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Quarterly Reports



Citigroup 10-K 2007
Form 10-K
Table of Contents





Citigroup Segments and Products


Citigroup Regions






2006 in Summary


Events in 2006


Events in 2005


Events in 2004






Citigroup Net Income—Segment and Product View


Citigroup Net Income—Regional View






U.S. Consumer


U.S. Cards


U.S. Retail Distribution


U.S. Consumer Lending


U.S. Commercial Business


U.S. Consumer Outlook


International Consumer


International Cards


International Consumer Finance


International Retail Banking


International Consumer Outlook


Other Consumer




Capital Markets and Banking


Transaction Services


Other CIB


Corporate and Investment Banking Outlook




Smith Barney


Private Bank


Global Wealth Management Outlook










Risk Capital


Credit Risk Management Process


Loans Outstanding


Other Real Estate Owned and Other Repossessed Assets


Details of Credit Loss Experience


Cash-Basis, Renegotiated, and Past Due Loans


Foregone Interest Revenue on Loans


Consumer Credit Risk


Consumer Portfolio Review


Corporate Credit Risk


Citigroup Derivatives


Global Corporate Portfolio Review


Loan Maturities and Fixed/Variable Pricing


Market Risk Management Process


Operational Risk Management Process


Country and Cross-Border Risk Management Process




Segment Balance Sheet at December 31, 2006


Average Balances and Interest Rates—Assets


Average Balances and Interest Rates—Liabilities and Equity, and Net Interest Revenue


Analysis of Changes in Interest Revenue


Analysis of Changes in Interest Expense and Net Interest Revenue




Capital Resources






Off-Balance Sheet Arrangements


U.S. Consumer Mortgage Lending


Pension and Postretirement Plans
























Average Deposit Liabilities in Offices Outside the U.S.


Maturity Profile of Time Deposits ($100,000 or more)
in U.S. Offices


Short-Term and Other Borrowings




Securities Regulation


Capital Requirements


General Business Factors




Legal Proceedings


Unregistered Sales of Equity Securities and Use of Proceeds


Equity Compensation Plan Information






Exhibits and Financial Statement Schedules






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Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company) is a diversified global financial services holding company whose businesses provide a broad range of financial services to consumer and corporate customers. Citigroup has more than 200 million customer accounts and does business in more than 100 countries. Citigroup was incorporated in 1988 under the laws of the State of Delaware.

The Company is a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956 registered with, and subject to examination by, the Board of Governors of the Federal Reserve System (FRB). Some of the Company’s subsidiaries are subject to supervision and examination by their respective federal and state authorities. At December 31, 2006, the Company had approximately 144,000 full-time and 10,000 part-time employees in the United States and approximately 183,000 full-time employees outside the United States. The Company has completed certain

strategic business acquisitions and divestitures during the past three years, details of which can be found in Notes 2 and 3 to the Consolidated Financial Statements on pages 137 and 138, respectively.

The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043, telephone number 212 559 1000. Additional information about Citigroup is available on the Company’s Web site at Citigroup’s annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to these reports are available free of charge through the Company’s Web site by clicking on the “Investor Relations” page and selecting “SEC Filings.” The Securities and Exchange Commission (SEC) Web site contains reports, proxy and information statements, and other information regarding the Company at

Citigroup is managed along the following segment and product lines:



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




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Citigroup Inc. and Subsidiaries



In millions of dollars, except per share amounts   2006     2005     2004     2003     2002  

Revenues, net of interest expense

  $ 89,615     $ 83,642     $ 79,635     $ 71,594     $ 66,246  

Operating expenses

    52,021       45,163       49,782       37,500       35,886  

Provisions for credit losses and for benefits and claims

    7,955       9,046       7,117       8,924       10,972  

Income from continuing operations before taxes, minority
interest, and cumulative effect of accounting changes

  $ 29,639     $ 29,433     $ 22,736     $ 25,170     $ 19,388  

Income taxes

    8,101       9,078       6,464       7,838       6,615  

Minority interest, net of taxes

    289       549       218       274       91  

Income from continuing operations before cumulative effect of
accounting changes

  $ 21,249     $ 19,806     $ 16,054     $ 17,058     $ 12,682  

Income from discontinued operations, net of taxes (1)

    289       4,832       992       795       2,641  

Cumulative effect of accounting changes, net of taxes (2)

          (49 )                 (47 )

Net income

  $ 21,538     $ 24,589     $ 17,046     $ 17,853     $ 15,276  

Earnings per share




Income from continuing operations

  $ 4.33     $ 3.90     $ 3.13     $ 3.34     $ 2.48  

Net income

    4.39       4.84       3.32       3.49       2.99  



Income from continuing operations

    4.25       3.82       3.07       3.27       2.44  

Net income

    4.31       4.75       3.26       3.42       2.94  

Dividends declared per common share

  $ 1.96     $ 1.76     $ 1.60     $ 1.10     $ 0.70  

At December 31


Total assets

  $ 1,884,318     $ 1,494,037     $ 1,484,101     $ 1,264,032     $ 1,097,590  

Total deposits (3)

    712,041       591,828       561,513       473,614       430,530  

Long-term debt

    288,494       217,499       207,910       162,702       126,927  

Mandatorily redeemable securities of subsidiary trusts (4)

    9,579       6,264       6,209       6,057       6,152  

Common stockholders’ equity

    118,783       111,412       108,166       96,889       85,318  

Total stockholders’ equity

    119,783       112,537       109,291       98,014       86,718  



Return on common stockholders’ equity (5)

    18.8 %     22.3 %     17.0 %     19.8 %     18.6 %

Return on total stockholders’ equity (5)

    18.6       22.1       16.8       19.5       18.3  

Return on risk capital (6)

    38       38       35       39    

Return on invested capital (6)

    19       22       17       20          

Tier 1 Capital

    8.59 %     8.79 %     8.74 %     8.91 %     8.47 %

Total Capital

    11.65       12.02       11.85       12.04       11.25  

Leverage (7)

    5.16       5.35       5.20       5.56       5.67  

Common stockholders’ equity to assets

    6.30 %     7.46 %     7.29 %     7.67 %     7.77 %

Total stockholders’ equity to assets

    6.36       7.53       7.36       7.75       7.90  

Dividends declared (8)

    45.5       37.1       49.1       32.2       23.8  

Ratio of earnings to fixed charges and preferred stock dividends

    1.51 x     1.79 x     2.00 x     2.41 x     1.89 x


(1) Discontinued operations for 2002 to 2006 include the operations (and associated gain on disposition) described in the Company’s June 24, 2005 announced agreement for the sale of substantially all of its Asset Management business to Legg Mason. The majority of the transaction closed on December 1, 2005. Discontinued operations from 2002 to 2006 also includes the operations (and associated gain) described in the Company’s January 31, 2005 announced agreement for the sale of Citigroup’s Travelers Life & Annuity, substantially all of Citigroup’s international insurance business and Citigroup’s Argentine pension business to MetLife Inc. The transaction closed on July 1, 2005. On August 20, 2002, Citigroup completed the distribution to its stockholders of a majority portion of its remaining ownership interest in Travelers Property Casualty Corp. (TPC). Following the distribution, Citigroup began accounting for TPC as discontinued operations. As such, 2002 also reflects TPC as a discontinued operation. See Note 3 to the Consolidated Financial Statements on page 118.
(2) Accounting change of ($49) million in 2005 represents the adoption of Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143.” Accounting change of ($47) million in 2002 resulted from the adoption of the remaining provisions of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” (SFAS 142).
(3) Reclassified to conform to the current period’s presentation.
(4) During 2004, the Company deconsolidated the subsidiary issuer trusts in accordance with FIN 46-R. For regulatory capital purposes, these trust securities remain a component of Tier 1 Capital. See “Capital Resources and Liquidity” on page 86.
(5) The return on average common stockholders’ equity and return on average total stockholders’ equity are calculated using net income after deducting preferred stock dividends.
(6) Risk capital is a measure of risk levels and the trade-off of risk and return. It is defined as the amount of capital required to absorb potential unexpected economic losses resulting from extremely severe events over a one-year time period. Return on risk capital is calculated as annualized income from continuing operations divided by average risk capital. Invested capital is defined as risk capital plus goodwill and intangible assets excluding mortgage servicing rights (which are a component of risk capital). Return on invested capital is calculated using income adjusted to exclude a net internal charge Citigroup levies on the goodwill and intangible assets of each business offset by each business’ share of the rebate of the goodwill and intangible asset charge. Return on risk capital and return on invested capital are non-GAAP performance measures; because they are measures of risk with no basis in GAAP, there is no comparable GAAP measure to which they can be reconciled. Management uses return on risk capital to assess businesses’ operational performance and to allocate Citigroup’s balance sheet and risk capital capacity. Return on invested capital is used to assess returns on potential acquisitions and to compare long-term performance of businesses with differing proportions of organic and acquired growth. See page 59 for a further discussion of risk capital.
(7) Tier 1 Capital divided by adjusted average assets.
(8) Dividends declared per common share as a percentage of net income per diluted share.



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In 2006, Citigroup earned $21.2 billion from continuing operations on revenues of $89.6 billion. Income was up 7% from 2005, while diluted EPS from continuing operations increased 11%, with the increment in the growth rate reflecting the benefit from our share repurchase program. Net income, which includes discontinued operations, was $21.5 billion, down 12% from the prior year, reflecting the absence of significant gains on sales of businesses recorded in 2005. Income was diversified by segment, product and region.

During 2006, we continued to execute on our key strategic initiatives, including the opening of a record 1,165 new Citibank and Consumer Finance branches (862 in the International sector and 303 in the U.S.), the continued integration of our businesses, investment in technology, and hiring and training our professionals.

Customer volume growth was strong, with average loans up 14%, average deposits up 16% and average interest-earning assets up 16% from year-ago levels. Principal transactions revenues grew 37% and client assets under fee-based management grew 15%. And we completed or announced several strategic acquisitions and partnerships (including Akbank, Guangdong Bank, Egg, Quilter, Grupo Financiero Uno and Grupo Cuscatlan) that will strengthen our franchises.





Revenues increased 7% from 2005, reaching $89.6 billion. Our international operations recorded revenue growth of 14% in 2006, including an 8% increase in International Consumer, 22% in International CIB and 31% in International GWM.

Revenue growth benefited from increased loan volumes, including corporate loan growth of 29% and consumer loan growth of 13%. Transaction Services assets under custody increased 21% and Global Wealth Management client assets increased 10%.

Net interest revenue grew 1%, as strong growth in interest-earning assets was offset by flat or inverted yield curves in the major economies. Net interest margin in 2006 was 2.65%, down 41 basis points from 2005 (see the discussion of net interest margin on page 81). This spread compression negatively affected the Company’s operating leverage ratios. Non-interest revenue increased 13% from 2005, reflecting fees from higher customer business volumes, as well as increased principal transactions revenues. CIB revenues grew by 14%, reflecting strong performance in Capital Markets and Banking and Transaction Services. Capital Markets and Banking finished the year ranked #1 in equity underwriting and #2 in completed mergers and acquisitions activity.



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Operating expenses increased 15% from the previous year. Expense growth included three points from the adoption of SFAS 123(R) and reflected the absence of a $600 million release from the WorldCom and Litigation Reserve Charge recorded in 2005. Excluding these items, operating expenses increased 10% in 2006, reflecting increased investment spending, the impact of foreign exchange, and an increase in other legal expenses. Investment spending included the addition of Consumer branches and investments in technology.


During the 2006 fourth quarter, Bob Druskin was appointed Chief Operating Officer of the Company. One of Bob’s primary responsibilities is to complete a structural review of our expense base by the end of the first quarter. His review will include an analysis of the structure of the organization, the multiple back offices, the multiple middle offices and separate corporate centers around the Company, with a goal of creating a more efficient and nimbler organization.


During 2006, we continued our focus on disciplined capital allocation and driving returns to our shareholders. Our equity capital base and trust preferred securities grew to $129.4 billion at December 31, 2006. Stockholders’ equity increased by $7.2 billion during 2006 to $119.8 billion, even with the distribution of $9.8 billion in dividends to common shareholders and the repurchase of $7.0 billion of common stock during the year. Citigroup maintained its “well-capitalized” position with a Tier 1 Capital Ratio of 8.59% at December 31, 2006. Return on common equity was 18.8% for 2006. Our total return to shareholders was 19.6% during the year (which represents Citigroup’s stock appreciation assuming the reinvestment of dividends).


The Board of Directors increased the quarterly common dividend by 11% during 2006 and by an additional 10% in January 2007, bringing the current quarterly payout to $0.54 per share. During the year, Moody’s upgraded Citibank, N.A.’s credit rating to “Aaa” from “Aa1”. On February 14, 2007, Standard & Poor’s raised Citigroup’s senior debt credit rating to “AA” from “AA-”. The long-term debt rating on Citibank, N.A. was raised to “AA+” from “AA”.



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The U.S. and international credit environments remained stable; this, as well as significantly lower consumer bankruptcy filings, the absence of the $490 million pretax charge in 2005 related to a change in write-off policy in EMEA consumer, and a shift in consumer loans to products with lower net credit losses, drove a $1.191 billion decrease in credit costs compared to year-ago levels. The Global Consumer loss rate was 1.52%, a 49 basis-point decline from 2005. Corporate cash-basis loans declined 47% from year-ago levels to $535 million.

The effective income tax rate on continuing operations declined to 27.3%, primarily reflecting the $598 million benefit for the resolution of the Federal Tax Audit and a net $237 million tax reserve release related to the resolution of the New York Tax Audits. The effective tax rate for 2006 would have been 30.1% without the tax reserve releases.



Outlook for 2007

We enter 2007 with good business momentum, as we expect to see our investment initiatives generate increasing revenues, and are well-positioned to gain from our balanced approach to growth and competitive advantages.

We expect to continue to achieve growth in loans, deposits and other customer activity resulting from our increased distribution points, expanded product offerings, and the impact from recent targeted acquisitions.

In 2006, our international businesses contributed 43% of our income from continuing operations. We expect to continue to re-weight our revenue mix towards International Consumer, CIB and Global Wealth Management.

Disciplined capital allocation will remain fundamental to our strategic process and we will have a sharp focus on expense management.

Although there may be volatility in our results in any given year, over the long term our revenues are targeted to grow organically at a mid- to high-single-digit rate, with strong expense and credit management driving earnings and earnings per share growth at a faster level. We will seek to augment this growth rate over time through targeted acquisitions.

Credit is broadly stable as 2007 begins; however, we are budgeting for a moderate deterioration of credit in 2007. In addition, the tax benefits we realized in 2006 will not be repeated in 2007, and we anticipate the effective tax rate to return to a more normalized rate of 30% to 31%, not the 27.3% recorded in 2006.

In our Japan Consumer Finance business, we look to break even in 2007.

With our investment spending initiatives, a record number of branches were added in 2006. We are going to moderate our rate of increased investment spending in 2007.

Citigroup’s financial results are closely tied to the external global economic environment. Movements in interest rates and foreign exchange rates present both opportunities and risks for the Company. Weakness in the global economy, credit deterioration, inflation, and geopolitical uncertainty are examples of risks that could adversely impact our earnings.

A detailed review and outlook for each of our business segments and products are included in the discussions that follow, and the risks are more fully discussed on pages 76 to 96.

Certain of the statements above are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See “Forward-Looking Statements” on page 97.



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Comparison of Five-Year Cumulative Total Return

The following graph compares the cumulative total return on Citigroup’s common stock with the S&P 500 Index and the S&P Financial Index over the five-year period extending through December 31, 2006. The graph assumes that $100 was invested on December 31, 2001 in Citigroup’s common stock, the S&P 500 Index and the S&P Financial Index and that all dividends were reinvested.



2002    $ 76.08    $ 77.90    $ 85.37
2003      107.72      100.24      111.86
2004      110.65      111.15      124.06
2005      115.77      116.60      132.03
2006      138.41      135.02      157.36



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Certain of the statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See “Forward-Looking Statements” on page 97.

U.K. Market Expansion


On January 29, 2007, the Company announced the agreement to acquire Egg Banking plc (Egg), the world’s largest pure online bank and one of the U.K.’s leading online financial services providers, from Prudential PLC for approximately $1.127 billion, subject to adjustments at closing. Egg has more than three million customers and offers various financial products and services including online payment and account aggregation services, credit cards, personal loans, savings accounts, mortgages, insurance and investments. The transaction is subject to regulatory approvals and is expected to close before the end of the 2007 second quarter.


On December 13, 2006, the Company announced the agreement to acquire Quilter, a U.K. wealth advisory firm with over $10.9 billion of assets under management, from Morgan Stanley. Quilter has more than 18,000 clients and 300 staff located in 10 offices throughout the U.K., Ireland and the Channel Islands. This transaction, which is subject to U.S. and local country regulatory approvals, is expected to close in the 2007 first quarter. Once closed, its business results will be included in Global Wealth Management.

Purchase of 20% Equity Interest in Akbank

On October 17, 2006, the Company announced its planned purchase of a 20% equity interest in Akbank for approximately $3.1 billion. The transaction closed on January 9, 2007. Akbank, the second-largest privately owned bank by assets in Turkey, is a premier, full-service retail, commercial, corporate and private bank.

Sabanci Holding, a 34% owner of Akbank shares, and its subsidiaries have granted Citigroup a right of first refusal or first offer over the sale of any of their Akbank shares in the future. Subject to certain exceptions, including purchases from Sabanci Holding and its subsidiaries, Citigroup has agreed not to increase its percentage ownership in Akbank.

Strategic Investment and Cooperation Agreement with Guangdong Development Bank

On December 17, 2006, a Citigroup-led consortium acquired an 85.6% stake in Guangdong Development Bank (“GDB”). Citigroup’s share is 20% of GDB and its investment of approximately $725 million will be accounted for under the equity method.

In accordance with the parties’ agreement, Citigroup will have significant management influence at GDB to enhance GDB’s management team and corporate governance standards, instill operational and lending best practices, improve risk management and internal controls, upgrade GDB’s information technology infrastructure, and further develop GDB’s customer service and product offerings.

Central American Acquisitions

Grupo Cuscatlan

On December 13, 2006, Citigroup announced the agreement to acquire the subsidiaries of Grupo Cuscatlan for $1.51 billion in cash and stock from Corporacion UBC Internacional S.A. Grupo Cuscatlan is one of the leading financial groups in Central America, with total assets of $5.4 billion, total

loans of $3.5 billion, and total deposits of $3.4 billion. Grupo Cuscatlan has operations in El Salvador, Guatemala, Costa Rica, Honduras and Panama. This acquisition is subject to U.S. and local country regulatory approvals and is expected to close later in the 2007 first quarter.

Grupo Financiero Uno

On October 27, 2006, Citigroup announced that it had reached a definitive agreement to acquire Grupo Financiero Uno (GFU), the largest credit card issuer in Central America, and its affiliates. The acquisition of GFU, with $2.1 billion in assets, will expand the presence of Citigroup’s Latin America consumer franchise, enhancing its credit card business in the region and establishing a platform for regional growth in Consumer Finance and Retail Banking.

GFU is privately held and has more than one million retail clients, representing 1.1 million credit card accounts, $1.2 billion in credit card receivables and $1.3 billion in deposits in Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama. GFU operates a distribution network of 75 branches and more than 100 mini-branches and points of sale.

This acquisition, which is subject to regulatory approvals in the United States and each of the six countries, is anticipated to close later in the 2007 first quarter.

Sale of Avantel

In November 2006, Citigroup sold its investment in Avantel, a leading long-distance telecom service provider in Mexico, to AXTEL. The transaction resulted in an after-tax gain of $145 million ($234 million pretax) in the 2006 fourth quarter. The investment in Avantel was initially acquired by Citigroup as part of its acquisition of Banamex in 2001 and was subsequently increased with the purchase of an additional stake in 2005.

Repositioning of the Japan Consumer Finance Business

On January 8, 2007, Citigroup announced that it would reposition its consumer finance business in Japan. This decision is the result of changes in the operating environment in the consumer finance business in Japan, and the passage on December 13, 2006, of changes to Japan’s consumer lending laws. The change in law will lower the interest rates permissible on new consumer finance loans by 2010.

In the 2006 fourth quarter, the Company recorded a $375 million after-tax ($581 million pretax) charge to increase reserves for estimated losses resulting from customer refund settlements in the business. This charge was recorded as a reduction to interest revenue on loans. The Company also recorded a $40 million after-tax ($60 million pretax) repositioning charge for costs associated with closing approximately 270 branches and 100 automated loan machines. This repositioning is consistent with the company’s efforts to establish a lower-cost platform for the business and will enable it to compete more effectively in the new interest rate environment in Japan.

Finalizing the 2005 Sale of Asset Management Business

On December 1, 2005, the Company sold substantially all of its Asset Management Business to Legg Mason Inc. (Legg Mason) in exchange for Legg Mason’s broker-dealer and capital markets businesses, $2.298 billion of Legg Mason’s common and preferred shares (valued as of the closing date), and $500 million in cash. This cash was obtained via a lending facility provided by Citigroup CIB business. The transaction did not include



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Citigroup’s asset management business in Mexico, its retirement services business in Latin America (both of which are included in International Retail Banking) or its interest in the CitiStreet joint venture (which is included in Smith Barney). The total value of the transaction at the time of closing was approximately $4.369 billion, resulting in an after-tax gain for Citigroup of approximately $2.082 billion ($3.404 billion pretax), which was reported in discontinued operations.

Concurrent with this sale, the Company sold Legg Mason’s capital markets business to Stifel Financial Corp. (The transactions described in the above two paragraphs are referred to as the “Sale of the Asset Management Business.”)

With the receipt of Legg Mason’s broker-dealer business, the Company added 1,226 financial advisors in 124 branch offices to its Global Wealth Management business.

During March 2006, the Company sold 10.3 million shares of Legg Mason stock through an underwritten public offering. The net sale proceeds of $1.258 billion resulted in a pretax gain of $24 million in Alternative Investments.

In September 2006, the Company received from Legg Mason the final closing adjustment payment related to this sale. This payment resulted in an additional after-tax gain of $51 million ($83 million pretax), recorded in discontinued operations.

Additional information can be found in Note 3 to the Consolidated Financial Statements on page 118.

Resolution of Tax Audits

New York State and New York City

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

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


In March 2006, the Company received a notice from the Internal Revenue Service (IRS) that they had concluded the tax audit for the years 1999 through 2002 (referred to hereinafter as the “resolution of the Federal Tax Audit”). For the 2006 first quarter, the Company released a total of $657 million from its tax contingency reserves related to the resolution of the Federal Tax Audit.

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


In millions of dollars   New York City
and New York
State Audits




Global Consumer

  $ 79    $ 290    $ 369

Corporate and Investment Banking

    116      176      292

Global Wealth Management

    34      13      47

Alternative Investments

         58      58


    8      61      69

Continuing Operations

  $ 237    $ 598    $ 835

Discontinued Operations

  $ 17    $ 59    $ 76


  $ 254    $ 657    $ 911


Finalizing the 2005 Sale of Travelers Life & Annuity

On July 1, 2005, the Company sold Citigroup’s Travelers Life & Annuity and substantially all of Citigroup’s international insurance businesses to MetLife. The businesses sold were the primary vehicles through which Citigroup engaged in the Life Insurance and Annuities business. This transaction encompassed Travelers Life & Annuity’s U.S. businesses and its international operations, other than Citigroup’s life insurance business in Mexico (which is now included within International Retail Banking). (This transaction is referred to hereinafter as the “Sale of the Life Insurance and Annuities Business”).

At closing, Citigroup received $1.0 billion in MetLife equity securities and $10.830 billion in cash, which resulted in an after-tax gain of approximately $2.120 billion ($3.386 billion pretax), which was included in discontinued operations.

In July 2006, Citigroup recognized an $85 million after-tax gain from the sale of MetLife shares. This gain was reported within Income from continuing operations in the Alternative Investments business.

In July 2006, the Company received the final closing adjustment payment related to this sale, resulting in an after-tax gain of $75 million ($115 million pretax), which was recorded in discontinued operations.

Additional information can be found in Note 3 to the Consolidated Financial Statements on page 118.

Sale of Upstate New York Branches

On June 30, 2006, Citigroup sold the Upstate New York Financial Center Network, consisting of 21 branches in Rochester, N.Y., and Buffalo, N.Y. to M&T Bank (referred to hereinafter as the “Sale of New York Branches”). Citigroup received a premium on deposit balances of approximately $1 billion. An after-tax gain of $92 million ($163 million pretax) was recognized in the 2006 second quarter.

Acquisition of Federated Credit Card Portfolio and Credit Card Agreement With Federated Department Stores

In June 2005, Citigroup announced a long-term agreement with Federated Department Stores, Inc. (Federated) under which the companies partner to acquire and manage approximately $6.2 billion of Federated’s credit card receivables, including existing and new accounts, executed in three phases.

For the first phase, which closed in October 2005, Citigroup acquired Federated’s receivables under management, totaling approximately $3.3 billion. For the second phase, which closed in May 2006, additional Federated receivables totaling approximately $1.9 billion were transferred to Citigroup from the previous provider. For the final phase, in July 2006, Citigroup acquired the approximately $1.0 billion credit card receivable portfolio of The May Department Stores Company (May), which merged with Federated.

Citigroup paid a premium of approximately 11.5% to acquire these portfolios. The multi-year agreement also provides Federated the ability to participate in the portfolio performance, based on credit sales and certain other performance metrics.

The Federated and May credit card portfolios comprise a total of approximately 17 million active accounts.

MasterCard Initial Public Offering

In June 2006, MasterCard conducted a series of transactions consisting of: (i) an IPO of new Class A stock, (ii) an exchange of its old Class A stock held by its member banks for shares of its new Class B and Class M stocks, and



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(iii) a partial redemption of the new Class B stock held by the member banks. Citigroup, as one of MasterCard’s member banks, received 4,946,587 shares of Class B stock, 48 shares of Class M stock, and $123 million in cash as a result of these transactions. An after-tax gain of $78 million ($123 million pretax) was recognized in the 2006 second quarter related to the cash redemption of shares.

Consolidation of Brazil’s CrediCard

In April 2006, Citigroup and Banco Itau dissolved their joint venture in CrediCard, a Brazilian consumer credit card business. In accordance with the dissolution agreement, Banco Itau received half of CrediCard’s assets and customer accounts in exchange for its 50% ownership, leaving Citigroup as the sole owner of CrediCard.

Adoption of the Accounting for Share-Based Payments

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

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

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


In millions of dollars   2006 First Quarter

Global Consumer

  $ 121

Corporate and Investment Banking


Global Wealth Management


Alternative Investments





  $ 648

The following table summarizes the quarterly SFAS 123(R) impact on 2006 pretax compensation expense (and after-tax impact) for the quarterly accrual of the estimated stock awards that were granted in January 2007:


In millions of dollars   Pretax    After-tax

First quarter 2006

  $ 198    $ 122

Second quarter 2006

    168      104

Third quarter 2006

    195      127

Fourth quarter 2006

    263      173

Total 2006

  $ 824    $ 526

The Company changed the plan’s retirement eligibility for the January 2007 management awards, which affected the amount of the accrual in the 2006 second, third and fourth quarters.

Additional information can be found in Notes 1 and 8 to the Consolidated Financial Statements on pages 129 and 142, respectively.


Credit Reserves

During the year ended December 31, 2006, the Company recorded a net release/utilization of its credit reserves of $356 million, consisting of a net release/utilization of $626 million in Global Consumer and a net build of $270 million in CIB. The net release/utilization in Global Consumer was primarily due to lower bankruptcy filings, a stable credit environment in the U.S. Consumer portfolio and International portfolio and a release of approximately $200 million related to Hurricane Katrina. Partially offsetting the net releases were builds in Mexico, primarily driven by target market expansion in Cards, Taiwan, due to the impact of industry-wide credit condition in Cards, and Japan, related to the changes in the consumer lending environment (see discussion on page 28).

The net build of $270 million in CIB was primarily comprised of $261 million in Capital Markets and Banking, which included a $232 million reserve increase for unfunded lending commitments during the year. The net build reflected growth in loans and unfunded commitments and a change in credit rating of certain counterparties in certain industries.



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Change in EMEA Consumer Write-off Policy

Prior to the third quarter of 2005, certain Western European consumer portfolios were granted an exception to Citigroup’s global write-off policy. The exception extended the write-off period from the standard 120-day policy for personal installment loans, and was granted because of the higher recovery rates experienced in these portfolios. During 2005, Citigroup observed lower actual recovery rates, stemming primarily from a change in bankruptcy and wage garnishment laws in Germany and, as a result, rescinded the exception to the global standard. The net charge was $332 million ($490 million pretax) resulting from the recording of $1.153 billion of write-offs and a corresponding utilization of $663 million of reserves in the 2005 third quarter.

These write-offs did not relate to a change in the portfolio credit quality but rather to a change in environmental factors due to law changes and consumer behavior that led Citigroup to re-evaluate its estimates of future long-term recoveries and their appropriateness to the write-off exception.

Hurricane Katrina

In the 2005 third quarter, the Company recorded a $222 million after-tax charge ($357 million pretax) for the estimated probable losses incurred from Hurricane Katrina. This charge consisted primarily of additional credit costs in U.S. Cards, U.S. Commercial Business, U.S. Consumer Lending and U.S. Retail Distribution businesses, based on total credit exposures of approximately $3.6 billion in the Federal Emergency Management Agency (FEMA) Individual Assistance designated areas. This charge did not include an after-tax estimate of $75 million ($109 million pretax) for fees and interest due from related customers that were waived during 2005. Since the 2005 third quarter, approximately $241 million of these reserves were utilized or released.

United States Bankruptcy Legislation

On October 17, 2005, the Bankruptcy Reform Act (or the Act) became effective. The Act imposed a means test to determine if people who file for Chapter 7 bankruptcy earn more than the median income in their state and could repay at least $6,000 of unsecured debt over five years. Bankruptcy filers who meet this test are required to enter into a repayment plan under Chapter 13, instead of canceling their debt entirely under Chapter 7. As a result of these more stringent guidelines, bankruptcy claims accelerated prior to the effective date. The incremental bankruptcy losses over the Company’s estimated baseline in 2005 that was attributable to the Act in U.S. Cards business was approximately $970 million on a managed basis ($550 million in the Company’s on-balance portfolio and $420 million in the securitized portfolio). In addition, the U.S. Retail Distribution business incurred incremental bankruptcy losses of approximately $90 million during 2005.

Bank and Credit Card Customer Rewards Costs

During the 2005 fourth quarter, the Company conformed its global policy approach for the accounting of rewards costs for bank and credit card customers. Conforming the global policy resulted in the write-off of $354 million after-tax ($565 million pretax) of unamortized deferred rewards costs. Previously, accounting practices for these costs varied across the Company. The revised policy requires all businesses to recognize rewards costs as incurred.


Sale of Nikko Cordial Stake

On December 20, 2005, Citigroup reduced its stake in Nikko Cordial from approximately 11.2% to 4.9%. The sale resulted in an after-tax gain of $248 million ($386 million pretax). In connection with this sale, Nikko Cordial and Citigroup each contributed an additional approximately $175 million to their joint venture, Nikko Citigroup Limited.

Sale of the Merchant Acquiring Businesses

In December 2005, Citigroup sold its European merchant acquiring business to EuroConex for $127 million. This transaction resulted in a $62 million after-tax gain ($98 million pretax).

In September 2005, Citigroup sold its U.S. merchant acquiring business, Citigroup Payment Service Inc., to First Data Corporation for $70 million, resulting in a $41 million after-tax gain ($61 million pretax).

Homeland Investment Act Benefit

The Company’s 2005 full-year results from continuing operations include a $198 million tax benefit from the Homeland Investment Act provision of the American Jobs Creation Act of 2004, net of the impact of remitting income earned in 2005 and prior years that would otherwise have been indefinitely invested overseas. The amount of dividends that were repatriated relating to this benefit is approximately $3.2 billion.

Copelco Litigation Settlement

In 2000, Citigroup purchased Copelco Capital, Inc., a leasing business, from Itochu International Inc. and III Holding Inc. (formerly known as Copelco Financial Services Group, Inc., collectively referred to herein as “Itochu”) for $666 million. During 2001, Citigroup filed a lawsuit asserting breach of representations and warranties, among other causes of action, under the Stock Purchase Agreement entered into between Citigroup and Itochu in March of 2000. During the 2005 third quarter, Citigroup and Itochu signed a settlement agreement that mutually released all claims, and under which Itochu paid Citigroup $185 million which was recorded in pretax income.

Mexico Value Added Tax (VAT) Refund

During the 2005 third quarter, Citigroup Mexico received a $182 million refund of VAT taxes from the Mexican Government related to the 2003 and 2004 tax years as a result of a Mexico Supreme Court ruling. The refund was recorded as a reduction of $140 million (pretax) in other operating expense and $42 million (pretax) in other revenue.

Settlement of Enron Class Action Litigation

As described in the “Legal Proceedings” discussion on page 169, during the 2005 second quarter, Citigroup settled class action litigation brought on behalf of purchasers of Enron securities.

Settlement of the Securities and Exchange Commission’s Transfer Agent Investigation

On May 31, 2005, the Company completed the settlement with the Securities and Exchange Commission (SEC), disclosed by Citigroup in January 2005, resolving an investigation by the SEC into matters relating to arrangements between certain Smith Barney mutual funds (the Funds), an affiliated transfer agent, and an unaffiliated sub-transfer agent.

Under the terms of the settlement, Citigroup paid a total of $208 million, consisting of $128 million in disgorgement and $80 million in penalties. These funds, less $24 million already credited to the Funds, have been paid to the U.S. Treasury and will be distributed pursuant to a distribution plan prepared by Citigroup and to be approved by the SEC. The terms of the settlement had been fully reserved by Citigroup in prior periods.



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Merger of Bank Holding Companies

On August 1, 2005, Citigroup merged its two intermediate bank holding companies, Citigroup Holdings Company and Citicorp, into Citigroup Inc. Coinciding with this merger, Citigroup assumed all existing indebtedness and outstanding guarantees of Citicorp.

During the 2005 second quarter, Citigroup also consolidated its capital markets funding activities into two legal entities: (i) Citigroup Inc., which issues long-term debt, trust preferred securities, and preferred and common stock, and (ii) Citigroup Funding Inc. (CFI), a first-tier subsidiary of Citigroup, which issues commercial paper, medium-term notes and structured equity-linked and credit-linked notes, all of which is guaranteed by Citigroup.

As part of the funding consolidation, Citigroup also guaranteed and continues to guarantee various debt obligations of Citigroup Global Markets Holdings Inc. (CGMHI) as well as all of the outstanding debt obligations under CGMHI’s publicly-issued securities. CGMHI no longer files periodic reports with the SEC and continues to be rated on the basis of a guarantee of its financial obligations from Citigroup.

Repositioning Charges

The Company recorded a $272 million after-tax ($435 million pretax) charge during the 2005 first quarter for repositioning costs. The repositioning charges were predominantly severance-related costs recorded in CIB ($151 million after-tax) and in Global Consumer ($95 million after-tax). These repositioning actions were consistent with the Company’s objectives of controlling expenses while continuing to invest in growth opportunities.

Resolution of Glendale Litigation

During the 2005 first quarter, the Company recorded a $72 million after-tax gain ($114 million pretax) following the resolution of Glendale Federal Bank v. United States, an action brought by Glendale Federal Bank.

Acquisition of First American Bank

On March 31, 2005, Citigroup completed the acquisition of First American Bank in Texas (FAB). The transaction established Citigroup’s retail branch presence in Texas, giving Citigroup 106 branches, $4.2 billion in assets and approximately 120,000 new customers in the state at the time of the transaction’s closing. The results of FAB are included in the Consolidated Financial Statements from March 2005 forward.

Divestiture of the Manufactured Housing Loan Portfolio

On May 1, 2005, Citigroup completed the sale of its manufactured housing loan portfolio, consisting of $1.4 billion in loans, to 21st Mortgage Corp. The Company recognized a $109 million after-tax loss ($157 million pretax) in the 2005 first quarter related to the divestiture.

Divestiture of CitiCapital’s Transportation Finance Business

On January 31, 2005, the Company completed the sale of CitiCapital’s Transportation Finance Business based in Dallas and Toronto to GE Commercial Finance for total cash consideration of approximately $4.6 billion. The sale resulted in an after-tax gain of $111 million ($161 million pretax).


Shutdown of the Private Bank in Japan and Related Charge and Other Activities in Japan

On September 29, 2005, the Company officially closed its Private Bank business in Japan.

In September 2004, the Financial Services Agency of Japan (FSA) issued an administrative order against Citibank Japan. This order included a requirement that Citigroup exit all private banking operations in Japan by September 30, 2005. In connection with this required exit, the Company established a $400 million ($244 million after-tax) reserve (the Exit Plan Charge) during the 2004 fourth quarter.

The Company’s Private Bank operations in Japan had total revenues, net of interest expense, of $200 million and net income of $39 million (excluding the Exit Plan Charge) during the year ended December 31, 2004, and $264 million and $83 million, respectively, for 2003.

On October 25, 2004, Citigroup announced its decision to wind down Cititrust and Banking Corporation (Cititrust), a licensed trust bank in Japan, after concluding that there were internal control, compliance and governance issues in that subsidiary. On April 22, 2005, the FSA issued an administrative order requiring Cititrust to suspend from engaging in all new trust business in 2005. Cititrust closed all customer accounts in 2005.



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Settlement of WorldCom Class Action Litigation and Charge for Regulatory and Legal Matters

During the 2004 second quarter, Citigroup recorded a charge of $4.95 billion after-tax ($7.915 billion pretax) related to a settlement of class action litigation brought on behalf of purchasers of WorldCom securities and an increase in litigation reserves.

Sale of Samba Financial Group

On June 15, 2004, the Company sold, for cash, its 20% equity investment in The Samba Financial Group (Samba, formerly known as the Saudi American Bank), to the Public Investment Fund, a Saudi public sector entity. Citigroup recognized an after-tax gain of $756 million ($1.168 billion pretax) on the sale during the 2004 second quarter. The gain was shared equally between Global Consumer and CIB.

Acquisition of KorAm Bank

On April 30, 2004, Citigroup completed its tender offer to purchase all of the outstanding shares of KorAm Bank (KorAm) at a price of KRW 15,500 per share in cash. In total, Citigroup has acquired 99.9% of KorAm’s outstanding shares for a total of KRW 3.14 trillion ($2.7 billion). The results of KorAm are included in the Consolidated Financial Statements from May 2004 forward.


Divestiture of Electronic Financial Services Inc.

During January 2004, the Company completed the sale for cash of Electronic Financial Services Inc. (EFS) for $390 million. EFS is a provider of government-issued benefit payments and prepaid stored-value cards used by state and federal government agencies, as well as stored-value services for private institutions. The sale of EFS resulted in an after-tax gain of $180 million ($255 million pretax) in the 2004 first quarter.

Acquisition of Washington Mutual Finance Corporation

On January 9, 2004, Citigroup completed the acquisition of Washington Mutual Finance Corporation (WMF) for $1.25 billion in cash. WMF was the consumer finance subsidiary of Washington Mutual, Inc. WMF provides direct consumer installment loans and real-estate-secured loans, as well as sales finance and the sale of insurance. The acquisition included 427 WMF offices located in 26 states, primarily in the Southeastern and Southwestern United States, and total assets of $3.8 billion. Citigroup has guaranteed all outstanding unsecured indebtedness of WMF in connection with this acquisition. The results of WMF are included in the Consolidated Financial Statements from January 2004 forward.



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The Notes to the Consolidated Financial Statements on page 109 contain a summary of the Company’s significant accounting policies, including a discussion of recently issued accounting pronouncements. These policies, as well as estimates made by management, are integral to the presentation of the Company’s financial condition. It is important to note that they require management to make difficult, complex or subjective judgments and estimates, at times, regarding matters that are inherently uncertain. Management has discussed each of these significant accounting policies, the related estimates and its judgments with the Audit and Risk Management Committee of the Board of Directors. Additional information about these policies can be found in Note 1 to the Consolidated Financial Statements on page 109.

Certain statements below are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See “Forward-Looking Statements” on page 97.

Valuations of Financial Instruments

The Company holds fixed income and equity securities, derivatives, investments in private equity and other financial instruments. The Company holds its investments and trading assets and liabilities on the balance sheet to meet customer needs, to manage liquidity needs and interest rate risks, and for proprietary trading and private equity investing.

Substantially all of these assets and liabilities are reflected at fair value on the Company’s balance sheet. Fair values are considered verified if they meet one of the following criteria:



Externally substantiated via comparison to quoted market prices or third-party broker quotations;


By using models that are validated by qualified personnel independent of the area that created the model and inputs that are verified by comparison to third-party broker quotations or other third-party sources where available; or


By using alternative procedures such as comparison to comparable securities and/or subsequent liquidation prices.

At December 31, 2006 and 2005, respectively, approximately 94.9% and 94.5% of the available-for-sale and trading portfolios’ gross assets and liabilities (prior to netting positions pursuant to FIN 39 and excluding Global Consumer’s credit card and mortgage securitization interest-only strips) are considered verified and approximately 5.1% and 5.5% are considered unverified. Of the unverified assets, at December 31, 2006 and 2005, respectively, approximately 50.3% and 60.6% consist of cash products, where independent quotes were not available and/or alternative procedures were not feasible, and 49.7% and 39.4% consist of derivative products where either the model was not validated and/or the inputs could not be substantiated due to the lack of appropriate market quotations. Such values are actively reviewed by management.

Changes in the valuation of the trading assets and liabilities flow through the income statement. Changes in the valuation of available-for-sale assets generally flow through other comprehensive income, which is a component of equity on the balance sheet. A full description of the Company’s related policies and procedures can be found in Notes 1, 14 and 15 to the Consolidated Financial Statements on pages 129, 153, and 154, respectively.


Allowance for Credit Losses

Management provides reserves for an estimate of probable losses inherent in the funded loan portfolio on the balance sheet in the form of an allowance for credit losses. In addition, management has established and maintained reserves for the potential losses related to the Company’s off-balance sheet exposures of unfunded lending commitments, including standby letters of credit and guarantees. These reserves are established in accordance with Citigroup’s Loan Loss Reserve Policies, as approved by the Audit Committee of the Company’s Board of Directors. Under these policies, the Company’s Senior Risk Officer and Chief Financial Officer review the adequacy of the credit loss reserves each quarter with representatives from Risk and Finance staffs for each applicable business area.

During these reviews, these above-mentioned representatives covering the business area having classifiably-managed portfolios (that is, portfolios where internal credit-risk ratings are assigned, which are primarily Corporate and Investment Banking, Global Consumer’s commercial lending businesses, and Global Wealth Management) present recommended reserve balances for their funded and unfunded lending portfolios along with supporting quantitative and qualitative data. The quantitative data include:



Estimated probable losses for non-performing, non-homogeneous exposures within a business line’s classifiably-managed portfolio. Consideration is given to all available evidence when determining this estimate including, as appropriate: (i) the present value of expected future cash flows discounted at the loan’s contractual effective rate; (ii) the borrower’s overall financial condition, resources and payment record; and (iii) the prospects for support from financially responsible guarantors or the realizable value of any collateral.


Statistically calculated losses inherent in the classifiably-managed portfolio for performing and de minimis non-performing exposures. The calculation is based upon: (i) Citigroup’s internal system of credit-risk ratings, which are analogous to the risk ratings of the major rating agencies; (ii) the Corporate portfolio database; and (iii) historical default and loss data, including rating agency information regarding default rates from 1983 to 2005, and internal data, dating to the early 1970s, on severity of losses in the event of default.


Additional adjustments include: (i) statistically calculated estimates to cover the historical fluctuation of the default rates over the credit cycle, the historical variability of loss severity among defaulted loans, and the degree to which there are large obligor concentrations in the global portfolio; and (ii) adjustments made for specifically known items, such as current environmental factors and credit trends.

In addition, representatives from both the Risk Management and Finance Staffs that cover business areas which have delinquency-managed portfolios containing smaller homogeneous loans (primarily Global Consumer’s non-commercial lending areas) present their recommended reserve balances based upon historical delinquency flow rates, charge-off statistics and loss severity. This methodology is applied separately for each individual product within each different geographic region in which these portfolios exist. Adjustments are also made for specifically known items, such as changing regulations, current environmental factors and credit trends.



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This evaluation process is subject to numerous estimates and judgments. The frequency of default, risk ratings, loss recovery rates, the size and diversity of individual large credits, and the ability of borrowers with foreign currency obligations to obtain the foreign currency necessary for orderly debt servicing, among other things, are all taken into account during this review. Changes in these estimates could have a direct impact on the credit costs in any quarter and could result in a change in the allowance. Changes to the reserve flow through the income statement on the lines “provision for loan losses” and “provision for unfunded lending commitments.” For a further description of the loan loss reserve and related accounts, see Notes 1 and 17 to the Consolidated Financial Statements on pages 129 and 157, respectively.


The Company securitizes a number of different asset classes as a means of strengthening its balance sheet and to access competitive financing rates in the market. Under these securitization programs, assets are sold into a trust and used as collateral by the trust to access financing. The cash flows from assets in the trust service the corresponding trust securities. If the structure of the trust meets stringent accounting guidelines, trust assets are treated as sold and no longer reflected as assets of the Company. If these guidelines are not met, the assets continue to be recorded as the Company’s assets, with the financing activity recorded as liabilities on Citigroup’s balance sheet. The Financial Accounting Standards Board (FASB) is currently working on amendments to the accounting standards governing asset transfers and securitization accounting. Upon completion of these standards the Company will need to re-evaluate its accounting and disclosures. Due to the FASB’s ongoing deliberations, the Company is unable to accurately determine the effect of future amendments at this time.

The Company assists its clients in securitizing their financial assets and also packages and securitizes financial assets purchased in the financial markets. The Company may also provide administrative, asset management, underwriting, liquidity facilities and/or other services to the resulting securitization entities, and may continue to service these financial assets.

A complete description of the Company’s accounting for securitized assets can be found in “Off-Balance Sheet Arrangements” on page 92 and in Notes 1 and 22 to the Consolidated Financial Statements on pages 109 and 143, respectively.


Income Taxes

The Company is subject to the Income tax laws of the U.S, its states and municipalities and those of the foreign jurisdictions in which the Company operates. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In establishing a provision for income tax expense, the Company must make judgments and interpretations about the application of these inherently complex tax laws. The Company must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions, both domestic and foreign.

Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit.

The Company reviews these balances quarterly and as new information becomes available, the balances are adjusted, as appropriate.

The Company is in the process of implementing FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions, and which will be effective as of January 1, 2007. See Note 1 to the Consolidated Financial Statements on page 109.

See Note 10 to the Consolidated Financial Statements on page 130 for a further description of the Company’s provision and related income tax assets and liabilities.

Legal Reserves

The Company is subject to legal, regulatory and other proceedings and claims arising from conduct in the ordinary course of business. These proceedings include actions brought against the Company in its various roles, including acting as a lender, underwriter, broker-dealer or investment advisor. Reserves are established for legal and regulatory claims based upon the probability and estimability of losses and to fairly present, in conjunction with the disclosures of these matters in the Company’s financial statements and SEC filings, management’s view of the Company’s exposure. The Company reviews outstanding claims with internal as well as external counsel to assess probability and estimates of loss. The risk of loss is reassessed as new information becomes available and reserves are adjusted, as appropriate. The actual cost of resolving a claim may be substantially higher, or lower, than the amount of the recorded reserve. See Note 27 to the Consolidated Financial Statements on page 155 and the discussion of “Legal Proceedings” beginning on page 169.

Accounting Changes and Future Application of Accounting Standards

See Note 1 to the Consolidated Financial Statements on page 109 for a discussion of Accounting Changes and the Future Application of Accounting Standards.



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



In millions of dollars   2006     2005 (1)      2004 (1)     

% Change

2006 vs. 2005


% Change

2005 vs. 2004


Global Consumer


U.S. Cards

  $ 3,890     $ 2,754      $ 3,562      41 %   (23 )%

U.S. Retail Distribution

    2,027       1,752        2,019      16