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Equity Research

Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report.Customers of Barclays Capital in the United States can receive independent, third-party research on the company or companiescovered in this report, at no cost to them, where such research is available. Customers can access this independent research atwww.lehmanlive.com or can call 1-800-253-4626 to request a copy of this research.Investors should consider this report as only a single factor in making their investment decision.

PLEASE SEE ANALYST(S) CERTIFICATION(S) ON PAGE 6 AND IMPORTANT DISCLOSURES BEGINNINGON PAGE 7

1

BOTTOM LINE

*

Bottom line –

Results were in the realm of expectations, though investment banking revenues moderated more thanexpected and its provision was higher. Still, it lowered its expense forecast and showed some potentially positive signs of

July 20, 2009

Citigroup Inc.

(C - US$ 3.02) 1-Overweight

Earnings Review/Sales Analysis

2Q Follow-up: Citicorp Stays Profitable

Investment Conclusion

C reported 2Q09 EPS of $0.49. Excluding an$11.1B gain ($6.7B AT, $1.12) on the MS/SB JV,EPS was ($0.63). Net revenue marks were a $952MM benefit at Citi Holdings and a $776MM drag at

Citicorp ($176MM net benefit, $0.02). Consensuswas ($0.31) though it's unclear what was included.Ex. the JV gain, revenues increased 9% y-o-y anddeclined 23% linked quarter. Ex. net marks,

Citicorp revenues fell 12% linked quarter to $16B,with regional consumer banking down 3%, GTS up4% and securities banking down 22%. CitiHoldings revenues increased from $3.5B to $4.7B.Bottom-line, results were in the realm of expectations, though investment banking revsmoderated more than expected and its provisionwas higher. Still, it lowered its expense forecastand showed some potentially positive signs of moderation in consumer loans loss trends.Importantly, net income at Citicorp remains over the $3B mark ($0.50 annualized on pro formashares). We are adjusting our 2009 estimate toreflect the 2Q results. Our full-year estimate is now$0.15, compared to ($0.55), though 2H largelyunchanged. Much of the improvement from 2Qcore EPS to our 3Q estimate stems from thepreferred exchange.

United States of AmericaFinancial ServicesLarge-Cap Banks

Reuters CBloomberg CADR

EPS (US$)

(FY Dec)

2008 2009 2010 % Change

ActualOld New St. Est.Old New St. Est.2009 20101Q

-1.02A -0.18A -0.18A -0.18A N/A N/A 0.01E 82% N/A

2Q

-0.54A 0.49A 0.49A -0.31E N/A N/A 0.01E 191% N/A

3Q

-0.71A -0.12E -0.13E -0.09E N/A N/A 0.01E 82% N/A

4Q

-1.72A 0.00E -0.03E -0.04E N/A N/A 0.02E 98% N/A

Year

-3.99A -0.55E 0.15E -0.95E 0.40E 0.40E 0.14E 104% 167%

P/E

20.1 7.6

Market Data

Market Cap (Mil.) 16263Dividend Yield 0.0052 Week Range 23.50 - 0.97

Financial Summary

Revenue TTM (Mil.) 109986.0

Stock Overview

CITIGROUP INC. - 7/ 17/ 2009

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Source: LehmanLive

06121824Volume1B

Stock Rating Target Price

New: 1-Overweight New: US$ 3.00Old: 1-Overweight Old: US$ 3.00

Sector View:

1-Positive



Equity Research

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moderation in consumer loan loss trends. Importantly, net income at Citicorp remains over the $3 billion mark ($0.50annualized on pro forma shares).*

Estimates –

We are adjusting our 2009 EPS estimate to reflect the 2Q09 results. Our full-year EPS estimate is now $0.15,compared to ($0.55). Our 2H09 EPS estimates are relatively unchanged. Note, much of the improvement from 2Q09 coreEPS to our 3Q09 EPS estimate stems from the preferred exchange, as C has larger share count to spread its losses over.The full impact of this phenomenon should also aid 4Q09 results.

2Q09 RESULTS

* C reported 2Q09 EPS of $0.49. Excluding an $11.1 billion gain ($6.7B AT, $1.12) on the MS/SB JV, EPS was ($0.63). Netrevenue marks were a $952 million benefit at Citi Holdings and a $776 million drag at Citicorp ($176MM net benefit, $0.02).Consensus was ($0.31) though it’s unclear what was included. Relative to our forecast, results came in lower than expecteddue to a higher than modeled loan loss provision.* C reported results along its new org structure split between Citicorp and Citi Holdings. Importantly, Citicorp remainedprofitable with net income exceeding $3.0 billion for the 5

th

time in 6 quarters. Citi Holdings (ex. JV gain) lost $5.3 billion for the 2

nd

straight quarter.* Ex. the JV gain, revenues increased 9% y-o-y and declined 23% linked quarter. Citicorp revenues decined 11% y-o-y andfell 27% linked quarter. Ex. net marks, revenues fell a more modest 12% linked quarter to $16 billion, with regional consumer banking down 3%, GTS up 4% and securities banking down 22% from a strong 1Q09. Citi Holdings revenues increased from$3.5 billion to $4.7 billion.* TCE grew by $9.1 billion during the quarter. Its tier 1 capital ratio increased from 11.9% to 12.7%, while its TCE ratio rosefrom 1.7% to 2.2% (5.5% pro form for swap). We see tangible book value in $4.25 area, adjusted for the preferred exchange.Total assets increased by $24 billion, though deposits with banks (up $23B) and AFS securities (up $29B) increased, whileloans (-$16B) and trading assets (-$12B) decreased, as C continues to free-up liquidity. Deposits rose $42 billion.* Of note, the company stated while its most significant challenge remains consumer credit, and that while losses in itsconsumer businesses have been growing for some time, it did see some positive signs of moderation in those loss trends.

QUALITY OF EARNINGS

* Results included a $11.1 billion gain ($6.7B AT, $1.12) on the MS/SB JV.* Net revenue marks were $776 million in Citibank and included a $1.5 billion drag from CVA on its liabilities at fair valueoption, partially offset by a $597 million benefit on its CVA on derivative positions and a $99 million mark-to-market gain onAlt-A. In Citi Holdings it recorded a benefit of $952 million, which included $501 million of non-credit accretion and $450million in revenue gains. Included in the revenue marks was a $613 million gain on sub-prime related direct exposure and a$961 million CVA benefit on derivative position ($157MM monoline) partially offset by writedowns of $390 million in Alt-A,$354 million in CRE, and $237 million in leveraged loans. Net, it benefited by $176 million or $0.02.* It recorded a $333 million ($0.04) charge for the FDIC special assessment in net interest income (8bps of NIM).* Restructuring costs were $32 million.* Risk assets at fair value include sub-prime direct ($9.5B), private equity ($7.1B), CRE ($5.1B), ARS ($2.8B), alt-A ($1.7B)and leverage loans ($1.2B).* It added $3.9 billion ($0.42) to its loan loss reserve, versus a $2.1 billion build last quarter.* Results were adversely impacted by foreign exchange changes on non-U.S. dollar items as they are converted to U.S.dollars for reporting purposes.

FORWARD LOOKING COMMENTS

* It commented that the rate of growth in consumer losses may be moderating, which has implications for future additions toreserves. If leading indicators such as the decline in 90-plus day delinquency trends in NA Card sustain and other macroeconomic indicators such as the unemployment rate show signs of stabilizing, then it would expect NCO growth tomoderate in future quarters. Additionally, it saw a decline in the 90-179 delinquency bucket in N.A mortgage (from $6.2B to$5.5B), which means that fewer loans are reaching the 180-day past due point. That is the point at which it records its initialnet credit loss, and therefore if this trend continues, the increase in charge-offs should slow.* Last quarter, it indicated that it expected total consumer NCOs to come in around $1 billion higher in 2Q09 (they rose $0.9Bto $6.6B). Looking to 2H09, it said it is seeing some signs of moderation in the growth of NCOs, which in turn could result inlower additions to loan loss reserves. As such, for 2H09, it expects the increase in consumer NCOs in aggregate to be in therange of $1 billion. On consumer loan loss reserves, in areas where NCO growth moderates, so would the additions to loanloss reserves. Still, if corporate default rates increase, it will continue to add to reserves and likely will see higher NCOsalthough both the recognition of losses and the building of reserves will be somewhat episodic.* C now expects expenses for the year to be in the $48-$50 billion range, better than its original $50-$52 billion target.* Citi Holding asset levels are expected to continue to decline (down $13B or 2% in 2Q). Credit losses flowing through thesecuritization trust as well as mark-to-market gains and losses and asset dispositions will continue to affect revenues in Citi

Equity Research

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Holdings. It expects to continue to see revenue accretion ($501MM in 2Q) on the non-credit marks on assets it mobbed toaccrual accounts last year.* Its preferred exchange is slated to expire on July 24 (distribution July 30). It is expected to generate a maximum of $60.4billion in equity, while its Nikko Cordial sale should generate another $2.5 billion.

INCOME STATEMENT & BALANCE SHEET

* Net interest income declined 8% y-o-y and decreased 1% from 1Q09. Average earning assets increased 1%, with loansdown 2%, securities up 6% and trading assets flat. Total assets increased 1%, while deposits gained 6% from 1Q09 (half FX).Its net interest margin declined 9bps linked quarter to 3.24%. Its yield on AEA fell 34bps to 4.97% (loans -47bps, securities -22bps, trading +19bps), while its cost of liabilities decreased 39bps (deposits -8bps). Fee income fell 48% linked quarter.* Expenses declined 21% y-o-y (-17% ex. FX) and increased 3% linked quarter. Relative to 1Q09, Citicorp expensesincreased 8%, while Citi Holdings declined 14%. Headcount declined by 30,000 from 1Q09 to 279,000, mainly driven by theSB JV. June was the 20th consecutive month of headcount decline.*Its NPA ratio (% of assets) increased 9bps to 1.59% (Citicorp up 14bps to 0.57%). Non-accrual loans increased 8% (vs. up17% in 1Q) or $2.1 billion, with corporate up $1.2 billion and consumer up $910 million (Citicorp up $1.5B). Still Citicorp 90-days past due improved 9bps to 1.95% with improvement in the Retail Bank (-5pbs) and Citi cards (16bps). Of note, withinCiti Holdings N.A. mortgage delinquencies (90-179 days) improved from $6.2 billion to $5.5 billion. Citi Holdings saw a 46bpincrease to 5.08%.*Its NCO ratio increased 9bps to 4.43%. Its consumer NCO ratio rose 93bps to 5.88%. Within Citicorp, retail banking NCOsrose 30bps to 2.22% and managed card NCOs increased 165bps to 10.18%. Within Citicorp, outside the U.S., NCOs wereparticularly high in Mexico (9.7%), Brazil (7.7%) and India (5.4%). Within Citi Holdings, mortgage NCOs increased 86bps to3.96%, H/E rose 176bps to 7.77%, cards increased 169bps to 14.16% and international consumer rose 125bps to 3.81%.Delinquency increases seemed to begin to moderate in H/E and cards, while increase in mortgages.* Its loan loss provision increased $2.4 billion to $12.7 billion, following a $2.4 billion decrease last quarter. The provision atCiticorp increased $0.6 billion to $2.8 billion, and gained $1.8 billion to $9.9 billion (w/ Local Consumer Lending at $8.2B or 84%) at Citi Holding. Its reserve increased $4.2 billion to $36 billion, versus a $2.1 billion build last quarter. Its reserve/loanratio increased 78bps to 5.6%, while reserve/NPLs improved 6bps to 127%. Its consumer reserve/loan ratio increased 96bpsto 6.25%.* AOCI improved by $5.4 billion to $21.6 billion, with $3 billion due to improvement on AFS (FAS 115) and $2.5 billion due tocurrency translation adjustments (FAS 52).

CITICORP

* Citicorp posted net income of $3.1 billion, down from $7.7 billion on lower fee income (mostly FICC). Revenues totaled$15.0 billion, down 27% from 1Q09. Net interest income increased 3%, while fee income declined 47%. Its loan lossprovision increased from $2.2 billion to $2.8 billion as loan losses increased (up $0.3B to $1.6B) and it added more to loanloss reserve ($1.2B add vs. $940MM add in 1Q). Period-end assets increased 3% (average -4%), while deposits jumped 6%.*

Regional Consumer Banking

- It posted net income of $217 million ($228MM in RB, -$211MM in Card), down from $584million. Linked quarter, revenues declined 3%, with net interest income up 8% and fee income down 21%. Retail Bankingrevenues increased 8%, while Citi Cards declined 14% (credit losses flowing through the card securitization trusts in NorthAmerica hurt). On a managed basis, revenues were relatively stable. On a sequential quarter basis, investment sales,purchase sales, and average loans were up in every region outside North America. It posted a loan loss provision of $2.0billion ($0.6B of reserve build). In Retail Banking, deposit grew 6% (NA also up 6%), while loans increased 3% (NA up 4%).Its net interest margin increased 36bps to 12.09%. While NCOs increased 30bps to 2.22% (NA up 159bps to 4.85%), 90-plusday past due declined 5bps to 1.10%. In Citi Cards, accounts declined 2%, sales increased 7% and average managed loanswere stable (period-end up 3%). Its yield declined 24bps to 14.43%. Managed NCOs increased 165bps to 10.18% (NA up183bps to 10.25%), while 90-plus days past due decreased 3bps to 2.98% (NA -24bps to 2.71%).*

Securities & Banking

– It posted net income of $1.9 billion, down from $6.2 billion last quarter. Revenues declined 45%linked quarter to $6.9 billion. Excluding revenue marks ($2.7B benefit in 1Q, $0.8B drag due to CA in 2Q), revenue declined alower 22% to $7.6 billion on lower FICC (rates and currencies). Expenses increased 16%. Its loan loss provision was $819million, more than double the prior quarter, with over one-third going to build its reserve. Investment banking fees increased$178 million linked quarter with both gains in debt underwriting (up $139MM to $751MM; strong investment grade & high yieldissuance) and equity underwriting (up $136MM to $279MM) more than offset lower advisory fees (down $97MM to $130MM;continued overall lower global M&A). Equity markets declined $0.5 billion to $1.1 billion (strong results in derivatives,cash/prop trading and cash trading; prime finance declined and CVA hurt). Fixed income markets fell from a very strong1Q09 of $10.2 billion to $5.6 billion, with strong results across most categories reflecting favorable positioning and sustainedclient activity, partially offset by a decline in commodities trading revenues from and a net negative $126 million CVA.Lending was a $928 million drag, up from a $329 million drag (losses on CDS hedges), while Private Bank revenues wererelatively stable at $0.5 billion.

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