Citigroup (C)

MARKETS & BANKING OUTLOOK

Markets & Banking (CMB) is significantly affected by the levels of activity in, and volatility of, the global capital markets, which are influenced by macroeconomic and political developments, among other factors. The CMB business could be negatively impacted by the “Economic Environment” discussed on page 5.

As 2008 begins to unfold, the market perception is that the credit environment will deteriorate. While corporate default rates are near historic lows, they are projected to increase in 2008. Classified loan exposures are on a rising trend and current credit markets negatively affect the backlog of leveraged loans continues to be an overhang for the business and the market. Deterioration in the U.S. mortgage market may continue and could impact the uncertainty of mortgage securities pricing and trading. Pricing in the leveraged loan market may also continue to decline.

In 2008, Securities and Banking initiatives will continue to focus on the delivery of financial solutions tailored to clients’ needs and the targeting of client segments with strong growth prospects. The development of additional global emerging markets leaders and the continued role of the sovereign wealth funds are likely to be major drivers of investment banking revenues and in particular cross-border mergers and acquisitions and associated capital raising. Revenues from derivatives and foreign exchange are also likely to benefit as clients seek to minimize the financial risk to their businesses from market volatility.

The business also intends to leverage its position to deliver global access to local markets. The business will continue its multi-year build-out of structured-products capabilities in equities, commodities and currencies, which began to show a contribution to Securities and Banking’s performance in 2007 and should become a platform for future growth.

In 2008, Transaction Services will focus on generating organic revenue and earnings growth, leveraging its strong global platform. The rising needs of emerging markets and of the world’s increasingly sophisticated capital markets are expected to continue to drive part of this growth, as well as clients’ continued consolidation of their cash management relationships. This business growth is expected to be partially offset by the impact of lower interest rates and potentially lower asset values.

Throughout 2008, CMB will look to optimize its portfolio of businesses by allocating capital to the higher-returning businesses and clients. In addition, further expense synergies are expected to be achieved through more re-engineering of operations and processes within CMB and across Citigroup as a whole.

In 2008, the business expects higher state and local tax expense than was incurred in 2007. The level will depend on the geographic mix of income. Partially offsetting this additional expense is an expected increase in benefits from tax-advantaged investments.