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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 September 30, 2008

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, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o   Smaller reporting company 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 September 30, 2008: 5,449,539,904

Available on the Web at www.citigroup.com



Citigroup Inc.

TABLE OF CONTENTS

Part I—Financial Information

 
   
 
Page No.
 
Item 1.   Financial Statements:        

 

 

Consolidated Statement of Income (Unaudited)—Three and Nine Months Ended September 30, 2008 and 2007

 

 

81

 

 

 

Consolidated Balance Sheet—September 30, 2008 (Unaudited) and December 31, 2007

 

 

82

 

 

 

Consolidated Statement of Changes in Stockholders' Equity (Unaudited)—Three and Nine Months Ended September 30, 2008 and 2007

 

 

84

 

 

 

Consolidated Statement of Cash Flows (Unaudited)—Three and Nine Months Ended September 30, 2008 and 2007

 

 

86

 

 

 

Consolidated Balance Sheet—Citibank, N.A. and Subsidiaries September 30, 2008 (Unaudited) and December 31, 2007

 

 

87

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

88

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

 

6 - 79

 

 

 

Summary of Selected Financial Data

 

 

4

 

 

 

Third Quarter of 2008 Management Summary

 

 

6

 

 

 

Events in 2008

 

 

8

 

 

 

Segment and Regional Net Income and Net Revenues

 

 

11 - 14

 

 

 

Managing Global Risk

 

 

32

 

 

 

Interest Revenue/Expense and Yields

 

 

49

 

 

 

Capital Resources and Liquidity

 

 

57

 

 

 

Off-Balance Sheet Arrangements

 

 

63

 

 

 

Forward-Looking Statements

 

 

79

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

 

40 - 47
121 - 141

 

Item 4.

 

Controls and Procedures

 

 

79

 

Part II—Other Information

 

 

 

 

Item 1.

 

Legal Proceedings

 

 

156

 

Item 1A.

 

Risk Factors

 

 

157

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

158

 

Item 6.

 

Exhibits

 

 

159

 

Signatures

 

 

 

 

160

 

Exhibit Index

 

 

161

 

2


THE COMPANY

        Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company) is a global diversified financial services holding company whose businesses provide a broad range of financial services to consumer and corporate customers. Citigroup has more than 200 million customer 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 2007 Annual Report on Form 10-K and Citigroup's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008. Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Financial Supplement that was filed as Exhibit 99.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission (SEC) on October 16, 2008.

        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 "All SEC Filings." The 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 regional lines:

GRAPHIC

The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results.

GRAPHIC


(1)
Asia includes Japan, Latin America includes Mexico, and North America includes U.S., Canada and Puerto Rico.

3


CITIGROUP INC. AND SUBSIDIARIES

SUMMARY OF SELECTED FINANCIAL DATA

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars, except per share amounts   2008   2007   2008   2007  

Net interest revenue

  $ 13,406   $ 11,844     13 % $ 40,439   $ 33,146     22 %

Non-interest revenue

    3,274     9,796     (67 )   6,759     38,930     (83 )
                           

Revenues, net of interest expense

  $ 16,680   $ 21,640     (23 )% $ 47,198   $ 72,076     (35 )%

Operating expenses

    14,425     14,152     2     45,844     43,702     5  

Provisions for credit losses and for benefits and claims

    9,067     4,867     86     22,019     10,256     NM  
                           

Income (loss) from continuing operations before taxes and minority interest

  $ (6,812 ) $ 2,621     NM   $ (20,665 ) $ 18,118     NM  

Income taxes (benefits)

    (3,294 )   492     NM     (9,637 )   4,908     NM  

Minority interest, net of taxes

    (95 )   20     NM     (40 )   190     NM  
                           

Income (loss) from continuing operations

  $ (3,423 ) $ 2,109     NM   $ (10,988 ) $ 13,020     NM  

Income (loss) from discontinued operations, net of taxes(1)

    608     103     NM     567     430     32 %
                           

Net income (loss)

  $ (2,815 ) $ 2,212     NM   $ (10,421 ) $ 13,450     NM  
                           

Earnings per share

                                     
 

Basic

                                     
 

Income (loss) from continuing operations

  $ (0.71 ) $ 0.43     NM   $ (2.26 ) $ 2.65     NM  
 

Net Income (loss)

    (0.60 )   0.45     NM     (2.15 )   2.74     NM  
 

Diluted(2)

                                     
 

Income (loss) from continuing operations

  $ (0.71 ) $ 0.42     NM   $ (2.26 )   2.60     NM  
 

Net Income (loss)

    (0.60 )   0.44     NM     (2.15 )   2.69     NM  

Dividends declared per common share

  $ 0.32   $ 0.54     (41 )% $ 0.96   $ 1.62     (41 )%

Preferred Dividends—Basic (in millions)

  $ 389   $ 6         $ 833   $ 36        

Preferred Dividends—Diluted (in millions)

  $ 119   $ 6         $ 227   $ 36        
                           

At September 30:

                                     

Total assets

  $ 2,050,131   $ 2,358,115     (13 )%                  

Total deposits

    780,343     812,850     (4 )                  

Long-term debt

    393,097     364,526     8                    

Mandatorily redeemable securities of subsidiary trusts

    23,674     11,542     NM                    

Common stockholders' equity

    98,638     126,762     (22 )                  

Total stockholders' equity

    126,062     126,962     (1 )                  
                           

Ratios:

                                     

Return on common stockholders' equity(3)

    (12.2 )%   6.9 %         (13.8 )%   14.6 %      
                           

Tier 1 Capital

    8.19 %   7.32 %                        

Total Capital

    11.68     10.61                          

Leverage(4)

    4.70     4.13                          
                           

Common Stockholders' equity to assets

    4.81 %   5.38 %                        

Dividend payout ratio(5)

    N/A     122.7           N/A     60.2        

Ratio of earnings to fixed charges and preferred stock dividends

    0.45 x   1.13 x         0.50 x   1.32 x      

(1)
Discontinued operations relate to the pending sale of Citigroup's German Retail Banking operations to Credit Mutuel, and the Company's sale of CitiCapital's equipment finance unit to General Electric. See note 2 to the Consolidated Financial Statement on page 92.

(2)
Due to the net loss in the 2008 periods, basic shares were used to calculate diluted earnings per share. Adding diluted securities to the denominator would result in anti-dilution.

(3)
The return on average common stockholders' equity is calculated using net income (loss) minus preferred stock dividends.

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

(5)
Dividends declared per common share as a percentage of net income per diluted share. For the third quarter of 2008, the dividend payout ratio was not calculable due to the net loss.

NM Not meaningful

4


        Certain reclassifications have been made to the prior-period's financial statements to conform to the current period's presentation.

        Certain statements in this Form 10-Q, including, but not limited to, statements made in "Management's Discussion and Analysis," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors including, but not limited to, those described in Citigroup's 2007 Annual Report on Form 10-K under "Risk Factors" beginning on page 38.

5


MANAGEMENT'S DISCUSSION AND ANALYSIS

THIRD QUARTER OF 2008 MANAGEMENT SUMMARY

        Citigroup reported a $3.4 billion loss from continuing operations ($0.71 per share) for the third quarter of 2008. The third quarter results were impacted by higher consumer credit costs, continued losses related to the disruption in the fixed income markets, and a general economic slowdown. The net loss of $2.8 billion ($0.60 per share) in the third quarter includes the results of our German Retail Banking Operations and CitiCapital (which are now reflected as discontinued operations).

        Revenues were $16.7 billion, down 23% from a year ago. The decline in revenues was driven by $4.4 billion in net write-downs in S&B (after reflection of the gain on Citigroup's liabilities under the fair value option), lower securitization results in North America Cards, and a $612 million write-down related to the auction rates securities (ARS) settlement, partially offset by a $347 million pre-tax gain on the sale of CitiStreet. The prior-year period included a $729 million pre-tax gain on the sale of Redecard shares. Revenues across all businesses reflect the impact of a difficult economic environment and weak capital markets.

        Global Cards revenues declined 40%, mainly due to lower securitization results in North America and the absence of a gain on the sale of Redecard shares. Consumer Banking revenues grew 2%, as increased revenues in North America were partially offset by declines in Latin America and Asia. ICG S&B revenues were ($81) million, due to write-downs of $2.0 billion on SIV assets, write-downs of $1.2 billion (net of hedges) on Alt-A mortgages, downward credit value adjustments of $919 million related to exposure to monoline insurers, write-downs of $792 million (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, write-downs of $518 million on commercial real estate positions, and net write-downs of $394 million on subprime-related direct exposures. S&B revenues also included a $306 million write-down related to the ARS settlement. These write-downs were partially offset by a $1.5 billion gain from the change in Citigroup's own credit spreads for those liabilities to which the Company has elected the fair value option. Transaction Services revenues were up 20% to $2.5 billion, reflecting double-digit revenue growth across all regions. GWM revenues decreased 10%, driven by a decline in capital markets and investment revenues, partially offset by higher banking and lending revenues. GWM revenues also included a $347 million pre-tax gain on the sale of CitiStreet, partially offset by a $306 million write-down related to the ARS settlement.

        Net interest revenue increased 13% from last year, reflecting volume increases across most products. Net interest margin (NIM) in the third quarter of 2008 was 3.13%, up 79 basis points from the third quarter of 2007, reflecting lower cost of funding, partially offset by a decrease in asset yields related to the decrease in the Fed Funds rate. (See discussion of NIM on page 49).

        Operating expenses increased 2% from the third quarter of 2007. Expense growth reflected $459 million in repositioning charges, a $100 million fine related to the ARS settlement, and the impact of acquisitions. Expense growth was partially offset by benefits from re-engineering efforts. Expenses declined for the third consecutive quarter, due to lower incentive compensation accruals and continued benefits from re-engineering efforts. Headcount was down 11,000 from June 30, 2008, and approximately 23,000 year-to-date.

        Total credit costs of $8.8 billion included NCLs of $4.9 billion up from $2.5 billion in the third quarter of 2007 and a net build of $3.9 billion to credit reserves. The build consisted of $3.2 billion in Consumer ($2.3 billion in North America and $855 million in regions outside of North America), $612 million in ICG and $64 million in GWM. The incremental net charge to increase loan loss reserves of $1.7 billion was mainly due to Consumer Banking and Cards in North America, and S&B. The Consumer loans loss rate was 3.35%, a 153 basis-point increase from the third quarter of 2007. Corporate cash-basis loans were $2.7 billion at September 30, 2008, an increase of $1.4 billion from year-ago levels. The allowance for loan losses totaled $24.0 billion at September 30, 2008, a coverage ratio of 3.35% of total loans.

        The effective tax rate of 48% in the third quarter of 2008 primarily resulted from the pretax losses in the Company's S&B business taxed in the U.S. (the U.S. is a higher tax rate jurisdiction). In addition, the tax benefits of permanent differences, including the tax benefit for not providing U.S. income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested, favorably affected the Company's effective tax rate.

        Stockholders' equity and trust preferred securities were $149.7 billion at September 30, 2008. We distributed $2.1 billion in dividends to shareholders during the quarter. On October 20, 2008, as previously announced, the Company decreased the quarterly dividend on its common stock to $0.16 per share. Citigroup maintained its "well-capitalized" position with a Tier 1 Capital Ratio of 8.19% at September 30, 2008.

        On October 28, 2008, Citigroup raised $25 billion through the sale of non-voting perpetual preferred stock and a warrant to purchase common stock to the U.S. Department of the Treasury as part of the Treasury's previously announced TARP Capital Purchase Program. All of the proceeds will be treated as Tier 1 Capital for regulatory purposes. Taking this issuance into account, on a pro forma basis, at September 30, 2008, Citigroup's Tier 1 Capital ratio would have been approximately 10.4%.

6


        In addition, the pending sale of our German retail banking operation, which is expected to result in an estimated after-tax gain of approximately $4 billion in the fourth quarter of 2008.

        Our liquidity position also remained very strong during the third quarter of 2008 and will continue to be enhanced through the sale to the U.S. Department of the Treasury of perpetual preferred stock and a warrant to purchase common stock, the sale of the German Retail Banking Operations and continued balance sheet de-leveraging. At September 30, 2008, we had increased our structural liquidity (equity, long-term debt, and deposits), as a percentage of assets, from 55% at September 30, 2007 to approximately 64% at September 30, 2008.

        At September 30, 2008, the maturity profile of Citigroup's senior long-term unsecured borrowings had a weighted average maturity of seven years. We also reduced our commercial paper program from $35 billion at December 31, 2007 to $29 billion at September 30, 2008.

        Our reserves of cash and highly liquid securities stood at approximately $51 billion at September 30, 2008, up from $24 billion at December 31, 2007. Continued de-leveraging and the enhancement of our liquidity position have allowed us to continue to maintain sufficient liquidity to meet all debt obligations maturing within a one-year period without having to access unsecured capital markets. See "Funding" on page 61 for further information on Citigroup's liquidity and funding.

7



EVENTS IN 2008

U.S. Department of the Treasury Troubled Asset Relief Program (TARP) and FDIC Guarantee

        Issuance of $25 Billion of Perpetual Preferred Stock and a Warrant to Purchase Common Stock under TARP On October 28, 2008, Citigroup raised $25 billion through the sale of non-voting perpetual preferred stock and a warrant to purchase common stock to the U.S. Department of the Treasury as part of the Treasury's previously announced Troubled Asset Relief Program (TARP) Capital Purchase Program.

        All of the proceeds will be treated as Tier 1 Capital for regulatory purposes. Taking this issuance into account, on a pro forma basis, at September 30, 2008, Citigroup's Tier 1 Capital ratio would have been approximately 10.4%.

        The preferred stock will have an aggregate liquidation preference of $25 billion and an annual dividend rate of 5% for the first five years, and 9% thereafter. Dividends will be cumulative and payable quarterly. The warrant will have an exercise price of $17.85 and will be exercisable for 210,084,034 shares of common stock, which would be reduced by one-half if Citigroup raises an additional $25 billion through the issuance of Tier 1-qualifying perpetual preferred or common stock by December 31, 2009.

        The issuance of the warrant will result in a conversion price reset of the $12.5 billion of 7% convertible preferred stock sold in private offerings in January 2008. See "Capital Resources" beginning on page 57 for a further discussion.

FDIC Guarantee

        The Federal Deposit Insurance Corporation (FDIC) will guarantee until June of 2012 some senior unsecured debt issued by certain Citigroup entities between October 14, 2008 and June 30, 2009, in amounts up to 125% of the qualifying debt for each entity under the terms of the plan. The FDIC will charge a 75bps fee for any new qualifying debt issued with the FDIC guarantee.

Impact on Citigroup's Credit Spreads

        As a result of government actions and for other reasons, credit spreads on Citigroup's debt instruments have substantially narrowed since September 30, 2008. Although this may change before the end of the year, if Citigroup's credit spreads are substantially narrower at December 31, 2008 than at September 30, 2008, it could have a meaningful impact on the value of derivative instruments and those liabilities for which the Company has elected the fair value option. See "Derivatives" on page 40 and Note 17 on Fair Value on page 125 for a discussion on the impact of changes in credit spreads in the third quarter.

Auction Rate Securities (ARS) Settlement

        In the third quarter of 2008, Citigroup announced an agreement in principle with the New York Attorney General, under which it agreed to offer to purchase the failed ARS of its retail clients for par value. This agreement resulted in a $712 million loss being recorded during the third quarter.

        The loss comprises (1) fines of $100 million ($50 million to the State of New York and $50 million to the other state regulatory agencies); (2) an estimated contingent loss of $425 million, recorded at the time of the announcement, reflecting the estimated difference between the fair value and par value of the securities to be purchased; and (3) an incremental loss of $187 million due to the decline in value of these ARS since the time of announcement (mainly due to the widening spreads on municipal obligations).

        The securities Citigroup will be purchasing under this agreement have an estimated notional value of $6.2 billion, consisting of $4.2 billion of Preferred Share ARS, $1.8 billion of Municipal ARS and $0.2 billion of Student Loan ARS. The pretax losses of $712 million have been divided equally between S&B and GWM, both in North America.

Write-Downs on Structured Investment Vehicles (SIVs)

        During the third quarter of 2008, Citigroup wrote down $2.0 billion on SIV assets, bringing the year-to-date write-downs to $2.2 billion. Citigroup increased its mezzanine financing to $4.5 billion, reflecting an increase of $1.0 billion from the original $3.5 billion financing. This additional mezzanine financing was funded subsequent to September 30, 2008. The total SIV assets as of September 30, 2008 and June 30, 2008 were approximately $27.5 billion and $34.8 billion, respectively. See "Structured Investment Vehicles" on page 74 for a further discussion.

Write-downs on Alt-A Mortgage Securities in S&B

        During the third quarter of 2008, Citigroup recorded additional pretax losses of approximately $1.2 billion, net of hedges, on Alt-A mortgage securities held in S&B, bringing the year-to-date net loss to $2.5 billion. For these purposes, Alt-A mortgage securities are non-agency residential mortgage-backed securities (RMBS) where: (1) the underlying collateral has weighted average FICO scores between 680 and 720, or (2) for instances where FICO scores are greater than 720, RMBS have 30% or less of the underlying collateral composed of full documentation loans.

        The Company had $13.6 billion in Alt-A mortgage securities carried at fair value at September 30, 2008, which decreased from $16.4 billion at June 30, 2008. Of the $13.6 billion, $3.4 billion were classified as Trading assets, of which $573 million of fair value write-downs, net of hedging, were recorded in earnings, and $10.2 billion were classified as available-for-sale investments, on which $580 million of write-downs were recorded in earnings due to other-than-temporary impairments. In addition, an incremental $1.5 billion of pretax fair value unrealized losses were recorded in Accumulated Other Comprehensive Income (OCI).

Write-Downs on Monoline Insurers

        During the third quarter of 2008, Citigroup recorded pretax write-downs of credit value adjustments (CVA) of $919 million on its exposure to monoline insurers, bringing the year-to-date write-downs to $4.8 billion. CVA is calculated by applying the counterparty's current credit spread to the expected exposure on the trade. The majority of the exposure relates to hedges on super senior positions that were executed

8


with various monoline insurance companies. See "Direct Exposure to Monolines" on page 38 for a further discussion.

Write-Downs on Highly Leveraged Loans and Financing Commitments

        Due to the continued dislocation of the credit markets and the reduced market interest in higher risk/higher yield instruments that began during the second half of 2007, liquidity in the market for highly leveraged financings is very limited. This has resulted in the Company's recording additional pretax write-downs of $792 million on funded and unfunded highly leveraged finance exposures, bringing the total year-to-date write-downs to $4.3 billion.

        Citigroup's exposure to highly leveraged financings totaled $23 billion at September 30, 2008 ($10 billion in funded and $13 billion in unfunded commitments), reflecting a decrease of $1 billion from June 30, 2008. See "Highly Leveraged Financing Commitments" on page 78 for further discussion.

Write-Downs on Commercial Real Estate Exposures

        S&B's commercial real estate exposure can be split into three categories: assets held at fair value, loans and commitments, and equity and other investments. For assets that are held at fair value, Citigroup recorded an additional $518 million of fair value write-downs on these exposures, net of hedges, during the third quarter of 2008 on commercial real estate exposure, bringing the year-to-date fair value write-downs to $1.6 billion. See "Exposure to Commercial Real Estate" on page 37 for a further discussion.

Write-Downs on Subprime-Related Direct Exposures

        During the third quarter of 2008, S&B recorded losses of $394 million pretax, net of hedges, on its subprime-related direct exposures, bringing the total losses year-to-date to $9.7 billion. The Company's remaining $19.6 billion in U.S. subprime net direct exposure in S&B at September 30, 2008 consisted of (a) approximately $16.3 billion of net exposures to the super senior tranches of collateralized debt obligations, which are collateralized by asset-backed securities, derivatives on asset-backed securities or both and (b) approximately $3.3 billion of subprime-related exposures in its lending and structuring business. See "Exposure to U.S. Real Estate" on page 34 for a further discussion of such exposures and the associated losses recorded during the third quarter of 2008.

Losses on Auction Rate Securities (ARS)

        As of September 30, 2008, ARS classified as Trading assets totaled $5.2 billion compared to $5.6 billion as of June 30, 2008. A significant majority are ARS where the underlying assets are student loans, while the remainder are ARS where the underlying assets are U.S. municipal securities as well as various other assets.

        During the third quarter of 2008, S&B recorded $166 million in pretax losses in Principal transactions, primarily due to widening spreads and reduced liquidity in the market. The total year-to-date net losses on ARS positions was $1.4 billion, a significant majority of which relates to ARS where student loans are the underlying assets.

Credit Reserves

        During the third quarter of 2008, the Company recorded a net build of $3.9 billion to its credit reserves. The build consisted of $3.2 billion in Consumer ($2.3 billion in North America and $855 million in regions outside of North America), $612 million in ICG and $64 million in GWM.

        The $2.3 billion build in North America Consumer primarily reflected a weakening of leading credit indicators, including higher delinquencies on first mortgages, unsecured personal loans, credit cards and auto loans. Reserves also increased due to trends in the U.S. macroeconomic environment, including the housing market downturn and rising unemployment rates.

        The $855 million build in regions outside of North America was primarily driven by deterioration in Mexico, Brazil and EMEA cards, and India Consumer Banking.

        The build of $612 million in ICG primarily reflected loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio.

        As the environment for consumer credit continues to deteriorate, the Company has taken many actions to manage risks such as tightening underwriting criteria and reducing credit lines. However, credit card losses may continue to rise well into 2009, and it is possible that the Company's loss rates may exceed their historical peaks.

        The total allowance for loan losses and unfunded lending commitments totaled $25.0 billion at September 30, 2008.

Repositioning Charges

        In the third quarter of 2008, Citigroup recorded repositioning charges of $459 million pretax related to Citigroup's ongoing reengineering plans, which will result in certain branch closings and headcount reductions of approximately 6,300 employees. The year-to-date repositioning charges equal $1.6 billion. Direct staff at September 30, 2008 was approximately 352,000, a decrease of approximately 11,000 from June 30, 2008.

Sale of CitiCapital

        On July 31, 2008, Citigroup sold CitiCapital, the equipment finance unit in North America. A pre-tax loss of $517 million was recorded in the second quarter of 2008 in Discontinued Operations on the Company's Consolidated Statement of Income and was reduced by approximately $9 million in the third quarter for various closing adjustments. Approximately $4 million of net income related to CitiCapital was recorded in the third quarter of 2008. In addition, the income statement results of all CitiCapital businesses have been reported as Discontinued Operations for all periods presented.

Sale of CitiStreet

        In the third quarter of 2008, Citigroup and State Street Corporation completed the sale of CitiStreet, a benefits servicing business, to ING Group in an all-cash transaction valued at $900 million. CitiStreet is a joint venture formed in 2000, which, prior to the sale, was owned 50 percent each by Citigroup and State Street. The transaction closed on July 1, 2008 and generated an after-tax gain of $222 million ($347 million pretax) that was recorded in GWM.

9


Sale of Citigroup's German Retail Banking Operation

        On July 11, 2008, Citigroup announced the agreement to sell its German retail banking operations to Credit Mutuel for Euro 4.9 billion in cash plus the German retail banks operating net earnings accrued in 2008 through the closing. The transaction is expected to result in an after-tax gain of approximately $4 billion. The sale does not include the corporate and investment banking business or the Germany-based European data center. The sale is expected to close in the fourth quarter of 2008 pending regulatory approvals.

        The German retail banking operations generated total revenue of $1.7 billion and $1.6 billion, and pretax earnings of $521 million and $398 million for the nine months ended September 30, 2008 and 2007, respectively. These results are reported in Discontinued operations on the Company's Consolidated Statement of Income. In addition to these results, there was a $330 million pre-tax foreign exchange gain realized during the third quarter of 2008 from hedging the sale proceeds, which are denominated in Euros, and a tax benefit of $279 million that arose as a result of this sale. Including these two items, total revenue and after-tax income from discontinued operations for the nine months ended September 30, 2008 was $2.0 billion and $829 million, respectively. Furthermore, the assets and liabilities as of September 30, 2008 of the German retail banking operations to be sold are included within Assets of discontinued operations held for sale, and liabilities of discontinued operations held for sale, respectively, on the Company's Consolidated Balance Sheet.

Sale of Citigroup's Interest in Citigroup Global Services Limited

        On October 8, 2008, Citigroup announced an agreement with Tata Consultancy Services Limited (TCS) to sell all of Citigroup's interest in Citigroup Global Services Limited (CGSL) for all cash consideration of approximately $505 million, subject to closing adjustments. CGSL is the Citigroup captive provider of business process outsourcing services solely within the Banking and Financial Services sector.

        In addition to the sale, Citigroup signed an agreement for TCS to provide, through CGSL, process outsourcing services to Citigroup and its affiliates in an aggregate amount of $2.5 billion over a period of 9.5 years. The agreement builds upon the existing relationship between Citigroup and TCS, whereby TCS provides application development, infrastructure support, help desk and other process outsourcing services to Citigroup. CGSL generated for the full year 2007 approximately $212 million of revenues and pretax earnings of approximately $37 million. CGSL does not qualify as a discontinued operation due to the continued involvement of Citigroup.

        The transaction is expected to close in the fourth quarter of 2008 pending regulatory approvals and required consents.

Lehman Brothers Holding, Inc. Bankruptcy

        On September 15, 2008, Lehman Brothers Holding, Inc. ("LBHI", and, together with its subsidiaries, "Lehman") filed for Chapter 11 bankruptcy in U.S. Federal Court. A number of LBHI subsidiaries have subsequently filed bankruptcy or similar insolvency proceedings in the U.S. and other jurisdictions. Lehman's bankruptcy caused Citigroup to terminate cash management and foreign exchange clearance arrangements, close out approximately 40,000 Lehman foreign exchange, derivative and other transactions and quantify other exposures. Citigroup expects to file claims in the relevant Lehman bankruptcy proceedings, as appropriate. Citigroup's net exposure, after application of available collateral and offsets, is expected to be modest.

10



SEGMENT AND REGIONAL—NET INCOME (LOSS) AND REVENUE

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

Citigroup Net Income (Loss)—Segment View

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

Global Cards

                                     
 

North America

  $ (873 ) $ 808     NM   $ (158 ) $ 2,391     NM  
 

EMEA

    (25 )   30     NM     21     112     (81 )%
 

Latin America

    (36 )   563     NM     645     982     (34 )
 

Asia

    32     41     (22 )%   268     255     5  
                           
   

Total Global Cards

  $ (902 ) $ 1,442     NM   $ 776   $ 3,740     (79 )%
                           

Consumer Banking

                                     
 

North America

  $ (1,080 ) $ 59     NM   $ (2,364 ) $ 1,700     NM  
 

EMEA

    (94 )   (28 )   NM     (242 )   (58 )   NM  
 

Latin America

    29     102     (72 )%   376     454     (17 )%
 

Asia

    46     23     100     355     639     (44 )
                           
   

Total Consumer Banking

  $ (1,099 ) $ 156     NM   $ (1,875 ) $ 2,735     NM  
                           

Institutional Clients Group (ICG)

                                     
 

North America

  $ (2,950 ) $ (720 )   NM   $ (11,758 ) $ 2,002     NM  
 

EMEA

    104     (26 )   NM     (1,127 )   1,472     NM  
 

Latin America

    271     407     (33 )%   1,055     1,164     (9 )%
 

Asia

    558     606     (8 )   1,412     1,930     (27 )
                           
   

Total ICG

  $ (2,017 ) $ 267     NM   $ (10,418 ) $ 6,568     NM  
                           

Global Wealth Management (GWM)

                                     
 

North America

  $ 264   $ 334     (21 )% $ 738   $ 1,029     (28 )%
 

EMEA

    24     4     NM     70     57     23  
 

Latin America

    16     12     33     57     56     2  
 

Asia

    59     140     (58 )   197     308     (36 )
                           
   

Total GWM

  $ 363   $ 490     (26 )% $ 1,062   $ 1,450     (27 )%
                           

Corporate/Other(1)

  $ 232   $ (246 )   NM   $ (533 ) $ (1,473 )   64 %
                           

Income (Loss) from Continuing Operations

  $ (3,423 ) $ 2,109     NM   $ (10,988 ) $ 13,020     NM  

Discontinued Operations

  $ 608   $ 103         $ 567   $ 430        
                           

Net Income (Loss)

  $ (2,815 ) $ 2,212     NM   $ (10,421 ) $ 13,450     NM  
                           

(1)
The nine months ending September 30, 2007 include a $1,475 million Restructuring charge related to the Company's Structural Expense Initiatives project announced on April 11, 2007.

NM
Not meaningful

11


Citigroup Net Income (Loss)—Regional View

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

North America

                                     
 

Global Cards

  $ (873 ) $ 808     NM   $ (158 ) $ 2,391     NM  
 

Consumer Banking

    (1,080 )   59     NM     (2,364 )   1,700     NM  
 

ICG

    (2,950 )   (720 )   NM     (11,758 )   2,002     NM  
   

Securities & Banking

    (3,037 )   (780 )   NM     (11,975 )   1,856     NM  
   

Transaction Services

    87     60     45 %   217     146     49 %
 

GWM

    264     334     (21 )   738     1,029     (28 )
                           
   

Total North America

  $ (4,639 ) $ 481     NM   $ (13,542 ) $ 7,122     NM  
                           

EMEA

                                     
 

Global Cards

  $ (25 ) $ 30     NM   $ 21   $ 112     (81 )%
 

Consumer Banking

    (94 )   (28 )   NM     (242 )   (58 )   NM  
 

ICG

    104     (26 )   NM     (1,127 )   1,472     NM  
   

Securities & Banking

    (175 )   (205 )   15 %   (1,866 )   970     NM  
   

Transaction Services

    279     179     56     739     502     47  
 

GWM

    24     4     NM     70     57     23  
                           
   

Total EMEA

  $ 9   $ (20 )   NM   $ (1,278 ) $ 1,583     NM  
                           

Latin America

                                     
 

Global Cards

  $ (36 ) $ 563     NM   $ 645   $ 982     (34 )%
 

Consumer Banking

    29     102     (72 )%   376     454     (17 )
 

ICG

    271     407     (33 )   1,055     1,164     (9 )
   

Securities & Banking

    126     297     (58 )   636     887     (28 )
   

Transaction Services

    145     110     32     419     277     51  
 

GWM

    16     12     33     57     56     2  
                           
   

Total Latin America

  $ 280   $ 1,084     (74 )% $ 2,133   $ 2,656     (20 )%
                           

Asia

                                     
 

Global Cards

  $ 32   $ 41     (22 )% $ 268   $ 255     5 %
 

Consumer Banking

    46     23     100     355     639     (44 )
 

ICG

    558     606     (8 )   1,412     1,930     (27 )
   

Securities & Banking

    252     364     (31 )   537     1,300     (59 )
   

Transaction Services

    306     242     26     875     630     39  
 

GWM

    59     140     (58 )   197     308     (36 )
                           
   

Total Asia

  $ 695   $ 810     (14 )% $ 2,232   $ 3,132     (29 )%

Corporate/Other

    232     (246 )   NM     (533 )   (1,473 )   64 %
                           

Income (Loss) from Continuing Operations

  $ (3,423 ) $ 2,109     NM   $ (10,988 ) $ 13,020     NM  

Income (Loss) from Discontinued Operations

  $ 608   $ 103         $ 567   $ 430        
                           

Net Income (Loss)

  $ (2,815 ) $ 2,212     NM   $ (10,421 ) $ 13,450     NM  
                           

NM
Not meaningful

12


Citigroup Revenues—Segment View

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

Global Cards

                                     
 

North America

  $ 1,388   $ 3,510     (60 )% $ 7,659   $ 10,215     (25 )%
 

EMEA

    593     566     5     1,789     1,390     29  
 

Latin America

    1,143     1,728     (34 )   4,148     3,585     16  
 

Asia

    665     538     24     1,999     1,582     26  
                           
   

Total Global Cards

  $ 3,789   $ 6,342     (40 )% $ 15,595   $ 16,772     (7 )%
                           

Consumer Banking

                                     
 

North America

  $ 4,414   $ 4,164     6 % $ 13,023   $ 12,446     5 %
 

EMEA

    622     625         2,084     1,788     17  
 

Latin America

    1,015     1,071     (5 )   3,101     3,013     3  
 

Asia

    1,378     1,442     (4 )   4,367     4,375      
                           
   

Total Consumer Banking

  $ 7,429   $ 7,302     2 % $ 22,575   $ 21,622     4 %
                           

Institutional Clients Group (ICG)

                                     
 

North America

  $ (2,165 ) $ 110     NM   $ (11,737 ) $ 8,381     NM  
 

EMEA

    1,913     1,398     37 %   3,786     7,218     (48 )%
 

Latin America

    828     1,103     (25 )   2,915     3,053     (5 )
 

Asia

    1,817     2,006     (9 )   5,410     5,879     (8 )
                           
   

Total ICG

  $ 2,393   $ 4,617     (48 )% $ 374   $ 24,531     (98 )%
                           

Global Wealth Management (GWM)

                                     
 

North America

  $ 2,317   $ 2,455     (6 )% $ 7,120   $ 7,281     (2 )%
 

EMEA

    147     139     6     470     384     22  
 

Latin America

    92     92         294     275     7  
 

Asia

    608     833     (27 )   1,874     1,594     18  
                           
   

Total GWM

  $ 3,164   $ 3,519     (10 )% $ 9,758   $ 9,534     2 %

Corporate/Other

    (95 )   (140 )   32     (1,104 )   (383 )   NM  
                           

Total Net Revenues

 
$

16,680
 
$

21,640
   
(23

)%

$

47,198
 
$

72,076
   
(35

)%
                           

NM Not meaningful

13


Citigroup Revenues—Regional View

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

North America

                                     
 

Global Cards

  $ 1,388   $ 3,510     (60 )% $ 7,659   $ 10,215     (25 )%
 

Consumer Banking

    4,414     4,164     6     13,023     12,446     5  
 

ICG

    (2,165 )   110     NM     (11,737 )   8,381     NM  
   

Securities & Banking

    (2,693 )   (336 )   NM     (13,254 )   7,226     NM  
   

Transaction Services

    528     446     18     1,517     1,155     31  
 

GWM

    2,317     2,455     (6 )   7,120     7,281     (2 )
                           
   

Total North America

  $ 5,954   $ 10,239     (42 )% $ 16,065   $ 38,323     (58 )%
                           

EMEA

                                     
 

Global Cards

  $ 593   $ 566     5 % $ 1,789   $ 1,390     29 %
 

Consumer Banking

    622     625         2,084     1,788     17  
 

ICG

    1,913     1,398     37     3,786     7,218     (48 )
   

Securities & Banking

    1,043     674     55     1,234     5,216     (76 )
   

Transaction Services

    870     724     20     2,552     2,002     27  
 

GWM

    147     139     6     470     384     22  
                           
   

Total EMEA

  $ 3,275   $ 2,728     20 % $ 8,129   $ 10,780     (25 )%
                           

Latin America

                                     
 

Global Cards

  $ 1,143   $ 1,728     (34 )% $ 4,148   $ 3,585     16 %
 

Consumer Banking

    1,015     1,071     (5 )   3,101     3,013     3  
 

ICG

    828     1,103     (25 )   2,915     3,053     (5 )
   

Securities & Banking

    463     812     (43 )   1,850     2,266     (18 )
   

Transaction Services

    365     291     25     1,065     787     35  
 

GWM

    92     92         294     275     7  
                           
   

Total Latin America

  $ 3,078   $ 3,994     (23 )% $ 10,458   $ 9,926     5 %
                           

Asia

                                     
 

Global Cards

  $ 665   $ 538     24 % $ 1,999   $ 1,582     26 %
 

Consumer Banking

    1,378     1,442     (4 )   4,367     4,375      
 

ICG

    1,817     2,006     (9 )   5,410     5,879     (8 )
   

Securities & Banking

    1,106     1,398     (21 )   3,323     4,257     (22 )
   

Transaction Services

    711     608     17     2,087     1,622     29  
 

GWM

    608     833     (27 )   1,874     1,594     18  
                           
   

Total Asia

  $ 4,468   $ 4,819     (7 )% $ 13,650   $ 13,430     2 %
                           

Corporate/Other

    (95 )   (140 )   32 %   (1,104 )   (383 )   NM  
                           

Total Net Revenue

 
$

16,680
 
$

21,640
   
(23

)%

$

47,198
 
$

72,076
   
(35

)%
                           

NM Not meaningful

14


GLOBAL CARDS

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

Net interest revenue

  $ 2,884   $ 2,723     6 % $ 8,588   $ 7,674     12 %

Non-interest revenue

    905     3,619     (75 )   7,007     9,098     (23 )
                           

Revenues, net of interest expense

  $ 3,789   $ 6,342     (40 )% $ 15,595   $ 16,772     (7 )%

Operating expenses

    2,595     2,610     (1 )   7,900     7,489     5  

Provision for credit losses and for benefits and claims

    2,672     1,568     70     6,582     3,730     76  
                           

Income (loss) before taxes and minority interest

  $ (1,478 ) $ 2,164     NM   $ 1,113   $ 5,553     (80 )%

Income taxes (benefits)

    (579 )   719     NM     327     1,806     (82 )

Minority interest, net of taxes

    3     3         10     7     43  
                           

Net income (loss)

  $ (902 ) $ 1,442     NM   $ 776   $ 3,740     (79 )%
                           

Average assets (in billions of dollars)

  $ 119   $ 113     5 % $ 122   $ 109     12 %

Return on assets

    (3.02 )%   5.06 %         0.85 %   4.59 %      
                           

Revenues, net of interest expense, by region:

                                     
 

North America

  $ 1,388   $ 3,510     (60 )% $ 7,659   $ 10,215     (25 )%
 

EMEA

    593     566     5     1,789     1,390     29  
 

Latin America

    1,143     1,728     (34 )   4,148     3,585     16  
 

Asia

    665     538     24     1,999     1,582     26  
                           

Total revenues

  $ 3,789   $ 6,342     (40 )% $ 15,595   $ 16,772     (7 )%
                           

Net income (loss) by region:

                                     
 

North America

  $ (873 ) $ 808     NM   $ (158 ) $ 2,391     NM  
 

EMEA

    (25 )   30     NM     21     112     (81 )%
 

Latin America

    (36 )   563     NM     645     982     (34 )
 

Asia

    32     41     (22 )%   268     255     5  
                           

Total net income (loss)

  $ (902 ) $ 1,442     NM   $ 776   $ 3,740     (79 )%
                           

Key Drivers (in billions of dollars)

                                     

Average loans

  $ 89.9   $ 82.6     9 %                  

Purchase sales

  $ 111.1   $ 110.6                        

Open accounts (in millions)

    182.7     184.0     (1 )                  

Loans 90+ days past due as a % of EOP loans

    2.39 %   2.02 %                        

NM
Not meaningful

3Q08 vs. 3Q07

        Global Cards revenue decreased 40%. Net Interest Revenue was 6% higher than the prior year primarily driven by growth in average loans of 9%. Non-Interest Revenue decreased 75% primarily due to lower securitization results in North America and the absence of a prior-year $729 million pretax gain on sale of Redecard shares.

        In North America, a 60% revenue decline was mainly due to lower securitization revenue which was driven primarily by a write-down of $1.4 billion in the residual interest in securitized balances. The residual interest was primarily affected by deterioration in the projected credit loss assumption used to value the asset.

        Outside of North America, revenue decreased by 15% primarily due to the absence of a prior-year gain on sale of Redecard shares. Excluding this item, revenue increased 14% with 5% growth in EMEA, 14% in Latin America and 24% in Asia. These increases were driven by growth in purchase sales and average loans in all regions. Revenues also increased driven by foreign currency translation gains related to the strengthening of local currencies (generally referred to hereinafter as "fx translation") and the Bank of Overseas Chinese acquisition.

        Operating expenses decreased 1%, primarily due to lower compensation and marketing expenses, partially offset by business volumes, higher credit management costs and repositioning charges, fx translation and acquisitions.

        Provision for credit losses and for benefits and claims increased $1.1 billion, reflecting increases of $543 million in net credit losses and $566 million in loan loss reserve builds. In North America, credit costs increased $620 million, driven by higher net credit losses, up $311 million or 68%, and a higher loan loss reserve build, up $309 million. The net charge to increase loan loss reserves included $243 million related to assets that were brought back on to the balance sheet due to rate and liquidity disruptions in the securitization market. Higher credit costs reflected a weakening of leading credit indicators, trends in the macroeconomic environment, including the housing market downturn, higher fuel costs, rising unemployment trends, and higher bankruptcy filings, as the continued acceleration in the rate at which delinquent customers advanced to write-off, a net charge to increase loan loss reserves related to an increase in reported receivables as maturing securitizations resulted in on-balance sheet funding, and also reflected higher business volumes. The net credit loss ratio increased by 293 basis points to 7.30%.

        Outside of North America, credit costs increased by $79 million, $303 million, and $107 million in EMEA, Latin

15


America, and Asia, respectively. These increases were driven by higher net credit losses, which were up $5 million, $185 million, and $42 million in EMEA, Latin America, and Asia, respectively. Higher net credit losses were driven by Mexico, Brazil, and India. Also contributing to the increase were higher loan loss reserve builds, which were up $74 million, $118 million, and $65 million in EMEA, Latin America, and Asia, respectively, as well as higher business volumes.

2008 YTD vs. 2007 YTD

        Global Cards revenue decreased 7%. Net Interest Revenue was 12% higher than the prior year primarily driven by growth in average loans of 16% and purchase sales of 6%. Non-Interest Revenue decreased by 23% primarily due to lower securitization results in North America. Results were also impacted by the following pre-tax gains: sale of Mastercard shares in the first, second and third quarters of 2007 totaling $322 million, sales of Redecard shares $729 million in the third quarter of 2007 and $663 million in the first quarter of 2008, IPO and subsequent sales of Visa shares in the first and third quarter of 2008 totaling $523 million, Upromise Cards portfolio sale in the second quarter of 2008 of $170 million and DCI sale of $111 million in the second quarter of 2008.

        In North America, a 25% revenue decline was driven by lower securitization revenues, which reflected the impact of higher funding costs and higher credit losses in the securitization trusts, the absence of a $257 million prior year gain on sale of Mastercard shares, partially offset by a current period gain from sale of Visa shares, the Upromise Cards portfolio sale, and the DCI sale resulting in pre-tax gains of $349 million, $170 million and $29 million, respectively. Average loans were up 2% while purchase sales remained flat.

        Outside of North America, revenues increased by 29%, 16%, and 26% in EMEA, Latin America, and Asia, respectively. These increases were driven by double-digit growth in purchase sales and average loans in all regions. The pretax gain on sale of DCI in the second quarter of 2008 impacted EMEA, Latin America, and Asia by $34 million, $17 million, and $31 million, respectively. The pretax gain on sale of Visa shares in the first and third quarters of 2008 impacted Latin America and Asia by $37 million and $138 million, respectively. Current-year revenues were unfavorably impacted by a $66 million pretax lower gain on sales of Redecard shares in Latin America and the absence of the prior-year pretax gain on sale of MasterCard shares of $7 million, $37 million and $21 million for EMEA, Latin America and Asia, respectively. Results include the impact of fx translation, as well as the acquisitions of Egg, Grupo Financiero Uno, Grupo Cuscatlán, and Bank of Overseas Chinese.

        Operating expenses increased 5%, primarily due to business volumes, higher credit management costs, the impact of acquisitions, repositioning charges and the impact of fx translation. These increases were partially offset by a $159 million Visa Litigation reserve release and $36 million legal vehicle restructuring in Mexico, both in the first quarter of 2008.

        Provision for credit losses and for benefits and claims increased $2.9 billion reflecting an increase of $1.5 billion in net credit losses and $1.4 billion in loan loss reserve builds. In North America, credit costs increased $1.4 billion, driven by higher net credit losses, up $674 million or 48%, and a higher loan loss reserve build, up $764 million. Higher credit costs reflected a weakening of leading credit indicators, trends in the macro-economic environment, including the housing market downturn, higher fuel costs, rising unemployment trends, higher bankruptcy filings, the continued acceleration in the rate at which delinquent customers advanced to write-off a net charge to increase loan loss reserves related to an increase in reported receivables as maturing securitizations resulted in on-balance sheet funding, and also reflected higher business volumes.

        Outside of North America, credit costs increased by $277 million, $894 million, and $237 million in EMEA, Latin America, and Asia, respectively. These increases were driven by higher net credit losses, which were up $170 million, $542 million, and $105 million in EMEA, Latin America, and Asia, respectively. Higher net credit losses were driven by Mexico, Brazil, and India, as well as the impact of acquisitions. Also contributing to the increase were higher loan loss reserve builds, which were up $107 million, $352 million, and $132 million in EMEA, Latin America, and Asia, respectively, and higher business volumes.

16


CONSUMER BANKING

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

Net interest revenue

  $ 5,709   $ 5,258     9 % $ 17,139   $ 15,457     11 %

Non-interest revenue

    1,720     2,044     (16 )   5,436     6,165     (12 )
                           

Revenues, net of interest expense

  $ 7,429   $ 7,302     2 % $ 22,575   $ 21,622     4 %

Operating expenses

    4,188     4,270     (2 )   12,939     12,054     7  

Provision for credit losses and for benefits and claims

    5,333     3,005     77     13,391     5,928     NM  
                           

Income (loss) before taxes and minority interest

  $ (2,092 ) $ 27     NM   $ (3,755 ) $ 3,640     NM  

Income taxes (benefits)

    (996 )   (136 )   NM     (1,894 )   872     NM  

Minority interest, net of taxes

    3     7     (57 )%   14     33     (58 )%
                           

Net income (loss)

  $ (1,099 ) $ 156     NM   $ (1,875 ) $ 2,735     NM  
                           

Average assets (in billions of dollars)

  $ 542   $ 576     (6 )% $ 560   $ 573     (2 )%

Return on assets

    (0.81 )%   0.11 %         (0.45 )%   0.64 %      
                           

Revenues, net of interest expense, by region:

                                     
 

North America

  $ 4,414   $ 4,164     6 % $ 13,023   $ 12,446     5 %
 

EMEA

    622     625         2,084     1,788     17  
 

Latin America

    1,015     1,071     (5 )   3,101     3,013     3  
 

Asia

    1,378     1,442     (4 )   4,367     4,375      
                           

Total revenues

  $ 7,429   $ 7,302     2 % $ 22,575   $ 21,622     4 %
                           

Net income (loss) by region:

                                     
 

North America

  $ (1,080 ) $ 59     NM   $ (2,364 ) $ 1,700     NM  
 

EMEA

    (94 )   (28 )   NM     (242 )   (58 )   NM  
 

Latin America

    29     102     (72 )   376     454     (17 )
 

Asia

    46     23     100     355     639     (44 )
                           

Total net income (loss)

  $ (1,099 ) $ 156     NM   $ (1,875 ) $ 2,735     NM  
                           

Consumer Finance Japan (CFJ)—NIR

  $ 224   $ 263     (15 )% $ 661   $ 1,022     (35 )%

Consumer Banking, excluding CFJ—NIR

  $ 5,485   $ 4,995     10 % $ 16,478   $ 14,435     14 %
                           

CFJ—Operating expenses

  $ 84   $ 251     (67 )% $ 280   $ 479     (42 )%

Consumer Banking, excluding CFJ-operating expenses

  $ 4,104   $ 4,019     2 % $ 12,659   $ 11,575     9 %
                           

CFJ—Net income

  $ (159 ) $ (298 )   47   $ (399 ) $ (336 )   (19 )

Consumer Banking, excluding CFJ—Net income (loss)

  $ (940 ) $ 454     NM   $ (1,476 ) $ 3,071     NM  
                           

Key Indicators

                                     

Average loans (in billions)

  $ 390.7   $ 386.0     1 %                  

Average deposits (in billions)

  $ 286.8   $ 283.1     1                    

Accounts (in millions)

    80.0     76.6     4                    

Loans 90+ days past due as % of EOP loans

    2.86 %   1.69 %                        

Branches

    7,875     8,014     (2 )                  

NM
Not meaningful

3Q08 vs 3Q07

        Consumer Banking revenues grew 2%, as increased revenues in North America were partially offset by declines in Latin America and Asia. Net Interest Revenue was 9% higher than the prior year from spread expansion and growth in average loans and deposits of 1%. Non-Interest Revenue declined 16%, primarily due to a 26% decline in investment sales and a $192 million loss resulting from the mark-to-market on the Mortage Servicing Rights (MSR) asset and related hedge in North America. Current and historical German Retail Banking operations income statement items have been reclassified as discontinued operations within the Corporate/Other Segment.

        In North America, revenues increased 6%. Net Interest Revenue was 13% higher than the prior-year period, primarily driven by volume growth in personal loans, as well as increased deposit revenue. Average loans and deposits were essentially flat with the prior-year period, with a reduction in residential real estate loans offset by growth in personal loans. Non-Interest Revenue declined 14%, mainly due to a $192 million loss from the mark-to-market on the MSR asset and related hedge. Revenues in EMEA remained flat as growth in average loans of 5% was offset by softening investment sales

17


revenues due to market volatility. Revenues in Latin America were down 5% versus last year driven by spread compression not fully offset by average loan and deposit growth of 15% and 5%, respectively. Asia, excluding CFJ, revenues declined 2%, as growth in average loans and deposits, up 8% and 4%, respectively, was more than offset by a decline in investment sales, down 56%, due to a decline in equity markets across Asia. In CFJ, revenues declined 15%, reflecting an 8% decline in average loans as the portfolio continues to be managed down.

        Consumer Banking Operating Expenses declined 2%, as benefits from re-engineering efforts more than offset the impact of acquisitions and higher credit management costs. Expenses in the third quarter of 2007 included a $152 million write-down of customer intangibles and fixed assets in CFJ expenses in the third quarter of 2008 included a $150 million repositioning charge.

        North America expenses increased 2%, mainly due to an $87 million repositioning charge, higher credit management expenses and acquisitions, partially offset by lower compensation costs. EMEA expenses were essentially even with the prior-year period. Expenses in Latin America increased 5%, primarily driven by a $61 million repositioning charge and higher business volumes. Asia expenses declined 19%, primarily due to a $152 million write-down of customer intangibles and fixed assets recorded in the prior-year period.

        Provisions for credit losses and for benefits and claims increased 77% or $2.3 billion reflecting significantly higher net credit losses up $1.6 billion, primarily in North America and Latin America, as well as a $739 million incremental pretax charge to increase loan loss reserves in North America.

        North America credit costs increased $2.2 billion, due to higher net credit losses, up $1.4 billion, and increased loan loss reserves, up $739 million from the prior-year period. Higher credit costs were mainly driven by residential real estate loans and reflected a weakening of leading credit indicators, as well as trends in the macro-economic environment. The net credit loss ratio increased 194 basis points to 2.95%. Credit costs increased 45% in EMEA, reflecting higher net credit losses, up 55% or $67 million, and an $18 million incremental net charge to increase loan loss reserves. Higher credit costs reflected weakening in the macro-economic environment in certain developed countries, such as Spain and the U.K.. The net credit loss ratio increased 96 basis points to 2.95% with some impact due to lower volumes. Credit costs in Latin America increased 15%, as higher net credit losses, up $94 million, reflected deterioration in Mexico, Brazil and Colombia. The increase in credit costs was partially offset by a $13 million net release to loan loss reserves in the quarter, mainly due to reduced exposures to specific government-related entities. The net credit loss ratio increased 202 basis points to 4.53%. Credit costs in Asia increased 8%, driven by higher net credit losses, up 13% or $54 million. Higher credit costs were mainly driven by continued deterioration in the credit environment in India, where the business is being actively repositioned to reduce costs and mitigate losses. The net credit loss ratio increased 23 basis points to 3.23%.

2008 YTD vs. 2007 YTD

        Consumer Banking revenue increased 4%. Net Interest Revenue was 11% higher than the prior year, as growth of 8% in average loans and 8% in deposits and margin expansion was partially offset by a 35% net interest revenue decline in CFJ. Acquisitions and fx translation also contributed to the increase in revenues. Non-Interest Revenue declined 12%, primarily due to a 20% decline in investment sales and a loss from the mark-to-market on the MSR asset and related hedge in North America.

        In North America, revenues increased 5%. Net Interest Revenue was 14% higher than the prior year, primarily due to increased average loans and deposits, up 6% and 2%, respectively, margin expansion in residential real estate loans, and higher deposit revenue. Non-Interest Revenue declined 19%, mainly due to a loss from the mark-to-market on the MSR asset and related hedge. Excluding the impact from the MSR asset and related hedge, total revenues increased 12%. Revenues in EMEA increased by 17%, driven by strong growth in average loans and deposits, improved net interest margin and the impact of the Egg acquisition. Revenues in Latin America were up 3%, driven by 21% growth in average loans and 11% growth in deposits (including the impact of acquisitions of Grupo Financiero Uno and Grupo Cuscatlan), partially offset by spread compression and lower revenues from the Chile divestiture. Asia revenues were basically flat, as growth in average loans and deposits of 11% and 9%, respectively, was offset by a 34% total revenue decline in CFJ and lower investment sales. Excluding CFJ, revenues increased 6%. Volume growth in EMEA, Latin America and Asia was partially offset by a double-digit decline in investment sales due to a decline in equity markets across the regions.

        Operating expense growth of 7% was primarily driven by higher business volumes, increased credit management costs, a $492 million repositioning charge, and acquisitions, partially offset by a $221 million benefit related to a legal vehicle repositioning in Mexico, lower incentive compensation expenses and the prior year write-down of customer intangibles and fixed assets in CFJ.

        Expenses were up 10% in North America, primarily driven by a $304 million repositioning charge, higher credit management expenses, and acquisitions. Excluding the repositioning charge, expenses increased 5%. EMEA expenses were up 17% primarily due to the impact of repositioning charges in 2008 and the impact of the Egg acquisition, partially offset by a decline in incentive compensation and the benefits from re-engineering efforts and fx translation. Expenses decreased 1% in Latin America primarily driven by a $221 million benefit related to a legal vehicle repositioning in Mexico, offset by acquisitions and volume growth. The 2% growth in Asia was primarily driven by the acquisition of BOOC and higher volumes.

        Provisions for credit losses and for benefits and claims increased $7.5 billion, reflecting significantly higher net credit losses in North America, Mexico and India, as well as a $3.2 billion incremental pretax charge to increase loan loss reserves, primarily in North America. The impact of portfolio growth and acquisitions also contributed to the increase in credit costs.

18


        Credit costs in North America increased by $6.5 billion, due to higher net credit losses, up $3.5 billion, and a $3.0 billion incremental pre-tax charge to increase loan loss reserves. Higher credit costs reflected a weakening of leading credit indicators, including higher delinquencies in first and second mortgages, auto and unsecured personal loans, as well as trends in the macro-economic environment, including the housing market downturn. The net credit loss ratio increased 151 basis points to 2.42%. EMEA credit costs increased 53% reflecting deterioration in Western European countries as well as the Egg acquisition. In Latin America, credit costs increased $265 million, primarily due to higher net credit losses, the absence of recoveries in the prior-year period in Mexico and lower loan loss reserve builds. Credit costs in Asia increased 25% primarily driven by a $149 million incremental pretax charge to increase loan loss reserves, increased credit costs, especially in India, acquisitions and portfolio growth.

19



INSTITUTIONAL CLIENTS GROUP (ICG)

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

Net interest revenue

  $ 4,450   $ 3,374     32 % $ 13,576   $ 8,619     58 %

Non-interest revenue

    (2,057 )   1,243     NM     (13,202 )   15,912     NM  
                           

Revenues, net of interest expense

  $ 2,393   $ 4,617     (48 )% $ 374   $ 24,531     (98 )%

Operating expenses

    5,202     4,463     17     17,030     15,203     12 %

Provision for credit losses and for benefits and claims

    997     238     NM     1,920     514     NM  
                           

Income (loss) before taxes and minority interest

  $ (3,806 ) $ (84 )   NM   $ (18,576 ) $ 8,814     NM  

Income taxes (benefits)

    (1,690 )   (320 )   NM     (8,084 )   2,153     NM  

Minority interest, net of taxes

    (99 )   (31 )   NM     (74 )   93     NM  
                           

Net income (loss)

  $ (2,017 ) $ 267     NM   $ (10,418 ) $ 6,568     NM  
                           

Average assets (in billions of dollars)

  $ 1,203   $ 1,434     (16 )% $ 1,333   $ 1,293     3 %
                           

Revenues, net of interest expense, by region:

                                     
 

North America

  $ (2,165 ) $ 110     NM   $ (11,737 ) $ 8,381     NM  
 

EMEA

    1,913     1,398     37 %   3,786     7,218     (48 )%
 

Latin America

    828     1,103     (25 )   2,915     3,053     (5 )
 

Asia

    1,817     2,006     (9 )   5,410     5,879     (8 )
                           

Total revenues

  $ 2,393   $ 4,617     (48 )% $ 374   $ 24,531     (98 )%
                           

Net income (loss) by region:

                                     
 

North America

  $ (2,950 ) $ (720 )   NM   $ (11,758 ) $ 2,002     NM  
 

EMEA

    104     (26 )   NM     (1,127 )   1,472     NM  
 

Latin America

    271     407     (33 )%   1,055     1,164     (9 )%
 

Asia

    558     606     (8 )   1,412     1,930     (27 )
                           

Total net income (loss)

  $ (2,017 ) $ 267     NM   $ (10,418 ) $ 6,568     NM  
                           

Total net income (loss) by product:

                                     
 

Securities and Banking

  $ (2,834 ) $ (324 )   NM   $ (12,668 ) $ 5,013     NM  
 

Transaction Services

    817     591     38 %   2,250     1,555     45 %
                           

Total net income (loss)

  $ (2,017 ) $ 267     NM   $ (10,418 ) $ 6,568     NM  
                           

Securities and Banking

                                     
 

Revenue details

                                     
 

Net Investment Banking

  $ 142   $ 528     (73 )% $ (1,072 ) $ 3,592     NM  
 

Lending

    1,346     439     NM     2,025     1,513     34 %
 

Equity markets

    476     1,033     (54 )   2,853     4,098     (30 )
 

Fixed income markets

    (2,412 )   733     NM     (10,068 )   9,836     NM  
 

Other Securities and Banking

    367     (185 )   NM     (585 )   (74 )   NM  
                           

Total Securities and Banking Revenues

  $ (81 ) $ 2,548     NM   $ (6,847 ) $ 18,965     NM  

Transaction Services

    2,474     2,069     20 %   7,221     5,566     30 %
                           

Total revenues

  $ 2,393   $ 4,617     (48 )% $ 374   $ 24,531     (98 )%
                           

Transaction Services

                                     

Key Indicators

                                     

Average deposits and other customer liability balances (in billions)

  $ 273   $ 256     7 %                  

Assets under custody (EOP in trillions)

  $ 11.9   $ 12.7     (6 )%                  

NM
Not meaningful

3Q08 vs. 3Q07

        Revenues, net of interest expense, were negative in S&B due to substantial write-downs and losses related to the fixed income and credit markets. These included write-downs of $2.0 billion on SIV assets, write-downs of $1.2 billion, net of hedges, on Alt-A mortgages, downward credit value adjustments of $919 million related to exposure to monoline insurers, write-downs of $792 million, net of underwriting fees, on funded and unfunded highly leveraged finance commitments, write-downs of $518 million on commercial real estate positions, and net write-downs of $394 million on subprime-related direct exposures. Negative revenues also included a $306 million

20


write-down related to the ARS settlement and were partially offset by a $1.5 billion gain related to the inclusion of Citigroup's credit spreads in the determination of the market value of those liabilities for which the fair value option was elected. Transaction Services revenues were up 20% to a record $2.5 billion, reflecting double-digit revenue growth across all regions. Average deposits and other customer liability balances increased 7%, while a decline in global equity markets resulted in a 6% reduction in assets under custody.

        Operating expenses increased in S&B, reflecting a significant downward adjustment to incentive compensation in the prior-year period. Expense growth also includes a $221 million repositioning charge in the current quarter, partially offset by a decline in other operating and administrative costs. Transaction Services expenses grew 5%, primarily driven by higher business volumes and the Bisys acquisition.

        The provision for credit losses in S&B increased significantly, mainly driven by an incremental net charge to increase loan loss reserves of $447 million, reflecting loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio. Credit costs were also driven by a $287 million increase in net credit losses, mainly associated with loan sales.

2008 YTD vs. 2007 YTD

        Revenues, net of interest expense, were negative in S&B due to substantial write-downs and losses related to the fixed income and credit markets. Included in this decrease are $9.7 billion of write-downs on subprime-related direct exposure, $4.8 billion of downward credit market value adjustments related to exposure to monoline insurers, $4.3 billion of write-downs (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, $2.5 billion of write-downs on Alt-A mortgage securities, net of hedges, $2.2 billion of write-downs of SIV assets, $1.6 billion of write-downs on commercial real estate positions and $1.4 billion of write-downs on auction rate securities inventory due to failed auctions, predominately in the first quarter of 2008, and deterioration in the credit markets. Transaction Services revenues grew 30% driven by new business wins and implementations, growth in customer liability balances and the impact of acquisitions.

        Operating expenses increased 17% in Transaction Services due to increased investment spending, business volumes and the acquisition of The Bisys Group. Expenses increased 11% in S&B, reflecting $773 million of repositioning charges and the absence of a litigation reserve release recorded in the prior year, offset partially by a decrease in compensation costs.

        The provision for credit losses in S&B increased, primarily from a $799 million increase in net credit losses mainly associated with loan sales and an incremental net charge to increase loan loss reserves of $542 million, reflecting loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio. Transaction Services credit costs increased, primarily due to a charge to increase loan loss reserves, mainly from the commercial banking portfolio in the emerging markets.

21


GLOBAL WEALTH MANAGEMENT

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

Net interest revenue

  $ 671   $ 538     25 % $ 1,840   $ 1,593     16 %

Non-interest revenue

    2,493     2,981     (16 )   7,918     7,941      
                           

Revenues, net of interest expense

  $ 3,164   $ 3,519     (10 )% $ 9,758   $ 9,534     2 %

Operating expenses

    2,513     2,621     (4 )   7,943     7,185     11  

Provision for credit losses and for benefits and claims

    65     57     14     126     86     47  
                           

Income before taxes and minority interest

  $ 586   $ 841     (30 )% $ 1,689   $ 2,263     (25 )%

Income taxes (benefits)

    225     312     (28 )   616     759     (19 )

Minority interest, net of taxes

    (2 )   39     NM     11     54     (80 )
                           

Net income

  $ 363   $ 490     (26 )% $ 1,062   $ 1,450     (27 )%
                           

Average assets (in billions of dollars)

  $ 111   $ 97     14 % $ 109   $ 80     36 %

Return on assets

    1.30 %   2.00 %         1.30 %   2.42 %      
                           

Revenues, net of interest expense, by region:

                                     
 

North America

  $ 2,317   $ 2,455     (6 )% $ 7,120   $ 7,281     (2 )%
 

EMEA

    147     139     6     470     384     22  
 

Latin America

    92     92         294     275     7  
 

Asia

    608     833     (27 )   1,874     1,594     18  
                           

Total revenues

  $ 3,164   $ 3,519     (10 )% $ 9,758   $ 9,534     2 %
                           

Net income by region:

                                     
 

North America

  $ 264   $ 334     (21 )% $ 738   $ 1,029     (28 )%
 

EMEA

    24     4     NM     70     57     23  
 

Latin America

    16     12     33     57     56     2  
 

Asia

    59     140     (58 )   197     308     (36 )
                           

Total net income

  $ 363   $ 490     (26 )% $ 1,062   $ 1,450     (27 )%
                           

Key Indicators (in billions of dollars, except for offices)

                                     

Average loans

  $ 64   $ 57     12 %                  

Average deposits and other customer liability balances

  $ 124   $ 119     4 %                  

Offices

    831     871     (5 )                  

Total client assets

  $ 1,532   $ 1,820     (16 )%                  

Clients assets under fee-based management

  $ 415   $ 515     (19 )                  

NM
Not meaningful

3Q08 vs. 3Q07

        Revenues, net of interest expense, declined 10% primarily due to the impact of challenging market conditions on Investment and Capital Market revenues, particularly in North America and Asia, partially offset by greater Banking revenues in North America, EMEA and Asia and an increase in Lending revenues across regions. The consolidated revenue also includes the gain on sale of CitiStreet and charges related to settlement of auction rate securities (ARS).

        Total client assets, including assets under fee-based management, decreased $288 billion, or 16%, mainly reflecting the impact of market declines over the past year. Net client asset flows decreased compared to the prior year, to $3 billion. GWM had 14,735 financial advisors/bankers as of September 30, 2008, compared with 15,458 as of September 30, 2007, driven by attrition in North America and Asia, as well as planned eliminations.

        Operating expenses decreased 4% driven by lower variable expense and incentive compensation, and the impact of reengineering projects, partially offset by the ARS settlement penalty of $50 million.

        The provision for credit losses increased by $8 million. Provision for the quarter represents builds related to SFAS 114 impaired loans and additional reserves due to loan deterioration.

2008 YTD vs. 2007 YTD

        Revenues, net of interest expense, increased 2% primarily due to the impact of the Nikko Cordial acquisition, an increase in Banking and Lending revenues across most regions and an increase in EMEA and Latin America Capital Markets, partially offset by lower Capital Markets revenue in Asia and North America.

        Operating expenses increased 11% primarily due to the impact of acquisitions, a reserve of $250 million in the first quarter of 2008 related to an offer to facilitate the liquidation of investments in a Citi-managed fund for its clients, repositioning charges, and the ARS settlement penalty.

        The provision for credit losses increased by $40 million, reflecting reserve builds and $9 million of write-downs in

22


Asia. The reserve builds in 2008 were mainly for mortgages, FAS114 impairment, additional reserves required due to deterioration in risk rating of a loan facility and for lending to address client liquidity needs related to their auction rate securities holdings in North America.

23


CORPORATE/OTHER

 
  Third Quarter   Nine Months  
In millions of dollars   2008   2007   2008   2007  

Net interest revenue

  $ (308 ) $ (49 ) $ (704 ) $ (197 )

Non-interest revenue

    213     (91 )   (400 )   (186 )
                   

Revenues, net of interest expense

  $ (95 ) $ (140 ) $ (1,104 ) $ (383 )

Operating expense

    (73 )   188     32     1,771  

Provision for loan losses

        (1 )       (2 )
                   

(Loss) before taxes and minority interest

  $ (22 ) $ (327 ) $ (1,136 ) $ (2,152 )

Income taxes (benefits)

    (254 )   (83 )   (602 )   (682 )

Minority interest, net of taxes

        2     (1 )   3  
                   

Income (loss) from continuing operations

  $ 232   $ (246 ) $ (533 ) $ (1,473 )
                   

Income (loss) from discontinued operations, net of tax

  $ 608   $ 103   $ 567   $ 430  
                   

Net income (loss)

  $ 840   $ (143 ) $ 34   $ (1,043 )
                   

3Q08 vs. 3Q07

        Revenues, net of interest expense, increased primarily due to lower funding costs and effective hedging activities, partly offset by funding of higher tax assets and enhancements to our liquidity position.

        Operating expenses decreased primarily due to Incentive Compensation accrual reductions and lower SFAS 123(R)-related expenses, partly offset by repositioning charges.

        Income tax benefits increased due to higher tax benefits held at Corporate.

2008 YTD vs. 2007 YTD

        Revenues, net of interest expense, decreased primarily due to inter-company transaction costs related to current year capital raises and the sale of CitiCapital, funding of higher tax assets and enhancements to our liquidity position as well as the absence of a prior-year gain on the sale of certain corporate-owned assets.

        Operating expenses, excluding the 2007 first quarter repositioning charge of $1,836 million, decreased primarily due to lower Incentive Compensation accrual reductions and SFAS 123(R)-related expenses.

24


REGIONAL DISCUSSIONS

        The following are the four regions in which Citigroup operates. The regional results are fully reflected in the previous segment discussions.

NORTH AMERICA

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

Net interest revenue

  $ 7,072   $ 5,876     20 % $ 20,943   $ 16,798     25 %

Non-interest revenue

    (1,118 )   4,363     NM     (4,878 )   21,525     NM  
                           

Total Revenues, net of interest expense

  $ 5,954   $ 10,239     (42 )% $ 16,065   $ 38,323     (58 )%

Total operating expenses

    7,533     6,844     10     23,956     21,912     9  

Provisions for credit losses and for benefits and claims

  $ 6,078   $ 2,774     NM   $ 14,888   $ 5,803     NM  
                           

Income (loss) before taxes and minority interest

  $ (7,657 ) $ 621     NM   $ (22,779 ) $ 10,608     NM  

Income taxes (benefits)

    (2,892 )   143     NM     (9,127 )   3,393     NM  

Minority interest, net of tax

    (126 )   (3 )   NM     (110 )   93     NM  
                           

Net income (loss)

  $ (4,639 ) $ 481     NM   $ (13,542 ) $ 7,122     NM  
                           

Average assets
    
(in billions of dollars)

  $ 1,118   $ 1,254     (11 )% $ 1,226   $ 1,208     1 %

Return on assets

    (1.65 )%   0.15 %         (1.48 )%   0.79 %      
                           

Key Drivers    (in billions of dollars,
    except branches)

                                     

Average Loans

  $ 526.5   $ 516.0     2 %                  

Average Consumer Banking Loans

  $ 291.7   $ 293.2     (1 )                  

Average deposits (and other consumer liability balances)

  $ 250.8   $ 244.2     3                    

Branches/offices

    4,117     4,178     (1 )                  

NM
Not meaningful

3Q08 vs. 3Q07

        Total revenues decreased 42%. Net Interest Revenue was 20% higher than the prior year primarily driven by lower funding costs which resulted in higher spreads during the quarter. The increase was also driven by growth in average loans of 2% and average deposits of 3%. Non-Interest Revenue decreased $5.5 billion primarily due to S&B's write-downs and losses related to the credit markets. These included write-downs on SIV assets, Alt-A mortgages, funded and unfunded highly leveraged finance commitments and positions, subprime-related direct exposures and a downward credit value adjustments related to exposure to monoline insurers. S&B revenues also included a write-down related to the ARS settlement. These write-downs were partially offset by a $1.5 billion gain from the change in Citigroup's own credit spreads for those liabilities to which the Company has elected the fair value option. In Global Cards, a 60% revenue decline was due to lower securitization revenue which was driven primarily by a write-down of $1.4 billion in the residual interest in securitized balances. The residual interest was primarily affected by deterioration in the projected credit loss assumption used to value the asset. Revenues also included a $347 million gain on the sale of CitiStreet recorded in GWM. In Consumer Banking, revenue was negatively impacted by the loss from the mark-to-market on the MSR asset and related hedge.

        Operating expenses increased 10% primarily due to repositioning charges, a $100 million fine related to the ARS settlement, and the impact of acquisitions. Expense growth was partially offset by benefits from re-engineering efforts.

        Provisions for credit losses and for benefits and claims increased $3.3 billion primarily reflecting a weakening of leading credit indicators, including higher delinquencies on residential real estate loans, unsecured personal loans, credit cards and auto loans. Credit costs also increased due to trends in the U.S. macroeconomic environment, including the housing market downturn and rising unemployment rates. Additionally, the increase reflected loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio.

2008 YTD vs. 2007 YTD

        Total revenues decreased 58%. Net Interest Revenue was 25% higher than the prior year primarily driven by lower funding costs which resulted in higher spreads during the first nine months of 2008. The increase was also driven by growth in average loans of 8% and average deposits of 6%. Non-Interest Revenue decreased $26.4 billion driven by substantial

25


write-downs and losses related to the fixed income and credit markets in S&B. The decrease in S&B was partially offset by a $1.5 billion gain from the change in Citigroup's own credit spreads of those liabilities for which the Company has elected the fair value option. In Global Cards, a 25% revenue decline was due to lower securitization revenue which was driven primarily by a write-down in the residual interest in securitized balances. The decrease was also attributable to the absence of a prior-year $257 million gain on sale of MasterCard shares. The decrease was partially offset by a $349 million gain on the IPO of Visa shares in the 2008 first quarter and gains in the 2008 second quarter of $170 million on the Upromise Cards Portfolio sale and $29 million on the sale of DCI. Negative revenues were also partially offset by a $347 million gain on the sale of CitiStreet in 2008 third quarter. In Consumer Banking, revenue was negatively impacted by the loss from the MSR-related mark-to-market.

        Operating expenses increased 9%, reflecting repositioning charges, the impact of acquisitions, a $100 million fine related to the ARS settlement and the absence of a prior year litigation reserve release in S&B. Expense growth was partially offset by benefits from re-engineering efforts and by a partial release of the Visa-related litigation reserve in the first quarter 2008.

        Provisions for credit losses and for benefits and claims increased $9.1 billion primarily reflecting a weakening of leading credit indicators, including higher delinquencies on residential real estate loans, unsecured personal loans, credit cards and auto loans. Credit costs also increased due to trends in the U.S. macroeconomic environment, including the housing market downturn and rising unemployment rates. Additionally, the increase reflected loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio.

26


EMEA

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

Net interest revenue

  $ 2,066   $ 1,922     7 % $ 6,537   $ 5,149     27 %

Non-interest revenue

    1,209     806     50     1,592     5,631     (72 )
                           

Total Revenues, net of interest expense

  $ 3,275   $ 2,728     20 % $ 8,129   $ 10,780     (25 )%

Total operating expenses

    2,504     2,362     6     8,464     7,755     9  

Provisions for credit losses and for benefits and claims

  $ 988   $ 620     59   $ 2,056   $ 1,264     63  
                           

Income (loss) before taxes and minority interest

  $ (217 ) $ (254 )   15 % $ (2,391 ) $ 1,761     NM  

Income taxes (benefits)

    (254 )   (255 )       (1,183 )   115     NM  

Minority interest, net of tax

    28     21     33     70     63     11 %
                           

Net income (loss)

  $ 9   $ (20 )   NM   $ (1,278 ) $ 1,583     NM  
                           

Average assets (in billions of dollars)

  $ 364   $ 440     (17 )% $ 390   $ 398     (2 )%

Return on assets

    0.01 %   (0.02 )%         (0.44 )%   0.53 %      
                           

Key Drivers (in billions of dollars, except branches)

                                     

Average Loans

  $ 113.4   $ 128.3     (12 )%                  

Average Consumer Banking Loans

  $ 25.3   $ 24.0     5                    

Average deposits (and other consumer liability balances)

  $ 160.6   $ 150.5     7                    

Branches/offices

    788     782     1                    

NM
Not meaningful

3Q08 vs. 3Q07

        Total Revenues increased 20% largely driven by S&B and Transaction Services. In Global Cards, revenues increased by 5%, driven by higher purchase sales and average loans, up 7% and 14%, respectively. Consumer Banking revenues remained flat as growth in average loans of 5% was offset by impairment of the U.K. Held for Sale loan portfolio and softening revenues due to market volatility. Current and historical Germany retail banking results and condition have been reclassified as discontinued operations and are included in the Corporate/Other segment.

        In ICG, S&B revenues were up 55% from the 2007 third quarter, mainly because the subprime-related direct exposures are now managed primarily in North America and have been transferred from EMEA to North America (from the second quarter of 2008 forward). The current quarter included write-downs in commercial real estate positions and highly-leveraged finance commitments. Revenues also reflected strong results in local markets sales and trading. Transaction Services revenues increased 20% with continued growth in customer liability balances, up 16%.

        Revenues in GWM grew by 6% with the strength of annuity revenues more than offsetting a decline in capital markets and investment revenue. Average loans grew 12% while client assets under fee-based management decreased 19% primarily due to lower market values.

        Operating Expenses were up 6% from the third quarter of 2007 but declined for the third consecutive quarter. The growth from the prior period was primarily driven by lower compensation accruals in S&B in the third quarter of 2007. Underlying costs continue to trend down reflecting lower headcount and continued benefits from re-engineering efforts.

        Provisions for credit losses and for benefits and claims increased 59%. The increase was primarily driven by losses associated with loan sales in S&B, deterioration in the credit environment in Southern Europe, the U.K. and Pakistan and higher loan loss reserve builds.

2008 YTD vs. 2007 YTD

        Revenues were down 25% due to write-downs in S&B, partially offset by double-digit growth across all other segments.

        Global Cards revenues increased by 29%, driven by double-digit growth in purchase sales and average loans. Revenues in Consumer Banking increased by 17%, driven by strong growth in average loans and deposits and improved net interest margin and the impact of the Egg acquisition.

        In ICG, S&B revenue was down 76% from last year due to write-downs on subprime-related direct exposures in the first quarter of 2008 and write-downs in commercial real estate positions and in funded and unfunded highly-leveraged loan commitments. Revenues in S&B also included a strong performance in local markets sales and trading. Transaction Services revenues increased by 27% driven by increased customer volumes and deposit growth.

        Revenues in GWM grew by 22% primarily driven by an increase in annuity revenues and the impact of the acquisition of Quilter.

        Operating Expenses were up 9% compared to 2007 due to the impact of organizational and repositioning charges in 2008, the impact of acquisitions and fx translation, offset by a decline in incentive compensation and the benefits from reengineering efforts.

27


        Provisions for credit losses and for benefits and claims increased 63% primarily due to an increase in net credit losses and an incremental net charge to increase loan loss reserves.

28


LATIN AMERICA

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

Net interest revenue

  $ 2,061   $ 1,933     7 % $ 6,245   $ 5,212     20 %

Non-interest revenue

    1,017     2,061     (51 )   4,213     4,714     (11 )
                           

Total Revenues, net of interest expense

  $ 3,078   $ 3,994     (23 )% $ 10,458   $ 9,926     5 %

Total operating expenses

    1,849     1,830     1     5,158     4,962     4  

Provisions for credit losses and for benefits and claims

  $ 968   $ 640     51   $ 2,534   $ 1,307     94  
                           

Income before taxes and minority interest

  $ 261   $ 1,524     (83 )% $ 2,766   $ 3,657     (24 )%

Income taxes

    (20 )   439     NM     630     999     (37 )

Minority interest, net of tax

    1     1         3     2     50  
                           

Net income

  $ 280   $ 1,084     (74 )% $ 2,133   $ 2,656     (20 )%
                           

Average assets (in billions of dollars)

  $ 156   $ 150     4 % $ 156   $ 141     11 %

Return on assets

    0.71 %   2.87 %         1.83 %   2.52 %      
                           

Key Drivers (in billions of dollars, except branches)

                                     

Average Loans

  $ 61.0   $ 58.5     4 %                  

Average Consumer Banking Loans

    16.0     13.9     15                    

Average deposits (and other consumer liability balances)

  $ 67.9   $ 66.0     3 %                  

Branches/offices

    2,598     2,664     (2 )                  

NM
Not meaningful

3Q08 vs. 3Q07

        Total Revenue was 23% lower than the prior year, due to the absence of of $729 million from the Redecard gain on sale recorded last year in the Global Cards business. Consumer Banking revenues declined 5% largely resulting from the Chile business divestiture in the first quarter of 2008, partially offset by growth in deposits of 5% and in average loans of 15%. S&B revenues decreased 43%, driven by adverse market conditions impacting the FX, interest rates and equities businesses. Transaction Services revenues grew 25%, due to steady growth in the Direct Custody business, as average customer deposits increased 11%, and due to the impact of the Cuscatlan acquisition. GWM revenues were flat due to increased market volatility.

        Operating expense increased slightly over the prior year, up 1%, mainly because of $95 million in repositioning charges. Excluding these charges, expenses declined 4%, with declines in legal costs, advertising and marketing, and incentive compensation, partially offset by an increase in Cards and the impact of fx translation.

        Provisions for credit losses and for benefits and claims increased $328 million or 51% as the credit environment worsened, particularly in Mexico and Brazil. Net credit losses grew 82% primarily due to portfolio growth and deteriorating portfolio quality in Cards and Consumer Banking.

2008 YTD vs. 2007 YTD

        Total Revenue was 5% higher than the prior year, with a growth of 15% in average loans, and 17% in total customer deposits. Transaction Services revenues increased 35%, mainly from the custody business as average deposits grew rapidly in the third quarter of 2007 and have remained at those levels. [Global Cards grew 16% on higher volumes; the first nine months of 2008 include a $663 million Redecard gain on sale, while the first nine months of 2007 included a $729 million Redecard gain on sale.] Revenue gains were partially offset by an 18% decrease in S&B revenues due to write-downs and losses related to fixed income and equities.

        Operating expense growth of 4% was primarily driven by acquisitions and volume growth, higher collection costs, legal costs and reserves, and repositioning charges, partially offset by a $282 million benefit related to a legal vehicle repositioning in Mexico in the first quarter of 2008. Certain poorly performing branches were closed, mainly in Brazil and Mexico, partially offset by openings in Mexico, due to repositioning and realignment in both Retail and Consumer Finance.

        Provisions for credit losses and for benefits and claims increased 94% as the credit environment worsened, primarily reflecting a $953 million increase in net credit losses and an increase in loan loss reserve builds, reflecting a legacy portfolio sale in 2007, asset deterioration, and volume growth.

29


ASIA

 
  Third Quarter    
  Nine Months    
 
 
  %
Change
  %
Change
 
In millions of dollars   2008   2007   2008   2007  

Net interest revenue (NIR)

  $ 2,514   $ 2,162     16 % $ 7,417   $ 6,185     20 %

Non-interest revenue

    1,954     2,657     (26 )   6,233     7,245     (14 )
                           

Total Revenues, net of interest expense

  $ 4,468   $ 4,819     (7 )% $ 13,650   $ 13,430     2 %

Total operating expenses

    2,612     2,928     (11 )   8,234     7,302     13  

Provisions for credit losses and for benefits and claims

  $ 1,032   $ 832     24 % $ 2,540   $ 1,883     35 %
                           

Income before taxes and minority interest

  $ 824   $ 1,059     (22 )% $ 2,876   $ 4,245     (32 )%

Income taxes

    127     249     (49 )   650     1,079     (40 )

Minority interest, net of tax

    2             (6 )   34     NM  
                           

Net income

  $ 695   $ 810     (14 )% $ 2,232   $ 3,132     (29 )%
                           

Average assets

                                     
 

(in billions of dollars)

  $ 337   $ 375     (10 )% $ 352   $ 307     15 %

Return on assets

    0.82 %   0.86 %         0.85 %   1.36 %      
                           

Consumer Finance Japan (CFJ)—NIR

  $ 224   $ 263     (15 )% $ 661   $ 1,022     (35 )%

Asia excluding CFJ—NIR

  $ 2,290   $ 1,899     21   $ 6,756   $ 5,163     31 %
                           

CFJ—Operating Expenses

  $ 84   $ 251     (67 )% $ 280   $ 479     (42 )%

Asia excluding CFJ—Operating Expenses

  $ 2,528   $ 2,677     (6 )% $ 7,954   $ 6,823     17 %
                           

CFJ—Net Income

  $ (159 )   (298 )   47 % $ (399 ) $ (336 )   (19 )%

Asia excluding CFJ—Net Income

  $ 854     1,108     (23 ) $ 2,631   $ 3,468     (24 )%
                           

Key Drivers

                                     
 

(in billions of dollars, except branches)

                                     

Average Loans

  $ 128.1   $ 129.4     (1 )%                  

Average Consumer Banking Loans

  $ 49.9   $ 46.4     8                    

Average deposits (and other consumer liability balances)

  $ 204.5   $ 197.4     4                    

Branches/offices

    1,203     1,261     (5 )%                  

3Q08 vs. 3Q07

        Net Interest Revenue increased 16%. Global Cards Revenue growth of 11% was driven by 14% growth in purchase sales and 17% growth in average loans. Consumer Banking excluding Consumer Finance Japan (CFJ) grew by 4%, driven by 8% growth in average loans and 4% growth in deposits. Transaction Services exhibited strong Revenue growth across all products resulting in 19% growth. S&B grew $226 million, reflecting improved spreads.

        Non-Interest Revenue decreased 26%, as S&B continued to be impacted by market volatility and declining valuations. Outside of S&B, non-interest revenue increased in Global Cards and Transaction Services, partially offset by lower Investment Sales in Consumer Banking and GWM.

        Operating Expenses decreased 11% reflecting a lower level of incentive compensation, the benefits of reengineering, and the absence of a prior-year restructuring charge, partly offset by the current year repositioning charge.

        Provisions for credit losses and for benefits and claims increased 24% driven by a $372 million pretax charge to increase loan loss reserves and by higher credit costs which were due to a combination of portfolio growth and some deterioration in the macroeconomic environment, including India.

Asia Excluding CFJ

        As disclosed in the table above, NIR excluding CFJ increased 21% and 31% in the 2008 third quarter and year-to-date periods, respectively. Operating Expenses excluding CFJ decreased 6% in the third quarter while it increased 17% in the year-to-date period, and Net income excluding CFJ decreased 23% and 24%, respectively.

2008 YTD vs. 2007 YTD

        Net Interest Revenue increased 20%. Global Cards growth of 19% was driven by 20% growth in purchase sales and 24% growth in average loans. Consumer Banking excluding CFJ grew by 15%, driven by growth of 14% in average loans and 9% growth in deposits. Transaction Services exhibited strong growth across all products resulting in 28% growth. S&B grew $738 million reflecting better spreads in the quarter, and higher dividend revenue. Growth was also impacted by foreign exchange, acquisitions and portfolio purchases.

30


        Non-Interest Revenue decreased 14% as S&B continued to be impacted by market volatility and declining valuations. Outside of S&B, non-interest revenue increased 17% with strong growth in Global Cards, Transaction Services and GWM, partially offset by lower Investment Sales in Consumer Banking and GWM. Results included a $31 million gain on the sale of DCI, partially offset by a $21 million gain on the sale of MasterCard shares in the prior-year period.

        Operating Expense increased 13% primarily driven by the impact of acquisitions, strengthening local currencies and repositioning charges, partly offset by benefits of reengineering.

        Provisions for credit losses and for benefits and claims increased 35% primarily driven by a $267 million incremental pretax charge to increase loan loss reserves, increased credit costs in India, acquisitions and portfolio growth.

31



MANAGING GLOBAL RISK

        Citigroup's risk management framework balances strong corporate oversight with well-defined independent risk management functions for each business and region, as well as cross-business product expertise. The Citigroup risk management policies and practices are described in Citigroup's 2007 Annual Report on Form 10-K.

DETAILS OF CREDIT LOSS EXPERIENCE

In millions of dollars   3rd Qtr.
2008
  2nd Qtr.(1)
2008
  1st Qtr.(1)
2008
  4th Qtr.(1)
2007
  3rd Qtr.(1)
2007
 

Allowance for loan losses at beginning of period

  $ 20,777   $ 18,257   $ 16,117   $ 12,728   $ 10,381  
                       

Provision for loan losses

                               
 

Consumer(2)

  $ 7,855   $ 6,259   $ 5,332   $ 6,438   $ 4,427  
 

Corporate

    1,088     724     245     882     154  
                       

  $ 8,943   $ 6,983   $ 5,577   $ 7,320   $ 4,581  
                       

Gross credit losses

                               

Consumer

                               
 

In U.S. offices

  $ 3,069   $ 2,599   $ 2,325   $ 1,895   $ 1,364  
 

In offices outside the U.S. 

    1,914     1,798     1,637     1,415     1,434  

Corporate

                               
 

In U.S. offices

    160     346     40     596     20  
 

In offices outside the U.S. 

    200     36     97     169     74  
                       

  $ 5,343   $ 4,779   $ 4,099   $ 4,075   $ 2,892  
                       

Credit recoveries

                               

Consumer

                               
 

In U.S. offices

  $ 137   $ 148   $ 172   $ 162   $ 160  
 

In offices outside the U.S. 

    252     286     253     254     219  

Corporate

                               
 

In U.S. offices

    3     24     3     15     1  
 

In offices outside the U.S. 

    31     1     33     55     59  
                       

  $ 423   $ 459   $ 461   $ 486   $ 439  
                       

Net credit losses

                               
 

In U.S. offices

  $ 3,089   $ 2,773   $ 2,190   $ 2,314   $ 1,223  
 

In offices outside the U.S. 

    1,831     1,547     1,448     1,275     1,230  
                       

Total

  $ 4,920   $ 4,320   $ 3,638   $ 3,589   $ 2,453  
                       

Other—net(3)(4)(5)(6)(7)

  $ (795 ) $ (143 ) $ 201   $ (342 ) $ 219  
                       

Allowance for loan losses at end of period

  $ 24,005   $ 20,777   $ 18,257   $ 16,117   $ 12,728  
                       

Allowance for unfunded lending commitments(8)

  $ 957   $ 1,107   $ 1,250   $ 1,250   $ 1,150  
                       

Total allowance for loan losses and unfunded lending commitments

  $ 24,962   $ 21,884   $ 19,507   $ 17,367   $ 13,878  
                       

Net consumer credit losses

  $ 4,594   $ 3,963   $ 3,537   $ 2,894   $ 2,419  

As a percentage of average consumer loans

    3.35 %   2.83 %   2.52 %   2.07 %   1.82 %
                       

Net corporate credit losses (recoveries)

  $ 326   $ 357   $ 101   $ 695   $ 34  

As a percentage of average corporate loans

    0.19 %   0.19 %   0.05 %   0.34 %   0.02 %
                       

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

(2)
Included in the allowance for loan losses are reserves for Trouble Debt Restructurings (TDRs) of $1,443 million, $882 million, and $443 million as of September 30, 2008, June 30, 2008 and March 31, 2008, respectively.

(3)
The third quarter of 2008 primarily includes reductions to the credit loss reserves of $23 million related to securitizations, reductions of $244 million related to the pending sale of Citigroup's German Retail Banking Operation and reductions of approximately $500 million related to foreign currency translation.

(4)
The second quarter of 2008 primarily includes reductions to the credit loss reserves of $21 million related to securitizations, reductions of $156 million related to the sale of CitiCapital and additions of $56 million related to purchase price adjustments for the Grupo Cuscatlan acquisition.

(5)
The first quarter of 2008 primarily includes reductions to the credit loss reserves of $58 million related to securitizations, additions of $50 million related to the BOOC acquisition and additions of $217 million related to fx translation.

(6)
The fourth quarter of 2007 primarily includes reductions to the credit loss reserves of $150 million related to securitizations and $7 million related to transfers to loans held-for-sale, reductions of $151 million related to purchase price adjustments for the Egg Bank acquisition and reductions of $83 million related to the transfer of the U.K. CitiFinancial portfolio to Loans held-for-sale.

(7)
The third quarter of 2007 primarily includes additions related to purchase accounting adjustments related to the acquisition of Grupo Cuscatlan of $181 million, offset by reductions of $73 million related to securitizations.

(8)
Represents additional credit loss reserves for unfunded corporate lending commitments and letters of credit recorded within Other Liabilities on the Consolidated Balance Sheet.

32


Consumer Loan Balances, Net of Unearned Income

 
  End of Period   Average  
In billions of dollars   Sept. 30,
2008
  Jun. 30,(1)
2008
  Sept. 30,(1)
2007
  3rd Qtr.
2008
  2nd Qtr.(1)
2008
  3rd Qtr.(1)
2007
 

On-balance sheet(2)

  $ 539.0   $ 550.1   $ 537.0   $ 544.6   $ 563.9   $ 527.5  

Securitized receivables (all in North America Cards)

    107.9     111.0     104.0     108.8     107.4     101.1  

Credit card receivables held-for-sale(3)

            3.0         1.0     3.0  
                           

Total managed(4)

  $ 646.9   $ 661.1   $ 644.0   $ 653.4   $ 672.3   $ 631.6  
                           

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

(2)
Total loans and total average loans exclude certain interest and fees on credit cards of approximately $3 billion and $3 billion for the third quarter of 2008, approximately $3 billion and $2 billion for the second quarter of 2008 and approximately $2 billion and $2 billion for the third quarter of 2007, respectively, which are included in Consumer Loans on the Consolidated Balance Sheet.

(3)
Included in Other Assets on the Consolidated Balance Sheet.

(4)
This table presents loan information on a held basis and shows the impact of securitizations to reconcile to a managed basis. 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 are consistent with the way management reviews operating performance and allocates resources. Held-basis reporting is the related GAAP measure.

        Citigroup's total allowance for loans, leases and unfunded lending commitments of $25.0 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup's allowance for loan losses attributed to the Consumer portfolio was $19.1 billion at September 30, 2008, $16.5 billion at June 30, 2008 and $9.2 billion at September 30, 2007. The increase in the allowance for loan losses from September 30, 2007 of $9.9 billion included net builds of $10.9 billion.

        The builds consisted of $10.8 billion in Consumer ($8.8 billion in North America and $2.0 billion in regions outside of North America) and $131 million in GWM.

        The build of $8.8 billion in North America Consumer primarily reflects an increase in the losses embedded in the portfolio as a result of weakening leading credit indicators, including increased delinquencies on first mortgages, unsecured personal loans, credit cards, and auto loans. Also, the build reflected trends in the U.S. macro-economic environment, including the housing market downturn, rising unemployment rates and portfolio growth. The build of $2.0 billion in regions outside of North America Consumer primarily reflects portfolio growth and the impact of recent acquisitions and credit deterioration in certain countries.

        On-balance-sheet consumer loans of $539.0 billion increased $2.0 billion from September 30, 2007, primarily driven by increases in all Global Cards and GWM regions, partially offset by decreases in Consumer Banking. 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 macroeconomic and regulatory policies.

33


EXPOSURE TO U.S. REAL ESTATE IN SECURITIES AND BANKING

Subprime-Related Direct Exposure in Securities and Banking

        The following table summarizes Citigroup's U.S. subprime-related direct exposures in Securities and Banking (S&B) at September 30, 2008 and June 30, 2008:

In billions of dollars   June 30, 2008
exposures
  Third quarter
2008 write-downs(1)
  Third quarter
2008 sales/transfers(2)
  September 30, 2008
exposures
 
Direct ABS CDO Super Senior Exposures:                          
  Gross ABS CDO Super Senior Exposures (A)   $ 27.9               $ 25.7  
  Hedged Exposures (B)     9.8                 9.4  
Net ABS CDO Super Senior Exposures:                          
  ABCP/CDO(3)   $ 14.4   $ (0.8 ) $ (0.3 ) $ 13.3  
  High grade     2.0     0.2 (4)   (1.1 )   1.1  
  Mezzanine     1.6     0.3 (4)   (0.2 )   1.7  
  ABS CDO-squared     0.2     0.0     (0.0 )   0.1  
                   
Total Net Direct ABS CDO Super Senior Exposures (A-B)=(C)   $ 18.1   $ (0.3 ) $ (1.5 )(5) $ 16.3  
                   
Lending & Structuring Exposures:                          
  CDO warehousing/unsold tranches of ABS CDOs   $ 0.1   $ (0.0 ) $ (0.0 ) $ 0.1  
  Subprime loans purchased for sale or securitization     2.8     (0.3 )   (0.4 )   2.1  
  Financing transactions secured by subprime     1.5     (0.2 )(4)   (0.2 )   1.1  
                   
Total Lending and Structuring Exposures (D)   $ 4.3   $ (0.5 ) $ (0.6 ) $ 3.3  
                   
Total Net Exposures C+D(6)   $ 22.5   $ (0.8 ) $ (2.1 ) $ 19.6  
                   
Credit Adjustment on Hedged Counterparty
    Exposures (E)(7)
        $ (0.9 )            
                   
Total Net Write-Downs (C+D+E)         $ (1.7 )            
                   

Note: Table may not foot or cross-foot due to roundings.

(1)
Includes net profits associated with liquidations.

(2)
Reflects sales, transfers, repayment of principal and liquidations.

(3)
Consists of older vintage, high grade ABS CDOs.

(4)
Includes $357 million recorded in credit costs.

(5)
A portion of the underlying securities was purchased in liquidations of CDOs and is reported as Trading account assets. As of September 30, 2008, $347 million relating to deals liquidated were held in the trading books.

(6)
Composed of net CDO super senior exposures and gross Lending and Structuring exposures.

(7)
SFAS 157 adjustment related to counterparty credit risk.

Subprime-Related Direct Exposure in Securities and Banking

        The Company had approximately $19.6 billion in net U.S. subprime-related direct exposures in its S&B business at September 30, 2008.

        The exposure consisted of (a) approximately $16.3 billion of net exposures in the super senior tranches (i.e., most senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities, derivatives on asset-backed securities or both (ABS CDOs), and (b) approximately $3.3 billion of exposures in its lending and structuring business.

Direct ABS CDO Super Senior Exposures

        The net $16.3 billion in ABS CDO super senior exposures as of September 30, 2008 is collateralized primarily by subprime residential mortgage-backed securities (RMBS), derivatives on RMBS or both. These exposures include $13.3 billion in commercial paper (ABCP) issued as the super senior tranches of ABS CDOs and approximately $3.0 billion of other super senior tranches of ABS CDOs.

        Citigroup's CDO super senior subprime direct exposures are Level 3 assets and are subject to valuation based on significant unobservable inputs. Fair value of these exposures (other than high grade and mezzanine as described below) is based on estimates of future cash flows from the mortgage loans underlying the assets of the ABS CDOs. To determine the performance of the underlying mortgage loan portfolios, the Company estimates the prepayments, defaults and loss severities based on a number of macroeconomic factors, including housing price changes, unemployment rates, interest rates, and borrower and loan attributes, such as age, credit scores, documentation status, loan-to-value (LTV) ratios, and debt-to-income (DTI) ratios. The model is calibrated using available mortgage loan information including historical loan performance. In addition, the methodology estimates the impact of geographic concentration of mortgages, and the impact of reported fraud in the origination of subprime mortgages. An appropriate discount rate is then applied to the cash flows generated for each ABCP and CDO-squared tranche, in order to estimate its current fair value.

        When necessary, the valuation methodology used by Citigroup is refined and the inputs used for the purposes of estimation are modified, in part, to reflect ongoing market developments. More specifically, the inputs of home price appreciation (HPA) assumptions and delinquency data were updated during the quarter along with discount rates that are based upon a weighted average combination of implied spreads from single name ABS bond prices and ABX indices, as well as CLO spreads.

34


        As was the case in the second quarter of 2008, the third quarter housing-price changes were estimated using a forward-looking projection. However, for the third quarter of 2008, this projection incorporates the Loan Performance Index, whereas in the second quarter of 2008, it incorporated the S&P Case Shiller Index. This change was made because the Loan Performance Index provided more comprehensive geographic data. In addition, the Company's mortgage default model has been updated for mortgage performance data from the first half of 2008, a period of sharp home price declines and high levels of mortgage foreclosures.

        The valuation as of September 30, 2008 assumes a cumulative decline in U.S. housing prices from peak to trough of 32%. This rate assumes declines of 16% and 10% in 2008 and 2009, respectively, the remainder of the 32% decline having already occurred before the end of 2007. The valuation methodology as of June 30, 2008 assumed a cumulative decline in U.S. housing prices from peak to trough of 23%, with assumed declines of 12% and 3% in 2008 and 2009, respectively.

        In addition, during the second and third quarters of 2008, the discount rates were based on a weighted average combination of the implied spreads from single name ABS bond prices, ABX indices and CLO spreads, depending on vintage and asset types. To determine the discount margin, the Company applies the mortgage default model to the bonds underlying the ABX indicies and other referenced cash bonds and solves for the discount margin that produces the market prices of those instruments. Using this methodology, the impact of the decrease of the home price appreciation projection from -23% to -32% resulted in a decrease in the discount margins incorporated in the valuation model. Additionally, there were a number of liquidations of high-grade and mezzanine positions during the third quarter. These were at prices close to the value of trader prices. The liquidation proceeds in total were also above the June 30th carrying amount of the positions liquidated.

        For the third quarter of 2008, the valuation of the high-grade and mezzanine ABS CDO positions was changed from model valuation to trader prices based on the underlying assets of each high-grade and mezzanine ABS CDO. Unlike the ABCP and CDO-squared positions, the high-grade and mezzanine positions are now largely hedged through the ABX and bond short positions, which are, by necessity, trader priced. Thus, this change brings closer symmetry in the way these long and short positions are valued by the Company. Additionally, there were a number of liquidations of high-grade and mezzanine positions during the third quarter. These were at prices close to the value of trader prices. The liquidation proceeds in total were also above the June 30, 2008 carrying amount of the positions liquidated. Citigroup intends to use trader marks to value this portion of the portfolio going forward so long as it remains largely hedged.

        The primary drivers that currently impact the model valuations are the discount rates used to calculate the present value of projected cash flows and projected mortgage loan performance. In valuing its direct ABCP and CDO-squared super senior exposures, the Company has made its best estimate of the key inputs that should be used in its valuation methodology. However, the size and nature of these positions as well as current market conditions are such that changes in inputs such as the discount rates used to calculate the present value of the cash flows can have a significant impact on the reported value of these exposures. For instance, each 10 basis point change in the discount rate used generally results in an approximate $48 million change in the fair value of the Company's direct ABCP and CDO-squared super senior exposures as at September 30, 2008. This applies to both decreases in the discount rate (which would decrease the value of these assets and increase reported write-downs) and increases in the discount rate (which would decrease the value of these assets and increase reported write-downs).

        Estimates of the fair value of the CDO super senior exposures depend on market conditions and are subject to further change over time. In addition, while Citigroup believes that the methodology used to value these exposures is reasonable, the methodology is subject to continuing refinement, including those made as a result of market developments. Further, any observable transactions in respect of some or all of these exposures could be employed in the fair valuation process in accordance with and in the manner called for by SFAS 157.

Lending and Structuring Exposures

        The $3.3 billion of subprime-related exposures includes approximately $0.1 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $2.1 billion of actively managed subprime loans purchased for resale or securitization, at a discount to par, during 2007, and approximately $1.1 billion of financing transactions with customers secured by subprime collateral. These amounts represent the fair value as determined using observable inputs and other market data. The majority of the change from the June 30, 2008 balances reflects sales, transfers and liquidations.

        S&B also has trading positions, both long and short, in U.S. subprime RMBS and related products, including ABS CDOs, which are not included in the figures above. The exposure from these positions is actively managed and hedged, although the effectiveness of the hedging products used may vary with material changes in market conditions.

35


Direct Exposure to Monolines

        In its S&B business, the Company has exposure to various monoline bond insurers (Monolines) listed in the table below from hedges on certain investments and from trading positions. The hedges are composed of credit default swaps and other hedge instruments. The Company recorded an additional $919 million in credit market value adjustments (CVA) during the third quarter of 2008 on the market value exposures to the Monolines. In addition, the Company recorded releases/utitilizations against the credit market value adjustment of $1.2 billion during the quarter.

        The following table summarizes the market value of the Company's direct exposures to and the corresponding notional amounts of transactions with the various Monolines as well as the aggregate credit market value adjustment associated with these exposures as of September 30, 2008 and June 30, 2008 in S&B:

 
 
September 30, 2008
   
 
 
  Net Market
Value
Exposure
June 30,
2008
 
In millions of dollars   Net Market
Value
Exposure
  Notional
Amount
of
Transactions
 

Direct Subprime ABS CDO Super Senior:

                   

Ambac

  $ 3,952   $ 5,298   $ 3,658  

FGIC

    1,300     1,450     1,260  

ACA

            519  
               

Subtotal Direct Subprime ABS CDO Super Senior

  $ 5,252   $ 6,748   $ 5,437  
               

Trading Assets—Subprime:

                   

Ambac

          $ 1,210  
               

Trading Assets—Subprime

          $ 1,210  
               

Trading Assets—Non Subprime:

                   

MBIA

  $ 1,167   $ 4,538   $ 1,103  

FSA

    126     1,126     94  

ACA

            122  

Assured

    63     488     51  

Radian

    27     150     19  

Ambac

    (83 )   1,043     2  
               

Trading Assets—Non Subprime

  $ 1,300   $ 7,345   $ 1,391  
               

Subtotal Trading Assets

  $ 1,300   $ 7,345   $ 2,601  
               

Credit Market Value Adjustment

  $ (4,564 )       $ (4,890 )
               

Total Net Market Value Direct Exposure

  $ 1,988   $ 14,093   $ 3,148  
               

        The market value exposure, net of payable and receivable positions, represents the market value of the contract as of September 30 and June 30, 2008, excluding the credit market value adjustment. The notional amount of the transactions, including both long and short positions, is used as a reference value to calculate payments. The credit market value adjustment is a downward adjustment to the market value exposure to a counterparty to reflect the counterparty's creditworthiness in respect of the obligations in question.

        Credit market value adjustments are based on credit spreads and on estimates of the terms and timing of the payment obligations of the Monolines. Timing in turn depends on estimates of the performance of the transactions to which the Company's exposure relates, estimates of whether and when liquidation of such transactions may occur and other factors, each considered in the context of the terms of the monolines' obligations. For a further discussion of the use of estimates by the Company, see the Company's 2007 Annual Report on Form 10-K.

        As of September 30, 2008 and June 30, 2008, the Company had $9.4 billion notional amount of hedges against its Direct Subprime ABS CDO super senior positions. Of that $9.4 billion, $6.7 billion was purchased from monolines and is included in the notional amount of transactions in the table above. The market value of the hedges provided by the monolines against our direct subprime ABS CDO super senior positions was $5.3 billion as of September 30, 2008 and $5.4 billion as of June 30, 2008.

        In addition, there was $1.3 billion and $2.6 billion of market value exposure to monolines related to our trading assets as of September 30, 2008 and June 30, 2008, respectively. Trading assets include trading positions, both long and short, in U.S. subprime residential mortgage-backed securities (RMBS) and related products, including ABS CDOs. There was $1.2 billion net market value exposure related to subprime trading positions with a notional amount of $1.4 billion as of June 30, 2008, which was settled during the third quarter of 2008. The transaction was settled for a gain relative to the June 30, 2008 net market value exposure, which includes the credit market value adjustment related to this position.

        The notional amount of transactions related to the remaining non-subprime trading assets as of September 30, 2008 was $7.3 billion with a corresponding market value exposure of $1.3 billion. The $7.3 billion notional amount of transactions comprised $2.0 billion primarily in interest rate swaps with a corresponding market value exposure of $15 million. The remaining notional amount of $5.2 billion was in the form of credit default swaps and total return swaps with a market value exposure of $1.2 billion.

        The notional amount of transactions related to the remaining non-subprime trading assets at June 30, 2008 was $10.0 billion with a net market value exposure of $1.4 billion. The $10.1 billion notional amount of transactions comprised $2.8 billion primarily in interest rate swaps with a market value exposure of $14 million. The remaining notional amount of $7.3 billion was in the form of credit default swaps and total return swaps with a market value of $1.4 billion.

        During the third quarter of 2008, the Company recorded an increase in the credit market value adjustment of $919 million. This increase was offset by utilizations/releases of $1.245 billion, resulting in a net decrease to the quarter-end balance of $326 million.

        The Company has purchased mortgage insurance from various monoline mortgage insurers on first mortgage loans. The notional amount of this insurance protection was approximately $500 million as of September 30, 2008 and approximately $400 million as of June 30, 2008 with nominal pending claims against this notional amount.

        In addition, Citigroup has indirect exposure to Monolines in various other parts of its businesses. Indirect exposure includes circumstances in which the Company is not a contractual counterparty to the Monolines, but instead owns securities which may benefit from embedded credit enhancements provided by a Monoline. For example, corporate or municipal bonds in the trading business may be

36


insured by the Monolines. The previous table does not capture this type of indirect exposure to the Monolines.

Exposure to Commercial Real Estate

        The Company, through its business activities and as a capital markets participant, incurs exposures that are directly or indirectly tied to the global commercial real estate market. These exposures are represented primarily by the following three categories:

        (1) Assets held at fair value: approximately $11.1 billion of securities, loans and other items linked to commercial real estate that are carried at fair value as Trading account assets, approximately $3.7 billion of commercial real estate loans and loan commitments classified as held-for-sale and measured at the lower of cost or market (LOCOM) and approximately $2.1 billion of securities backed by commercial real estate carried at fair value as available-for-sale Investments. Changes in fair value for these Trading account assets and held-for-sale loans and loan commitments are reported in current earnings, while changes in fair value for these available-for-sale investments are reported in OCI with other-than-temporary impairments reported in current earnings.

        The majority of these exposures are classified as Level 3 in the fair value hierarchy. In recent months, weakening activity in the trading markets for some of these instruments resulted in reduced liquidity, thereby decreasing the observable inputs for such valuations and could have an adverse impact on how these instruments are valued in the future if such conditions persist.

        (2) Loans and commitments: approximately $19.8 billion of commercial real estate loan exposures, all of which are recorded at cost, less loan loss reserves. The impact from changes in credit is reflected in the calculation of the allowance for credit losses and in net credit losses.

        (3) Equity and other investments: Approximately $5.3 billion of equity and other investments such as limited partner fund investments which are accounted for under the equity method.

Exposure to Alt-A Mortgage Securities

        See "Events in 2008" on page 8 for a description of incremental write-downs on Alt-A mortgage securities in S&B.

37



EVALUATING INVESTMENTS FOR OTHER THAN TEMPORARY IMPAIRMENTS

Available-for-Sale Unrealized Losses

        The following table presents the amortized cost, the gross unrealized gains and losses, and the fair value for available-for-sale securities at September 30, 2008:

 
  September 30, 2008   Variance vs. June 30, 2008  
In millions of dollars   Amortized
cost
  Gross
pretax
unrealized
gains
  Gross
pretax
unrealized
losses
  Fair
value
  Amortized
cost
  Gross
pretax
unrealized
gains
  Gross
pretax
unrealized
losses
  Fair
value
 

Securities available-for-sale

                                                 

Mortgage-backed securities

  $ 56,641   $ 48   $ 7,878   $ 48,811   $ (5,305 ) $ 14     3,464   $ (8,755 )

U.S. Treasury and federal agencies

    26,834     53     138     26,749     (11,624 )   27     (107 )   (11,490 )

State and municipal

 </