Citigroup (C)

GLOBAL CORPORATE PORTFOLIO

        Corporate loans are identified as impaired and placed on a non-accrual basis (cash-basis) when it is determined that the payment of interest or principal is doubtful or when interest or principal is past due for 90 days or more; the exception is when the loan is well secured and in the process of collection. Impaired corporate loans are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans are written down to the lower of cost or collateral value, less disposal costs.

        The following table summarizes corporate cash-basis loans and net credit losses:

(1)

Excludes purchased distressed loans accounted for in accordance with SOP 03-3. This pronouncement was adopted in the 2005 third quarter. Prior to this adoption, these loans were classified in Other Assets. The carrying value of these loans was $1,089 million at September 30, 2006, $1,120 million at December 31, 2005 and $1,064 million at September 30, 2005. Prior to 2004, the balances were immaterial.

(2)

Represents additional reserves recorded in Other Liabilities on the Consolidated Balance Sheet.

(3)

Does not include the allowance for unfunded lending commitments.

        Corporate cash-basis loans on September 30, 2006 decreased $518 million compared to September 30, 2005; $487 million of the decrease was in Capital Markets and Banking and $31 million was in Transaction Services. Capital Markets and Banking decreased primarily due to higher charge-offs in Korea, Russia, Mexico and Australia. The decrease in Transaction Services was primarily related to charge-offs in Mexico.

        Cash-basis loans decreased $312 million compared to December 31, 2005 due to decreases of $265 million in Capital Markets and Banking and $47 million in Transaction Services. Capital Markets and Banking primarily reflected increased charge-offs in Russia, Australia, Korea and India. Transaction Services decreased primarily due to charge-offs in Mexico.

        Total corporate Other Real Estate Owned (OREO) was $193 million, $150 million and $153 million at September 30, 2006, December 31, 2005, and September 30, 2005, respectively. The $43 million increase from December 31, 2005 reflects net foreclosures in the U.S. real estate portfolio.

        Total corporate loans outstanding at September 30, 2006 were $167 billion as compared to $129 billion and $126 billion at December 31, 2005 and September 30, 2005, respectively.

        Total corporate net credit recoveries of $9 million on September 30, 2006 decreased $114 million compared to September 30, 2005, primarily attributable to reduced recoveries in the third quarter of 2006. Total corporate net credit losses increased $103 million compared to the 2005 fourth quarter, primarily due to reduced recoveries in the third quarter of 2006.

        Citigroup's total allowance for credit losses for loans, leases and unfunded lending commitments of $10.079 billion at September 30, 2006 is available to absorb probable credit losses inherent in the entire Company's portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the corporate portfolio was $3.992 billion at September 30, 2006, $3.589 billion at September 30, 2005, and $3.710 billion at December 31, 2005, respectively. The $403 million increase in the corporate allowance at September 30, 2006 from September 30, 2005 primarily reflects reserve builds related to unfunded lending commitments due to increases in expected losses during the year and the deterioration of the credit quality of the underlying portfolios. The $282 million increase in the corporate allowance at September 30, 2006 from December 31, 2005 primarily reflects an increase in the allowance for unfunded lending commitments based on portfolio growth and the deterioration of the underlying portfolio. Losses on corporate lending activities and the level of cash-basis loans can vary widely with respect to timing and amount, particularly within any narrowly defined business or loan type.

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MARKET RISK MANAGEMENT PROCESS

        Market risk encompasses liquidity risk and price risk, both of which arise in the normal course of business of a global financial intermediary. Liquidity risk is the risk that an entity may be unable to meet a financial commitment to a customer, creditor, or investor when due. Liquidity risk is discussed in the "Capital Resources and Liquidity" on page 74. Price risk is the earnings risk from changes in interest rates, foreign exchange rates, equity and commodity prices, and in their implied volatilities. Price risk arises in non-trading portfolios, as well as in trading portfolios.

        Market risks are measured in accordance with established standards to ensure consistency across businesses and the ability to aggregate like risk at the Citigroup level. Each business is required to establish, with approval from independent market risk management, a market risk limit framework, including risk measures, limits and controls, that clearly defines approved risk profiles and is within the parameters of Citigroup's overall risk appetite.

        In all cases, the businesses are ultimately responsible for the market risks they take and for remaining within their defined limits.

GLOBAL CORPORATE PORTFOLIO

        Corporate loans are identified as impaired and placed on a non-accrual basis (cash-basis) when it is determined that the payment of interest or principal is doubtful or when interest or principal is past due for 90 days or more; the exception is when the loan is well secured and in the process of collection. Impaired corporate loans are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans are written down to the lower of cost or collateral value, less disposal costs.

        The following table summarizes corporate cash-basis loans and net credit losses:

(1)

Excludes purchased distressed loans accounted for in accordance with SOP 03-3. This pronouncement was adopted in the 2005 third quarter. Prior to this adoption, these loans were classified in Other Assets. The carrying value of these loans was $1,171 million at June 30, 2006, $1,120 million at December 31, 2005 and $1,148 million at June 30, 2005. Prior to 2004, the balances were immaterial.

(2)

Represents additional reserves recorded in Other Liabilities on the Consolidated Balance Sheet.

(3)

Does not include the allowance for unfunded lending commitments.

        Corporate cash-basis loans on June 30, 2006 decreased $797 million compared to June 30, 2005; $732 million of the decrease was in Capital Markets and Banking and $65 million was in Transaction Services. Capital Markets and Banking decreased primarily due to higher charge-offs in Mexico, Russia and Brazil. The decrease in Transaction Services was primarily related to charge-offs in the United Arab Emirates and Mexico.

        Cash-basis loans decreased $205 million compared to December 31, 2005 due to decreases of $162 million in Capital Markets and Banking and $43 million in Transaction Services. Capital Markets and Banking primarily reflected increased charge-offs in Russia, Australia, Korea and India. Transaction Services decreased primarily due to charge-offs in Mexico.

        Total corporate Other Real Estate Owned (OREO) was $171 million, $150 million and $133 million at June 30, 2006, December 31, 2005, and June 30, 2005, respectively. The $21 million decrease from December 31, 2005 reflects net foreclosures in the U.S. real estate portfolio.

        Total corporate loans outstanding at June 30, 2006 were $156 billion as compared to $129 billion and $124 billion at December 31, 2005 and June 30, 2005, respectively.

        Total corporate net credit losses of $42 million on June 30, 2006 increased $61 million compared to June 30, 2005, primarily attributable to a $32 million write-off in the Distressed Portfolio due to a reduction in the expected cash flows. Total corporate net credit losses increased $154 million compared to the 2005 fourth quarter, primarily due to the absence of recoveries in the second quarter of 2006.

        Citigroup's total allowance for credit losses for loans, leases and unfunded lending commitments of $10.194 billion is available to absorb probable credit losses inherent in the entire Company's portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the corporate portfolio was $3.883 billion at June 30, 2006, $3.404 billion at June 30, 2005, and $3.710 billion at December 31, 2005, respectively. The $479 million increase in the corporate allowance at June 30, 2006 from June 30, 2005 primarily reflects reserve builds related to unfunded lending commitments due to increases in expected losses during the year and the deterioration of the credit quality of the underlying portfolios. The $173 million increase in the corporate allowance at June 30, 2006 from December 31, 2005 primarily reflects an increase in the allowance for unfunded lending commitments based on portfolio growth and the deterioration of the underlying portfolio. Losses on corporate lending activities and the level of cash-basis loans can vary widely with respect to timing and amount, particularly within any narrowly defined business or loan type.

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