Citigroup (C)

Summary

        The additional estimated $60 billion of TCE is primarily the result of the exchange of approximately $74 billion carrying amount of preferred shares and $6 billion carrying value of trust preferred securities for 17,372 million shares of common stock and approximately $27.1 billion liquidation amount of trust preferred securities (recorded as Long-term Debt at its fair value of $16.2 billion). This resulted in an increase to common stock and APIC of $62 billion and a reduction in Retained earnings of approximately $2 billion, for a total increase in TCE of approximately $60 billion.

        The additional $64 billion of Tier 1 Common includes the impact of the above plus a reduction in the disallowed Deferred tax asset (which increases Tier 1 Common) that arises from the accounting for the transactions. TCE and Tier 1 Common are non-GAAP financial measures. See "Capital Resources and Liquidity" below for additional information on these measures, including a reconciliation to the most directly comparable GAAP measures.

(1)

Upon shareholder approval of the increase in Citigroup's authorized common stock, the interim securities will be automatically converted into common stock (anticipated in early September 2009).

(2)

The Retained earnings impact primarily reflects:

a)

Difference between the carrying value of the preferred stock exchanged versus the fair value of the common stock and trust preferred securities issued.

b)

Value of inducement offer to the convertible preferred stock holders (calculated as the incremental shares received in excess of the original terms multiplied by stock price on the commitment date).

c)

Estimated after-tax gain from extinguishment of debt associated with the trust preferred securities held by public investors.

(3)

Estimated after-tax gain to be reflected in third quarter 2009 earnings of approximately $0.9 billion from the extinguishment of debt associated with the trust preferred securities held by public investors.

(4)

Primarily represents the impact on deferred taxes of the various exchange transactions, which will benefit Tier 1 Common and Tier 1 Capital.

        Earnings per share in the third quarter of 2009 will be impacted by (1) the increase in shares outstanding as a result of the issuance of common shares and interim securities and the timing thereof, (2) the net impact to Retained earnings and income statement resulting from the preferred share and trust preferred securities exchange and (3) dividends on USG preferred shares accrued up to the date of their conversion to interim securities and trust preferred securities.

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Table of Contents

2008 IN SUMMARY

Citigroup reported a $32.1 billion loss from continuing operations ($6.42 per share) for 2008. The results were impacted by continued losses related to the disruption in the fixed income markets, higher consumer credit costs, and a deepening of the global economic slowdown.

The net loss of $27.7 billion ($5.59 per share) in 2008 includes the results and sales of the Company’s German retail banking operations and CitiCapital (which were reflected as discontinued operations), as well as a $9.568 billion Goodwill impairment charge based on the results of its fourth quarter of 2008 goodwill impairment testing. The goodwill impairment charge was recorded in North America Consumer Banking, Latin America Consumer Banking and EMEA Consumer Banking.

During 2008, the Company benefited from substantial U.S. government financial involvement, including (i) raising an aggregate $45 billion in capital through the sale of Citigroup non-voting perpetual, cumulative preferred stock and warrants to purchase common stock to the U.S. Department of the Treasury (UST), (ii) entering into a loss-sharing agreement with various U.S. government entities covering $301 billion of Company assets, and (iii) issuing $5.75 billion of senior unsecured debt guaranteed by the Federal Deposit Insurance Corporation (FDIC) (in addition to $26.0 billion of commercial paper and interbank deposits of Citigroup’s subsidiaries guaranteed by the FDIC outstanding as of December 31, 2008). In connection with these programs and agreements, Citigroup is required to pay consideration to the U.S. government, including in the form of dividends on the preferred stock and other fees. In addition, Citigroup has agreed not to pay common stock dividends in excess of $0.01 per share per quarter for three years (beginning in 2009) or to repurchase its common stock without the consent of U.S. government entities. For additional information on the above, see “TARP and Other Regulatory Programs” on page 44.

In addition to the equity issuances to the UST under TARP, Citigroup raised $32 billion of capital in private and public offerings during 2008.

In addition, on January 16, 2009, the Company announced a realignment, for management and reporting purposes, into two businesses: Citicorp, primarily comprised of the Company’s Global Institutional Bank and the Company’s regional consumer banks; and Citi Holdings, primarily comprised of the Company’s brokerage and asset management business, local consumer finance business, and a special asset pool. Citigroup believes that the realignment will optimize the Company’s global businesses for future profitable growth and opportunities and will assist in the Company’s ongoing efforts to reduce its balance sheet and simplify its organization. See “Outlook for 2009” on page 7.

On February 27, 2009, the Company announced an exchange offer of its common stock for up to $27.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3.25 per share. The U.S. government will match this exchange up to a maximum of $25 billion of its preferred stock at the same conversion price. These transactions are intended to increase the Company’s tangible common equity (TCE) and will require no additional U.S. government investment in Citigroup. See “Outlook for 2009” on page 7.

During 2008, the Company also completed 19 strategic divestitures which were designed to strengthen our franchises.

Revenues of $52.8 billion decreased 33% from 2007, primarily driven by significantly lower revenues in ICG due to write-downs related to subprime

2008 IN SUMMARY

Citigroup reported a $32.1 billion loss from continuing operations ($6.42 per share) for 2008. The results were impacted by continued losses related to the disruption in the fixed income markets, higher consumer credit costs, and a deepening of the global economic slowdown.

The net loss of $27.7 billion ($5.59 per share) in 2008 includes the results and sales of the Company’s German retail banking operations and CitiCapital (which were reflected as discontinued operations), as well as a $9.568 billion Goodwill impairment charge based on the results of its fourth quarter of 2008 goodwill impairment testing. The goodwill impairment charge was recorded in North America Consumer Banking, Latin America Consumer Banking and EMEA Consumer Banking.

During 2008, the Company benefited from substantial U.S. government financial involvement, including (i) raising an aggregate $45 billion in capital through the sale of Citigroup non-voting perpetual, cumulative preferred stock and warrants to purchase common stock to the U.S. Department of the Treasury (UST), (ii) entering into a loss-sharing agreement with various U.S. government entities covering $301 billion of Company assets, and (iii) issuing $5.75 billion of senior unsecured debt guaranteed by the Federal Deposit Insurance Corporation (FDIC) (in addition to $26.0 billion of commercial paper and interbank deposits of Citigroup’s subsidiaries guaranteed by the FDIC outstanding as of December 31, 2008). In connection with these programs and agreements, Citigroup is required to pay consideration to the U.S. government, including in the form of dividends on the preferred stock and other fees. In addition, Citigroup has agreed not to pay common stock dividends in excess of $0.01 per share per quarter for three years (beginning in 2009) or to repurchase its common stock without the consent of U.S. government entities. For additional information on the above, see “TARP and Other Regulatory Programs” on page 44.

In addition to the equity issuances to the UST under TARP, Citigroup raised $32 billion of capital in private and public offerings during 2008.

In addition, on January 16, 2009, the Company announced a realignment, for management and reporting purposes, into two businesses: Citicorp, primarily comprised of the Company’s Global Institutional Bank and the Company’s regional consumer banks; and Citi Holdings, primarily comprised of the Company’s brokerage and asset management business, local consumer finance business, and a special asset pool. Citigroup believes that the realignment will optimize the Company’s global businesses for future profitable growth and opportunities and will assist in the Company’s ongoing efforts to reduce its balance sheet and simplify its organization. See “Outlook for 2009” on page 7.

On February 27, 2009, the Company announced an exchange offer of its common stock for up to $27.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3.25 per share. The U.S. government will match this exchange up to a maximum of $25 billion of its preferred stock at the same conversion price. These transactions are intended to increase the Company’s tangible common equity (TCE) and will require no additional U.S. government investment in Citigroup. See “Outlook for 2009” on page 7.

During 2008, the Company also completed 19 strategic divestitures which were designed to strengthen our franchises.

Revenues of $52.8 billion decreased 33% from 2007, primarily driven by significantly lower revenues in ICG due to write-downs related to subprime

FOURTH QUARTER SUMMARY

·           Revenues were $5.6 billion, down 13%.  Revenues across all businesses reflect the impact of a difficult economic environment and weak capital markets.

2

2007 IN SUMMARY

There were a number of highlights in 2007, including record performance of our International Consumer, Global Wealth Management and Transaction Services business segments.

These positives, however, were offset by disappointing results in our Markets & Banking business, which was significantly affected by write-downs related to direct subprime exposures, including CDOs, leveraged lending, and by significantly higher credit costs in our U.S. Consumer business. In 2007, Citigroup earned $3.6 billion from continuing operations on revenues of $81.7 billion. Income and EPS were both down 83% from 2006 levels.

Customer volume growth was strong, with average loans up 17%, average deposits up 20% and average interest-earning assets up 29% from year-ago levels. International Cards purchase sales were up 37%, while U.S. Cards sales were up 8%. In Global Wealth Management, client assets under fee-based management were up 27%. Branch activity included the opening or acquisition of 712 new branches during 2007 (510 internationally and 202 in the U.S.). We also completed several strategic acquisitions or investments (including Nikko Cordial, Egg, Quilter, GFU, Grupo Cuscatlan, ATD, and Akbank), which were designed to strengthen our franchises.

Revenues of $81.7 billion decreased 9% from 2006, primarily driven by significantly lower revenues in CMB due to write-downs related to subprime CDOs and leveraged lending. Revenues outside of CMB grew 14%. Our international operations recorded revenue growth of 15% in 2007, including a 28% increase in International Consumer and a $1.8 billion increase in International GWM, partially offset by a 9% decrease in International CMB.

Net interest revenue grew 19% from 2006, reflecting volume increases across all products. Net interest margin in 2007 was 2.45%, down 21 basis points from 2006, as higher funding costs exceeded the Company’s actions to better manage interest earning assets and reduce low-yielding asset balances, and increased ownership in Nikko Cordial (see the discussion of net interest margin on page 70). Non-interest revenue decreased 31% from 2006, primarily reflecting subprime write-downs. Securities and Banking finished the year ranked #1 in equity underwriting and #2 in completed mergers and acquisitions activity.

Operating expenses increased 18% from the previous year primarily driven by the impact of acquisitions, increased business volumes, charges related to the structural expense initiative and the impact of foreign exchange.

2006 IN SUMMARY

In 2006, Citigroup earned $21.2 billion from continuing operations on revenues of $89.6 billion. Income was up 7% from 2005, while diluted EPS from continuing operations increased 11%, with the increment in the growth rate reflecting the benefit from our share repurchase program. Net income, which includes discontinued operations, was $21.5 billion, down 12% from the prior year, reflecting the absence of significant gains on sales of businesses recorded in 2005. Income was diversified by segment, product and region.

During 2006, we continued to execute on our key strategic initiatives, including the opening of a record 1,165 new Citibank and Consumer Finance branches (862 in the International sector and 303 in the U.S.), the continued integration of our businesses, investment in technology, and hiring and training our professionals.

Customer volume growth was strong, with average loans up 14%, average deposits up 16% and average interest-earning assets up 16% from year-ago levels. Principal transactions revenues grew 37% and client assets under fee-based management grew 15%. And we completed or announced several strategic acquisitions and partnerships (including Akbank, Guangdong Bank, Egg, Quilter, Grupo Financiero Uno and Grupo Cuscatlan) that will strengthen our franchises.

Fourth Quarter Summary

·                  Revenues were a record, up 15%, driven by 14% revenue growth in corporate and investment banking, 79% in alternative investments, and 21% in global wealth management.  Global consumer revenues increased 9%.

—           International revenues grew 11%, with international corporate and investment banking up 20% and international wealth management up 48%.  International consumer revenues increased 2%, including the impact of charges in Japan consumer finance.

—           Deposits and loans grew 20% and 16%, respectively.  In global consumer, investment AUMs increased 17%.  Capital markets and banking ranked #1 in global debt underwriting, #2 in announced M&A and #2 in global equity underwriting and global loan syndications for the full year 2006.  In global wealth management, client assets under fee-based management grew 15%.

·                  Operating expenses increased 23%, including 4 percentage points due to increased investment spending, 3 percentage points due to acquisitions and foreign exchange, and 2 percentage points due to SFAS 123(R) accruals. The remaining expense growth was driven by higher business volumes, and the absence of a net release of legal reserves that lowered expenses in the prior-year period.

—           The company opened a record 380 new branches, including 288 internationally, and 92 in the U.S.  For the full year 2006, a record 1,165 branches have been opened, of which 862 are international and 303 are in the U.S.

·                  Credit costs increased 10%, as lower costs in U.S. consumer were more than offset by increased credit costs in international consumer and corporate and investment banking.  U.S. consumer credit costs declined due to lower bankruptcy filings.  In international consumer, credit costs primarily reflected portfolio growth, including a significant increase in Mexico due to target market expansion.  The international and U.S. consumer credit environment was generally stable.  The global corporate credit environment also remained stable.

·                  Excluding charges in Japan consumer finance, the net interest margin was even with the 2006 third quarter.

·                  Share repurchases totaled $1 billion, or approximately 19 million shares.  For the full year 2006, share repurchases totaled $7 billion and dividends paid to common shareholders totaled $9.8 billion.

Third Quarter Summary

•

Total revenues were approximately even with the third quarter 2005, as international revenue growth was offset by a decline in U.S. revenues, reflecting lower revenues in capital markets driven businesses.

•

International revenues increased 11%, with international consumer up 9%, international corporate and investment banking up 12%, and international wealth management up 33%.

•

U.S. consumer revenues and net income increased 1% and 23%, respectively. Average managed loans were up 12% and deposits increased 11%. Retail banking investment product sales increased 16%, and card purchase sales grew 9%.

•

International consumer revenues increased 9%, and net income was up 8%. Average loans grew 9%, and deposits increased 9%. Retail banking investment sales grew 18%, and card purchase sales increased 18%.

•

Corporate and investment banking revenues and net income declined 6% and 4%, respectively.

•

Capital markets and banking revenues and net income declined 12% and 6%, respectively, driven by lower revenues in fixed income markets and equity underwriting, which was partially offset by growth in debt underwriting and advisory.

•

YTD #1 rank in global debt underwriting; #2 in global announced M&A; #2 in global equity underwriting.

•

Transaction services revenues were a record, up 20%, and net income increased 18%, driven by double-digit growth in customer balances.

•

Global wealth management revenues increased 14%, and net income was up 30%. Fee-based and net interest revenues increased 26%, and client assets under fee-based management grew 22%.

•

Alternative investments revenues and net income declined significantly, driven by lower results from private equity portfolios and liquid investments.

•

The net interest margin declined 11 basis points versus the second quarter 2006, primarily due to trading activities in capital markets and banking.

•

The U.S. credit environment remained stable, with significantly lower consumer bankruptcy filings. The international consumer credit environment was generally stable, with the exception of higher credit costs recorded in certain countries, including Japan and Taiwan. In Japan, ongoing legislative and other actions impacting the consumer finance industry led to approximately $160 million in increased credit costs.

1

•

Operating expenses increased 5%, comprised of 3 percentage points, or $320 million, due to increased investment spending, and 2 percentage points, or $195 million, due to SFAS 123(R) accruals. Excluding investment spending and SFAS 123(R) accruals, expenses were flat with the prior-year period.

•

The effective tax rate for continuing operations was 27.4%, reflecting a $237 million tax benefit related to resolution of a tax audit. See schedule A for detail.

•

A record 277 new branches were opened, including 101 in the U.S. and 176 internationally. Year-to-date, 785 branches have been opened, of which 211 are in the U.S. and 575 international.

•

Share repurchases totaled $2 billion, or approximately 41 million shares. Over the last 12 months, share repurchases total $10.4 billion, or approximately 218 million shares.

2005 in Summary

        During 2005, we shifted our business mix more toward the distribution of financial services, with the sales of our Asset Management and Travelers Life & Annuities businesses. We reorganized our U.S. Consumer business to more closely integrate our product offerings to better meet the needs of our customers. We focused on organic investment, adding more than 200 retail bank branches and nearly 350 consumer finance branches during the year, most of them outside of the U.S.

        All of these changes reflect our competitive advantages:

•

our global presence,



•

broad distribution,



•

valuable brand,



•

unmatched scale and efficiency,



•

and product breadth.

These advantages combined to generate net income of $24.6 billion in 2005. Income was well diversified by segment, product and region, as shown in the charts below. Results in 2005 included a $2.1 billion after-tax gain on the sale of the Travelers Life & Annuities Business and a $2.1 billion after-tax gain on the sale of the Asset Management Business. Income from Continuing Operations (which excludes the gains from these transactions and the historical results from these businesses) was $19.8 billion.

Income from Continuing Operations
In billions of dollars

2005 Income by Segment*

2005 Income by Region*

Diluted Earnings Per Share - Income from Continuing Operations

        Revenues increased 5% from 2004, reaching $83.6 billion. Our international operations recorded revenue growth of 7% in 2005, including a 12% increase in International Consumer. A 10% increase in International Consumer loans, 23% increase in international investment product sales, 8% increase in U.S. Cards purchase sales, and 9% increase in U.S. Consumer loans drove Global Consumer volume growth. CIB revenues grew by 10%, with particularly strong performance in Transaction Services. Capital Markets and Banking finished the year ranked #1 in equity underwriting and #2 in completed mergers and acquisitions activity. Higher equity market valuations led to significantly increased results in Alternative Investments.

        A challenging business environment and competitive pricing pressures during 2005 accentuated the impact of flattening global yield curves, which drove a decline in net interest revenue. This spread compression negatively impacted the Company's operating leverage ratios, particularly in U.S. Cards and Capital Markets and Banking.

        Revenue growth benefited from increased loan volumes, including corporate loan growth of 13% and consumer loan growth of 4%. Transaction Services assets under custody increased 9% and Smith Barney client assets increased 16%.

4

Total Deposits
In billions of dollars

        Operating expenses decreased 9% from the previous year, primarily reflecting the absence of the $7.9 billion WorldCom and Litigation Reserve Charge and the $400 million charge related to closing the Japan Private Bank, which were both recorded in 2004. Expenses in 2005 reflected a $600 million release from the WorldCom and Litigation Reserve Charge. Excluding these items, operating expenses increased 10% in 2005, reflecting increased investment spending, the impact of foreign exchange, and an increase in other legal expenses. Investment spending included, among other things, the addition of Consumer branches and investments in technology.

Net Revenue and Operating Expense
In billions of dollars

        Despite the negative impact of the U.S. bankruptcy law change and Hurricane Katrina, the global credit environment remained favorable; however, total credit costs increased $1.9 billion, primarily due to the absence of the reserve releases recorded during 2004. The effective tax rate increased 241 basis points to 30.8% for the year, primarily reflecting the impact of indefinitely invested international earnings and other items on the lower level of pretax earnings in 2004 due to the impact of the WorldCom and Litigation Reserve Charge.

        During 2005, we maintained our focus on disciplined capital allocation and returns to our shareholders. Our equity capital base and trust preferred securities grew to $118.8 billion at December 31, 2005. Stockholders' equity increased by $3.2 billion during 2005 to $112.5 billion, even with the distribution of $9.1 billion in dividends to common shareholders and the repurchase of $12.8 billion of common stock during the year. Return on common equity was 22.3% for 2005.

Return on Average Common Equity

        The Board of Directors increased the quarterly common dividend by 10% during 2005 and by an additional 11% in January 2006, bringing the current quarterly payout to $0.49 per share. Citigroup maintained its "well-capitalized" position with a Tier 1 Capital Ratio of 8.79% at December 31, 2005.

Total Capital (Tier 1 and Tier 2)
In billions of dollars

        During 2005, we made progress towards our goal of ensuring that all of our businesses are best in class; we grew our Global Consumer franchise; and significantly expanded our International businesses. Our Five Point Plan was a priority during 2005, and we met every deadline for implementation. We also continued to resolve our legal and regulatory issues. And we promoted a new generation of business leaders.

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2004 IN SUMMARY

        Citigroup's fundamental strengths are its global presence, distribution breadth, leading brand and broad customer relationships. These strengths combined to generate a net income of $17.05 billion in 2004. Income was well diversified by both product and region, as shown in the charts below. Return on common equity was 17% for 2004. Results in 2004 included a $4.95 billion after-tax charge related to the 2004 second quarter WorldCom and Litigation Reserve Charge. Results also reflect a $756 million after-tax gain on sale of the Company's equity investment in Samba. Excluding the impact of the charge and the gain, net income increased 19% and return on common equity was 20%.