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Citigroup 10-Q 2008 Documents found in this filing:QuickLinks -- Click here to rapidly navigate through this document
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
Commission file number 1-9924 Citigroup Inc.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Common stock outstanding as of March 31, 2008: 5,249,833,103 Available on the Web at www.citigroup.com
Citigroup Inc.
2 Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company) is a global diversified 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. This quarterly report on Form 10-Q should be read in conjunction with Citigroup's 2007 Annual Report on Form 10-K. Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Financial Supplement that was filed as Exhibit 99.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission (SEC) on Apri1 18, 2008. 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 www.citigroup.com. 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 "All SEC Filings." The Securities and Exchange Commission (SEC) Web site contains reports, proxy and information statements, and other information regarding the Company at www.sec.gov. Citigroup was managed along the following segment and product lines through the first quarter of 2008:
The following are the six regions in which Citigroup operates. The regional results are fully reflected in the product results.
3 CITIGROUP INC. AND SUBSIDIARIES SUMMARY OF SELECTED FINANCIAL DATA
Certain statements in this Form 10-Q, including, but not limited to, statements made in "Management's Discussion and Analysis," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's 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 including, but not limited to, those described in Citigroup's 2007 Annual Report on Form 10-K under "Risk Factors" beginning on page 38. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS FIRST QUARTER OF 2008 MANAGEMENT SUMMARY Citigroup reported a $5.1 billion net loss ($1.02 per share) for the first quarter of 2008. The first quarter results were driven by two main factors: write-downs and losses related to the continued disruption in the fixed income markets and higher U.S. consumer credit costs. Results also include a $661 million pretax gain on the sale of Redecard shares and a $633 million increase to pretax earnings for Visa-related items. Revenues were $13.2 billion, down 48% from a year ago, primarily as a result of a $13.4 billion decrease in CMB revenues, including $6.0 billion in write-downs and credit costs on subprime-related direct exposures, write-downs of $3.1 billion (net of underwriting fees) on funded and unfunded highly leveraged financing commitments, a downward credit value adjustment of $1.5 billion related to exposure to monoline insurers, and write-downs of $1.5 billion on auction rate securities inventory and $1.0 billion on Alt-A mortgage securities. International Consumer revenues were up 33% and International Global Wealth Management (GWM) revenues more than doubled, reflecting double-digit organic growth and results from Nikko Cordial. U.S. Consumer revenues were up 3% from the prior year, while Alternative Investments recorded negative revenues of $358 million. Transaction Services had another record quarter, with revenues up 42%. Customer volume growth was strong, with average loans up 17%, average deposits up 16%, and average interest-earning assets up 10%. International Cards purchase sales were up 41%, while U.S. Cards sales were up 4%. In GWM, client assets under fee-based management were up 15%. Net interest revenue increased 27% from last year, reflecting volume increases across most products. Net interest margin (NIM) in the first quarter of 2008 was 2.83%, up 36 basis points from the first quarter of 2007, reflecting significantly lower cost of funding, partially offset by a decrease in asset yields related to the decrease in the fed funds rate. (See discussion of NIM on page 33). Operating expenses increased 4% from the first quarter of 2007 (foreign exchange translation accounted for 3%). The major components of the change are $622 million in repositioning charges related to our re-engineering plan, a $250 million reserve related to an offer to facilitate GWM clients' liquidation from a specific Citi-managed fund, a $202 million write-down on the multi-strategy hedge fund intangible asset related to Old Lane and the impact of acquisitions. Partially offsetting these items were the $166 million Visa-related litigation reserve release and a $282 million benefit resulting from a legal vehicle restructuring in our Mexico business. The first quarter of 2007 included a $1.4 billion restructuring charge related to our Structural Expense Initiatives review. Expenses were down 2% from the fourth quarter of 2007. During the first quarter of 2008, the Company recorded a net build of $1.9 billion to its credit reserves. The build consisted of $1.8 billion in Global Consumer ($1.4 billion in U.S. Consumer and $424 million in International Consumer) and $148 million in Markets & Banking. The Global Consumer loss rate was 2.50%, an 81 basis-point increase from the first quarter of 2007. Corporate cash-basis loans increased $1.5 billion from year-ago levels. The effective tax rate (benefit) of (43)% in the first quarter of 2008 primarily resulted from the pretax losses in the Company's S&B business taxed in the U.S. (the U.S. is a higher tax jurisdiction). In addition, the tax benefits of permanent differences, including the tax benefit for not providing U.S. income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested, favorably affected the Company's effective tax rate. Our stockholders' equity and trust preferred securities were $152.2 billion at March 31, 2008, reflecting preferred stock issuances of $19.4 billion during the quarter. We distributed $1.7 billion in common dividends to shareholders during the quarter. Citigroup maintained its "well-capitalized" position with a Tier 1 Capital Ratio of 7.74% at March 31, 2008. We raised an additional $6.0 billion of capital through a preferred stock issuance on April 28, 2008 and sold approximately $4.9 billion of common stock (scheduled to close on May 5, 2008), which includes the over-allotment option that was exercised on May 1, 2008. On a pro forma basis, taking into account the issuances of this preferred and common stock, the Company's March 31, 2008 Tier 1 Capital ratio would have been approximately 8.7%. On March 31, 2008, we announced a comprehensive reorganization of Citigroup's organizational structure to achieve greater client focus and connectivity, global product excellence, and clear accountability. The new organizational structure will allow us to focus resources towards growth in emerging and developed markets and improve efficiencies throughout the Company. 5 EVENTS IN 2008 Write-Downs on Subprime-Related Direct Exposures During the first quarter of 2008, the Company's S&B business recorded unrealized losses of $6.0 billion pretax, net of hedges, on its subprime-related direct exposures. The Company's remaining $29.1 billion in U.S. subprime net direct exposure in S&B at March 31, 2008 consisted of (a) approximately $22.7 billion of net exposures to the super senior tranches of collateralized debt obligations, which are collateralized by asset-backed securities, derivatives on asset-backed securities or both and (b) approximately $6.4 billion of subprime-related exposures in its lending and structuring business. See "Exposure to U.S. Residential Real Estate" on page 22 for a further discussion of such exposures and the associated losses recorded during the first quarter of 2008. Write-Downs on Highly Leveraged Loans and Financing Commitments Due to the continued dislocation of the credit markets and the reduced market interest in higher risk/higher yield instruments that began during the second half of 2007, liquidity in the market for highly leveraged financings has declined significantly. Citigroup's exposure to highly leveraged financings totaled $38 billion at March 31, 2008 ($21 billion in funded and $17 billion in unfunded commitments). This compares to total exposure of $43 billion ($22 billion in funded and $21 billion in unfunded commitments) at December 31, 2007. During the first quarter of 2008, the Company recorded a $3.1 billion pretax write-down on these exposures, net of underwriting fees. Since March 31, 2008, the Company transferred approximately $12 billion of loans to third parties, of which $8.5 billion relates to the highly leveraged loans and commitments. This structure allows Citigroup to lock in the sales proceeds and significantly reduces further downside price risk associated with these commitments. See "Highly Leveraged Financing Commitments" on page 56 for further discussion. Write-Downs on Monoline Insurers During the first quarter of 2008, Citigroup recorded pretax write-downs on credit market value adjustments (CMVA) of $1.5 billion on its exposure to monoline insurers. The CMVA is calculated by applying the counterparty's current credit spread to the expected exposure on the trade. The majority of those receivables relate to hedges on super senior positions that were executed with various monoline insurance companies. During the quarter, credit spreads on monoline insurers continued to widen and expected exposures increased. See "Direct Exposure to Monolines" on page 24 for a further discussion. Write-downs on Auction Rate Securities As of March 31, 2008 the Company reported $6.5 billion of auction rate securities classified as Trading assets. During the first quarter of 2008, S&B recorded $1.5 billion of pretax write-downs on auction rate securities, primarily due to failed auctions as liquidity diminished because of deterioration in the credit markets. Write-downs on Alt-A Mortgage Securities in S&B During the first quarter of 2008, Citigroup recorded pretax losses of approximately $1.0 billion, net of hedges, on Alt-A mortgage securities held in S&B. For these purposes, Alt-A mortgage securities are non-agency residential mortgage-backed securities (RMBS) where: (1) the underlying collateral has weighted average FICO scores between 680 and 720 or, (2) for instances where FICO scores are greater than 720, RMBS have 30% or less of the underlying collateral comprised of full documentation loans. The Company had $18 billion in Alt-A mortgage securities carried at fair value at March 31, 2008 in S&B, which decreased from $22 billion at December 31, 2007. Of the $18 billion, $4.7 billion was classified as Trading assets, on which $900 million of fair value write-downs, net of hedging, were recorded in earnings, and $13.6 billion were classified as available-for-sale investments, on which $120 million of write-downs were recorded in earnings due to other than temporary impairments. In addition, $2.0 billion of pretax fair value write-downs were recorded in Accumulated Other Comprehensive Income (OCI). Write-Downs on Commercial Real Estate Exposures S&B's commercial real estate exposure can be split into three categories: assets held at fair value, loans and commitments, and equity and other investments. For the assets held at fair value, (which includes a $2 billion portfolio of available-for-sale securities), Citigroup recorded a $600 million of fair value write-downs, net of hedges, during the first quarter of 2008. See page 24 for a discussion of Citigroup's exposure to commercial real estate. Credit Reserves During the first quarter of 2008, the Company recorded a net build of $1.9 billion to its credit reserves. The build consisted of $1.8 billion in Global Consumer ($1.4 billion in U.S. Consumer and $424 million in International Consumer) and $148 million in Markets & Banking. The $1.4 billion build in U.S. Consumer primarily reflected a weakening of leading credit indicators, including higher delinquencies on first and second mortgages, unsecured personal loans, credit cards and auto loans. Reserves also increased due to trends in the U.S. macro-economic environment, including the housing market downturn and rising unemployment rates, as well as portfolio growth. The $424 million build in International Consumer was primarily driven by Mexico and India cards and India consumer finance, as well as by acquisitions and portfolio growth. The build of $148 million in Markets & Banking primarily reflected an increase for specific counterparties. Visa Restructuring and Litigation Matters During the first quarter of 2008, Citigroup recorded a $633 million increase to pretax income resulting from events surrounding Visa. These events include (1) a $359 million gain on the redemption of Visa shares primarily recorded in U.S. Consumer; (2) a $108 million gain from an adjustment of the regional share allocation related to the fourth quarter 2007 Visa reorganization primarily recorded in International Consumer; and (3) a $166 million reduction of litigation 6 reserves that were originally booked in the fourth quarter of 2007 primarily in U.S. Consumer. Repositioning Charges In the first quarter of 2008, Citigroup recorded repositioning charges of $622 million related to Citigroup's ongoing reengineering plan, which will result in certain branch closings and headcount reductions of approximately 9,000 employees. Sale of Redecard Shares In the first quarter of 2008, Citigroup sold approximately 46.8 million Redecard shares, which decreased Citigroup's ownership in Redecard from approximately 23.9% to approximately 17%. An after-tax gain of $426 million ($661 million pretax) was recorded in the International Cards business. Support of Structured Investment Vehicles (SIVs) On December 13, 2007, the Company announced a commitment to provide support facilities to its Citi-advised Structured Investment Vehicles (SIVs) for the purpose of resolving the uncertainty regarding the SIVs' senior debt ratings. As a result of this commitment, the Company consolidated the SIVs' assets and liabilities onto Citigroup's Consolidated Balance Sheet. On February 12, 2008, the Company finalized the terms of these support facilities, which take the form of a commitment to provide $3.5 billion of mezzanine capital to the SIVs. During March 2008, five of the six facilities were drawn in the aggregate amount of $3.4 billion. For the first quarter of 2008, the Company recorded pretax trading account losses of $212 million related to these consolidated SIVs. See page 54 for further discussion. Banamex Legal Vehicle Reorganization During the first quarter of 2008, Banamex completed a legal vehicle reorganization. As a result, Citigroup recognized an operating expense reduction of $282 million, primarily in International Consumer. Citi-Managed Fund Reserve In the first quarter of 2008, GWM offered to facilitate the liquidation of its clients' investments in the Falcon multi-strategy fixed income funds (Falcon Funds) that have been negatively affected by recent market stress in certain fixed income assets. As a result, GWM recorded a $250 million reserve to cover the estimated cost of these arrangements. Write-down of Intangible Asset Related to Old Lane As a result of the Old Lane hedge fund notifying its investors that they will have the opportunity to redeem their investments, without restriction, effective July 31, 2008, CAI recorded a pretax write-down of $202 million during the first quarter of 2008 of intangible assets related to this multi-strategy hedge fund. In April 2008, substantially all unaffiliated investors had notified Old Lane of their intention to redeem their investments. See note 10 on page 74 for additional information. Issuance of Preferred Stock During the first quarter of 2008, the Company enhanced its capital base by issuing $12.5 billion of 7% convertible preferred stock in a private offering, and $3.2 billion of 6.5% convertible preferred stock in public offerings, and $3.715 billion of 8.125% of non-convertible preferred stock in public offerings. See Note 12 on page 78 for further information. Nikko Cordial Citigroup began consolidating Nikko Cordial's financial results and the related minority interest on May 9, 2007, when Nikko Cordial became a 61%-owned subsidiary. Citigroup later, in 2007, increased its ownership stake in Nikko Cordial to approximately 68%. Nikko Cordial results are included within Citigroup's Securities and Banking, Smith Barney and International Consumer businesses. On January 29, 2008, Citigroup acquired the remaining Nikko Cordial shares outstanding by issuing 175 million Citigroup common shares (approximately $4.4 billion based on the exchange terms) in a public transaction in exchange for those Nikko Cordial shares. Acquisition of Banco de Chile's US Branches In 2007, Citigroup and Quiñenco entered into a definitive agreement to establish a strategic partnership that combines Citigroup operations in Chile with Banco de Chile's local banking franchise to create a banking and financial services institution with approximately 20% market share of the Chilean banking industry. The transaction closed on January 1, 2008. Under the agreement, Citigroup contributed Citigroup's Chilean operations and other assets, and acquired an approximate 32.96% stake in LQIF, a wholly owned subsidiary of Quiñenco that controls Banco de Chile, and is accounted for under the equity method of accounting. As part of the overall transaction, Citigroup also acquired the U.S. branches of Banco de Chile for approximately $130 million. Citigroup has entered into an agreement to acquire an additional 17.04% stake in LQIF for approximately $1 billion within three years. The new partnership calls for active participation by Citigroup in the management of Banco de Chile including board representation at both LQIF and Banco de Chile. Sale of CitiCapital On April 17, 2008, Citigroup signed an agreement to sell CitiCapital, the equipment finance unit in North America. The sale consists of net assets of approximately $13 billion and will result in an after-tax loss of approximately $325 million, subject to closing adjustments. The loss will be recorded in the second quarter of 2008 and the sale is expected to close in the third quarter of 2008. Sale of Citi Street On May 2, 2008, Citigroup and State Street Corporation announced that they have entered into a definitive agreement to sell CitiStreet, a benefits servicing business, to ING Group in an all-cash transaction valued at $900 million. CitiStreet is a joint venture formed in 2000, which is owned 50 percent each by Citi and State Street. The acquisition is expected to close, pending customary closing conditions, by the end of the third quarter of 2008. The sale will result in an after-tax gain of approximately $200 million to Citigroup, subject to closing adjustments, which will be recorded at the time of closing. 7 SEGMENT, PRODUCT AND REGIONAL—NET INCOME AND REVENUE The following tables show the net income (loss) and revenues for Citigroup's businesses on a segment and product view and on a regional view: Citigroup Net Income—Segment and Product View
8 Citigroup Net Income—Regional View
9 Citigroup Revenues—Segment and Product View
10 Citigroup Revenues—Regional View
11 Citigroup's Global Consumer Group provides a wide array of banking, lending, insurance and investment services through a network of 8,441 branches, approximately 20,000 ATMs and 538 Automated Lending Machines (ALMs), the Internet, telephone and mail, and the Primerica Financial Services sales force. Global Consumer serves more than 200 million customer accounts, providing products and services to meet the financial needs of both individuals and small businesses.
12 U.S. Consumer is composed of four businesses: Cards, Retail Distribution, Consumer Lending and Commercial Business.
1Q08 vs. 1Q07 Net Interest Revenue was 3% higher than the prior year, as growth in average loans and deposits of 9% and 4%, respectively, was partially offset by spread compression. Non-Interest Revenue increased 4%, primarily due to 4% growth in Cards purchase sales, a pretax gain on Visa shares of $349 million, higher gains on sales of mortgage loans, and growth in net servicing revenues in Consumer Lending. This increase was partially offset by lower securitization revenues in Cards primarily reflecting the impact of higher credit losses in the securitization trusts, as well as the absence of a prior-year $161 million pretax gain on the sale of MasterCard shares. Operating expense growth of 6% was primarily driven by a repositioning charge of $130 million, volume growth, higher collection costs, acquisitions, and investment spending related to the 176 new branch openings during the past twelve months (99 in CitiFinancial and 77 in Citibank). This increase was partially offset by the $159 million reduction of the Visa-related litigation reserve. Provisions for loan losses and for benefits and claims increased $2.3 billion, primarily reflecting a weakening of leading credit indicators, including higher delinquencies on first and second mortgages, unsecured personal loans, credit cards and auto loans. Credit costs also increased due to trends in the U.S. macro-economic environment, including the housing market downturn and rising unemployment rates, as well as portfolio growth. The net credit loss ratio increased 109 basis points to 2.39%. 13 International Consumer is composed of three businesses: Cards, Consumer Finance and Retail Banking. International Consumer operates in five geographies: Mexico, Latin America, EMEA, Japan, and Asia.
1Q08 vs. 1Q07 Net Interest Revenue increased 27%, driven by 30% growth in average loans and 23% growth in average deposits, including the impact of the acquisitions of Grupo Financiero Uno, Egg, Grupo Cuscatlan, and Bank of Overseas Chinese. The impact of foreign currency translation also contributed to the increase in revenues. Non-Interest Revenue increased 45%, primarily due to a $663 million gain on Redecard shares and a $97 million gain on the Initial Public Offering (IPO) of Visa shares, partially offset by a gain of $107 million on the sale of MasterCard shares in the prior-year period. The increase is also driven by a 41% increase in Cards purchase sales, a 14% increase in investment AUMs, and acquisitions, (including Nikko Cordial.) Operating expenses increased by 18%, reflecting acquisitions, higher business volume and a repositioning charge of $106 million, partially offset by a $257 million benefit related to a legal vehicle restructuring in Mexico. The impact of foreign currency translation also contributed to the increase in expenses. Provisions for loan losses and for benefits and claims increased 63%, primarily driven by Mexico and India, as well as by acquisitions and portfolio growth. In Japan Consumer Finance, a net loss of $69 million reflected the difficult operating environment and the ongoing impact of consumer lending laws passed in the fourth quarter 2006. 14 Markets & Banking provides a broad range of trading, investment banking, and commercial lending products and services to companies, governments, institutions and investors in approximately 100 countries. Markets & Banking includes Securities and Banking, Transaction Services and Other.
1Q08 vs. 1Q07 Revenues, net of interest expense, were negative in Securities and Banking due to substantial write-downs and losses related to the fixed income and credit markets. Included in these losses are $6.0 billion of write-downs on subprime-related direct exposure, $3.1 billion of write-downs (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, $1.5 billion of downward credit market value adjustments related to exposure to monoline insurers, and $1.5 billion of write-downs on auction rate securities inventory due to failed auctions and deterioration in the credit markets. Transaction Services revenues grew a record 42%, with records in all three businesses (cash management, securities services and trade) driven by strong growth in customer liability balances and assets under custody. Operating expenses increased due to Transaction Services' increased business volumes and the acquisition of The Bisys Group. Expenses decreased in Securities and Banking from a decline in incentive compensation costs, partially offset by a $295 million repositioning charge. The provision for credit losses decreased, due primarily to the absence of a $290 million net charge to increase loan loss reserves in the prior-year period, offset by an increase in net credit losses of $123 million and a $157 million incremental charge to increase loan loss reserves for specific counterparties. 15 Global Wealth Management is composed of the Smith Barney Private Client businesses (including Citigroup Wealth Advisors, Nikko Cordial, Quilter and the Citicorp Investment Services business), Citi Private Bank and Citi Investment Research.
1Q08 vs. 1Q07 Revenues, net of interest expense, increased 16% primarily due to the impact of the Nikko Cordial acquisition, an increase in fee-based revenues reflecting the continued advisory-based strategy, an increase in Structured Lending revenue in the U.S., and an increase in international revenues driven mainly by growth in Banking and Capital Markets revenue in EMEA. Total client assets, including assets under fee-based management, increased $214 billion, or 14%, mainly reflecting the inclusion of client assets from Nikko Cordial. Net flows declined compared to the prior year, to ($1) billion from $6 billion. GWM had 15,241 financial advisors/bankers as of March 31, 2008, compared with 13,605 as of March 31, 2007, driven by the Nikko Cordial acquisition and the consolidation of the legacy Citicorp Investment Services business. Operating expenses increased 32% primarily due to the impact of acquisitions, a reserve of $250 million related to an offer of facilitating the liquidation of investments in the Falcon fund for its clients, higher variable compensation and repositioning charges. The provision for loan losses increased 24% to $21 million, primarily driven by higher write-offs of loans in Asia. 16 Alternative Investments (CAI) manages capital on behalf of Citigroup, as well as for third-party institutional and high-net-worth investors. CAI is an integrated alternative investment platform that manages a wide range of products across five asset classes, including private equity, hedge funds, real estate, structured products and managed futures.
The Proprietary Portfolio of CAI consists of private equity, single- and multi-manager hedge funds, real estate and Legg Mason, Inc. (Legg Mason) preferred shares. Private equity, which constitutes the largest proprietary investments on both a direct and an indirect basis, is in the form of equity and mezzanine debt financing in companies across a broad range of industries worldwide, including investments in developing economies. Such investments include Citigroup Venture Capital International Brazil, LP (CVC/Brazil, formerly CVC/Opportunity Equity Partners, LP), which has invested primarily in companies privatized by the government of Brazil in the mid-1990s. The Company's investment in CVC/Brazil was previously subject to a variety of unresolved matters, including the pending litigation involving some of its portfolio companies. On April 25, 2008, the Company executed settlement agreements which resolved these litigation uncertainties. The resolution of these uncertainties will facilitate the sale of certain portfolio companies. Certain sales transactions may be subject to regulatory approvals. The Client Portfolio is composed of single- and multi-manager hedge funds, real estate, managed futures, private equity, and a variety of leveraged fixed income products (credit structures). Products are distributed to investors directly by CAI and through GWM's Private Bank and Smith Barney platforms. Revenue includes management and performance fees earned on the portfolio. The remaining 8.4 million shares of Legg Mason were sold during the first quarter of 2008. On July 2, 2007, the Company completed the acquisition of Old Lane Partners, LP and Old Lane Partners, GP, LLC (Old Lane). Old Lane is the manager of a global, multi-strategy hedge fund and a private equity fund with total assets under management and private equity commitments of approximately $4.5 billion. In the first quarter of 2008, Old Lane notified investors in its multi-strategy hedge fund that they would have the opportunity to redeem their investments in the fund, without restriction, effective July 31, 2008. In April 2008, substantially all unaffiliated investors had notified Old Lane of their intention to redeem their investments. The Company is currently evaluating alternatives for the restructuring of the Old Lane multi-strategy hedge fund. On February 20, 2008, the Company entered into a $500 million credit facility with the Falcon multi-strategy fixed income funds (Falcon funds) managed by CAI. As a result of providing this facility, the Company became the primary 17 beneficiary of the Falcon funds and consolidated the assets and liabilities in its Consolidated Balance Sheet. On March 31, 2008, the total assets of the Falcon funds were approximately $4 billion. On March 3, 2008, the Company made an equity investment of $661 million (under a $1 billion commitment) which provides for gain sharing with unaffiliated investors, in the Municipal Opportunity Funds (MOFs). MOFs are funds managed by Alternative Investments that make leveraged investments in tax-exempt municipal bonds and accept investments through feeder funds known as ASTA and MAT. As a result of the Company's equity commitment, the Company became the primary beneficiary of the MOFs and consolidated the assets and liabilities in its Consolidated Balance Sheet. On March 31, 2008, the total assets of the MOFs were approximately $2 billion. 1Q08 vs. 1Q07 Revenues, net of interest expense, of $(358) million for the first quarter of 2008 decreased $920 million. Total proprietary investment activity revenues, of $(470) million for the first quarter of 2008 were composed of revenues from private equity of $115 million, hedge funds of $(257) million and other investment activity of $(328) million. Private equity revenue decreased $246 million from the first quarter of 2007, driven by lower gains. Hedge fund revenue decreased $304 million, largely due to lower investment performance. Other investment activities revenue decreased $356 million from the first quarter of 2007, largely due to a $212 million MTM loss in the SIVs and lower investment performance. Client revenues decreased $14 million, reflecting lower performance of fixed income-oriented products, partially offset by the inclusion of Old Lane. Operating expenses in the first quarter of 2008 of $498 million increased $318 million from the first quarter of 2007, primarily due to inclusion of Old Lane and the write down of $202 million of the intangible asset as a result of the offer to investors to redeem their investments in the Old Lane multi-strategy hedge fund. Minority interest, net of taxes, in the first quarter of 2008 of $(43) million decreased $64 million from 2007, primarily due to lower gains related to underlying investments held by consolidated majority-owned legal entities. The impact of minority interest is reflected in fees, dividends, and interest, and net realized and net change in unrealized gains/(losses) consistent with proceeds received by minority interests. Client capital under management of $43.4 billion at March 31, 2008 increased $0.5 billion from year-ago levels, due to the acquisition of Old Lane in 2007 and capital raised in private equity funds, offset by mark-to-market losses in fixed income-oriented products. 18 Corporate/Other includes treasury results, unallocated corporate expenses, offsets to certain line-item reclassifications reported in the business segments (intersegment eliminations), and unallocated taxes.
1Q08 vs. 1Q07 Revenues, net of interest expense, decreased primarily due to mark-to-market losses on Nikko Cordial equity holdings in the current quarter, including a $212 million write-down of Nikko Cordial's interest in an equity investment, as well as the absence of a prior-year gain on the sale of certain corporate-owned assets. Operating expenses, excluding the 2007 first quarter restructuring charge of $1,377 million, increased primarily due to lower intersegment eliminations, as well as higher technology and other unallocated expenses. Income tax benefits decreased due to a lower pretax loss in the 2008 first quarter and additional taxes held at Corporate. 19 Citigroup's risk management framework balances strong themed corporate oversight with well-defined independent risk management functions within each business. The Citigroup risk management framework is described in Citigroup's 2007 Annual Report on Form 10-K. DETAILS OF CREDIT LOSS EXPERIENCE
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