Citigroup (C)

CREDIT

Citigroup’s credit costs of $9.1 billion included net credit losses of $8.0 billion, a $0.8 billion net loan loss reserve build and $0.3 billion of policyholder benefits and claims.  Total credit costs were down 28% sequentially from $12.7 billion in the prior quarter.

·                 Net credit losses declined $386 million or 5% sequentially.  Citigroup consumer managed net credit losses(3) were $9.4 billion, down 3% sequentially, driven by lower losses in Retail Partner Cards and North America residential real estate in Citi Holdings.  The sequential decline in net credit losses in North America residential real estate primarily reflected a higher volume of trial loan modifications under the HAMP.  Loans in the trial modification period under the HAMP continue to remain delinquent even if the reduced payments agreed to under the program are made by the borrower.  So long as the required payments are being made, the loans are not charged off.  The decision to either charge off or record the loan as a successful modification is made only at the conclusion of the trial period.  During the quarter, the recognition of $100 million of net credit losses was deferred because the underlying mortgages were in the trial modification period under the HAMP; however the loan loss reserve was increased to offset this impact.  The impact of the HAMP also contributed to the $2.0 billion sequential increase in loans 90+ days past due in the North America residential real estate lending business.

·                  Outside North America, Citicorp consumer net credit losses were up 5% or $59 million sequentially, driven by increases in Latin America and EMEA.  Within Regional Consumer Banking, loans 90+ days past due declined across all regions.

·                  Total corporate net credit losses declined sequentially from $1.7 billion to $1.5 billion.

·                  Citigroup’s loan loss reserve build for the quarter was $3.1 billion lower than the prior quarter and consisted of a net build of $893 million for consumer loans, and a net release of $91 million for corporate loans.  The corporate loan portfolio declined by $13 billion in the third quarter, and overall credit characteristics of this portfolio stabilized.  While the consumer loan loss reserve build was lower than the second quarter of 2009, the months of concurrent coverage increased to 13.3 from 12.7 sequentially.

·                  Citigroup’s total allowance for loan losses was $36.4 billion, up from $35.9 billion in the prior quarter, while its total allowance for loan losses increased to 5.9% of total loans from 5.6% in the prior quarter.

Credit

        During the 2005 first quarter, the Company continued to experience a favorable world-wide credit environment. The Company released $20 million of general reserves from Global Consumer during the 2005 first quarter consisting of a $17 million net release in the Consumer Finance portfolio and a $3 million net release in Retail Banking. CIB had no general builds or releases during this period. During the 2005 first quarter, the allowance for credit losses declined by $129 million related to credit card securitizations and by $90 million from the sale of CitiCapital's Transportation Finance Business. At March 31, 2005 and December 31, 2004, the Company's total allowance for loans, leases and commitments was $11.494 billion and $11.869 billion, respectively.

        During the 2004 first quarter, the Company released $171 million of reserves, consisting of $150 million in CIB and $21 million in Global Consumer. At March 31, 2004, the Company's total allowance for loans, leases and commitments was $13.106 billion.

        Management evaluates the adequacy of loan loss reserves by analyzing probable loss scenarios and economic and geopolitical factors that impact the portfolios. See pages 40 - 44 herein and pages 42 - 43 of Citigroup's 2004 Annual Report on Form 10-K for an additional discussion of the reserve levels and credit process.

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