These excerpts taken from the C 10-Q filed Aug 3, 2007.
The provision for credit losses decreased reflecting a stable global corporate credit environment and the absence of a $118 million net increase to loan loss reserves recorded in the prior-year period.
Markets & Bankings exposure in the subprime secured lending market is divided between secured lending and trading, which together accounted for approximately 2% of the Securities and Banking revenues in full-year 2006.
The Company has been actively managing down its secured lending exposure. In addition, the Company has been adjusting clients collateral and margin requirements during these periods.
Citigroup continues to be an active market-maker in trading activities. As such, the Company hedges risks, using a variety of methods to monitor very carefully the ongoing credit quality of counterparties. The Company monitors its subprime business daily and has a rigorous process for marking the Companys positions using fundamental valuation techniques, market references, and liquidity analysis.
Leveraged lending accounted for approximately 5% of Securities and Banking revenues in the second quarter of 2006. As of June 30, 2007, there were four committed transactions which required re-pricing. For those transactions, the Company recorded losses on its commitments, which were recorded in commissions and fees revenue during the second quarter of 2007. The Company has made commitments to finance other similar transactions which will likely require an adjustment to price and terms.
The Company believes that when these transactions are re-priced, these transactions will be sold to investors. In a small subset of these transactions, the Company has extended equity bridge commitments to top-tier clients in connection with the Companys leveraged financing activities.
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 44.
The provision for credit losses increased due to a net charge of $286 million in the first quarter of 2007 to increase loan loss reserves. The increase in loan loss reserves was driven by portfolio growth, which includes higher commitments to leveraged transactions and an increase in average loan tenor. This was partially offset by a decrease in the second quarter reflecting a stable global corporate credit environment and the absence of a $118 million net increase to loan loss reserves recorded in the prior-year second quarter.