Citigroup (C)

·                  Securities and Banking revenues were $6.9 billion, down 7% from the prior year period, as strong trading results were offset by revenue marks of negative $776 million (see Appendix B), and lending revenues of negative $928 million.

·                  Investment banking revenues were $1.2 billion, down 13% from the second quarter of 2008, a quarter driven by stronger M&A and equity volumes.

·                  Advisory revenues were $130 million, down 50% from the prior year period, primarily as a result of continued overall lower global M&A activity partially offset by improvement in Citigroup’s completed market share.

·                  Equity underwriting revenues were $279 million, down 33% from a strong second quarter of 2008 which had significant Citigroup self-led issuances, but up $136 million sequentially.

·                  Debt underwriting revenues were $751 million, up 14% from the prior year period, driven by strong investment grade and high yield issuance.

·                  Lending revenues were negative $928 million, compared to negative $155 million in the second quarter of 2008, mainly due to losses on credit default swap hedges.

·                  Equity markets revenues were $1.1 billion, down 28% from the prior year period, primarily driven by a negative $694 million net CVA on Citigroup liabilities at fair value option and derivative positions (reflected in Appendix B).  The negative net CVA was principally due to tightening in Citigroup credit spreads, partially offset by tightening counterparty spreads.  The negative net CVA offset strong results in derivatives, proprietary trading and cash trading.

·                  Fixed income markets revenues were $5.6 billion, up 26% from the comparable period in the prior year, driven by strong results across most fixed income categories reflecting favorable positioning and sustained client activity, partially offset by a decline in commodities trading revenues from the high levels in the second quarter of 2008, and a net negative $126 million CVA  (reflected in Appendix B).

·                  Private bank revenues were $477 million, down 20% from the prior year period, on lower assets under management, decreased investment sales and lower average lending volumes, partially offset by wider lending margins.

·                  Expenses decreased 25%, to $3.3 billion, driven by reductions in headcount, restructuring charges recorded in the second quarter of 2008 and reductions in other operating expenses.

·                  Credit costs were $819 million, up 98% from the prior year period, due to increased credit reserve builds and provisions for unfunded lending commitments, partially offset by lower net credit losses.

·                  Securities and Banking net income was $1.9 billion, up 13% from the second quarter of 2008, as expense reductions offset lower revenues and greater credit costs.

·                 

—           Securities and Banking revenues were $7.2 billion, driven by positive trading results and lower net write-downs and losses of $2.2 billion (See Schedule B).

—           Fixed income markets revenues of $4.7 billion reflected strong trading performance, as high volatility and wider spreads in many products created favorable trading opportunities.  Interest rates and currencies and credit products had strong revenue growth.  Revenues also included (all reflected in Schedule B):

·                  A net $2.5 billion positive CVA on derivative positions, excluding monolines, mainly due to the widening of Citi’s CDS spreads

·                  A net $30 million positive CVA of Citi’s liabilities at fair value option

·                  A $541 million benefit related to the revenue accretion of non-credit marks on assets that were moved from fair value accounting to accrual accounting in the fourth quarter 2008.

Revenues were partially offset by the following (all reflected in Schedule B):

·                  Net write-downs of $2.3 billion on sub-prime related direct exposures.  See details in Schedule C.

·                  Private equity and equity investments losses of $1.2 billion.

·                  Downward credit value adjustments of $1.1 billion related to exposure to monoline insurers.

·                  Net write-downs and impairments of $490 million on Alt-A mortgages.

·                  Write-downs of $186 million on commercial real estate positions.

—           Equity markets revenues increased 94% to $1.9 billion, primarily driven by a net $233 million positive CVA on derivative positions, excluding monolines, as well as a net $150 million positive CVA of Citi’s liabilities at fair value option (both reflected in Schedule B).  Revenues also reflected strength in derivatives, convertibles and equity trading.

—           Lending revenues declined $948 million to negative $364 million, primarily driven by losses on credit default swap hedges.  Negative revenues also included $247 million of net write-downs and impairments on highly leveraged finance commitments (reflected in Schedule B).

—           Net investment banking revenues were $1.2 billion versus negative $1.7 billion in the prior-year period.

·                  Advisory revenues were $230 million, down 25%, as a result of lower volumes and continued difficult market conditions.

·                  Equity underwriting revenues were $194 million, down 15%, reflecting continued low volumes.

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·             Securities and banking revenues were negative $10.6 billion due to substantial write-downs and losses.

·             Fixed income markets revenues of negative $13.4 billion reflected:

·                  A $5.3 billion downward credit value adjustment on derivative positions, excluding monolines.  The continued disruption in the credit markets caused counterparty credit spreads to widen, while the TARP capital injection contributed to the tightening of Citi’s credit spreads.  This unusual divergence led to the downward adjustment.

·                  Net write-downs of $4.6 billion on sub-prime related direct exposures.  These exposures on December 31, 2008, were comprised of approximately $2.0 billion of gross lending and structuring exposures and approximately $12.0 billion of net ABS CDO super senior exposures (ABS CDO super senior gross exposures of $ 18.9 billion). On September 30, 2008, these exposures were comprised of approximately $3.3 billion of gross lending and structuring exposures and approximately $16.3 billion of net ABS CDO super senior exposures (ABS CDO super senior gross exposures of $25.7 billion).  See details in Schedule E.

·                  Private equity and equity investments losses of $2.5 billion.

·                  Write-downs of $1.3 billion, net of hedges, on Alt-A mortgages.

·                  Write-downs of $1.1 billion on SIV assets.

·                  Write-downs of $991 million on commercial real estate positions.

·                  Downward credit value adjustments of $897 million related to exposure to monoline insurers.

·                  Write-downs of $307 million on ARS proprietary positions and $87 million on positions related to the August 7, 2008 settlement.

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·                  Fixed income markets recorded negative revenue of $16.9 billion driven by:

·                  Write-downs of $17.4 billion, on sub-prime related direct exposures.   These exposures on September 30, 2007 were comprised of approximately $11.7 billion of gross lending and structuring exposures and approximately $42.9 billion of net ABS CDO super senior exposures (ABS CDO super senior gross exposures of $53.4 billion).  On December 31, 2007, sub-prime related direct exposures were comprised of approximately $8.0 billion of gross lending and structuring exposures and approximately $29.3 billion of net ABS CDO super senior exposures (ABS CDO super senior gross exposures of $39.8 billion). See detail in Schedule B on page 12.

·                  Lower revenues due to write-downs on non sub-prime securitized products and in fixed income proprietary trading.

·                  These results were partially offset by double-digit revenue growth in interest rate and currency trading and commodities.

·                  Equity markets revenues declined 18% to $738 million as record revenues in cash trading and strong growth in equity finance were more than offset by weaker performance in derivatives and convertibles, and write-downs in proprietary trading.

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Securities and Banking