These excerpts taken from the C 8-K filed Oct 1, 2007.
· Thanks Art and thanks to all of you for joining us this morning.
· I want to discuss the pre-earnings announcement that we issued this morning. This was obviously a very disappointing quarter for us.
· With the market dislocations this summer, with our poor trading performance within those market conditions, and with the deterioration we are seeing in the consumer credit environment, all told, we currently estimate a decline in net income this quarter in the range of 60% from the third quarter of 2006.
· Now, as described in the press release, there are four major drivers that explain most of the expected decline in our third quarter results.
· I am going to touch on each of these briefly and then I am going to ask Gary to address them in more detail.
· First, we are one of the largest providers of leveraged financing to clients around the world. When the leveraged loan market severely dislocated this summer, it had a significant impact on us, resulting in large write-downs.
OCTOBER 1, 2007 RECORDED CALL TRANSCRIPT
· Second, we are also a very large provider of structured credit products to institutional investors. In this business, we warehouse and structure sub-prime mortgages into CDOs for sale to our client base. Despite our efforts to reduce our exposures to sub-prime, which began early this year, and while we were partially hedged, we still incurred significant losses. Similarly, we also warehouse and structure leveraged loans into CLOs. As the demand for leveraged loans dried up, we suffered losses on our warehouse positions.
· Third, we had a poor performance in credit trading, where significant market volatility and a break-down in pricing relationships caused trading losses.
· And fourth, we had significant increases in credit costs in our Global Consumer business, reflecting deterioration in the credit environment, as well as portfolio growth and acquisitions.
· As I mentioned, Ill ask Gary to address each of these in more detail in just a moment.
· Before he does, I want to note that we have a long history of success and earnings power in our fixed income trading business, including record first half results this year. Given that history, we see this quarters fixed income trading performance as an aberration and clearly below our expectations. In fact, as we moved through September, we performed at more normalized levels in this business.
· Importantly, beyond these four factors that drove our results this quarter, our growth strategy continues to generate momentum for many of our franchises. Our international franchise continues to expand rapidly. Globally, revenues in equity underwriting, advisory and transaction services are all growing at a healthy double-digit pace. Customer volumes in the consumer business are showing good growth, and Wealth Management is generating solid results. Finally, our structural expense initiatives continue to gain traction and to deliver the cost savings we projected.
· So, for all these reasons, we view our expected third quarter results as well out of the ordinary, and I remain very optimistic about our future.
· Now, Gary please go over these topics in more detail.
· Thanks Gary. So to wrap-up, I am obviously very disappointed in our results this quarter. I know we can do much better. The underlying momentum in our businesses remains strong. The structural expense initiatives we announced in early April 2007 are on track and they are delivering the cost savings we projected.
· Looking ahead to the fourth quarter, while we obviously cannot predict market movements or other unforeseeable events that may affect our businesses, we expect to return to a more normal earnings environment as the year progresses.
· As Art mentioned, we have moved our earnings release date up to October 15th, 2007 and we look forward at that point in time to providing you with a more complete discussion of these results.
· Thanks for joining us today.
Citi is providing this preliminary information about its third quarter results prior to the scheduled earnings announcement date in light of the market events of recent months. Investors should not expect Citi to provide information about the results of future quarters in advance of scheduled quarterly earnings announcement dates. In addition, investors should not expect Citi to update the information provided in this release in advance of the scheduled announcement date for its third quarter 2007 earnings on October 15, 2007.
Certain statements in this document are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on managements current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors. More information about these factors is contained in Citis filings with the Securities and Exchange Commission.