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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549


FORM 10-Q


ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number 1-9924


Citigroup Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
  52-1568099
(I.R.S. Employer Identification No.)

399 Park Avenue, New York, New York
(Address of principal executive offices)

 

10043
(Zip Code)

(212) 559-1000
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No ý

        Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

Common stock outstanding as of March 31, 2006: 4,971,241,487

Available on the Web at www.citigroup.com





Citigroup Inc.

TABLE OF CONTENTS

 
   
  Page No.
Part I—Financial Information

Item 1.

 

Financial Statements:

 

 

 

 

Consolidated Statement of Income (Unaudited)—Three Months Ended March 31, 2006 and 2005

 

76

 

 

Consolidated Balance Sheet—March 31, 2006 (Unaudited) and December 31, 2005

 

77

 

 

Consolidated Statement of Changes in Stockholders' Equity (Unaudited)—Three Months Ended March 31, 2006 and 2005

 

78

 

 

Consolidated Statement of Cash Flows (Unaudited)—Three Months Ended March 31, 2006 and 2005

 

79

 

 

Consolidated Balance Sheet—Citibank, N.A. and Subsidiaries March 31, 2006 (Unaudited) and December 31, 2005

 

80

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

81

Item 2.

 

Management's Discussion and Analysis of Financial

 

 

 

 

Condition and Results of Operations

 

4–73

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

52–54
98-99

Item 4.

 

Controls and Procedures

 

74

Part II—Other Information

Item 1.

 

Legal Proceedings

 

111

Item 1A.

 

Risk Factors

 

111

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

112

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

113

Item 5.

 

Other Information

 

115

Item 6.

 

Exhibits

 

115

Signatures

 

116

Exhibit Index

 

117

THE COMPANY

        Citigroup Inc. (Citigroup, or the Company) is a diversified global financial services holding company whose businesses provide a broad range of financial services to consumer and corporate clients. Citigroup has some 200 million clients accounts and does business in more than 100 countries. Citigroup was incorporated in 1988 under the laws of the State of Delaware.

        The Company is a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956 registered with, and subject to examination by, the Board of Governors of the Federal Reserve System (FRB). Some of the Company's subsidiaries are subject to supervision and examination by their respective federal and state authorities. This quarterly report on Form 10-Q should be read in conjunction with Citigroup's 2005 Annual Report on Form 10-K.

        The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043, telephone number 212-559-1000. Additional information about Citigroup is available on the Company's Web site at www.citigroup.com. Citigroup's annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to these reports are available free of charge through the Company's Web site by clicking on the "Investor Relations" page and selecting "SEC Filings." The Securities and Exchange Commission (SEC) Web site contains reports, proxy and information statements, and other information regarding the Company at www.sec.gov.

        Citigroup is managed along the following segment and product lines:

LOGO

        The following are the six regions in which Citigroup operates. The regional results are fully reflected in the product results.

LOGO

3


CITIGROUP INC. AND SUBSIDIARIES

SUMMARY OF SELECTED FINANCIAL DATA

 
  Three Months Ended March 31,
   
 
In millions of dollars, except per share amounts

  %
Change

 
  2006
  2005
 
Revenues, net of interest expense   $ 22,183   $ 21,196   5 %
Operating expenses     13,358     11,404   17  
Provisions for credit losses and for benefits and claims     1,673     2,030   (18 )
   
 
 
 
Income from continuing operations before taxes and minority interest   $ 7,152   $ 7,762   (8 )%
Income taxes     1,537     2,484   (38 )
Minority interest, net of taxes     60     163   (63 )
   
 
 
 
Income from continuing operations   $ 5,555   $ 5,115   9 %
Income from discontinued operations, net of taxes(1)     84     326   (74 )
   
 
 
 
Net Income   $ 5,639   $ 5,441   4 %
   
 
 
 
Earnings per share                  
Basic earnings per share:                  
Income from continuing operations   $ 1.13   $ 0.99   14 %
Net income     1.14     1.06   8  
Diluted earnings per share:                  
Income from continuing operations     1.11     0.98   13  
Net income     1.12     1.04   8  
Dividends declared per common share   $ 0.49   $ 0.44   11  
   
 
 
 
At March 31                  
Total assets   $ 1,586,201   $ 1,489,891   6 %
Total deposits     628,157     568,874   10  
Long-term debt     227,165     207,935   9  
Mandatorily redeemable securities of subsidiary trusts     6,166     6,342   (3 )
Common stockholders' equity     113,418     109,411   4  
Total stockholders' equity     114,418     110,536   4  
   
 
 
 
Ratios:                  
Return on common stockholders' equity(2)     20.3 %   20.3 %    
Return on total stockholders' equity(2)     20.2 %   20.1 %    
Return on risk capital(3)     41 %   40 %    
Return on invested capital(3)     20 %   20 %    
   
 
 
 
Tier 1 capital     8.60 %   8.78 %    
Total capital     11.80     12.03      
Leverage(4)     5.22     5.19      
   
 
 
 
Common stockholders' equity to assets     7.15 %   7.34 %    
Total stockholders' equity to assets     7.21     7.42      
Dividends declared(5)     43.8     42.3      
Ratio of earnings to fixed charges and preferred stock dividends     1.58 x   2.02 x    
   
 
 
 

(1)
Discontinued operations for the three months ended March 31, 2006 and 2005 includes the operations described in the Company's June 24, 2005 announced agreement for the sale of substantially all of its Asset Management business to Legg Mason. The majority of the transaction closed on December 1, 2005. Discontinued operations also includes the operations described in the Company's January 31, 2005 announced agreement for the sale of its Travelers Life & Annuity business, substantially all of its international insurance business, and its Argentine pension business to MetLife, Inc. This transaction closed on July 1, 2005. See further discussion regarding discontinued operations in Note 3 to the Consolidated Financial Statements on page 83.

(2)
The return on average common stockholders' equity and return on average total stockholders' equity are calculated using net income after deducting preferred stock dividends.

(3)
Risk capital is defined as the amount of capital required to absorb potential unexpected economic losses resulting from extremely severe events over a one-year time period. Return on risk capital is calculated as annualized income from continuing operations divided by average risk capital. The segment and product returns are based on net income. Invested capital is defined as risk capital plus goodwill and intangible assets excluding mortgage servicing rights, which are a component of risk capital. Return on invested capital is calculated using income adjusted to exclude a net internal charge Citigroup levies on the goodwill and intangible assets of each business offset by each business' share of the rebate of the goodwill and intangible asset charge. Return on risk capital and return on invested capital are non-GAAP performance measures. Management uses return on risk capital to assess businesses' operational performance and to determine allocation of capital. Return on invested capital is used to assess returns on potential acquisitions and divestitures and to compare long-term performance of businesses with differing proportions of organic and acquired growth. For a further discussion on risk capital, see page 45.

(4)
Tier 1 capital divided by adjusted average assets.

(5)
Dividends declared per common share as a percentage of net income per diluted share.

4


MANAGEMENT'S DISCUSSION
AND ANALYSIS

MANAGEMENT SUMMARY

        Income from continuing operations of $5.555 billion in the 2006 first quarter was a record, up 9% from the 2005 first quarter. The strength of the Company's international operations (47% increase in earnings) more than offset weaker results in our U.S. Consumer businesses.

        Results in the 2006 first quarter included $846 million of compensation expense ($520 million after-tax) related to stock grants to retirement-eligible employees required under SFAS 123(R), and a $657 million tax benefit from the resolution of a U.S. Federal tax audit for the years 1999 through 2002.

        During the 2006 first quarter, we continued executing on our strategic initiatives, adding a record 238 new branches globally and significantly growing our international franchise. Average loans increased 9%, average deposits grew by 10% and average interest-earning assets were up 11% from year-ago levels.

        Income was well diversified by segment and region, as shown in the charts below.

LOGO

LOGO

LOGO

5


LOGO

        Revenues increased 5% from the 2005 first quarter, reaching $22.2 billion. Our international operations recorded revenue growth of 19% in the 2006 quarter. In addition, CIB revenues increased 21%, reflecting strong performance in both Transaction Services and Capital Markets and Banking.

        Net interest revenue was down 4%, while other revenue increased 12%, continuing to benefit from volume increases across the businesses. Net interest margin in the 2006 first quarter was 2.86%, down 44 basis points from the 2005 first quarter and down 6 basis points from the 2005 fourth quarter. (See discussion of net interest margin on page 61.)

        Operating expenses increased 17% from the 2005 first quarter; this was comprised of 7% from SFAS 123(R) charges, 9% from organic business growth and acquisitions, and 1% due to investment spending.

LOGO

        The global credit environment remained favorable; this, as well as significantly lower bankruptcy filings and an asset mix shift, drove a $367 million decrease in credit costs compared to a year ago. Global Consumer loss rates improved to 1.46%, a 36 basis point decline from the 2005 fourth quarter, in part reflecting significantly lower bankruptcy filings. Corporate cash-basis loans declined 18% from December 31, 2005 to $821 million.

        The effective tax rate on continuing operations decreased to 21.5%, primarily reflecting the impact of the resolution of the U.S. Federal tax audit. The effective tax rate for the 2006 first quarter would have been 29.9% without the tax reserve release of $598 million.

        Our equity capital base and trust preferred securities grew to $120.6 billion at March 31, 2006. Stockholders' equity increased by $1.9 billion during the quarter to $114.4 billion, even with the distribution of $2.5 billion in dividends to shareholders and the repurchase of $2.0 billion of common stock during the quarter. Return on common equity was 20.3% for the quarter.

6


LOGO

        Citigroup maintained its "well-capitalized" position with a Tier 1 Capital Ratio of 8.60% at March 31, 2006. On April 13, 2006, the Board authorized the repurchase of up to an additional $10 billion of our common stock, bringing the total authorization to $12.4 billion.

LOGO

        On April 3, 2006, we received a letter from the Federal Reserve Bank of New York noting that "Citigroup has made significant progress in implementing its new compliance risk management program. Consequently, the understanding that you would refrain from significant expansion is no longer in operation." We remain focused on organic growth. Any expansion proposals will be reviewed with the Federal Reserve in accordance with all applicable statutory requirements.

        On March 21, 2006, the Citigroup Board of Directors unanimously elected Chief Executive Officer Charles Prince to the additional post of Chairman.

7


EVENTS IN 2006 and 2005

Adoption of the Accounting for Share-Based Payments

        On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) 123 (revised 2004), "Share-Based Payment" (SFAS 123(R)), which replaces the existing SFAS 123 and supersedes APB 25. SFAS 123(R) requires companies to measure and record compensation expense for stock options and other share-based payments based on the instruments' fair value, reduced by expected forfeitures.

        In adopting this standard, the Company conformed to recent accounting guidance that restricted stock awards issued to retirement-eligible employees who meet certain age and service requirements must be either expensed on the grant date or accrued over a service period prior to the grant date. The impact to the 2006 first quarter results was a charge of $846 million ($520 million after-tax). This charge consisted of $648 million ($398 million after-tax) for the immediate expensing of awards granted to retirement-eligible employees in January 2006, and $198 million ($122 million after-tax) for the quarterly accrual of the estimated awards that will be granted through January 2007. Additional information can be found in Notes 1 and 14 to the Consolidated Financial Statements on pages 81 and 96, respectively. The Company will continue to accrue for the estimated awards that will be granted through January 2007 in each quarter of 2006.

Settlement of IRS Tax Audit

        In March 2006, the Company received a notice from the Internal Revenue Service (IRS) that they had concluded the tax audit for the years 1999 through 2002. For the first quarter of 2006, the Company released a total of $657 million from its tax contingency reserves related to the 1999 through 2002 Federal tax audit (referred to hereinafter as the "resolution of the Federal Tax Audit.")

Summary by Business of SFAS 123(R) and Resolution of the Federal Tax Audit

        The following table summarizes the SFAS 123(R) impact on 2006 first quarter pretax compensation expense and the tax benefit from the resolution of the Federal Tax Audit:

In millions of dollars

  Charge for stock awards granted to retirement-eligible employees in January 2006
  Accrual of estimated cost of stock awards for retirement-eligible employees to be granted through the first quarter of 2007(1)
  Tax benefit due to the resolution of the Federal Tax Audit
U.S. Cards   $ 16   $ 4   $ 89
U.S. Retail Distribution     29     7     51
U.S. Consumer Lending     6     2     31
U.S. Commercial Business     10     2     4
   
 
 
Total U.S. Consumer   $ 61   $ 15   $ 175

International Cards

 

$

7

 

$

2

 

$

20
International Consumer Finance     3     1    
International Retail Banking     29     7     55
   
 
 
Total International Consumer   $ 39   $ 10   $ 75
Consumer Other     21     6     40
   
 
 
Global Consumer   $ 121   $ 31   $ 290

Capital Markets and Banking

 

$

346

 

$

93

 

$

151
Transaction Services     8     2     25
   
 
 
Corporate & Investment Banking   $ 354   $ 95   $ 176

Smith Barney

 

$

129

 

$

48

 

 

Private Bank     16     3     13
   
 
 
Global Wealth Management   $ 145   $ 51   $ 13

Alternative Investments

 

$

7

 

$

2

 

$

58

Corporate/Other

 

$

21

 

$

19

 

$

61
   
 
 
Continuing Operations   $ 648   $ 198   $ 598
   
 
 
Discontinued Operations           $ 59
   
 
 
Total   $ 648   $ 198   $ 657
   
 
 

(1)
Represents the 2006 first quarter accrual for estimated awards to be granted through January 2007.

Sale of Asset Management Business

        On December 1, 2005, the Company completed the sale of substantially all of its Asset Management Business to Legg Mason, Inc. (Legg Mason) in exchange for Legg Mason's broker-dealer business, $2.298 billion of Legg Mason's common and preferred shares (valued as of the closing date), and $500 million in cash. This cash was obtained via a lending facility provided by Citigroup CIB. The transaction did not include Citigroup's asset management business in Mexico, its retirement services business in Latin America (both of which are now included in International Retail Banking) or

8


its interest in the CitiStreet joint venture (which is now included in Smith Barney). The total value of the transaction at the time of closing was approximately $4.369 billion, resulting in an after-tax gain to Citigroup of approximately $2.082 billion ($3.404 billion pretax). This gain remains subject to final closing adjustments.

        Concurrently, Citigroup sold Legg Mason's Capital Markets business to Stifel Financial Corp. (The transactions described in these two paragraphs are referred to as the "Sale of the Asset Management Business.")

        Upon completion of the Sale of the Asset Management Business, Citigroup added 1,226 financial advisors in 124 branch offices from Legg Mason to its Global Wealth Management business.

        During March 2006, Citigroup sold 10.3 million shares of Legg Mason stock through an underwritten public offering. The net sale proceeds of $1.258 billion resulted in a pretax gain of $24 million.

        Additional information can be found in Note 3 to the Consolidated Financial Statements on page 83.

Sale of Travelers Life & Annuity

        On July 1, 2005, the Company completed the sale of Citigroup's Travelers Life & Annuity and substantially all of Citigroup's international insurance businesses to MetLife, Inc. (MetLife). The businesses sold were the primary vehicles through which Citigroup engaged in the Life Insurance and Annuities business.

        Citigroup received $1.0 billion in MetLife equity securities and $10.830 billion in cash, which resulted in an after-tax gain of approximately $2.120 billion ($3.386 billion pretax). This gain remains subject to final closing adjustments.

        The transaction encompassed Travelers Life & Annuity's U.S. businesses and its international operations, other than Citigroup's life insurance business in Mexico (which is now included within International Retail Banking). (The transaction described in the preceding three paragraphs is referred to as the "Sale of the Life Insurance and Annuities Business.")

        Additional information can be found in Note 3 to the Consolidated Financial Statements on page 83.

Credit Reserves

        During the first quarter of 2006, the Company recorded a net release/utilization of its credit reserves of $154 million, consisting of a net release/utilization of $187 million in Global Consumer and Global Wealth Management, and a net build of $33 million in CIB.

        The net release/utilization in Global Consumer was primarily due to the overall improvement in the consumer portfolio. Partially offsetting the releases was a build of $100 million in Asia related to recent credit trends in Taiwan credit cards.

        The net build of $33 million in CIB was primarily composed of $29 million in Capital Markets and Banking, which included a $46 million reserve increase for unfunded lending commitments and letters of credit.

        During the 2005 first quarter, the Company recorded a net release/utilization of $89 million to its credit reserves, consisting of a net release/utilization of $56 million in Global Consumer and a net release/utilization of $33 million in CIB.

Credit Reserve Builds (Releases)

 
  Three Months Ended March 31,
 
In millions of dollars

 
  2006
  2005
 
By Product:              
U.S. Cards   $ (72 ) $  
U.S. Retail Distribution     (55 )   (17 )
U.S. Consumer Lending     (31 )   (1 )
U.S. Commercial Business     (38 )   (12 )

International Cards

 

 

94

 

 

(5

)
International Consumer Finance     (16 )    
International Retail Banking     (77 )   (9 )

Smith Barney

 

 

1

 

 


 
Private Bank     8     (11 )

Consumer Other

 

 

(1

)

 

(1

)
   
 
 
Total Consumer   $ (187 ) $ (56 )
   
 
 
Capital Markets and Banking     29     (32 )
Transaction Services     4     (1 )
   
 
 
Total CIB   $ 33   $ (33 )
   
 
 
Total Citigroup   $ (154 ) $ (89 )
   
 
 
By Region:              
U.S.   $ (150 ) $ (29 )
Mexico     5     (16 )
EMEA     (15 )   7  
Japan     9      
Asia     (4 )   (18 )
Latin America     1     (33 )
   
 
 
Total Citigroup   $ (154 ) $ (89 )
   
 
 

Allowance for Credit Losses

In millions of dollars

  Mar. 31,
2006

  Dec. 31,
2005

  Mar. 31,
2005

Allowance for loan losses   $ 9,505   $ 9,782   $ 10,894
Allowance for unfunded lending commitments     900     850     600
   
 
 
Total allowance for loans and unfunded lending commitments   $ 10,405   $ 10,632   $ 11,494
   
 
 

Repositioning Charges

        The Company recorded a $272 million after-tax ($435 million pretax) charge during the 2005 first quarter for repositioning costs. The repositioning charges were predominantly severance-related costs recorded in CIB ($151 million after-tax) and in Global Consumer ($95 million after-tax). These repositioning actions were consistent with the Company's objectives of controlling expenses while continuing to invest in growth opportunities.

9


Acquisition of Federated Credit Card Portfolio and Credit Card Agreement With Federated Department Stores

        On June 2, 2005, Citigroup announced a long-term agreement with Federated Department Stores, Inc. (Federated) under which the companies will partner to manage Federated's $6.3 billion in credit card receivables, including existing and new accounts, executed in three phases.

        For the first phase, which closed on October 24, 2005, Citigroup acquired Federated's receivables under management, totaling $3.3 billion. For the second phase, which closed on May 1, 2006, additional Federated receivables totaling $1.2 billion were transferred to Citigroup from the previous provider. For the final phase, in the 2006 third quarter, Citigroup expects to acquire the approximately $1.8 billion credit card receivable portfolio of The May Department Stores Company (May), which recently merged with Federated.

        Citigroup is paying a premium of approximately 11.5% to acquire each of the portfolios. The multi-year agreement also provides Federated the ability to participate in the portfolio performance, based on credit sales and certain other performance metrics.    The Federated and May credit card portfolios comprise a total of approximately 17 million active accounts.

        Certain of the above statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 75.

Resolution of Glendale Litigation

        During the 2005 first quarter, the Company recorded a $72 million after-tax gain ($114 million pretax) following the resolution of Glendale Federal Bank v. United States, an action brought by Glendale Federal Bank, a predecessor to Citibank (West), FSB, against the United States government.

Acquisition of First American Bank

        On March 31, 2005, Citigroup completed its acquisition of First American Bank in Texas (FAB). The transaction established Citigroup's retail branch presence in Texas, giving Citigroup 106 branches, $4.2 billion in assets and approximately 120,000 new customers in the state at the time of the transaction's closing. The results of FAB are included in the Consolidated Financial Statements from March 2005 forward.

Divestiture of the Manufactured Housing Loan Portfolio

        On May 1, 2005, Citigroup completed the sale of its manufactured housing loan portfolio, consisting of $1.4 billion in loans, to 21st Mortgage Corp. The Company recognized a $109 million after-tax loss ($157 million pretax) in the 2005 first quarter related to the divestiture.

Divestiture of CitiCapital's Transportation Finance Business

        On January 31, 2005, the Company completed the sale of CitiCapital's Transportation Finance Business based in Dallas and Toronto to GE Commercial Finance for total cash consideration of approximately $4.6 billion. The sale resulted in an after-tax gain of $111 million ($157 million pretax).

10


SEGMENT, PRODUCT AND REGIONAL NET INCOME

        The following tables show the net income (loss) for Citigroup's businesses on a segment and product view and on a regional view:

Citigroup Net Income—Segment and Product View

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005(1)
  1Q06 vs. 1Q05
 
Global Consumer                  
  U.S. Cards   $ 926   $ 778   19 %
  U.S. Retail Distribution     515     564   (9 )
  U.S. Consumer Lending     437     486   (10 )
  U.S. Commercial Business     126     252   (50 )
   
 
 
 
    Total U.S. Consumer(2)   $ 2,004   $ 2,080   (4 )%
   
 
 
 
  International Cards   $ 291   $ 302   (4 )%
  International Consumer Finance     168     139   21  
  International Retail Banking     677     498   36  
   
 
 
 
    Total International Consumer   $ 1,136   $ 939   21 %
   
 
 
 
  Other   $ (67 ) $ (176 ) 62 %
   
 
 
 
    Total Global Consumer   $ 3,073   $ 2,843   8 %
   
 
 
 
Corporate and Investment Banking                  
  Capital Markets and Banking   $ 1,618   $ 1,439   12 %
  Transaction Services     323     245   32  
  Other     (12 )   (5 ) NM  
   
 
 
 
    Total Corporate and Investment Banking   $ 1,929   $ 1,679   15 %
   
 
 
 
Global Wealth Management                  
  Smith Barney   $ 168   $ 197   (15 )%
  Private Bank     119     122   (2 )
   
 
 
 
    Total Global Wealth Management   $ 287   $ 319   (10 )%
   
 
 
 
Alternative Investments   $ 353   $ 362   (2 )%

Corporate/Other

 

 

(87

)

 

(88

)

1

 
   
 
 
 
Income from Continuing Operations   $ 5,555   $ 5,115   9 %
Income from Discontinued Operations(3)     84     326   (74 )
   
 
 
 
Total Net Income   $ 5,639   $ 5,441   4 %
   
 
 
 

(1)
Reclassified to conform to the current period's presentation. See Note 4 to the Consolidated Financial Statements on page 85 for assets by segment.

(2)
U.S. disclosure includes Canada and Puerto Rico.

(3)
See Note 3 to the Consolidated Financial Statements on page 83.

NM Not meaningful

11


Citigroup Net Income—Regional View

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005(1)
  1Q06 vs. 1Q05
 
U.S.(2)                  
  Global Consumer   $ 1,937   $ 1,904   2 %
  Corporate and Investment Banking     515     893   (42 )
  Global Wealth Management     228     273   (16 )
   
 
 
 
    Total U.S.   $ 2,680   $ 3,070   (13 )%
   
 
 
 

Mexico

 

 

 

 

 

 

 

 

 
  Global Consumer   $ 358   $ 277   29 %
  Corporate and Investment Banking     78     83   (6 )
  Global Wealth Management     8     13   (38 )
   
 
 
 
    Total Mexico   $ 444   $ 373   19 %
   
 
 
 

Latin America

 

 

 

 

 

 

 

 

 
  Global Consumer   $ 58   $ 54   7 %
  Corporate and Investment Banking     202     145   39  
  Global Wealth Management     3     7   (57 )
   
 
 
 
    Total Latin America   $ 263   $ 206   28 %
   
 
 
 

EMEA

 

 

 

 

 

 

 

 

 
  Global Consumer   $ 185   $ 122   52 %
  Corporate and Investment Banking     635     188   NM  
  Global Wealth Management     3     (1 ) NM  
   
 
 
 
    Total EMEA   $ 823   $ 309   NM  
   
 
 
 

Japan

 

 

 

 

 

 

 

 

 
  Global Consumer   $ 188   $ 175   7 %
  Corporate and Investment Banking     85     48   77  
  Global Wealth Management         (8 ) 100  
   
 
 
 
    Total Japan   $ 273   $ 215   27 %
   
 
 
 

Asia

 

 

 

 

 

 

 

 

 
  Global Consumer   $ 347   $ 311   12 %
  Corporate and Investment Banking     414     322   29  
  Global Wealth Management     45     35   29  
   
 
 
 
    Total Asia   $ 806   $ 668   21 %
   
 
 
 
Alternative Investments   $ 353   $ 362   (2 )%

Corporate/Other

 

 

(87

)

 

(88

)

1

 
   
 
 
 
Income from Continuing Operations   $ 5,555   $ 5,115   9 %
Income from Discontinued Operations(3)     84     326   (74 )
   
 
 
 
Total Net Income   $ 5,639   $ 5,441   4 %
   
 
 
 
Total International   $ 2,609   $ 1,771   47 %
   
 
 
 

(1)
Reclassified to conform to the current period's presentation.

(2)
Excludes Alternative Investments and Corporate/Other, which are predominantly related to the U.S. The U.S. regional disclosure includes Canada and Puerto Rico. Global Consumer for the U.S. includes Other Consumer.

(3)
See Note 3 to the Consolidated Financial Statements on page 83.

NM Not meaningful.

12


SELECTED REVENUE AND EXPENSE ITEMS

Selected Revenue Items

        Net interest revenue of $9.8 billion decreased $354 million, or 4%, from the 2005 first quarter, primarily reflecting an increase in interest paid on deposits due to higher rates and balances.

        Total commissions, asset management and administration fees, and other fee revenues of $6.6 billion increased by $710 million, or 12%, compared to the 2005 first quarter. This was primarily attributable to increased investment banking fees, volumes and assets under custody in CIB.

        Principal transactions revenue of $2.1 billion was down $98 million, or 4%, from the first quarter of 2005. Realized gains from sales of investments were up $136 million, or 56%, to $379 million in the 2006 first quarter; this was primarily due to the sale of the remaining 12.3 million shares of St. Paul Travelers during the quarter. Other revenue of $2.5 billion increased $558 million, or 28%, from the 2005 first quarter.

Operating Expenses

        Total operating expenses were $13.4 billion for the 2006 first quarter, up $2.0 billion, or 17%, from the comparable 2005 period. The increase was primarily due to the adoption of SFAS 123(R) and an increase in incentive compensation in CIB, primarily Capital Markets and Banking.

        Global Consumer reported a 9% increase in total expenses from the 2005 first quarter, led by U.S. Consumer, due to increased business volumes and investments in new branches. International Consumer expenses increased $199 million versus the first quarter of 2005, primarily due to branch expansion and increased sales staff, and an increase in profit sharing in Mexico in International Retail Banking. CIB expenses increased 30% from the 2005 first quarter, primarily due to the implementation of SFAS 123(R). Global Wealth Management expenses increased 22% as compared to the prior year's three-month period, also primarily related to SFAS 123(R) implementation. Alternative Investments expenses increased 72% from the 2005 period, primarily resulting from higher employee-related expenses.

Provisions for Credit Losses and for Benefits and Claims

        The provision for credit losses decreased $367 million, or 20%, from the 2005 first quarter to $1.4 billion. Policyholder benefits and claims in the 2006 first quarter increased $10 million, or 5%, from the 2005 first quarter.

        Global Consumer provisions for loan losses and for benefits and claims of $1.7 billion in the 2006 first quarter were down $434 million, or 21%, from the 2005 first quarter. This was due to lower bankruptcy filings and a continued favorable credit environment that drove the net credit loss ratio down. Total net credit losses were $1.633 billion, and the related loss ratio was 1.46% in the first quarter of 2006, as compared to $1.925 billion and 1.83% in the 2005 first quarter. The consumer loan delinquency ratio (90 days or more past due) decreased to 1.31% at March 31, 2006 from 1.83% at March 31, 2005. See page 50 for a reconciliation of total consumer credit information.

        Corporate and Investment Banking provision for credit losses in the 2006 first quarter was up $56 million from the 2005 first quarter. The Company increased CIB's reserve for credit losses by $50 million for unfunded lending commitments in the 2006 first quarter due to an increase in exposures and credit risk in the portfolio.

        Corporate cash-basis loans at March 31, 2006 and 2005 were $821 million and $1.7 billion, respectively, while the corporate Other Real Estate Owned (OREO) portfolio totaled $144 million and $127 million, respectively. The decrease in corporate cash-basis loans from March 31, 2005, was related to improvements in the overall credit environment and write-offs, as well as sales of loans and paydowns in the portfolio.

Income Taxes

        The Company's effective tax rate on continuing operations was 21.5% in the 2006 first quarter, compared to 32.0% in the 2005 first quarter. The 2006 first quarter includes a tax benefit in continuing operations of $598 million related to the resolution of the Federal Tax Audit for the years 1999 through 2002.

Regulatory Capital

        Total capital (Tier 1 and Tier 2) was $109.7 billion and $106.4 billion, or 11.80% and 12.02% of net risk-adjusted assets at March 31, 2006 and December 31, 2005, respectively. Tier 1 capital was $79.9 billion, or 8.60% of net risk-adjusted assets at March 31, 2006, compared to $77.8 billion, or 8.79%, at December 31, 2005.

ACCOUNTING CHANGES AND FUTURE APPLICATION OF ACCOUNTING STANDARDS

        See Note 1 to the Consolidated Financial Statements on page 81 for a discussion of Accounting Changes and the Future Application of Accounting Standards.

SIGNIFICANT ACCOUNTING POLICIES

        The Company's accounting policies are fundamental to understanding management's discussion and analysis of results of operations and financial condition. The Company has identified five policies as being significant because they require management to make subjective and/or complex judgments about matters that are inherently uncertain. These policies relate to Valuations of Financial Instruments, Allowance for Credit Losses, Securitizations, Income Taxes and Legal Reserves. The Company, in consultation with the Audit and Risk Management Committee of the Board of Directors, has reviewed and approved these significant accounting policies, which are further described in the Company's 2005 Annual Report on Form 10-K.


The net income line in the following business segment and operating unit discussions excludes discontinued operations. Income from discontinued operations is included within the Corporate/Other business segment. See Notes 3 and 4 to the Consolidated Financial Statements on pages 83 and 85, respectively.

Certain prior period amounts have been reclassified to conform to the current period's presentation.


13


GLOBAL CONSUMER

         LOGO

    * Excludes Other Consumer loss of $67 million.   * Excludes Other Consumer loss of $67 million.

        Citigroup's Global Consumer Group provides a wide array of banking, lending, insurance and investment services through a network of 7,440 branches, 12,167 ATMs, 731 Automated Lending Machines (ALMs), the Internet, telephone and mail, and the Primerica Financial Services salesforce. Global Consumer serves more than 200 million customer accounts, providing products and services to meet the financial needs of both individuals and small businesses.

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005
  1Q06 vs. 1Q05
 
Revenues, net of interest expense   $ 11,955   $ 12,118   (1 )%
Operating expenses     6,357     5,846   9  
Provisions for loan losses and for benefits and claims     1,668     2,102   (21 )
   
 
 
 
Income before taxes and minority interest   $ 3,930   $ 4,170   (6 )%
Income taxes     847     1,314   (36 )
Minority interest, net of taxes     10     13   (23 )
   
 
 
 
Net income   $ 3,073   $ 2,843   8 %
   
 
 
 
Average assets (in billions of dollars)   $ 561   $ 523   7 %
Return on assets     2.22 %   2.20 %    
Average risk capital(1)   $ 27,714   $ 26,350   5 %
Return on risk capital(1)     45 %   44 %    
Return on invested capital(1)     21 %   19 %    
   
 
 
 

(1)
See footnote 3 to the table on page 4.

14


U.S. CONSUMER

         LOGO

        U.S. Consumer is composed of four businesses: Cards, Retail Distribution, Consumer Lending and Commercial Business.

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005
  Q06 vs. 1Q05
 
Revenues, net of interest expense   $ 7,260   $ 7,963   (9 )%
Operating expenses     3,569     3,337   7  
Provisions for loan losses and for benefits and claims     901     1,429   (37 )
   
 
 
 
Income before taxes and minority interest   $ 2,790   $ 3,197   (13 )%
Income taxes     777     1,104   (30 )
Minority interest, net of taxes     9     13   (31 )
   
 
 
 
Net income   $ 2,004   $ 2,080   (4 )%
   
 
 
 
Average assets (in billions of dollars)   $ 379   $ 348   9 %
Return on assets     2.14 %   2.42 %    
Average risk capital(1)   $ 15,069   $ 13,838   9 %
Return on risk capital(1)     54 %   61 %    
Return on invested capital(1)     24 %   25 %    
   
 
 
 

(1)
See footnote 3 to the table on page 4.

15


U.S. Cards

         LOGO

        U.S. Cards is one of the largest providers of credit cards in North America, with more than 130 million customer accounts in the United States, Canada and Puerto Rico. In addition to MasterCard (including Diners), Visa, and American Express, U.S. Cards is the largest provider of credit card services to the oil and gas industry and the leading provider of consumer private-label credit cards and commercial accounts on behalf of merchants such as Sears, The Home Depot, Sears, Federated, Dell Computer, Radio Shack, Staples and Zales Corporation.

        Revenues are primarily generated from net interest revenue on receivables, interchange fees on purchase sales and other delinquency or services fees.

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005
  1Q06 vs. 1Q05
 
Revenues, net of interest expense   $ 3,234   $ 3,455   (6 )%
Operating expenses     1,532     1,500   2  
Provision for loan losses and for benefits and claims     395     756   (48 )
   
 
 
 
Income before taxes and minority interest   $ 1,307   $ 1,199   9 %
Income taxes and minority interest, net of taxes     381     421   (10 )
   
 
 
 
Net income   $ 926   $ 778   19 %
   
 
 
 
Average assets (in billions of dollars)   $ 63   $ 71   (11 )%
Return on assets     5.96 %   4.44 %    
Average risk capital(1)   $ 5,563   $ 5,638   (1 )%
Return on risk capital(1)     68 %   56 %    
Return on invested capital(1)     28 %   23 %    
   
 
 
 
Key indicators—on a managed basis: (in billions of dollars)                  
Return on managed assets     2.59 %   2.12 %    
Purchase sales   $ 68.4   $ 61.7   11 %
Managed average yield(2)     14.16 %   13.58 %    
Managed net interest margin(2)     10.48 %   11.03 %    
   
 
 
 

(1)
See footnote 3 to the table on page 4.

(2)
As a percentage of average managed loans.

16


1Q06 vs. 1Q05

        Revenues, net of interest expense, declined as the positive impact of 11% growth in purchase sales and the addition of the Federated portfolio in the 2005 fourth quarter was more than offset by continued net interest margin compression and higher rewards program costs related to the 2005 fourth quarter change to conform accounting practices for customer rewards. The net interest margin compression was driven by a combination of increased payment rates, higher cost of funds, and the mix of average managed receivable balances. Operating expenses increased, primarily reflecting the addition of the Federated portfolio and the adoption of SFAS 123(R) in the 2006 first quarter, partially offset by the absence of 2005 first quarter repositioning expenses and a decline in advertising and marketing expenses, largely reflecting the timing of advertising campaigns.

        Provision for loan losses and for benefits and claims declined, primarily reflecting a decline in net credit losses due to lower bankruptcies, the positive credit environment and higher loan loss reserve releases of $72 million.

        Net Income also reflected an $89 million tax benefit resulting from the resolution of the Federal Tax Audit.

17


U.S. Retail Disribution

         GRAPHIC

        U.S. Retail Distribution provides banking, lending, investment and insurance products and services to customers through 906 Citibank branches, 2,299 CitiFinancial branches, the Primerica Financial Services (PFS) salesforce, the Internet, direct mail and telesales. Revenues are primarily derived from net interest revenue on loans and deposits and from fees on banking, insurance and investment products.

 
  First Quarter
   
 
In millions of dollars

  % Change
1Q06 vs. 1Q05

 
  2006
  2005
 
Revenues, net of interest expense, by business:                  
  Citibank branches   $ 737   $ 853   (14 )%
  CitiFinancial branches     1,008     1,053   (4 )
  Primerica Financial Services     551     551    
   
 
 
 
Revenues, net of interest expense   $ 2,296   $ 2,457   (7 )%
  Operating expenses     1,221     1,085   13  
  Provisions for loan losses and for benefits and claims     387     491   (21 )
   
 
 
 
Income before taxes   $ 688   $ 881   (22 )%
Income taxes     173     317   (45 )
   
 
 
 
Net income   $ 515   $ 564   (9 )%
   
 
 
 
Net income by business:                  
  Citibank branches   $ 100   $ 185   (46 )%
  CitiFinancial branches     265     245   8  
  Primerica Financial Services     150     134   12  
   
 
 
 
Net income   $ 515   $ 564   (9 )%
   
 
 
 
Average assets (in billions of dollars)   $ 66   $ 63   5 %
Return on assets     3.16 %   3.63 %    
Average risk capital(1)   $ 3,459   $ 2,940   18 %
Return on risk capital(1)     60 %   78 %    
Return on invested capital(1)     23 %   20 %    
   
 
 
 
Key indicators: (in billions of dollars)                  
Average loans   $ 42.5   $ 39.4   8 %
Average deposits     125.6     118.8   6  
EOP Investment AUMs     75.0     67.3   11  
   
 
 
 

(1)
See footnote 3 to the table on page 4.

18


1Q06 vs. 1Q05

        Revenues, net of interest expense, decreased primarily due to the absence of a $110 million gain in the 2005 first quarter related to the resolution of the Glendale litigation. Growth in deposits and loans, up 6% and 8% respectively, and increased investment product sales were more than offset by net interest margin compression. This resulted in part from a shift in customer liabilities from savings and other demand deposits to certificates of deposit.

        Operating expense growth was primarily due to higher volume-related expenses, increased investment spending driven by 36 new branch openings, and the impact of SFAS 123(R). The impact of the FAB acquisition also contributed to higher expenses in the quarter.

        Provisions for loan losses and for benefits and claims decreased primarily due to lower bankruptcy filings.    CitiFinancial Branches also had higher loan loss reserve releases of $38 million. The net credit loss ratio declined 70 basis points to 2.66%, reflecting the favorable credit environment.

        Deposit growth reflected balance increases in certificates of deposit, premium checking, and partly rate-sensitive money market products, as well as the impact of the FAB acquisition. Loan growth reflected improvements in all channels and products. Investment product sales increased 26%, driven by increased volumes.

        Net income also reflected a $51 million tax reserve release resulting from the resolution of the Federal Tax Audit.

19


U.S. Consumer Lending

         GRAPHIC

        U.S. Consumer Lending provides home mortgages and home equity loans to prime and non-prime customers, auto financing to non-prime consumers and educational loans to students. Loans are originated throughout the United States and Canada through the Citibank, CitiFinancial and Smith Barney branch networks, Primerica Financial Services agents, third-party brokers, direct mail, the Internet and telesales. Loans are also purchased in the wholesale markets. U.S. Consumer Lending also provides mortgage servicing to a portfolio of mortgage loans owned by third parties. Revenues are composed of loan fees, net interest revenue and mortgage servicing fees.

 
  First Quarter
   
 
In millions of dollars

  % Change
1Q06 vs. 1Q05

 
  2006
  2005
 
Revenues, net of interest expense, by business:                  
  Real Estate Lending   $ 843   $ 924   (9 )%
  Student Loans     117     132   (11 )
  Auto     300     317   (5 )
   
 
 
 
Revenues, net of interest expense   $ 1,260   $ 1,373   (8 )%
Operating expenses     453     411   10  
Provisions for loan losses and for benefits and claims     143     182   (21 )
   
 
 
 
Income before taxes and minority interest   $ 664   $ 780   (15 )%
Income taxes     218     281   (22 )
Minority interest, net of taxes     9     13   (31 )
   
 
 
 
Net income   $ 437   $ 486   (10 )%
   
 
 
 
Net income by business:                  
  Real Estate Lending   $ 328   $ 363   (10 )%
  Student Loans     38     52   (27 )
  Auto     71     71    
   
 
 
 
Net income   $ 437   $ 486   (10 )%
   
 
 
 
Average assets (in billions of dollars)   $ 209   $ 178   17 %
Return on assets     0.85 %   1.11 %    
Average risk capital(1)   $ 3,732   $ 3,291   13 %
Return on risk capital(1)     47 %   60 %    
Return on invested capital(1)     27 %   38 %    
   
 
 
 
Key indicators:    (in billions of dollars)                  
Net interest margin:(2)                  
  Real Estate Lending     2.20 %   2.76 %    
  Student Loans     1.71     2.18      
  Auto     9.22     11.36      
Originations:                  
  Real Estate Lending   $ 32.4   $ 25.9   25 %
  Student Loans     2.9     2.6   12  
  Auto     2.0     1.4   43  
   
 
 
 

(1)
See footnote 3 to the table on page 4.

(2)
As a percentage of average loans.

20


1Q06 vs. 1Q05

        Revenues, net of interest expense, declined as an 18% increase in average loan volumes was offset by net interest margin compression, lower gains on securitizations of real estate loans, and lower net mortgage servicing revenues. Average loan growth reflected a strong increase in originations across all businesses, driven by a 17% increase in prime mortgage originations and home equity loans.

        Operating expenses increased primarily due to higher loan origination volumes, the continued integration of the real estate businesses, and the impact of SFAS 123(R) charges of $8 million.

        Provisions for loan losses and for benefits and claims decreased due to a continued favorable credit environment. The 90 days-past-due ratio declined across all product categories.

        Net income also reflected a $31 million tax reserve release resulting from the resolution of the Federal Tax Audit.

21


U.S. Commercial Business

         GRAPHIC

        U.S. Commercial Business provides equipment leasing, financing, and banking services to small- and middle-market businesses ($5 million to $500 million in annual revenues) and financing for investor-owned multifamily and commercial properties. Revenues are composed of net interest revenue and fees on loans and leases.

 
   
   
  % Change
 
 
  First Quarter
 
In millions of dollars

  1Q06 vs. 1Q05
 
  2006
  2005
 
Revenues, net of interest expense   $ 470   $ 678   (31 )%
Operating expenses     363     341   6  
Provision for loan losses     (24 )      
   
 
 
 
Income before taxes and minority interest   $ 131   $ 337   (61 )%
Income taxes and minority interest, net of taxes     5     85   (94 )
   
 
 
 
Net income   $ 126   $ 252   (50 )%
   
 
 
 
Average assets (in billions of dollars)   $ 41   $ 36   14 %
Return on assets     1.25 %   2.84 %    
Average risk capital(1)   $ 2,315   $ 1,969   18 %
Return on risk capital(1)     22 %   52 %    
Return on invested capital(1)     11 %   37 %    
   
 
 
 
Key indicators:    (in billions of dollars):                  
Average earning assets   $ 35.7   $ 31.5   13 %
   
 
 
 

(1)
See footnote 3 to the table on page 4.

1Q06 vs. 1Q05

        Revenues, net of interest expense, declined primarily due to the absence of a $161 million gain on the sale of the CitiCapital Transportation Finance business in the 2005 first quarter. Strong growth in core loan and deposit balances, up 23% and 25%, respectively, and the impact of the FAB acquisition were more than offset by the continuing impact of net interest margin compression.

        Operating expenses increased primarily due to the impact of the FAB acquisition and the SFAS 123(R) charges of $12 million, partially offset by lower expenses from the absence of the transportation finance businesses sold in the prior year.

        Provision for loan losses decreased primarily due to higher loan loss reserve releases of $26 million, a stable credit environment, and the continued liquidation of non-core portfolios.

        Net Income also reflected a $4 million tax reserve release resulting from the resolution of the Federal Tax Audit.

        Deposit and core loan growth reflected strong transaction volumes and balances across all business units and the impact of the FAB acquisition, partially offset by declines in the liquidating portfolio.

22


INTERNATIONAL CONSUMER

GRAPHIC

        International Consumer is composed of three businesses: Cards, Consumer Finance and Retail Banking.

 
   
   
  % Change
 
 
  First Quarter
 
In millions of dollars

  1Q06 vs. 1Q05
 
  2006
  2005
 
Revenues, net of interest expense, by region:                  
  Mexico   $ 1,149   $ 960   20 %
  Latin America     326     257   27  
  EMEA     1,270     1,248   2  
  Japan     775     821   (6 )
  Asia     1,189     1,072   11  
   
 
 
 
Revenues, net of interest expense   $ 4,709   $ 4,358   8 %
Operating expenses     2,621     2,422   8  
Provisions for loan losses and for benefits and claims     767     673   14  
   
 
 
 
Income before taxes and minority interest   $ 1,321   $ 1,263   5 %
Income taxes     184     324   (43 )
Minority interest, net of taxes     1        
   
 
 
 
Net income   $ 1,136   $ 939   21 %
   
 
 
 
Net income by region                  
  Mexico   $ 358   $ 277   29 %
  Latin America     58     54   7  
  EMEA     185     122   52  
  Japan     188     175   7  
  Asia     347     311   12  
   
 
 
 
Net income   $ 1,136   $ 939   21 %
   
 
 
 
Average assets (in billions of dollars)   $ 173   $ 165   5 %
Return on assets     2.66 %   2.31 %    
Average risk capital(1)   $ 12,645   $ 12,512   1 %
Return on risk capital(1)     36 %   30 %    
Return on invested capital(1)     18 %   15 %    
   
 
 
 

(1)
See footnote 3 to the table on page 4.

23


International Cards

GRAPHIC

        International Cards provides MasterCard-, Visa- and Diners-branded credit and charge cards, as well as private label cards and co-branded cards, to more than 26 million customer accounts in 43 countries outside of the U.S. and Canada. Revenues are primarily generated from net interest revenue on receivables, interchange fees on purchase sales and other delinquency or service fees.

 
   
   
  % Change
 
 
  First Quarter
 
In millions of dollars

  1Q06 vs. 1Q05
 
  2006
  2005
 
Revenues, net of interest expense, by region:                  
  Mexico   $ 405   $ 269   51 %
  Latin America     96     68   41  
  EMEA     294     294    
  Japan     70     73   (4 )
  Asia     415     401   3  
   
 
 
 
Revenues, net of interest expense   $ 1,280   $ 1,105   16 %
Operating expenses     617     568   9  
Provision for loan losses     312     155   NM  
   
 
 
 
Income before taxes and minority interest   $ 351   $ 382   (8 )%
Income taxes     60     79   (24 )
Minority interest, net of taxes         1   (100 )
   
 
 
 
Net income   $ 291   $ 302   (4 )%
   
 
 
 
Net income by region:                  
  Mexico   $ 149   $ 127   17 %
  Latin America     35     25   40  
  EMEA     32     32    
  Japan     21     17   24  
  Asia     54     101   (47 )
   
 
 
 
Net income   $ 291   $ 302   (4 )%
   
 
 
 
Average assets (in billions of dollars)   $ 28   $ 25   12 %
Return on assets     4.21 %   4.90 %    
Average risk capital(1)   $ 2,073   $ 1,595   30 %
Return on risk capital(1)     57 %   77 %    
Return on invested capital(1)     27 %   32 %    
   
 
 
 
Key indicators: (in billions of dollars):                  
Purchase sales   $ 17.4   $ 16.1   8 %
Average yield(2)     18.61 %   17.34 %    
Net interest margin(2)     12.90 %   12.26 %    
   
 
 
 

(1)
See footnote 3 to the table on page 4.

(2)
As a percentage of average loans.

NM Not meaningful

24


1Q06 vs. 1Q05

        Revenues, net of interest expense, increased, driven by an 8% increase in purchase sales and 14% growth in average receivables across the regions.

        Operating expenses increased, reflecting continued investment in organic growth, costs associated with a labor settlement in Korea, the adoption of SFAS 123(R) of $9 million, and volume growth across the region. This was partially offset by the absence of 2005 first quarter repositioning expenses of $13 million.

        Provision for loan losses reflected higher loan loss reserves of $99 million, driven by the industry-wide credit deterioration in Taiwan and an increase in net credit losses in Mexico, reflecting portfolio growth and target market expansion.

        Net Income also reflected a $20 million tax benefit resulting from the resolution of the Federal Tax Audit.

Regional Net Income

        Mexico income increased due to higher sales volumes and average loans, as well as tax benefits of $6 million. Latin America income increased primarily due to volume growth and the benefit of foreign currency translation. Japan income increased primarily due to tax credits of $2 million and the benefit of foreign currency translation. Asia income declined due to an increase in loan loss reserves related to Taiwan and costs associated with a Korea labor settlement, partially offset by higher purchase sales and loan growth. EMEA income remained unchanged as higher purchase sales and volume growth were offset by higher net credit losses and higher expenses.

25


International Consumer Finance

GRAPHIC

        International Consumer Finance provides community-based lending services through its branch network, regional sales offices and cross-selling initiatives with International Cards and International Retail Banking. As of March 31, 2006, International Consumer Finance maintained 2,319 sales points composed of 1,588 branches in more than 25 countries and 731 ALMs in Japan. International Consumer Finance offers real-estate-secured loans, unsecured or partially secured personal loans, auto loans, and loans to finance consumer-goods purchases. Revenues are primarily derived from net interest revenue and fees on loan products.

 
   
   
  % Change
 
 
  First Quarter
 
In millions of dollars

  1Q06 vs. 1Q05
 
  2006
  2005
 
Revenues, net of interest expense, by region:                  
  Mexico   $ 53   $ 43   23 %
  Latin America     36     28   29  
  EMEA     184     189   (3 )
  Japan     591     627   (6 )
  Asia     98     61   61  
   
 
 
 
Revenues, net of interest expense   $ 962   $ 948   1 %
Operating expenses     419     437   (4 )
Provision for loan losses     304     315   (3 )
   
 
 
 
Income before taxes and minority interest   $ 239   $ 196   22 %
Income taxes     71     57   25  
   
 
 
 
Net income   $ 168   $ 139   21 %
   
 
 
 
Net income by region:                  
  Mexico   $ 10   $ 9   11 %
  Latin America         3   (100 )
  EMEA     7     (4 ) NM  
  Japan     135     122   11  
  Asia     16     9   78  
   
 
 
 
Net income   $ 168   $ 139   21 %
   
 
 
 
Average assets (in billions of dollars)   $ 26   $ 27   (4 )
Return on assets     2.62 %   2.09 %    
Average risk capital(1)   $ 1,165   $ 934   25 %
Return on risk capital(1)     58 %   60 %    
Return on invested capital(1)     19 %   16 %    
   
 
 
 
Key indicators:                  
Average yield(2)     19.06 %   18.31 %    
Net interest margin(2)     16.67 %   16.36 %    
Number of sales points:                  
  Other branches     1,263     823      
  Japan branches     325     405      
  Japan Automated Loan Machines     731     523      
   
 
 
 
  Total     2,319     1,751      
   
 
 
 

(1)
See footnote 3 to the table on page 4.

(2)
As a percentage of average loans.

NM Not meaningful

26


1Q06 vs. 1Q05

        Revenues, net of interest expense, excluding Japan revenues increased 16%, driven mainly by higher personal loan volumes and higher net interest margins. Japan revenues declined primarily due to the impact of foreign currency translation.

        Operating expense decreased, primarily due to the absence of a 2005 first quarter repositioning charge in EMEA of $38 million and declines in Japan due to the closing of branches and the increased network of ALMs. Expenses in all other regions increased, reflecting the impact of investment spending associated with 130 new branch openings.

        Provision for loan losses declined primarily due to a loan loss reserve release in EMEA and lower net credit losses in Japan related to the sale of previously charged-off assets. This was partially offset by higher personal loan losses in the U.K. The net credit loss ratio increased 16 basis points to 5.78%.

        The decline in average loans was mainly driven by decreases in the personal-loan and real-estate-secured portfolios in Japan and decreases in the real-estate-secured and auto loan portfolios in EMEA. This was partially offset by higher personal loan volumes in Asia, EMEA, and Latin America. In Japan, average loans declined by 12% due to the impact of higher pay-downs, reduced loan demand, and the impact of foreign currency translation.

27


International Retail Banking

LOGO

        International Retail Banking delivers a wide array of banking, lending, insurance and investment services through a network of local branches and electronic delivery systems, including ATMs, call centers and the Internet. International Retail Banking serves 47 million customer accounts for individuals and small businesses. Revenues are primarily derived from net interest revenue on deposits and loans, and fees on mortgage, banking, and investment products.

 
   
   
  % Change
 
 
  First Quarter
 
In millions of dollars

  1Q06 vs. 1Q05
 
  2006
  2005
 
Revenues, net of interest expense, by region:                  
  Mexico   $ 691   $ 648   7 %
  Latin America     194     161   20  
  EMEA     792     765   4  
  Japan     114     121   (6 )
  Asia     676     610   11  
   
 
 
 
Revenues, net of interest expense   $ 2,467   $ 2,305   7 %
Operating expenses     1,585     1,417   12  
Provisions for loan losses and for benefits and claims     151     203   (26 )
   
 
 
 
Income before taxes and minority interest   $ 731   $ 685   7 %
Income taxes     53     188   (72 )
Minority interest, net of taxes     1     (1 ) NM  
   
 
 
 
Net income   $ 677   $ 498   36 %
   
 
 
 
Net income by region:                  
  Mexico   $ 199   $ 141   41 %
  Latin America     23     26   (12 )
  EMEA     146     94   55  
  Japan     32     36   (11 )
  Asia     277     201   38  
   
 
 
 
Net income   $ 677   $ 498   36 %
   
 
 
 
Average assets (in billions of dollars)   $ 119   $ 113   5 %
Return on assets     2.31 %   1.79 %    
Average risk capital(1)   $ 9,407   $ 9,983   (6 )
Average return on risk capital(1)     29 %   20 %    
Return on invested capital(1)     15 %   12 %    
   
 
 
 
Key indicators: (in billions of dollars):                  
Average deposits   $ 144.5   $ 135.7   6 %
AUMs (EOP)     130.4     105.8   23  
Average loans     61.5     62.0   (1 )
   
 
 
 

(1)
See footnote 3 to the table on page 4.

NM
Not meaningful

28


1Q06 vs. 1Q05

        Revenues, net of interest expense, increased, reflecting higher investment product sales in all regions, higher branch lending revenues in all regions except Asia, and higher deposit revenues in Asia, Latin America and EMEA. Average deposits grew 6%, led by increases of 20% in EMEA and 13% in Mexico. Loan balances declined slightly from the 2005 first quarter as growth in Mexico, Japan and Latin America was offset by a decline in EMEA, due to loan write-offs in the 2005 third quarter, and in Asia, due to the impact of labor actions in Korea. Assets under management increased by 23%.

        Operating expenses increased due to an increase in profit-sharing in Mexico, SFAS 123(R) charges, costs associated with a labor settlement in Korea, and continued expansion of the distribution network that included 72 new branch openings during the quarter. Additionally, there was a net increase of 157 branches since the 2005 first quarter, as well as, on a larger scale, the addition of more than 1,500 Banamex Aqui agents in Mexico.

        Provisions for loan losses and for benefits and claims decreased due to a loan loss reserve release in Korea as a result of an improving credit environment, and a gain from the sale of charged-off assets in Germany, partially offset by higher reserves in Mexico, higher credit losses in EMEA due to the standardization of the global write-off policy in the 2005 third quarter. The standardization of the loan write-off policies resulted in a significant drop in the 90 days past-due ratio, which fell to 1.21% from 3.26% in the 2005 first quarter.

        Net income also reflected a $72 million tax benefit in Mexico related to increased APB 23 benefits and a $55 million benefit from tax reserve releases related to the resolution of the Federal Tax Audit.

Regional Net Income

        Asia income increased, benefiting from higher deposit and investment product sales, a $59 million loan loss reserve release in Korea, and tax benefits of $27 million related to the resolution of the Federal Tax Audit, partially offset by costs associated with the labor settlement. Mexico income increased primarily due to increased APB 23 benefits, partially offset by higher expenses, including an increase in profit sharing. EMEA income increased on stronger investment product sales and lending revenues and a decline in expenses, reflecting the absence of repositioning expenses in the 2005 first quarter of $36 million after-tax. Latin America income declined, primarily due to the impact of foreign currency translation. Japan income declined due to lower deposit revenues; higher expenses, mainly due to the consolidation and compliance activities related to the shutdown of the Japan Private Bank; and the impact of foreign currency translation.

29


Other Consumer

        Other Consumer includes certain treasury and other unallocated staff functions and global marketing.

 
  First Quarter
 
In millions of dollars

 
  2006
  2005
 
Revenues, net of interest expense   $ (14 ) $ (203 )
Operating expenses     167     87  
   
 
 
Income (loss) before tax benefits   $ (181 ) $ (290 )
Income taxes (benefits)     (114 )   (114 )
   
 
 
Net income (loss)   $ (67 ) $ (176 )
   
 
 

        Revenues and expenses reflect certain unallocated items that are not reported in the Global Consumer operating segments.

        The net income increase was primarily due to the absence of the 2005 first quarter loss on the sale of a Manufactured Housing loan portfolio of $109 million after-tax and tax credits of $40 million, reflecting the resolution of the Federal Tax Audit, partially offset by SFAS 123(R) charges of $17 million after-tax and higher unallocated expenses.

30


CORPORATE AND INVESTMENT BANKING

LOGO
    *Excludes Other Corporate and Investment Banking loss of $12 million.   *Excludes Other Corporate and Investment Banking loss of $12 million.

        Corporate and Investment Banking (CIB) provides corporations, governments, institutions and investors in approximately 100 countries with a broad range of financial products and services. CIB includes Capital Markets and Banking, Transaction Services and Other CIB.

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005
  1Q06 vs. 1Q05
 
Revenues, net of interest expense, by region:                  
  U.S.   $ 2,923   $ 2,779   5 %
  Mexico     186     159   17  
  Latin America     446     310   44  
  EMEA     2,296     1,694   36  
  Japan     296     180   64  
  Asia     1,132     915   24  
   
 
 
 
Revenues, net of interest expense   $ 7,279   $ 6,037   21 %
Operating expenses     4,757     3,668   30  
Provision for credit losses         (56 ) 100  
   
 
 
 
Income before taxes and minority interest     2,522     2,425   4 %
Income taxes     574     735   (22 )
Minority interest, net of taxes     19     11   73  
   
 
 
 
Net income   $ 1,929   $ 1,679   15 %
   
 
 
 
Net income by region:                  
  U.S.   $ 515   $ 893   (42 )%
  Mexico     78     83   (6 )
  Latin America     202     145   39  
  EMEA     635     188   NM  
  Japan     85     48   77  
  Asia     414     322   29  
   
 
 
 
Net income   $ 1,929   $ 1,679   15 %
   
 
 
 
Average risk capital(1)   $ 20,593   $ 20,779   (1 )%
Return on risk capital(1)     38 %   33 %    
Return on invested capital(1)     28 %   24 %    
   
 
 
 

(1)
See footnote 3 to the table on page 4.

NM
Not meaningful.

31


Capital Markets and Banking

LOGO

        Capital Markets and Banking offers a wide array of investment and commercial banking services and products, including investment banking and advisory services, debt and equity trading, institutional brokerage, foreign exchange, structured products, derivatives, and lending. Capital Markets and Banking revenue is generated primarily from fees for investment banking and advisory services, fees and spread on structured products, foreign exchange and derivatives, fees and interest on loans, and income earned on principal transactions.

 
   
   
  % Change
 
 
  First Quarter
 
In millions of dollars

  1Q06 vs. 1Q05
 
  2006
  2005
 
Revenues, net of interest expense, by region:                  
  U.S.   $ 2,610   $ 2,541   3 %
  Mexico     138     111   24  
  Latin America     300     193   55  
  EMEA     1,808     1,266   43  
  Japan     271     165   64  
  Asia     769     623   23  
   
 
 
 
Revenues, net of interest expense   $ 5,896   $ 4,899   20 %
Operating expenses     3,803     2,859   33  
Provision for credit losses     (5 )   (46 ) 89  
   
 
 
 
Income before taxes and minority interest   $ 2,098   $ 2,086   1 %
Income taxes     461     637   (28 )
Minority interest, net of taxes     19     10   90  
   
 
 
 
Net income   $ 1,618   $ 1,439   12 %
   
 
 
 
Net income by region:                  
  U.S.   $ 515   $ 878   (41 )%
  Mexico     64     65   (2 )
  Latin America     151     104   45  
  EMEA     530     123   NM  
  Japan     80     49   63  
  Asia     278     220   26  
   
 
 
 
Net income   $ 1,618   $ 1,439   12 %
   
 
 
 
Average risk capital(1)   $ 19,123   $ 19,344   (1 )%
Return on risk capital(1)     34 %   30 %    
Return on invested capital(1)     26 %   23 %    
   
 
 
 

(1)
See footnote 3 to the table on page 4.

NM
Not meaningful.

32


1Q06 vs. 1Q05

        Revenues, net of interest expense, increased, driven by broad-based performance across products and regions. Equity Markets revenues increased, driven by strong growth globally, including cash trading, derivatives products and convertibles. Fixed Income Markets revenue increases reflected growth in emerging markets trading, municipals, and credit products. Investment Banking revenue growth was driven by higher debt underwriting and advisory fees. Lending revenue declined, as improved credit conditions led to lower hedging results.

        Operating expenses growth was primarily driven by higher compensation expenses, which included higher production-driven incentive compensation and $439 million of compensation expense related to the adoption of SFAS 123(R).

        The provision for credit losses increased, reflecting the absence of loan loss reserve releases recorded in the prior year.

Regional Net Income

        Net income in the U.S. decreased primarily due to higher compensation expenses (higher production-driven incentive compensation and the impact of SFAS 123(R) charges), as well as lower Lending and Fixed Income Markets revenues; these were partially offset by higher Equities Markets revenues and tax benefits from the resolution of the Federal Tax Audit.

        Mexico net income was unchanged as the absence of a loan loss recovery recorded in the prior-year period was offset by strong revenue growth in Fixed Income and Equity Markets. Credit conditions remained stable.

        Latin America net income increased primarily due to strong revenue growth in Equity and Fixed Income Markets activities in Brazil, as well as tax benefits from the resolution of the Federal Tax Audit; these were partially offset by the absence of prior year loan loss reserve releases and the impact from SFAS 123(R) charges. Credit conditions remained favorable.

        EMEA net income increased, driven by double-digit revenue growth across all major product lines and geographies on higher volumes and growth in customer activity, the absence of prior year repositioning expenses, and tax benefits from the resolution of the Federal Tax Audit. Results also include the impact from SFAS 123(R) charges.

        Net income in Japan increased strongly due to growth in Fixed Income Markets, partially offset by higher expenses.

        Net income in Asia increased, driven by double-digit revenue growth in Equity and Fixed Income Markets, as well as tax benefits from the resolution of the Federal Tax Audit, partially offset by the impact from SFAS 123(R) charges. Credit conditions remained favorable.

33


Transaction Services

         LOGO

        Transaction Services is composed of Cash Management, Trade Services & Finance (Trade) and Securities & Funds Services (SFS). Cash Management and Trade Services provide comprehensive cash management and trade finance for corporations and financial institutions worldwide. SFS provides custody and fund services to investors such as insurance companies and pension funds, clearing services to intermediaries such as broker/dealers, and depository and agency/trust services to multinational corporations and governments globally. Revenue is generated from fees for transaction processing, net interest revenue on Trade, loans and deposits in Cash Management and SFS, and fees on assets under custody in SFS.

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005
  1Q06 vs. 1Q05
 
Revenues, net of interest expense, by region:                  
  U.S.   $ 312   $ 237   32 %
  Mexico     48     48    
  Latin America     146     117   25  
  EMEA     488     428   14  
  Japan     25     15   67  
  Asia     363     292   24  
   
 
 
 
Revenues, net of interest expense   $ 1,382   $ 1,137   22 %
Operating expenses     949     803   18  
Provision for credit losses     5     (13 ) NM  
   
 
 
 
Income before taxes and minority interest   $ 428   $ 347   23 %
Income taxes     105     101   4  
Minority interest, net of taxes         1   (100 )
   
 
 
 
Net income   $ 323   $ 245   32 %
   
 
 
 
Net income by region:                  
  U.S.   $ 12   $ 20   (40 )%
  Mexico     14     18   (22 )
  Latin America     51     41   24  
  EMEA     105     65   62  
  Japan     5     (1 ) NM  
  Asia     136     102   33  
   
 
 
 
Net income   $ 323   $ 245   32 %
   
 
 
 
Average risk capital(1)   $ 1,470   $ 1,435   2 %
Return on risk capital(1)     89 %   69 %    
Return on invested capital(1)     50 %   40 %    
   
 
 
 
Key indicators:                  
Liability balances (average in billions of dollars)   $ 158   $ 139   14 %
Assets under custody at period end (in trillions of dollars)     8.8     8.0   10  
   
 
 
 

(1)
See footnote 3 to the table on page 4.

NM Not meaningful.

34


1Q06 vs. 1Q05

        Revenues, net of interest expense, increased, reflecting growth in liability balances, assets under custody, and rising interest rates in Cash Management and SFS. Average liability balances grew 14% to $158 billion primarily due to increases in EMEA and the U.S., reflecting positive flow from new and existing customers.

        Cash Management revenue increased, reflecting growth across all regions except Mexico from higher liability balances, higher interest rates, and increased revenues from new sales.

        Securities & Funds Services revenue increased, reflecting growth across all regions, higher assets under custody, and the impact of acquisitions. Assets under custody reached $8.8 trillion, an increase of $0.8 trillion, or 10%, driven by strong sales momentum, higher equity market values, and the inclusion of ABN Amro and UNISEN assets under custody.

        Trade Services & Finance revenue increased primarily due to double-digit revenue growth in EMEA and the U.S., partially offset by Mexico and Latin America.

        The change in the provision for credit losses of $18 million was primarily attributable to a reserve build of $5 million in 2006, compared to reserve releases of $13 million in 2005.

        Operating expenses increased due to organic business growth, acquisitions, and investment spending.

        Cash-basis loans, which are primarily trade finance receivables, were $76 million and $77 million at March 31, 2006 and 2005, respectively.

Regional Net Income

        Net income in the U.S. decreased primarily due to higher expenses from acquisitions and continued investment spending, which was partially offset by growth in liability balances, higher interest rates, and the resolution of the Federal Tax Audit.

        Mexico net income decreased primarily due to higher expenses, and declining interest rates.

        Latin America net income increased on liability balance growth and the resolution of the Federal Tax Audit.

        EMEA net income increased primarily due to increases in liability balances, assets under custody and higher interest rates. Results also included the benefit of the resolution of the Federal Tax Audit.

        Asia net income increased primarily due to higher customer volumes, growth in liability balances and assets under custody, higher interest rates, and the resolution of the Federal Tax Audit.

        Japan net income increased due to higher liability balances and assets under custody.

35


Other CIB

        Other CIB includes offsets to certain line items reported in other CIB segments, certain non-recurring items and tax amounts not allocated to CIB products.

 
  First Quarter
 
In millions of dollars

 
  2006
  2005
 
Revenues, net of interest expense   $ 1   $ 1  
Operating expenses     5     6  
Provision for credit losses         3  
   
 
 
Income (loss) before income taxes (benefits)   $ (4 ) $ (8 )
Income taxes (benefits)     8     (3 )
   
 
 
Net income (loss)   $ (12 ) $ (5 )
   
 
 

1Q06 vs. 1Q05

        The net loss of $12 million in the 2006 first quarter, compared to a net loss of $5 million in the prior-year quarter, is primarily due to higher taxes, partially offset by lower credit provisions.

36


GLOBAL WEALTH MANAGEMENT

         LOGO

        Global Wealth Management is composed of the Smith Barney Private Client businesses (branded Citigroup Wealth Advisors outside the U.S.), Citigroup Private Bank, and Citigroup Investment Research.

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005
  1Q06 vs. 1Q05
 
Revenues, net of interest expense by region:                  
  U.S.   $ 2,154   $ 1,872   15 %
  Mexico     31     31    
  Latin America     43     58   (26 )
  EMEA     75     71   6  
  Japan         22   (100 )
  Asia     180     119   51  
   
 
 
 
Revenues, net of interest expense   $ 2,483   $ 2,173   14 %
Operating expenses     2,055     1,690   22  
Provision for loan losses     5     (16 ) NM  
   
 
 
 
Income before taxes   $ 423   $ 499   (15 )%
Income taxes     136     180   (24 )
   
 
 
 
Net income   $ 287   $ 319   (10 )%
   
 
 
 
Net income (loss) by region:                  
  U.S.   $ 228   $ 273   (16 )%
  Mexico     8     13   (38 )
  Latin America     3     7   (57 )
  EMEA     3     (1 ) NM  
  Japan         (8 ) 100  
  Asia     45     35   29  
   
 
 
 
Net income   $ 287   $ 319   (10 )%
   
 
 
 
Average risk capital(1)   $ 2,539   $ 1,993   27 %
Return on risk capital(1)     46 %   65 %    
Return on invested capital(1)     29 %   53 %    
   
 
 
 

(1)
See footnote 3 to the table on page 4.

NM Not meaningful.

37


Smith Barney

         LOGO

        Smith Barney provides investment advice, financial planning and brokerage services to affluent individuals, companies, and non-profits through a network of more than 13,000 Financial Advisors in more than 600 offices primarily in the U.S. Smith Barney generates revenue from managing client assets, acting as a broker for clients in the purchase and sale of securities, financing customers' securities transactions and other borrowing needs through lending, and through the sale of mutual funds.

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005
  1Q06 vs. 1Q05
 
Revenues, net of interest expense   $ 1,987   $ 1,669   19 %
Operating expenses     1,720     1,351   27  
Provision for loan losses     1        
   
 
 
 
Income before taxes   $ 266   $ 318   (16 )%
Income taxes     98     121   (19 )
   
 
 
 
Net income   $ 168   $ 197   (15 )%
   
 
 
 
Average risk capital(1)   $ 1,457   $ 876   66 %
Return on risk capital(1)     47 %   91 %    
Return on invested capital(1)     24 %   63 %    
   
 
 
 
Key indicators: (in billions of dollars)                  
Total assets under fee-based management   $ 319   $ 239   33 %
Total Smith Barney client assets   $ 1,167   $ 969   20  
Financial advisors (#)     13,321     12,189   9  
Annualized revenue per financial advisor (in thousands of dollars)   $ 597   $ 556   7  
   
 
 
 

(1)
The increase in average risk capital from the 2005 first quarter was primarily attributed to methodology changes implemented during the 2006 first quarter. See footnote 3 to the table on page 4.

38


1Q06 vs. 1Q05

        Revenues, net of interest expense, increased primarily due to a 32% increase in fee-based revenues and a 4% increase in transactional revenues, reflecting increased customer volumes and the acquisition of the Legg Mason retail brokerage business.

        Operating expenses increased due mainly to higher compensation expense, including SFAS 123(R) charges of $177 million, and integration costs of the Legg Mason retail brokerage business. The SFAS 123(R) charge consisted of $129 million related to the January 2006 grant and $48 million related to the 2006 first quarter accrual for the estimated cost of awards to be granted through January 2007.

        Total assets under fee-based management were $319 billion as of March 31, 2006, up $80 billion or 33%, from the prior-year period. Total client assets, including assets under fee-based management, of $1,167 billion increased $198 billion, or 20%, compared to the prior-year quarter. This reflected organic growth and the addition of Legg Mason client assets. Net inflows were $3 billion compared to $13 billion in the prior-year quarter. Smith Barney had 13,321 financial consultants as of March 31, 2006, compared with 12,189 as of March 31, 2005. Annualized revenue per financial consultant of $597,000 increased 7% from the prior-year quarter.

39


Private Bank

         LOGO

        Private Bank provides personalized wealth management services for high-net-worth clients in 33 countries and territories. These services include comprehensive investment management (investment funds management, capital markets solutions, trust, fiduciary and custody services), investment finance (credit services including real estate financing, commitments and letters of credit) and banking services (deposit, checking and savings accounts, as well as cash management and other traditional banking services).

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005
  1Q06 vs. 1Q05
 
Revenues, net of interest expense, by region:                  
  U.S.   $ 210   $ 203   3 %
  Mexico     31     31    
  Latin America     43     58   (26 )
  EMEA     70     71   (1 )
  Japan         22   (100 )
  Asia     142     119   19  
   
 
 
 
Revenues, net of interest expense   $ 496   $ 504   (2 )%
Operating expenses     335     339   (1 )
Provision for loan losses     4     (16 ) NM  
   
 
 
 
Income before taxes   $ 157   $ 181   (13 )%
Income taxes     38     59   (36 )
   
 
 
 
Net income   $ 119   $ 122   (2 )%
   
 
 
 
Net income (loss) by region:                  
  U.S.   $ 66   $ 76   (13 )%
  Mexico     8     13   (38 )
  Latin America     3     7   (57 )
  EMEA     2     (1 ) NM  
  Japan         (8 ) 100  
  Asia     40     35   14  
   
 
 
 
Net income (loss)   $ 119   $ 122   (2 )%
   
 
 
 
Average risk capital(1)   $ 1,082   $ 1,117   (3 )%
Return on risk capital(1)     45 %   44 %    
Return on invested capital(1)     42 %   42 %    
   
 
 
 
Key indicators: (in billions of dollars)                  
  Client assets under fee-based management   $ 50   $ 49   2 %
  Other client activity     172     169   2  
   
 
 
 
Total client business volumes   $ 222   $ 218   2 %
   
 
 
 

(1)
See footnote 3 to the table on page 4.

NM Not meaningful.

40


1Q06 vs. 1Q05

        Revenues, net of interest expense, declined as growth in recurring fee-based and net interest revenues was offset by lower transactional revenue.

        U.S.    revenue increased, as strong growth in lending volumes was partially offset by net interest revenue compression.

        Mexico revenue was flat, as an increase in banking revenue was offset by lower capital markets revenue.

        Latin America revenue decreased, primarily driven by lower capital markets revenue and spread compression in the lending portfolio.

        EMEA revenue decreased, as higher capital markets revenue was partially offset by the transfer of the CWA business to Smith Barney.

        Asia revenue increased, reflecting strong capital markets activity.

        Operating expenses declined, primarily reflecting the absence of Japan expenses in the 2006 first quarter, which offset SFAS 123(R) charges of $19 million.

        Provision for loan losses was $4 million in the 2006 first quarter compared to a $16 million release in the 2005 first quarter. The provision in the 2005 first quarter reflected a reduction in the allowance for loan losses and net recoveries in EMEA.

        Client business volumes increased $4 billion, or 2%, as a decline of $12 billion in Japan was offset by growth of $16 billion, or 8%, in other regions. Growth was led by an increase of $2 billion in custody assets, which were higher in the U.S. and Asia, offsetting a decline in Japan. Managed assets increased $1 billion, mainly driven by positive net flows in Asia, offsetting a decline in Japan. Banking and fiduciary deposits increased $1 billion, with growth in Asia and Europe partially offset by a decline in Japan. Investment finance volumes were flat, reflecting a decline in Japan offset by growth in U.S. real estate and tailored lending.

41


ALTERNATIVE INVESTMENTS

         LOGO

        Alternative Investments (AI) manages capital on behalf of Citigroup, as well as for third-party institutional and high-net-worth investors. AI is an integrated alternative investment platform that manages a wide range of products across five asset classes, including private equity, hedge funds, real estate, structured products and managed futures. AI's business model is to enable its 14 investment centers to retain entrepreneurial qualities required to capitalize on evolving opportunities, while benefiting from the intellectual, operational and financial resources of Citigroup.

 
  First Quarter
  % Change
 
In millions of dollars

 
  2006
  2005
  1Q06 vs. 1Q05
 
Net realized and net change in unrealized gains   $ 563   $ 706   (20 )%
Fees, dividends and interest     49     81   (40 )
Other     (28 )   17   NM  
   
 
 
 
Total proprietary investment activities revenues   $ 584   $ 804   (27 )%
Client revenues(1)     91     62   47  
   
 
 
 
Total revenues, net of interest expense   $ 675   $ 866   (22 )%
Operating expenses     181     105   72  
   
 
 
 
Income before taxes and minority interest   $ 494   $ 761   (35 )%
   
 
 
 
Income taxes   $ 111   $ 267   (58 )%
Minority interest, net of taxes     30     132   (77 )
   
 
 
 
Net income   $ 353   $ 362   (2 )%
   
 
 
 
Average risk capital(2)   $ 4,547   $ 4,089   11 %
Return on risk capital(2)     32 %   36 %    
Return on invested capital(2)     28 %   34 %    
   
 
 
 
Key indicators: (in billions of dollars)                  
Capital under management:                  
  Client   $ 28.2   $ 20.2   40 %
  Proprietary     11.1     8.8   26  
   
 
 
 
Total   $ 39.3   $ 29.0   36 %
   
 
 
 

(1)
Includes fee income.

(2)
See footnote 3 to the table on page 4.

NM Not meaningful

42


1Q06 vs. 1Q05

        Total proprietary revenues, net of interest expense, were composed of revenues from private equity of $213 million, other investment activity of $264 million and hedge funds of $107 million. Private equity revenue declined $539 million from the first quarter 2005, primarily driven by the absence of prior-year realized gains from the sale of portfolio assets. Other investment activities revenue increased $242 million from the first quarter 2005, largely due to realized gains from the liquidation of Citigroup's investment in St. Paul shares. Hedge fund revenue increased $77 million, largely due to a higher net change in unrealized gains on a substantially increased asset base, along with improved investment performance. Client revenues increased $29 million, reflecting increased management and performance fees from a 40% growth in client capital under management.

        Operating expenses in the first quarter of 2006 of $181 million increased $76 million from the first quarter of 2005, primarily due to increased performance-driven compensation, investment spending in hedge funds and real estate, and the impact of SFAS 123(R).

        Minority interest, net of tax, in the first quarter of 2006 of $30 million declined $102 million from the first quarter of 2005, primarily due to the lack of private equity gains related to underlying investments held by consolidated majority-owned legal entities. The impact of minority interest is reflected in fees, dividends, and interest, and net realized gains/(losses) consistent with cash proceeds received by minority interests.

        Net Income in the first quarter of 2006 also reflected a tax benefit of $58 million resulting from the resolution of the Federal Tax Audit.

        Proprietary capital under management of $11.1 billion increased $2.3 billion from the first quarter 2005, primarily driven by the MetLife and Legg Mason shares acquired during 2005, as well as the funding of proprietary investments in hedge funds and real estate. These increases were partially offset by the sale of all of Citigroup's holdings of St. Paul shares.

        Client capital under management of $28.2 billion in the 2006 first quarter increased $8.0 billion from the 2005 first quarter, due to inflows from institutional and high-net-worth clients and the inclusion of $1.3 billion in assets for the former Travelers Life & Annuities business, following the July 1, 2005 sale to MetLife.

        Investments held by investment company subsidiaries (including CVC Brazil) are carried at fair value with the net change in unrealized gains and losses recorded in income. The Company's investment in CVC Brazil is subject to a variety of unresolved matters, including pending litigation involving some of its portfolio companies, which could affect future valuations of these companies.*


*
This is a forward-looking statement within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 75.

        The sale of Citigroup's Life Insurance and Annuities business to MetLife, Inc. on July 1, 2005, included $1.0 billion, or 22.4 million shares, in MetLife equity securities in the sale proceeds. The investment in Legg Mason resulted from the sale of Citigroup's Asset Management business to Legg Mason, Inc. on December 1, 2005, which included $2.298 billion, a combination of Legg Mason common and convertible preferred equity securities in the sale proceeds. Total equivalent number of common shares was 18.7 million, of which 10.3 million were sold in March 2006. The MetLife and Legg Mason equity securities are classified on Citigroup's Consolidated Balance Sheet as Investments (available-for-sale). Citigroup's ownership position in St. Paul Travelers Companies Inc. common shares was liquidated in the 2006 first quarter, resulting in a pretax gain of $225 million.

MetLife and Legg Mason Equity Securities

Company

  Type of Ownership
  Shares owned on March 31, 2006
  Sale Restriction
  Market Value as of March 31, 2006
($ millions)
  Pretax Unrealized Gains as of March 31, 2006
($ millions)
MetLife, Inc.(1)   Common stock representing approximately 3.0% ownership   22.4 million   May be sold in private offerings until July 1, 2006. Thereafter, may be sold publicly   $ 1,085   $ 85

Legg Mason, Inc.

 

Non-voting convertible preferred stock representing approximately 6.2% ownership

 

8.4 shares (convertible into 8.4 million shares of common stock upon sale to non-affiliate)

 

2.2 million shares may be sold publicly at any time and the remaining 6.2 million shares may be sold after December 1, 2006

 

 

1,052

 

 

22
               
 
Total               $ 2,137   $ 107
               
 

(1)
The pretax unrealized gain excludes the effects from The Company's hedging activities related to these shares. The hedges covered approximately 84% of shares owned as of March 31, 2006.

43


CORPORATE/OTHER

        Corporate/Other includes treasury results, unallocated corporate expenses, offsets to certain line-item reclassifications reported in the business segments (inter-segment eliminations), the results of discontinued operations and unallocated taxes.

 
  First Quarter
 
In millions of dollars

 
  2006
  2005
 
Revenues, net of interest expense   $ (209 ) $ 2  
Operating expenses     8     95  
   
 
 
Income (loss) from continuing operations before taxes and minority interest   $ (217 ) $ (93 )
Income tax benefits     (131 )   (12 )
Minority interest, net of taxes     1     7  
   
 
 
Income (loss) from continuing operations   $ (87 ) $ (88 )
Income from discontinued operations     84     326  
   
 
 
Net income (loss)   $ (3 ) $ 238  
   
 
 

1Q06 vs. 1Q05

        Revenues, net of interest expense, decreased, primarily due to lower intersegment eliminations and lower treasury results. Higher interest rates and an extension of the debt maturity profile, partially offset by lower funding balances, drove a decline in treasury results.

        Operating expenses declined, primarily due to lower intersegment eliminations, partially offset by increased staffing and technology costs.

        Income tax benefits increased due to the higher pretax loss in the current year and a tax reserve release of $61 million relating to the resolution of the Federal Tax Audit.

        Discontinued operations represent the operations in the Company's Sale of the Asset Management Business to Legg Mason Inc., and the Sale of the Life Insurance and Annuities Business. For 2006, income from discontinued operations included a gain from the Sale of the Asset Management Business in Poland, as well as a tax reserve release of $59 million relating to the resolution of the Federal Tax Audit. See Note 3 to the Consolidated Financial Statements on page 83.

44


MANAGING GLOBAL RISK

        The Citigroup risk management framework recognizes the diversity of Citigroup's global business activities by balancing strong corporate oversight with well-defined independent risk management functions within each business. The Citigroup risk management framework is described in Citigroup's 2005 Annual Report on Form 10-K.

        The Citigroup Senior Risk Officer is responsible for:

        The independent risk managers at the business level are responsible for establishing and implementing risk management policies and practices within their business, for overseeing the risk in their business, and for responding to the needs and issues of their business.

RISK CAPITAL

        Risk capital is defined at Citigroup as the amount of capital required to absorb potential unexpected economic losses resulting from extremely severe events over a one-year time period.

        Risk capital is used in the calculation of return on risk capital (RORC) and return on invested capital (ROIC) measures for assessing business performance and allocating Citigroup's balance sheet and risk-taking capacity.

        RORC, calculated as annualized net income from continuing operations divided by average risk capital, compares business income with the capital required to absorb the risks. This is analogous to a return on tangible equity calculation. It is used to assess businesses' operating performance and to determine incremental allocation of capital for organic growth.

        ROIC is calculated using income adjusted to exclude a net internal funding cost Citigroup levies on the goodwill and intangible assets of each business. This adjusted annualized income is divided by the sum of each business' average risk capital, goodwill and intangible assets (excluding mortgage servicing rights, which are captured in risk capital). ROIC thus compares business income with the total invested capital—risk capital, goodwill and intangible assets—used to generate that income. ROIC is used to assess returns on potential acquisitions and divestitures, and to compare long-term performance of businesses with differing proportions of organic and acquired growth.

        Methodologies to measure risk capital are jointly developed by risk management, the financial division and Citigroup businesses, and approved by the Citigroup Senior Risk Officer and Citigroup Chief Financial Officer. It is expected, due to the evolving nature of risk capital, that these methodologies will continue to be refined.

        The drivers of "economic losses" are risks, which can be broadly categorized as credit risk (including cross-border risk), market risk, operational risk, and insurance risk:

        These risks are measured and aggregated within businesses and across Citigroup to facilitate the understanding of the Company's exposure to extreme downside events and any changes in its level or its composition.

        At March 31, 2006, December 31, 2005, and March 31, 2005, risk capital for Citigroup was composed of the following risk types:

In billions of dollars

  Mar. 31,
2006

  Dec. 31,
2005

  Mar. 31,
2005

 
Credit risk   $ 36.3   $ 36.1   $ 33.8  
Market risk     17.4     13.5     15.0  
Operational risk     8.1     8.1     8.5  
Insurance risk     0.2     0.2     0.2  
Intersector diversification(1)     (5.9 )   (4.7 )   (5.0 )
   
 
 
 
Total Citigroup   $ 56.1   $ 53.2   $ 52.5  
   
 
 
 
Return on risk capital     41 %   38 %   40 %
Return on invested capital     20 %   22 %   20 %
   
 
 
 

(1)
Reduction in risk represents diversification between risk sectors.

45


        The increase in Citigroup's risk capital versus December 31, 2005 was primarily related to the year-end methodology update for market risk for non-trading positions, offset by decreases in certain of the Company's proprietary investment positions.

        Average risk capital, return on risk capital and return on invested capital are provided for each segment and product and are disclosed on pages 14-42.

        The increase in average risk capital compared to the 2005 first quarter was primarily driven by increases in Global Consumer, Global Wealth Management, Alternative Investments and Corporate/Other. Average risk capital of $27.7 billion in Global Consumer increased $1.4 billion, or 5%, driven mostly by updates to risk capital methodologies in market risk for non-trading positions and operational risk. Average risk capital of $2.5 billion in Global Wealth Management increased $546 million, or 27%, primarily driven by the new operational risk methodology. Alternative Investments average risk capital of $4.5 billion increased $458 million, or 11%, due to higher market risk under the updated methodology for non-trading positions. Corporate/Other average risk capital increased $1.8 billion, from ($1.7) billion to $145 million, due to the methodological changes in market and operational risks, offset by the intersector diversification.

CREDIT RISK MANAGEMENT PROCESS

        Credit risk is the potential for financial loss resulting from the failure of a borrower or counterparty to honor its financial or contractual obligations. Credit risk arises in many of the Company's business activities, including:

        The credit risk management process at Citigroup relies on corporate oversight to ensure appropriate consistency with business-specific policies and practices to ensure applicability.

LOGO

46


DETAILS OF CREDIT LOSS EXPERIENCE

In millions of dollars

  1st Qtr.
2006

  4th Qtr.
2005

  3rd Qtr.
2005

  2nd Qtr.
2005

  1st Qtr.
2005

 
Allowance for loan losses at beginning of year   $ 9,782   $ 10,015   $ 10,418   $ 10,894   $ 11,269  
   
 
 
 
 
 
Provision for loan losses                                
  Consumer   $ 1,446   $ 1,936   $ 2,584   $ 1,835   $ 1,869  
  Corporate     (50 )   (65 )   (59 )   (115 )   (56 )
   
 
 
 
 
 
    $ 1,396   $ 1,871   $ 2,525   $ 1,720   $ 1,813  
   
 
 
 
 
 
Gross credit losses                                
Consumer                                
  In U.S. offices   $ 1,105   $ 1,531   $ 1,380   $ 1,472   $ 1,539  
  In offices outside the U.S.     1,037     955     2,000     869     840  
Corporate                                
  In U.S. offices     15     68   $ 4   $ 32   $ 23  
  In offices outside the U.S.     26     60     60     79     49  
   
 
 
 
 
 
    $ 2,183   $ 2,614   $ 3,444   $ 2,452   $ 2,451  
   
 
 
 
 
 
Credit recoveries                                
Consumer                                
  In U.S. offices   $ 190   $ 224   $ 242   $ 333   $ 261  
  In offices outside the U.S.     319     227     212     211     193  
Corporate                                
  In U.S. offices     2     94     39     7     13  
  In offices outside the U.S.     72     146     148     123     82  
   
 
 
 
 
 
    $ 583   $ 691   $ 641   $ 674   $ 549  
   
 
 
 
 
 
Net credit losses                                
  In U.S. offices   $ 928   $ 1,281   $ 1,103   $ 1,164   $ 1,288  
  In offices outside the U.S.     672     642     1,700     614     614  
   
 
 
 
 
 
Total   $ 1,600   $ 1,923   $ 2,803   $ 1,778   $ 1,902  
   
 
 
 
 
 
Other—net(1)(2)(3)(4)(5)   $ (73 ) $ (181 ) $ (125 ) $ (418 ) $ (286 )
   
 
 
 
 
 
Allowance for loan losses at end of year   $ 9,505   $ 9,782   $ 10,015   $ 10,418   $ 10,894  
   
 
 
 
 
 
Allowance for unfunded lending commitments(6)   $ 900   $ 850   $ 800   $ 700   $ 600  
   
 
 
 
 
 
Total allowance for loans and unfunded lending commitments   $ 10,405   $ 10,632   $ 10,815   $ 11,118   $ 11,494  
   
 
 
 
 
 
Net consumer credit losses   $ 1,633   $ 2,035   $ 2,926   $ 1,797   $ 1,925  
As a percentage of average consumer loans     1.46 %   1.82 %   2.68 %   1.68 %   1.83 %
   
 
 
 
 
 
Net corporate credit losses/(recoveries)   $ (33 ) $ (112 ) $ (123 ) $ (19 ) $ (23 )
As a percentage of average corporate loans     NM     NM     NM     NM     NM  
   
 
 
 
 
 

(1)
The 2006 first quarter includes reductions to the loan loss reserve of $90 million related to securitizations.

(2)
The 2005 fourth quarter includes reductions to the loan loss reserve of $186 million related to securitizations.

(3)
The 2005 third quarter includes reductions to the loan loss reserve of $137 million related to securitizations offset by the $23 million of loan loss reserves related to the purchased distressed loans reclassified from Other Assets.

(4)
The 2005 second quarter includes reductions to the loan loss reserve of $132 million related to securitizations and portfolio sales, $110 million of purchase accounting adjustments related to the KorAm acquisition, and a $79 million reclassification to a non-credit related reserve.

(5)
The 2005 first quarter includes reductions to the loan loss reserve of $129 million related to credit cards securitizations and $90 million from the sale of CitiCapital's Transportation Finance business.

(6)
Represents additional credit loss reserves for unfunded corporate lending commitments and letters of credit recorded within Other Liabilities on the Consolidated Balance Sheet.

47


CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS

In millions of dollars

  Mar. 31
2006

  Dec. 31,
2005

  Sept. 30,
2005

  June 30,
2005

  Mar. 31,
2005

Corporate cash-basis loans(1)                              
Collateral dependent (at lower of cost or collateral value)(2)   $   $ 6   $ 6   $ 8   $ 8
Other     821     998     1,204     1,588     1,724
   
 
 
 
 
Total   $ 821   $ 1,004   $ 1,210   $ 1,596   $ 1,732
   
 
 
 
 
Corporate cash-basis loans(1)                              
In U.S. offices   $ 65   $ 81   $ 74   $ 181   $ 238
In offices outside the U.S.     756     923     1,136     1,415     1,494
   
 
 
 
 
Total   $ 821   $ 1,004   $ 1,210   $ 1,596   $ 1,732
   
 
 
 
 
Renegotiated loans (includes Corporate and Commercial Business Loans)   $ 30   $ 32   $ 29   $ 31   $ 36
   
 
 
 
 
Consumer loans on which accrual of interest had been suspended                              
In U.S. offices   $ 2,088   $ 2,307   $ 2,224   $ 1,908   $ 2,180
In offices outside the U.S.     1,664     1,713     1,597     2,791     2,890
   
 
 
 
 
Total   $ 3,752   $ 4,020   $ 3,821   $ 4,699   $ 5,070
   
 
 
 
 
Accruing loans 90 or more days delinquent(3)                              
In U.S. offices   $ 2,531   $ 2,886   $ 2,823   $ 2,789   $ 2,962
In offices outside the U.S.     410     391     457     407     390
   
 
 
 
 
Total   $ 2,941   $ 3,277   $ 3,280   $ 3,196   $ 3,352
   
 
 
 
 

(1)
Excludes purchased distressed loans accounted for in accordance with Statement of Position 03-3, "Accounting for Certain Loans on Debt Securities Acquired in a Transfer" (SOP 03-3). This pronouncement was adopted in the 2005 third quarter. Prior to adoption, these loans were classified with other assets. The carrying value of these loans was $1,217 million at March 31, 2006, $1,120 million at December 31, 2005, $1,064 million at September 30, 2005, $1,148 million at June 30, 2005, and $1,295 million at March 31, 2005.

(2)
A cash-basis loan is defined as collateral dependent when repayment is expected to be provided solely by the liquidation of the underlying collateral and there are no other available and reliable sources of repayment, in which case the loans are written down to the lower of cost or collateral value.

(3)
Substantially composed of consumer loans of which $1,465 million, $1,591 million, $1,690 million, $1,744 million, and $1,829 million are government-guaranteed student loans and Federal Housing Authority mortgages at March 31, 2006, December 31, 2005, September 30, 2005, June 30, 2005, and March 31, 2005, respectively.

Other Real Estate Owned and Other Repossessed Assets

In millions of dollars

  Mar. 31,
2006

  Dec. 31,
2005

  Sept. 30,
2005

  June 30,
2005

  Mar. 31,
2005

Other real estate owned(1)                              
Consumer   $ 322   $ 279   $ 283   $ 248   $ 286
Corporate     144     150     153     133     127
   
 
 
 
 
Total other real estate owned   $ 466   $ 429   $ 436   $ 381   $ 413
   
 
 
 
 
Other repossessed assets(2)   $ 52   $ 62   $ 57   $ 49   $ 74
   
 
 
 
 

(1)
Represents repossessed real estate, carried at lower of cost or fair value, less costs to sell.

(2)
Primarily transportation equipment, carried at lower of cost or fair value, less costs to sell.

48


CONSUMER PORTFOLIO REVIEW

        In the Consumer portfolio, credit loss experience is often expressed in terms of annualized net credit losses as a percentage of average loans. Consumer loans are generally written off no later than a predetermined number of days past due on a contractual basis, or earlier in the event of bankruptcy.

        Commercial Business includes loans and leases made principally to small- and middle-market businesses. These are placed on a non-accrual basis when it is determined that the payment of interest or principal is past due for 90 days or more, except when the loan is well secured and in the process of collection.

        The following table summarizes delinquency and net credit loss experience in both the managed and on-balance sheet consumer loan portfolios. The managed loan portfolio includes held-for-sale and securitized credit card receivables. Only U.S. Cards from a product view and U.S. from a regional view are impacted. Although a managed basis presentation is not in conformity with GAAP, the Company believes managed credit statistics provide a representation of performance and key indicators of the credit card business that is consistent with the way management reviews operating performance and allocates resources. For example, the U.S. Cards business considers both on-balance sheet and securitized balances (together, its managed portfolio) when determining capital allocation and general management decisions and compensation. Furthermore, investors use information about the credit quality of the entire managed portfolio, as the results of both the on-balance sheet and securitized portfolios impact the overall performance of the U.S. Cards business. For a further discussion of managed-basis reporting, see Note 8 to the Consolidated Financial Statements on page 87.

49


Consumer Loan Delinquency Amounts, Net Credit Losses, and Ratios

In millions of dollars,
except total and average
loan amounts in billions

  Total
Loans

  90 Days or More Past Due(1)
  Average
Loans

  Net Credit Losses(1)
 
Product View:

  Mar. 31,
2006

  Mar. 31,
2006

  Dec. 31,
2005

  Mar. 31,
2005

  1st Qtr.
2006

  1st Qtr.
2006

  4th Qtr.
2005

  1st Qtr.
2005

 
U.S.:                                                  
  U.S. Cards   $ 40.0   $ 958   $ 1,161   $ 1,094   $ 42.3   $ 446   $ 692   $ 756  
    Ratio           2.39 %   2.56 %   2.26 %         4.27 %   6.38 %   5.77 %
  U.S. Retail Distribution     42.8     740     818     782     42.5     279     418     326  
    Ratio           1.73 %   1.94 %   1.98 %         2.66 %   3.98 %   3.36 %
  U.S. Consumer Lending     193.1     2,411     2,624     2,758     187.1     176     178     181  
    Ratio           1.25 %   1.45 %   1.72 %         0.38 %   0.39 %   0.47 %
  U.S. Commercial Business     34.3     151     170     185     33.9     14     16     12  
    Ratio           0.44 %   0.51 %   0.60 %         0.17 %   0.19 %   0.17 %
International:                                                  
  International Cards     24.1     535     469     354     24.3     218     182     160  
    Ratio           2.22 %   1.95 %   1.64 %         3.64 %   3.08 %   3.02 %
  International Consumer Finance     22.8     437     442     480     22.4     319     313     316  
    Ratio           1.93 %   2.03 %   2.12 %         5.78 %   5.62 %   5.62 %
  International Retail Banking     60.5     736     779     2,013     61.5     184     234     179  
    Ratio           1.21 %   1.29 %   3.26 %         1.21 %   1.53 %   1.17 %
  Private Bank(2)     39.5     12     79     125     38.4     (4 )   3     (5 )
    Ratio           0.03 %   0.20 %   0.32 %         (0.04 )%   0.04 %   (0.05 )%
Other Consumer Loans     2.3     43     47         2.4     1     (1 )    
   
 
 
 
 
 
 
 
 
On-Balance Sheet Loans(3)   $ 459.4   $ 6,023   $ 6,589   $ 7,791   $ 454.8   $ 1,633   $ 2,035   $ 1,925  
    Ratio           1.31 %   1.46 %   1.83 %         1.46 %   1.82 %   1.83 %
   
 
 
 
 
 
 
 
 
Securitized receivables (all in U.S. Cards)   $ 95.9   $ 1,403   $ 1,314   $ 1,296   $ 94.7   $ 871   $ 1,591   $ 1,162  
Credit card receivables held-for-sale                 10     0.3     4     15     4  
   
 
 
 
 
 
 
 
 
Managed Loans(4)   $ 555.3   $ 7,426   $ 7,903   $ 9,097   $ 549.8   $ 2,508   $ 3,641   $ 3,091  
    Ratio           1.34 %   1.45 %   1.77 %         1.85 %   2.69 %   2.44 %
   
 
 
 
 
 
 
 
 
Regional View:                                                  
U.S.   $ 338.1   $ 4,312   $ 4,872   $ 4,867   $ 333.1   $ 916   $ 1,306   $ 1,277  
  Ratio           1.27 %   1.47 %   1.61 %         1.11 %   1.61 %   1.71 %
Mexico     14.7     541     624     557     15.0     106     90     43  
  Ratio           3.68 %   4.21 %   4.47 %         2.87 %   2.47 %   1.42 %
EMEA     36.9     487     499     1,734     36.5     250     274     229  
  Ratio           1.32 %   1.39 %   4.43 %         2.77 %   2.98 %   2.38 %
Japan     11.5     170     182     276     11.6     223     245     257  
  Ratio           1.48 %   1.56 %   1.86 %         7.83 %   8.41 %   6.68 %
Asia     54.1     473     376     328     54.7     136     109     114  
  Ratio           0.87 %   0.70 %   0.62 %         1.01 %   0.81 %   0.87 %
Latin America     4.1     40     36     29     3.9     2     11     5  
  Ratio           0.99 %   0.93 %   0.87 %         0.21 %   1.12 %   0.56 %
   
 
 
 
 
 
 
 
 
On-Balance Sheet Loans(3)   $ 459.4   $ 6,023   $ 6,589   $ 7,791   $ 454.8   $ 1,633   $ 2,035   $ 1,925  
  Ratio           1.31 %   1.46 %   1.83 %         1.46 %   1.82 %   1.83 %
   
 
 
 
 
 
 
 
 
Securitized receivables (all in U.S. Cards)   $ 95.9   $ 1,403   $ 1,314   $ 1,296   $ 94.7   $ 871   $ 1,591   $ 1,162  
Credit card receivables held-for-sale                 10     0.3     4     15     4  
   
 
 
 
 
 
 
 
 
Managed Loans(4)   $ 555.3   $ 7,426   $ 7,903   $ 9,097   $ 549.8   $ 2,508   $ 3,641   $ 3,091  
  Ratio           1.34 %   1.45 %   1.77 %         1.85 %   2.69 %   2.44 %
   
 
 
 
 
 
 
 
 

(1)
The ratios of 90 days or more past due and net credit losses are calculated based on end-of-period and average loans, respectively, both net of unearned income.
(2)
Private Bank results are reported as part of the Global Wealth Management segment.
(3)
Total loans and total average loans exclude certain interest and fees on credit cards of approximately $3 billion and $4 billion, respectively, which are included in Consumer Loans on the Consolidated Balance Sheet.
(4)
This table presents credit information on a held basis and shows the impact of securitizations to reconcile to a managed basis. Only U.S. Cards from a product view, and U.S from a regional view, are impacted. Managed-basis reporting is a non-GAAP measure. Held-basis reporting is the related GAAP measure. See a discussion of managed-basis reporting on page 49.

50


Consumer Loan Balances, Net of Unearned Income

 
  End of Period
  Average
In billions of dollars

  Mar. 31,
2006

  Dec. 31,
2005

  Mar. 31,
2005

  1st Qtr.
2006

  4th Qtr
2005

  1st Qtr.
2005

On-balance sheet(1)   $ 459.4   $ 450.6   $ 426.1   $ 454.8   $ 442.6   $ 426.6
Securitized receivables (all in U.S. Cards)     95.9     96.2     87.7     94.7     92.8     86.5
Credit card receivables held-for-sale(2)             0.6     0.3     0.7     0.2
   
 
 
 
 
 
Total managed(3)   $ 555.3   $ 546.8   $ 514.4   $ 549.8   $ 536.1   $ 513.3
   
 
 
 
 
 

(1)
Total loans and total average loans exclude certain interest and fees on credit cards of approximately $3 billion and $4 billion for the first quarter of 2006, and approximately $4 billion and $4 billion for the fourth quarter of 2005 and the first quarter of 2005, respectively, which are included in Consumer Loans on the Consolidated Balance Sheet.

(2)
Included in Other Assets on the Consolidated Balance Sheet.

(3)
This table presents loan information on a held basis and shows the impact of securitization to reconcile to a managed basis. Managed-basis reporting is a non-GAAP measure. Held-basis reporting is the related GAAP measure. See a discussion of managed-basis reporting on page 49.

        Citigroup's total allowance for loans, leases and unfunded lending commitments of $10.405 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the Consumer portfolio was $6.647 billion at March 31, 2006, $6.922 billion at December 31, 2005 and $8.060 billion at March 31, 2005. The decrease in the allowance for credit losses from March 31, 2005 of $1.413 billion included:

        Offsetting these reductions in the allowance for credit losses was the impact of reserve builds of $810 million, primarily related to the estimated credit losses incurred with Hurricane Katrina; increased reserves in EMEA, primarily related to Germany; increased reserves in Mexico; increased reserves in Asia, primarily related to industry-wide credit deterioration in the Taiwan cards market; and the impact of the change in bankruptcy legislation on U.S. Retail Distribution.

        On-balance sheet consumer loans of $459.4 billion increased $33.3 billion, or 8%, from March 31, 2005, primarily driven by growth in mortgage and other real-estate-secured loans in the U.S. Consumer Lending and Private Bank businesses and growth in the U.S. Commercial Business, primarily reflecting an increase of $2.4 billion from the FAB acquisition. Credit card receivables declined on lower securitization activities and higher payment rates by customers. Loans in EMEA declined, mainly reflecting the loan write-offs in the 2005 third quarter. Loans in Japan also declined, mainly reflecting continued contraction in the International Consumer Finance portfolio.

        Net credit losses, delinquencies and the related ratios are affected by the credit performance of the portfolios, including bankruptcies, unemployment, global economic conditions, portfolio growth and seasonal factors, as well as macro-economic and regulatory policies.

51


CORPORATE CREDIT RISK

        For corporate clients and investment banking activities across the organization, the credit process is grounded in a series of fundamental policies, including:

Credit Exposure Arising from Derivatives and Foreign Exchange

        Citigroup uses derivatives as both an end-user for asset/liability management and in its client businesses. In CIB, Citigroup enters into derivatives for trading purposes or to enable customers to transfer, modify or reduce their interest rate, foreign exchange and other market risks. In addition, Citigroup uses derivatives and other instruments, primarily interest rate and foreign exchange products, as an end-user to manage interest rate risk relating to specific groups of interest-sensitive assets and liabilities. In addition, foreign exchange contracts are used to hedge non-U.S. dollar denominated debt, net capital exposures and foreign exchange transactions.

        The following tables summarize by derivative type the notionals, receivables and payables held for trading and asset/liability management hedge purposes as of March 31, 2006 and December 31, 2005. See Note 15 to the Consolidated Financial Statements on page 98.

52


CITIGROUP DERIVATIVES

Notionals

 
  Trading
Derivatives(1)

  Asset/Liability
Management Hedges(2)

In millions of dollars

  March 31,
2006

  December 31,
2005

  March 31,
2006

  December 31,
2005

Interest rate contracts                        
  Swaps   $ 13,609,702   $ 12,677,814   $ 499,596   $ 403,576
  Futures and forwards     2,136,391     2,090,844     31,380     18,425
  Written options     2,138,106     1,949,501     11,585     5,166
  Purchased options     2,110,973     1,633,983     40,840     53,920
Foreign exchange contracts                        
  Swaps   $ 603,781   $ 563,888   $ 43,013   $ 37,418
  Futures and forwards     1,678,652     1,508,754     48,302     53,757
  Written options     336,027     249,725     237    
  Purchased options     333,765     253,089     700     808
Equity contracts                        
  Swaps   $ 64,504   $ 70,188   $   $
  Futures and forwards     19,978     14,487        
  Written options     223,143     213,383        
  Purchased options     210,051     193,248        
Commodity and other contracts                        
  Swaps   $ 21,636   $ 20,486   $   $
  Futures and forwards     12,134     10,876        
  Written options     10,412     9,761        
  Purchased options     11,752     12,240        

Credit derivatives

 

$

1,121,638

 

$

1,030,745

 

$


 

$

   
 
 
 

Mark-to-Market (MTM) Receivables/Payables

 
  Derivatives
Receivables—MTM

  Derivatives
Payable—MTM

 
In millions of dollars

  March 31,
2006

  December 31,
2005

  March 31,
2006

  December 31,
2005

 
Trading Derivatives(1)                          
  Interest rate contracts   $ 183,694   $ 192,761   $ 180,566   $ 188,182  
  Foreign exchange contracts     39,992     42,749     37,471     41,474  
  Equity contracts     24,402     18,633     39,408     32,313  
  Commodity and other contracts     7,408     7,332     6,635     6,986  
  Credit derivative     8,557     8,106     9,178     9,279  
   
 
 
 
 
    Total   $ 264,053   $ 269,581   $ 273,258   $ 278,234  
    Less: Netting agreements, cash collateral and market value adjustments     (210,198 )   (222,167 )   (204,959 )   (216,906 )
   
 
 
 
 
    Net Receivables/Payables   $ 53,855   $ 47,414   $ 68,299   $ 61,328  
   
 
 
 
 
Asset/Liability Management Hedges(2)                          
  Interest rate contracts   $ 3,721   $ 3,775   $ 2,633   $ 1,615  
  Foreign exchange contracts     1,578     1,385     1,383     1,137  
   
 
 
 
 
      Total   $ 5,299   $ 5,160   $ 4,016   $ 2,752  
   
 
 
 
 

(1)
Trading Derivatives include proprietary positions, as well as hedging derivatives instruments that do not qualify for hedge accounting in accordance with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).

(2)
Asset/Liability Management Hedges include only those hedging derivative instruments that qualify for hedge accounting in accordance with SFAS 133.

53


        The Company's credit exposure on derivatives and foreign exchange contracts is primarily to professional counterparties in the financial sector, arising from transactions with banks, investments banks, governments and central banks, and other financial institutions.

        For purposes of managing credit exposure on derivative and foreign exchange contracts, particularly when looking at exposure to a single counterparty, the Company measures and monitors credit exposure taking into account the current mark-to-market value of each contract plus a prudent estimate of its potential change in value over its life. This measurement of the potential future exposure for each credit facility is based on a stressed simulation of market rates and generally takes into account legally enforceable risk-mitigating agreements for each obligor such as netting and margining.

        For asset/liability management hedges, a derivative must be highly effective in accomplishing the hedge objective of offsetting either changes in the fair value or cash flows of the hedged item for the risk being hedged. Any ineffectiveness present in the hedge relationship is recognized in current earnings. The assessment of effectiveness excludes the changes in the value of the hedged item that are unrelated to the risks being hedged. Similarly, the assessment of effectiveness may exclude changes in the fair value of a derivative related to time value, which, if excluded, is recognized in current earnings. See Note 15 to the Consolidated Financial Statements on page 98.

54


GLOBAL CORPORATE PORTFOLIO REVIEW

        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:

In millions of dollars

  Mar. 31,
2006

  Dec. 31,
2005

  Mar. 31,
2005

 
Corporate cash-basis loans                    
Capital Markets and Banking   $ 745   $ 923   $ 1,655  
Transaction Services     76     81     77  
   
 
 
 
Total corporate cash-basis loans(1)   $ 821   $ 1,004   $ 1,732  
   
 
 
 
Net credit losses (recoveries)                    
Capital Markets and Banking   $ (34 ) $ (117 ) $ (14 )
Transaction Services     1     5     (12 )
Alternative Investments             3  
   
 
 
 
Total net credit losses (recoveries)   $ (33 ) $ (112 ) $ (23 )
   
 
 
 
Corporate allowance for loan losses   $ 2,858   $ 2,860   $ 2,834  
Corporate allowance for credit losses on unfunded lending commitments(2)     900     850     600  
   
 
 
 
Total corporate allowance for loans and unfunded lending commitments   $ 3,758   $ 3,710   $ 3,434  
   
 
 
 
As a percentage of total corporate loans(3)     2.62 %   2.88 %   2.92 %
   
 
 
 

(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 $1,217 million at March 31, 2006, $1,120 million at December 31, 2005 and $1,295 million at March 31, 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.

        Cash-basis loans on March 31, 2006 decreased $911 million as compared with March 31, 2005; $910 million of the decrease was in Capital Markets and Banking and $1 million was in Transaction Services. Capital Markets and Banking decreased primarily due to higher charge-offs in the U.S., Brazil, Russia and Argentina.

        Cash-basis loans decreased $183 million as compared to December 31, 2005 due to decreases of $178 million in Capital Markets and Banking and $5 million in Transaction Services. Capital Markets and Banking primarily reflected declining charge-offs in North America, Russia and Australia. Transaction Services decreased primarily due to charge-offs in Poland.

        Total corporate Other Real Estate Owned (OREO) was $144 million, $150 million and $127 million at March 31, 2006, December 31, 2005, and March 31, 2005, respectively. The $6 million decrease from December 31, 2005 reflects net foreclosures in the U.S. real estate portfolio.

        Total corporate loans outstanding at March 31, 2006 were $143 billion as compared to $129 billion and $118 billion at December 31, 2005 and March 31, 2005, respectively.

        Total corporate net credit recovery of $33 million on March 31, 2006 decreased $10 million compared to March 31, 2005, primarily due to continued improvements in the overall credit environment. Total corporate net credit losses increased $79 million compared to the 2005 fourth quarter, primarily due to the absence of write-offs in the fourth quarter of 2005.

        Citigroup's allowance for credit losses for loans, leases and lending commitments of $10.405 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the Corporate portfolio was $3.758 billion at March 31, 2006, compared to $3.434 billion at March 31, 2005 and $3.710 billion at December 31, 2005, respectively. The $324 million increase in the total allowance at March 31, 2006 from March 31, 2005 primarily reflects reserve builds, primarily 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. There was a $48 million increase in the total allowance at March 31, 2006 from December 31, 2005 primarily reflects an increase in the allowance for unfunded lending commitments based on 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.

55


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 66. 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.

Non-Trading Portfolios

        Citigroup's non-trading portfolios are managed using a common set of standards that define, measure, limit and report market risk. The risks are managed within limits approved by independent market risk management. In addition, there are Citigroup-wide reporting metrics that are common to all business units, which enable Citigroup to aggregate and compare non-trading risks across businesses. The metrics measure the change in either income or value of the Company's positions under various rate scenarios.

        Citigroup's primary focus is providing financial products for its customers. Loans and deposits are tailored to the customer's requirements in terms of maturity and whether the rate is fixed or floating and, if it is floating, how often the rate resets and according to which market index. These customer transactions result in a risk exposure for Citigroup. This exposure may be related to differences in the timing of maturities, and/or rate resetting for assets and liabilities, or it may be due to different positions resetting based on different indices. In some instances it may also be indirectly related to interest rate changes. For example, mortgage prepayment rates vary not only as a result of interest rate changes, but also with the absolute level of rates relative to the rate on the mortgage itself.

        One function of Treasury at Citigroup is to understand the risks that arise from customer transactions and to manage them so that unexpected changes in the markets do not adversely impact Citigroup's Net Interest Revenue (NIR). Various market factors are considered, including the market's expectation of future interest rates and any different expectations for rate indices (LIBOR, treasuries, etc.). In order to manage these risks effectively, Citigroup may modify customer pricing, enter into transactions with other institutions that may have opposite risk positions and enter into off-balance sheet transactions, including derivatives.

        NIR is a function of the size of the balance and the rate that is earned or paid on that balance. NIR in any period is the result of customer transactions and the related contractual rates from prior periods, as well as new transactions in the current period; it may be impacted by changes in rates on floating rate assets and liabilities. Due to the long-term nature of the portfolio, NIR will vary from quarter to quarter even in the absence of changes in interest rates.

        Citigroup's principal measure of earnings risk from non-trading portfolios due to interest rates changes is Interest Rate Exposure (IRE). IRE measures the change in expected NIR in each currency that results solely from unanticipated changes in market rates of interest; scenarios are run assuming unanticipated instantaneous parallel rate changes, as well as more gradual rate changes. Other factors such as changes in volumes, spreads, margins, and the impact of prior-period pricing decisions can also change current period interest income, but are not captured by IRE. While IRE assumes that businesses make no additional changes in pricing or balances in response to the unanticipated rate changes, in practice businesses may alter their portfolio mix, customer pricing and hedge positions, which could significantly impact reported NIR.

        Citigroup employs additional measurements, including stress testing the impact of non-linear interest rate movements on the value of the balance sheet; analysis of portfolio duration and volatility, particularly as they relate to mortgages and mortgage-backed securities; and the potential impact of the change in the spread between different market indices.

56


Citigroup Interest Rate Exposure (Impact on Pretax Earnings)

        The exposures in the table below represent the approximate change in NIR for the next 12 months based on current balances and pricing that would result from unanticipated rate change scenarios of an instantaneous 100bp change and a gradual 100bp (25bp per quarter) change in interest rates.

 
  March 31, 2006
  December 31, 2005
  March 31, 2005
 
In millions of dollars

  100 bps
Increase

  100 bps
Decrease

  100 bps
Increase

  100 bps
Decrease

  100 bps
Increase

  100 bps
Decrease

 
U.S. dollar                                      
Instantaneous change   $ (435 ) $ 585   $ (155 ) $ 284   $ (596 ) $ 545  
Gradual change   $ (266 ) $ 271   $ (73 ) $ 66     NA     NA  
   
 
 
 
 
 
 
Mexican peso                                      
Instantaneous change   $ 91   $ (92 ) $ 63   $ (64 ) $ 67   $ (67 )
Gradual change   $ 63   $ (63 ) $ 34   $ (34 )   NA     NA  
   
 
 
 
 
 
 
Euro                                      
Instantaneous change   $ (56 ) $ 56   $ (40 ) $ 40   $ (77 ) $ 77  
Gradual change   $ (15 ) $ 15   $ (19 ) $ 19     NA     NA  
   
 
 
 
 
 
 
Japanese yen                                      
Instantaneous change   $ (5 )   NM   $ (16 )   NM   $ 35     NM  
Gradual change   $ 5     NM   $ (11 )   NM     NA     NA  
   
 
 
 
 
 
 
Pound sterling                                      
Instantaneous change   $ (22 ) $ 21   $ 3   $ (3 ) $ 17   $ (18 )
Gradual change   $ 5   $ (5 ) $ 9   $ (9 )   NA     NA  
   
 
 
 
 
 
 

NM
Not meaningful. A 100 basis point decrease in interest rates would imply negative rates for the Japanese yen yield curve.

NA
Not applicable.

        The change in U.S. Dollar Interest Rate Exposure from December 31, 2005 reflects the expansion and lengthening of various asset portfolios, changes in customer mix and behavior and stock repurchase activities, offset by Treasury positioning.

Trading Portfolios

        Price risk in trading portfolios is measured through a complementary set of tools, including factor sensitivities, value-at-risk, and stress testing. Each of these is discussed in greater detail below. Each trading portfolio has its own market risk limit framework, encompassing these measures and other controls, including permitted product lists and a new product approval process for complex products.

        Factor sensitivities are defined as the change in the value of a position for a defined change in a market risk factor (e.g., the change in the value of a Treasury bill for a one basis point change in interest rates). It is the responsibility of independent market risk management to ensure that factor sensitivities are calculated, monitored and, in most cases, limited, for all relevant risks taken in a trading portfolio.

        Value-at-Risk (VAR) estimates the potential decline in the value of a position or a portfolio, under normal market conditions, over a one-day holding period, at a 99% confidence level. The VAR method incorporates the factor sensitivities of the trading portfolio with the volatilities and correlations of those factors. Citigroup's VAR is based on the volatilities of, and correlations between, approximately 250,000 market risk factors, including factors that track the specific issuer risk in debt and equity securities.

        Stress testing is performed on trading portfolios on a regular basis to estimate the impact of extreme market movements. Stress testing is performed on individual trading portfolios, as well as on aggregations of portfolios and businesses, as appropriate. It is the responsibility of independent market risk management, in conjunction with the businesses, to develop stress scenarios, review the output of periodic stress testing exercises, and use the information to make judgments as to the ongoing appropriateness of exposure levels and limits.

        Risk capital for market risk in trading portfolios is based on an annualized VAR figure, with adjustments for intra-day trading activity.

        Total revenues of the trading business consist of customer revenue, which includes spreads from customer flow and positions taken to facilitate customer orders; proprietary trading activities in both cash and derivative transactions; and net interest revenue. All trading positions are marked-to-market, with the result reflected in earnings.

57


        Citigroup periodically performs extensive back-testing of many hypothetical test portfolios as one check of the accuracy of its Value-at-Risk (VAR). Back-testing is the process in which the daily VAR of a test portfolio is compared to the ex-post daily change in the market value of its transactions. Back-testing is conducted to confirm the validity of the 99% confidence level that daily market value losses in excess of 99% confidence level occur, on average, only 1% of the time. The VAR calculation for the hypothetical test portfolios, with different degrees of risk concentration, meets this statistical criteria.

        The level of price risk exposure at any given point in time depends on the market environment and expectations of future price and market movements, and will vary from period to period.

        For Citigroup's major trading centers, the aggregate pretax VAR in the trading portfolios was $106 million, $93 million, and $116 million at March 31, 2006, December 31, 2005 and March 31, 2005, respectively. Daily exposures averaged $102 million during the 2006 first quarter and ranged from $83 million to $121 million.

        The following table summarizes Value-at-Risk to Citigroup in the trading portfolios at March 31, 2006, December 31, 2005 and March 31, 2005, along with the quarterly averages:

In million of dollars

  March 31,
2006

  First Quarter
2006 Average

  December 31,
2005

  Fourth Quarter
2005 Average

  March 31,
2005

  First Quarter
2005 Average

 
Interest rate   $ 95   $ 86   $ 83   $ 79   $ 111   $ 115  
Foreign exchange     29     23     17     15     13     16  
Equity     43     48     50     51     34     33  
Commodity     15     12     8     8     20     18  
Covariance adjustment     (76 )   (67 )   (65 )   (63 )   (62 )   (58 )
   
 
 
 
 
 
 
Total—All market risk factors, including general and specific risk   $ 106   $ 102   $ 93   $ 90   $ 116   $ 124  
   
 
 
 
 
 
 
Specific risk component   $ 10   $ 11   $ 12   $ 8   $ 3   $ 6  
   
 
 
 
 
 
 
Total—General market factors only   $ 96   $ 91   $ 81   $ 82   $ 113   $ 118  
   
 
 
 
 
 
 

        The specific risk component represents the level of issuer-specific risk embedded in the VAR, arising from both debt and equity securities. Citigroup's specific risk model conforms with the 4x-multiplier treatment approved by the Federal Reserve and is subject to extensive hypothetical back-testing (performed on an annual basis), including many portfolios with position concentrations.

        The table below provides the range of VAR in the trading portfolios that was experienced during the quarters ended:

 
   
   
  December 31, 2005
   
   
 
  March 31, 2006
  March 31, 2005
In millions of dollars

  Low
  High
  Low
  High
  Low
  High
Interest rate   $ 69   $ 107   $ 68   $ 92   $ 94   $ 151
Foreign exchange     16     34     11     21     10     23
Equity     42     58     40     63     27     41
Commodity     5     18     5     16     15     24
   
 
 
 
 
 

58


OPERATIONAL RISK MANAGEMENT PROCESS

        Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. It includes reputation and franchise risk associated with business practices or market conduct that the Company may undertake. Operational risk is inherent in Citigroup's global business activities and, as with other risk types, is managed through an overall framework with checks and balances that include recognized ownership of the risk by the businesses, independent risk management oversight, and independent review by Audit Risk and Review (ARR).

Policy

        The Citigroup Self-Assessment and Operational Risk Framework (the Framework) includes the Citigroup Risk and Control Self-Assessment Policy and the Citigroup Operational Risk Policy, which define Citigroup's approach to operational risk management.

        The Citigroup Operational Risk Policy codifies the core governing principles for operational risk management and provides a framework for operational risks consistent across the Company. Each major business segment must establish its own operational risk procedures, consistent with the corporate policy, and an approved operational risk governance structure. The Framework requires each business to identify its key operational risks as well as the controls established to mitigate those risks and to ensure compliance with laws, regulations, regulatory administrative actions, and Citigroup policies. It also requires that all businesses collect and report their operational risk losses.

        A formal governance structure is established through the Risk and Control Self-Assessment (RCSA) Policy to provide direction, oversight, and monitoring of Citigroup's RCSA programs. The RCSA Policy incorporates standards for risk and control assessment that are applicable to all businesses and staff functions; it establishes RCSA as the process whereby risks inherent in a business' activities are identified and the effectiveness of the key controls over those risks are evaluated and monitored. The objective of the policy is to establish a consistent approach to assessing relevant risks and the overall control environment across Citigroup. RCSA processes facilitate Citigroup's adherence to regulatory requirements, including Sarbanes-Oxley, FDICIA, the International Convergence of Capital Measurement and Capital Standards (Basel II), and other corporate initiatives, including Operational Risk Management and alignment of capital assessments with risk management objectives. The entire process is subject to audit by Citigroup's Audit and Risk Review, and the results of RCSA are included in periodic management reporting, including reporting to Senior Management and the Audit and Risk Committee.

Reporting

        The Operational Risk Policy and its requirements facilitate the effective communication of operational risks both within and across businesses. Information about the businesses' operational risk, historical losses, and the control environment is reported by each major business segment and functional area, and summarized for Senior Management and the Citigroup Board of Directors.

Measurement and Basel II

        Risk Capital (RC) requirements are calculated for operational risk and the Framework is intended to ensure that relevant information is captured by the businesses to support advanced capital modeling and management. An enhanced version of the RC model for operational risk has been developed and is being implemented across the major business segments as a step toward readiness for Basel II capital calculations. The calculation, which is aimed at qualification as an "Advanced Measurement Approach" (AMA) under Basel II, uses a combination of internal and external loss data to support statistical modeling of capital requirement estimates, which are then adjusted modestly to reflect more qualitative data about the operational risk and control environment.

Information Security and Continuity of Business

        During 2005 and continuing in 2006, Citigroup created a strategic framework for Information Security technology initiatives, and the Company began implementing enhancements to various Information Security programs across its businesses covering Information Security Risk Management, Security Incident Response and Electronic Transportable Media. The Company also implemented tools to increase the effectiveness of its data protection and entitlement management programs. Additional monthly Information Security metrics were established to better assist the Information Technology Risk Officer in managing enterprise-wide risk. The Information Security Program complies with the Gramm-Leach-Bliley Act and other regulatory guidance.

        During 2005, Citigroup began implementing a new business continuity program that improves risk analysis and provides robust support for business resiliency. The Corporate Office of Business Continuity, with the support of senior management, continues to coordinate global preparedness and mitigate business continuity risks by reviewing and testing recovery procedures.

59


COUNTRY AND CROSS-BORDER RISK MANAGEMENT PROCESS

Country Risk

        The Citigroup Country Risk Committee is chaired by senior international business management, and includes as its members business managers and independent risk managers from around the world. The committee's primary objective is to strengthen the management of country risk, defined as the total risk to the Company of an event that impacts a country. The committee regularly reviews all risk exposures within a country, makes recommendations as to actions, and follows up to ensure appropriate accountability.

Cross-Border Risk

        The Company's cross-border outstandings reflect risks, including those arising from restrictions on the transfer of funds as well as the inability to obtain payment from customers on their contractual obligations as a result of actions taken by foreign governments such as exchange controls, debt moratorium, and restrictions on the remittance of funds.

        Management oversight of cross-border risk is performed through a formal review process that includes setting of cross-border limits, monitoring of economic conditions globally, and, when warranted, within individual countries, and the establishment of internal cross-border risk management policies.

        Under FFIEC guidelines, total reported cross-border outstandings include cross-border claims on third parties, as well as investments in and funding of local franchises. Cross-border claims on third parties (trade, short-term, and medium- and long-term claims) include cross-border loans, securities, deposits with banks, investments in affiliates, and other monetary assets, as well as net revaluation gains on foreign exchange and derivative products.

        Cross-border outstandings are reported in the country from which the payment of a cross-border claim will be made. For claims covered by comprehensive guarantees, cross-border exposure is reported in the domicile of the guarantor. For claims secured by cash collateral, cross-border outstandings are reflected in the country where the collateral is held. For securities received as collateral, cross-border outstandings are reported in the domicile of the issuer of the securities. Cross-border resale agreements are presented based on the domicile of the counterparty in accordance with FFIEC guidelines.

        Investments in and funding of local franchises represent the excess of local country assets over local country liabilities. Local country assets are claims on local residents recorded by branches and majority-owned subsidiaries of Citigroup domiciled in the country, adjusted for externally guaranteed claims and certain collateral. Local country liabilities are obligations of non-U.S. branches and majority-owned subsidiaries of Citigroup for which no cross-border guarantee has been issued by another Citigroup office.

        The table below shows all countries in which total FFIEC cross-border outstandings exceed 0.75% of total Citigroup assets at March 31, 2006 and December 31, 2005:

 
  March 31, 2006
  December 31, 2005
 
  Cross-Border Claims on Third Parties
   
   
   
   
   
In billions of dollars

  Banks
  Public
  Private
  Total
  Trading
and Short-
Term
Claims(1)

  Investments
in and
Funding of
Local
Franchises

  Total
Cross-
Border
Out-
standings

  Commit-
ments(2)

  Total
Cross-
Border
Out-
standings

  Commit-
ments(2)

Germany   $ 15.8   $ 11.5   $ 6.9   $ 34.2   $ 31.7   $   $ 34.2   $ 44.2   $ 14.8   $ 25.0
United Kingdom     8.8         19.5     28.3     25.0         28.3     144.5     20.8     103.8
France     7.7     3.4     8.5     19.6     16.8         19.6     37.5     14.9     33.5
Netherlands     4.5     4.4     9.9     18.8     17.1         18.8     9.7     15.8     9.2
South Korea     0.5     0.5     2.2     3.2     3.1     13.8     17.0     12.9     14.8     5.2
Italy     1.6     8.8     2.9     13.3     12.7     0.8     14.1     4.2     10.9     3.0
Spain     1.4     3.6     4.2     9.2     8.3     3.3     12.5     2.6     7.4     2.8
   
 
 
 
 
 
 
 
 
 

(1)
Included in total cross-border claims on third parties.

(2)
Commitments (not included in total cross-border outstandings) include legally binding cross-border letters of credit and other commitments and contingencies as defined by the FFIEC. Effective March 31, 2006, the FFIEC revised the definition of commitments to include commitments to local residents that will be funded with local currency local liabilities.

60


INTEREST REVENUE/EXPENSE AND YIELDS

GRAPHIC

In millions of dollars

  1st Qtr.
2006

  4th Qtr.
2005

  1st Qtr.
2005

  % Change
1Q06 vs. 1Q05

 
Interest Revenue(1)   $ 21,893   $ 20,699   $ 17,563   25 %
Interest Expense     12,107     10,935     7,424   63  
   
 
 
 
 
Net Interest Revenue(1)   $ 9,786   $ 9,764   $ 10,139   (3 )%
   
 
 
 
 
Interest Revenue—Average Rate     6.39 %   6.19 %   5.72 % 67   bps
Interest Expense—Average Rate     3.94 %   3.66 %   2.68 % 126   bps
Net Interest Margin     2.86 %   2.92 %   3.30 % (44 ) bps

Interest Rate Benchmarks:

 

 

 

 

 

 

 

 

 

 

 

 
Federal Funds Rate—End of Period     4.75 %   4.25 %   2.75 % 200   bps
   
 
 
 
 
2 Year U.S. Treasury Note—Average Rate     4.60 %   4.36 %   3.44 % 116   bps
10 Year U.S. Treasury Note—Average Rate     4.57 %   4.48 %   4.30 % 27   bps
   
 
 
 
 
  2 Year vs. 10 Year Spread     (3)   bps   12   bps   86   bps    
   
 
 
 
 

(1)
Includes taxable equivalent adjustment based on the U.S. Federal statutory tax rate of 35%.

        A significant portion of the Company's business activities is based upon gathering deposits and borrowing money and then lending or investing those funds, including in market-making activities in tradable securities. Net interest margin is calculated by dividing gross interest revenue less gross interest expense by average interest earning assets.

        In the 2006 first quarter, pressure on net interest margin continued, though at a lessened pace, driven by several factors. Interest expense increased due to both a rise in short-term interest rates and funding actions the Company has taken to lengthen its debt maturity profile.

        The average rate on the Company's assets increased during the period, but by less than the increase in average rates on borrowed funds or deposits. The average rate on loans or investments reflected a highly competitive loan pricing environment, as well as a shift in the Company's loan portfolio from higher-yielding credit card receivables to assets that carry lower yields, such as mortgages and home equity loans. The shift partially reflects continued high payment rates on credit card receivables.

61


AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)

 
  Average Volume
  Interest Revenue
  % Average Rate
 
In millions of dollars

  1st Qtr.
2006

  4th Qtr.
2005

  1st Qtr.
2005

  1st Qtr.
2006

  4th Qtr.
2005

  1st Qtr.
2005

  1st Qtr.
2006

  4th Qtr.
2005

  1st Qtr.
2005

 
Assets                                                  
Cash and due from banks                                                  
In U.S. offices   $ 5,087   $ 4,249   $ 3,950   $ 48   $ 36   $ 19   3.83 % 3.36 % 1.95 %
In offices outside the U.S. (5)     2,936     3,326     2,422     6     5     5   0.83   0.60   0.84  
   
 
 
 
 
 
 
 
 
 
Total   $ 8,023   $ 7,575   $ 6,372   $ 54   $ 41   $ 24   2.73 % 2.15 % 1.53 %
   
 
 
 
 
 
 
 
 
 
Deposits at interest with banks(5)   $ 30,823   $ 32,033   $ 28,560   $ 555   $ 583   $ 336   7.30 % 7.22 % 4.77 %
   
 
 
 
 
 
 
 
 
 
Federal funds sold and securities borrowed or purchased under agreements to resell(6)                                                  
In U.S. offices   $ 159,327   $ 162,919   $ 144,948   $ 2,355   $ 2,277   $ 1,262   5.99 % 5.54 % 3.53 %
In offices outside the U.S.(5)     81,709     77,998     73,625     775     758     554   3.85   3.86   3.05  
   
 
 
 
 
 
 
 
 
 
Total   $ 241,036   $ 240,917   $ 218,573   $ 3,130   $ 3,035   $ 1,816   5.27 % 5.00 % 3.37 %
   
 
 
 
 
 
 
 
 
 
Brokerage receivables                                                  
In U.S. offices   $ 32,841   $ 31,406   $ 30,750   $ 352   $ 307   $ 230   4.35 % 3.88 % 3.03 %
In offices outside the U.S.(5)     12,751     13,543     10,492     226     204     125   7.19   5.98   4.83  
   
 
 
 
 
 
 
 
 
 
Total   $ 45,592   $ 44,949   $ 41,242   $ 578   $ 511   $ 355   5.14 % 4.51 % 3.49 %
   
 
 
 
 
 
 
 
 
 
Trading account assets(7)(8)                                                  
In U.S. offices   $ 176,782   $ 168,936   $ 145,371   $ 1,773   $ 1,568   $ 1,193   4.07 % 3.68 % 3.33 %
In offices outside the U.S.(5)     88,967     73,608     86,305     793     554     662   3.61   2.99   3.11  
   
 
 
 
 
 
 
 
 
 
Total   $ 265,749   $ 242,544   $ 231,676   $ 2,566   $ 2,122   $ 1,855   3.92 % 3.47 % 3.25 %
   
 
 
 
 
 
 
 
 
 
Investments(1)                                                  
In U.S. offices                                                  
  Taxable   $ 84,938   $ 80,740   $ 71,961   $ 797   $ 759   $ 574   3.81 % 3.73 % 3.23 %
  Exempt from U.S. income tax     14,108     12,079     9,255     169     151     134   4.86   4.96   5.87  
In offices outside the U.S.(5)     92,431     81,102     82,506     1,119     995     1,081   4.91 % 4.87   5.31  
   
 
 
 
 
 
 
 
 
 
Total   $ 191,477   $ 173,921   $ 163,722   $ 2,085   $ 1,905   $ 1,789   4.42 % 4.35 % 4.43 %
   
 
 
 
 
 
 
 
 
 
Loans (net of unearned income)(9)                                                  
Consumer loans                                                  
In U.S. offices   $ 327,026   $ 317,429   $ 299,240   $ 6,653   $ 6,558   $ 6,032   8.25 % 8.20 % 8.18 %
In offices outside the U.S.(5)     131,365     129,270     131,540     3,690     3,597     3,454   11.39   11.04   10.65  
   
 
 
 
 
 
 
 
 
 
Total consumer loans   $ 458,391   $ 446,699   $ 430,780   $ 10,343   $ 10,155   $ 9,486   9.15 % 9.02 % 8.93 %
   
 
 
 
 
 
 
 
 
 
Corporate loans                                                  
In U.S. offices   $ 27,181   $ 22,090   $ 16,599   $ 431   $ 402   $ 225   6.43 % 7.22 % 5.50 %
In offices outside the U.S.(5)     111,961     104,814     98,586     2,035     1,806     1,562   7.37   6.84   6.43  
   
 
 
 
 
 
 
 
 
 
Total corporate loans   $ 139,142   $ 126,904   $ 115,185   $ 2,466   $ 2,208   $ 1,787   7.19 % 6.90 % 6.29 %
   
 
 
 
 
 
 
 
 
 
Total loans   $ 597,533   $ 573,603   $ 545,965   $ 12,809   $ 12,363   $ 11,273   8.69 % 8.55 % 8.37 %
   
 
 
 
 
 
 
 
 
 
Other interest-earning assets   $ 9,621   $ 10,065   $ 8,766   $ 116   $ 139   $ 115   4.89 % 5.48 % 5.32 %
   
 
 
 
 
 
 
 
 
 
Total interest-earning assets   $ 1,389,854   $ 1,325,607   $ 1,244,876   $ 21,893   $ 20,699   $ 17,563   6.39 % 6.19 % 5.72 %
   
 
 
 
 
 
 
 
 
 
Non-interest-earning assets(7)     170,534     152,736     154,349                                
Total assets from discontinued operations         1,001     102,133                                
   
 
 
                               
Total assets   $ 1,560,388   $ 1,479,344   $ 1,501,358                                
   
 
 
 
 
 
 
 
 
 

(1)
The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35%.

(2)
Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 15 to the Consolidated Financial Statements on page 98.

(3)
Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)
Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 3 to the Consolidated Financial Statements on page 83.

(5)
Average rates reflect prevailing local interest rates, including inflationary effects and monetary correction in certain countries.

(6)
Average volumes of securities borrowed or purchased under agreements to resell are reported net pursuant to FIN 41 and interest revenue excludes the impact of FIN 41.

(7)
The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest bearing liabilities.

(8)
Interest expense on trading account liabilities of CGMHI is reported as a reduction of interest revenue.

(9)
Includes cash-basis loans.

62


AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY, AND NET INTEREST REVENUE(1)(2)(3)(4)

 
  Average Volume
  Interest Expense
  % Average Rate
 
In millions of dollars

  1st Qtr.
2006

  4th Qtr.
2005

  1st Qtr.
2005

  1st Qtr.
2006

  4th Qtr.
2005

  1st Qtr.
2005

  1st Qtr.
2006

  4th Qtr.
2005

  1st Qtr.
2005

 
Liabilities                                                  
Deposits                                                  
In U. S. offices                                                  
  Savings deposits(5)   $ 132,268   $ 129,952   $ 126,632   $ 868   $ 764   $ 444   2.66 % 2.33 % 1.42 %
  Other time deposits     42,410     39,222     32,661     499     370     215   4.77   3.74   2.67  
In offices outside the U.S.(6)     370,421     354,664     337,201     3,138     2,840     2,099   3.44   3.18   2.52  
   
 
 
 
 
 
 
 
 
 
Total   $ 545,099   $ 523,838   $ 496,494   $ 4,505   $ 3,974   $ 2,758   3.35 % 3.01 % 2.25 %
   
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities loaned or sold under agreements to repurchase(7)                                                  
In U.S. offices   $ 185,147   $ 185,514   $ 160,800   $ 2,575   $ 2,484   $ 1,272   5.64 % 5.31 % 3.21 %
In offices outside the U.S. (6)     88,086     77,135     70,812     1,223     1,122     940   5.63   5.77   5.38  
   
 
 
 
 
 
 
 
 
 
Total   $ 273,233   $ 262,649   $ 231,612   $ 3,798   $ 3,606   $ 2,212   5.64 % 5.45 % 3.87 %
   
 
 
 
 
 
 
 
 
 
Brokerage payables                                                  
In U.S. offices   $ 63,219   $ 55,879   $ 46,203   $ 249   $ 199   $ 86   1.60 % 1.41 % 0.75 %
In offices outside the U.S. (6)     6,619     6,774     4,293     10     8     3   0.61   0.47   0.28  
   
 
 
 
 
 
 
 
 
 
Total   $ 69,838   $ 62,653   $ 50,496   $ 259   $ 207   $ 89   1.50 % 1.31 % 0.71 %
   
 
 
 
 
 
 
 
 
 
Trading account liabilities(8)(9)                                                  
In U.S. offices   $ 35,270   $ 32,271   $ 37,028   $ 39   $ 26   $ 18   0.45 % 0.32 % 0.20 %
In offices outside the U.S. (6)     36,485     36,018     38,971     14     14     6   0.16   0.15   0.06  
   
 
 
 
 
 
 
 
 
 
Total   $ 71,755   $ 68,289   $ 75,999   $ 53   $ 40   $ 24   0.30 % 0.23 % 0.13 %
   
 
 
 
 
 
 
 
 
 
Short-term borrowings                                                  
In U.S. offices   $ 50,132   $ 43,419   $ 46,543   $ 770   $ 602   $ 492   6.23 % 5.50 % 4.29 %
In offices outside the U.S. (6)     11,560     11,364     13,871     227     224     171   7.96   7.82   5.00  
   
 
 
 
 
 
 
 
 
 
Total   $ 61,692   $ 54,783   $ 60,414   $ 997   $ 826   $ 663   6.55 % 5.98 % 4.45 %
   
 
 
 
 
 
 
 
 
 
Long-term debt                                                  
In U.S. offices   $ 195,640   $ 186,214   $ 173,043   $ 2,189   $ 1,988   $ 1,388   4.54 % 4.24 % 3.25 %
In offices outside the U.S. (6)     29,546     28,033     35,634     306     294     290   4.20   4.16   3.30  
   
 
 
 
 
 
 
 
 
 
Total   $ 225,186   $ 214,247   $ 208,677   $ 2,495   $ 2,282   $ 1,678   4.49 % 4.23 % 3.26 %
   
 
 
 
 
 
 
 
 
 
Total interest-bearing liabilities   $ 1,246,803   $ 1,186,459   $ 1,123,692   $ 12,107   $ 10,935   $ 7,424   3.94 % 3.66 % 2.68 %
                     
 
 
 
 
 
 
Demand deposits in U.S. offices     10,760     10,641     10,700                                
Other non-interest bearing liabilities(8)     189,702     170,945     164,979                                
Total liabilities from discontinued operations         383     92,409                                
   
 
 
                               
Total liabilities   $ 1,447,265   $ 1,368,428   $ 1,391,780                                
   
 
 
                               
Total stockholders' equity(10)   $ 113,123   $ 110,916   $ 109,578                                
   
 
 
                               
Total liabilities and stockholders' equity   $ 1,560,388   $ 1,479,344   $ 1,501,358                                
   
 
 
 
 
 
 
 
 
 
Net interest revenue as a percentage of average interest-earning assets(11)                                                  
In U.S. offices   $ 837,085   $ 810,436   $ 731,344   $ 4,960   $ 5,285   $ 5,688   2.40 % 2.59 % 3.15 %
In offices outside the U.S.(6)     552,769     515,171     513,532     4,826     4,479     4,451   3.54 % 3.45 % 3.52 %
   
 
 
 
 
 
 
 
 
 
Total   $ 1,389,854   $ 1,325,607   $ 1,244,876   $ 9,786   $ 9,764   $ 10,139   2.86 % 2.92 % 3.30 %
   
 
 
 
 
 
 
 
 
 

(1)
The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35%.

(2)
Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 15 to the Consolidated Financial Statements on page 98.

(3)
Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)
Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 3 to the Consolidated Financial Statements on page 83.

(5)
Savings deposits consist of Insured Money Market Rate accounts, NOW accounts, and other savings deposits.

(6)
Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(7)
Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 and interest expense excludes the impact of FIN 41.

(8)
The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest bearing liabilities.

(9)
Interest expense on trading account liabilities of CGMHI is reported as a reduction of interest revenue.

(10)
Includes stockholders' equity from discontinued operations.

(11)
Includes allocations for capital and funding costs based on the location of the asset.

63


ANALYSIS OF CHANGES IN INTEREST REVENUE(1)(2)(3)

 
  1st Qtr. 2006 vs. 4th Qtr. 2005
  1st Qtr. 2006 vs. 1st Qtr. 2005
 
  Increase (Decrease)
Due to Change in:

   
  Increase (Decrease)
Due to Change in:

   
In millions of dollars

  Average Volume
  Average Rate
  Net Change(2)
  Average Volume
  Average Rate
  Net Change(2)
Cash and due from banks   $ 7   $ 6   $ 13   $ 8   $ 22   $ 30
   
 
 
 
 
 
Deposits at interest with banks(4)   $ (22 ) $ (6 ) $ (28 ) $ 28   $ 191   $ 219
   
 
 
 
 
 
Federal funds sold and securities borrowed or purchased under agreements to resell                                    
In U.S. offices   $ (51 ) $ 129   $ 78   $ 136   $ 957   $ 1,093
In offices outside the U.S.(4)     35     (18 )   17     66     155     221
   
 
 
 
 
 
Total   $ (16 ) $ 111   $ 95   $ 202   $ 1,112   $ 1,314
   
 
 
 
 
 
Brokerage receivables                                    
In U.S. offices   $ 14   $ 31   $ 45   $ 16   $ 106   $ 122
In offices outside the U.S.(4)     (12 )   34     22     31     70     101
   
 
 
 
 
 
Total   $ 2   $ 65   $ 67   $ 47   $ 176   $ 223
   
 
 
 
 
 
Trading account assets(5)                                    
In U.S. offices   $ 75   $ 130   $ 205   $ 286   $ 294   $ 580
In offices outside the U.S.(4)     127     112     239     21     110     131
   
 
 
 
 
 
Total   $ 202  <