See Note 1 to the Consolidated Financial Statements for a discussion of impending accounting changes to the accounting for transfers and servicing of financial assets and Consolidation of Variable Interest Entities, including the elimination of qualifying SPEs

Overview

Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs). See Note 1 to the Consolidated Financial Statements for a discussion of proposed accounting changes to SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140), and FASB Interpretation No. 46, “Consolidation of Variable Interest Entities (revised December 2003) (FIN 46 (R)).”

Overview

        Capital is generally generated by earnings from operating businesses. This is augmented through issuances of common stock, convertible preferred stock, preferred stock, subordinated debt underlying trust preferred securities, and equity issued through awards under employee benefit plans. Capital is used primarily to support assets in the Company's businesses and to absorb expected and unexpected market, credit, or operational losses. The Company's potential further uses of capital, particularly to pay dividends and repurchase common stock, became severely restricted during the latter half of 2008 and during 2009, to date, as explained more fully in the Company's 2008 Annual Report on Form 10-K, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, and as discussed in this MD&A.

        Citigroup's capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company's risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is reviewed at the consolidated, legal entity, and country level.

        Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup's Finance and Asset and Liability Committee (FinALCO). The Committee is composed of the senior-most management of Citigroup for the purpose of engaging management in decision-making and related discussions on capital and liquidity matters. Among other things, the Committee's responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; determining appropriate asset levels and return hurdles for Citigroup and individual businesses; reviewing the funding and capital markets plan for Citigroup; and monitoring interest-rate risk, corporate and bank liquidity and the impact of currency translation on non-U.S. earnings and capital.

        Certain of the capital measures discussed in this section, including Tier 1 Common, Tangible Common Equity (TCE) and related ratios, are non-GAAP financial measures. See "Components of Capital Under Regulatory Guidelines" and "Tangible Common Equity" below for additional information on these measures, including a reconciliation of these measures to the most directly comparable GAAP measures.

Overview

        Because Citigroup is a bank holding company, substantially all of its net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend-paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating-agency requirements that also impact their capitalization levels.

        As discussed in more detail in the Company's 2008 Annual Report on Form 10-K, global financial markets faced unprecedented disruption in the latter part of 2008. Citigroup and other U.S. financial services firms are currently benefiting from government programs that are improving markets and providing Citigroup and other institutions with significant current funding capacity and significant liquidity support. See "TARP and Other Regulatory Programs" above.

        In addition to the above programs, since the middle of 2007, the Company has taken a series of actions to reduce potential funding risks related to short-term market dislocations. The amount of commercial paper outstanding was reduced and the weighted-average maturity was extended, the parent company liquidity portfolio (a portfolio of cash and highly liquid securities) and broker-dealer "cash box" (unencumbered cash deposits) were increased substantially, and the amount of unsecured overnight bank borrowings was reduced.

        As of June 30, 2009, the parent company liquidity portfolio and broker-dealer "cash box" totaled $65.0 billion as compared with $66.8 billion at December 31, 2008 and $64.8 billion at June 30, 2008. In addition, as of June 30, 2009, Citigroup's bank subsidiaries had an aggregate of approximately $110 billion of cash on deposit with major Central Banks (including the U.S. Federal Reserve Bank of New York, the European Central Bank, Bank of England, Swiss National Bank and Bank of Japan). This compares with approximately $72 billion at December 31, 2008. These amounts are in addition to cash deposited from the broker-dealer "cash box" noted above. Citigroup's bank subsidiaries also have significant additional liquidity resources through unencumbered highly liquid securities and other assets available for secured funding through private markets or that are, or could be, pledged to the major Central Banks and the U.S. Federal Home Loan Banks.

        These actions to reduce funding risks, the reduction of the balance sheet and the substantial support provided by U.S. government programs have allowed the combined parent and broker-dealer entities to maintain sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon, without accessing the unsecured markets.

        Citigroup's funding sources are diversified across funding types and geography, a benefit of its global franchise. Funding for Citigroup and its major operating subsidiaries includes a geographically diverse retail and corporate deposit base of approximately $804.7 billion at June 30, 2009. These deposits are diversified across products and regions, with approximately two-thirds of them outside of the U.S. This diversification provides the Company with an important and low-cost source of funding. A significant portion of these deposits has been, and is currently expected to be, long term and stable, and is considered to be core.

        During the quarter ended June 30, 2009, the Company's deposit base increased by $42 billion compared to March 31, 2009, approximately half of which was due to FX translation. On a volume basis, deposit increases were noted in Regional Consumer Banking, particularly in North America, and in Global Transaction Services due to growth in all regions and strength in Treasury and Trade Solutions. These increases were partially offset by declines in Securities and Banking related to reduction of higher cost wholesale deposits.

Overview

        Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs). See Note 1 to the Consolidated Financial Statements for a discussion of impending accounting changes to SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140 /ASC 860), and FASB Interpretation No. 46, "Consolidation of Variable Interest Entities (revised December 2003) (FIN 46 (R)/ASC 810-10)."

Overview

        Capital is generally generated by earnings from operating businesses. This is augmented through issuances of common stock, convertible preferred stock, preferred stock, subordinated debt underlying trust preferred securities, and equity issued through awards under employee benefit plans. Capital is used primarily to support assets in the Company's businesses and to absorb expected and unexpected market, credit or operational losses. The Company's uses of capital, particularly to pay dividends and repurchase common stock, became severely restricted during the latter half of 2008 as explained more fully in the 2008 Annual Report on Form 10-K. See also "Events in 2009" and "TARP and Other Regulatory Programs" and "Common Equity."

        Citigroup's capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company's risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is reviewed at the consolidated, legal entity and country level.

        Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup's Finance and Asset and Liability Committee (FinALCO). The Committee is composed of the senior-most management of Citigroup for the purpose of engaging management in decision-making and related discussions on capital and liquidity matters. Among other things, the Committee's responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; determining appropriate asset levels and return hurdles for Citigroup and individual businesses; reviewing the funding and capital markets plan for Citigroup; and monitoring interest-rate risk, corporate and bank liquidity and the impact of currency translation on non-U.S. earnings and capital. The FinALCO has established capital targets for Citigroup and for significant subsidiaries. At March 31, 2009, these targets exceeded the regulatory standards.

Overview

        Because Citigroup is a bank holding company, substantially all of its net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend-paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating-agency requirements that also impact their capitalization levels.

        As discussed in more detail in the Company's 2008 Annual Report on Form 10-K, global financial markets faced unprecedented disruption in the latter part of 2008. Citigroup and other U.S. financial services firms are currently benefiting from numerous government programs that are improving markets and providing Citigroup and other institutions with significant current funding capacity and significant liquidity support. See "TARP and Other Regulatory Programs."

        In addition to the above programs, since the middle of 2007, the Company has taken a series of actions to reduce potential funding risks related to short-term market dislocations. The amount of commercial paper outstanding was reduced and the weighted-average maturity was extended, the parent company liquidity portfolio (a portfolio of cash and highly liquid securities) and broker-dealer "cash box" (unencumbered cash deposits) were increased substantially, and the amount of unsecured overnight bank borrowings was reduced. For each of the past eleven months in the period ending March 31, 2009, the Company was, on average, a net lender of funds in the interbank market or had excess cash placed in its account at the Federal Reserve Bank of New York. As of March 31, 2009, the parent company liquidity portfolio and broker-dealer "cash box" totaled $65.1 billion as compared with $66.8 billion at December 31, 2008 and $30.0 billion at March 31, 2008.

        These actions to reduce funding risks, the reduction of the balance sheet and the substantial support provided by U.S. government programs have allowed the combined parent and broker-dealer entities to maintain sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon, without accessing the unsecured markets.

        Citigroup's funding sources are diversified across funding types and geography, a benefit of its global franchise. Funding for Citigroup and its major operating subsidiaries includes a geographically diverse retail and corporate deposit base of $762.7 billion. These deposits are diversified across products and regions, with approximately two-thirds of them outside of the U.S. This diversification provides the Company with an important, stable and low-cost source of funding. A significant portion of these deposits has been, and is expected to be, long-term and stable, and are considered to be core.

        Excluding the impact of changes in foreign exchange rates during the quarter ended March 31, 2009, the Company's deposit base remained stable. On a volume basis, deposit increases were noted in U.S. and International Retail Banking, and in Smith Barney. This was partially offset by declines in Corporate balances and the Private Bank.

Overview

        Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs). See Note 1 for a discussion of proposed accounting changes to SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140), and FASB Interpretation No. 46, "Consolidation of Variable Interest Entities (revised December 2003) (FIN 46 (R))."

Overview

Capital is generally generated via earnings from operating businesses. This is augmented through issuance of common stock, convertible preferred stock, preferred stock, subordinated debt, and equity issued through awards under employee benefit plans. Capital is used primarily to support assets in the Company’s businesses and to absorb unexpected market, credit or operational losses. The Company’s uses of capital, particularly to pay dividends and repurchase common stock, became severely restricted during the latter half of 2008. See “The Company,” “Management’s Discussion and Analysis – Events in 2008,” “TARP and Other Regulatory Programs,” “Risk Factors” and “Common Equity” on pages 2, 9, 44,47 and 95, respectively.

Citigroup’s capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company’s risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is reviewed at the consolidated, legal entity, and country level.

Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup’s Finance and Asset and Liability Committee (FinALCO). The Committee is composed of the senior-most management of Citigroup for the purpose of engaging management in decision-making and related discussions on capital and liquidity items. Among other things, the Committee’s responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; determining appropriate asset levels and return hurdles for Citigroup and individual businesses; reviewing the funding and capital markets plan for Citigroup; and monitoring interest-rate risk, corporate and bank liquidity, the impact of currency translation on non-U.S. earnings and capital. The FinALCO has established capital targets for Citigroup and for significant subsidiaries. At December 31, 2008, these targets exceeded the regulatory standards.

Overview

Capital is generally generated via earnings from operating businesses. This is augmented through issuance of common stock, convertible preferred stock, preferred stock, subordinated debt, and equity issued through awards under employee benefit plans. Capital is used primarily to support assets in the Company’s businesses and to absorb unexpected market, credit or operational losses. The Company’s uses of capital, particularly to pay dividends and repurchase common stock, became severely restricted during the latter half of 2008. See “The Company,” “Management’s Discussion and Analysis – Events in 2008,” “TARP and Other Regulatory Programs,” “Risk Factors” and “Common Equity” on pages 2, 9, 44,47 and 95, respectively.

Citigroup’s capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company’s risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is reviewed at the consolidated, legal entity, and country level.

Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup’s Finance and Asset and Liability Committee (FinALCO). The Committee is composed of the senior-most management of Citigroup for the purpose of engaging management in decision-making and related discussions on capital and liquidity items. Among other things, the Committee’s responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; determining appropriate asset levels and return hurdles for Citigroup and individual businesses; reviewing the funding and capital markets plan for Citigroup; and monitoring interest-rate risk, corporate and bank liquidity, the impact of currency translation on non-U.S. earnings and capital. The FinALCO has established capital targets for Citigroup and for significant subsidiaries. At December 31, 2008, these targets exceeded the regulatory standards.

Overview

Because Citigroup is a bank holding company, substantially all of its net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries’ dividend-paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating-agency requirements that also impact their capitalization levels.

Global financial markets faced unprecedented disruption in the latter part of 2008. Citigroup and other U.S. financial services firms are currently benefiting from numerous government programs that are improving markets and supporting their current liquidity positions. These programs provide Citigroup with significant current funding capacity and significant liquidity support. These include:

Overview

Because Citigroup is a bank holding company, substantially all of its net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries’ dividend-paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating-agency requirements that also impact their capitalization levels.

Global financial markets faced unprecedented disruption in the latter part of 2008. Citigroup and other U.S. financial services firms are currently benefiting from numerous government programs that are improving markets and supporting their current liquidity positions. These programs provide Citigroup with significant current funding capacity and significant liquidity support. These include:

Overview

Citigroup’s liquidity management is structured to ensure the availability of funds and to optimize the free flow of funds through the Company’s legal and regulatory structure. Principal constraints relate to legal and regulatory limitations, sovereign risk and tax considerations. Consistent with these constraints and the consolidated funding activities described in the “Funding” section on page 98, Citigroup’s primary objectives for liquidity management are established by entity and in aggregate across three main operating entities as follows:

Overview

Citigroup’s liquidity management is structured to ensure the availability of funds and to optimize the free flow of funds through the Company’s legal and regulatory structure. Principal constraints relate to legal and regulatory limitations, sovereign risk and tax considerations. Consistent with these constraints and the consolidated funding activities described in the “Funding” section on page 98, Citigroup’s primary objectives for liquidity management are established by entity and in aggregate across three main operating entities as follows:

Overview

Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs). See Note 1 on page 122 for a discussion of proposed accounting changes to SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140), and FASB Interpretation No. 46, “Consolidation of Variable Interest Entities (revised December 2003) (FIN 46 (R)).”

Overview

Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs). See Note 1 on page 122 for a discussion of proposed accounting changes to SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140), and FASB Interpretation No. 46, “Consolidation of Variable Interest Entities (revised December 2003) (FIN 46 (R)).”

Overview

        As a bank holding company, substantially all of Citigroup's net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agency requirements that also impact their capitalization levels.

        Our liquidity position remained very strong during the third quarter of 2008 and will continue to be enhanced through the sale of perpetual preferred stock and warrants to the U.S. Department of the Treasury, sale of our German Retail Banking Operations and continued balance sheet de-leveraging.

        During the second half of 2007 and the first nine months of 2008, the Company took a series of actions to reduce potential funding risks related to short-term market dislocations. The amount of commercial paper outstanding was reduced and the weighted-average maturity was extended, the Parent Company liquidity portfolio (a portfolio of cash and highly liquid securities) and broker-dealer "cash box" (unencumbered cash deposits) were increased substantially, and the amount of unsecured overnight bank borrowings was reduced. For each of the past five months in the period ending September 30, 2008, the Company was, on average, a net lender of funds in the interbank market. As of September 30, 2008, the Parent Company liquidity portfolio and broker-dealer "cash box" totaled $50.5 billion as compared with $24.2 billion at December 31, 2007 and $24.0 billion at September 30, 2007.

        These actions served Citigroup well during the unprecedented market conditions at the end of the 2008 third quarter. Continued de-leveraging and the enhancement of our liquidity position have allowed the combined Parent and Broker—Dealer entities to maintain sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing the unsecured markets.

        Citigroup's funding continues to be enhanced by a large retail and corporate deposit base of $780 billion. These deposits are diversified across products and regions, with approximately two-thirds of them outside of the U.S. This diversification, including deep access to international deposits, provides the Company with an important, stable and low-cost source of funding. A significant portion of these deposits has been, and is expected to be, long-term and stable, and are considered core. During the three months ending September 30, 2008, the Company's deposit base remained stable with deposits lower by $23.3 billion, or 1%. The decrease reflected the reclassification of $13.5 billion in deposits held by our German Retail Banking operations to discontinued operations. Deposit balances were also negatively impacted by a stronger U.S. dollar and by the Company's decisions to reduce deposits, considered wholesale funding, consistent with the Company's de-leveraging efforts. On a constant dollar basis, deposit volumes were higher during the third quarter. On a volume basis, significant increases in Transaction Services deposits were driven by higher cash balances maintained by clients and a flight to quality. Overall, consumer deposits outside the U.S. were essentially flat, excluding the impact of foreign exchange translation and the reclassification of the deposits of the German Retail Banking business.

Overview

        Citigroup and its subsidiaries are involved with numerous types of off-balance-sheet arrangements, including special purpose entities (SPEs), lines and letters of credit and loan commitments.

Overview

        As a financial holding company, substantially all of Citigroup's net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agency requirements that also impact their capitalization levels.

        During the second half of 2007 and the first six months of 2008, the Company took a series of actions to reduce potential funding risks related to short-term market dislocations. The amount of commercial paper outstanding was reduced and the weighted-average maturity was extended, the Parent Company liquidity portfolio (a portfolio of cash and highly liquid securities) and broker-dealer "cash box" (unencumbered cash deposits) were increased substantially, and the amount of unsecured overnight bank borrowings was reduced. As of June 30, 2008, the Parent Company liquidity portfolio and broker-dealer "cash box" totaled $64.8 billion as compared with $24.2 billion at December 31, 2007 and $11.4 billion at June 30, 2007.

Overview

        Citigroup and its subsidiaries are involved with numerous types of off-balance-sheet arrangements, including special purpose entities (SPEs), lines and letters of credit and loan commitments.

Overview

        As a financial holding company, substantially all of Citigroup's net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agency requirements that also impact their capitalization levels.

        During the second half of 2007 and the first quarter of 2008 the Company took a series of actions to reduce potential funding risks related to short-term market dislocations. The amount of commercial paper outstanding was reduced and the weighted-average maturity was extended, the Parent Company liquidity portfolio (a portfolio of cash and highly liquid securities) and broker-dealer "cash box" (unencumbered cash deposits) were increased substantially, and the amount of unsecured overnight bank borrowings was reduced. As of March 31, 2008, the Parent Company liquidity portfolio and broker-dealer "cash box" totaled $30.0 billion as compared with $24.2 billion at December 31, 2007 and $11.4 billion at June 30, 2007. As a result of recent funding and capital actions, this balance totaled $54.8 billion at April 30, 2008.

Overview

        Citigroup and its subsidiaries are involved with numerous types of off-balance-sheet arrangements, including special purpose entities (SPEs), lines and letters of credit and loan commitments.

Overview

The personnel and compensation committee structured the compensation awarded to the named executive officers in January 2008 to reflect the extraordinary market conditions in 2007 and the decline in financial performance of Citi. As a result of these developments, Citi’s compensation framework is more varied than it has been historically. The committee reduced the value of the incentive awards payable to some senior executives from the awards paid for 2006 (in some cases, awarding zero bonus amounts for 2007). The committee also decreased the percentage of incentive awards payable in cash and increased the percentage payable in stock, to link future executive compensation even more heavily to returns delivered to stockholders and to reduce current compensation. The committee also made retention equity awards to key executives, to provide incentives for the executives expected to play important roles in the future of Citi, recognizing that difficult economic conditions make rewarding and retaining key talent especially important. In some cases where the committee determined that cash awards were appropriate, the cash payments are subject to vesting conditions and the value of the cash awards is linked to the future performance of Citi stock.

In past years, the direct annual compensation of Citi’s named executive officers consisted of two components: salary and annual bonus paid partially in cash and partially in equity. The equity portion of the annual bonus is paid under Citi’s Capital Accumulation Plan (CAP), which applies to a large number of Citi’s employees. In most years, 40 percent of the annual bonus is paid in restricted or deferred stock under CAP and 60 percent in cash. This year, the general formula for senior executives was that 40 percent of the incentive award was payable under CAP, 30 percent was payable in cash, and 30 percent was payable in retention equity awards. These retention equity awards have vesting conditions and are intended to align the interests of executives with those of stockholders.

The general formula could not apply to Citi’s CEO and three highest-paid executive officers. In prior

Overview

Capital is generally generated via earnings from operating businesses. This is augmented through issuance of common stock, convertible preferred stock, preferred stock and subordinated debt, and equity issued as a result of employee benefit plans. Capital is used primarily to support asset growth in the Company’s businesses and is sufficient to absorb unexpected market, credit or operational losses. Excess capital is used to pay dividends to shareholders, fund acquisitions and repurchase stock.

Citigroup’s capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company’s risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is reviewed at the entity and country level.

Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup’s Global Finance and Asset and Liability Committee (FinALCO). The Committee is comprised of the senior-most management of Citigroup for the purpose of engaging management in decision-making and related discussions with treasurers on capital and liquidity. The Committee’s responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; determining appropriate asset levels and return hurdles for Citigroup and individual businesses; reviewing the funding and capital markets plan for Citigroup; monitoring interest rate risk, corporate and bank liquidity, the impact of currency translation on non-U.S. earnings and capital; and reviewing and recommending for Board consideration share repurchase levels and dividends on preferred and common stock. The FinALCO has established capital targets for Citigroup and for significant subsidiaries. These targets exceed the regulatory standards.

Overview

As a financial holding company, substantially all of Citigroup’s net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries’ dividend paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agency requirements that also impact their capitalization levels.

During the third and fourth quarters of 2007 the Company took a series of actions to reduce potential funding risks related to short-term market dislocations. The amount of commercial paper outstanding was reduced and the weighted-average maturity was extended, the Parent Company liquidity portfolio (a portfolio of cash and highly liquid securities) and broker-dealer “cash box” (unencumbered cash deposits) were increased substantially, and the amount of unsecured overnight bank borrowings was reduced. As of December 31, 2007, the Parent Company liquidity portfolio and broker-dealer “cash box” totaled $24.2 billion as compared with $11.4 billion at June 30, 2007.

Overview

Citigroup’s liquidity management is structured to optimize the free flow of funds through the Company’s legal and regulatory structure. Principal constraints relate to legal and regulatory limitations, sovereign risk and tax considerations. Consistent with these constraints and the consolidated funding activities described in the “Funding” section beginning on page 80, Citigroup’s primary objectives for liquidity management are established by entity and in aggregate across three main operating entities as follows:

Within this construct there is a funding framework for the Company’s activities. The primary benchmark for the Parent and Broker-Dealer is that on a combined basis Citigroup maintains sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing the unsecured markets. The resulting “short-term ratio” is monitored on a daily basis. The short-term ratio consists of the following significant components:

Overview

Citigroup and its subsidiaries are involved with several types of off-balance-sheet arrangements, including special purpose entities (SPEs), lines and letters of credit and loan commitments.

Overview

        As a financial holding company, substantially all of Citigroup's net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agency requirements that also impact their capitalization levels.

        At September 30, 2007, long-term debt and commercial paper outstanding for Citigroup parent company, CGMHI, Citigroup Funding Inc. and Citigroup's other subsidiaries were as follows:

(1)

At September 30, 2007, approximately $91.0 billion relates to collateralized advances from the Federal Home Loan Bank.

        See Note 12 on page 66 for further detail on long-term debt and commercial paper outstanding.

        Citigroup's ability to access the capital markets and other sources of wholesale funds, as well as the cost of these funds, is highly dependent on its credit ratings. The accompanying chart shows the ratings for Citigroup at September 30, 2007. The outlook for all of Citigroup's ratings is "stable."

Overview

        Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs), lines and letters of credit, and loan commitments.

        The securitization process enhances the liquidity of the financial markets, may spread credit and interest rate risk among several market participants, and makes new funds available to extend credit to consumers and commercial entities.

Overview

As a financial holding company, substantially all of Citigroup’s net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries’ dividend paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agency requirements that also impact their capitalization levels.

At June 30, 2007, long-term debt and commercial paper outstanding for Citigroup Parent Company, CGMHI, Citigroup Funding Inc. and Citigroup’s other subsidiaries were as follows:

(1)             At June 30, 2007, approximately $90.2 billion relates to collateralized advances from the Federal Home Loan Bank.

See Note 12 on page 61 for further detail on long-term debt and commercial paper outstanding.

Citigroup’s ability to access the capital markets and other sources of wholesale funds, as well as the cost of these funds, is highly dependent on its credit ratings.  The accompanying chart shows the ratings for Citigroup at June 30, 2007.  The outlook for all of Citigroup’s ratings is “stable.”

Overview

        Capital is generated principally via earnings, issuance of common and preferred stock and subordinated debt, and equity issued as a result of employee benefit plans. It is used primarily to support asset growth in the Company's businesses. Excess capital is used to pay dividends to shareholders, support acquisitions, and repurchase stock.

        Citigroup's capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company's risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is frequently reviewed at the entity and country level.

        Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup's Global Finance and Asset and Liability Committee (FinALCO). This Committee includes Citigroup's Chairman and Chief Executive Officer, Chief Financial Officer, Head of Corporate Finance and Treasury, Senior Risk Officer, the business segment CEOs, and other senior managers. The Committee's responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; reviewing the funding and capital markets plan for Citigroup; monitoring interest rate risk, corporate and bank liquidity, and the impact of currency translation on non-U.S. earnings and capital; and reviewing and recommending share repurchase levels and dividends on preferred and common stock. The FinALCO has established capital targets for Citigroup and for significant subsidiaries. These targets exceed the regulatory standards.

Overview

        At the Holding Company level for Citigroup, for CGMHI, and for the Combined Holding Company and CGMHI, Citigroup maintains sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing the unsecured markets.

Overview

        As a financial holding company, substantially all of Citigroup's net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agency requirements that also impact their capitalization levels.

Overview

        Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs), lines and letters of credit, and loan commitments.

        The securitization process enhances the liquidity of the financial markets, may spread credit risk among several market participants, and makes new funds available to extend credit to consumers and commercial entities.