CITI ANNUAL REPORT 2008

DEAR FELLOW SHAREHOLDERS,

For a little more than a year, I have had the honor of leading Citi through some of the most challenging circumstances in its long history. I’m acutely aware of the responsibility you—our owners—have placed on me and the Citi leadership team, and I can assure you, we are committed to restoring Citi to profitability as quickly as possible. I recognize the tremendous loss of value you and your fellow Citi shareholders have endured over the past months. My commitment to you is to rebuild value with all the energy and urgency that the times demand. I am equally sensitive to the enormous financial pressures that homeowners and consumers are under. Too many hard-working people find themselves in financial straits they never thought possible. At Citi, we are committed to helping those in urgent need and participating in industry reforms that will enable the financial system to recover its strength and health. I’m mindful also of the investment made in Citi by the U.S. government and American taxpayers. Our commitment to them is to work with the Administration and our regulators to address the nation’s economic priorities and to do all we can to speed the recovery of our markets. More than ever, we are committed to helping our clients and customers navigate these markets. Even in the face of extreme uncertainty, Citi’s goal every day is to drive their success. Finally, we are also committed to creating a strong company where employees—the people of Citi—continue to have opportunities to learn as well as the resources necessary to drive performance. Our teams are working together to ensure that the turnaround we all anticipate happens quickly. Fulfilling all of these commitments would be ambitious even in the best of times. But history shows that Citi is at its best when circumstances call for vision, innovation, and bold action. I have no illusions about the impact of the severe financial turmoil. But I have no doubt that with continued hard work, Citi will again be at its best in these difficult times and beyond. GLOBAL REBALANCING The environment in 2008 was significantly more challenging than expected. Four key economic cycles—housing, commodities, institutional leverage, and personal consumption—needed to rebalance before global financial markets could stabilize. The result has been an unprecedented global economic disruption and severe challenges to the financial services industry. Regrettably, the burden of rebalancing has fallen most heavily on homeowners, consumers, and individual investors. Governments around the world have responded to this pressure with decisive action to ensure the availability of funding and capital for banks. By the beginning of 2009, the financial industry, policymakers, and the economy were all inextricably linked. The path to restoring economic strength, globally and nationally, is the same path that will restore profitability to the banking industry. We recognize that success depends on all of us working together. TAKING ACTION TO RESTORE CONFIDENCE Investor confidence in financial institutions was shaken as the economy worsened considerably in the fourth quarter of 2008. We participated in the government’s Troubled Asset Relief Program (TARP), which was designed to provide more capital to banks in light of this environment. In November, Citi received an additional investment from the U.S. government and purchased insurance against $301 billion of assets. These programs were designed to address issues of confidence. Statements of support by the U.S. Treasury and other regulators have reinforced this effort. The exchange offer we announced in February 2009 was structured to result in the conversion of a portion of the U.S. government’s preferred stock investment under TARP, as well as a portion of our private preferred stock into common stock. This exchange offer was designed to strengthen our tangible common equity and increase confidence in our capital strength. But it was a very difficult decision because it was a trade-off between dilution for common shareholders versus the enhancement of our capital base from which to serve clients and grow our business with confidence. Ultimately, the trade-off we made will be in the best long-term interest of our shareholders.

PUTTING TARP FUNDS TO WORK We take very seriously the responsibility to put TARP funds to work to help our customers and their communities through this difficult period. We are using the capital we received through the TARP to increase lending to borrowers in need. We are committed to generating an exceptional return on all stakeholders’ capital and we have reported and will continue to report on our activities quarterly. We are also keenly aware of our responsibility to do all we can to rekindle the economy and renew productive activity. And we are working with individual customers to help relieve some of the pressure they’re experiencing. By using our databases and customer insight, we have been able to identify customers at risk of delinquency and reach out to them to restructure their loans before they slip into default. Our Citi Homeownership Assistance Program (CHAP) is a proactive program that helps avoid the loss of homes and protects credit scores and future borrowing potential. Through new assistance programs, we have helped about 440,000 homeowners weather the downturn. We are also pleased to support the Administration’s approach to mortgage loan modifications. 2008 FINANCIAL RESULTS We reported a loss of $27.7 billion in 2008. This unacceptable result reflects the impact of a weak economy and a lack of market liquidity on various assets we carried into this downturn. As previously disclosed, our results included $32 billion of revenue mark-to-market losses on assets in our Securities and Banking business. In addition, like all major banks, we are experiencing elevated credit losses as our customers struggle to repay loans. As credit quality deteriorated, we added to loan loss reserves. Our 2008 results reflect a net build of $14.7 billion to our loan loss reserves. We ended the year with total loan loss reserves of $30 billion. Our financial results this year were very disappointing. However, away from these losses, our core franchises are performing well and our customers remain active and engaged with Citi around the world. We will build on this to achieve our highest priority—returning Citi to profitability. THREE-STAGE PLAN FOR RESTORING STRENGTH After being appointed CEO of Citi in December 2007, my management team and I conducted a comprehensive review of Citi’s operations. We found an incredible global franchise with material competitive advantages in many businesses. We discovered some of the most talented professionals in the industry. And we identified numerous opportunities for growth. However, we also inherited many high-risk assets that were not essential to our core business. We found that some of Citi’s resources were allocated to activities that did not create enough value for our clients and did not earn adequate risk-adjusted returns for shareholders. At the same time, we uncovered an outsized cost structure and inefficient information technology systems that in many cases could not connect to one another. We devised a plan to attack all of these issues and in May 2008 we outlined our multiyear plan to restore strength and position the company for future growth in three stages: Get Fit, Restructure Citi, and Maximize Citi. Throughout 2008, in the midst of a global economic downturn and global financial crisis, we remained focused on Getting Fit. We have made and continue to make significant progress in strengthening Citi’s capital and structural liquidity; reducing the balance sheet, expenses and headcount; and decreasing risk across the organization. • We raised significant capital from private investors as well as through the TARP. We increased our Tier 1 capital ratio to approximately 11.9 percent at year end, making Citi’s Tier 1 among the highest in the industry. • We increased our structural liquidity to 66 percent of total assets in the final quarter of 2008. • We reduced our assets from a peak of almost $2.4 trillion down to about $1.9 trillion and completed 19 divestitures. • In the fourth quarter of 2008, we reduced our “business-as-usual” expenses by 16 percent from the fourth quarter of 2007 to $12.8 billion.

• We made difficult but necessary decisions to reduce headcount and ended the year with headcount of 323,000, down from 375,000. • We reorganized operations and technology and other functions to create a more streamlined organization with greater accountability for performance. • And we added some of the most seasoned and experienced talent in the industry to Citi’s leadership ranks. Our ability to accomplish so much in such a short period in the midst of severe market dislocations is a testament to the hard work and focus of my Citi colleagues around the world. None of this would have been possible without their extraordinary perseverance and professionalism. RESTRUCTURING CITI We accelerated the second stage of our drive for value creation—Restructuring Citi—by realigning Citi into two operating units—Citicorp and Citi Holdings. This structure highlights the value of our core franchise and reflects the rapid and dramatic changes in funding markets, operating models, and client needs. The new structure simplifies Citi, and sets out a clear path to profitability and value creation. In the new structure, Citicorp is our global bank for businesses and consumers. Citicorp consists of the Global Institutional Bank, which includes Global Transaction Services, Corporate and Investment Bank, Citi Private Bank, and the Retail Bank. The Retail Bank includes regional consumer and commercial banking and card franchises around the world. Approximately two thirds of Citicorp’s balance sheet is deposit-funded. It has relatively low-risk, high-return assets and it operates in the fastest-growing areas of the world. On a stand-alone basis, I believe there is no stronger financial services firm than Citicorp. Citi Holdings includes some great businesses that have strong market positions but are not central to our core operating strategy. Citi Holdings is made up of brokerage and asset management; consumer finance, mortgage loans, and private label credit cards; and a special asset pool. Approximately one third of our headcount supports Citi Holdings and it includes the $301 billion of assets covered by our loss-sharing agreement with the U.S. government. We will continue to manage these businesses and assets to ensure we maximize their value to our shareholders and will be alert to sensible dispositions or combinations. With lower risk and a streamlined set of businesses, we expect Citicorp to be a high-return and highgrowth business. With Citi Holdings, we will be able to tighten our focus on risk management and credit quality. And, with the right structure and management in place, we’ll be able to turn our attention to the third stage of our growth strategy: Maximizing Citi. 2009 AND BEYOND The best way to make good on our commitments to investors, clients, policymakers, employees, and citizens is to return Citi to profitability as soon as possible. As a Citi shareholder, you have experienced an extremely disappointing year and I know that any return to profitability is long overdue. You should know that we are doing everything in our power to accelerate that return. We recognize that industry profitability may continue to be affected by asset price volatility and credit deterioration. But we also see that the policies implemented thus far are setting the stage for recovery. We enter 2009 with the drivers of profitability in place. Our funding, risk capital, and underlying revenue levels are strong. Our expenses and risks have been reduced. We are taking control of what is within our control. Although 2009 will likely remain a challenging year—particularly in terms of credit costs—we believe that as the economic environment begins to recover, as it inevitably will, Citi will be well positioned to create the kind of shareholder value of which we all know Citi is capable and which you should reasonably expect.

Vikram Pandit Chief Executive Officer.CONCLUSION In such challenging times it is worth taking stock of what is truly valuable about Citi. and help people in need. public policy engagement. The first is that our competitive advantage will remain our global presence. Citigroup Inc. Citi is more devoted than ever to improving society and the environment in the communities where we work through our philanthropy. volunteerism. and our core business activities. where each employee has a chance to achieve his/her potential. with more than 200 million customer accounts in over 100 countries. Third. In November. innovation to facilitate new ways of thinking about money and the role it plays in everyday life and business. With the top team in the industry. Through this unique global network. I’m convinced there are some enduring truths that will stand the test of the coming years. It is our commitment to Citi’s customers. and employees to create solutions that mitigate the impact of these difficult times. Fourth. With so many people now feeling pressure. which is rich both in history and in client relationships. We all know people whose economic struggles are unprecedented and overwhelming. Second. we’ll continue to make a difference in the communities where we work and live. At the heart of Citi is an irreplaceable franchise built over nearly 200 years. 50. shareholders. we will continue to build on our rich legacy of innovation: innovation to ensure that we can address the needs of a highly mobile population that is increasingly urban and international in outlook. deliver food. Every Citi employee is acutely aware of the challenges ahead. and where the best do better. .000 Citi colleagues and friends came together in 550 cities around the world in a single day to repair schools. we will succeed. we enable people to reach out and to work together across the world. we will remain determined to build a culture of meritocracy where talent is recognized and rewarded with opportunity. innovation to help people and companies work more collaboratively across multiple networks and time zones.

Offices 226 Short-Term and Other Borrowings 226 LEGAL AND REGULATORY REQUIREMENTS 227 Securities Regulation 228 Capital Requirements 228 General Business Factors 229 Properties 229 Legal Proceedings 229 Unregistered Sales of Equity Securities and Use of Proceeds 236 10-K CROSS-REFERENCE INDEX 239 CORPORATE INFORMATION 240 Exhibits and Financial Statement Schedules 240 CITIGROUP BOARD OF DIRECTORS 242 1 .S.S. Real Estate in Securities and Banking 68 Market Risk Management Process 72 Operational Risk Management Process 76 Country and FFIEC Cross-Border Risk Management Process 77 Capital Resources Funding Liquidity Off-Balance-Sheet Arrangements Pension and Postretirement Plans FAIR VALUATION CORPORATE GOVERNANCE AND CONTROLS AND PROCEDURES FORWARD-LOOKING STATEMENTS GLOSSARY OF TERMS MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM—INTERNAL CONTROL OVER FINANCIAL REPORTING REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM—CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS AND NOTES TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL DATA SUPPLEMENT (Unaudited) 113 114 115 116 122 226 Ratios 226 Average Deposit Liabilities in Offices Outside the U. 2008 Average Balances and Interest Rates—Assets Average Balances and Interest Rates—Liabilities and Equity.S.CITIGROUP’S 2008 ANNUAL REPORT ON FORM 10-K THE COMPANY Citigroup Segments Citigroup Regions FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA MANAGEMENT’S DISCUSSION AND ANALYSIS 2 3 3 4 6 6 7 9 15 BALANCE SHEET REVIEW 2008 in Summary Outlook for 2009 Events in 2008 Events in 2007 Segment Balance Sheet at December 31. and Net Interest Revenue Analysis of Changes in Interest Revenue Analysis of Changes in Interest Expense and Net Interest Revenue Reclassification of Financial Assets DERIVATIVES CAPITAL RESOURCES AND LIQUIDITY 78 81 83 84 85 86 87 90 94 94 98 102 104 106 107 108 108 109 112 SIGNIFICANT ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES 18 SEGMENT AND REGIONAL—NET INCOME (LOSS) AND REVENUES 25 Citigroup Net Income (Loss)—Segment View 25 Citigroup Net Income (Loss)—Regional View 26 Citigroup Revenues—Segment View 27 Citigroup Revenues—Regional View 28 GLOBAL CARDS 29 Global Cards Outlook 30 CONSUMER BANKING 31 Consumer Banking Outlook 33 INSTITUTIONAL CLIENTS GROUP (ICG) 34 Institutional Clients Group Outlook 35 GLOBAL WEALTH MANAGEMENT 36 Global Wealth Management Outlook 37 CORPORATE/OTHER 38 REGIONAL DISCUSSIONS 39 North America 39 EMEA 40 Latin America 41 Asia 42 TARP AND OTHER REGULATORY PROGRAMS 44 RISK FACTORS 47 MANAGING GLOBAL RISK 51 Risk Management 51 Risk Aggregation and Stress Testing 51 Risk Capital 52 Credit Risk Management Process 52 Loans Outstanding 53 Details of Credit Loss Experience 54 Non-Performing Assets 55 Renegotiated Loans 56 Foregone Interest Revenue on Loans 56 Loan Maturities and Fixed/Variable Pricing 57 Consumer Credit Risk 57 Consumer Portfolio Review 57 Corporate Credit Risk 65 Global Corporate Portfolio Review 67 Exposure to U. 226 Maturity Profile of Time Deposits ($100.000 or more) in U.

2 . cumulative preferred stock and warrants to purchase common stock to the U.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3.S. for management and reporting purposes. government financial involvement. (ii) entering into a loss-sharing agreement with various U. For additional information on the above. and a special asset pool. (Citigroup and. and (iii) issuing $5.S. Additional information about Citigroup is available on the Company’s Web site at www. 2009. the Company had approximately 134. 2009. including in the form of dividends on the preferred stock and other fees.100 parttime employees in the United States and approximately 188. In connection with these programs and agreements. local consumer finance business.S. into two businesses: Citicorp. the Company announced a realignment. See “Outlook for 2009” on page 7. The U. including (i) raising an aggregate of $45 billion through the sale of Citigroup non-voting perpetual.S. See “Outlook for 2009—Changes to Citi’s Organizational Structure” on page 7. and Citi Holdings. Citigroup has more than 200 million customer accounts and does business in more than 100 countries. During 2008.25 per share. New York. current reports on Form 8-K. proxy and information statements. government investment in Citigroup. government entities.0 billion of commercial paper and interbank deposits of Citigroup’s subsidiaries guaranteed by the FDIC outstanding at the end of 2008). The principal executive offices of the Company are located at 399 Park Avenue. New York 10022.S.THE COMPANY Citigroup Inc. the Company announced an exchange offer of its common stock for up to $27. the Company benefited from substantial U. Citigroup believes that the realignment will optimize the Company’s global businesses for future profitable growth and opportunities and will assist in the Company’s ongoing efforts to reduce its balance sheet and simplify its organization. In addition.S.sec.01 per share per quarter for three years (beginning in 2009) or to repurchase its common stock without the consent of U. 2008.400 full-time and 4. Citigroup was incorporated in 1988 under the laws of the State of Delaware. Some of the Company’s subsidiaries are subject to supervision and examination by their respective federal and state authorities. and subject to examination by. Citi or Citigroup) is a global diversified financial services holding company whose businesses provide a broad range of financial services to consumer and corporate customers. On January 16. The Company is a bank holding company within the meaning of the U. Citigroup’s recent annual reports on Form 10-K. Department of the Treasury. On February 27. primarily comprised of the Company’s brokerage and asset management business. the Board of Governors of the Federal Reserve System (FRB).S. These transactions are intended to increase the Company’s tangible common equity (TCE) and will require no additional U.com. primarily comprised of the Company’s Global Institutional Bank and the Company’s international regional consumer banks. government entities covering $301 billion of Company assets. government.” The SEC Web site contains reports.gov.400 full-time employees outside the United States.citigroup. telephone number 212 559 1000. as well as the Company’s other filings with the Securities and Exchange Commission (SEC) are available free of charge through the Company’s Web site by clicking on the “Investors” page and selecting “All SEC Filings. At December 31.S. quarterly reports on Form 10-Q.75 billion of senior unsecured debt guaranteed by the Federal Deposit Insurance Corporation (FDIC) (in addition to $26. and other information regarding the Company at www. government will match this exchange up to a maximum of $25 billion of its preferred stock at the same conversion price. see “TARP and Other Regulatory Programs” on page 44. Citigroup is required to pay consideration to the U. together with its subsidiaries. the Company. Citigroup has agreed not to pay common stock dividends in excess of $0. Bank Holding Company Act of 1956 registered with.

CITIGROUP REGIONS(1) North America Europe. on January 16.Wealth management services Corporate/ Other . 2009.Trade services .Investment services . VISA.Discontinued operations .Structured products . retail partners and American Express .Private equity .Investment banking .Hedge funds .Auto loans .Sales finance Consumer Banking . Middle East & Africa (EMEA) Latin America Asia (1) Asia includes Japan.Personal loans .Agency/trust services • Citigroup Investment Research .Financial planning ..Clearing services .Real estate lending .Corporate expenses .Brokerage • Private Bank .Cash management . Diners Club.Lending .Treasury . 3 . Citigroup was managed along the following segment and product lines (as noted above. Canada and Puerto Rico.Debt and equity markets . 2008.At December 31.Equity and fixed income research The following are the four regions in which Citigroup operates.S.Primerica Financial Services .Custody and fund services .Consumer finance .MasterCard. in the second quarter of 2009): CITIGROUP SEGMENTS Global Cards .Advisory .Student lending Institutional Clients Group (ICG) • Securities and Banking (S&B) Global Wealth Management (GWM) • Smith Barney . and North America includes U. for reporting purposes. The regional results are fully reflected in the segment results.Real estate . Citigroup announced a realignment of its businesses to be effective.Retail banking .Operations and technology . Latin America includes Mexico.Managed futures • Transaction Services .Small and middle market commercial banking .

02 $ NM $ $ $ (1) As announced in its fourth quarter 2008 earnings press release (January 16.989 628 — 3.9% 3. The return on total stockholders’ equity is calculated using net income divided by average stockholders’ equity.5 24. As disclosed in the table above.447 113.79x $1.2 8.594 113.802 17. Based on the results of this review and testing. these trust securities remain a component of Tier 1 Capital.32 2.45% 7. See “Significant Accounting Policies and Significant Estimates” on page 18.59% 11.451 1.495 59. 2005.094) billion and Net Income (Loss) was $(27. as well as in the general global economic outlook.31 1. Discontinued operations from 2004 to 2006 also include the operations and associated gain on sale of Citigroup’s Travelers Life & Annuity.416 6.787 549 19.19% 5.386 296 22.493.71 1. Net Income (Loss) from Continuing Operations for 2008 was $(32. and the additional intangible asset impairment in Nikko Asset Management.684) billion.714 $ 78.88 3.185 359.0 22. In addition.046 $ (53.041 288.480 826.08 $2. Citigroup continued to review its goodwill to determine whether a goodwill impairment had occurred as of December 31.12 $ 0.15 1.632 327 18.167 712.447 375 2.015 109.16 $ 4.99x $ 3.0 7. and the Company’s sale of CitiCapital’s equipment finance unit to General Electric.828 217.149 6.96 $ 3.499 6.264 111.077 43.494 9.20 7. 2008. For regulatory capital purposes.899 70. substantially all of Citigroup’s international insurance business and Citigroup’s Argentine pension business to MetLife Inc. The goodwill impairment charge was recorded in North America Consumer Banking. NM Not Meaningful 4 . except per share amounts and ratios 2008 (1) 2007 2006 Citigroup Inc.068 1.978 — 17. the majority of which closed on December 1. 2008. the Company deconsolidated the subsidiary issuer trusts in accordance with FIN 46(R). particularly during the period beginning mid-November 2008 through December 31.140 283 17.35 7. Accounting for Conditional Asset Retirement Obligations.19 300.513 207.42) and $(5.658 21.612) (349) $ (32. resulting in Diluted Earnings per Share of $(6.417 (49) 24. 2009). 2008. In addition.94 3.410 — $ (27.1 20.632 119. (7) Dividends declared per common share as a percentage of net income per diluted share.75 1.557 8.793 71.938.39 4.42) (5. (4) During 2004.16 6. net of taxes (2) Cumulative effect of accounting change. discontinued operations for 2004 to 2006 include the operations and associated gain on sale of substantially all of Citigroup’s Asset Management business.230 427.84 3. net of taxes (3) Net income (loss) Earnings per share Basic: Income (loss) from continuing operations Net income Diluted: Income (loss) from continuing operations Net income Dividends declared per common share At December 31 Total assets Total deposits Long-term debt Mandatorily redeemable securities of subsidiary trusts (4) Common stockholders’ equity Total stockholders’ equity Direct staff (in thousands) Ratios: Return on common stockholders’ equity (5) Return on total stockholders’ equity (5) Tier 1 Capital Total Capital Leverage (6) Common stockholders’ equity to assets Total stockholders’ equity to assets Dividend payout ratio (7) Book value per common share Ratio of earnings to fixed charges and preferred stock dividends $ 52.684) $ $ $ $ $ $ $ $ $ $ $ $ $ (6.03 5.78 4.79 1.72 2.65 5. giving effect to these charges.30% 6.537 28.35 45.59 0.02 5.7 8.134 34. The charge does not result in a cash outflow or negatively affect the Tier 1 or Total Regulatory Capital ratios. See Note 3 to the Consolidated Financial Statements on page 136. This deterioration further weakened the near term prospects for the financial services industry.538 $ 80. 47.549 7. (FIN 47).85 5.094) 4.01x $1.327 50.73 0. an interpretation of SFAS No. 143.630 323 (28.12% 10.1 22.727 billion after-tax) in the fourth quarter of 2008.8)% (20.917 776 (2. net of interest expense Operating expenses Provisions for credit losses and for benefits and claims Income (loss) from continuing operations before taxes.71 4.593 23. (3) Accounting change of $(49) million in 2005 represents the adoption of Financial Accounting Standards Board (FASB) Interpretation No. net of taxes Income (loss) from continuing operations before cumulative effect of accounting change Income from discontinued operations.34 1. and cumulative effect of accounting change Provision (benefits) for income taxes Minority interest. and resulted in a write-off of the entire amount of goodwill allocated to those reporting units.66% 7.70 4. (2) Discontinued operations for 2004 to 2008 reflect the sale of Citigroup’s German Retail Banking Operations to Credit Mutuel. Tangible Equity or the Company’s liquidity position as of December 31.884. and EMEA Consumer Banking.31 NM 13.92% 15.910 6.209 108.498) 285 2.FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA In millions of dollars.76 $ 2. (5) The return on average common stockholders’ equity is calculated using net income less preferred stock dividends divided by average common stockholders’ equity.749 289 20.261 112.8% 18. and Subsidiaries 2005 2004 Revenues.35 49.4% 22.60 0.17 4.9 8.59) 1.130 218 15. the Company recorded a pretax charge of $9.28% 7. Latin America Consumer Banking.42) (5. (6) Tier 1 Capital divided by each year’s fourth quarter adjusted average assets (hereinafter as adjusted average assets). The sale closed on July 1.0% 16.223 48. and Note 19 to the Consolidated Financial Statements on page 166 for further discussion.52 37.950 561.886 591.483.579 118.74% 11. 2008.112 23.50x $1.617 $ 86.79% 12.971 28.70 6.055) (20.60 $ $ $ $ $ $1.59) respectively.470 774.9) 11.301 7.966 141. Citi recorded a $374 million pretax charge ($242 million after-tax) to reflect further impairment evident in the intangible asset related to Nikko Asset Management at December 31. 2005.187.59) (6.26 1. The primary cause for the goodwill impairment in the reporting units mentioned above.489 7.221 5. was the rapid deterioration in the financial markets. minority interest.087 — 21.09 4.568 billion ($8.589 $ 76.

but not limited to. but not limited to. statements made in “Management’s Discussion and Analysis. those described under “Risk Factors” beginning on page 47. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. including. Actual results may differ materially from those included in these statements due to a variety of factors including.Certain reclassifications have been made to the prior periods’ financial statements to conform to the current period’s presentation. 5 . Certain statements in this Form 10-K. are “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995.” particularly in the “Outlook” discussions.

6 billion at December 31. Latin America Consumer Banking and EMEA Consumer Banking.187 billion at December 31. which was affected by capital issuances discussed above.S. 2007 to approximately 66% at December 31.MANAGEMENT’S DISCUSSION AND ANALYSIS 2008 IN SUMMARY Citigroup reported a $32.2 billion in North America and $2.5 billion at December 31. the Company announced a realignment. During 2008. Citigroup raised $32 billion of capital in private and public offerings during 2008.92% at December 31. In addition. Total credit costs of $33. long-term debt and deposits) as a percentage of assets from 62% at December 31. government. In addition. Stockholders’ equity increased by $28. the Company had increased its structural liquidity (equity. Revenues of $52. government entities covering $301 billion of Company assets. Headcount was down 52.6 billion in regions outside North America).06%.75%. Non-interest revenue decreased $34 billion from 2007. up 65 basis points from 2007 (see the discussion of net interest margin on page 82). Sir Win Bischoff and Roberto Hernández Ramirez announced they would not stand for re-election at Citigroup’s 2009 Annual Meeting of Stockholders. 2008. 2008. government will match this exchange up to a maximum of $25 billion of its preferred stock at the same conversion price. higher restructuring/ repositioning charges and the impact of acquisitions. The goodwill impairment charge was recorded in North America Consumer Banking. At December 31.8 billion from year-ago levels.1 billion loss from continuing operations ($6. On February 27. Citigroup also reduced its commercial paper program from $35 billion at December 31. 2008).568 billion Goodwill impairment charge based on the results of its fourth quarter of 2008 goodwill impairment testing. Robert Rubin.3 billion to credit reserves.59 per share) in 2008 includes the results and sales of the Company’s German retail banking operations and CitiCapital (which were reflected as discontinued operations). In addition to the equity issuances to the UST under TARP. Citigroup has continued its deleveraging. Citigroup has agreed not to pay common stock dividends in excess of $0. operating expenses increased 19% from the previous year with lower operating expenses being offset by a $9. For additional information on the above. and a deepening of the global economic slowdown. The Company’s revenues outside North America declined 4% from 2007. as well as lower rates outside the U. Excluding the goodwill impairment charge.S. (ii) entering into a loss-sharing agreement with various U. The results were impacted by continued losses related to the disruption in the fixed income markets.75 billion of senior unsecured debt guaranteed by the Federal Deposit Insurance Corporation (FDIC) (in addition to $26. as well as a $9.938 billion at December 31. government investment in Citigroup.7 billion ($5. 2009. on January 16. for management and reporting purposes. 2007 to $29 billion at December 31. government financial involvement. This increase is primarily attributable to the transfer of non-accrual loans from the held-for-sale portfolio to the held-for-investment portfolio during the fourth quarter of 2008. 2008. a 149 basis-point increase from the fourth quarter of 2007. is a higher tax-rate jurisdiction). primarily comprised of the Company’s brokerage and asset management business. Net interest revenue grew 18% from 2007.S. the tax benefits of permanent differences. and the distribution of $7.0 billion. the Company benefited from substantial U. government entities. $3. higher consumer credit costs.42 per share) for 2008. expenses have declined for four consecutive quarters. The allowance for loan losses totaled $29. 2007 to $1. and a net build of $14. The U. due to lower incentive compensation accruals and continued benefits from re-engineering efforts. including the tax benefit for not providing U. During 2008. 2009. 2008. and (iii) issuing $5. These transactions are intended to increase the Company’s tangible common equity (TCE) and will require no additional U. Citigroup maintained its “well-capitalized” position with a Tier 1 Capital Ratio of 11. favorably affected the Company’s effective tax rate. At December 31. In connection with these programs and agreements.S.S. . and Citi Holdings. Richard Parsons became the Chairman of the Company. The lower cost of funds more than offset the decrease in the asset yields during the year. See “Outlook for 2009” on page 7.2 billion during 2008 to $141. a coverage ratio of 4.S.8 billion decreased 33% from 2007. the Company announced an exchange offer of its common stock for up to $27.0 billion of commercial paper and interbank deposits of Citigroup’s subsidiaries guaranteed by the FDIC outstanding as of December 31. Net interest margin in 2008 was 3. primarily driven by significantly lower revenues in ICG due to write-downs related to subprime 6 CDOs and leveraged lending and other fixed income exposures. See “Outlook for 2009” on page 7.000 from December 31. (the U. 2008.568 billion goodwill impairment charge. cumulative preferred stock and warrants to purchase common stock to the U.3 billion included NCLs of $19. 2007.S. In addition. Revenues outside of ICG declined 6%. Corporate cash-basis loans were $9. Recently.01 per share per quarter for three years (beginning in 2009) or to repurchase its common stock without the consent of U. the Company also completed 19 strategic divestitures which were designed to strengthen our franchises.S. 2009.6 billion.3 billion in ICG and $249 million in GWM (see “Credit Reserves” on page 11 for further discussion). reflecting the lower cost of funds. up from $9.6 billion at December 31.25 per share. income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested. Department of the Treasury (UST). The effective tax rate (benefit) of (39)% in 2008 primarily resulted from the pretax losses in the Company’s Securities and Banking business taxed in the U. an increase of $7. The build consisted of $10. 2008.6 billion in dividends to common and preferred shareholders.8 billion in Consumer ($8.9 billion in 2007. The Company’s equity capital base and trust preferred securities were $165. 2008.S. primarily comprised of the Company’s Global Institutional Bank and the Company’s regional consumer banks. see “TARP and Other Regulatory Programs” on page 44. The Consumer loan loss rate was 3. into two businesses: Citicorp. Citigroup is required to pay consideration to the U. including in the form of dividends on the preferred stock and other fees.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3. 2008.S.S. and a special asset pool. On February 23. local consumer finance business.27% of total loans. The net loss of $27. reducing total assets from $2. 2008. primarily reflecting subprime and fixed income write-downs. Citigroup believes that the realignment will optimize the Company’s global businesses for future profitable growth and opportunities and will assist in the Company’s ongoing efforts to reduce its balance sheet and simplify its organization. Although the Company made significant progress in reducing its expense base during the year. the maturity profile of Citigroup’s senior long-term unsecured borrowings had a weighted average maturity of seven years. including (i) raising an aggregate $45 billion in capital through the sale of Citigroup non-voting perpetual.

will have two primary underlying businesses: the Global Institutional Bank serving corporate. The transactions will require no additional U. which provides significant downside protection against losses on $301 billion of assets. It is anticipated that Citicorp will focus on its unique competitive advantage of having a strong presence in the fastest-growing areas of the world. Citigroup will be comprised of two businesses. preferred and common stockholders. additional losses on leveraged loan commitments and cost of credit. Should economic conditions not improve or further deteriorate.S. Changes to Citi’s Organizational Structure Citi Holdings Citi Holdings will have three primary segments: brokerage and asset management. Citigroup’s plan is to transition to this structure as quickly as possible. The global markets are experiencing the impact of a significant U. and Citigroup’s regional consumer banks which provide traditional banking services. a global bank for businesses and consumers.S. employees. which cannot be guaranteed. Citigroup believes that the realignment will optimize the Company’s global businesses for future profitable growth and opportunities and will assist in the Company’s ongoing efforts to reduce its balance sheet and simplify its organization. Our Goals in 2009 • Returning to profitability • Risk reduction and mitigation • Implementation and management of TARP and TARP funds • Expense reduction • Headcount reduction • Asset reduction • Implementing organizational changes/management realignment Economic Environment Citigroup’s financial results are closely tied to the global economic environment.9% as of December 31. and international economic downturn. Government Exchange On January 16. could result in revenue reductions in those or similar securities. This is restricting the Company’s growth opportunities both domestically and internationally. institutional.S.S. including additional losses on subprime and other exposures.S. government investment in Citigroup and will not change the Company’s overall strategy or operations. As announced. Further adverse rating actions by credit rating agencies in respect of structured credit products or other credit-related exposures. and as more fully disclosed throughout this MD&A: • Our total allowance for loan losses was $29. See “Risk Factors” on page 47 for a further discussion of these risks. including customers and clients. • As part of the decreasing of risks. The U. The Company recognizes that major legal vehicle restructuring changes such as the realignment will require regulatory approvals and the resolution of tax and other issues. 2008. as a result. public sector and private banking clients. Citicorp and Citi Holdings. While numerous risks remain. Citigroup continues to believe that many of Citi Holdings’ businesses are attractive long-term businesses with strong market positions.6 billion at December 31. Citigroup has. In connection with the transactions. and • We have reclassified certain assets from mark-to-market classification to held-to-maturity which could provide some reduction in earnings volatility. As examples. Exchange Offer and U. In addition. Citi Holdings will continue to focus on risk management and credit quality as it seeks to build value in these businesses. In addition. including increased credit losses in mortgage-related and other activities. managed the Company consistent with this structure since February 2009 and management reporting will reflect this structure starting with the second quarter of 2009. 2009.S. On February 27. See also “Risk Factors” on page 47.OUTLOOK FOR 2009 We enter the challenging environment of 2009 after a difficult and disappointing 2008. government will match this exchange up to a maximum of $25 billion of its preferred stock at the same conversion price. given the economic and market environment. including branded cards as well as small and middle market commercial banking. or of monoline insurers. but they do not sufficiently enhance the capabilities of Citigroup’s core businesses. the transactions will not change the Company’s Tier 1 Capital Ratio of 11.25 per share. local consumer finance and a special asset pool. Citi announced the acceleration of the implementation of its strategy to focus on its core businesses. the transactions will increase the Company’s tangible common equity (TCE). and the communities it serves. Full implementation of the proposed exchange offer is subject to approval of Citigroup’s shareholders and participation by holders of Citigroup’s preferred stock and trust preferred securities.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3. 2009. Citicorp Citicorp. Citigroup announced an exchange offer of its common stock for up to $27. we completed the loss-sharing agreement with various U. the Company could experience continued revenue pressure across its businesses and increased costs of credit. on its common stock. 2008. Citigroup will suspend dividends on its preferred securities (other than its trust preferred securities) and. taking into account the interests of all stakeholders. however. debt holders. government entities. 7 . As a result of its proposed realignment. continuing deterioration of the U. the Company has made progress in decreasing the risks arising from its balance sheet and building capital to generate future earnings. or global real estate markets could adversely impact the Company’s revenues.

At this time we believe that we will be at the higher end of this range. • Corporate credit is inherently difficult to predict given the economic environment. we expect to continue to add to reserves and will likely see higher Corporate NCLs. are included in the discussions that follow. 8 . and the risks are more fully discussed on pages 29 to 38. as of December 31. we expect NCLs for our consumer portfolios could be $1 billion to $2 billion higher each quarter when compared to the NCLs in the third quarter of 2008. As such.Credit Costs We believe that credit costs are expected to increase during 2009. A detailed review and outlook for each of our business segments. This implies that we will most likely continue to add to our Consumer reserves until the end of 2009. • Our assumption on unemployment is that it could peak as late as the first half of 2010. • As we go into the first half of 2009. It is expected that corporate loan default rates will increase. 2008.

Citigroup raised an additional $20 billion through the sale of non-voting perpetual. On January 20. In the second quarter of 2008. Use of TARP Proceeds Citigroup has established a formal process for its use of the TARP proceeds which is directed by senior executives and emphasizes expanding the flow of credit and strengthening the financial system in the United States. For additional details on each of these programs. Citigroup had issued $5. $3. Additional Issuance of $20 Billion of Perpetual Preferred Stock and a Warrant to Purchase Common Stock under TARP On December 31.9 billion in senior unsecured debt under this program. See Note 21 on page 172 for further information.01 Per Share In accordance with various TARP programs. The FDIC will charge Citigroup a fee ranging from 50 to 100 basis points in accordance with a prescribed fee schedule for any new qualifying debt issued with the FDIC guarantee. Citigroup. In January and February 2009. 2009. 2009.2 billion of 6.0 billion in commercial paper and interbank deposits backed by the FDIC outstanding as of December 31. This dividend was paid on February 22. PRIVATE AND PUBLIC ISSUANCES OF PREFERRED AND COMMON STOCK Issuance of $25 Billion of Perpetual Preferred Stock and a Warrant to Purchase Common Stock under TARP On October 28. Of the issuance.3 billion of non-voting perpetual. 2012. 2008.EVENTS IN 2008 Certain significant events during 2008 had. the FDIC will guarantee. in amounts up to 125% of the qualifying debt for each qualifying entity.01 quarterly dividend on the Company’s common stock. Lowering of Quarterly Dividend to $0. 2008.S. 9 .125% non-convertible preferred stock in public offerings.5% convertible preferred stock in public offerings. Citigroup and its affiliates issued an additional $14. with $1. cumulative preferred stock and a warrant to purchase common stock to the UST as part of the UST Troubled Asset Relief Program (TARP) Capital Purchase Program. excluding issuances to the UST under TARP. 2009). and $3. until the earlier of its maturity or June 30. Citigroup raised $8. the Company raised $32. Citigroup issued $12.0 billion of capital through public offerings of non-convertible preferred stock and issued approximately $4. During the first quarter of 2008. also had $26. 2009. related to the U.5 billion will be treated as Tier 1 Capital for regulatory purposes. certain qualifying senior unsecured debt issued by certain Citigroup entities between October 14. Citigroup entered into a definitive agreement providing for loss sharing by the UST. Citigroup declared a $0. or could have. 2008). and the FDIC charges a fee ranging from 50 to 100 basis points in connection with the issuance of those instruments. Citigroup has agreed not to pay common stock dividends in excess of $0. see “TARP and Other Regulatory Programs” beginning on page 44 for further discussion. Government Loss-Sharing Agreement described below. 2009). Citigroup issued $7.01 per share per quarter for three years without the consent of the UST.5 billion maturing in 2011. $3.5 billion of 7% convertible preferred stock in a private offering. through its subsidiaries.715 billion of 8. 2008. These events are summarized below and discussed in more detail throughout this MD&A.9 billion of common stock. FDIC and the Federal Reserve Bank of New York. commencing in 2009. TARP AND OTHER REGULATORY PROGRAMS In addition. At December 31. Government Loss-Sharing Agreement On January 15. FDIC’s Temporary Liquidity Guarantee Program Under the terms of the FDIC’s guarantee program. All of the proceeds were treated as Tier 1 Capital for regulatory purposes. 2008.3 billion in capital in private and public offerings during 2008. consistent with the objectives of TARP. 2009 (proposed to be extended to October 30. In total. In consideration for this loss-sharing agreement. cumulative preferred stock and a warrant to purchase common stock to the UST and the FDIC. U.75 billion of long-term debt that is covered under the FDIC guarantee. 2009 to stockholders of record on February 2. liquidity and capital resources. 2009. All of the proceeds were treated as Tier 1 Capital for regulatory purposes. results of operations. Citigroup’s first quarterly progress report regarding its implementation and management of TARP was issued on February 3. FDIC guarantees of commercial paper (and interbank deposits) cease to be available after June 30. an effect on Citigroup’s current and future financial condition.25 billion maturing in 2010 and $4. See “TARP and Other Regulatory Programs” on page 44. 2008 and June 30. Citigroup raised $25 billion through the sale of non-voting perpetual. cumulative preferred stock and a warrant to purchase common stock to the UST as part of TARP. FDIC and the Federal Reserve Bank of New York on a $301 billion portfolio of Citigroup assets (valued as of November 21. 2009 (proposed to be extended to October 30.S.

on its subprime-related direct exposures.733) (2. Excludes losses of $306 million and $87 million in the third and fourth quarters of 2008. Net of impact from hedges against direct subprime asset-backed securities collateralized debt obligation super senior positions. Citigroup recorded pretax losses of approximately $1. 2007. and $11.812) (1.8 billion comprises $3. respectively. This resulted in the Company’s recording pretax losses of $4. net of hedges.6 8.487 billion in 2007. For these purposes. Auction Rate Securities (ARS) Due to the continued dislocation of the credit markets and reduced market interest in higher risk/higher yield instruments that began during the second half of 2007.627) (3. 31. arising from the ARS legal settlement. reflecting a decrease of $33. and $0.283) (5.5 billion was classified as HTM investments.0 billion at December 31. 10 . which decreased from $22. Monoline Insurers Credit Valuation Adjustment (CVA) Citigroup’s exposure to highly leveraged financings totaled $10. RMBS have 30% or less of the underlying collateral composed of full documentation loans. Highly Leveraged Loans and Financing Commitments In 2008. derivatives on asset-backed securities or both. on subprime-related direct exposures.0 8. 2008.7 46. Alt-A mortgage securities are non-agency residential mortgage-backed securities (RMBS) where (i) the underlying collateral has weighted average FICO scores between 680 and 720 or (ii) for instances where FICO scores are greater than 720. Citigroup recorded a pretax loss on CVA of $5.878) $(14.8 billion. the Company’s exposure to ARS totaled $8.7 billion of student loan ARS. In 2007.269) 4. which are collateralized by asset-backed securities. 2008 $14. In 2008. Real Estate” on page 68 for a further discussion of such exposures and the associated losses recorded.733 billion on Auction Rate Securities (ARS).3 billion pretax.6 billion. $5. The $8.611 billion of losses were recorded in earnings due to other-thantemporary impairments.736 billion on its exposure to monoline insurers. Of the $8. $1.2 22.312) (967) (1.3 billion as available for sale (AFS). At December 31. the Company recorded pretax losses of $967 million.8 billion including both legacy positions and ARS purchased under the ARS settlement agreement with the federal and state regulators (see “Other Items” on page 13). on Alt-A mortgage securities held in S&B. to the expected exposure profile.S.1 billion was classified as Trading account assets. on which $1. $1. Citigroup recorded pretax losses of approximately $3.1 N/A 10. Subprime-Related Direct Exposures In 2008. net of hedges.1 billion of subprime-related exposures in its lending and structuring business. 31. net of hedges. Excludes CRE positions that are included in the SIV portfolio. on which $2. 2007.0 billion at December 31.4 N/A % Change (62)% — (77) (43) 10 (30) (63) — 2007 (1) $(18. The Company had $12. Citigroup recorded losses of $18. was recorded in earnings.3 billion pretax. reflecting revenue marks since the commencement of the current credit crisis. CVA is calculated by applying forward default probabilities.5 16.1 billion in U.0 billion of net exposures to the super senior tranches of CDOs.201 billion of fair value losses. Net of hedges. Of the $12. See “Highly Leveraged Financing Commitments” on page 71 for further discussion. Net of underwriting fees.0 53.ITEMS IMPACTING THE SECURITIES AND BANKING BUSINESS Securities and Banking Significant Revenue Items and Risk Exposure Pretax Revenue Marks (in millions) 2008 Sub-prime related direct exposures (2) Monoline insurers Credit Valuation Adjustment (CVA) Highly leveraged loans and financing commitments (3) Alt-A mortgage securities (4) Auction Rate Securities (ARS) (5) Commercial Real Estate (CRE) (6) Structured Investment Vehicles (SIVs) CVA on Citi liabilities at fair value option Total significant revenue items (1) (2) (3) (4) (5) (6) Risk Exposure (in billions) Dec.8 37.3 N/A 43. subprime net direct exposure in S&B at December 31.794) Represents the third and fourth quarters of 2007. net of hedging.2 billion from December 31.5 billion is classified as held to maturity and $3. liquidity in the market for highly leveraged financings has been very limited.2 billion of preference share ARS backed by municipal or other taxable securities. 2008 consisted of (i) approximately $12.4 billion of municipal ARS.736) (4.5 billion of ARS backed by other ABS. $3. 2007 $37.6 billion in Alt-A mortgage securities at December 31.6 N/A Dec. Alt-A Mortgage Securities During 2008.9 billion in unfunded commitments). which are derived using the counterparty’s current credit spread.0 12.812 billion. In 2007.S.892) (3.892 billion on funded and unfunded highly leveraged finance exposures in 2008 and $1.487) — — — — 888 $(19.1 billion in funded and $0.558 $(31. 2008. 2008 ($9. The majority of the exposure relates to hedges on super senior positions that were executed with various monoline insurance companies. and (ii) approximately $2. See “Direct Exposure to Monolines” on page 70 for a further discussion. The Company’s remaining $14. See “Exposure to U. Securities and Banking (S&B) recorded losses of $14.

The build of $3.7 billion after tax) in the fourth quarter of 2008 for goodwill impairments related to its North America Consumer Banking.3 billion in ICG primarily reflects a weakening in overall portfolio credit quality. the balance for these repurchased SIV assets totaled $16. 2008. Reserves also increased due to trends in the U. the Company has taken additional actions to manage risks. such as tightening underwriting criteria and selectively reducing credit lines. 2008 and approximately $74 billion at October 31. $3. with a trade date of November 18. Citigroup announced a commitment to provide support facilities to its Citi-advised SIVs for the purpose of resolving the uncertainty regarding the SIVs’ senior debt ratings.2 billion in North America and $2. and equity. as well as loan loss reserves for specific counterparties.49 billion of this gain was due to a change in methodology for estimating the credit valuation adjustment implemented in the fourth quarter. the Company incorporated the Company’s credit default swaps spreads in the valuation of these liabilities. These and other factors. held to maturity/held for investment. Credit Valuation Adjustment on Citi’s Liabilities for Which Citi Has Elected the Fair Value Option During 2008.8 billion in Consumer ($8. credit cards and auto loans. Tangible Capital or the Company’s liquidity position. However. The assets purchased from the SIVs and the liabilities assumed by the Company were previously recognized at fair value on the Company’s balance sheet due to the consolidation of the SIV legal vehicles in December 2007. Citi recognizes a gain on these liabilities because the value of the liabilities has decreased. 2008. with the additional commitment funded during the fourth quarter of 2008. GOODWILL Under SFAS 157. The higher credit costs primarily reflected a weakening of leading credit indicators. 2008. $2. As the environment for consumer credit continues to deteriorate. unsecured personal loans. The build consisted of $10.6 billion build in regions outside of North America was primarily driven by deterioration in Mexico.5 billion.3 billion of trading account losses on SIV assets.5 billion at December 31. During 2008. the U. Citigroup recorded a pretax charge of approximately $9.3 billion. The net cash funding provided by Citigroup for the asset purchase was $0. Prior to that date. the Company is required to use its own-credit spreads in determining the current value for its derivative liabilities and all other liabilities for which it has elected the fair value option.6 billion. When Citi’s credit spreads narrow (improve). Structured Investment Vehicles (SIVs) On December 13. This deterioration further weakened the near-term prospects for the financial services industry. The $8. Citi recognizes a loss on these liabilities because the value of the liabilities has increased. 2008.K. 2008. 2008. see “Significant Accounting Policies and Significant Estimates” on page 18. The $2. Latin America Consumer Banking and EMEA Consumer Banking reporting units. During the period to November 18. macroeconomic environment. including the increased possibility of further government intervention. To complete the wind-down of the SIVs. This resulted in an increase of assets of $59 billion. Citigroup finalized the terms of these support facilities. Based on the results of goodwill impairment testing as of December 31. See “Exposure to Commercial Real Estate” on page 69 for a further discussion. This charge resulted in the write-off of the entire amount of goodwill allocated to those reporting units. For further discussion regarding this change. As of December 31.0 billion to $4. including higher delinquencies on first and second mortgages. During 2008. 2007.2 billion build in North America Consumer included additional reserves for the increased number of loan modification adjustments to customer loans across all product lines. the Company consolidated the SIVs’ assets and liabilities onto Citigroup’s Consolidated Balance Sheet as of December 2007. The mezzanine capital facility was increased by $1. The primary cause for the goodwill impairment in the above reporting units was the rapid deterioration in the financial markets as well as in the global economic outlook particularly during the period beginning midNovember and through year end December 2008. pretax losses of $2.6 billion ($8.6 billion on its fair value option liabilities due to the widening of the Company’s credit spreads. Citigroup recorded $3.5 billion of mezzanine capital to the SIVs. of which $16.S. this charge did not result in a cash outflow or negatively affect Tier 1 and Total Regulatory Capital Ratios.. the Company estimates the market value of the liabilities by incorporating the Company’s credit spreads observed in the bond market (cash spreads). See “Significant Accounting Policies and Significant Estimates” on page 18 for a further discussion of goodwill. the Company recorded a net build of $14. including the housing market downturn and rising unemployment rates. 11 . The total allowance for loan losses and unfunded lending commitments totaled $30. As a result of this commitment.6 billion net of hedges were booked on exposures recorded at fair value. Greece and India. When Citi’s credit spreads widen (deteriorate). credit losses are expected to rise through 2009 and it is likely that the Company’s loss rates may exceed their historical peaks.5 billion is classified as held to maturity. Brazil. Spain. which took the form of a commitment to provide $3. However.Commercial Real Estate CREDIT RESERVES S&B’s commercial real estate exposure is split into three categories: assets held at fair value. See “Structured Investment Vehicles” on page 15 for a further discussion. As of December 31. 2008 to approximately $36 billion at December 31.6 billion in regions outside of North America). 2008. Citigroup committed to purchase all remaining assets out of the SIV legal vehicles at fair value. 2008. On February 12.3 billion to its credit reserves.3 billion in ICG and $249 million in GWM. Citigroup funded the purchase of the assets by assuming the obligation to pay amounts due under the medium-term notes issued by the SIVs as the notes mature. also resulted in the decline in the Company’s market capitalization from approximately $90 billion at July 1. the Company recorded a gain of approximately $4.

CitiStreet is a joint venture formed in 2000 which. was owned 50% each by Citigroup and State Street. The portfolio sold had balances of approximately $1. In addition. Citigroup sold its German retail banking operations to Credit Mutuel for Euro 5. The sale resulted in an after-tax gain of approximately $3. Citigroup sold substantially all of CitiCapital. 2008 Re-Engineering Projects In the fourth quarter of 2008. Global Cards sold substantially all of the Upromise Cards portfolio to Bank of America for an after-tax gain of $127 million ($201 million pretax). Structural Expense Review On December 5. The transaction closed on July 1. resulting in an after-tax gain of $192 million ($263 million pretax). The German retail bank’s operating net earnings accrued in 2008 through the closing.9 billion. including the after-tax gain on the foreign currency hedge of $383 million recognized during the fourth quarter of 2008.COST REDUCTION INITIATIVES DIVESTITURES Sale of Citigroup’s German Retail Banking Operations During the past two years. See Note 3 on page 136 for further discussion regarding this sale. to GE Capital. and are recorded in each segment. These charges are reported in the Restructuring line on the Company’s Consolidated Statement of Income. 2008. 2008.4 billion was recorded in Corporate/Other during the first quarter of 2007. a benefits servicing business. the Company completed a review of its structural expense base in a company-wide effort to create a more streamlined organization. These charges were recorded in the individual segments. CGSL was the Citigroup captive provider of business process outsourcing services solely within the Banking and Financial Services sector. Sale of CitiCapital In 2007.807. Sale of Upromise Cards Portfolio During 2008. An after-tax net loss of $305 million ($506 million pretax) was recorded in 2008 in Discontinued Operations on the Company’s Consolidated Statement of Income.732 billion was incurred generating a reduction in headcount of 16.600. These charges are reported in the Restructuring line on the Company’s Consolidated Statement of Income. and provide investment funds for future growth initiatives. Sale of CitiStreet On July 1. These charges were recorded in the individual segments. This initiative will generate a reduction in headcount of approximately 20.797 billion pretax related to the implementation of a company-wide re-engineering plan. As a result of this review. These repositioning charges are reported in the lines Compensation and benefits and Premises and equipment on the Company’s Consolidated Statement of Income. 2008. 12 . Citigroup has undergone several cost reduction initiatives.2 billion in cash. a foreign currency hedge gain of $211 million was recorded in the third quarter of 2008. Citigroup sold all of its interest in Citigroup Global Services Limited (CGSL) to Tata Consultancy Services Limited (TCS) for all-cash consideration of approximately $515 million. A total expense of $1. These repositioning charges are included in the lines Compensation and benefits and Premises and equipment on the Company’s Consolidated Statement of Income. See Note 3 on page 136 for further discussion regarding this sale. a pretax restructuring charge of $1. The sale does not include the corporate and investment banking business or the Germany-based European data center. to ING Group in an all-cash transaction valued at $900 million.2 billion of credit card receivables. resulting in an after-tax gain of approximately $56 million ($111 million pretax). and was recorded in Discontinued Operations. Citigroup and State Street Corporation completed the sale of CitiStreet. the equipment finance unit in North America. Additional charges of $151 million (net of changes in estimates) were recognized in subsequent quarters throughout 2007 and a net release of $31 million was recorded in 2008 due to a change in estimates. Citigroup will continue to issue Diners Club cards and support its brand and products through ownership of its many Diners Club card issuers around the world. the Company recorded restructuring charges of $1. several businesses initiated their own re-engineering projects to reduce expenses. In addition. 2008. Sale of Citigroup Global Services Limited In 2008. reduce expense growth. prior to the sale. 2008 and generated an after-tax gain of $222 million ($347 million pretax). Separate from these restructuring charges were additional repositioning expenditures of $539 million incurred for re-engineering initiatives taken on by several businesses to further reduce expenses beyond the company-wide initiatives. On July 31. during 2008. Citigroup completed the sale of Diners Club International (DCI) to Discover Financial Services. Divestiture of Diners Club International On June 30.

Citigroup recorded a $723 million increase to pretax income resulting from events surrounding Visa. The securities purchased by Citigroup under this agreement have a notional value of $6. At the closing. These events included: (i) a $359 million gain on the redemption of Visa shares primarily recorded in U.5 years. The 2008 tax rate included a $994 million tax benefit related to the restructuring of the legal vehicles in Japan. together with its subsidiaries. (ii) a $108 million gain from an adjustment of the regional share allocation related to the fourth quarter 2007 Visa reorganization. and (3) an incremental loss of $401 million due to the decline in value of these ARS since the time of announcement. (2) losses of $425 million.9% to approximately 17%. Lehman Brothers Holding. The 2008 effective tax rate is higher than 35% because of the impact of indefinitely invested international earnings and other permanent differences on the pretax loss.5 billion over a period of 9. Citigroup’s India-based captive provider of technology infrastructure support and application development. 2008. Federal Court. MUTB will pay all-cash consideration of 25 billion yen. The purchase commitment for the remaining undelivered securities is estimated to be approximately $1. close out approximately 40. and result in an estimated after-tax gain of $53 million ($89 million pretax). This transaction closed on January 20. The sale is expected to close on or around April 1. Lehman’s bankruptcy caused Citigroup to terminate cash management and foreign exchange clearance arrangements.S. “Lehman”) filed for Chapter 11 bankruptcy in U. A number of LBHI subsidiaries have subsequently filed bankruptcy or similar insolvency proceedings in the U. Sale of Redecard Shares In the first quarter of 2008. Consumer. and other jurisdictions. This agreement resulted in a $926 million loss being recorded in 2008. Sale of Citigroup Technology Services Limited OTHER ITEMS Auction Rate Securities Settlement On December 23.9)% in 2008. Inc. Citigroup expects to file claims in the relevant Lehman bankruptcy proceedings. both in North America. process outsourcing services to Citigroup and its affiliates in an aggregate amount of $2. Consumer. Inc.S.000 Lehman foreign exchange. pending regulatory approvals and other closing conditions. 2009.0 billion as of December 31. Visa Restructuring and Litigation Matters During 2008.In addition to the sale.S. Bankruptcy and Related Matters On September 15. which decreased Citigroup’s ownership in Redecard from approximately 23. The pretax losses of $926 million have been divided equally between S&B and GWM. 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). Citigroup sold approximately 46. Income Taxes The Company recorded an income tax benefit for 2008. 2008. Citigroup announced an agreement with Wipro Limited to sell all of Citigroup’s interest in Citi Technology Services Ltd. for all-cash consideration of approximately $127 million. derivative and other transactions and quantify other exposures.1 billion. 2008. Citigroup announced an agreement in principle with state and federal regulators under which it agreed to offer to purchase the failed ARS of its retail clients for par value. as appropriate. The Company’s effective tax rate (benefit) on continuing operations was (38. subject to certain purchase price adjustments. A substantial portion of the proceeds from this sale will be recognized over the period in which Citi has a service contract with Wipro Limited. (“LBHI” and. 2008.8 million Redecard shares. 13 . recorded at the time of the announcement. reflecting the estimated difference between the fair value and par value of the securities to be purchased.. 2009 and a loss of approximately $7 million was booked at that time. primarily recorded in International Consumer. and (iv) a gain on the sale of Visa shares of $99 million. Citigroup signed an agreement with TCS for TCS to provide. Lehman Brothers Holding.S. An after-tax gain of $426 million ($661 million pretax) was recorded in the Global Cards business in Latin America. (iii) a $157 million reduction of litigation reserves that were originally booked in the fourth quarter of 2007 primarily in U. Sale of Citi’s Nikko Citi Trust and Banking Corporation Citigroup has executed a definitive agreement to sell all of the shares of Nikko Citi Trust and Banking Corporation to Mitsubishi UFJ Trust and Banking Corporation (MUTB). through CGSL. On August 7.

and Old Lane Partners GP. a wholly owned subsidiary of Quiñenco that controls Banco de Chile. and following the cash payment of $2.5 billion of tangible common equity. Specifically..5 billion (approximately $5. is expected to close in the third quarter of 2009.5% in LQIF. branches of Banco de Chile for approximately $130 million. Further. The new partnership calls for active participation by Citigroup in the management of Banco de Chile including board representation at both LQIF and Banco de Chile.96% stake in LQIF. Citigroup and Quiñenco entered into a definitive agreement to establish a strategic partnership that combines Citigroup operations in Chile with Banco de Chile’s local banking franchise to create a banking and financial services institution with approximately 20% market share of the Chilean banking industry. Citigroup performed an impairment analysis of Japan’s Nikko Asset Management fund contracts which represent the rights to manage and collect fees on investor assets and are accounted for as indefinite-lived intangible assets.P. and based on current estimates of the fair value of the joint venture. Quiñenco has a put that would require Citigroup to buy an additional approximately 8. Citigroup also acquired the U. to be called Morgan Stanley Smith Barney. Under the agreement. to a joint venture to be formed with Morgan Stanley in exchange for a 49% stake in the joint venture and an upfront cash payment of $2. Nikko Cordial Securities or Citigroup’s bank branch-based financial advisors. 1. Morgan Stanley and Citi will have various purchase and sale rights for the joint venture. $1. Transaction with Banco de Chile In 2007.7 billion from Morgan Stanley to Citigroup.S. Citigroup reached a definitive agreement to sell its Smith Barney business. Later in 2007. 14 . the Company estimates that it will recognize a pretax gain of approximately $9. resulting in a potential 50% ownership stake in LQIF. The transaction. this increased ownership percentage as well. without restriction effective July 31. when Nikko Cordial became a 61%-owned subsidiary. The joint venture.000 offices. The share exchange was completed following the listing of Citigroup’s common shares on the Tokyo Stock Exchange on November 5. 2007. 2009.8 billion after tax) and will generate approximately $6. Citigroup and Quiñenco agreed on certain transactions that could increase Citigroup’s stake in LQIF to approximately 50%. and $2. ICG recorded a pretax write-down of $202 million on intangible assets related to this multi-strategy hedge fund during the first quarter of 2008. At closing. L. SUBSEQUENT EVENT Joint Venture with Morgan Stanley During the fourth quarter of 2008. 2008. On January 29. Smith Barney in Australia and Quilter in the U.Write-Down of Intangible Asset Related to Old Lane As a result of Old Lane Partners. Nikko Cordial results are included in Citigroup’s Securities and Banking and Global Wealth Management businesses. which is subject to and contingent upon regulatory approvals and other customary closing conditions. This investment is accounted for under the equity method of accounting. See Note 19 on page 166 for additional information. Citigroup completed the acquisition of the remaining Nikko Cordial shares that it did not already own by issuing 175 million Citigroup common shares (approximately $4.K. as part of the definitive agreement. 2008. Citigroup increased its ownership stake in Nikko Cordial to approximately 68%. The transaction closed on January 1. The joint venture’s combined businesses have more than 20. In addition. As a result. It will not include Citi Private Bank.. Nikko Cordial Citigroup began consolidating Nikko Cordial’s financial results and the related minority interest on May 9. an impairment loss of $937 million pretax ($607 million after-tax) was recorded in ICG.9 billion in 2008 pro forma combined revenues.8 billion in 2008 pro forma combined pretax profit. Each of these potential additional acquisitions will be exercisable in 2010. $14. which includes Smith Barney in the U. 2008. As part of the overall transaction. substantially all unaffiliated investors had notified Old Lane of their intention to redeem their investments.4 billion based on the exchange terms) in exchange for those remaining Nikko Cordial shares. LLC notifying their investors that they would have the opportunity to redeem their investments in the hedge fund. Upon closing.5% stake in LQIF. Write-Down of Intangible Asset Related to Nikko Asset Management Citigroup has an option to buy an additional approximately 8. 2007. By April 2008.7 trillion in client assets at December 31. Citigroup sold its Chilean operations and other assets in exchange for an approximate 32.S.000 financial advisors. On January 13. or the option to buy. but Citi is expected to retain the full amount of its stake at least through year three and to continue to own a significant stake in the joint venture at least through year five. will combine the sold businesses with Morgan Stanley’s Global Wealth Management Group. Morgan Stanley will own 51% and Citi will own 49% of the joint venture.7 billion from Morgan Stanley. 2008. Citigroup has a call on.

0 billion in North America Consumer and $1.5 million servicing customers. as well as loan loss reserves for specific counterparties. 2007 forward.2 billion build in regions outside North America included a change in estimate of loan losses inherent in the portfolio but not yet visible in delinquency statistics (approximately $600 million).2 billion in Consumer ($5. 15 . income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested. In 2007. for approximately $680 million ($102. is a higher tax jurisdiction). the tax benefits of permanent differences. 2007 forward. Acquisition of Old Lane Partners. Acquisition of BISYS The Company recorded an income tax benefit for 2007. affecting all other portfolios ($1. Japan and India.3 billion). AAMG is a national originator and servicer of prime residential mortgage loans. The build of $562 million in ICG primarily reflected a slight weakening in overall portfolio credit quality. a downturn in other economic trends including unemployment and GDP. and a change in the estimate of loan losses inherent in the portfolio. The effective tax rate of (321. mutual funds and private equity funds. As a result of the Company’s commitment. Results for BISYS are included in Citigroup’s Transaction Services business from August 1. the Company completed the acquisition of Old Lane Partners. Inc.9)% primarily resulted from the pretax losses in the Company’s S&B and North America Consumer Banking businesses (the U. (BISYS) for $1. and Old Lane Partners. LLC (Old Lane).47 billion in cash.0 billion build in North America Consumer reflected a weakening of leading credit indicators including delinquencies on first and second mortgages and deterioration in the housing market (approximately $3. Acquisition of Automated Trading Desk On December 13. $562 million in ICG and $100 million in GWM. 2007. With the exception of Mexico. which was not legally required. Citigroup retained the Fund Services and Alternative Investment services businesses of BISYS. INCOME TAXES In 2007. Citigroup acquired ABN AMRO Mortgage Group (AAMG). As part of this acquisition.S. 2007 forward.V. Citigroup consolidated the assets and liabilities of the SIVs as of December 31.17 million shares of Citigroup common stock). 2007. making the net cost of the transaction to Citigroup approximately $800 million. GP.6 million in cash and approximately 11.0 billion). but not yet visible in delinquency statistics (approximately $700 million).9 billion to its credit reserves. Citigroup completed its acquisition of Automated Trading Desk (ATD). favorably affected the Company’s effective tax rate. a subsidiary of LaSalle Bank Corporation and ABN AMRO Bank N. including $3 billion of mortgage servicing rights. Citigroup completed the sale of the Retirement and Insurance Services Divisions of BISYS. The loan loss reserves for specific counterparties include $327 million for subprime-related direct exposures.P. The build consisted of $6. along with volume growth and credit deterioration in certain countries. the Company recorded a net build of $6. which resulted in the addition of approximately 1.EVENTS IN 2007 CREDIT RESERVES ACQUISITIONS North America Acquisition of ABN AMRO Mortgage Group During 2007. This resulted in an increase of assets of $59 billion. a leader in electronic market making and proprietary trading. the Company completed its acquisition of BISYS Group. L. In 2007.S. Citigroup purchased approximately $12 billion in assets. including the tax benefit for not providing U. Citigroup announced its decision to commit to provide a support facility that would resolve uncertainties regarding senior debt repayment facing the Citi-advised Structured Investment Vehicles (SIVs). The $5. 2007 forward. multi-strategy hedge fund and a private equity fund with total assets under management and private equity commitments of approximately $4. Results for ATD are included in Citigroup’s Securities and Banking business from October 3. Results for AAMG are included in Citigroup’s North America Consumer Banking business from March 1. the international consumer credit environment remained generally stable. as well as the impact of housing market deterioration. L.5 billion. STRUCTURED INVESTMENT VEHICLES (SIVs) In 2007. In addition. which provides administrative services for hedge funds. The $1.2 billion in regions outside North America).P. Old Lane was the manager of a global. Results for Old Lane are included within ICG from July 2.

Results for Egg are included in Citigroup’s Global Cards and EMEA Consumer Banking businesses from May 1.39 billion. the Company recorded a $367 million after-tax gain ($581 million pretax) on the sale of approximately 4.9% shareholder in Redecard S. a 34% owner of Akbank shares. Visa Restructuring and Litigation Matters In 2007. Citigroup retained approximately 23. Sabanci Holding. Visa USA. Visa International and Visa Canada were merged into Visa Inc.51 billion ($755 million in cash and 14. Citigroup recorded a $534 million (pretax) gain on its holdings of Visa International shares primarily recognized in the Consumer Banking business. As a result of that reorganization. a U. with $2. Citigroup completed the acquisition of the subsidiaries of Grupo Cuscatlán for $1.K. Citigroup completed its acquisition of Bank of Overseas Chinese (BOOC) in Taiwan for approximately $427 million. a U. This investment is accounted for using the equity method of accounting. Acquisition of Egg In 2007. Citigroup completed its acquisition of Egg Banking plc (Egg). The gain was recorded in the following businesses: 2007 Pretax total $466 96 19 $581 2007 After-tax total $296 59 12 $367 2006 Pretax total $ 94 27 2 $123 2006 After-tax total $59 18 1 $78 In 2007. Citigroup has otherwise agreed not to increase its percentage ownership in Akbank.8 million Redecard shares in connection with Redecard’s initial public offering in Brazil. The results for GFU are included in Citigroup’s Global Cards and Latin America Consumer Banking businesses from March 5. the Company completed the acquisition of Quilter. Quilter is being disposed of as part of the sale of Smith Barney to Morgan Stanley described in Subsequent Events. 2007 forward. including purchases from Sabanci Holding and its subsidiaries. from Prudential PLC for approximately $1. Global Cards and Securities and Banking businesses from December 1. Citigroup (a 31. 2007 forward. Quilter’s results are included in Citigroup’s Smith Barney business from March 1. wealth advisory firm. 2007 forward. the largest credit card issuer in Central America. The shares were then carried on Citigroup’s balance sheet at the new cost basis.2 million shares of Citigroup common stock) from Corporacion UBC Internacional S. Grupo. In 2007. Acquisition of Grupo Cuscatlán In 2007. (Visa).2 billion in assets. 2007 forward and are recorded in Latin America Consumer Banking. In addition. and its subsidiaries have granted Citigroup a right of first refusal or first offer over the sale of any of their Akbank shares in the future. Subject to certain exceptions. Asia Acquisition of Bank of Overseas Chinese In millions of dollars Global Cards Consumer Banking ICG Total Redecard IPO In 2007. EMEA Acquisition of Quilter In 2007.9 million MasterCard Class B shares that had been received by Citigroup as a part of the MasterCard initial public offering completed in June 2006. and its affiliates. Citigroup completed its purchase of a 20% equity interest in Akbank. online financial services provider..A. The results of Grupo Cuscatlán are included from May 11. from Morgan Stanley.K. 2007 forward. Citigroup completed its acquisition of Grupo Financiero Uno (GFU). the only merchant acquiring company for MasterCard in Brazil) sold approximately 48.A. Following the sale of these shares.1 billion. 16 . Citigroup recorded a $306 million (pretax) charge related to certain of Visa USA’s litigation matters primarily recognized in the North America Consumer Banking business. Purchase of 20% Equity Interest in Akbank In 2007. the second-largest privately owned bank by assets in Turkey for approximately $3. An after-tax gain of approximately $469 million ($729 million pretax) was recorded in Citigroup’s 2007 financial results in the Global Cards business. Results for BOOC are included in Citigroup’s Asia Consumer Banking.Latin America Acquisition of Grupo Financiero Uno OTHER ITEMS Sale of MasterCard Shares In 2007.9% ownership in Redecard.

The adoption of SFAS 157 has also resulted in some other changes to the valuation techniques used by Citigroup when determining the fair value of derivatives.g. but defines fair value. The adoption of SFAS 159 resulted in an after-tax decrease to January 1. and some key inputs used in valuing certain exposures were unobservable. during the market dislocations that occurred in the second half of 2007. Under SFAS 157. 17 In conjunction with the adoption of SFAS 157. expands disclosure requirements around fair value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. the election is made at the time of the acquisition of a financial asset. which was recorded in the 2007 first quarter earnings within the S&B business. most notably changes to the way that the probability of default of a counterparty is factored in. After the initial adoption. 2007. quoted prices for identical or similar instruments in markets that are not active. For example. • Level 3–Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. and it may not be revoked. Observable inputs reflect market data obtained from independent sources. • Level 2–Quoted prices for similar instruments in active markets. This hierarchy requires the Company to use observable market data. 2007. 2007 with future changes in value reported in earnings. and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. as of January 1. Previous accounting guidance allowed the use of block discounts in certain circumstances and prohibited the recognition of day-one gains on certain derivative trades when determining the fair value of instruments not traded in an active market. as of January 1.ACCOUNTING CHANGES Adoption of SFAS 157—Fair Value Measurements Adoption of SFAS 159—Fair Value Option The Company elected to adopt SFAS No. 2007 retained earnings of $99 million ($157 million pretax). The cumulative effect at January 1. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that resulted prior to its adoption from being required to apply fair value accounting to certain economic hedges (e. Fair Value Measurements (SFAS 157). The cumulative effect of these changes resulted in an increase to January 1. derivatives) while having to measure the assets and liabilities being economically hedged using an accounting method other than fair value. . which were previously applied to large holdings of publicly traded equity securities. Under the SFAS 159 transition provisions. and continued throughout 2008. after taking into consideration the effects of creditrisk mitigants. When and if these markets are liquid. the Company also adopted SFAS 159.05 per diluted share. the Company elected to apply fair value accounting to certain financial instruments held at January 1. 2007 Retained earnings of $75 million. or $0. SFAS 157 does not determine or affect the circumstances under which fair value measurements are used. SFAS 157 also precludes the use of block discounts for instruments traded in an active market. 157. observable inputs may not be available. SFAS 159 provides for an election by the Company. 2007 of making these changes was a gain of $250 million after tax ($402 million pretax). Citigroup is required to take into account its own credit risk when measuring the fair value of derivative positions as well as other liabilities for which it has elected fair value accounting under SFAS 155 Accounting for Certain Hybrid Financial Instruments (SFAS 155) and SFAS 159. financial liability or a firm commitment. The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). certain markets became illiquid. while unobservable inputs reflect the Company’s market assumptions. on an instrument-by-instrument basis for most financial assets and liabilities to be reported at fair value with changes in fair value reported in earnings. and requires the recognition of trade-date gains related to certain derivative trades that use unobservable inputs in determining their fair value.. when available. and to minimize the use of unobservable inputs when determining fair value. These two types of inputs create the following fair value hierarchy: • Level 1–Quoted prices for identical instruments in active markets. the valuation of these exposures will use the related observable inputs available at that time from these markets. For some products or in certain market conditions. See Note 27 to the Consolidated Financial Statements on page 202 for additional information. and the elimination of a derivative valuation adjustment which is no longer necessary under SFAS 157.

Changes in the valuation of available-for-sale securities. respectively.1% of liabilities. Unrealized losses that are determined to be temporary in nature are recorded. complex or subjective judgments and estimates. When available.SIGNIFICANT ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES Note 1 to the Consolidated Financial Statements on page 122 contains a summary of the Company’s significant accounting policies. The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss. Thus. Additional information about these policies can be found in Note 1 to the Consolidated Financial Statements on page 122. If quoted market prices are not available. are accounted for at fair value as of December 31. In addition. in Accumulated other comprehensive income (AOCI) for available-for-sale securities. trading assets and liabilities.9% and 23. option volatilities. VALUATIONS OF FINANCIAL INSTRUMENTS Recognition of Changes in Fair Value Changes in the valuation of the trading assets and liabilities. particularly where a fairvalue model is internally developed and used to price a significant product. are integral to the presentation of the Company’s financial condition. A full description of the Company’s related policies and procedures can be found in Notes 1. For a further discussion. the Company generally uses quoted market prices to determine fair value. respectively. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Evaluation of Other-than-Temporary Impairment The Company holds fixed income and equity securities. short-term borrowings.9% of assets. While all of these policies require a certain level of management judgment and estimates. generally are recorded in Accumulated other comprehensive income (loss). currency rates. the related estimates and its judgments with the Audit and Risk Management Committee of the Board of Directors. The Company holds its investments. 26. this section highlights and discusses the significant accounting policies that require management to make highly difficult. 2008 and 2007. as these investments are carried at their amortized cost (less any permanent impairment). When or if liquidity returns to these markets. and for proprietary trading and private equity investing. In addition. see Note 16 to the Consolidated Financial Statements on page 158. These policies. the Company has assessed each position for credit impairment. less any impairment recognized in earnings. and classifies such items within Level 1 of the fair value hierarchy established under SFAS 157 (see “Events in 2007—Accounting Changes” above). certain loans. 27 and 28 to the Consolidated Financial Statements on pages 122. etc. This illiquidity continued through 2008. as well as estimates made by management. respectively. the valuations will revert to using the related observable inputs in verifying internally calculated values. an item may be classified in Level 3 even though some readily observable inputs are used in the valuation. investments in private equity and other financial instruments. Key Controls over Fair-Value Measurement The Company’s processes include a number of key controls that are designed to ensure that fair value is measured appropriately. CVA Methodology SFAS 157 requires that Citi’s own credit risk be considered in determining the market value of any Citi liability carried at fair value. For securities transferred to held-to-maturity from available-for-sale. in accordance with FASB Staff Position No. For additional information on Citigroup’s fair value analysis. net of tax. 115-1. thus reducing the availability of certain observable data used by the Company’s valuation techniques. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. amortized cost is defined as the original purchase cost. Such controls include a model validation policy requiring that valuation models be validated by qualified personnel independent from those who created the models and escalation procedures to ensure that valuations using unverifiable inputs are identified and monitored on a regular basis by senior management. Where a model is internally developed and used to price a significant product. Regardless of the classification of the securities as available-for-sale or held-to-maturity. In total. including a discussion of recently issued accounting pronouncements. see “Managing Global Risk” and “Balance Sheet Review” on pages 51 and 78. it is subject to validation and testing by independent personnel. For securities transferred to held-to-maturity from Trading account assets. As seen during the second half of 2007. retained interests in securitizations. The Meaning of Other-Than Temporary Impairment and Its Application to Certain Investments (FSP FAS 115-1). current market-based or independently sourced market parameters. to manage liquidity needs and interest rate risks. while such losses related to held-to-maturity securities are not recorded. amortized cost is defined as the fair-value amount of the securities at the date of transfer. plus or minus any accretion or amortization of interest. which is a component of Stockholders’ equity on the Consolidated Balance Sheet. the credit crisis has caused some markets to become illiquid. such as interest rates. Such models are often based on a discounted cash flow analysis. where possible. at times regarding matters that are inherently uncertain and susceptible to change.2% and 38. 18 . other than write-offs. Management has discussed each of these significant accounting policies. and resale and repurchase agreements on the balance sheet to meet customer needs. approximately 33. Substantially all of these assets and liabilities are reflected at fair value on the Company’s balance sheet. and 19. the Company purchases securities under agreements to resell and sells securities under agreements to repurchase. fair value is based upon internally developed valuation models that use. 202 and 205. 192. long-term debt and deposits as well as certain securities borrowed and loaned positions that are collateralized with cash are carried at fair value. derivatives. These liabilities include derivative instruments as well as debt and other liabilities for which the fair-value option was elected. The credit valuation adjustment (CVA) is recognized on the balance sheet as a reduction in the associated liability to arrive at the fair value (carrying value) of the liability. as well as all other assets (excluding available-for-sale securities) and liabilities carried at fair value are recorded in the Consolidated Statement of Income.

558 million and $888 million for 2008 and 2007. (ii) the borrower’s overall financial condition. • Additional adjustments include: (i) statistically calculated estimates to cover the historical fluctuation of the default rates over the credit cycle. and (iii) historical default and loss data. 2008. (ii) the Corporate portfolio database. and present recommended reserve balances for their funded and unfunded lending portfolios along with supporting quantitative and qualitative data. non-homogeneous exposures within a business line’s classifiably managed portfolio and impaired smaller-balance homogenous loans whose terms have been modified due to the borrowers’ financial difficulties. resources and payment record.5 billion pretax gain recognized in earnings in the fourth quarter of 2008. 2008 and 2007. risk ratings.446 million and $888 million as of December 31. portfolios . resulting in a year-to-date pretax gain of $4. the above-mentioned representatives covering the business area having classifiably managed portfolios (that is. (CDS spreads continue to be used to calculate the CVA for derivative positions. and a change in the estimated loan losses inherent in the portfolio but not yet visible in the delinquencies (change in estimate of loan losses). such as current environmental factors and credit trends. Consideration is given to all available evidence when determining this estimate including. the size and diversity of individual large credits. The CVA recognized on fair-value option debt instruments was $5. respectively. which are analogous to the risk ratings of the major rating agencies. representatives from both the Risk Management and Finance staffs that cover business areas that have delinquency-managed portfolios containing smaller homogeneous loans (primarily the non-commercial lending areas of Consumer Banking) present their recommended reserve balances based upon leading credit indicators including delinquencies on first and second mortgages and deterioration in the housing market. management has established and maintains reserves for the potential credit losses related to the Company’s off-balancesheet exposures of unfunded lending commitments. among other things. and the pretax gain that would have been recognized in the year then ended had each methodology been used consistently during 2008 and 2007 (in millions of dollars).359 (1) In changing the methodology for calculating the CVA reserve. as approved by the Audit and Risk Management Committee of the Company’s Board of Directors. This methodology is applied separately for each individual product within each different geographic region in which these portfolios exist. and (iii) the prospects for support from financially responsible guarantors or the realizable value of any collateral. ALLOWANCE FOR CREDIT LOSSES Management provides reserves for an estimate of probable losses inherent in the funded loan portfolio on the balance sheet in the form of an allowance for loan losses. Therefore. Due to the persistence and significance of this divergence during the fourth quarter. 2008. During these reviews. The frequency of default. to 202 bps on December 31. These reserves are established in accordance with Citigroup’s Loan Loss Reserve Policies. For example. and the ability of borrowers with foreign currency obligations to obtain the foreign currency necessary for orderly debt servicing. determined under each methodology as of December 31. while the three-year cash spread widened from 430 bps to 490 bps over the same time period.) This change in estimation methodology resulted in a $2. and internal data dating to the early 1970s on severity of losses in the event of default. Changes to the reserve flow through the Consolidated Statement of Income on the lines Provision for loan losses and Provision for unfunded lending 19 2008 $2. management determined that such a pattern may not be temporary and that using cash spreads would be more relevant to the valuation of debt instruments (whether issued as liabilities or purchased as assets). This evaluation process is subject to numerous estimates and judgments. The calculation is based upon: (i) Citigroup’s internal system of creditrisk ratings.493 billion in December 2008. as described on page 92. The table below summarizes the CVA for fair-value option debt instruments. and the degree to which there are large obligor concentrations in the global portfolio.493 2007 $ 888 1. changes in the portfolio size. are all taken into account during this review. as appropriate: (i) the present value of expected future cash flows discounted at the loan’s contractual effective rate. 2008 and 2007. Citi’s CDS spread and credit spreads observed in the bond market (cash spreads) diverged from each other and from their historical relationship. In addition. a downturn in other economic trends including unemployment and GDP. and it was determined that a concession was granted to the borrower. The Company’s Chief Risk Officer and Chief Financial Officer review the adequacy of the credit loss reserves each quarter with representatives from the Risk and Finance staffs for each applicable business area. Citi changed its method of estimating the market value of liabilities for which the fair-value option was elected to incorporate Citi’s cash spreads.087 $ 888 1.Citi has historically used its credit spreads observed in the credit default swap (CDS) market to estimate the market value of these liabilities. In millions of dollars where internal credit-risk ratings are assigned. the historical variability of loss severity among defaulted loans. respectively. which are primarily ICG. the Company recorded the 2008 cumulative difference of $2. Changes in these estimates could have a direct impact on the credit costs in any quarter and could result in a change in the allowance.359 $ 471 Year-end CVA reserve balance as calculated using: CDS spreads Cash spreads Difference (1) Year-to-date pretax gain from the change in CVA reserve that would have been recorded in the income statement as calculated using: CDS spreads Cash spreads $2. Beginning in September 2008.446 $2.558 billion recorded in the Company’s Consolidated Statement of Income.065 4. and (ii) adjustments made for specifically known items. including rating-agency information regarding default rates from 1983 to 2007. the three-year CDS spread narrowed from 315 basis points (bps) on September 30.953 5. including standby letters of credit and guarantees. • Statistically calculated losses inherent in the classifiably managed portfolio for performing and de minimis non-performing exposures. In addition. the commercial lending businesses of Consumer Banking and Global Wealth Management) and modified consumer loans where a concession was granted due to the borrowers’ financial difficulties. loss recovery rates. The pretax gain recognized due to changes in the CVA balance was $4. The quantitative data include: • Estimated probable losses for non-performing.

2010. If these guidelines are not met. 2008) would result in the consolidation of incremental assets as follows: Incremental GAAP assets $ 91. only a subset of the QSPEs and VIEs with which the Company is involved are expected to be consolidated under the proposed change.4 14. 2010 could materially differ. and for certain transfers of portions of assets that do not meet the proposed definition of “participating interests.9 In billions of dollars Credit cards Commercial paper conduits Private label consumer mortgages Student loans Muni bonds Mutual fund deferred sales commission securitization Investment funds Total The FASB has issued an exposure draft of a proposed standard that would eliminate Qualifying Special Purpose Entities (QSPEs) from the guidance in FASB Statement No. The FASB is currently deliberating these proposed standards. assuming application of existing risk-based capital rules. the FASB has also issued a separate exposure draft of a proposed standard that proposes three key changes to the consolidation model in FASB Interpretation No.8 1. is presented below. If the structure of the trust meets certain accounting guidelines.6 4.1 3. 2010 (based on the balances at December 31. In addition. The actual impact of adopting the amended standards as of January 1.9 — 2. While the proposed standard has not been finalized. and (ii) the estimated assets of significant unconsolidated VIEs as of December 31. 2008 balances.0 billion) that would be consolidated under the proposal. Due to the variety of transaction structures and level of the Company’s involvement in individual QSPEs and VIEs.7 $98.7 $179. respectively.commitments. as well as for certain future sales.9 0. see “Managing Global Risk” and Notes 1 and 18 to the Consolidated Financial Statements on pages 51. The table reflects (i) the estimated portion of the assets of QSPEs to which Citigroup. In connection with the proposed changes to SFAS 140. underwriting. The Company may also provide administrative. The cash flows from assets in the trust service the corresponding trust securities. the assets continue to be recorded as the Company’s assets. asset management. 2008. has transferred assets and received sales treatment as of December 31. 46 (revised December 2003).5 1. The pro forma impact of the proposed changes on GAAP assets and riskweighted assets. Under these securitization programs.1 billion). FIN 46(R) would be amended to change the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE (such consolidating entity is referred to as the “primary beneficiary”) to a qualitative determination of power combined with benefits or losses instead of the current risks and rewards model. the revised standard would include former QSPEs in the scope of FIN 46(R). 2010 effective date. For a further description of the loan loss reserve and related accounts. 2008 with which Citigroup is involved (totaling approximately $288. at January 1. Since QSPEs will likely be eliminated from SFAS 140 and thus become subject to FIN 46(R) consolidation guidance and because the FIN 46(R) method of determining which party must consolidate a VIE will likely change should this proposed standard become effective. acting as principal. “Consolidation of Variable Interest Entities” (FIN 46(R)). Finally. and they are.8 1.” This proposed revision could become effective on January 1. 122 and 165. based on December 31. A complete description of the Company’s accounting for securitized assets can be found in Note 1 to the Consolidated Financial Statements on page 122. First. The existing standard requires reconsideration only when specified reconsideration events occur. if it is issued in its current form it will have a significant impact on Citigroup’s Consolidated Financial Statements as the Company will lose sales treatment for certain assets previously sold to a QSPE.0 Riskweighted assets $88. SECURITIZATIONS The Company securitizes a number of different asset classes as a means of strengthening its balance sheet and accessing competitive financing rates in the market. the Company expects to consolidate certain of the currently unconsolidated VIEs and QSPEs with which Citigroup was involved as of December 31.4 6. still subject to change. 140. Citigroup also assists its clients in securitizing their financial assets and packages and securitizes financial assets purchased in the financial markets.2 0. liquidity facilities and/or other services to the resulting securitization entities and may continue to service some of these financial assets. accordingly. Elimination of QSPEs and Changes in the FIN 46(R) Consolidation Model The Company’s estimate of the incremental impact of adopting these changes on Citigroup’s Consolidated Balance Sheets and risk-weighted assets. the proposed standard would require that the analysis of primary beneficiaries be re-evaluated whenever circumstances change. trust assets are treated as sold and are no longer reflected as assets of the Company. with the financing activity recorded as liabilities on Citigroup’s balance sheet. our understanding of the proposed changes to the standards and a proposed January 1. 20 .9 59. assets are sold into a trust and used as collateral by the trust to obtain financing. 2008 (totaling approximately $822. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140).

Asia Consumer Banking and International Cards. the Company identified new reporting units as required under SFAS No.9% of assets) at December 31. The first step requires a comparison of the fair value of the individual reporting unit to its carrying value including goodwill. future business plans. As a result of significant adverse changes during 2008 in certain of the Company’s reporting units and the increase in financial sector volatility primarily in the U.A. North America Consumer Banking. the goodwill impairment analysis is done in two steps. Under SFAS 142. it generally no longer retains its identification with a particular acquisition. the second step of testing involves calculating the implied fair value of goodwill for each of the affected reporting units. As a result. 2008 and December 31. Goodwill and Other Intangible Assets (SFAS 142).1 billion pretax charge ($4. The impairment is composed of $5. International Wealth Management. The DCF method was incorporated to ensure reliability of results. all of the fair value of each reporting unit is available to support the value of goodwill allocated to the unit. A combination of methodologies is used and weighted appropriately for reporting units with significant adverse changes in business climate.2 billion pre-tax charge ($0. Cards. 2008. North America Consumer Banking. As a result. For the reporting units where both methods were utilized in 2008. Wealth Management.. also resulted in the decline in the Company’s market capitalization from approximately $90 billion at July 1. 2008 and approximately $74 billion at October 31. The Company believes that the DCF method. using management projections for the selected reporting units and an appropriate risk-adjusted discount rate is most reflective of a market participant’s view of fair values given current market conditions. including actual operating results. N. 142. The primary cause for the goodwill impairment in the above reporting units was the rapid deterioration in the financial markets as well as in the global economic outlook particularly during the period beginning mid-November through year end 2008. Goodwill is allocated to the reporting units at the date the goodwill is initially recorded. An impairment charge recognized cannot exceed the amount of goodwill allocated to a reporting unit and cannot be reversed subsequently even if the fair value of the reporting unit recovers. In applying these methodologies the Company utilizes a number of factors. Management may engage an independent valuation specialist to assist in the Company’s valuation process. EMEA Consumer Banking. for that reporting unit. economic projections and market data.A. the resulting fair values were relatively consistent and appropriate weighting was given to outputs from both methods. Cards. an impairment charge is recorded for the excess. 2008 to approximately $36 billion at December 31. if any. 2008. which is the excess of the fair value of the reporting unit determined in step one over the fair value of the net assets and identifiable intangibles as if the reporting unit were being acquired. 2008. N. Latin America Consumer Banking and N. Latin America Consumer Banking. The Company continues to value the remaining reporting units where it believes the risk of impairment to be low using primarily the market approach.1 billion (approximately 1. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. the Company engaged the services of an independent valuation specialist to assist in the Company’s valuation of the following reporting units—Securities and Banking. Goodwill impairment testing is performed at the reporting unit level.6 billion goodwill impairment charge recorded as a result of testing performed as of December 31. 2008.4% of assets) and $41. including the increased possibility of further government intervention.3 billion pretax charge ($4. Goodwill impairment testing involves management judgment. The DCF method employs a capital asset pricing model in estimating the discount rate. The December 31. the related goodwill is considered not to be impaired and no further analysis is necessary. are Securities and Banking. there is an indication of potential impairment and a second step of testing is performed to measure the amount of impairment.5 billion after tax) related to North America Consumer Banking. requiring an assessment of whether the carrying value of the reporting unit can be supported by the fair value of the individual reporting unit using widely accepted valuation techniques. If the carrying value of the reporting unit exceeds the fair value. Once goodwill has been allocated to the reporting units. $4. but instead becomes identified with the reporting unit as a whole. and $0. one level below the business segment. As of December 31.A. Prior to 2008. If the fair value of the reporting unit is in excess of the carrying value. commencing with the third quarter of 2008. Goodwill affected by the change was reallocated from the previous seven reporting units to ten new reporting units. using a relative fair value approach.1 billion after tax) related to Latin America Consumer Banking. 21 .1 billion after tax) related to EMEA Consumer Banking. These and other factors. The changes in the management structure during 2008 resulted in the creation of new business segments.GOODWILL Citigroup has recorded on its Consolidated Balance Sheet Goodwill of $27. Global Transaction Services. The ten new reporting units. If the amount of the goodwill allocated to the reporting unit exceeds the implied fair value of the goodwill in the pro forma purchase price allocation. 2007. the Company primarily employed the market approach for estimating fair value of the reporting units.S. When required. the Company operated in four core business segments as discussed on page 138. which remain unchanged at December 31.1 billion (approximately 1. 2008 balance is net of a $9. This deterioration further weakened the near-term prospects for the financial services industry. respectively. The DCF method used at the time of each impairment test used discount rates that the Company believes adequately reflected the risk and uncertainty in the financial markets generally and specifically in the internally generated cash flow projections. The following summary describes Citigroup’s process for accounting for goodwill and testing for impairment. such as the market approach (earnings multiples and/or transaction multiples) and/or discounted cash flow methods (DCF).

there was an indication of impairment principally due to the decline in fair value of the Company’s North America Consumer Banking. could significantly affect the Company’s impairment evaluation and. Furthermore. The selection of the actual multiple considers operating performance and financial condition such as return on equity and net income growth of Securities and Banking as compared to the guideline companies and acquisitions. The sum of the fair values of the reporting units significantly exceeds the overall market capitalization of the Company. the value was derived assuming a return to historical levels of core-business profitability for the reporting unit. restoring marketplace confidence and improved risk-management practices on an industry-wide basis. due to the rapid deterioration in the financial markets as well as in the global economic outlook particularly during the period beginning mid-November and through year end December 2008. In addition. 2008 (as discussed below) to reflect current economic conditions. Since none of the Company’s reporting units are publicly traded. Citigroup performed two goodwill impairment tests during the fourth quarter of 2008. the second step of testing was performed for those reporting units. While no impairment was noted in step one of our Securities and Banking reporting unit impairment test at October 31. management tests goodwill for impairment annually as of July 1. The goodwill allocated to this reporting unit was approximately $9.7 billion after tax) goodwill impairment charge in the fourth quarter of 2008. 22 . include the increased possibility of further government intervention. hence. The Company used the 2008 Strategic Plan as a basis for its annual goodwill impairment test performed as of July 1. therefore. 2008. the Company believes that it is not meaningful to reconcile the sum of the fair values of the Company’s reporting units to its market capitalization due to several factors. For those interim impairment tests. Based on the updated goodwill impairment test performed using data as of December 31. the market capitalization of Citigroup reflects the execution risk in a transaction involving Citigroup due to its size. This assumption is based on management’s view that this recovery will occur based upon various macro-economic factors such as the recent U. Under the market approach for valuing this reporting unit. unprecedented levels of volatility in stock price and short-selling. and selected 2013 as the terminal year. which do not directly impact the individual reporting unit fair values. the earnings multiples and transaction multiples were selected from multiples obtained using data from guideline companies and acquisitions. such as a significant adverse change in the business climate. 2008.8 billion as of December 31. 2008. 2008 and December 31. The Company is also required to test goodwill for impairment whenever events or circumstances make it more likely than not that impairment may have occurred. These factors.The Company prepares formal three-year Strategic Plans for its businesses and presents the plans to the Board of Directors. 2008. In 2013. 2008. the Company could potentially experience future material impairment charges with respect to the goodwill remaining in our Securities and Banking reporting unit. The primary cause for the decline in the fair values in the above reporting units was the rapid deterioration in the financial markets as well as in the global economic outlook particularly during the period beginning mid-November through year end 2008. 2008. 2008 test validated that the fair values exceeded the carrying values for all reporting units. Tangible Capital or the Company’s liquidity position.S. Small deterioration in the assumptions used in the valuations. individual reporting unit fair value determinations cannot be directly correlated to the Company’s stock price. These projections incorporated certain external economic projections developed at the point in time the Strategic Plan was developed. Company-specific actions such as its recently announced realignment of its businesses to optimize its global businesses for future profitable growth. Latin America Consumer Banking and EMEA Consumer Banking reporting units. Any such charges by themselves would not negatively affect the Company’s Tier 1 and Total Regulatory Capital Ratios. government stimulus actions. The testing for goodwill impairment is conducted at a reporting unit level. Based on the results of the second step. the Company recorded a $9. goodwill present in that reporting unit may be particularly sensitive to further deterioration in economic conditions. management determined that another goodwill impairment test was needed using data as of December 31. The first test. will also be a factor in returning the Company’s core Securities and Banking business to historical levels. The results of the July 1. Based on negative macro-economic and Citigroup-specific events. that there was no indication of goodwill impairment. validated that the fair value of all reporting units was in excess of the associated carrying values and. the Company utilized revised economic projections incorporating the rapidly deteriorating market outlook. As discussed above. If the future were to differ adversely from management’s best estimate of key economic assumptions and associated cash flows were to decrease by a small margin. 2008 and December 31. Accordingly. In mid-January. This charge resulted in the write-off of the entire amount of goodwill allocated to those reporting units. despite the significant losses experienced in 2008. in particular the discount rate and growth rate assumptions used in the net income projections. results. a decision to sell or dispose of all or a significant portion of a reporting unit or a significant decline in the Company’s stock price. the Company utilized a discount rate which it believes reflects the risk and uncertainty related to the projected cash flows. performed as of October 31. However. However.6 billion pretax ($8. For the valuation under the income approach. The financial forecasts were updated for the interim impairment tests as of October 31. the individual reporting unit’s fair values are not subject to the same level of execution risk or a business model which is perceived to be complex.

The U. as well as Smith Barney and Primerica Financial Services.S. Disputes over interpretations of the tax laws may be subject to review/ adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit. the U. which is funded by non-tax deductible dividends. utilization of foreign tax credits is restricted to 35% of foreign source taxable income in that year. if necessary. its states and municipalities and the foreign jurisdictions in which the Company operates. In addition.INCOME TAXES The Company is subject to the income tax laws of the U. the “core” businesses have been negatively affected by the large increase in consumer credit losses during this sharp economic downturn cycle. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. the Company has sufficient tax planning strategies. The Company’s net deferred tax asset (DTA) of $44. the Company must make judgments and interpretations about the application of these inherently complex tax laws. overall domestic losses that the Company has incurred of approximately $35 billion are allowed to be reclassified as foreign source income to the extent of 50% of domestic source income produced in subsequent years and are in fact sufficient to cover the foreign tax credits being carried forward. Taking these items into account. The Company has concluded that there is sufficient positive evidence to overcome this negative evidence. selling appreciated intangible assets and electing straight-line depreciation). Regarding the estimate of future taxable income.5 billion in foreign tax credit carryforwards. The positive evidence includes two means by which the Company is able to fully realize its DTA.5 billion. These “core” businesses have produced steady and strong earnings in the past. First. accelerating taxable income into or deferring deductions out of the latter years of the carryforward period with reversals to occur after the carryforward period (e. As a result of the losses incurred in 2008. 23 . The Company treats interest and penalties on income taxes as a component of income tax expense. Deferred tax assets (DTAs) are recognized subject to management’s judgment that realization is more likely than not.S. Deferred taxes are recorded for the future consequences of events that have been recognized in the financial statements or tax returns. such as the announced Smith Barney joint venture with Morgan Stanley with an estimated pretax gain of $9. as opposed to debt type securities. These strategies include repatriating low taxed foreign earnings for which an APB 23 assertion has not been made. the sale or restructuring of certain businesses. the Company forecasts sufficient taxable income in the carryforward period. In addition. 2009 and for which SFAS 123(R) did not permit any adjustment to such DTA at December 31. its funding structure has been changed by the issuance of preferred stock. the Company would need to generate approximately $85 billion of taxable income during the respective carryforward periods to fully realize its federal.5 billion of net U. however. as well as tax planning opportunities and other factors discussed below.9 billion in compensation deductions which reduced additional paid-in capital in January. Based upon the foregoing discussion. Due to the passage of the American Jobs Creation Act of 2004. The major components of the U.S. Federal DTA are $10. The Company has already taken steps to reduce its cost structure. 2008.g. both domestic and foreign. $4.5 billion is more likely than not based on expectations as to future taxable income in the jurisdictions in which it operates and available tax planning strategies.S.9 billion in net deductions which have not yet been taken on a tax return. exclusive of tax planning strategies. 2008 because the related stock compensation was not yet deductible to the Company.S. even under stressed scenarios. the Company believes that the realization of the recognized net deferred tax asset of $44. The Company must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. in an amount sufficient to fully realize its DTA.5 billion are deferred tax liabilities of $4 billion that will reverse in the relevant carryforward period and may be used to support the DTA. The amount of the deferred tax asset considered realizable. The Company has taken steps to ring-fence certain legacy assets to minimize any losses from the legacy assets going forward..5 billion consists of approximately $36. which are funded by tax deductible interest payments. In addition. and New York State and City net operating loss carryforward period of 20 years provides enough time to utilize the DTAs pertaining to the existing net operating loss carryforwards and any NOL that would be created by the reversal of the future net deductions which have not yet been taken on a tax return. could be significantly reduced in the near term if estimates of future taxable income during the carryforward period are significantly lower than forecasted due to further decreases in market conditions. A cumulative loss position is considered significant negative evidence in assessing the realizability of a DTA. During 2008. Federal DTAs. as defined in SFAS 109. the foreign source taxable income limitation will not be an impediment to the foreign tax credit carryforward usage as long as the Company can generate sufficient domestic taxable income within the 10-year carryforward period. the Company has projected its pretax earnings based upon the “core” businesses that the Company intends to conduct going forward. See Note 11 to the Consolidated Financial Statements on page 152 for a further description of the Company’s tax provision and related income tax assets and liabilities. $4 billion of net state DTAs and $4 billion of net foreign DTAs. the Company is in a three-year cumulative pretax loss position at December 31. can produce significant taxable income within the relevant carryforward periods. $19.6 billion in a general business credit carryforward. Included in the net federal DTA of $36. to prevent a carryforward from expiring. based upon enacted tax laws and rates. $0. state and local DTAs. In establishing a provision for income tax expense. that could be implemented if necessary to prevent a carryforward from expiring. and $0. The Company has also examined tax planning strategies available to it in accordance with SFAS 109 which would be employed.6 billion in a net operating loss carryforward. foreign tax credit carryforward period is 10 years. the Company is projecting that it will generate sufficient pretax earnings within the 10-year carryforward period alluded to above to be able to fully utilize the foreign tax credit carryforward. holding onto AFS debt securities with losses until they mature and selling certain assets which produce tax exempt income. including potential sales of businesses and assets that could realize the excess of appreciated value over the tax basis of its assets. Secondly. Although realization is not assured.. in addition to any foreign tax credits produced in such period. As such. while purchasing assets which produce fully taxable income. In general.

investment advisor or reporting company. The Company reviews outstanding claims with internal counsel. underwriter. to assess probability and estimates of loss. than the amount of the recorded reserve. regulatory and other proceedings and claims arising from conduct in the ordinary course of business. ACCOUNTING CHANGES AND FUTURE APPLICATION OF ACCOUNTING STANDARDS See Note 1 to the Consolidated Financial Statements on page 122 for a discussion of “Accounting Changes” and the “Future Application of Accounting Standards. The risk of loss is reassessed as new information becomes available. or lower. including acting as a lender. as well as external counsel when appropriate. See Note 30 to the Consolidated Financial Statements on page 214 and the discussion under “Legal Proceedings” beginning on page 227. The actual cost of resolving a claim may be substantially higher.” 24 . Reserves are established for legal and regulatory claims in accordance with applicable accounting requirements based upon the probability and estimability of losses.LEGAL RESERVES The Company is subject to legal. These proceedings include actions brought against the Company in its various roles. broker-dealer. and reserves are adjusted as appropriate.

974 $(1.087 $21.010 1.443 $ (654) $20.003) (606) (3.611 $ 1.292 164 $(20.617 2006 $ 3. 2007 NM NM (60)% (35) (96)% NM NM NM 37% NM NM 42% (21) (94) NM (32)% 9 (22) NM (45)% 43% NM NM NM % Change 2007 vs.410 $(27.209 23 48 163 $ 1.989 628 $ 3.900) 1.661) $ 2.003 1.157 $(6.848 $(4.533 2.674 $ 780 (122) 660 839 $ 2.112 1.SEGMENT AND REGIONAL—NET INCOME (LOSS) AND REVENUES The following tables present net income (loss) and revenues for Citigroup’s businesses on a segment view and on a regional view for the respective periods: CITIGROUP NET INCOME (LOSS)—SEGMENT VIEW In millions of dollars 2008 $ (529) (117) 491 321 166 2007 $ 2.684) 25 .102) 1.822) 1.956 $ 8.280) $(20.233 496 $ 4.094) 4.733) (1.978 $ 4.155) $ 1.538 % Change 2008 vs.451 1.887 121 652 318 $ 4.091 $ $(32.471) (1.002 5 1.415 77 72 410 $ 1.151 $(12.713 232 1. 2006 (30)% 92 89 56 (6)% (81)% NM (34) (21) (64)% NM NM 47% 46 NM 17% NM 50 NM 37% NM (85)% (42) (83)% Global Cards North America EMEA Latin America Asia Total Global Cards Consumer Banking North America EMEA Latin America Asia Total Consumer Banking Institutional Clients Group (ICG) North America EMEA Latin America Asia Total ICG Global Wealth Management (GWM) North America EMEA Latin America Asia Total GWM Corporate/Other Income (loss) from continuing operations Income from discontinued operations Net income (loss) NM Not meaningful $ $ (9.630 2.073 $ 3.117) $ 968 84 56 (17) (954) $ 1.063 $ 6.

956 1.533 3.630 1.822) 1.573) 673 77 $(1.106) 1.003) (20.209 $12.538 26 .415 $(1. 2007 NM NM NM NM 47% (32) NM NM NM 42% 18 49 9 (2)% (60)% NM (21) (37) 29 (22) NM (35)% 37 (94) NM 22 NM (65)% 43% NM NM NM % Change 2007 vs.631 $ 121 5 2.063 1.713 780 (6.684) $ 3.002 3.151 164 (988) 1.887 4.900) (2. 2006 (30)% (81) NM NM 98 17 NM 92% NM NM NM 45 NM NM 89% (34) 47 43 59 50 28% 56% (21) 46 42 55 NM 31% NM (85)% (42) (83)% North America Global Cards Consumer Banking ICG Securities and Banking Transaction Services GWM Total North America EMEA Global Cards Consumer Banking ICG Securities and Banking Transaction Services GWM Total EMEA Latin America Global Cards Consumer Banking ICG Securities and Banking Transaction Services GWM Total Latin America Asia Global Cards Consumer Banking ICG Securities and Banking Transaction Services GWM Total Asia Corporate/Other Income (loss) from continuing operations Income from discontinued operations Net income (loss) NM Not meaningful $(29.152 (17) (954) $ 2.471) (20.593 $(1.733) (6.010 1.500 $ (654) $20.983) $ 321 1.848 1.292 765 527 56 $ 2.003 1.035) $ (117) (606) (1.004 84 $ (1.094) 4.713) $ 1.619 $ $(32.159 $ 652 1.759) 288 968 2007 $ 2.617 2006 $ 3.112 854 258 48 $ (1.929) 196 1.904 944 410 $ 4.434 99 1.410 $(27.233 660 1.815 $ 318 1.595 $ 496 839 2.CITIGROUP NET INCOME (LOSS)—REGIONAL VIEW In millions of dollars 2008 $ (529) (9.661) $ 2.102) (2.825) $ 232 (122) (1.989 628 $ 3.547 463 23 % Change 2008 vs.087 $21.741) $ 491 (3.221 409 72 $ 3.345 611 163 $ 1.451 1.

592 3.177 $ (944) $86.635 $13.339 $13.959 5.185 5.740 5.206 8.803 2.812 $15.740 $ 9.817) $ 9.458 $ (3.292 $12.998 $ (752) $78.207 $ 16.256 $ (7.766 $30.345 $ 12.991 2.565 $ 20.905 1.652 $(22. 2006 — 62% 76 21 16% 9% 21 12 9 11% NM (52)% 36 45 (55)% 11% 64 17 NM 28% 20% (9)% Global Cards North America EMEA Latin America Asia Total Global Cards Consumer Banking North America EMEA Latin America Asia Total Consumer Banking ICG North America EMEA Latin America Asia Total ICG GWM North America EMEA Latin America Asia Total GWM Corporate/Other Total net revenues NM Not meaningful $ 52.601 $ (850) 2007 $13.797 $29.596 3.051 $16.310 $26.400 $23.647 $ 8.235 4.726 1.477) 5.495 2006 $13.327 % Change 2008 vs.976 $19.295 604 357 2.812 5.299 2.758 3.059 3.955 4.091 5.040) 4. 2007 (26)% 19 4 7 (12)% (2)% 4 (5) (6) (3)% NM 32% (9) (37) NM (5)% 11 (4) 2 (3)% (13)% (33)% % Change 2007 vs.790 331 318 738 $10.470 $ 28.526 2.017 2.790 543 373 2.032 8.205 2.326 5.627 2.793 27 .893 1.CITIGROUP REVENUES—SEGMENT VIEW In millions of dollars 2008 $ 10.485 4.

327 % Change 2008 vs.634 $ 1.400 5. 2006 — 9% NM NM 26 11 (27)% 62% 21 (52) (78) 30 64 (25)% 76% 12 36 37 34 17 37% 21% 9 45 48 36 NM 37% 20% (9)% North America Global Cards Consumer Banking ICG Securities and Banking Transaction Services GWM Total North America EMEA Global Cards Consumer Banking ICG Securities and Banking Transaction Services GWM Total EMEA Latin America Global Cards Consumer Banking ICG Securities and Banking Transaction Services GWM Total Latin America Asia Global Cards Consumer Banking ICG Securities and Banking Transaction Services GWM Total Asia Corporate/Other Total net revenue NM Not meaningful $ 52.976 5.454 2.128 373 $13.905 15.828 $ (752) $78.592 2.292 $18.812 2.741 2.401 357 $ 13.790 $37.477) (24.290 8.955 2.803 4.206 3.567 $ 2.797 8.495 2006 $13.470 5.256 2.222 3.339 6.145 $ 2.CITIGROUP REVENUES—REGIONAL VIEW In millions of dollars 2008 $ 10.740 3.017 3.585) 2.959 3.627 (22.108 9.766 4.596 5.793 28 .758 6.040) (4.623 9.235 1.411 1.345 $ 15.059 8.663) 1.253 $ 1.205 2.091 2.147 331 $12.515 2.299 16. 2007 (26)% (2) NM NM 30 (5) (63)% 19% 4 32 53 21 11 21% 4% (5) (9) (22) 24 (4) (3)% 7% (6) (37) (58) 17 2 (17)% (13)% (33)% % Change 2007 vs.790 $51.485 4.790 $ (944) $86.991 (3.032 11.719 738 $13.295 $ 13.526 13.185 4.006 2.370 604 $ 11.078 1.636 $ (850) 2007 $13.333 2.118 $ 5.047 1.611 2.565 5.310 5.781 543 $ 9.218 $ 4.326 2.353 $ 2.251 840 318 $ 9.893 16.875 $ 1.742 1.744 $ 2.726 3.

326 5.299 2.9 188. 4% and 7% in EMEA. 29 .976 $19.955 4. 2007 Global Cards revenue decreased 12%. the Upromise Cards portfolio sale.725 11.400 $23.051 $ 2. 2007 5% (28) (12)% — 73 (99)% NM 18 (96)% (26)% 19 4 7 (12)% NM NM (60)% (35) (96)% 6% % Change 2007 vs.324 3. respectively. as well as the acquisitions of Egg. Non-interest revenue decreased by 28% primarily due to lower securitization results in North America.6 389.0 186.978 $13. which was more than partially offset by a current period gain from the initial public offering of Visa shares. revenues increased by 19%.674 $13. a 26% revenue decline was driven by lower securitization revenues. repositioning/restructuring charges of $184 million and FX translation were offset by a $292 million pretax Visa litigation-related charge in 2007.152 $ 7. sales of Redecard shares of $729 million (2007) and $663 million (2008).GLOBAL CARDS % Change 2008 vs.940 $20. net of interest expense Operating expenses Provisions for loan losses and for benefits and claims Income before taxes and minority interest Income taxes Minority interest. reorganization.726 1.887 121 652 318 $ 4. Latin America and Asia. Results include the impact of foreign currency translation gains related to the strengthening of local currencies (generally referred to hereinafter as “FX translation”). The pretax gain on the sale of DCI in 2008 impacted EMEA. initial public offering and subsequent sales of Visa shares of $447 million (2007) and $523 million (2008).355 3 $ 4.336 2.6 billion in the residual interest in securitized balances.556 9. net of taxes Net income Revenues.978 $ 98 5. and Bank of Overseas Chinese.369 $23.963 2. respectively. Net interest revenue was 5% higher than the prior year primarily driven by growth in average loans of 9%. Current-year revenues were also 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 the sale of MasterCard shares of $7 million. which reflected the impact of higher credit losses in the securitization trusts. Latin America and Asia by $34 million.893 1. Current-year revenues were also impacted by a lower pretax gain on the sale of Visa shares: EMEA was favorably impacted by $18 million.205 2. Grupo Cuscatlán. acquisitions.6 $ 90. The residual interest was primarily affected by deterioration in the projected credit loss assumption used to value the asset.905 1.713 232 1. $17 million and $31 million. Latin America and Asia. In North America. respectively.5 $ 73.682 12. The change in revenue was also impacted by the absence of a $393 million prior-year gain on the sale of MasterCard shares. Outside of North America.3 434. net of interest expense. Grupo Financiero Uno. $ $10.674 2006 $ 8.267 8.017 2. Lower securitization revenue was also driven by a write-down of $1. These increases were driven by double-digit growth in purchase sales and average loans in all regions.278 11 $ 4.207 $ (529) (117) 491 321 $ $ 166 119 $ 112 0. Operating expenses were flat as the impact of higher credit management costs.0 436. partially offset by a decline in payment rates across all portfolios.207 10.051 10.812 9.17% $ 82. $201 million and $29 million.087 $19. and the DCI sale resulting in pre-tax gains of $349 million.517 $ 6. $37 million and $21 million for EMEA. Results were also impacted by the following pretax gains: sale of MasterCard shares of $466 million (2007).233 496 $ 4.1 9 — (7) 12 12 1 2008 vs.571 5.556 $ 95 (84) 13 166 2007 $10. by region: North America EMEA Latin America Asia Total revenues Net income (loss) by region: North America EMEA Latin America Asia Total net income Average assets (in billions of dollars) Return on assets Key indicators (in billions of dollars) Average loans Purchase sales Open accounts NM Not meaningful.14% 4.565 $20. Average loans were lower by 1% due to lower purchase sales (4%) and balance transfers. respectively. Upromise Cards portfolio sale of $201 million (2008) and DCI sale of $111 million (2008). 2006 22% 12 16% 13 75 (5)% (3) NM (6)% — 62% 76 21 16% (30)% 92 89 56 (6)% 14% In millions of dollars 2008 $11. respectively.08% Net interest revenue Non-interest revenue Revenues.803 2.812 $ 3.0 175. a $159 million pretax Visa litigationrelated release and a $36 million pretax legal vehicle restructuring in Mexico in 2008. Purchase sales were flat. while Latin America and Asia were unfavorably impacted by $147 million and $103 million.

up $1. and a higher loan loss reserve build. Results also include the impact of FX translation and acquisitions.0 billion in loan loss reserve builds. Latin America and Asia. which were up $168 million. These increases include the impact of pretax gains of $729 million on the sale of Redecard shares. Provisions for credit losses and for benefits and claims increased $2. respectively. Higher net credit losses were driven by Mexico. See “Outlook for 2009” on page 7 and “Risk Factors” on page 47. and the continued acceleration in the rate at which delinquent customers advanced to write-off. Latin America and Asia. The weak global economy.240 million and $322 million in EMEA. is expected to have an adverse effect on credit quality with increases expected in both delinquencies and credit losses. Citigroup intends to continue to focus on offering credit and payment solutions to consumers and small businesses globally by leveraging its global distribution network locally. A net charge to increase loan loss reserves related to an increase in reported receivables as maturing securitizations resulted in on-balance sheet funding. $143 million and $89 million in EMEA. which were up $324 million. the impact of acquisitions. credit costs increased by $605 million. driven by higher net credit losses. credit costs increased $1. Brazil and India. Outside of North America. In North America.7 billion in loan loss reserve builds primarily reflecting a weakening of leading credit indicators. During 2009. offset by lower securitization revenues. Results also include the impact of FX translation.S. Higher credit costs reflected a weakening of leading credit indicators. shares and $65 million on the sale of MasterCard shares. Operating expenses were up 13% driven by a Visa litigation-related pretax charge of $292 million. and a change in During 2009. $473 million and $32 million in EMEA. respectively. respectively. and also higher business volumes. Purchase sales and average loans were up 33% and 46%. respectively. OUTLOOK FOR 2009 Total Global Cards revenue increased 16%. Latin America and Asia. Provisions for loan losses and for benefits and claims increased substantially. $657 million and $144 million in EMEA. In North America. along with volume growth and credit deterioration in certain countries. These increases were driven by higher net credit losses. These increases were driven by higher business volumes. rising unemployment trends. up $916 million or 44%. respectively. up $936 million. See “TARP and Other Regulatory Programs – Implementation and Management of TARP Programs” on page 44.4 billion reflecting an increase of $0. Also contributing to the increase were higher loan loss reserve builds. higher business volumes. Citigroup’s credit card businesses are expected to experience continued challenging economic and credit conditions. higher bankruptcy filings. Latin America and Asia.0 billion in net credit losses and $2. Citigroup’s management and reporting realignment will result in the restructuring of these businesses. revenues increased by 62%. Also contributing to the increase were higher loan loss reserve builds. government to offer special credit card programs that include expanded eligibility for balance-consolidation offers. 2006 estimate of loan losses inherent in the portfolio but not yet visible in delinquency statistics. driven by a higher loan loss reserve build. $616 million and $121 million in EMEA. credit management costs. 30 . as well as the impact of acquisitions. $1. Expense growth in 2007 was favorably impacted by the absence of the charge related to the initial adoption of SFAS 123(R) in 2006.4 billion. Outside of North America. In North America. Net income was also affected by the absence of a prior-year $153 million tax benefit resulting from the resolution of a federal tax audit. Non-interest revenue increased by 12% primarily due to a $729 million pretax gain on Redecard shares. $583 million and $178 million in EMEA. Higher past-due accounts in Mexico cards and the integration of the CrediCard portfolio also contributed to the increase. 76% and 21% in EMEA. Outside of North America. respectively. This increase was partially offset by lower securitization revenues primarily reflecting the net impact of higher funding costs and higher credit losses in the securitization trusts. Latin America and Asia. and repositioning charges. which were up $281 million.9 billion. and higher business volumes. The increase in provision for loan losses also reflects the absence of loan loss reserve releases recorded in the prior year.Provisions for credit losses and for benefits and claims increased $4. the integration of the CrediCard portfolio.1 billion. 2007 vs.0 billion reflecting an increase of $2. respectively.7 billion in net credit losses and $1. Latin America and Asia. respectively. and higher net credit losses. trends in the macro-economic environment. In addition. as well as higher net credit losses. a pretax gain on the sale of Visa International Inc. revenues were flat reflecting a pretax gain on the sale of MasterCard shares of $393 million in 2007. to enable the Company to focus on driving the performance of its core cards business (branded cards) and realize value from the non-core cards businesses (private label cards). up $0. as well as an increase in bankruptcy filings in 2007 versus unusually low filing levels experienced in 2006. Citigroup is also taking appropriate repricing actions that reflect the changing credit situation. which were up $34 million. including a change in estimate of loan losses inherent in the loan portfolio but not yet visible in delinquency statistics. effective for reporting purposes in the second quarter of 2009. Net interest revenue was 22% higher than the prior year primarily driven by growth of 12% in both average loans and purchase sales. shares of $447 million and a pretax gain on the sale of MasterCard shares of $458 million in 2007. Latin America and Asia. Purchase sales were up 6% and average loans were down 7%. credit costs increased by $203 million. coupled with higher unemployment and bankruptcy filings. including the housing market downturn. targeted increases in credit lines and targeted new account originations. a downturn in other economic trends including unemployment and GDP affecting all other portfolios. credit costs increased $1. The Company also anticipates deploying TARP funds received from the U.3 billion. $447 million on the sale of Visa International Inc.

primarily due to a 27% decline in investment sales and a loss from the mark-to-market on the MSR asset and related hedge in North America.635 14. higher business volumes. net of taxes Net income (loss) Revenues. as growth in average loans and deposits of 5% and 4%.540 3.470 $ 28. net of interest expense Operating expenses Provisions for loan losses and for benefits and claims Income (loss) before taxes and minority interest Income taxes Minority interest.720 $ 28. excluding CFJ— provision for loan losses and for benefits and claims CFJ—net income (loss) Consumer Banking.354) 11 $(12. partially offset by a $221 million benefit related to a legal vehicle repositioning in Mexico. and a shift towards higher yielding products.740 $ 1.653 19.932 6.959 5.652 26.741 8.157 $16.827 $ 1.185 5.568 billion goodwill impairment charge.797 $29.677 $ 547 $ 572 (2. respectively.1 $ 236. Revenues in Latin America were down 5%.730 $ 380.059 3. excluding CFJ—net income (loss) Average assets (in billions of dollars) Return on assets Key indicators (in billions of dollars) Average loans Average deposits Accounts (in millions) Branches NM Not meaningful 2008 $ 21.30% $ 330.0 $ 276. In North America.7 7.280) $ 726 21.426) 2. respectively.421 18. excluding CFJ—NIR CFJ—operating expenses Consumer Banking.38% $ $ 395. as growth of 4% in average loans and 4% in deposits was partially offset by a Net interest revenue decline in Japan Consumer Finance (CFJ). Asia revenues decreased 6%. mainly due to lower mortgage servicing revenue.270 2.310 $26.986 7.151 $(12.24)% 0.4 79.707 $ (133) 6. Net interest revenue was 6% higher than the prior year. improved net interest margin and the impact of the Egg acquisition.822) 1.336 2007 $20.003 1.458 16. respectively. primarily due to increased average loans and deposits.247 2008 vs. Non-interest revenue declined 23%. excluding CFJ—operating expenses CFJ—provision for loan losses and for benefits and claims Consumer Banking. Excluding CFJ. 2006 6% 9% (23) 14 (3)% 63 82 NM NM (74)% NM (2)% 4 (5) (6) (3)% NM NM NM 37% NM (36)% 8 (36)% 67 (6)% 96 NM NM (4)% 4 4 (1) (6) 11% 12 NM (71)% (92) (30) (64)% 9% 21 12 9 11% (81)% NM (34) (21) (64)% (28)% 13 (19)% 14 27% NM NM (57)% 22% 15 17 14 5 In millions of dollars Net interest revenue Non-interest revenue Revenues. Operating expenses growth of 63% was primarily driven by a $9.566 17.627 2.002 5 1.280) $ 16.3 $ 287.458 $ 780 (122) 660 839 2006 $18.206 $ 371 26. 31 .652 $ (9.991 2. an $877 million repositioning/restructuring charge and prior-year acquisitions.717 $29. increased credit management costs. was offset by a 36% total revenue decline in CFJ and lower investment product sales.635 $ 4. Excluding the impact from the mortgage servicing revenue. driven by growth in average loans and deposits. lower incentive compensation expenses and the absence of a prior-year write-down of customer intangibles and fixed assets in CFJ.282 $ 1.622 $(17. 2007 2007 vs.5 8. Revenues in EMEA increased by 4%.CONSUMER BANKING % Change % Change 2008 vs.135 19.206 $ 467 1. revenues increased 2%.381 181 43 $ 2.073 $15.420 $ 713 13.740 5. up 3% and 2%. 2007 Consumer Banking revenue declined 3%.526 2.073 $ 1. Net interest revenue was 9% higher than the prior year. total revenues decreased 2%.596 3. total revenues increased 4%. Non-interest revenue declined 29%.157 $ 1. mainly due to spread compression and lower revenues from the Chile divestiture not being fully offset by average loan and deposit growth of 14% and 4%.826 $ 2.316 10.286 9.5 7.485 4.7 78.761 $ 2.7 69.003) (606) (3.118 2. by region: North America EMEA Latin America Asia Total revenues Net income (loss) by region: North America EMEA Latin America Asia Total net income (loss) Consumer Finance Japan (CFJ)—NIR Consumer Banking. net of interest expense.649 $26.340 146 $ (520) (12.606 $ 576 15.136 61 $ 6.825 $ 8.063 $ 6.623) (5.

72%. primarily driven by the ABN AMRO integration. Mexico and India. Net interest revenue was 9% higher than the prior year. Credit costs in Asia increased 27% primarily driven by a $234 million incremental pretax charge to increase loan loss reserves.107 billion goodwill impairment charge. Asia expenses increased 9%.2 billion higher net credit losses and $4. Expenses increased $4. higher gains on sales of mortgage loans and growth in net servicing revenues. up 56%. due to $1. volume growth and repositioning/restructuring charges in 2008. The increase in expenses was partially offset by savings from the structural expense initiatives announced in April 2007 and the absence of the charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006. 712 Retail Banking and Consumer Finance branches were opened or acquired. Higher credit costs reflected a weakening of leading credit indicators. The growth of the loan portfolio also contributed to the increase in credit costs.1 billion incremental pretax charge to increase loan loss reserves. The increase in Provision for loan losses also reflects the absence of loan loss reserve releases recorded in the prior year. EMEA expenses were up 20% primarily due to business growth. Higher credit costs reflected a weakening of leading credit indicators including delinquencies in first and second mortgages and deterioration in the housing market. respectively. and an $174 million incremental net charge to increase loan loss reserves. as well as trends in the macro-economic environment. Net interest margin declined mainly due to an increase in the cost of funding driven by a shift to higher cost Direct Bank and time deposits. Credit costs in Asia increased 55% primarily driven by higher net credit losses. Asia revenues increased 9%. EMEA expenses were up 21% primarily due to the impact of a $203 million goodwill impairment charge. This increase was partially offset by the absence of $163 million pretax gain from the sale of upstate New York branches in the prior-year period.90%. and higher investment product sales were offset by a 27% total revenue decline in CFJ. Revenues in Latin America increased 12% versus the prior year driven by growth in average loans and deposits of 29% and 14%. The net credit loss ratio increased 57 bps to 2. partially offset by lower expenses in CFJ.4 billion higher loan loss reserve build.). mainly due to the restructuring of legal vehicles in Japan. as well as a $2. and a $317 million incremental pretax charge to increase loan loss reserves. and portfolio growth. as growth in average loans and deposits of 13% and 8%. primarily in North America. Non-interest revenue increased 10%. and increased investment spending due to 202 new branch openings in 2007 (110 in CitiFinancial and 92 in Citibank. repositioning/restructuring charges in 2008. higher collection costs. and increased investment spending due to new branch openings.5 billion.36%. Credit costs in Latin America increased substantially driven by a $151 million incremental net charge to increase loan loss reserves and higher net credit losses. partially offset by a decline in incentive compensation and the benefits from reengineering efforts. auto and unsecured personal loans. The net credit loss ratio increased 46 bps to 1. prior-year acquisitions. a $530 million repositioning/ restructuring charge. Consumer Banking Operating expenses increased 12%. credit costs increased $394 million. respectively.8 billion. reflecting significantly higher net credit losses in North America.93%. a downturn in other economic trends including unemployment and GDP affecting all other portfolios and a change in estimate of loan losses inherent in the portfolio but not yet visible in delinquency statistics. including the housing market downturn. Provisions for credit losses and for benefits and claims increased $8. primarily driven by a $5. primarily due to a 17% increase in investment product sales and the impact of foreign currency translation.6 billion incremental pretax charge to increase loan loss reserves. primarily due to higher net credit losses in Mexico. as well as the impact of acquisitions. Asia results include a tax benefit of $850 million in the fourth quarter of 2008. Expenses also included a $152 million write-down of customer intangibles and fixed assets in CFJ recorded in the third quarter of 2007. Credit costs in North America increased by $7. including higher delinquencies in first and second mortgages. In North America. primarily in CFJ. 2007 vs. partially offset by the absence of a prior-year gain on the sale of Avantel of $234 million.Expenses were up 70% in North America. The increase in loan loss reserves reflects a change in estimate of loan losses inherent in the loan portfolio but not yet visible in delinquency statistics. primarily due to increased investment spending including expansion of the branch network. up 14% and 16%. and significantly higher net credit losses of $1.9 billion reflecting a $5. Excluding the goodwill impairment charge and the repositioning/restructuring charge. volume growth across all regions. primarily in North America.1 billion increase in net credit losses and a $2. Non-interest revenue increased 14%.258 billion goodwill impairment charge. Provisions for credit losses and for benefits and claims increased $6. Partially offsetting the increase was a $221 million benefit related to a legal vehicle repositioning in Mexico. revenues increased by 21% to $2. Credit costs in North America increased by $5. as well as increased credit costs especially in India. The 1% growth in Asia was primarily driven by the acquisition of the Bank of Overseas Chinese and higher volumes. partially offset by savings from the structural expense initiatives. total revenues increased 9%. mainly due to the impact of the acquisition of ABN AMRO in the first quarter of 2007. Results in 2007 include a $261 million pretax charge in CFJ to increase reserves for estimated losses due to customer settlements. During 2007. was partially offset by a decrease in net interest margin.2 billion increase in loan loss reserve builds across all portfolios. In Latin America. higher volume-related expenses. Expenses in Latin America increased 11%. The net credit loss ratio increased 168 bps to 2.04%. In EMEA. respectively. . EMEA credit costs increased 33% reflecting deterioration in Western European countries as well as net credit losses from the Egg acquisition. increased credit costs especially in India. North America expenses were up 12%. reflecting the impact of acquisitions.6 billion. as growth in average loans and deposits. higher collection and credit-related expenses and acquisitions. was partially offset by a decrease in net interest margin. The net credit loss ratio increased 28 bps to 2. acquisitions and FX translation. Expense growth in 2007 was favorably affected by the absence of the charge related to the initial adoption of SFAS 123(R) in the prior-year period. The net credit loss ratio increased 32 bps to 1. due to a $5.3 billion. 2006 Net interest revenue was 9% higher than the prior year as growth in average loans and deposits of 15% and 17% respectively. N. expenses increased 1%.9 billion. driven by strong growth in average loans and deposits and improved net interest margin and the impact of the Egg 32 acquisition. Higher credit costs in EMEA were due to an increase in net credit losses.A. primarily driven by higher business volumes and the impact of acquisitions.166 billion in Latin America primarily driven by a $4.

effective for reporting purposes in the second quarter of 2009. In EMEA. and providing loans to consumers and businesses facing liquidity problems. the continuing deterioration in the U. the Company will continue to actively monitor developments in customer refund claims and defaults. unemployment rates and political and regulatory developments in the region. political developments and the way courts view grey zone claims. 33 . With higher levels of unemployment and bankruptcy filings in 2009.S. Revenues will likely continue to be negatively affected by the significant U. delinquencies and defaults are expected to continue to increase. revenues.S. housing market could continue to adversely impact the cost of credit in the first mortgage and second mortgage portfolios. In North America. See “Outlook for 2009” on page 7 and “Risk Factors” on page 47. refunds and defaults. including the impact of foreign currency translation. See “TARP and Other Regulatory Programs – Implementation and Management of TARP Programs” on page 44.OUTLOOK FOR 2009 During 2009. The realignment will also allow the Company to seek to realize value from its other local consumer finance businesses. loan volumes are expected to decline as is consistent with tighter origination standards in view of the weak credit environment and exits in specific consumer finance businesses.S. net credit losses. The Company also anticipates deploying TARP funds received from the U. the outcome of which cannot be predicted. In Japan. credit costs and business drivers are expected to be affected by global economic conditions. In Latin America. government by making mortgage loans directly to homebuyers and supporting the housing market through the purchase of prime residential mortgages and mortgage-backed securities in the secondary market. Citigroup’s management and reporting realignment will result in the restructuring of these businesses. Investment sales and assets under management are expected to be lower due to weak capital markets and lower client confidence. resulting in a focus on the Company’s core assets within the regional consumer and commercial banking businesses. Citigroup’s global consumer business is expected to operate in a continued challenging economic and credit environment. and global economic downturn that has impacted customer demand and credit performance.

increased transaction volumes and the impact of acquisitions.976) $ (7. net of interest expense Operating expenses Provision for credit losses and benefits and claims Income (loss) before taxes and minority interest Income taxes (benefits) Minority interest.112 1.971 $(20.5 billion of losses in private equity and equity investments in the fourth quarter.812 5.054) 173 $ (4. net of interest expense. 2006 27% (93) (55)% 16 NM NM NM (22)% NM NM (52)% 36 45 (55)% (76)% 31 (55)% NM NM 47% 46 NM NM 55% NM In millions of dollars 2008 $ 19. net of interest expense by product: Securities and Banking Transaction Services Total revenues Net income (loss) by region: North America EMEA Latin America Asia Total net income (loss) Net income (loss) by product: Securities and Banking Transaction Services Total net income (loss) NM Not meaningful.4 billion of downward credit valuation adjustments on derivative positions. 2007 57% NM NM 8% NM NM NM NM NM NM 32% (9) (37) NM NM 22% NM NM 42% (21) (94) NM NM 34% NM % Change 2007 vs. net of hedges.6 billion gain related to the inclusion of Citi’s credit spreads in the determination of the market value of those liabilities for which the fairvalue option was elected.630 2.234 $(35.040) 4.437) 9.651 5.7 billion of downward credit market value adjustments related to exposure to Monoline insurers.647 18.9 billion of write-downs (net of underwriting fees) on funded and unfunded highly leveraged finance commitments.155) $ (6.242 million of repositioning/restructuring charges.7 billion of write-downs on ARS inventory.471) (1.758 3. Securities and Banking revenues included $14. $3.236 1.3 billion of write-downs on SIV assets.3 billion of write-downs on subprime-related direct exposure.155) $ (3.032 8.956 $ 8.740 $ (6.740 $ 5.620 $ (7.647 $ 3.206 8. by region: North America EMEA Latin America Asia Total revenues Total revenues. primarily driven by gains on CDS hedges. $2. growth in customer liability balances.817) $(17. net of interest expense were negative due to substantial losses related to the fixed income and credit markets.540 $ (9.431 $ 8. $4.102) 1. Transaction Services revenues grew 22% driven by new business wins and implementations. Negative Fixed Income Markets revenues were partially offset by a $4. $5.6 billion of write-downs on commercial real estate positions.533 2.865 $13.817) 22.235 4. $2.180 1.611 $ 7.242 1.117) $(23.052 223 $ 8.256 $ (7.010 1.229 532 $11.088) 2.1 billion. Operating expenses increased 4% in Securities and Banking reflecting $1.996 $30. whereas 2007 expenses 34 .155) 2006 $ 9.851 5.8 billion of write-downs on Alt-A mortgage securities.653 20. a $937 million Nikko Asset Management intangible asset impairment charge.886 3.900) 1. driven by the volatility and sharp declines in the global equity indices. 2008 vs. particularly in derivatives and convertibles. excluding Monolines.592 3.740 21.292 164 $(20. and write-downs of $413 million related to the ARS settlement.405) (380) $(20.222 $ (4. net of taxes Net income (loss) Revenues.817) $(20. Offsetting the negative revenues in Fixed Income and decline in Equities is the increase in Lending revenues of $1. $1. and an Old Lane intangible asset impairment charge of $202 million.611 Net interest revenue Non-interest revenue Revenues.036) (5.733) (1.INSTITUTIONAL CLIENTS GROUP (ICG) % Change 2008 vs. $4.611 $13.994 $30.498 $13.117) $(22.159 (26. 2007 Revenues.339 $13.477) 5. Equity Markets also suffered a decrease in revenues.875 7.902) (15.377) 2.848 $ (4.766 $30. due to failed auctions predominately in the first quarter of 2008 and deterioration in the credit markets.091 5.117) 2007 $12.6 billion to $4. $3.647 $24.

Transaction Services revenues increased 31% reflecting growth in liability balances. Nikko Cordial. The losses consisted primarily of approximately $18. transaction volumes and assets under custody mainly in Cash Management and Securities and Funds Services. net of interest expense decreased 55% driven by $20. . resulting in a focus on the Company’s core assets. in the U. net of underwriting fees. Growth in the transaction services business could be offset by lower interest rates and continued potential pressure on asset values.0 billion. Provisions for credit losses and for benefits and claims increased approximately $1. primarily due to a charge to increase loan loss reserves. The Company’s global Transaction Services business will continue to focus on generating earnings growth.5 billion pretax. Securities and Banking’s remaining $37. In addition. OUTLOOK FOR 2009 Revenues. Of this amount. Expense growth in 2007 was favorably affected by the absence of a $354 million charge related to the initial adoption of SFAS 123(R) in 2006 and a $300 million pretax release of litigation reserves in 2007.3 billion related to direct subprime-related exposures and write-downs of approximately $1.3 billion in U. This resulted in a $438 million pretax charge to compensation and benefits in connection with headcount reductions. of which $704 million was recorded in the fourth quarter. driven by higher net credit losses. as well as loan loss reserves for specific counterparties. Average liability balances grew 30% to $247 billion in 2007 as compared to 2006 due to growth across all regions. or both. Grupo Cuscatlán. Expenses increased 11% in Transaction Services due to higher expenses driven by organic business growth. such as its global Transaction Services and investment banking business.0 billion of subprime-related exposures in its lending and structuring business and (b) approximately $29. reflecting loan loss reserves for specific counterparties.7 billion of pretax write-downs and losses related to deterioration in the mortgagebacked and credit markets.2 billion of impairment was recognized on transactions that were unfunded as of December 31. in Equity Underwriting and in Lending. The Company intends to continue to manage down legacy positions that have proven illiquid to reduce future losses. and the Bisys Group acquisition. Default rates are expected to be at historic highs by the end of 2009 and could negatively impact the cost of credit. and $0. The decreases were offset partially by increased revenues in Equity Markets from cash trading and strong growth in equity finance. as well as a weakening in credit quality in the corporate credit environment and a $1. 2007 consisted of (a) approximately $8. derivatives on asset-backed securities.S. See “Outlook for 2009” on page 7 and “Risk Factors” on page 47. Operating expenses also increased driven by the implementation of a headcount reduction plan to reduce ongoing expenses.3 billion of impairment was recognized for transactions that had been funded as of December 31.1 billion increase in net credit losses mainly associated with loan sales. higher non-incentive compensation staff expenses and increased costs driven by the Bisys Group.S. reflecting positive flow from new and existing customers.3 billion of net exposures to the super senior tranches of CDOs which are collateralized by asset-backed securities. mainly from the commercial banking portfolio in the emerging markets. mainly from loans with subprime-related direct exposure. on funded and unfunded highly leveraged finance commitments. Citigroup’s management and reporting realignment will result in the restructuring of the Securities and Banking businesses. Subprime-related loans accounted for 35 During 2009. in Advisory from strong deal volumes. and globally. Provisions for credit losses and for benefits and claims in Securities and Banking increased.included $370 million of repositioning/restructuring charges. 2007 vs. Old Lane and ATD acquisitions. Operating expenses increased 16% due to higher business volumes. Transaction Services credit costs increased. effective for reporting purposes in the second quarter of 2009. 2007. primarily from an incremental net charge to increase loan loss reserves of $2. and a higher net charge to increase loan loss and unfunded lending commitment reserves reflecting a slight weakening in overall portfolio credit quality. leveraging its strong global platform and its ability to innovatively serve large multinational clients seeking to optimize their working capital. higher variable expenses related to sales and revenue growth. subprime net direct exposure as of December 31. partially offset by a $300 million release of litigation reserves. 2006 approximately $860 million of credit costs in 2007.5 billion. approximately $1. 2007. and managing and maximizing the value of its other legacy assets. the Company’s Securities and Banking businesses will continue to be significantly affected by the levels of and volatility in the global capital markets and economic and political developments.

998 $ 1. 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. GWM had 13. and GWM’s share of the ARS settlement penalty of $50 million in the third quarter.974 $ 9.147 703 — $ 1. 36 . net of interest expense increased 28% primarily due to the impact of acquisitions. including assets under fee-based management. classified and written-down as clients experienced liquidity depletion from failed markets and financial institutions. compared with 15.849 101 $ 3. $ 1. decreased $464 billion.048 1.922 8. 2007 Revenues. Provision for loan losses increased by $200 million. Net flows were $(25) billion. an increase in lending revenues across all regions and an increase in banking revenues in North America and EMEA.S. Total client assets.320 (25) 13.444 $ 8. branch transactional revenue and syndicate sales. net of interest expense by region: North America EMEA Latin America Asia Total revenues Net income (loss) by region: North America EMEA Latin America Asia Total net income Key indicators: (in billions of dollars) Total assets under fee-based management Total client assets Net client asset flows Financial advisors (FA) / bankers (actual number) Annualized revenue per FA / banker (in thousands of dollars) Average deposits and other customer liability balances Average loans NM Not meaningful.292 $12.255 $10.415 77 72 410 $ 1. driven by attrition in North America and Asia.438 14 13.784 15 15. 2007.765 financial advisors/bankers as of December 31. net of interest expense Operating expenses Provision for loan losses Income before taxes and minority interest Income taxes Minority interest.209 23 48 163 $ 1.548 301 $ 1.974 $ 507 1.454 880 117 54 2006 $ 1. as well as strong U. net of interest expense decreased 3% primarily due to the fall in investment revenues across regions and lower capital markets revenue in Asia and North America.174 10. These increases were partially offset by the impact of lower compensation costs and continued expense management.091 $ 332 1.790 543 373 2. while the increase in write-offs were evenly split between North America and Asia. 2007 21% (8) (3)% 7 NM (43)% (36) (84) (45)% (5)% 11 (4) 2 (3)% (32)% 9 (22) NM (45)% (35)% (26) NM (11) (4) 8 17 % Change 2007 vs. or 26%. 2008.443 $ 399 1.177 8. 2007 vs.824 $12. reflecting higher reserve builds of $149 million and increased write-downs of $51 million. the impact of acquisitions. an increase in fee-based revenues in line with the growth in fee-based assets.790 331 318 738 $10.765 849 126 63 2008 vs. an increase in international revenues driven by strong capital markets activity in Asia and growth in investment revenue in EMEA.694 740 107 42 Net interest revenue Non-interest revenue Revenues. Operating expenses increased 7% primarily due to higher repositioning/ restructuring charges of $298 million.295 604 357 2. partially offset by the impact of the Nikko Cordial acquisition. as well as the elimination of low performing bankers and advisors. 2006 Revenues.345 $12. The reserve builds and write-offs in 2008 reflect the impact on clients of deteriorating financial and real estate markets.006 24 $ 2. Loans were downgraded.979 $12.601 10.998 9. mainly reflecting the impact of market declines over the past year. net of taxes Net income Revenues. The consolidated revenue also includes the gain on sale of CitiStreet and charges related to the ARS settlement.622 9. 2006 13% 31 28% 23 NM 42% 45 — 37% 11% 64 17 NM 28% 17% NM 50 NM 37% 27% 24 7 13 19 9 29 In millions of dollars 2008 $ 2. The increase in reserve builds was primarily in North America.019 55 $ 1.454 as of December 31.752 652 9 $ 1.601 $ 968 84 56 (17) 2007 $ 2.GLOBAL WEALTH MANAGEMENT % Change 2008 vs.091 $ 9.177 $ 1.

the credit environment and unemployment rates. reflecting the inclusion of client assets from the Nikko Cordial and Quilter acquisitions.Total client assets. including Citi’s 49% stake in the Morgan Stanley Smith Barney Joint Venture and the Company’s Nikko Asset Management business. Operating expenses increased 23% primarily due to the impact of acquisitions. higher variable compensation associated with the increase in revenues. which is subject to and contingent upon regulatory approvals. of which Citigroup will share 49%. Provision for loan losses increased $77 million in 2007. such as the Private Bank. the completion of the Morgan Stanley Smith Barney joint venture is anticipated to occur in the third quarter of 2009. including further declines in client asset values. including assets under fee-based management. driven by the Nikko Cordial and Quilter acquisitions.454 financial advisors/bankers as of December 31. increased $346 billion. primarily driven by portfolio growth and a reserve for specific non-performing loans in the Private Bank. See “Outlook for 2009” on page 7 and “Risk Factors” on page 47. as well as organic growth. compared with 13.694 as of December 31. increased customer activity and charges related to headcount reductions. 37 . Citigroup’s management and reporting realignment will result in the restructuring of these businesses. Global Wealth Management had 15. will be derived from the profitability of the joint venture. or 24%. In addition. including the level of interest rates. resulting in a focus on the Company’s core assets within the businesses. Net flows increased slightly compared to the prior year. OUTLOOK FOR 2009 During 2009. as well as hiring in the Private Bank. 2006. Expense growth in 2007 was favorably affected by the absence of the charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006. Net income growth also reflected a $65 million APB 23 benefit in the Private Bank in 2007 and the absence of a $47 million tax benefit resulting from the resolution of 2006 Tax Audits. effective for reporting purposes in the second quarter of 2009. Citigroup’s businesses will continue to be negatively affected by the levels of and volatility in the capital markets. As previously announced. as well as the overall market and economic conditions. Joint venture profitability will be impacted by the ability of Smith Barney and Morgan Stanley to execute the planned integration. the disruption in the economic environment generally and credit costs. and continued efforts to maximize the value of other assets. 2007. a significant portion of the earnings in the joint venture. After the expected completion of the joint venture transaction.

661) 628 $(1. unallocated corporate expenses. Discontinued operations represent the sale of Citigroup’s German Retail Banking Operations and CitiCapital. For 2006.150) (498) 2 $ (654) 1.456 Revenues.288) 438 $ (850) 526 1 2007 $ (461) (291) $ (752) 1. net of taxes (2) Loss from continuing operations Income from discontinued operations Net income (loss) $ (954) 4.580) (922) 3 $(1. increased staffing. partially offset by higher inter-segment eliminations.CORPORATE/OTHER Corporate/Other includes Treasury results. net of interest expense declined primarily due to the gain in 2007 on the sale of certain corporate-owned assets and higher inter-segment eliminations partially offset by improved Treasury hedging activities. partially offset by higher inter-segment eliminations.087 $ 433 Net interest revenue Non-interest revenue Revenues. Operating expenses increased primarily due to restructuring charges. the results of discontinued operations and unallocated taxes. Operating expenses declined primarily due to lower restructuring charges in the current year as well as reductions in incentive compensation and benefits expense. In millions of dollars 2007 vs.410 $ 3. Income tax benefits increased due to a higher pretax loss in 2007. Discontinued operations represent the operations in the Sale of the Asset Management Business and the Sale of the Life Insurance and Annuities Business. net of interest expense Operating expenses Provisions for loan losses and for benefits and claims Loss from continuing operations before taxes and minority interest $(1. Income from discontinued operations included gains and tax benefits relating to the final settlement of the Life Insurance and Annuities and Asset Management Sale Transactions and a gain from the Sale of the Asset Management Business in Poland. net of interest expense improved primarily due to improved Treasury results and a gain on the sale of certain corporate-owned assets.377) Income tax benefits (421) Minority interest. 38 . 2006 2008 $(1. 2007 Revenues. technology and other unallocated expenses. offsets to certain line-item reclassifications reported in the business segments (inter-segment eliminations).033) 2006 $ (345) (599) $ (944) 202 4 $(1. as well as a tax reserve release of $76 million relating to the resolution of the 2006 Tax Audits. 2008 vs. See Note 3 to the Consolidated Financial Statements on page 136 for a more detailed discussion.830 (2) $(2. offset by a prior-year tax reserve release of $69 million relating to the resolution of the 2006 Tax Audits.

6 billion in the residual interest in securitized balances. Operating expenses increased 21%. Additionally.713 (14. 2007 2007 vs. net of interest expense Operating expenses Provisions for loan losses and for benefits and claims Income (loss) before taxes and minority interest Income taxes Minority interest. due to lower securitization revenues. Global Wealth Management revenue declined 5% reflecting lower investment revenues and the ARS settlement. except in branches) Average loans Average Consumer Banking loans Average deposits (and other consumer liability balances) Branches/offices NM Not meaningful. net of taxes Net income (loss) Average assets (in billions of dollars) Return on assets Key indicators (in billions of dollars. The regional results are fully reflected in the previous segment discussions.631 % Change % Change 2008 vs.6 billion. and higher net credit losses.1 4.2 261.557 30. Provisions for loan losses and for benefits and claims increased $12.046) (424) $(29. primarily driven by pretax write-downs and losses related to deterioration in the mortgage-backed and credit markets in S&B. reflecting a pretax gain on the sale of MasterCard shares of $393 million in 2007. net of interest expense declined 27% from 2006.107 billion goodwill impairment charge.6 3. reflecting a $5.15)% 1.0 billion for the full year. Consumer Banking revenue decreased 2%. driven by significantly higher losses related to fixed income and credit markets in S&B. ICG increased $2.390) (2.1 billion increase in net credit losses and a $2.0 218.634 30.969) $ 13. In ICG credit costs increased $940 million (see page 35 for further discussion).227 $ 363. In Consumer Banking.1 255.222 $ 971 (2. driven by a higher loan loss reserve build. These losses resulted in a decline in S&B revenue of $16. 2006 23% 14% NM (53) (63)% (27)% 21 6 NM NM NM NM NM NM NM (58)% NM NM (3)% 26% $ 1.REGIONAL DISCUSSIONS The following are the four regions in which Citigroup operates. NORTH AMERICA In millions of dollars Net interest revenue Non-interest revenue Revenues. partially offset by a reduction in Cards. total revenues increased 9%.4 billion. credit costs increased $1.793 5. the ABN AMRO integration. 2007 2007 vs.407 23.989 $ 405.035) 2007 $23. due to a $5. These losses resulted in a decline in S&B revenue of $19.2 289.3 billion.744 36. higher gains on sales of mortgage loans and growth in net servicing revenues. 2008 $ 28. respectively. reflecting the impact of higher funding costs and higher credit losses in the securitization trusts.084 6% 3 7 (6) 12% 14 12 4 2008 vs. higher collection costs. Purchase sales were up 6% and average loans were down 7%.838 $ (4.505) (17.1 4. Net interest margin declined mainly due to an increase in the cost of funding driven by a shift to higher cost Direct Bank and time deposits. higher volume-related expenses.8 245. Cards revenue declined 26%.825) 2006 $20.188 $ 1.9 billion from 2007. as growth in average loans and deposits.1 billion (see page 30 for further discussion).696 $51. Cards results also include higher gains on portfolio sales. mainly due to the impact of the acquisition of ABN AMRO in the first quarter of 2007. Expense growth in 2007 was favorably affected by the absence of the charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006. Cards credit costs increased $1.4 billion higher loan loss reserve build (see page 32 for further discussion). net of interest expense declined 63% from 2007. Net interest revenue was 9% higher than the prior year. In Global Cards. was partially offset by a decrease in net interest margin. Net income in 2007 also reflected the absence of a $229 million tax benefit resulting from the resolution of the 2006 Tax Audits. up $1. Revenues. This increase was partially offset by the absence of $163 million pretax gain from the sale of upstate New York branches in the prioryear period.2 billion. a weakening in credit quality in the corporate credit environment and an increase in net credit losses associated with loan sales. which are more fully described on page 34.186 11. which are more fully described on page 10.920 242 $12. up 14% and 16%. Total restructuring/repositioning charges were approximately $2. Non-interest revenue increased 10%.7 298.3 billion.9 billion.2 billion higher net credit losses and $4. expenses increased due to higher non-incentive compensation staff expenses and acquisitions. as higher interest revenue was more than offset by lower mortgage servicing. which in aggregate added $548 million to 2008 revenue vs.842 $(46.253 28. reflecting loan losses reserves for specific counterparties. Consumer Banking credit costs increased $7. due to an increase of $916 million in net credit losses and an increase in reserve builds of $936 million (see page 11 and 30 for further discussion).0 billion. offset by lower securitization revenues. Provisions for loan losses and for benefits and claims increased $7.667) 102 $ (1. Global Wealth Management expenses were flat year over year. and the write-down of $1.080 $18. up $0. Credit costs in Consumer Banking increased by $5. due to $1. revenues were flat.2 billion increase in loan loss reserve builds (see page 11 and 32 for further discussion).8 billion. In Global Cards.30% $ 429. higher restructuring and repositioning charges.301 $37. 39 . 2006 Revenues. and increased investment spending due to 202 new branch openings in 2007 (110 in CitiFinancial and 92 in Citibank).333 14.380 4. $393 million in 2007.44)% (0. which were partially offset by the gain on the sale of CitiStreet and higher lending revenues. with increases in ICG and Consumer Banking. Operating expenses growth of 6% was primarily driven by the VISA litigation-related pretax charge of $292 million.4 billion from 2007.

1 99. 373 $ 406 $ 290 (0.151 $ 9.067 2.353 8.572 $ (3.0 billion primarily due to an increase in net credit losses and an incremental net charge to loan loss reserves. The increase was primarily driven by the deterioration in the Consumer and Corporate credit environment. 2008 also included write-downs on subprime-related exposures in the first quarter of 2008 and in commercial real estate positions and highly leveraged finance commitments. Global Cards revenues increased by 62% to $2. acquisitions.2 16. Advisory and local markets sales and trading. Capital Markets and Lending products.6 billion as growth in average loans was partially offset by impairment of the U. net of taxes Net income (loss) Average assets (in billions of dollars) Return on assets Key indicators (in billions of dollars.805 604 42 $ 2.159 % Change 2008 vs. Revenues in S&B also included a strong performance in Equities.5 billion was down from the prior year due to writedowns on subprime-related direct exposures and in funded and unfunded highly-leveraged loan commitments in the second half of 2007. Revenues were down 25% due to write-downs in Securities and Banking. driven by double-digit growth in purchase sales and average loans and the impact of the Egg acquisition. Operating expenses were up 24% due to the impact of business growth.0 billion.500 $11.4 billion with continued growth in customer liability balances and deposits.EMEA In millions of dollars 2008 $ 8. driven by higher purchase sales and average loans. driven by strong growth in average loans and deposits and improved net interest margin and the impact of the Egg acquisition. Transaction Services revenues increased 21% to $3. 2006 Revenues increased 21% largely driven by Securities and Banking and Transaction Services.5 159. except in branches) Average loans Average Consumer Banking loans Average deposits (and other consumer liability balances) Branches/offices NM Not meaningful. Consumer Banking revenues were up 4% to $2.5 billion primarily driven by an increase in annuity revenues and the impact of the acquisition of Quilter.051 3. Current and historical Germany retail banking financials have been reclassified as discontinued operations and are excluded from Global Cards and Consumer Banking results. Revenues also reflected strong results in local markets sales and trading and G10 Rates and Currencies. held-for-sale loan portfolio and softening wealth management revenues due to market volatility.836) 85 $ (1.42)% 0. net of interest expense Operating expenses Provisions for loan losses and for benefits and claims Income (loss) before taxes and minority interest Income taxes Minority interest.47)% (0.464) (1.5 22. Revenues in Consumer Banking increased by 21% to $2.618 2. S&B revenue of $1.864 1. FX translation and organizational and repositioning charges in 2007. 2007 22% 16 21% 2 96 (1)% (1) (2) (2)% (8)% NM (2)% 10 13 (3) % Change 2007 vs. Operating expenses were up 2% due to a $203 million goodwill impairment charge and the impact of further repositioning and restructuring charges in 2008.778 770 $ 2. partially offset by double-digit growth across all other segments. S&B revenues were up 53% from 2007 mainly due to write-downs on subprime-related direct exposures included in 2009. Partially offsetting the increase was a decline in incentive compensation and the benefits of reengineering efforts. 2007 2007 vs. Subprime-related direct exposures are now managed primarily in North America and have been transferred from EMEA to North America with effect from the second quarter of 2008. Revenues in GWM grew by 64% to $0. Provisions for loan losses and for benefits and claims increased $1.0 778 2008 vs.222 7.74% $ 117.2 140.118 11. Revenues in GWM grew by 11% to $0. 2006 35% (70) (25)% 24 NM NM NM NM NM 40% NM 35% 38 41 — Net interest revenue Non-interest revenue Revenues. Transaction Services revenues increased by 30% to $2. In Global Cards. revenues increased by 19% to $2.5 24.741) $ 2007 $ 7.131 $12. Provisions for loan losses and for benefits and claims increased 96%.6 billion primarily driven by an increase in Banking. In ICG.5 billion.6 800 $ 115.3 801 $ 87.818 $ (3.847) 83 $ (1. 40 .8 billion driven by increased customer volumes and deposit growth.713) 2006 $ 5.505) (1.K.218 10. higher loan loss reserve builds and losses associated with Corporate loan sales.3 billion.

053 4.2 62. as growth of 6% in average loans and 8% in total customer deposits was more than offset by FX translation. Operating expenses growth of 23% was primarily driven by the Cuscatlan and GFU acquisitions and the Brazil expansion strategy.628) 351 4 $ (1. associated with higher volumes.777 1.1 67.404 % Change 2008 vs.416 $13. as well as the impact of acquisitions. Revenues. Consumer Banking decreased 5% mainly due to FX translation and the divestiture of the Chile consumer banking operation in January 2008. partially offset by a $282 million benefit related to a legal vehicle repositioning in Mexico in the first quarter of 2008.258 billion goodwill impairment charge. Global Cards grew 4% on higher volumes and a $661 million gain on Redecard shares. the Cuscatlan and GFU acquisitions.983) $ 2007 $ 7.3 49.822 $9. the integration of CrediCard in Brazil. 41 . acquisitions and volume growth. mainly from the custody business as average deposits grew rapidly in the second half of 2007 and have remained at those levels.2 billion increase in net credit losses and an increase in loan loss reserve builds.LATIN AMERICA In millions of dollars 2008 $ 8.043 $3. Certain poorly performing branches were closed. Operating expenses growth of 64% was primarily driven by a $4. worsened. These gains were partially offset by the gain on sale of Avantel of $234 million in 2006. Transaction Services revenues increased 24%.670 $ (1.48% $ 55. partially offset by openings in Mexico.2 2. except in branches) Average loans Average Consumer Banking loans Average deposits (and other consumer liability balances) Branches/offices NM Not meaningful. and repositioning charges.567 6. a $235 million pretax gain on Visa shares and a pretax gain of $78 million from the MasterCard initial public offering.595 2006 $5.43% $ 40. 2007 12% (20) (3)% 64 97 NM (74)% 100 NM 6% % Change 2007 vs. 2006 42% 33 37% 23 79 48% NM 100 28% 25% Net interest revenue Non-interest revenue Revenues.326 2 $ 3.144 $13.0 2.747 $ 59. mainly in Mexico.151 6. net of interest expense were 3% lower than the prior year.875 5.30)% 2.319 503 1 $2. 2006 Revenues. 2007 2007 vs. Provisions for loan losses and for benefits and claims increased 79% primarily reflecting market conditions and portfolio growth (mainly Global Cards).815 $ 116 2.103 3. net of taxes Net income (loss) Average assets (in billions of dollars) Return on assets Key indicators (in billions of dollars.8 10. mainly in Brazil and Mexico.867 $ 4.0 15. as well as gains on non-core assets including a $729 million pretax gain on Redecard shares. 153 $ 145 (1.5 13. legal costs and reserves. higher collection costs. due to repositioning and realignment in both retail and consumer finance. Brazil and Colombia.571 6% 14 8 (6) 36% 28 26 14 2008 vs. net of interest expense were 37% higher than the prior year. Provisions for loan losses and for benefits and claims increased 97% as the credit environment.3 2.001 5. S&B revenue decreased 22% due to write-downs and losses related to fixed income and equities.923 1. primarily reflected by a $1.513 1. net of interest expense Operating expenses Provisions for loan losses and for benefits and claims Income before taxes and minority interest Income taxes Minority interest.145 11.

Taxes included a $994 million tax benefit related to the legal vehicle restructuring of the CFJ operations. 2006 Net interest revenue increased 11%. acquisitions and portfolio purchases.9 167. $ 1.43% 726 8. acquisitions and portfolio growth. driven by growth of 6% in average loans and 4% growth in deposits.636 12. Non-interest revenue decreased 43% as S&B continued to be impacted by market volatility and declining valuations.676 $ 1. net of interest expense Operating expenses Provisions for loan losses and for benefits and claims Income before taxes and minority interest Income taxes Minority interest.113 $ 125. Transaction Services exhibited strong growth across all products resulting in 19% growth. driven by growth of 19% in average loans and 8% growth in deposits. a $937 million Nikko Asset Management intangible impairment charge. S&B grew 90%. NIR excluding CFJ increased 25% during 2008.135 7.145 2.828 10.7 1. Operating expenses increased 19% reflecting the impact of acquisitions. 2007 vs.566 5.640 $ 4. 2007 Net interest revenue increased 16%.2 1. Global Cards growth of 13% was driven by 12% growth in purchase sales and 18% growth in average loans.646) (11) 2007 $ 8.428 1.047 3.922 371 11. Growth was also negatively impacted by foreign exchange. net of taxes Net income Average assets (in billions of dollars) Return on assets Consumer Finance Japan (CFJ)—NIR Asia excluding CFJ—NIR CFJ—operating expenses Asia excluding CFJ—operating expenses CFJ—provision for loan losses and for benefits and claims Asia excluding CFJ—provision for loan losses and for benefits and claims CFJ—net income (loss) Asia excluding CFJ—net income Key indicators (in billions of dollars.333 $ 1.192 2008 vs.118 522 $ (133) 3. Global Cards growth of 24% was driven by 12% growth in purchase sales and 19% growth in average loans.722 1.538 $18.290 10. partially offset by a $21 million gain on the sale of MasterCard shares in the prior year. reflecting better spreads during the year and higher dividend revenue.875 $ 713 6.4 38. offset by lower Investment Sales in Consumer Banking and GWM.8 46.619 $ $ $ 354 $ 321 0. Consumer Banking. grew by 10%. non-interest revenue decreased 2% due to the absence of gain on Visa shares compared to the prior year.46% 1. in Transaction Services and Global Cards.421 975 $ (520) 5.790 7.155 $ 576 9.473 $ 1.593 2006 $ 7. or $966 million. partially offset by the benefits of reengineering efforts. Results included a $31 million gain on the sale of DCI.ASIA In millions of dollars 2008 $ 9.220 2 $ 3.648 5.7 49. acquisitions and portfolio purchases. the impact of the strengthening of local currencies and restructuring/ repositioning charges.336 2. Provisions for loan losses and for benefits and claims increased 51% primarily driven by a $574 million incremental pretax charge to increase loan loss reserves.627 $ (38) (1.349 $13. Transaction Services and GWM.291 $ 146 1. Operating expenses excluding CFJ increased 22% during 2008 and Net Income excluding CFJ decreased 71%.441 6.2 193.596 $ 1.54% % Change 2008 vs.633 $ 108. 2007 16% (43) (17)% 19 51 (101)% NM NM (65)% 10% (36)% 25 (36)% 22 (6)% NM NM (71)% 2% 6 7 (11) % Change 2007 vs.715 $ 1. Consumer Banking excluding CFJ grew by 20%. 2006 11% 66 37% 37 46 33% 31 NM 31% 41% (28)% 22 (19)% 43 27% 87 NM 41% 16% 19 15 8 Net interest revenue Non-interest revenue Revenues.287 1.2 207. Outside of S&B. revenue was flat with strong growth in Global Cards. Excluding this.396 $ 6. excluding Consumer Finance Japan (CFJ). Growth was also positively impacted by FX translation.500 $ 227 1. Transaction Services exhibited 42 . increased credit costs in India.988 $15. except in branches) Average loans Average Consumer Banking loans (excluding CFJ) Average deposits (and other consumer liability balances) Branches/offices NM Not meaningful.4 1.235 $ 128.601 93 $ 4. Asia Excluding CFJ As disclosed in the table above.

Growth was also negatively impacted by foreign exchange. acquisitions and portfolio purchases. strengthening local currencies and repositioning charges. along with portfolio growth. partially offset by the benefits of reengineering. increased credit costs in India. and the increase in net credit losses in CFJ due to the adverse operating environment and the impact of Japan consumer lending laws passed in the fourth quarter of 2006.strong growth across all products resulting in 35% growth. acquisitions. Provisions for loan losses and for benefits and claims increased 46% primarily driven by a $410 million incremental pretax charge to increase loan loss reserves including a change in estimate of loan losses inherent in the loan portfolio but not yet visible in delinquency statistics. Growth was also positively impacted by foreign exchange. non-interest revenue increased 69% due to the $245 million gain on Visa shares in 2007 and Investment Sales in Consumer Banking and GWM. Operating expenses increased 37% primarily driven by the impact of acquisitions. 43 . acquisitions and portfolio purchases. Non-interest revenue increased 66% as S&B benefited from favorable market conditions. S&B grew 17% driven by 19% growth in loans. Outside of S&B.

The discount on the preferred stock will be accreted and recognized as a preferred dividend (reduction of Retained earnings) over a period of five years. Dividends are cumulative and payable quarterly in cash. $23.0 billion in commercial paper and interbank deposits backed by the FDIC outstanding as of December 31. will be treated as Tier 1 Capital for regulatory purposes. Of the issuance. a “loss” on a portfolio asset is defined to include a charge-off or a realized loss upon collection. per insured bank. Of the $25 billion in cash proceeds. “Capital Resources” beginning on page 94 and Note 21 to the Consolidated Financial Statements on page 172 for a further discussion. the FDIC increased the insurance it provides on U. 2008.TARP AND OTHER REGULATORY PROGRAMS Issuance of $25 Billion of Perpetual Preferred Stock and a Warrant to Purchase Common Stock under TARP On October 28. In January and February 2009. cumulative preferred stock and a warrant to purchase common stock to the U. Citigroup had issued $5. At December 31. The preferred stock issued to the UST and FDIC has an aggregate liquidation preference of $7. and it is expected to add approximately 30 basis points to the Tier 1 Capital ratio. during the first quarter of 2009. 2008.85 per share and is exercisable for approximately 210. including Citibank. 2012. 2009 (proposed to be extended to October 30. Additional Issuance of $20 Billion of Perpetual Preferred Stock and a Warrant to Purchase Common Stock under TARP On December 31. The FDIC will charge Citigroup a fee ranging from 50 to 100 basis points in accordance with a prescribed fee schedule for any new qualifying debt issued with the FDIC guarantee.S.25 billion maturing in 2010 and $4. The preferred stock has an aggregate liquidation preference of $20 billion and an annual dividend rate of 8. U. FDIC’s Temporary Liquidity Guarantee Program Under the terms of the FDIC’s Temporary Liquidity Guarantee Program (TLGP). as well as other common stock issuances.5 billion) will be amortized and recognized as an expense over the life of the loss-sharing agreement. cumulative preferred stock and a warrant to the UST and FDIC. 2009 (proposed to be extended to October 30. until the earlier of its maturity or June 30. The warrant has a term of ten years. 2008. representing the fair value of the issued shares and warrant. and the FDIC charges a fee ranging from 50 to 100 basis points in connection with the issuance of those instruments. The warrant has a term of 10 years. Citigroup issued non-voting perpetual.000 per depositor.. 2009. Department of the Treasury (UST) as part of the UST’s Troubled Asset Relief Program (TARP) Capital Purchase Program. The value ascribed to the warrant will be recorded in our stockholders equity and result in an increase in additional paid in capital. 2009.S. Citigroup. FDIC Increased Deposit Insurance On October 4.3 billion and an annual dividend rate of 8%. FDIC guarantees of commercial paper and interbank deposits cease to be available after June 30. 2008.0%.61 per share and is exercisable for approximately 66. 2008 and June 30. the USG) on losses arising on a $301 billion portfolio of Citigroup assets (valued as of November 21.5 billion to the warrant on a relative value basis. All of the proceeds were treated as Tier 1 Capital for regulatory capital purposes. an exercise price of $10.3 billion to the warrant on a relative fair value basis. The loss-sharing program extends for 10 years for residential assets and five years for non-residential assets. The discount on the preferred stock will not be accreted and will only be recognized as a preferred dividend (reduction of Retained earnings) at the time of redemption. The issuance of the warrants in October and December 2008. 2009). See “Events in 2008” on page 9. Citigroup received no additional cash proceeds for their issuance. through its subsidiaries. an exercise price of $17. resulted in a conversion price reset of the $12.5 billion of the consideration for the preferred stock.5 million common shares. In addition. $3. Citigroup and its affiliates issued an additional $14. deposits in most banks and savings associations located in the United States. The value of the premium ($3. As consideration for the loss-sharing agreement. also had $26. Citigroup raised $25 billion through the sale of non-voting perpetual. The warrant has a term of 10 years. Citigroup raised an additional $20 billion through the sale of non-voting perpetual.A. Under the agreement.1 million 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 31.9 billion in senior unsecured debt under this program. Proceeds from the sale were allocated to the preferred stock and warrant on a relative fair value basis. $19.5 million common shares. an exercise price of $10.75 billion of long-term debt that is covered under the FDIC guarantee.5 billion maturing in 2011. All of the proceeds were treated as Tier 1 Capital for regulatory capital purposes. Of the $20 billion in cash proceeds. cumulative preferred stock and a warrant to purchase common stock to the UST as part of TARP. Dividends are cumulative and payable quarterly in cash. as a part of TARP. Government Loss-Sharing Agreement On January 15. FDIC and the Federal Reserve Bank of New York (collectively. through a permitted disposition or exchange.7 billion was allocated to preferred stock and $1. but not through a change in Citigroup’s mark-to-market accounting for the asset or the creation or increase of a 44 . The preferred stock has an aggregate liquidation preference of $25 billion and an annual dividend rate of 5% for the first five years and 9% thereafter.5 billion of 7% convertible preferred stock sold in private offerings in January 2008. The value ascribed to the warrant will be recorded in our stockholders’ equity and will result in an increase in additional paid in capital. certain qualifying senior unsecured debt issued by certain Citigroup entities between October 14. in amounts up to 125% of the qualifying debt for each qualifying entity. 2008.000 to $250. with $1. 2008). or upon a foreclosure or short-sale loss. from $100. the FDIC will guarantee.5 billion was allocated to preferred stock and $0.S. N. Citigroup entered into a definitive agreement with the UST. 2009). Proceeds from the sale were allocated to the preferred stock and warrant on a relative fair value basis. on a pro forma basis.61 per share and is exercisable for approximately 188.

with their values as of November 21.5 billion. amount of Citigroup’s first-loss position and premium paid for loss coverage are subject to final confirmation by the USG of.5 billion of such net losses.4 2. government will match this exchange up to a maximum of $25 billion of its preferred stock at the same conversion price. expected losses and reserves. instead of November 21. until the FDIC has paid $10 billion in aggregate. until the UST has paid $5 billion in aggregate. as discussed in the note to the table below) from November 21. The Company recognized approximately $900 million of qualifying losses related to the portfolio (excluding replacement assets. If covered losses exceed $27 billion. including reporting requirements and notice and approval rights of the USG at certain thresholds.5 $300. if any. The following table summarizes the assets that were part of the covered asset pool agreed to between Citigroup and the USG as of January 15. pay-downs and realized losses) as determined in accordance with the agreement. Exchange Offer and U. This confirmation process is to be completed no later than April 15.related loss reserve. The covered asset pool includes U. 2009. and • third. The resulting net loss amount on the portfolio is the basis of the loss-sharing arrangements between Citigroup and the USG. all on a pretax basis. by the Federal Reserve Bank of New York. 90% by the FDIC and 10% by Citigroup. the USG has the right to change the asset manager for the covered asset pool. This lower risk weighting added approximately 150 basis points to Citigroup’s Tier 1 Capital ratio at December 31. The covered assets are risk-weighted at 20% for purposes of calculating the Tier 1 Capital ratio at December 31.0 $ 31. The loan is recourse only to the remaining covered asset pool. among other things. other than with respect to the repayment obligation in the preceding sentence and interest on the loan. 2008 and January 15. These losses will count towards Citi’s $39. the composition of the covered asset pool. 90% by the UST and 10% by Citigroup.4 18. 2009). in an amount equal to the then aggregate value of the remaining covered asset pool (after reductions for charge-offs.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3.S. 2008.-based exposures and transactions that were originated prior to March 14.3 11. Citigroup will bear the first $39. 2008.4 6. which is the sole collateral to secure the loan. and (iii) an additional $1. Citigroup will be required to immediately repay 10% of such losses to the Federal Reserve Bank of New York. Government Exchange On February 27. 45 . the aggregate amount of qualifying losses across the portfolio in a particular period is netted against all recoveries and gains across the portfolio. Net losses.4 2. 2008 through December 31. 2008: Assets (1) In billions of dollars November 21.0 billion as an agreed-upon amount in exchange for excluding the effects of certain hedge positions from the portfolio. on the portfolio after Citigroup’s first-loss position will be borne 90% by the USG and 10% by Citigroup in the following manner: • first. • second.9 55.5 billion first-loss position. the qualification of assets under the asset eligibility criteria.4 5. 2008. 2009. Following the loan. 2008. the covered asset pool includes approximately $96 billion of assets considered “replacement” assets (assets that were added to the pool to replace assets that were in the pool as of November 21.2 0. the Company announced an exchange offer of its common stock for up to $27. 2009.2 5. which amount was determined using (i) an agreed-upon $29 billion of first losses.6 $ 12.S.1 12. 2008 but were later determined not to qualify). (ii) Citigroup’s thenexisting reserve with respect to the portfolio of approximately $9. after Citigroup’s firstloss position and the obligations of the UST and FDIC have been exhausted.2 16. Loss-sharing on qualifying losses incurred on these replacement assets was effective beginning January 15. The agreement includes guidelines for governance and asset management with respect to the covered asset pool. The loan is non-recourse to Citigroup. Once a loss is recognized under the agreement.3 $ 51. 2009. The Federal Reserve Bank of New York will implement its loss-sharing obligations under the agreement by making a loan.2 21.9 $ 22. See “Outlook for 2009” on page 7. Pursuant to the terms of the agreement. 2008.25 per share.8 $ 11.3 $191.1 $ 25. 2008 $ 98.8 Loans: First mortgages Second mortgages Retail auto loans Other consumer loans Total consumer loans CRE loans Leveraged finance loans Other corporate loans Total corporate loans Securities: Alt-A SIVs CRE Other Total securities Unfunded Lending Commitments (ULC) Second mortgages Other consumer loans Leveraged finance CRE Other commitments Total ULC Total covered assets (1) As a result of the initial confirmation process (conducted between November 21. The loan will bear interest at the overnight index swap rate plus 300 basis points.S. The U. as losses are incurred on the remaining covered asset pool.

• Credit card lending—$5. as follows: • U. TARP capital will not be used for compensation and bonuses. which are consistent with the objectives and spirit of the program. dividend payments. Separately from the Company’s initiatives under TARP.Implementation and Management of TARP Programs After Citigroup received the TARP capital. lobbying or government relations activities.S. advertising and corporate sponsorship. Committee approval is the final stage in a four-step review process to evaluate proposals from Citi businesses for the use of TARP capital. corporate loan market. assist distressed borrowers and support U. Citi will use TARP capital only for those purposes expressly approved by the Committee.S.S.5 billion in commercial loan securitizations. residential mortgage activities—$25.0 billion for tailored loans to people and businesses facing liquidity problems. or any activities related to marketing. • Personal and business loans—$2.S consumers and businesses.5 billion – This includes $1.7 billion – Citigroup is making mortgage loans directly to homebuyers and supporting the housing market through the purchase of prime residential mortgages and mortgage-backed securities in the secondary market.S. spanning five major areas. risk and the potential financial impact and returns. 46 . The report indicated that the Committee had authorized $36. • Corporate loan activity—$1.8 billion – Citigroup is offering special credit card programs that include expanded eligibility for balance-consolidation offers. the report also describes Citigroup’s other efforts to help U. economy. under existing programs. • Student loans—$1 billion – Citigroup is originating student loans through the Federal Family Education Loan Program. Pursuant to these guidelines. targeted increases in credit lines and targeted new account originations. Citi will update this TARP report each quarter following its quarterly earnings announcement and will make the report publicly available. The Committee has established specific guidelines. citigroup. The TARP securities purchase agreements stipulate that Citi will adhere to the following objectives as a condition of the UST’s capital investment: • Expand the flow of credit to U. TARP capital will be used exclusively to support assets and not for expenses. • Work diligently. In addition. 2009 Citi published a public report summarizing its TARP spending initiatives for the 2008 fourth quarter and made this report available at www. Citi is committed to meeting all reporting requirements associated with TARP.S.5 billion – The Company is investing $1.com.S.5 billion of consumer lending and $1. it established a Special TARP Committee composed of senior executives to approve. consumers and businesses on competitive terms to promote the sustained growth and vitality of the U. to modify the terms of residential mortgages as appropriate to strengthen the health of the U. which will inject liquidity into the U. homeowners remain in their homes. housing market. monitor and track how the funds are utilized.5 billion in initiatives backed by TARP capital. On February 3.

and the commercial paper funding facility of the Federal Reserve Board. the price Citigroup ultimately realizes will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value. Although Citigroup regularly reviews its credit exposures. among other factors. It is also unclear when Citigroup will be able to regain access to the public long-term unsecured debt markets on historically customary terms. including residential and commercial mortgage-backed securities. could result in a higher level of charge-offs and provision for credit losses. Furthermore. and may continue to adversely affect. it is unclear whether. which provide a greater likelihood that more of Citigroup’s customers or counterparties could use credit cards less frequently or become delinquent in their loans or other obligations to Citigroup.RISK FACTORS Disruptions in the global financial markets have affected. with falling home prices and increasing foreclosures and unemployment. for reputational or business reasons. or for how long. and may continue to be. In addition. In addition. Citigroup may incur significant credit risk exposure which may arise. have caused many financial institutions to seek additional capital and to merge with other financial institutions. which may have an adverse effect on the Company’s results of operations and financial condition in future periods. Reflecting concern about the stability of the financial markets generally and the strength of counterparties. debt and equity underwriting and other elements of the financial markets. may result in significant changes in the values of these assets in future periods. Policies of the Federal Reserve Board or other governmental institutions can also adversely affect Citigroup’s customers or counterparties. and may continue to adversely affect. adversely affected by the downturn in the real estate sector. Citigroup’s ability to raise funding could be impaired if lenders develop a negative perception of the Company’s short-term or long-term financial prospects. at its discretion. from entering into swap or other derivative contracts under which counterparties have long-term obligations to make payments to the Company. Further. have resulted in significant write-downs of asset values by financial institutions. Citigroup may experience further write-downs of its financial instruments and other losses related to volatile and illiquid market conditions. This. for investment vehicles managed by affiliates in which it also may have a significant investment. for separate accounts managed by affiliates and for major participants in the commercial and residential real estate markets. Citigroup also securitizes and trades in a wide range of commercial and residential real estate and real estate-related whole loans. Liquidity is essential to Citigroup’s businesses. limit its access to the 47 . in the past. Adequate liquidity is essential to Citigroup’s businesses. potentially increasing the risk that they may fail to repay their loans. Citigroup’s businesses. Increases in Citigroup’s credit qualifying spreads can significantly increase the cost of this funding. preferred stock or debt securities. in turn. such as the FDIC’s temporary guarantee of the newly issued senior debt as well as deposits in non-interest bearing deposit transaction accounts. these facilities will be extended and what impact termination of any of these facilities could have on Citigroup’s ability to access funding in the future. at the time of any sales of these assets. The current market and economic disruptions have affected. illiquid market conditions and disruptions in the credit markets have made it extremely difficult to value certain of Citigroup’s assets. in light of factors then prevailing. The Company’s liquidity could be materially adversely affected by factors Citigroup cannot control. The impact on available credit (even where Citigroup and other TARP participants are making credit available). While much of Citigroup’s recent long-term unsecured funding has been issued pursuant to these government-sponsored funding programs implemented. including decreased liquidity and pricing transparency along with increased market volatility. In addition. liquidity or other financial condition and results of operations. Citigroup’s credit ratings are also important to its liquidity. and originates loans secured by commercial and residential properties. Citigroup’s business and results of operations. in some cases. Citigroup has provided financial support to certain of its investment products and vehicles in difficult market conditions and. including governmental agencies. Disruptions in the global financial markets have also adversely affected the corporate bond markets. or a perception that the Company is experiencing greater liquidity risk. including through equity investments or cash infusions. Citigroup may decide to do so again in the future for contractual reasons or. Credit spreads are influenced by market perceptions of Citigroup’s creditworthiness and may be influenced by movements in the costs to purchasers of credit default swaps referenced to Citigroup’s long-term debt. Recent regulatory measures. personal bankruptcy rates and home prices. have negatively impacted Citigroup’s credit risk exposure. Recent market conditions. access to credit and the trading price of Citigroup common stock. These businesses have been. initially of mortgage-backed securities but spreading to credit default swaps and other derivatives. such as the continued general disruption of the financial markets or negative views about the financial services industry in general. consumer spending. Citigroup finances and acquires principal positions in a number of real estate and real estate-related products for its own account. Market disruptions may increase the risk of customer or counterparty delinquency or default. widen its credit spreads or otherwise increase its borrowing costs. capital. Citigroup’s cost of obtaining long-term unsecured funding is directly related to its credit spreads in both the cash bond and derivatives markets. A reduction in Citigroup’s credit ratings could adversely affect its liquidity. increased volatility in the financial markets and reduced business activity has adversely affected. including other financial institutions. default risk may arise from events or circumstances that are difficult to detect or foresee. Dramatic declines in the housing market during 2008. and Citigroup relies on external sources. and may continue to affect. Additionally. consumer confidence levels. to finance a significant portion of its operations. These write-downs. Market volatility. are designed to stabilize the financial markets and the liquidity position of financial institutions such as Citigroup. for example. including government-sponsored entities and major commercial and investment banks. all of which could adversely affect Citigroup’s earnings. some lenders and institutional investors have reduced and. Subsequent valuations. mortgages and other real estate and commercial assets and products. ceased to provide funding to certain borrowers. Any of these factors could require Citigroup to take further write-downs in respect of these assets.

if wrong.S. and other legislation and regulation currently under consideration. see “Significant Accounting Policies and Significant Estimates” on page 18 and “Capital Resources and Liquidity—Off-Balance Sheet Arrangements—Elimination of QSPEs and Changes in the FIN 46(R) Consolidation Model” on page 104. economy. reduce its balance sheet and simplify its assets. In addition. Future issuance of Citigroup common stock and preferred stock may reduce any earnings available to common stockholders and the return on the Company’s equity. and may consider in the future. Further. as well as for future sales. such increases in the outstanding shares of common stock reduce the Company’s earnings per share and the return on the Company’s equity. this could adversely affect Citigroup’s consolidated balance sheet. 2009. From . If it is later determined that non-consolidated SPEs should be consolidated. through Citi Holdings. Further. and. including in determining credit loss reserves. The purpose of these U. 2009. While these proposed standards have not been finalized. additional legislation and regulations with similar purposes. Citigroup announced an exchange offer of its common stock for up to $27. 2008. government will 48 match this exchange up to a maximum of $25 billion of its preferred stock.S. Citigroup may experience material losses. among other items. While this additional capital provides further funding to Citigroup’s businesses and has improved the Company’s financial position. could cause unexpected losses in the future.S.S. under these provisions. the Emergency Economic Stabilization Act of 2008 (EESA) was signed into law.5 billion of its existing preferred securities and trust preferred securities. The U.S. including issuances to the U. as well as realize value from its non-core assets. government to take direct action within the financial services industry. through Citicorp. any additional future U. 2009. Such changes include the following: (i) former QSPEs would be included in the scope of FIN 46(R). In addition. Changes in accounting standards can be difficult to predict and can materially impact how Citigroup records and reports its financial condition and results of operations.S. Pursuant to U. Citigroup believes this structure will allow it to enhance the capabilities and performance of Citigroup’s core assets. Termination of the Company’s trading and collateralized financing contracts could cause Citigroup to sustain losses and impair its liquidity by requiring Citigroup to find other sources of financing or to make significant cash payments or securities transfers. and for transfers of a portion of an asset. financial markets and jumpstart the U. and a separate Exposure Draft of a proposed standard that proposes three key changes to the consolidation model in FIN 46(R). Citicorp and Citi Holdings. Citigroup raised a total of approximately $77. The elimination of QSPEs from the guidance in SFAS 140 and changes in FIN 46(R) may significantly impact Citigroup’s consolidated financial statements. for management and reporting purposes. Citigroup announced that it would realign into two businesses. (ii) FIN 46(R) would be amended to change the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE to a qualitative determination of power combined with benefits and losses. counterparties could be permitted to terminate certain contracts with Citigroup or require the Company to post additional collateral. On February 27. Citigroup’s financial statements are based in part on assumptions and estimates. The FASB has issued an Exposure Draft of a proposed standard that would eliminate qualified SPEs (QSPEs) from the guidance in SFAS 140. providing liquidity to or restoring confidence in the financial markets. ARRA and other governmental programs may not have their intended impact of stabilizing. On January 16. may not stabilize the U. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.3 billion in private and public offerings of preferred and common stock and warrants to purchase common stock. there can be no assurance that the realignment of Citigroup’s businesses will achieve the Company’s desired objectives or benefits. During 2008. If assumptions or estimates underlying Citigroup’s financial statements are incorrect. For a further discussion on SFAS 140. they may have a significant impact on Citigroup’s consolidated financial statements as the Company may lose sales treatment for assets previously sold to a QSPE. the discontinuation and/or expiration of these or other governmental programs could result in a worsening of current market conditions.capital markets or trigger obligations under certain bilateral provisions in some of the Company’s trading and collateralized financing contracts. Citigroup may fail to realize all of the anticipated benefits of the proposed realignment of its businesses. Citi Holdings will also include Citigroup’s 49% interest in the recently announced Morgan Stanley Smith Barney joint venture. and the Company will be required to bring a portion of assets that are not currently on its balance sheet onto its balance sheet. Citigroup makes judgments in connection with its consolidation analysis of its SPEs. government under TARP. related funding requirements and capital ratios. On October 3. Despite these efforts. Recently enacted legislation authorizing the U. For example. a transaction which is also intended to simplify and streamline the Company on a going-forward basis. unless the Company’s earnings increase correspondingly. given the rapidly changing and uncertain financial environment. financial system in the near term. governmental requirements or programs could result in or require additional equity issuances.S. government is currently considering.S. if the SPE assets include unrealized losses.S. which. GAAP. could require Citigroup to recognize those losses see “Significant Accounting Policies and Significant Estimates” on page 18. it has increased the Company’s equity and the number of actual and diluted shares of Citigroup common stock. on February 17. the American Recovery and Reinvestment Act of 2009 (ARRA) was signed by President Obama. The EESA. which further dilute the existing common stockholders and any earnings available to the common stockholders. The U. In addition. reserves related to litigations and the fair value of certain assets and liabilities. Citigroup’s accounting policies and methods are fundamental to how it records and reports its financial condition and results of operations. effective second quarter of 2009.S. government actions is to stabilize and provide liquidity to the U. Citigroup is required to use certain assumptions and estimates in preparing its financial statements. The realignment is part of Citigroup’s strategy to focus on its core businesses. These transactions will significantly dilute the existing common stockholders of the Company. and (iii) the analysis of primary beneficiaries would have to be reevaluated whenever circumstances change.

including increased capital or liquidity requirements. Citigroup’s inability to reduce its credit risk by selling. As a result. Citigroup could be fined. have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk. management review processes and other mechanisms. Citigroup is subject to extensive regulation. to manage its businesses effectively and to expand into new businesses and geographic regions depends on the Company’s ability to attract new employees and to retain and motivate its existing employees. Citigroup seeks to monitor and control its risk exposure through a risk and control framework encompassing a variety of separate but complementary financial. concentration of risk increases the potential for significant losses in certain of Citigroup’s businesses. A substantial portion of the Company’s annual bonus compensation paid to its senior employees has been paid in the form of equity. or a default or threatened default by. there have been a number of highly publicized cases involving fraud or other misconduct by employees in the financial services industry in recent years. securities firms and exchanges with which Citigroup interacts on a daily basis and. as well as the loss of revenues associated with selling such securities or loans. employment-related claims typically increase in periods when Citigroup has reduced the total number of employees. These market movements can. compliance and legal reporting systems. Citigroup’s experience has been that legal claims by customers and clients increase in a market downturn. These changes can be hard to predict and can materially impact how Citigroup records and reports its financial condition and results of operations. and Citigroup runs the risk that employee misconduct could occur. one institution could lead to significant market-wide liquidity and credit problems. Citigroup may incur significant losses as a result of ineffective risk management processes and strategies and concentration of risk increases the potential for such losses. trading. such as clearing agencies. see for example “The elimination of QSPEs from the guidance in SFAS 140 and changes in FIN 46(R) may significantly impact Citigroup’s Consolidated Financial Statements” on page 48). including fiscal and monetary policies. where Citigroup is often competing for qualified employees with entities that have a significantly greater presence or more extensive experience in the region. credit.. Citigroup extends large commitments as part of its credit origination activities. clearing or other relationships between institutions. . In addition. capital raising and investment activities and may impact the value of financial instruments the Company holds. concerns about. In addition. Such restrictions include restricted executive incentives.g. Defaults by another large financial institution could adversely affect Citigroup and the financial markets generally. In addition. and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remain high. For example. Citigroup is subject to certain significant compensation restrictions applicable to a broad group of its senior management as a result of its receipt of TARP funding in December 2008 as well as other recentlyadopted governmental programs and legislation. meaning that such awards are not as valuable from a compensatory or retention perspective. The financial services industry faces substantial legal liability and regulatory risks. limited the effectiveness of Citigroup’s hedging strategies and have caused the Company to incur significant losses. therefore. commercial banks and investment funds. in jurisdictions 49 around the world. This level of regulation is expected to increase significantly in all jurisdictions in which the Company conducts business in response to the current financial crisis. including brokers and dealers. Citigroup’s businesses are subject to extensive and pervasive regulation around the world. such as during the last fiscal year. For example. This is sometimes referred to as “systemic risk” and may adversely affect financial intermediaries.time to time. and they may do so again in the future. could negatively affect its results of operations due to a decrease in the fair value of the positions. Recent market conditions. The commercial soundness of many financial institutions may be closely interrelated as a result of credit. losses or defaults by other institutions. banks. In addition. syndicating or securitizing these positions. This is particularly the case in emerging markets. the actions of the Federal Reserve Board and international central banking authorities directly impact Citigroup’s cost of funds for lending. The Company’s continued ability to compete effectively in its businesses. While Citigroup employs a broad and diversified set of risk monitoring and risk mitigation techniques (see “Managing Global Risk” on page 51). prohibited from engaging in some of its business activities or subject to limitations or conditions on its business activities. particularly during the latter part of 2007 and 2008. and Citigroup may face damage to its reputation and legal liability. in 2008 the market price of Citigroup common stock declined significantly during the year. Competition from within the financial services industry and from businesses outside of the financial services industry for qualified employees has often been intense. internal controls. “clawback” provisions and elimination or restriction of severance pay to senior executives. the Company routinely executes a high volume of transactions with counterparties in the financial services industry. including during periods of market dislocation. each of which could lead to reputational harm. operational. Citigroup’s performance is largely dependent on the talents and efforts of highly skilled individuals. It is not always possible to deter or prevent employee misconduct and the extensive precautions Citigroup takes to prevent and detect this activity may not be effective in all cases. those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome in all market environments or the specifics and timing of such outcomes. Among other things. clearing houses. could adversely affect the Company. and have. As a participant in the financial services industry. equity awards with performance-vesting features. the FASB changes the financial accounting and reporting standards that govern the preparation of the Company’s financial statements (e. Moreover. Citigroup’s businesses may be materially adversely affected if it is unable to hire and retain qualified employees. This has resulted in significant credit concentration with respect to this industry. In addition. Citigroup faces significant legal risks in its businesses. deferral of some executive compensation.

its computer systems. computer viruses or other malicious code. the Company increasingly faces the risk of operational failure with respect to its clients’ systems. and transmitted through. on a daily basis. Citigroup’s financial. 50 . as well as the information technology services Citigroup provides to clients. damage Citigroup’s reputation and cause losses. the Company’s computer systems and networks. A failure in Citigroup’s operational systems or infrastructure. this could potentially jeopardize Citigroup’s. alone or in combination with the other factors described above. result in the disclosure of confidential information. across numerous and diverse markets in many currencies. its clients’. could adversely affect Citigroup’s ability to hire and retain qualified employees. exacerbate these risks insofar as the activities of the joint venture are concerned. These transactions. disrupt its businesses. storage and transmission of confidential and other information in its computer systems and networks. exchanges. often must adhere to client-specific guidelines. Implementation of the Morgan Stanley Smith Barney joint venture may. could impair the Company’s liquidity. or otherwise cause interruptions or malfunctions in Citigroup’s. Citigroup’s operations rely on the secure processing. clearing houses or other financial intermediaries Citigroup uses to facilitate its transactions. Although Citigroup takes protective measures and endeavors to modify them as circumstances warrant. as well as legal and regulatory standards. Citigroup also faces the risk of operational failure. In addition. or those of third parties. its counterparties’ or third parties’ operations. many of which are highly complex. developing and maintaining the Company’s operational systems and infrastructure has become increasingly challenging. Citigroup’s businesses are highly dependent on its ability to process and monitor. at least temporarily. software and networks may be vulnerable to unauthorized access. Due to the breadth of Citigroup’s client base and its geographical reach. Given the high volume of transactions at Citigroup. counterparties’ or third parties’ confidential and other information processed and stored in.These restrictions. If one or more of such events occurs. adversely affecting the Company’s ability to process these transactions or provide these services. termination or capacity constraints of any of the clearing agents. its clients’. and other events that could have a security impact. and as Citigroup’s interconnectivity with its clients grows. such as a spike in transaction volume or unforeseen catastrophic events. data processing or other operating systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond the Company’s control. account. which could result in significant losses or reputational damage. certain errors may be repeated or compounded before they are discovered and rectified. a very large number of transactions.

and who are the primary risk contact for the regional business heads and local regulators. In addition to changing the risk management organization to facilitate the management of risk across these three dimensions. authority and independence of Risk Managers. to better enable the Business and Regional Chief Risk Officers to focus on the day-to-day management of risks and responsiveness to business flow. These firm-wide stress reports measure the potential impact to the Company and its component businesses of very large changes in various types of key risk factors (e.g.MANAGING GLOBAL RISK RISK MANAGEMENT The Company believes that effective risk management is of primary importance to its success. and • ensuring that the risk function has adequate independence. which focuses on improving our operational processes across businesses and regions. This team includes: • the risk capital group. the Company has a comprehensive risk management process to monitor.” • “Taking intelligent risk” means that Citi must carefully identify. as well as subjecting those risks to alternative stress scenarios in order to assess the potential economic impact they may have on the Company. which ensures we have integrated systems and common metrics. stature. processes and management reporting. This means aggregating risks. Changes were made to the risk management organization in 2008 to facilitate the management of risk across three dimensions: businesses. within and across businesses. interest rates. While the major risk areas are described individually on the following pages. financial market participants 51 . as well as the potential impact of a number of historical and hypothetical forward-looking systemic stress scenarios. these risks often need to be reviewed and managed in conjunction with one another and across the various businesses. structured credit products and fundamental credit. a defined risk appetite. • the infrastructure risk group. which focuses on re-engineering risk communications and relationships. The Product Risk Officers serve as a resource to the Chief Risk Officer. without forsaking Individual Accountability. The Product Risk Officers are accountable for the risks within their specialty and they focus on problem areas across businesses and regions. These risks include credit. • “Shared responsibility” means that individuals own and influence business outcomes. Risk Management. communicating and monitoring risks on a company-wide basis. and • the office of the Chief Administrative Officer. as noted above. and thereby allows us to aggregate and stress test exposures across the institution. measurement and reporting of risk. During 2008. regions and critical products. and empowering Risk Managers to make decisions and escalate issues. staffing. Each of the major business groups has a Business Chief Risk Officer who is the focal point for risk decisions (such as setting risk limits or approving transactions) in the business. The Chief Risk Officer. as well as to the Business and Regional Chief Risk Officers. including our critical regulatory relationships. • identifying. aligned with business strategy. working closely with the Citi CEO. the position of Product Chief Risk Officers was created for those areas of critical importance to Citigroup such as real estate. accountable for the risks in their geographic area. Citigroup’s risk management framework is designed to balance corporate oversight with well-defined independent risk management functions. Citi’s Audit and Risk Management Committee and Citi’s Board of Directors.g. the risk organization also includes the newly-created Business Management team to ensure that the risk organization has the appropriate infrastructure. market liquidity and operational... working with input from the businesses and Finance. authority. In addition. measure and aggregate risks. which continues to enhance the risk capital model and ensure that it is consistent across all our business activities. Enhancements were made to the risk management framework throughout 2008 based on guiding principles established by the Chief Risk Officer: • • • • • • a common Risk Capital model to evaluate risks. evaluate and manage the principal risks it assumes in conducting its activities. • engaging with senior management and the Board of Directors on a frequent basis on material matters with respect to risk-taking activities in the businesses and related risk management processes. accurate and rigorous analytics. There are also Regional Chief Risk Officers. and must fully understand downside risks. accountability through a common framework to manage risks. Accordingly. monitors and controls major risk exposures and concentrations across the organization. expertise. provides enhanced periodic updates to senior management and the Board of Directors on significant potential exposures across Citigroup arising from risk concentrations (e. risk decisions based on transparent. expertise. comprehensive stress tests were implemented across Citi for mark-to-market. technology and resources. credit spreads). • “Individual accountability” means individuals held ourselves accountable to actively manage risk. residential real estate). is responsible for: • establishing core standards for the management. assessing. RISK AGGREGATION AND STRESS TESTING Significant focus has been placed on fostering a risk culture based on a policy of “Taking Intelligent Risk with Shared Responsibility. and accrual portfolios. available-for-sale. The Chief Risk Officer. • the risk architecture group. established management committees. including risk controls. Supplementing the stress testing described above. including legal and reputational exposures.

. • “Economic losses” include losses that appear on the income statement and fair value adjustments to the financial statements. including the treatment of operational risk and proprietary investments. as a result of hypothetical scenarios. derivatives. as well as any further declines in value not captured on the income statement. In light of market developments. • “Unexpected losses” are the difference between potential extremely severe losses and Citigroup’s expected (average) loss over a one-year time period. which can be broadly categorized as credit risk (including cross-border risk). including the treatment changes in value resulting from fluctuations in rates. • Market risk losses arise from fluctuations in the market value of trading and non-trading positions. Risk capital is defined as the amount of capital required to absorb potential unexpected economic losses. and when Citigroup acts as an intermediary on behalf of its clients and other third parties.g. based on the distribution of observed events and scenario analysis.g. systems or human factors or from external events. • “Extremely severe” is defined as potential loss at a 99. These risk assessments are forward-looking exercises. securities transactions.97% confidence level. monoline insurers). sales and trading. RISK CAPITAL CREDIT RISK MANAGEMENT PROCESS Credit risk is the potential for financial loss resulting from the failure of a borrower or counterparty to honor its financial or contractual obligations. correlation and timing of identified risks that may arise. 52 . and other systemic issues (e. The stress testing and risk assessment exercises are a supplement to the standard limit-setting and risk capital exercises described later in this section. Certain enhancements were introduced in January 2009. Credit risk arises in many of Citigroup’s business activities. magnitude.(e. commercial paper markets). the risk capital framework is being reviewed and enhanced. intended to inform senior management and the Board of Directors about the potential economic impacts to Citi that may occur. including: • • • • • • lending. The drivers of “economic losses” are risks. • Operational risk losses result from inadequate or failed internal processes. market risk (including liquidity) and operational risk (including legal and regulatory): • Credit risk losses primarily result from a borrower’s or counterparty’s inability to meet its obligations. Other enhancements are scheduled to be completed over the course of the year. settlement. directly or indirectly. as these processes incorporate events in the marketplace and within Citi that impact our outlook on the form. primarily focused on market risk.. These risks are measured and aggregated within businesses and across Citigroup to facilitate the understanding of our exposure to extreme downside events. resulting from extremely severe events over a one-year time period. In addition to enhancing awareness and understanding of potential exposures. based on judgmental analysis from independent risk managers. the results of these processes then serve as the starting point for developing risk management and mitigation strategies.

and other Lease financing $229.222 (536) $185.706 $105.116 5.467 2.152 139.S.928 12.175 $129.311 4.935 738 $519.645 $591.101 168 $ 29.045 127. (2) Reclassified to conform to current year’s presentation.S.620 $161.826 31 $360.: Mortgage and real estate (1) Installment.867 $435.883 $583.220 $ 42.485 1.560 $ 51. offices: Mortgage and real estate (1) Installment.879 100 $ 16.235 1.559 866 $130.422 $ 48.565 130.252 1.461 460 $512.827 2.572 $ 39.778 1.517 $179.932 304 $158.32% $ 20.651 $ 44.619 $133.875 $ 55.237 (354) $128. and other Lease financing In offices outside the U.27% $ 30. 53 .389 7.095 $324.743 $361.600 4.062 $ 80.782) $573.520 787 $592.630 2.277 109.450 10.619 89.889 2.145 4.206 16.503 (9.476 6.008 4.200 1.560 2.914 $166.797 3. revolving credit.601 92.126 2.616) $664.686 $777.755 134. revolving credit.872 5.846 1.921 2.LOANS OUTSTANDING In millions of dollars at year end 2008 2007 (2) 2006 (2) 2005 (2) 2004 (2) Consumer loans In U.850 385 $127.334 21.024 1.432 5.603 $548.416 $ 77.686 $ 99.151 $395.647 1.513 $518.393 960 $150.124 $195.952 29 $ 24.052 3.271 $679.543 $694.902 (299) $113.68% $ 13.044 $454.900 131.660) $174.876 2.192 (8.226 Unearned income Consumer loans—net Corporate loans In U.269) $537.829 (11.616 4 $454.810 $512.292 442 $143.030 $301.673 $251.203 (4. offices: Commercial and industrial Loans to financial institutions Lease financing Mortgage and real estate (1) In offices outside the U.940) $670.128 6.921 $192.: Commercial and industrial Mortgage and real estate (1) Loans to financial institutions Lease financing Governments and official institutions $ 33.307 $225.S.502 $186.993 (16.117) $761.720 $116.S.092 8.457 105.927 140.156 20.05% Unearned income Corporate loans—net Total loans—net of unearned income Allowance for loan losses—on drawn exposures Total loans—net of unearned income and allowance for credit losses Allowance for loan losses as a percentage of total loans—net of unearned income (1) Loans secured primarily by real estate.857 $136.369 1.216 (29.100 $ 97.913 $ 39.821 616 1.620 (349) $166.721 1.07% $ 23.082 882 $105.780 (554) $435.486 $113.480 18.413 1.

117 $ 1.869 $ 8.224 96 $ 6.233 $16. offices In offices outside the U.021 $ (1.36% (1) Consumer credit losses primarily relate to U.770 — 3 — — 69 635 241 $11. and reductions of $83 million related to the transfer of the U.S. offices In offices outside the U.272 $ 5. $156 million for the sale of CitiCapital.250 $17.S.K.205 (972) $ 6. Corporate Mortgage and real estate In U. 2007 primarily includes reductions to the loan loss reserve of $475 million related to securitizations and transfers to loans held-for-sale.154) $29.13% 1. and a reduction of $90 million from the sale of CitiCapital’s transportation portfolio.864 — 1 — — 6 85 220 $ 8.643 $ 7. partially offset by additions of $106 million related to the Cuscatlán and Bank of the Overseas Chinese acquisitions.525) $ 9.782 $ 6.S.233 Allowance for loan losses at beginning of year Provision for loan losses Consumer Corporate Gross credit losses Consumer (1) In U. offices In offices outside the U.616 $ 887 3 — 4 — 1 49 220 $ 1.940 $15.255 3. offset by additions of $610 million related to the acquisitions of Egg.150 $ 4.599 1.779 $ 3.304 4 37 3 — 463 637 778 $20. Net credit losses In U.392 $33. offices In offices outside the U.S.832 2006 $ 9.937 3.601 $ 994 $11.938 $ 5.503 $10.766 5.248 $ 9.100 $10. a reduction of $110 million related to purchase accounting adjustments from the KorAm acquisition.76% $ (277) NM $11.352 $ 4.52% $ 80 0.S. 2005 primarily includes reductions to the loan-loss reserve of $584 million related to securitizations and portfolio sales.295 $19. Loans to financial institutions In U. (2) 2008 primarily includes reductions to the loan loss reserve of approximately $800 million related to FX translation. Governments and official institutions outside the U.S.79% $ 1.773 $ 671 0.829 2.654 4. Total Other—net (2) Allowance for loan losses at end of year Allowance for unfunded lending commitments (3) Total allowance for loans.040 $ 6. offices In offices outside the U.S. offices In offices outside the U.S. leases and unfunded lending commitments Net consumer credit losses As a percentage of average consumer loans Net corporate credit losses/(recoveries) As a percentage of average corporate loans $11. $244 million for the sale of the German retail banking operation.S.S.640 — — — — 10 78 287 $ 9.915 $ 5. Nikko Cordial.168 — 6 — — 3 52 571 $10.854 2004 $12.796 2.172 $ 5.804 2.269 $ 600 $30. offices In offices outside the U.149 (295) $ 6.782 $ 850 — 3 1 6 35 100 357 $ 2. 54 .DETAILS OF CREDIT LOSS EXPERIENCE In millions of dollars at year end 2008 $16.413 3.020 $ 6.781 1. Credit recoveries Consumer (1) In U.S.015 $ 695 966 $ 650 897 $ 1.079 691 — 1 — — 2 6 140 $ 1. Commercial and industrial In U.S. $102 million related to securitizations.797 $ 8.367 1 18 7 — 4 20 182 $ 1. Corporate Mortgage and real estate In U. Grupo Cuscatlán and Grupo Financiero Uno.320 2005 $11. Loans to financial institutions In U.674 2007 $ 8. Commercial and industrial In U.007 693 $ 1.05% — 5 55 — 15 104 473 $ 2.S.S.471 2.093 1. 2006 primarily includes reductions to the loan-loss reserve of $429 million related to securitizations and portfolio sales and the addition of $84 million related to the acquisition of the CrediCard portfolio.940 $ 1. (3) Represents additional credit-loss reserves for unfunded corporate lending commitments and letters of credit recorded with Other liabilities on the Consolidated Balance Sheet.13% $ 130 0. CitiFinancial portfolio to held-for-sale.S. offices In offices outside the U.S.282 5.S.726 7.S.11% $17.827 3. mortgages.269 $ 7.034 $ 6.749 $11. NM Not meaningful.861 $ (301) $ 8.S. Governments and official institutions outside the U. revolving credit and installment loans. Recoveries primarily relate to revolving credit and installment loans.816 $ (1.S.272 $ 9.632 $ 7.96% 0.676 7.873 $ 585 1.117 $28.S.964 $ 6.926 $ 271 $16. 2004 primarily includes the addition of $715 million of loan-loss reserves related to the acquisition of KorAm and the addition of $148 million of loan-loss reserves related to the acquisition of Washington Mutual Finance Corporation. offices In offices outside the U.

876 886 1. 2005 and $1. These are loans in which the borrower has fallen behind in interest payments and are now considered impaired.213 billion at December 31.160 6. In situations where the Company reasonably In millions of dollars at year end expects that only a portion of the principal and interest owed will ultimately be collected. 2007. OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS) The table below summarizes the Company’s non-accrual loans.284 682 $12.425 430 668 497 $4.020 Consumer non-accrual loans (1)(3) North America EMEA Latin America Asia $ 9.NON-PERFORMING ASSETS (NON-ACCRUAL LOANS.129 567 $7. $1. 2006.013 67 15 2 $1. (2) For further discussion of Corporate non-accrual loans. less costs to sell.463 Corporate non-accrual loans (1)(2) North America EMEA Latin America Asia $ 535 $2. This represents the carrying value of all property acquired by Corporate other real estate owned (OREO) North America EMEA Latin America Asia foreclosure or other legal proceedings when the Company has taken possession of the collateral. carried at lower of cost or fair value.906 $3.557 588 774 593 $4.S.512 $1. $ 246 23 14 53 $ 336 $448 12 51 1 $512 $658 40 15 3 $716 $ 99 $302 5 6 3 $316 $339 30 13 3 $385 $ 75 $126 12 8 4 $150 $232 17 26 4 $279 $ 62 $ 93 16 12 5 $126 $262 13 34 11 $320 $ 93 Consumer OREO North America EMEA Latin America Asia $1. please see page 67. (3) Includes the impact of the deterioration in the U. 55 . “Accounting for Certain Loans on Debt Securities Acquired in a Transfer” (SOP 03-3).630 238 541 $ 9.728 The table below summarizes the Company’s other real estate owned (OREO) assets. The carrying value of these loans was $1.925 589 1.004 $2. all payments received are reflected as a reduction of principal and not as interest income.758 $4.717 473 654 619 $5. $2. $949 million at December 31. 2004. (4) Primarily transportation equipment.210 $ 2006 59 186 173 117 $ 2005 81 354 268 301 2004 $ 253 482 657 514 $1.569 2007 $ 290 1.373 billion at December 31.097 Other repossessed assets(4) $ 78 (1) Excludes purchased distressed loans as they are accreting interest in accordance with Statement of Position 03-3. consumer real estate market.510 billion at December 31. 2008 $ 2.120 billion at December 31. 2008.173 127 168 $1.

S.758 7. RENEGOTIATED LOANS In millions of dollars at year end 2008 $10.53% 153% (1) The $6.37% 195% 2004 $1.908 1.755 $11.519 In millions of dollars Interest revenue that would have been accrued at original contractual rates (2) Amount recognized as interest revenue (2) Foregone interest revenue (1) Relates to corporate non-accrual.716 2006 $3. 56 . offices In offices outside the U.74% 0. (2) Interest revenue in offices outside the U. homogeneous renegotiated loans were derived from our risk management systems.31% 177% 2005 $1. $2. As a general rule. 2008 $ 9.512 $5.968 $ 1.210 $ 8. when they are 180 days contractually past due. FOREGONE INTEREST REVENUE ON LOANS (1) In U.031 1.47% 180% 2006 $ 535 4.15% 0.297 $ 1.072 553 $1. consumer loans are charged off at 120 days past due and credit card loans are charged off at 180 days contractually past due.024 $ 429 62 $5.992 534 $4. Impaired corporate loans and leases are written down to the extent that principal is judged to be uncollectible.21% 1. including the effects of inflation and monetary correction in certain countries.020 $5.228 99 $10. offices $827 258 $569 2008 total $2.786 2007 $5.728 $22. less costs to sell.176 $6.S.S.403 billion of non-accrual loans transferred from the held-for-sale portfolio to the held-for-investment portfolio during the fourth quarter of 2008 were marked-to-market at the transfer date and therefore no allowance was necessary at the time of the transfer.There is no industry-wide definition of non-performing assets.433 78 $23.295 1.245 295 $ 950 In nonU.369 $ 446 93 $7.34% 0. renegotiated loans and consumer loans on which accrual of interest had been suspended.S.463 $7. Consumer loans secured with non-real-estate collateral are written down to the estimated value of Non-performing assets Corporate non-accrual loans Consumer non-accrual loans Non-accrual loans (NAL) OREO Other repossessed assets Non-performing assets (NPA) NAL as a % of total loans NPA as a % of total assets Allowance for loan losses as a % of NAL(1) the collateral.047 $ 701 75 $5.86% 0. less costs to sell. (1) Smaller-balance.426 billion of the par value of the loans reclassified was written off prior to transfer. at 120 days past due.S. offices $1. Consumer real-estate secured loans are written down to the estimated value of the property. analysis against the industry is not always comparable. (2) Also includes Corporate and Commercial Business loans. The table below represents the Company’s view of non-performing assets.569 12.526 Renegotiated loans(1)(2) In U.004 4.540 1.808 3.22% 133% 2007 $ 1.515 0. may reflect prevailing local interest rates.906 5.823 0. As such.

63. Approval policies for a product or business are tailored to internal profitability and credit risk portfolio performance. Consumer loans are generally written off no later than a predetermined number of days past due on a contractual basis.752 $53. 57 .517 $179.657 (1) Based on contractual terms.450 10.261 149 21.560 1. investors use information about the credit quality of the entire managed portfolio. CONSUMER CREDIT RISK Within Global Cards and Consumer Banking.690 Lease financing 1.479 $229.110 Mortgage and real estate 3.085 68.496 $51.S. For a further discussion of managedbasis reporting.167 36.249 Total corporate loans Fixed/variable pricing of corporate loans with maturities due after one year (1) Loans at fixed interest rates Loans at floating or adjustable interest rates Total $102.S. The following table summarizes delinquency and net credit loss experience in both the managed and on-balance-sheet consumer loan portfolios. Furthermore. credit risk management is responsible for establishing the Global Cards and Consumer Banking Credit Policy. Only North America Cards from a product view.760 $49.508 $27.654 $128. the North America Cards business considers both on-balancesheet and securitized balances (together.S. See Note 24 to the Consolidated Financial Statements on page 189. see Note 23 to the Consolidated Financial Statements on page 175.827 1. For example.411 $ 3. In the Consumer portfolio.411 $ 7. as the results of both the on-balance-sheet and securitized portfolios impact the overall performance of the North America Cards business.S.203 U.609 154 42.495 1. providing ongoing assessment of portfolio credit risk.S. and North America from a regional view.135 Due within 1 year Over 1 year but within 5 years Over 5 years Total $ 3.904 42. monitoring business risk management performance.423 Second mortgages 30.476 127.200 6.LOAN MATURITIES AND FIXED/VARIABLE PRICING Corporate Loans Due within 1 year Over 1 year but within 5 years Over 5 years U.821 $161.893 $27.743 $128.821 $ 6. and approving new products and new risks. are impacted. credit loss experience is often expressed in terms of annualized net credit losses as a percentage of average loans.263 $53.710 1.061 1.029 1.657 $ 33. CONSUMER PORTFOLIO REVIEW Citigroup’s consumer loan portfolio is comparatively diversified by both product and location. Although a managed basis presentation is not in conformity with GAAP. Consumer First and Second Residential Mortgage Loans Total In millions of dollars at year end In millions of dollars at year end Corporate loan portfolio maturities In U.173 In offices outside the U. Consumer mortgage loans with maturities due after one year Loans at fixed interest rates Loans at floating or adjustable interest rates Total $47. ensuring the appropriate level of loan loss reserves. its managed portfolio) when determining capital allocation and general management decisions and compensation.913 Financial institutions 8. offices: Commercial and industrial loans $ 25.078 21. or earlier in the event of bankruptcy. approving business-specific policies and procedures.247 $107.073 Total Fixed/variable pricing of U. The managed loan portfolio includes held-for-sale and securitized credit card receivables.247 $ 92.764 19. 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.507 $49.564 $ 6. Consumer mortgage loan portfolio type First mortgages $17. Repricing characteristics may effectively be modified from time to time using derivative contracts.984 46.

09% 147 1.1 57.48% 1.9 — $621.01% 522 0.6 13.5 63.13% $ 7. Total loans and total average loans exclude certain interest and fees on credit cards of approximately $3 billion and $2 billion.677 2.655 — $ 1.06% 1.79% $ 4.7 27. Net Credit Losses.86% 3.81% 664 4.96% 547 2.84% 207 1.4 $515.75% $11.453 2.7 87.34% 373 2.52% $ 3.761 1.0 2008 $ 2.00% $ 9.983 2.27% 488 1.0 52.12% 364 3.52% 6.53% 8.987 1.6 90 days or more past due (1) 2008 2007 2006 $ 798 1. Included in Other assets on the Consolidated Balance Sheet.63% 2.38% 862 2.83% $17.6 298.99% 289 0.73% The ratios of 90 days or more past due and net credit losses are calculated based on end-of-period and average loans.2 14.89% 21 0.2 $18.655 1.255 1.92% 1. Managed-basis reporting is a non-GAAP measure.19% 52 0.9 — $621.50% 1.465 1.008 3.50% 11.2 $15.2 11.987 1.407 — $24.87% 1.52% $ 3.01% 1.60% 458 3.43% 1.36% 251 1.32% 457 3.277 4.196 $11.928 4.7 $105.257 2.92% $6.33% $1.75% Net credit losses (1) 2007 $ 2. and North America from a regional view.655 — $ 1.53% 561 551 4.986 5 $10.8 $106.94% 552 6.21% 821 709 0.54% 422 3.986 5 $10.054 4.73% $12.98% $ 3.33% $1.371 1.5 $656.79% $ 4.44% 700 3.92% 621 4.05% $6.9 0.58% $ 9.07% 457 0.77% 30 0. respectively.17% 602 3. Held-basis reporting is the related GAAP measure.6 31.303 7.44% 1.79% 2.015 1.4 21.98% Global Cards North America Ratio EMEA Ratio Latin America Ratio Asia Ratio Consumer Banking North America Ratio EMEA Ratio Latin America Ratio Asia Ratio GWM Ratio On-balance-sheet loans (2) Ratio Securitized receivables (all in NA Cards) Credit card receivables held-for-sale (3) Managed loans (4) Ratio Regional view: North America Ratio EMEA Ratio Latin America Ratio Asia Ratio On-balance-sheet loans (2) Ratio Securitized receivables (all in NA Cards) Credit card receivables held-for-sale (3) Managed loans (4) Ratio (1) (2) (3) (4) $ 1.682 12.5 $656. This table presents credit information on a held basis and shows the impact of securitizations to reconcile to a managed basis.38% $4.14% 640 2.7 55.09% 303 4.60% 1.38% Average loans 2008 $ 43.14% 983 1.60% 380 3.298 $ 896 2.13% $ 7.5 15.655 3.098 2.025 8.407 — $24.778 1. 58 .9 0.88% 369 233 2.10% 1. which are included in Consumer loans on the Consolidated Balance Sheet.71% 718 2.54% 3.81% $15.376 3.92% 262 249 1. respectively.841 3.983 2.01)% $ 6.26% $ 5.092 2.57% 1.248 3.15% 3.728 — $13.864 15 $18.371 1.25% 2.97% 0.13% 322 1.728 — $13.5 16.527 2.91% 425 3.23% 674 0. See a discussion of managed-basis reporting on page 57.5 $548.01% 1.90% 1 0.30% 459 0.196 $11.468 2.072 1.60% 114 1.2 24.616 — $7. Only North America Cards from a product view.73% $ 2.0 $548.16% 1.648 3.769 1.05% 284.73% $ 2.5 49.59% (4) (0.9 79.255 1. except total and average loan amounts in billions Product View: Total loans 2008 $ 45.8 17.23% 1.7 $105.6 14.769 1.7 42.72% 336 2.541 $ 9.044 2.8 $106.541 $ 9.51% 3.26% 2006 $ 1.92% 1.655 3.5 $515.385 2.527 2.04% 524 2.80% 1.616 — $7.834 0. are affected.Consumer Loan Delinquency Amounts. both net of unearned income.91% 1.44% $ 6.587 2. and Ratios In millions of dollars.6 15.6 $380.815 $ 7.864 15 $365.08% $17.970 6.90% 1.89% 922 555 2.788 1.248 3.69% 340 2.65% 744 3.648 3.271 3.

is working in good faith with the Company and has sufficient income for affordable mortgage payments. 2007 of $9. 2007 and $6.3 $542. For analytical purposes only. Greece. On-balance-sheet consumer loans of $515.569 billion in regions outside North America primarily reflected portfolio growth the impact of recent acquisitions. will continue to lead to higher credit costs in Global Cards and Consumer Banking.K. or 8%. respectively. 2009. including increased delinquencies on first and second mortgages.9 0. $3 billion and $2 billion.6 2007 $557. It is difficult to project the impact the Legislation may have on the Company’s consumer secured and unsecured lending portfolio and capital market positions.393 billion at December 31.2 96.216 billion in North America and $2. from December 31. unsecured personal loans. credit cards and auto loans. Brazil. Citigroup Mortgage Foreclosure Moratoriums the housing crisis in 2007.034 billion. the portion of Citigroup’s allowance for loan losses attributed to the Consumer portfolio was $22. Managed-basis reporting is a non-GAAP measure. for 2007. and $2 billion and $3 billion. most notably in EMEA.569 billion in regions outside North America).006 billion at December 31. primarily driven by a decrease in residential real estate lending in North America Consumer Banking as well as the impact of foreign currency translation across Global Cards.0 $618.6 — $577. Proposed U. Spain. 2009. The above foreclosure moratorium expands on the Company’s current foreclosure moratorium pursuant to which Citigroup will not initiate or complete a foreclosure sale on any eligible owner where Citigroup owns the mortgage and the owner is seeking to stay in the home (which is the owner’s primary residence). The increase in the allowance for loan losses from December 31. Citigroup’s total allowance for loans.0 $666.366 billion at December 31. Net of Unearned Income End of period In billions of dollars Average 2008 $548. Consumer Credit Outlook Consumer credit losses in 2009 are expected to increase from prior-year levels due to the following: • Continued deterioration in the U.9 3. (3) This table presents loan information on a held basis and shows the impact of securitization to reconcile to a managed basis. Support for some version of this Legislation has been endorsed by the Obama Administration. See a discussion of managed-basis reporting on page 57.4 0. respectively. Senate and House of Representatives introduced legislation (the Legislation) that would give bankruptcy courts the authority to modify mortgage loans originated on borrowers’ principal residences in Chapter 13 bankruptcy. and credit deterioration in Mexico.7 billion decreased $42.Consumer Loan Balances. including the housing market downturn. 2009.1 1.S.S. both the U. The builds consisted of $10. The modification provisions of the Legislation require that the mortgage loan to be modified be originated prior to the effective date of the Legislation.1 billion. Held-basis reporting is the related GAAP measure. • Negative economic outlook around the globe. which are included in Consumer loans on the Consolidated Balance Sheet. Citigroup has worked successfully with approximately 440.S. 2007. India and Colombia.9 2008 $515. On February 13. the implementation guidelines for the Administration’s housing plan.503 billion is available to absorb probable credit losses inherent in the entire portfolio. Consumer Banking and GWM. The build also reflected trends in the U.8 On-balance-sheet (1) Securitized receivables (all in NA Cards) Credit card receivables held-for-sale (2) Total managed (3) (1) Total loans and total average loans exclude certain interest and fees on credit cards of approximately $3 billion and $2 billion.000 homeowners to avoid potential foreclosure on combined mortgages totaling approximately $43 billion. 2006.S.785 billion in Global Cards and Consumer Banking ($8. leases and unfunded lending commitments of $30. 2008. and $249 million in Global Wealth Management. including the final form of the Legislation. and will extend until the earlier of the U. the number of borrowers who file for bankruptcy after enactment of the Legislation and the response of the markets and credit rating agencies..973 billion included net builds of $11.5 $656. The build of $8.2 99.4 98. The build of $2. for 2008. The Company will not initiate or complete any new foreclosures on eligible owners during this time. macroeconomic environment.S. Citigroup announced the initiation of a foreclosure moratorium on all Citigroup-owned first mortgage loans that are the principal residence of the owner as well as all loans serviced by the Company where the Company has reached an understanding with the owner. and that the debtor receive a notice of foreclosure and attempt to contact the mortgage lender/servicer regarding modification of the loan. government’s loan modification program (described below) or March 12. Mortgage Modification Legislation In January 2009. the U. (2) Included in Other assets on the Consolidated Balance Sheet. rising unemployment and portfolio growth. The moratorium was effective February 12.9 — $621. housing and labor markets and higher levels of bankruptcy filings are expected to drive higher losses in both the secured and unsecured portfolios.2 2007 $516.8 106. respectively. for 2006.9 2006 $478. $12. Any impact will be dependent on numerous factors.8 108. Since the start of 59 .216 billion in North America primarily reflected an increase in the estimate of losses across all portfolios based on weakening leading credit indicators.7 105.3 2006 $446.

business and typically have better aggregate risk characteristics than those in the U. 2008 and 2007. Under these arrangements. If the resulting loans from these commitments will be classified as loans held-for-sale. As of December 31. The agreements currently support a total of $28. Thus. a value is not assigned to the MSRs until after the loans have been funded and sold.9 billion from Refreshed balances for which FICO and LTV data was unavailable. These loans have high delinquency rates (approximately 35% 90+DPD) but. the challenging economic conditions have created a migration towards lower FICO scores and higher LTV ratios. In the second mortgage portfolio. changes in the fair value of these commitments. These portfolios consist of loans originated to low-to-moderate-income borrowers with lower FICO scores and generally have higher LTVs. For additional information about the Company’s MSRs. In managing this risk. Approximately 43% of that portfolio had refreshed loan-to-value ratios of 90% or more.S. at which time additional losses revert back to the MI companies. The Company’s U. U. which are driven by changes in mortgage interest rates. compared to around 17% at origination. are recognized in current earnings after taking into consideration the likelihood that the commitment will be funded.1 billion commercial loans portfolio). Citigroup sells most of the mortgage loans it originates. 2008.0 billion) and First Collateral Services ($0.0 billion of loans with LTVs above 80% which have insurance through private mortgage insurance companies and $4. Consumer portfolio. loan-to-value (LTV) ratios and FICO scores have deteriorated since origination as depicted in the table below. Excluding Government insured loans (described below). the first mortgage portfolio totaled approximately $134 billion while the second mortgage portfolio was approximately $59 billion. see Note 19 to the Consolidated Financial Statements on page 166.13%. However. Balances: December 31. The fair value of this asset is primarily affected by changes in prepayments that result from shifts in mortgage interest rates.1 billion of loans with $7. These sale transactions create an intangible asset referred to as mortgage servicing rights (MSRs). Consumer Mortgage Lending Portfolio In some cases. respectively. the 90+DPD delinquency rate for the first mortgage portfolio is 5.66% for total portfolio. generally up to 60 days after the rate has been set. On a refreshed basis. Citigroup is still exposed to what is commonly referred to as “basis risk. given the government insurance.3 billion of loans with Federal Housing Administration or Veterans Administration guarantees. Consumer Banking business. As a consequence of the difficult economic environment and the decrease in housing prices. Since the change in the value of these hedging instruments does not perfectly match the change in the value of the MSRs. To manage credit and liquidity risk.69% and 4. Refreshed FICO scores based on updated credit scores obtained from Fair Isaac Corporation. These loans remain on balance sheet unless they reach a certain delinquency level (between 120 and 180 days). Accordingly. However.1 billion of MI coverage.Interest Rate Risk Associated with Consumer Mortgage Lending Activity Citigroup originates and funds mortgage loans. for which the Company has limited exposure to credit losses. approximately 26% of first mortgages had a FICO score below 620. Citigroup commonly enters into purchase commitments to fund residential mortgage loans at specific interest rates within a given period of time. North America Residential Real Estate lending disclosure excludes approximately $19 billion of consumer mortgage loans in Global Wealth Management (GWM). Citigroup is still exposed to interest rate risk. originated primarily by the N. in which case the LTSC investor is required to buy the loan at par. Tables exclude $2.A. Citigroup accounts for the commitments as derivatives under SFAS 133. 60 . and purchased securities classified as trading (primarily mortgage-backed securities including principal-only strips). the Company has experienced negligible credit losses on these loans.” Citigroup manages this risk by reviewing the mix of the various hedging instruments referred to above on a daily basis.S. Citigroup hedges its exposure to the change in the value of these commitments by utilizing hedging instruments similar to those referred to above. by retaining the servicing rights of sold mortgage loans.S.7 billion of loans subject to LongTerm Standby Commitments1 with Government Sponsored Enterprises (GSE). the remainder was originated with FICO scores of less than 620. We have noted such exclusions or additions in instances where the Company believes they could be material to reconcile the information presented. Total maximum exposure under these captive reinsurance agreements is $1. this exposes Citigroup to several risks. some specific portfolios have been excluded from or added to the information presented below. 90+ DPD delinquency rate for the excluded mortgages is 4. but retains the servicing rights. 5. the majority of loans are in the higher FICO categories. forward purchase commitments of mortgage-backed securities. principally on loans sold to government agencies. compared to about 30% at origination. the Company shares in MI premium revenue and participates in losses above a predetermined level (floor). generally due to differences in methodology or variations in the manner in which information is captured. The Company’s first mortgage portfolio includes $3.6 billion from At Origination balances and $9.567 billion and $8. Citigroup’s MSRs totaled $5. limited by a predetermined loss amount (ceiling). The Company has risk-sharing agreements with various Mortgage Insurance (MI) companies through company-owned captive reinsurance entities. Citigroup hedges a significant portion of the value of its MSRs through the use of interest rate derivative contracts. liquidity and interest rate risks.380 billion at December 31. vs. As with all other lending activity. The first mortgage portfolio also includes $2.3 billion. 2008—First Mortgages AT ORIGINATION LTV 80% 80%<LTV<90% LTV 90% FICO 660 57% 4% 9% 620 FICO <660 6% 2% 5% FICO<620 7% 4% 6% REFRESHED LTV 80% 80%<LTV<90% LTV 90% FICO 660 42% 9% 13% 620 FICO <660 5% 2% 3% FICO<620 12% 5% 9% Note: First mortgage table excludes Canada and Puerto Rico ($2. Approximately 83% of the first mortgage portfolio had FICO (Fair Isaac Corporation) credit scores of at least 620 at origination. During 2008. Consumer mortgage portfolio consists of both first and second mortgages. Refreshed LTV ratios are derived from data at origination updated using mainly the S&P/Case-Shiller Home Price Index or the Office of Federal Housing Enterprise Oversight Housing Price Index.S.06% respectively. 1 A Long-Term Standby Commitment (LTSC) is a structured transaction in which the Company transfers the credit risk of certain eligible loans to an investor in exchange for a fee. including credit. As part of the mortgage lending activity. The GWM loans are primarily in the U. projections by the MI companies indicated that losses for some books of business were likely to exceed the floor and the Company recorded $67 million in reserves.

0% FICO<620 13.6% 5. particularly on a refreshed basis.S.6% 3. The following charts detail the quarterly trends in delinquencies for the Company’s first and second U. This difference is most noticeable for loans with refreshed FICOs of less than 620 and LTVs of at least 90%: first mortgages had a 90+DPD of 25.2% 13.10% respectively.9% 620 FICO <660 6. delinquencies have increased substantially: • The first mortgage delinquency trend shows that year-end delinquency levels have more than doubled 2003 levels.6 billion of loans subject to Long-Term Standby Commitments with GSE. In light of increased delinquencies in the U. vs.Balances: December 31.4%. 2. As set forth in the chart. First mortgages’ net credit losses as a percentage of average loans increased by close to 4. Second mortgages with FICOs below 620 at origination are less than 1% of the total. for which the Company has limited exposure to credit losses.5% Note: 90+DPD are based on balances referenced in the tables above.9% 10. respectively. This segment has a year-end delinquency rate almost twice as high as the rate for the overall second mortgage portfolio.9% 620 FICO <660 2.8% 4.7% 5. while that of second mortgages tripled.9% 1.2% FICO<620 6.4% REFRESHED LTV 80% 80%<LTV<90% LTV 90% FICO 660 36% 15% 34% 620 FICO <660 2% 1% 3% FICO<620 2% 1% 6% REFRESHED LTV 80% 80%<LTV<90% LTV 90% FICO 660 0. 90+ DPD delinquency rate for the excluded mortgages is 1. the coincident reserve coverage ratio for the first and second mortgage portfolios was at 15. Refreshed LTV ratios are derived from data at origination updated using mainly the S&P/Case-Shiller Home Price Index or the Office of Federal Housing Enterprise Oversight Housing Price Index. • Delinquency rates in the second mortgage portfolio are at historically high levels. particularly in the 90% or higher LTV segment. Delinquencies: 90+DPD—Second Mortgages AT ORIGINATION LTV 80% 80%<LTV<90% LTV 90% FICO 660 0.9 billion of insured loans with LTVs above 90% and $2.4% 3. Note: 90+DPD are based on balances referenced in the tables above.39% for total portfolio.7 months and 13.4% 18. A further breakout of the FICO below 620 segment indicates that delinquencies in this segment are two times higher than in the overall first mortgage portfolio.9% 24.3% FICO<620 2.3% 0.7 billion from At Origination balances and $0.6% 19. REFRESHED LTV 80% 80%<LTV<90% LTV 90% FICO 660 0.9% 620 FICO <660 1.4% 6.8 months.5 times since the end of 2007. Consumer mortgage portfolios.1% 0.1% 11. during 2008 the Company expanded its allowance for loan losses related to these portfolios by approximately $4.7% 620 FICO <660 2. and the Company provides 90+DPD delinquency rates as a measure of their performance. 2008—Second Mortgages AT ORIGINATION LTV 80% 80%<LTV<90% LTV 90% FICO 660 51% 16% 29% 620 FICO <660 2% 1% 1% FICO<620 <1% <1% <1% Delinquencies: 90+DPD—First Mortgages AT ORIGINATION LTV 80% 80%<LTV<90% LTV 90% FICO 660 3.8% 6.8% 5. The following tables provide delinquency statistics for loans 90 or more days past due (90+DPD) in both the first and second mortgage portfolios.6% 4.9% 2. As of the end of 2008.2% 1.2% 25.5%. Consumer mortgage portfolios.2% 7.5 billion.1 billion from Refreshed balances for which FICO and LTV data was unavailable.0% The second mortgage portfolio includes $2. Net credit losses have also increased significantly.72% and 2. Loans with FICO scores of less than 620 exhibit significantly higher delinquencies than in any other FICO band.8% FICO<620 10.4% Note: Refreshed FICO scores based on updated credit scores obtained from Fair Isaac Corporation.2% 4. 61 .1% 0.S. Tables exclude $0. while second mortgages were at 24.

71% 2.First mortgage net credit losses as a percentage of average loans are nearly half the level of those in the second mortgage portfolio. Retail Distribution (Citibank) first mortgage portfolios and the U. than those originated in 2007. 90+DPD based on EOP balances of $155 billion. lower LTVs.41% 1.07% 3.26% 1. 62 .05% 4.06% 0. It includes deferred fees/costs and loans held for sale.51% 2. Note: comprised of the Citibank Home Equity portfolios.5 billion.47% 2.11% 0.17% 0.09% 0.99% 0. 90+DPD based on EOP balances of $63 billion. 90+DPD rate calculated by combined MBA/OTS methodology.25% 0.38% 0.15% 0.00% 0.41% 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 Note: Portfolio comprised of the U.47% 0.69% 5.49% 0.61% 5. 90+DPD rate calculated by combined MBA/OTS methodology. The Company continues to tighten credit requirements through higher FICOs.14% 0.04% 2.82% 2.94% 0.57% 2. Second Mortgages 90+DPD NCL ratio LTV>90: 4.56% 0.77% 4. FICO<620: 11. despite much higher delinquencies in the first mortgage portfolio. First Mortgages 90+DPD NCL ratio During 2008. Two major factors explain this relationship: • First mortgages include government-guaranteed loans.09% 0.41% 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 Note: Portfolio comprised of the U.58% 1. Retail Distribution (Citibank) Home Equity portfolios.26% 1.6 billion.31% 0.S.16% 0.08% 0.02% 2.84% 1.S. on average.40% 0.S. 4Q’07 NCL ratio based on average balances of $64 billion. Consumer Lending and U. It includes deferred fees/costs and loans held for sale.11% 0.S.03% 3. • Second mortgages are much more likely to go directly from delinquency to charge-off without going into foreclosure. Consumer Lending and U.63% 0. increased documentation and verifications. Retail Distribution (CitiFinancial) Real Estate portfolio.45% 2. 90+DPD based on end of period balances of $59.06% 0.37% 0. Note: comprised of the Citibank first mortgage portfolios and the CitiFinancial Real Estate portfolio. the Company increased its efforts to contain the rise in delinquencies and mitigate losses. 4Q’07 NCL ratio based on average balances of $156 billion.25% 0.03% 2.16% 1. 90+DPD based on end of period balances of $137.05% 1.32% 0.S. This shift has resulted in loans originated in 2008 having higher FICO scores and lower LTVs.04% 0.14% 0.13% 0.09% 0.15% 0.

4% 42. This method of acquisition was discontinued in 2007. but that may require help to remain current on their mortgages. During 2008. over 96% of the loans originated through this channel were eligible to be sold to the GSEs.9 $16. During 2008.5 $1.23% 8. As of December 31.3 $22.4 Note: Data at origination. Third.4 $23.S.6% 100.2 Note: Data at origination. Second mortgage 90+DPD rate calculated by OTS methodology. mainly focused on non-prime and second-lien loans to be held on Citigroup’s balance sheet. First Mortgages: December 31. approximately 43% of the first mortgage portfolio was originated through the correspondent channel. 63 . 2008 CHANNEL (in billions of dollars) RETAIL BROKER CORRESPONDENT TOTAL SECOND MORTGAGES $26.66% $11. Second Mortgages: December 31.5 $9. high-quality and profitable volume.0% 90+DPD SECOND MORTGAGES LTV 90% 0. where the Company underwrites the loan directly with the borrower.0% 90+DPD FIRST MORTGAGES FICO<620 2.3 $133. offering them different solutions. • Correspondent: loans originated and funded by a third party.3 $57. the Company terminated business with a number of correspondent sellers in 2007 and 2008. the Company continues to evaluate each of its portfolios to identify those customers who might be eligible to refinance or modify their mortgages and stay in their homes. Consumer mortgage portfolio by origination channels.4 $15.8% 17.7 $59. These efforts focus particularly on borrowers in geographies facing extreme economic distress.0 $11.8% 100. The following tables detail the Company’s first and second U. preemptively reaching out to homeowners not currently behind on their mortgage payments.S.0 $17. the Company has initiated various mortgage foreclosure moratoriums.39% $2.13%.0 CHANNEL % TOTAL 45. which represented 59% of the portfolio as of the end of 2007. 2008 CHANNEL (in billions of dollars) RETAIL BROKER CORRESPONDENT TOTAL FIRST MORTGAGES $53. 90+DPD for the first mortgage portfolio is 5. approximately 54% of the loans were originated through third-party channels. Consumer mortgage portfolio was originated from three main channels: retail. Given that loans originated through correspondents have exhibited higher 90+DPD delinquency rates than retail originated mortgages. • Retail: loans originated through a direct relationship with the borrower. and the current correspondent channel focuses on acquisition of loans eligible for sale to the GSEs.91% 3. used primarily in 2006 and 2007. These types of purchases.24% 4.03% 2. broker and correspondent. $134 billion portfolio excludes Canada and Puerto Rico. only maintaining those who have produced strong. deferred fees/costs. For second mortgages. By Origination Channel The Company’s U. See “Citigroup Mortgage Foreclosure Moratoriums” on page 59. geographic distribution and origination vintage. Includes loans acquired in large bulk purchases from other mortgage originators. where the Company purchases the closed loans after the correspondent has funded the loan.Second.79% 5. First Collateral Services (commercial portfolio). 2008. Excluding Government insured loans. loans held-for-sale and loans sold with recourse. a reduction from approximately 47% as of the end of 2007. the Company has severed relationships with a number of brokers.2 $4. As these mortgages have demonstrated a higher incidence of delinquencies. The Citi Homeowner Assistance program is an example of such efforts.8% 26. the Company no longer originates second mortgages through third-party channels.6% 27. • Broker: loans originated through a mortgage broker.48% 5.9 CHANNEL % TOTAL 39.

82% 3. deferred fees/costs. 2008 VINTAGES (in billions of dollars) FIRST MORTGAGES VINTAGE % TOTAL 12.1% 5.8 $5. approximately 45% of the portfolio is of 2006 and 2007 vintages. $134 billion portfolio excludes Canada and Puerto Rico.51% 1.0 $133.6 $2.0 3. which has 21% of its loans in that FICO band.13%.13% 1. which has only 3% of its first mortgage portfolio originated in the FICO<620 band.0 $0.2 $4.3% 4.By State Approximately half of the Company’s U.9 4.55% 3.5 $6. Second Mortgages: December 31. unemployment was the key driver of delinquencies: despite sharp differences in the quality of their portfolio.4 CALIFORNIA NEW YORK FLORIDA ILLINOIS TEXAS OTHERS TOTAL $36.2 Note: Data at origination. which on aggregate have a 90+DPD of 8.1 $10. experienced a 2.3% 4.4 Note: Data at origination.66% $1. Excluding Government insured loans.0% 90+DPD FIRST MORTGAGES FICO<620 TOTAL $16. Texas.92% 3.9 $59.11% 4.5% 10. Excluding Government insured loans. also suffered a similar rise in delinquencies.3 $22.8 $1. In first mortgages. 90+DPD for the first mortgage portfolio is 5.0% 90+DPD FIRST MORTGAGES FICO<620 2008 2007 2006 2005 2004 2003 FIRST MORTGAGES STATE % TOTAL 26. $134 billion portfolio excludes Canada and Puerto Rico.S.94% 5.0 $1.7% 6.3 $69. 2008 STATES (in billions of dollars) 2005 2004 2003 TOTAL $3. with approximately 18% and 22% of their loans originated in the LTV ≥90% band. albeit to a much higher rate of 12.6 $59.9 1.1% 15.8 $25.15%.66% $2.8 $25. well above the 5.0 0.0% 51.1 $3.6 $4.08% 2. deferred fees/costs.44% 5.3 $2.1 $9. slightly over 61% of the portfolio is of 2006 and 2007 vintages and approximately 33% is pre-2005 vintage.8 $5. Those states represent 49% of first mortgages and 57% of second mortgages.13% 3.4 $17.4 $1.8% 21. First Collateral Services (commercial portfolio). Florida.13%. SECOND MORTGAGES STATE % TOTAL 28. California and Florida experienced above average rises in 90+DPD.5 $13.2 Note: Data at origination. First Mortgages: December 31. experienced a relatively mild rise in delinquencies.6 $1.4% 24.9% 100. 2008 STATES (in billions of dollars) By Vintage Approximately half of the Company’s U. Florida.2 $23.39% $0. During 2008. Second mortgage 90+DPD rate calculated by OTS methodology.33% 2.0% 90+DPD SECOND MORTGAGES LTV ≥ 90% Note: Data at origination.72% 1. to 4. 90+DPD for the first mortgage portfolio is 5.24%.8 $15. In second mortgages. Florida and California maintained above-average delinquencies. Consumer mortgage portfolio remains concentrated in five states: California.39% 7.8% 4.7 $3.2 $1.66% of the overall portfolio.1% 14. First Mortgages: December 31.7 $22.9% 17.46% 8.6% 4.9 $1.0% 100.0 $1. 2008 VINTAGES (in billions of dollars) SECOND MORTGAGES VINTAGE % TOTAL 5.6 $8.8 $3.39% $3.4% 100.0% 3. loans held for sale and loans sold with recourse.5 $20.0% 18. First Collateral Services (commercial portfolio). and Texas.9 $2.S.24% 6.5 $21.9% 100. New York. with an aggregated delinquency of 4.75% 0. 2008 2007 2006 In the second mortgage portfolio.5 $7.9 $34.5 $7.1% 43.04% 5.0% 7.0 $0.13%.4 $1.98% 2.7 times rise in delinquencies. loans held for sale and loans sold with recourse. Second mortgage 90+DPD rate calculated by OTS methodology.2 $0.2 $14.8 $5.6% 26.32% 0. Approximately 43% is pre-2005 vintage.52% 5.90% 12.5 $1. which demonstrated above average delinquencies. 64 . Consumer mortgage portfolio consisted of 2006 and 2007 vintages.0% 90+DPD SECOND MORTGAGES LTV ≥ 90% CALIFORNIA NEW YORK FLORIDA ILLINOIS TEXAS OTHERS TOTAL $16. despite having 34% of its portfolio originated with FICO<620. Illinois. California.4 $17.68% 5. a consequence of its below average increase in unemployment rate.9% 7.5 $133.7 $12.17% 1.6% 36. Second Mortgages: December 31.70% 2.28%.

letters of credit and financial guarantees. including banks. The following table represents the corporate credit portfolio. and then factors that affect the lossgiven default of the facility. including: • joint business and independent risk management responsibility for managing credit risks. geographic regions and products. applicable to every obligor and facility. the credit process is grounded in a series of fundamental policies. • risk rating standards. 2008 North America Asia Latin America EMEA Total 48% 13 8 31 100% December 31. 2007 8% 8 7 4 4 4 4 4 6 3 3 3 2 3 37 100% In billions of dollars Due within 1 year $190 277 $467 Greater than 1 year but within 5 years $ 97 183 $280 Greater than 5 years $12 11 $23 Total exposure $299 471 $770 Direct outstandings Unfunded lending commitments Total Portfolio Mix The corporate credit portfolio is diverse across counterparty. and • consistent standards for credit origination documentation and remedial management. overdrafts. such as support or collateral. investment banks and government and central banks.CORPORATE CREDIT RISK For corporate clients and investment banking activities across Citigroup. Corporate Credit Portfolio At December 31. Internal obligor ratings equivalent to BBB and above are considered investment grade. The following table presents the corporate credit portfolio by facility risk rating at December 31. 2007 48% 14 8 30 100% 12% 7 7 5 5 4 4 4 3 3 3 3 2 2 36 100% 65 . certain investment securities and leases and unfunded commitments which include unused commitments to lend. 2008 and 2007. before consideration of collateral. industry and geography. Ratings below the equivalent of the BBB category are considered non-investment grade. • a minimum of two authorized-credit-officer signatures required on extensions of credit. The corporate portfolio is broken out by direct outstandings which include drawn loans. • portfolio limits to ensure diversification and maintain risk/capital alignment. 2007 2008 Government and central banks Investment banks Banks Other financial institutions Utilities Insurance Petroleum Agriculture and food preparation Telephone and cable Industrial machinery and equipment Global information technology Chemicals Autos Metals Other industries (1) Total (1) Includes all other industries. with a concentration only in the financial sector. Facility risk ratings are assigned. other financial institutions. insurance companies. none of which exceeds 2% of total outstandings. bankers’ acceptances. The following table shows direct outstandings and unfunded commitments by region: December 31. by maturity at December 31. external rating agencies (under defined circumstances) or approved scoring methodologies. • a single center of control for each credit relationship that coordinates credit activities with that client. 2008 The maintenance of accurate and consistent risk ratings across the corporate credit portfolio facilitates the comparison of credit exposure across all lines of business. are taken into account. The following table shows the allocation of direct outstandings and unfunded commitments to industries as a percentage of the total corporate portfolio: Direct outstandings and unfunded commitments At December 31. 2008. using the obligor risk rating. one of which must be from a credit officer in credit risk management. interbank placements. Obligor risk ratings reflect an estimated probability of default for an obligor and are derived primarily through the use of statistical models (which are validated periodically). as a percentage of the total portfolio: Direct outstandings and unfunded commitments 2008 AAA/AA/A BBB BB/B CCC or below Unrated Total 57% 24 13 6 — 100% 2007 53% 24 20 2 1 100% In billions of dollars Due within 1 year $161 206 $367 Greater than 1 year but within 5 years $100 141 $241 Greater than 5 years $ 9 12 $21 Total exposure $270 359 $629 Direct outstandings Unfunded lending commitments Total The corporate credit portfolio is diversified by industry.

66 . The results of the mark-to-market and any realized gains or losses on credit derivatives are reflected in the Principal transactions line on the Consolidated Statement of Income. 2008 and 2007.7 billion. The reported amounts of direct outstandings and unfunded commitments in this report do not reflect the impact of these hedging transactions. in addition to outright asset sales.5 billion and $123.Credit Risk Mitigation As part of its overall risk management activities. $95. the credit protection was economically hedging underlying credit exposure with the following risk rating distribution: Rating of Hedged Exposure 2008 AAA/AA/A BBB BB/B CCC or below Total 54% 32 9 5 100% 2007 53% 34 11 2 100% At December 31. For further discussion regarding credit derivatives see Note 29 on page 208. the credit protection was economically hedging underlying credit exposure with the following industry distribution: Industry of Hedged Exposure 2008 Utilities Telephone and cable Agriculture and food preparation Petroleum Industrial machinery and equipment Insurance Chemicals Retail Other financial institutions Autos Pharmaceuticals Natural gas distribution Global information technology Metals Investment banks Other industries (1) Total 10% 9 7 7 6 5 5 5 4 4 4 4 4 3 2 21 100% 2007 9% 11 6 7 5 5 4 5 5 5 4 3 3 3 3 22 100% (1) Includes all other industries. At December 31. none of which is greater than 2% of the total hedged amount. At December 31. The purpose of these transactions is to transfer credit risk to third parties. respectively. Citigroup’s expected loss model used in the calculation of its loan loss reserve does not include the favorable impact of credit derivatives and other risk mitigants. 2008 and 2007. of credit risk exposure were economically hedged. 2008 and 2007. the Company uses credit derivatives and other risk mitigants to hedge portions of the credit risk in its portfolio.

primarily due to significant write-downs reflecting the continued weakening 67 . 2006. Impaired corporate loans are written down to the extent that the principal is judged to be uncollectible. the ratio of corporate allowance for loan losses to non-accrual loans would have been approximately 100%.15% (1) Excludes purchased distressed loans as they are accreting interest in accordance with SOP 03-3. The $3. particularly within any narrowly defined business or loan type.503 billion is available to absorb probable credit losses inherent in the entire portfolio. which are a part of the Company’s non-performing assets.870 billion was in North America.510 million at December 31.76% Total corporate allowance for loans. 2007 primarily reflects a weakening in overall portfolio credit quality.GLOBAL CORPORATE PORTFOLIO REVIEW Corporate loans are identified as impaired and placed on a non-accrual basis (cash basis) when it is determined that the payment of interest or principal is doubtful or when interest or principal is past due for 90 days or more. The loan-loss reserves for specific counterparties include $327 million for subprime-related direct exposures.457 billion was in EMEA and $1. If. (3) Does not include the allowance for unfunded lending commitments. The following table summarizes corporate non-accrual loans. Cash-basis loans on December 31. and $949 million at December 31. See “Non-Accrual Loans” on page 55 for details on the corporate non-accrual portfolio. 2008.934 1. These loans were previously accounted for on a LOCOM basis and were transferred at their carrying value.373 million at December 31. leases and unfunded lending commitments $8. Total corporate net credit losses of $671 million in 2007 increased $589 million from 2006.223 billion from 2006 primarily due to the impact of subprime activity in the U. which was net of any write-downs previously recorded. (2) Represents additional reserves recorded in Other liabilities on the Consolidated Balance Sheet.758 $ 649 24 (2) $ 671 $3. analysis against the industry is not always comparable. There is no industry-wide definition of non-performing assets.137 As a percentage of total corporate loans (3) 4. primarily related to the $535 million in write-offs on loans with subprime-related direct exposure. 2007 from December 31. Citigroup’s total allowance for loans. 2008 were $175 billion compared to $186 billion at December 31.630 238 541 $9. of which $5. The carrying value of these loans was $1. $4.724 1. Impaired collateral-dependent loans are written down to the lower of cost or collateral value. 2008. Total NCL of $1.974 2.034 1.160 6.773 $7. the portion of Citigroup’s allowance for credit losses attributed to the corporate portfolio was $8. the exception is when the loan is well secured and in the process of collection. 2008 increased $7. As such. Cash-basis loans on December 31.100 $4.773 billion in 2008 increased $1. For analytical purposes only.163 billion increase in the corporate allowance at December 31. $ 535 $ 49 27 6 82 $ $2. Losses on corporate lending activities and the level of cash-basis loans can vary widely with respect to timing and amount.102 billion from 2007.01% $ 2006 59 186 173 117 North America EMEA Latin America Asia Total corporate non-accrual loans (1) Net credit losses (recoveries) Securities and Banking Transaction Services Corporate/Other Total net credit losses (recoveries) Corporate allowance for loan losses Corporate allowance for credit losses on unfunded lending commitments (2) of the economy. 2007. and U.711 62 — $1.811 billion from 2007.137 billion at December 31.250 887 2007 $ 290 1. as well as loan-loss reserves for specific counterparties. leases and unfunded lending commitments of $30. 2008 from December 31.250 $4. 2006 primarily reflects a weakening in overall portfolio credit quality. instead of recording direct markdowns. 2006. The $940 million increase in the corporate allowance at December 31.569 $1.K. In millions of dollars Corporate non-accrual loans 2008 $2.S. 2007 increased $1. Total corporate loans outstanding at December 31. 2007. 2007 and $4. $2.974 billion at December 31.034 billion at December 31. and net credit losses.173 127 168 $1. This increase is primarily attributable to the transfer of non-accrual loans from the held-for-sale portfolio to the held-for-investment portfolio during the fourth quarter of 2008. markets. less disposal costs. as well as loan-loss reserves for specific counterparties. the loans were included in the loan balance at par and the markdowns were included in reserves.

3 $ (9. (7) SFAS 157 adjustment related to counterparty credit risk. derivatives on RMBS. and (b) approximately $2. high-grade ABS CDOs. subprime-related direct exposures in its S&B business at December 31. loan-to-value (LTV) ratios and debt-to-income (DTI) ratios.1 billion of other super senior tranches of ABS CDOs.1 In billions of dollars Direct ABS CDO super senior exposures: Gross ABS CDO super senior exposures (A) Hedged exposures (B) Net ABS CDO super senior exposures: ABCP/CDO (3) High grade Mezzanine ABS CDO-squared Total net ABS CDO super senior exposures (A-B=C) Lending and structuring exposures: CDO warehousing/unsold tranches of ABS CDOs Subprime loans purchased for sale or securitization Financing transactions secured by subprime Total lending and structuring exposures (D) Total net exposures C+D (6) Credit adjustment on hedged counterparty exposures (E) (7) Total net write-downs (C+D+E) Note: Table may not foot or cross-foot due to roundings.8) $(14.2) (5) $ 0.3) (0.2) $(13. (1) Includes net profits and losses associated with liquidations and amounts recorded on credit cash. (5) A portion of the underlying securities was purchased in liquidations of CDOs and reported as Trading account assets.9 6.4) (4) (0.0 billion in ABS CDO super senior exposures as of December 31. 2008 exposures downs (1) transfers (2) $18. in order to estimate its current fair value. transfers and repayment or liquidations of principal. (3) Consists of older-vintage. Subprime-Related Direct Exposure in Securities and Banking The Company had approximately $14.0 3. See “Significant Accounting Policies and Significant Estimates” on page 18.0 $14. 2007 exposures $39. Citigroup’s CDO super senior subprime direct exposures are Level 3 assets and are subject to valuation based on significant unobservable inputs.6 0. 68 . and borrower and loan attributes.8 10.3) 2008 2008 writesales/ December 31.0 $12. (4) Includes $579 million recorded in credit costs. Direct ABS CDO Super Senior Exposures The net $12. The exposure consisted of (a) approximately $12.0 $(4. unemployment rates.S.3 $ 0.1) $ (0.2 $29. These exposures include $9.7 $ 2.0 $ 0.6) (1.6 4. including housing price changes. 2008.and CDO-squared tranche.8 1.S.9 9. as well as CLO spreads. (6) Composed of net CDO super-senior exposures and gross lending and structuring exposures.1) (1.S.7) (1. 2007 and 2008: December 31..e. the valuation methodology used by Citigroup is refined and the inputs used for purposes of estimation are modified. or both. derivatives on asset-backed securities.4) (2.3 0. 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. the inputs of home price appreciation (HPA) assumptions and delinquency data were updated throughout the year along with discount rates that are based upon a weighted average combination of implied spreads from single-name ABS bond prices and ABX indices. such as age. To determine the performance of the underlying mortgage loan portfolios. 2008 is collateralized primarily by subprime residential mortgage-backed securities (RMBS). REAL ESTATE IN SECURITIES AND BANKING Subprime-Related Exposure in Securities and Banking The following table summarizes Citigroup’s U.2 4.7) $(20. to reflect ongoing market developments.1 1.9) $ (5. More specifically.9 0. When necessary. credit scores.0 billion of net exposures in the super senior tranches (i.7) $(1.1 billion in net U. The model is calibrated using available mortgage loan information including historical loan performance. the Company estimates the prepayments. interest rates. or both (ABS CDOs). defaults and loss severities based on a number of macroeconomic factors. which are collateralized by asset-backed securities.3 0. 2008.8 $ 8. subprime-related direct exposures in Securities and Banking (S&B) at December 31.5 20.0 $37.9 3.5) (4) (1.EXPOSURE TO U. in part. the methodology estimates the impact of geographic concentration of mortgages and the impact of reported fraud in the origination of subprime mortgages.1 billion of exposures in its lending and structuring business. As of December 31. $227 million relating to deals liquidated was held in the trading books.9 billion in the super senior tranches of ABS CDOs initially issued as commercial paper (ABCP) and approximately $2. (2) Reflects sales.6) $(4.0) $(8.4) (4) $ (1. documentation status.0 (1. In addition.0) 0.0) (2. An appropriate discount rate is then applied to the cash flows generated for each ABCP. the most senior tranches) of CDOs.

3 billion of which are securities backed by commercial real estate carried at fair value as available-for-sale investments. were reclassified to assets held at amortized cost since management’s intent for these exposures changed to held for investment. However. Further. These exposures are represented primarily by the following three categories: (1) Assets held at fair value include: $5. This applies to both decreases in the discount rate (which would increase the value of these assets and decrease reported write-downs) and increases in the discount rate (which would decrease the value of these assets and increase reported writedowns). (2) Assets held at amortized cost include approximately $2.S. depending on vintage and asset types. The majority of these exposures are classified as Level 3 in the fair-value hierarchy. The held-to-maturity securities were classified as such during the fourth quarter of 2008 and were previously classified as either trading or available for sale. this projection incorporated the Loan Performance Index. although the effectiveness of the hedging products used may vary with material changes in market conditions. the Company’s mortgage default model also uses recent mortgage performance data.9 billion of loans and commitments. including those made as a result of market developments. ABX indices and CLO spreads. Additionally. Loans and commitments are recorded at amortized cost. In addition. thereby decreasing the observable inputs for such valuations. which are not included in the figures above. Unlike the ABCP. during the last three quarters of 2008.3 billion of actively managed subprime loans purchased for resale or securitization at a discount to par during 2007 and approximately $1. the Company has made its best estimate of the key inputs that should be used in its valuation methodology. In the second half of 2008. loans and other items linked to commercial real estate that are carried at fair value as trading account assets. They are accounted for at amortized cost. this change brings closer symmetry in the way these long and short positions are valued by the Company. For instance.8 billion. 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. respectively. the methodology is subject to continuing refinement. less loan loss reserves. During the fourth quarter of 2008. These amounts represent the fair value as determined using observable inputs and other market data. whereas in the first half of 2008. through its business activities and as a capital markets participant. In addition. This change was made because the Loan Performance Index provided more comprehensive geographic data. assumes a cumulative decline in U. trader priced. S&B also has trading positions. it incorporated the S&P Case Shiller Index. including ABS CDOs. 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. In the third quarter of 2008. each 10 basis point change in the discount rate used generally results in an approximate $32 million change in the fair value of the Company’s direct ABCP. while changes in fair value for these available-for-sale investments are reported in OCI with other-than-temporary impairments reported in current earnings. To determine the discount margin. because they were classified as held-for-sale and measured at the lower-of-cost-or-market (LOCOM). approximately $3. 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. and could have an adverse impact on how these instruments are valued in the future if such conditions persist. the discount rates were based on a weighted average combination of the implied spreads from single-name ABS bond prices.5 billion are securities.1 billion of subprime-related exposures includes approximately $0. housing prices from peak to trough of 33%. These were at prices close to the value of trader prices. both long and short.3 billion of commercial real estate loans and loan commitments that had been included in this category. In valuing its direct ABCP. by necessity. This rate assumes declines of 16% and 13% in 2008 and 2009. 2007 balances reflects sales. 2008 carrying amount of the positions liquidated. In addition.The 2008 fourth quarter housing-price changes were estimated using a forward-looking projection. the Company applies the mortgage default model to the bonds underlying the ABX indices and other referenced cash bonds and solves for the discount margin that produces the market prices of those instruments. The valuation as of December 31. Thus. and approximately $2. Exposure to Commercial Real Estate The Company. Citigroup intends to use trader marks to value this portion of the portfolio going forward so long as it remains largely hedged.and CDO-squared super senior exposures. there were a number of liquidations of highgrade and mezzanine positions during the third quarter. The majority of the change from the December 31. Estimates of the fair value of the CDO super senior exposures depend on market conditions and are subject to further change over time. in U.3 billion of financing transactions with customers secured by subprime collateral. Changes in fair value for these trading account assets are reported in current earnings. (3) Equity and other investments include approximately $4. transfers and liquidations. which are. The impact from changes in credit is reflected in the calculation of the allowance for loan losses and in net credit losses. Weakening activity in the trading markets for some of these instruments resulted in reduced liquidity. subprime RMBS and related products.7 billion of equity and other investments such as limited partner fund investments which are accounted for under the equity method.and CDO-squared positions. a period of sharp home price declines and high levels of mortgage foreclosures. incurs exposures that are directly or indirectly tied to the global commercial real estate market. the high-grade and mezzanine positions are now largely hedged through the ABX and bond short positions. Lending and Structuring Exposures The $2. approximately $1. The exposure from these positions is actively managed and hedged.and CDO-squared super senior exposures as of December 31. subject to otherthan-temporary impairment. 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.0 billion of securities classified as held-to-maturity and $24.1 billion of CDO warehouse inventory and unsold tranches of ABS CDOs.S. of which approximately $3. The liquidation proceeds in total were also above the June 30. 69 . the remainder of the 33% decline having already occurred before the end of 2007. while Citigroup believes that the methodology used to value these exposures is reasonable. 2008.

2008 and 2007. 2008 balance to $4. which was settled during the third quarter of 2008. from hedges on certain investments and from trading positions.728 $4.126 1. The fair value of the hedges provided by the Monolines against the Company’s direct subprime ABS CDO super senior positions was $4.2 billion net fair-value exposure related to subprime trading positions with a notional amount of $1. Of those amounts.5 billion as of December 31. During 2007. Credit market valuation adjustments are based on credit spreads and on estimates of the terms and timing of the payment obligations of the Monolines. As of December 31.357 — — — $5.4 billion as of December 31. 2008 and 2007 in S&B: December 31.262 $1.9 billion net fair-value exposure related to direct subprime ABS CDO super senior positions with a notional amount of $1.S.620 1. excluding the credit valuation adjustment.5 billion as of December 31. listed in the table below. including ABS CDOs. net of payable and receivable positions. each considered in the context of the terms of the Monolines’ obligations. represents the market value of the contract as of December 31. There was $1.460 600 100 $ 7.461 — — — $ 4. 2008 Fairvalue exposure $ 4.645 $ 1. 2007. 2008.040 1. In 2008. the Company added $5.023 Notional amount of transactions $ 5.Direct Exposure to Monolines In its Securities and Banking business.3 billion and $1.924 204 — 141 58 21 $ 2.126 — 465 150 1. is used as a reference value to calculate payments. were purchased from Monolines and are included in the notional amount of transactions in the table above.809 $(4. 2007 Fairvalue exposure $1. and $3. the Company has exposure to various monoline bond insurers (Monolines).887 $6.887 December 31. Timing in turn depends on estimates of the performance of the transactions to which the Company’s exposure relates. The notional amount of the transactions.357 — — $4. respectively.925 340 350 1. estimates of whether and when liquidation of such transactions may occur and other factors.3 billion.971 $11.7 billion of fair-value exposure to Monolines as of December 31.990 $ (967) $4.150 $1.815 909 438 100 $3. subprime RMBS and related products. respectively.5 billion.150 $ 395 121 50 7 5 — $ 578 $1.7 billion to this reserve and recorded utilizations of $2. both long and short.485 1. bringing the December 31. 2007.106 $6. including both long and short positions.400 $ 1.461 — — $ 1.348 $ 2. in notional amount of hedges against its direct subprime ABS CDO super senior positions. There was $0. the Company established a $967 million credit valuation adjustment (CVA) reserve on the fair-value exposures related to these Monolines.332 $12. The credit valuation adjustment is a downward adjustment to the fair-value exposure to a counterparty to reflect the counterparty’s creditworthiness in respect of the obligations in question.279) $ 2. 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 valuation adjustment associated with these exposures as of December 31. which was settled during the fourth quarter of 2008. The hedges are composed of credit default swaps and other hedge instruments. $5.530 Notional amount of transactions $5.400 $ 5.732 In millions of dollars Direct subprime ABS CDO super senior: Ambac FGIC ACA Radian Subtotal direct subprime ABS CDO super senior Trading assets—subprime: Ambac Trading assets—subprime Trading assets—non-subprime: MBIA FSA ACA Assured Radian Ambac Trading assets—non-subprime Subtotal trading assets Total gross fair-value direct exposure Credit valuation adjustment Total net fair-value direct exposure The fair-value exposure. in U. With respect to Citi’s trading assets. 2007.9 billion and $10. Trading assets include trading positions.348 $ 6. 70 .5 billion. 2008 and 2007. respectively. there were $2.4 billion.3 billion as of December 31.3 billion and $7. the Company had $6. 2008 and 2007.

These subordinate interests absorb first loss on the transferred loans and provide the third parties with control of the loans. corporate or municipal bonds in the trading business may be insured by the Monolines. see “Reclassification of Financial Assets” on page 87.8 billion primarily in interest-rate swaps with a corresponding fair value exposure of $3.9 billion in unfunded commitments).1 billion funded and $0. management buy-outs and similar transactions. Due to this risk. Due to the dislocation of the credit markets and the reduced market interest in higher-risk/higher-yield instruments since the latter half of 2007. 2008 and 2007. Citigroup records the resulting loan as follows: • the portion that Citigroup will seek to sell is recorded as a loan held-for-sale in Other assets on the Consolidated Balance Sheet. 2008 ($9. In addition. loss estimates are made in reference to current conditions in the resale market (both interest rate risk and credit risk are considered in the estimate). the risk that the borrower may not be able to meet its debt obligations is greater.3 billion.1 billion primarily in interestrate swaps with a fair value exposure of $34 million. The credit risk in the total return swap is protected through margin arrangements that provide for both initial margin and additional margin at specified triggers.3 billion. Due to the initial cash margin received and the existing margin requirements on the total return swaps and the substantive subordinate investments made by third parties. The loans were removed from the balance sheet and the retained securities are classified as Available-for-sale securities on the Company’s Consolidated Balance Sheet. principal and interest payments) absorbs a significant portion of the cash flows generated by the borrower’s business.3 billion with a corresponding fair value exposure of $578 million. For the portion of loan commitments that relates to loans that will be held for sale.9 billion notional amount of transactions comprised $1. loss estimates are made based on the borrower’s ability to repay the facility according to its contractual terms. The Company retained senior debt securities backed by the transferred loans. was $11. Indirect exposure includes circumstances in which the Company is not a contractual counterparty to the Monolines. respectively. These transactions were accounted for as sales of the transferred loans. In recent years through mid-2008. 2008.9 million. Loan origination. In these financings. all or a portion 71 . The Company purchased protection on these retained senior positions from the third-party subordinate interest holders via total return swaps. The notional amount of this insurance protection was approximately $400 million and $600 million as of December 31. reflecting a decrease of $33.0 billion at December 31. In April 2008. The remaining notional amount of $5. The Company has purchased mortgage insurance from various monoline mortgage insurers on first mortgage loans. the Company believes that the transactions largely mitigate the Company’s risk related to these transferred loans. Highly leveraged financing commitments are agreements that provide funding to a borrower with higher levels of debt (measured by the ratio of debt capital to equity capital of the borrower) than is generally the case for other companies. Thus.9 billion with a corresponding fair value exposure of $2. and • the portion that will be retained is recorded as a loan held-for-investment in Loans and measured at amortized cost less a reserve for loan losses.5 billion in 2007.5 billion relates to highly leveraged loans and commitments. highly leveraged financing had been commonly employed in corporate acquisitions. 2008. liquidity in the market for highly leveraged financings has been limited. highly leveraged financing commitments are assessed for impairment in accordance with SFAS 5.1 billion was in the form of credit default swaps and total return swaps with a fair value exposure of $2. For the portion of loan commitments that relates to loans that will be held for investment. 2007.2 billion from December 31. In these transactions. underwriting and other fees are netted against any recorded losses. In certain cases. but instead owns securities which may benefit from embedded credit enhancements provided by a Monoline. The remaining notional amount of $7.3 billion notional amount of transactions comprised $4. commitment.1 billion as of December 31. The $6. of which $8. This has resulted in the Company’s recording pretax write-downs on funded and unfunded highly leveraged finance exposures of $4. was $6. Citigroup’s exposures for highly leveraged financing commitments totaled $10. which have an aggregate carrying value of $8.9 billion in 2008 and $1. debt service (that is. The Company’s sole remaining exposure to the transferred loans are the senior debt securities and the receivables under the TRS. For example.2 billion was in the form of credit default swaps and total return swaps with a fair value of $544 million. The previous table does not capture this type of indirect exposure to the Monolines. Highly Leveraged Financing Transactions of a highly leveraged financing to be retained is hedged with credit derivatives or other hedging instruments. when a highly leveraged financing is funded. the interest rates and fees charged for this type of financing are generally higher than for other types of financing. 2007. Citigroup reclassified $3. Citigroup generally manages the risk associated with highly leveraged financings it has entered into by seeking to sell a majority of its exposures to the market prior to or shortly after funding. Citigroup has indirect exposure to Monolines in various other parts of its businesses. The notional amount of transactions related to the remaining non-subprime trading assets at December 31. and losses are recorded when they are probable and reasonably estimable. the Company completed the transfer of approximately $12 billion of loans to third parties. For further discussion regarding this reclassification. Prior to funding. and measured at the lower of cost or market (LOCOM). Consequently.The notional amount of transactions related to the remaining non-subprime trading assets as of December 31. The $11. with nominal pending claims against this notional amount.3 billion of funded highly leveraged financings from held for sale to held for investment as the Company revised the holding periods for these loans. During the fourth quarter of 2008. the third parties purchased subordinate interests backed by the transferred loans.

margins and the impact of prior-period pricing decisions are not captured by IRE. Citigroup’s principal measure of risk to NIR is interest rate exposure (IRE). In all cases. In all cases. and in their implied volatilities. In order to manage these risks effectively. limit and report the market risk. 72 . MITIGATION AND HEDGING OF RISK All financial institutions’ financial performances are subject to some degree of risk due to changes in interest rates. portions of the deposit portfolio are assumed to experience rate increases that may be less than the change in market interest rates. the businesses are ultimately responsible for the market risks they take and for remaining within their defined limits. Net interest revenue (NIR) is the difference between the yield earned on the non-trading portfolio assets (including customer loans) and the rate paid on the liabilities (including customer deposits or company borrowings). subjecting both “liability-sensitive” and “assetsensitive” companies to NIR sensitivity from changing interest rates. For example. it is assumed that mortgage portfolios prepay faster and income is reduced. Price risk is the earnings risk from changes in interest rates. country and business Asset and Liability Committees (ALCOs) and the Global Finance and Asset and Liability Committee (FinALCO). and rate type. foreign exchange rates. and the potential impact of the change in the spread between different market indices. with approval from independent market risk management. in a rising interest rate scenario.” In this case. or investor when due. The impact of changing prepayment rates on loan portfolios is incorporated into the results. IRE tests the impact on NIR resulting from unanticipated changes in forward interest rates. and equity and commodity prices. with approval from independent market risk management. NIR in the current period is the result of customer transactions and the related contractual rates originated in prior periods as well as new transactions in the current period. NIR will vary from quarter to quarter even assuming no change in the shape or level of the yield curve as the assets and liabilities reprice. For example: • At any given time. IRE measures the change in expected NIR in each currency resulting solely from unanticipated changes in forward interest rates. Liquidity risk is discussed in the “Capital Resources and Liquidity” section on page 94. in the declining interest rate scenarios. In addition. For example. Citigroup formulates strategies aimed at protecting earnings from the potential negative effects of changes in interest rates. Each business is required to establish. measure.. These repricings are a function of implied forward interest rates. • The assets and liabilities of a company may reprice at different speeds or mature at different times. including stress testing the impact of non-linear interest rate movements on the value of the balance sheet. Citigroup may modify pricing on new customer loans and deposits. there may be an unequal amount of assets and liabilities which are subject to market rates due to maturation or repricing. index. NON-TRADING PORTFOLIOS INTEREST RATE RISK The risks in Citigroup’s non-traded portfolios are estimated using a common set of standards that define. a company is considered “liability sensitive.e. Loans and deposits are tailored to the customers’ requirements with regard to tenor. These limits are monitored by independent market risk. Liquidity risk is the risk that an entity may be unable to meet a financial commitment to a customer. particularly as they relate to mortgage loans and mortgage-backed securities. the estimated 90-day LIBOR rate in one year). if the current 90-day LIBOR rate is 3% and the one-year-forward rate is 5% (i. a company’s NIR will deteriorate in a rising rate environment. as well as in trading portfolios. the +100 bps IRE scenario measures the impact on the company’s NIR of a 100 bps instantaneous change in the 90-day LIBOR to 6% in one year. a market risk limit framework for identified risk factors that clearly defines approved risk profiles and is within the parameters of Citigroup’s overall risk appetite. both of which arise in the normal course of business of a global financial intermediary. which represent the overall market’s unbiased estimate of future interest rates and incorporate possible changes in the Federal Funds rate as well as the shape of the yield curve. That company would suffer from NIR deterioration if interest rates were to fall. a market risk limit framework that clearly defines approved risk profiles and is within the parameters of Citigroup’s overall risk appetite. Citigroup regularly assesses the viability of strategies to reduce unacceptable risks to earnings and implements such strategies when the Company believes those actions are prudent. enter into transactions with other institutions or enter into off-balance-sheet derivative transactions that have the opposite risk exposures. the businesses are ultimately responsible for the market risks they take and for remaining within their defined limits. For example. Citigroup employs additional measurements. NIR is affected by changes in the level of interest rates. creditor. As information becomes available. Due to the long-term nature of the portfolios. the analysis of portfolio duration and volatility. Each business is required to establish. Factors such as changes in volumes. those prior-period transactions will be impacted by changes in rates on floating-rate assets and liabilities in the current period. a company may have a large amount of loans that are subject to repricing this period. but the majority of deposits are not scheduled for repricing until the following period. Whenever the amount of liabilities subject to repricing exceeds the amount of assets subject to repricing. Market risks are measured in accordance with established standards to ensure consistency across businesses and the ability to aggregate risk. INTEREST RATE RISK MEASUREMENT One of Citigroup’s primary business functions is providing financial products that meet the needs of its customers. spreads. Therefore. IRE assumes that businesses make no additional changes in pricing or balances in response to the unanticipated rate changes. Price risk arises in non-trading portfolios.MARKET RISK MANAGEMENT PROCESS INTEREST RATE RISK GOVERNANCE Market risk encompasses liquidity risk and price risk.

• Value-at-Risk (VAR). and • Stress testing. in conjunction with the businesses.The exposures in the following table represent the approximate annualized risk to NIR assuming an unanticipated parallel instantaneous 100 bps change. in most cases. A 100 bps decrease in interest rates would imply negative rates for the Japanese yen yield curve. Each scenario assumes that the rate change will occur on a gradual basis every three months over the course of one year. and on aggregations of portfolios and businesses. 2008 capital changes. December 31. Stress testing is performed on trading portfolios on a regular basis to estimate the impact of extreme market movements. The changes in the U. for all relevant risks taken in a trading portfolio. Overnight rate change (bps) 10-year rate change (bps) Impact to net interest revenue (in millions of dollars) Scenario 1 — (100) $(424) Scenario 2 100 — $(435) Scenario 3 200 100 $(576) Scenario 4 (200) (100) $(333) Scenario 5 (100) — $ 28 Scenario 6 — 100 $30 Trading Portfolios Price risk in trading portfolios is monitored using a series of measures. at a 99% confidence level. Citigroup’s independent market risk management ensures that factor sensitivities are calculated. dollar IRE from the prior year reflect changes in the customer-related asset and liability mix. limited. such as a change in the value of a Treasury bill for a one-basis-point change in interest rates.S. Citigroup’s VAR is based on the volatilities of and correlations among a multitude of market risk factors as well as factors that track the specific issuer risk in debt and equity securities. and Citigroup’s view of prevailing interest rates. VAR estimates the potential decline in the value of a position or a portfolio under normal market conditions. and uses the information to make judgments as to the ongoing appropriateness of exposure levels and limits. 2008 In millions of dollars December 31. It is performed on both individual trading portfolios. reviews the output of periodic stress testing exercises. 2007 Increase $(940) $(527) $ (25) $ (17) $ (63) $ (32) $ 67 $ 43 $ (16) $ (4) Decrease $837 $540 $ 25 $ 17 $ 63 $ 32 NM NM $ 16 $ 4 Increase $(801) $(456) $ (18) $ (14) $ (56) $ (43) $ 172 $ 51 $ (1) $ — Decrease $391 $ 81 $ 18 $ 14 $ 57 $ 43 NM NM $ 1 $ — U. develops stress scenarios. The following table shows the risk to NIR from six different changes in the implied forward rates. including permitted product lists and a new product approval process for complex products. Independent market risk management. including: • factor sensitivities. dollar Instantaneous change Gradual change Mexican peso Instantaneous change Gradual change Euro Instantaneous change Gradual change Japanese yen Instantaneous change Gradual change Pound sterling Instantaneous change Gradual change NM Not meaningful. as well as a more gradual 100 bps (25 bps per quarter) parallel change in rates compared with the market forward interest rates in selected currencies.S. monitored and. Factor sensitivities are expressed as the change in the value of a position for a defined change in a market risk factor. The VAR method incorporates the factor sensitivities of the trading portfolio with the volatilities and correlations of those factors and is expressed as the risk to the Company over a one-day holding period. Each trading portfolio has its own market risk limit framework encompassing these measures and other controls. 73 .

with different degrees of risk concentration. on average. December 31. and will vary from period to period. The following histogram of total daily revenue or loss captures trading volatility and shows the number of days in which the Company’s trading-related revenues fell within particular ranges. Of the 109 days on which negative revenue (net losses) was recorded. 2008 and $191 million at December 31. The VAR calculation for the hypothetical test portfolios. negative trading-related revenue (net losses) was recorded for 109 of 260 trading days. As a result. 2007. The Subprime Group (SPG) exposures became fully integrated into VAR during the first quarter of 2008. 74 750 to 800 ($50) to 0 0 to 50 . In 2008. Daily exposures averaged $292 million in 2008 and ranged from $220 million to $393 million. All trading positions are marked to market. which includes spreads from customer flow and positions taken to facilitate customer orders. respectively.500 million category are due to cumulative write-downs on these positions. meets this statistical criteria. 2008 VAR and 2008 average VAR increased by approximately $29 million and $111 million. Back-testing is conducted to confirm that the daily market value losses in excess of a 99% confidence level occur. Histogram of Daily Trading-Related Revenue* . and • net interest revenue. the aggregate pretax VAR in the trading portfolios was $319 million at December 31. 21 were greater than $400 million. Most of the loss events in the $800-$4. The level of price risk exposure at any given point in time depends on the market environment and expectations of future price and market movements. 2008 45 40 Number of Trading Days 35 30 25 20 15 10 5 - 500 to 550 50 to 100 100 to 150 150 to 200 200 to 250 250 to 300 300 to 350 350 to 400 400 to 450 450 to 500 550 to 600 600 to 650 650 to 700 700 to 750 ($4500) to ($800) ($600) to ($550) ($800) to ($750) ($750) to ($700) ($700) to ($650) ($650) to ($600) ($550) to ($500) ($500) to ($450) ($450) to ($400) ($400) to ($350) ($350) to ($300) ($300) to ($250) ($250) to ($200) ($200) to ($150) ($150) to ($100) ($100) to ($50) Revenue (dollars in millions) *Includes subprime-related losses on credit positions which were marked intermittently during each month. with the result reflected in earnings. For Citigroup’s major trading centers.Total revenues of the trading business consist of: • customer revenue.Twelve Months Ended December 31. Back-testing is the process in which the daily VAR of a portfolio is compared to the actual daily change in the market value of its transactions. • proprietary trading activities in both cash and derivative transactions. Citigroup periodically performs extensive back-testing of many hypothetical test portfolios as one check of the accuracy of its VAR. only 1% of the time.

The table below provides the range of VAR in each type of trading portfolio that was experienced during 2008 and 2007: 2008 In millions of dollars Dec. 2007 $ 89 28 150 45 (121) 2007 average $ 98 29 96 35 (116) 2007 Low $71 21 55 17 High $128 37 164 56 Low $227 23 58 12 High $339 130 235 60 Interest rate Foreign exchange Equity Commodity Covariance adjustment Total—all market risk factors. including the total VAR. including general and specific risk Specific risk-only component Total—general market factors only Interest rate Foreign exchange Equity Commodity $ 319 $ 8 $ 292 $ 21 $ 271 $ 191 $ 28 $ 163 $ 142 $ 19 $ 123 $ 311 75 .The following table summarizes VAR to Citigroup in the trading portfolios as of December 31. 2008 $ 320 118 84 15 (218) 2008 average $ 280 54 99 34 (175) Dec. along with the yearly averages: In millions of dollars The specific risk-only component represents the level of equity and debt issuer-specific risk embedded in VAR. 2008 and 2007. 31. the specific riskonly component of VAR. and total—general market factors only. 31.

as with other risk types. The Council’s membership includes senior members of the Chief Risk Officer’s organization covering multiple dimensions of risk management with representatives of the Business and Regional Chief Risk Officers’ organizations and the Business Management Group. continues to coordinate global preparedness and mitigate business continuity risks by reviewing and testing recovery procedures. and the control environment is reported by each major business segment and functional area. The Council’s focus is on further advancing operational risk management at Citigroup with focus on proactive identification and mitigation of operational risk and related incidents. Information security and the protection of confidential and sensitive customer data are a priority of Citigroup. The goal is to keep operational risk at appropriate levels relative to the characteristics of our businesses. the businesses are required to capture relevant operational risk capital information. is managed through an overall framework designed to balance strong corporate oversight with well-defined independent risk management. Framework To support advanced capital modeling and management. It includes the reputation and franchise risk associated with business practices or market conduct in which the Company is involved. valueadded framework for assessing and communicating operational risk and the overall effectiveness of the internal control environment across Citigroup. 76 . Citigroup maintains a system of comprehensive policies and has established a consistent. and • independent review by Audit and Risk Review (ARR). mitigate and control operational risk. The risk capital calculation is designed to qualify as an “Advanced Measurement Approach” (AMA) under Basel II. An Operational Risk Council has been established to provide oversight for operational risk across Citigroup. The process for operational risk management includes the following steps: • • • • identify and assess key operational risks. processes are designed. or from external events. An enhanced version of the risk capital model for operational risk has been developed and implemented across the major business segments as a step toward readiness for Basel II capital calculations. The Corporate Office of Business Continuity. and the competitive. produce a comprehensive operational risk report. modified or sourced through alternative means and operational risks are considered. economic and regulatory environment. This framework includes: • recognized ownership of the risk by the businesses. Notwithstanding these controls. It uses a combination of internal and external loss data to support statistical modeling of capital requirement estimates. The operational risk standards facilitate the effective communication and mitigation of operational risk both within and across businesses. Operational risk is inherent in Citigroup’s global business activities and. • oversight by independent risk management.OPERATIONAL RISK MANAGEMENT PROCESS Measurement and Basel II Operational risk is the risk of loss resulting from inadequate or failed internal processes. As new products and business activities are developed. Citigroup incurs operational losses. historical losses. systems or human factors. which are then adjusted to reflect qualitative data regarding the operational risk and control environment. our capital and liquidity. establish key risk indicators. and summarized for Senior Management and the Citigroup Board of Directors. with the support of Senior Management. The Council works with the business segments and the control functions to help ensure a transparent. and prioritize and assure adequate resources to actively improve the operational risk environment and mitigate emerging risks. Information about the businesses’ operational risk. the markets in which we operate. consistent and comprehensive framework for managing operational risk globally. Information Security and Continuity of Business To monitor. Each major business segment must implement an operational risk process consistent with the requirements of this framework. The Information Security Program is reviewed and enhanced periodically to address emerging threats to customers’ information. The Company has implemented an Information Security Program that complies with the Gramm-Leach-Bliley Act and other regulatory guidance.

Effective March 31.7 0.1 15.1 11.S.3 22. Management oversight of cross-border risk is performed through a formal review process that includes annual setting of cross-border limits.6 1. Local country assets are claims on local residents recorded by branches and majority-owned subsidiaries of Citigroup domiciled in the country.7 $40.2 1. (2) Commitments (not included in total cross-border outstandings) include legally binding cross-border letters of credit and other commitments and contingencies as defined by the FFIEC. ongoing monitoring of cross-border exposures.7 55.3 7.9 24.3 39. These actions might restrict the transfer of funds or the ability of the Company to obtain payment from customers on their contractual obligations.4 0.6 20. as well as net revaluation gains on foreign exchange and derivative products.7 16.6 21.7 15.9 5. as well as investments in and funding of local franchises. expropriation.2 — — 17. Country risk includes local franchise risk. The Committee is chaired by the Head of Global Country Risk Management and includes as its members senior risk management officers. The Committee regularly reviews all risk exposures within a country.4 4.1 (1) Included in total cross-border claims on third parties.4 17. Cross-border resale agreements are presented based on the domicile of the counterparty in accordance with FFIEC guidelines.1 10.2 — 9.COUNTRY AND FFIEC CROSS-BORDER RISK MANAGEMENT PROCESS Country Risk Country risk is the risk that an event in a foreign country will impair the value of Citigroup assets or will adversely affect the ability of obligors within that country to honor their obligations to Citigroup. Investments in and funding of local franchises represent the excess of local country assets over local country liabilities. mediumand long-term claims) include cross-border loans. Cross-Border Risk Cross-border risk is the risk that actions taken by a non-U.2 0.2 $11. confiscation of assets and other changes in legislation relating to international ownership).1 0.0 6. Local country liabilities are obligations of non-U.0 $18. or restrictions on the remittance of funds.4 $29. The country risk management framework at Citigroup includes a number of tools and management processes designed to facilitate the ongoing analysis of individual countries and their risks.S. credit risk.2 1.8 $ 4.4 7.7 9. deposits with banks.7 3.4 5. securities. total reported cross-border outstandings include crossborder claims on third parties.8 20. operational risk and cross-border risk. branches and majority-owned subsidiaries of Citigroup for which no cross-border guarantee has been issued by another Citigroup office. debt moratoria. For securities received as collateral. Under Federal Financial Institutions Examination Council (FFIEC) regulatory guidelines. 77 .6 4.1 15.2 55.9 1.9 28. thereby impacting the ability of the Company and its customers to transact business across borders. banking or currency crises.0 20.9 22. The Citigroup Country Risk Committee is the senior forum to evaluate the Company’s total business footprint within a specific country franchise with emphasis on responses to current potential country risk events. and changes in governmental policies (for example.5 11. and other monetary assets.1 4.7 366. 2007 In billions of dollars U.9 24. nationalization.0 26.4 11.4 2.8 57.7 4. cross-border outstandings are reported in the domicile of the issuer of the securities. Cross-border claims on third parties (trade and short-. 2006. and the Country Risk Committee process.7 6. adjusted for externally guaranteed claims and certain collateral.7 1.1 2.3 23. scenario planning and stress testing.0 35.8 $46. and senior product heads.3 22.3 18.3 9.9 16. Examples of cross-border risk include actions taken by foreign governments such as exchange controls.0 8.6 196.4 — — 0.5 $2. Cross-border outstandings are reported based on the country of the obligor or guarantor.7 2.4 1. government may prevent the conversion of local currency into non-local currency and/or the transfer of funds outside the country. These include country risk rating models. social instability.1 14. market risk.0 21.1 1. senior regional business heads. Outstandings backed by cash collateral are assigned to the country in which the collateral is held. and follows up to ensure appropriate accountability.4 $29. The table below shows all countries in which total FFIEC cross-border outstandings exceed 0.2 17.0 24. the FFIEC revised the definition of commitments to include commitments to local residents to be funded with local currency local liabilities.4 11.3 $16.0 21.0 107. investments in affiliates.1 22. internal watch lists.8 5.2 7.5 7.75% of total Citigroup assets: December 31.8 26.1 21.4 17. as well as monitoring of economic conditions globally and the establishment of internal cross-border risk management policies. 2008 Cross-border claims on third parties Investments in and funding of local franchises December 31. Banks Public Private Total Trading and short-term claims (1) Total cross-border outstandings Commitments (2) Total cross-border outstandings Commitments (2) Germany India United Kingdom Cayman Islands Korea France Netherlands Canada Italy $11. makes recommendations as to actions. Country risk events may include sovereign defaults.S.

a decrease in commercial paper trading assets and the transfer of trading assets to investments held-to-maturity and available-for-sale (see “Reclassification of Financial Assets” on page 87). decrease in mortgage and real estate loans. and • $29 billion. or 7%. decrease in corporate and other debt securities. primarily due to: • $39 billion. and corporate loans. see “Loans Outstanding” on page 53 and Note 17 to the Consolidated Financial Statements on page 163. personal loans. Foreign exchange translation also factored into the decrease in loans. During 2008. compared to $523 billion and 9. and • $9 billion.187 Increase (decrease) $ (97) (161) (90) 41 58 $(249) $ (52) (99) (88) (15) (24) $(278) $ 29 $(249) % Change (13)% (30) (33) 19 15 (11)% (6)% (33) (15) (8) (13) (13)% 26% (11)% Assets Loans. All trading account assets and liabilities are reported at their fair value.074 $ 113 $2. offset by an increase in netting permitted under master netting agreements.187 $ 826 304 574 182 188 $2. respectively. Average corporate loans of $184 billion yielded an average rate of 8. decrease in mortgage loans and collateralized mortgage securities (CMOs). foreign exchange and credit derivative contracts. primarily driven by a decrease of $10 billion. except for physical commodities inventory which is carried at the lower of cost or market. certain assets that Citigroup has elected to carry at fair value under SFAS 155 and SFAS 159. • $35 billion. These decreases were partially driven by the sales of CitiCapital and the German retail banking units. The majority of loans are carried at cost with a minimal amount recorded at fair value in accordance with SFAS 155 and SFAS 159. or 8%. residual interests in securitizations. or 70%.796 $ 142 $1. decrease in equity securities. In addition. offset by: • $38 billion. net of unearned income and allowance for loan losses Trading account assets Federal funds sold and securities borrowed or purchased under agreements to resell Investments Other assets Total assets Liabilities Deposits Federal funds purchased and securities loaned or sold under agreements to repurchase Short-term borrowings and long-term debt Trading account liabilities Other liabilities Total liabilities Stockholders’ equity Total liabilities and stockholders’ equity Loans Trading Account Assets (Liabilities) Loans are an extension of credit to individuals. in commercial and industrial loans. corporations. other real estate lending.5% in the prior year. auto loans. • $58 billion. or 49%. mortgages.0% in the prior year. are also included in trading account assets. Trading account liabilities include securities sold. or 14%. average consumer loans (net of unearned income) of $551 billion yielded an average rate of 8. not yet purchased (short positions) and derivatives in a net payable position as well as certain liabilities that Citigroup has elected to carry at fair value under SFAS 155 and SFAS 159. as a number of currencies weakened against the dollar. such as certain loans and purchase guarantees.938 2007 $ 762 539 274 215 397 $2.6%. During 2008 corporate loans decreased $15 billion.2% in 2008. For further information. or government institutions. Loans vary across regions and industries and primarily include credit cards. In billions of dollars 2008 $ 665 378 184 256 455 $1. Trading account assets include debt and marketable equity securities. derivatives in a receivable position. student loans. or 62%. or 14%. compared to $188 billion and 8. and physical commodities inventory.BALANCE SHEET REVIEW December 31. due to: • $127 billion. or 10%. or 30%. of total loans (net of unearned income and before the allowance for loan losses). driven by a decrease in the SIV assets. decrease in installment and revolving credit. increase in revaluation gains primarily consisting of increases from interest rates. with unrealized gains and losses recognized in current income. During 2008 trading account assets decreased by $161 billion. 78 . decrease in state and municipal securities.938 $ 774 205 486 167 164 $1. or 50%. During 2008 consumer loans decreased by $83 billion. or 55%. Consumer and corporate loans comprised 75% and 25%.

or 35%. and • $3 billion in various other assets. and additional collateral is obtained where appropriate to protect against credit exposure. For further discussion regarding trading account assets and liabilities. the Company pays cash collateral in an amount in excess of the market value of securities borrowed. brokerage receivables. Securities purchased under agreements to resell and securities sold under agreements to repurchase are treated as collateralized financing transactions and are primarily carried at fair value in accordance with SFAS 159 since January 1. Federal Funds Sold (Purchased) and Securities Borrowed (Loaned) or Purchased (Sold) Under Agreements to Resell (Repurchase) Investments Federal funds sold and federal funds purchased consist of unsecured advances of excess balances in reserve accounts held at Federal Reserve banks. and • $13 billion. see Note 19 to the Consolidated Financial Statements on page 166. and non-marketable equity securities carried at cost. and various other assets. with a minimal amount recorded at fair value in accordance with SFAS 155 and SFAS 159. compared to $105 billion and 1. The Company’s policy is to take possession of securities purchased under agreements to resell. or 85%. Debt securities include bonds. notes and redeemable preferred stock. see Note 13 to the Consolidated Financial Statements on page 156. The majority of deposits are carried at cost. yielding an average rate of 1. Marketable and non-marketable equity securities carried at fair value include common and nonredeemable preferred stocks. foreign exchange translation and the decrease in the fair value of the MSR.2%. as well as gains and losses from the sale of these investment securities. Securities borrowed and securities loaned are recorded at the amount of cash advanced or received. or 15%.• $12 billion. decrease in securities sold.4% in the prior year. For further information regarding these balance sheet categories. see Note 15 to the Consolidated Financial Statements on page 157. average trading account liabilities were $76 billion. while U. offset by an increase in netting permitted under master netting agreements. debt securities that are held-to-maturity. • $13 billion in brokerage receivables. other assets increased $58 billion. For further discussion on brokerage receivables. or 38%. see “Reclassification of Financial Assets” on page 87). Interest received or paid for these transactions is recorded in interest income or interest expense. With respect to securities borrowed. due to the $101 billion increase in deposits with banks and the $31 billion increase in the deferred tax asset. In 2008. Changes in fair value of such investments are recorded in earnings. The market value of securities to be repurchased and resold is monitored. Investment securities classified as available-for-sale are primarily carried at fair value with the changes in fair value generally recognized in stockholders’ equity (accumulated other comprehensive income). when the Company receives federal funds. not yet purchased. increase in revaluation losses primarily consisting of increases from interest rates. see Note 16 to the Consolidated Financial Statements on page 158. and receives excess in the case of securities loaned. driven by the impairment of goodwill and intangibles. Deposits Deposits represent customer funds that are payable on demand or upon maturity. The Company monitors the market value of securities borrowed and loaned on a daily basis with additional collateral advanced or obtained as necessary. as well as loan-backed securities (such as mortgage-backed securities) and other structured notes. 79 Investments consist of debt and equity securities that are available-for-sale. see Note 14 to the Consolidated Financial Statements on page 157.7%.S. and the decrease of $99 billion. in federal funds sold and securities borrowed or purchased under agreements to resell. • $5 billion. When the Company advances federal funds to a third party. These increases were offset by the following decreases: • $41 billion related to loans held-for-sale as they were reclassed to loans held-for-investment (for further discussion. net increase in other trading securities. or 33%. Declines in fair value that are deemed other-than-temporary. in which case such a decline is recorded in current earnings. are recognized in current earnings. it is selling its excess reserves. or 33%. • $17 billion in goodwill and intangibles. For further information regarding goodwill and intangibles. These interestbearing transactions typically have an original maturity of one business day. comprising a $28 billion decrease in debt securities. non-marketable equity securities that are carried at fair value. Non-marketable equity securities carried at cost primarily include equity shares issued by the Federal Reserve Bank and the Federal Home Loan Bank that the Company is required to hold. investments increased by $41 billion. Total average trading account assets were $381 billion in 2008. Certain investments in non-marketable equity securities and certain investments that would otherwise be accounted for using the equity method are carried at fair value in accordance with SFAS 159. with a minimal amount adjusted for fair value in accordance with SFAS 159.S. respectively. intangibles. or 19%. principally due to the transfer of debt securities from Trading assets to Investments as discussed in the section “Reclassification of Financial Assets” on page 87. or 13%. During 2008 the decrease of $90 billion. These instruments provide the Company with long-term investment opportunities while in most cases remaining relatively liquid. During 2008. these agreements were carried at cost. Debt securities classified as held-to-maturity are carried at cost unless a decline in fair value below cost is deemed other-than-temporary. . increase in foreign government securities. In prior periods. Treasury securities remained flat. For further information regarding investments. Similarly. During 2008 trading account liabilities decreased by $15 billion. Other Assets Other assets are composed of cash and due from banks. Treasury and federal agency securities. increase in U. During 2008. deposits with banks. yielding average rates of 4. the Company is purchasing reserves from a third party. and • $28 billion. 2007. compared to $441 billion in 2007. or 10%. in federal funds purchased and securities loaned or sold under agreements to repurchase were primarily driven by balance sheet management. or 8%.6% and 4. foreign exchange and credit derivative contracts. goodwill. due to: • $13 billion.

2% in 2007. total debt decreased by $88 billion. respectively. yielding an average rate of 2. During 2008. senior notes (including collateralized advances from the Federal Home Loan Bank). Interest-bearing deposits payable by foreign and U.6% and 5. Debt Debt is composed of both short-term and long-term borrowings. compared to $303 billion in 2007.8% in the prior year. with short-term borrowings decreasing by $20 billion. borrowings from unaffiliated banks. while non-interest-bearing deposits comprise 5% and 8% of total deposits. respectively. yielding an average rate of 4. subordinated notes and trust preferred securities. the funding needs of the Company have decreased.and short-term debt is driven by decreased funding needs. The majority of debt is carried at cost. see Note 20 to the Consolidated Financial Statements on page 169 and “Capital Resources and Liquidity” on page 94. Average deposits increased $5 billion to $695 billion in 2008. The decrease in long. Average long-term debt outstanding during 2008 was $348 billion. and long-term debt decreasing by $68 billion. or 14%. respectively.7%. The decrease in short-term borrowings was due to a decline of $12 billion in other funds borrowed and $8 billion in commercial paper primarily due to illiquid credit markets. compared to $95 billion and 2. As the balance sheet has decreased in size. compared to $45 billion and 5. or 16%. mostly driven by FX and the higher funding costs which led to customers using their excess cash reserves deposited with Citi. or 6%. compared to 4.Deposits can be interest-bearing or non-interest-bearing. yielding an average rate of 1.9%. Average commercial paper outstanding in 2008 was $34 billion and yielded an average rate of 3. 80 . with approximately $45 billion recorded at fair value in accordance with SFAS 155 and SFAS 159. For more information on debt. as well as the issuance of preferred stock during the year. It includes commercial paper.S. primarily due to: • the sale of the German retail banking units. see “Capital Resources and Liquidity” on page 94. domestic banking subsidiaries of the Company comprise 58% and 29% of total deposits. and • lower international deposits. Average other funds borrowed in 2008 were $87 billion. During 2008 total deposits decreased by $52 billion.1% in the prior year.3%.1%. For more information on deposits. or 15%.

344 2.646) (95.253 170.030 719 2 11.630 $1. The Company believes that investors may find it useful to see these non-GAAP financial measures to analyze financial performance.398 5. net Goodwill Intangible assets Other assets Total assets Liabilities and equity: Total deposits Federal funds purchased and securities loaned or sold under agreements to repurchase Brokerage payables Trading account liabilities Short-term borrowings Long-term debt Other liabilities Net inter-segment funding (lending) Stockholders’ equity Total liabilities and stockholders’ equity $ 225.540 1.780 46.813 Consumer Banking $ 8.133 — — — — 242 28.216 (29.028 $ 368.542 (14.028 Assets: Cash and due from banks Deposits with banks Federal funds sold and securities borrowed or purchased under agreements to resell Brokerage receivables Trading account assets Investments Loans.132 19.330 266.506 $1.470 In millions of dollars ICG 17.435 15.572 $496.754 63.696 1. net of unearned income Allowance for loan losses Total loans.299 6.815 (73.737 14.630 $ 225.797 $113.850 (158.320 83.061 1.950) $358.136 535 — — 8.250 178.593 92.293 70.932) $ 83.916 167.205 11.545 — $ 55. the Company believes that these non-GAAP financial measures enhance investors’ understanding of the balance sheet components managed by the underlying business segments as well as the beneficial interrelationship of the asset and liability dynamics of the balance sheet components among the Company’s business segments.455 (7.051 36.185 205.592 3.938.250) $ 167.599 34.470 $ 774.025 7.938.386 76.478 126.832 6.106 7.596 Total Citigroup Consolidated $ 29.730 71.609 144.319) 141.850 3.766 (24.384 — $496.020 519.447 $ $ Corporate/Other & Consolidating Eliminations $ 732 121.163) — $1.130 101.755 244 55.616) $ 664.613 344.774 4. net of unearned income Consumer Corporate Loans.500 — — 1.929 24 88 112 — 112 — 6 37.589) — $ 99.421 195.984 373.515 — 127 1.545 (484) $ 55.470 3.673 174.553 $281.542 — $373.447 $104.003.446 162.629 $ 18.816 165.562 (6.278 377.655 13.630 10.133 44.684 — 141. 2008 Global Cards $ 1.687 — $113.998 109.635 256.455 $ 174.085 47.600 27.629 The above supplemental information reflects the Company’s consolidated GAAP balance sheet by reporting segment as of December 31.663 10.683 12.413 — 174.543 $ 694. While this presentation is not defined by GAAP. The respective segment information closely depicts the assets and liabilities managed by each segment as of such date.331 184.801 $ 99.272 $1.406 63. 81 . 2008.003.562 — $ 90.636 59.553 $ Global Wealth Management $ 1.016 4.751 83.SEGMENT BALANCE SHEET AT DECEMBER 31.759 30.459 347 — 978 51.813 $ 1.691 359.103 2.737 450 90.

43% 4.81% Interest Revenue-Average Rate 4.16% 6.80% 4. $125 million.60% 5. 2-year spread (1) Reclassified to conform to the current period’s presentation and to exclude discontinued operations.S. respectively. In addition.00% 6.79% 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 In millions of dollars 2008 $ 106. and $98 million for 2008. 2006 30% 37 20% 1bps 16bps (19)bps (100)bps 9bps (45)bps (16)bps Interest revenue (2) Interest expense (3) Net interest revenue (2) (3) Interest revenue—average rate Interest expense—average rate Net interest margin Interest-rate benchmarks: Federal Funds rate—end of period Federal Funds rate—average rate 2-year U.37% 2.33% 6.692 6.42% 4.49% 2.38% 6.01% 3.09% 3.24% 2. the yields on deposits decreased domestically.051 $ 45. The lower cost of funds more than offset the decrease in the asset yields. the majority of the funding provided by Treasury to CitiCapital operations is excluded from this line.25% 4. and 2006.54% 4.37% 6.S.13% 2.00% 4.Interest Revenue/Expense and Yields Average Rates-Interest Revenue. Net interest margin is calculated by dividing gross interest revenue less gross interest expense by average interest earning assets. mainly due to the lower cost of funds. On the asset side.928 6. These obligations are classified as Long-term debt and accounted for at fair value with changes recorded in Principal transactions. 2007 $93. the average yield primarily reflects a decline in the yields on the loan portfolio.28% 3.378 6.24% 3.683 $37. Treasury note—average rate 10-year vs. A significant portion of the Company’s business activities is based upon gathering deposits and borrowing money and then lending or investing those funds.655 52.39% 6.611 55.96% 2. The lower yields on short-term borrowing and Fed Funds purchased further contributed to the downward movement of the yield on interest-bearing liabilities.28% 2. reflecting the decreases in the Fed Funds rate as well as lower rates outside the U. On the liability side.00% 2. (3) Excludes expenses associated with hybrid financial instruments and beneficial interest in consolidated VIEs.00% 3.44% 4. Net interest margin improved during 2008.49% 6. Interest Expense and Net Interest Margin Interest RevenueAverage Rate Interest ExpenseAverage Rate Net Interest Margin 7. The Company’s deleveraging actions had a positive impact by reducing the amount of lower yielding assets on the Company’s balance sheet.34% 2.963 $ 53.54% 6.81% 4.36% 3.44% 2.429 76.42% 4. (2) Excludes taxable equivalent adjustments (based on the U.14% Net Interest Margin 3.29% 3.57% 2.36% 4.25% 5.79% (2)bps (12)% (30) 18% (35)bps (116)bps 65bps (400+)bps (297)bps (235)bps (97)bps % Change 2007 vs.63% 27bps % Change 2006 (1) 2008 vs. Investments and Fed Funds sold.96% 4.44% 4. federal statutory tax rate of 35%) of $323 million. 82 .75% 3.00–0.51% 6.05% 4. 2007.41% 4.08% 2. resulting in an 18% increase in net interest revenue in 2008 when compared to 2007. The widening between short-term and long-term spreads also contributed to the upward movement of the net interest margin.43% 2. Treasury note—average rate 10-year U.S. as well as internationally.80% 2.00% 5.67% Interest Expense-Average Rate 3.25% 2.47% 6.41% 2.22% 3.43% 4.00% 6.11% 5.S.24% 6.06% 0.66% 165bps 2007 (1) $121.00% 1.

(5) Total Loans (net of unearned income) (9) Consumer loans In U.85% 5.875 $ 263. Average volumes of securities borrowed or purchased under agreements to resell are reported net pursuant to FASB Interpretation No.907 $ 90.24 2.717 9.04 4.68% 8.071 13.49% 8.034 $40.08% 5. Interest revenue and interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities.89% 4.S.796 108. Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories.328 $11.922 249. and interest revenue excludes the impact of FIN 41.202 $ 5.281 124. and 2006.259 $ 216.071 85.49% 8.258 3.31 4.470 $ 3.507 $10.482 17.960 36.77% $ 373.584 95.728 6.17% 4.11% 7.491 16.525 $ 95.590 $ 263.65% 4.423 $ 4.201 $ 4.10% $ 242.004 $ 523.52% 4. (9) Includes cash-basis loans.71 5.402 $ 9. 41.80 4.916 $ 10.52% 3.649 $ 112.718 $ 6.884.113 2006 $ 2.056 $ 221.818 $1.530 $ 15.200 4.575 $ 15.240 2008 % Average rate 2007 2006 6.43% $ 183.59% 9.68% Federal funds sold and securities borrowed or purchased under agreements to resell (6) In U.679.950 $ 18.S. Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.831 $121.928 $ 63.119 3.650 $2.824 131.59% 4.683 $ 710.90 7. (5) Total consumer loans Corporate loans In U.626 $ 18. income tax (1) In offices outside the U.21 4. and $98 million for 2008.095 177.752.S.674 $ 13.120 18.S.634 5.50 8.03% 5.707 $ 152.31 5.478 $1.57% 8.52 5.557 4.136 $ 4.196 $ 364.414 $1.171. “Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements” (FIN 41).394 Interest revenue excludes the taxable equivalent adjustments (based on the U. respectively.324 Total Trading account assets (7) (8) In U.S.023 613 96.880 $10. including inflationary effects and monetary corrections in certain countries.220 159. interest revenue and interest expense exclude discontinued operations.37% 8.846 14.61% 5.788 $ 2007 54.757 5. 83 .770 $ 3.S.633 $ 452.046 $ 605.398 13.20% 6.14% 3.S.619 $ 17. respectively.18% 8.S.725 $ 166.773 140.79% 5.843 152.655 187.01% 4.96% 6.865 3. 2007.44% 8.AVERAGE BALANCES AND INTEREST RATES—ASSETS (1)(2)(3)(4) Average volume In millions of dollars Interest revenue 2008 2007 $ 3.194 $ 380.104 $ 251.10% 4.556 $ 43.167.11 5. See Note 3 to the Consolidated Financial Statements on page 136.840 909 5.273 $ 2.63 5.175 $ 188.11 8.499 13. (5) 77.S.234 387.462 12.431 $ 47.532 $1.766 $ 324.765 $ 30.963 $ 136.340 4.985 $ 12.224 $ 34.21% 6.368 $2. $125 million.455 159.51 5.57% 5.836 $11.533 $ 1.85 8.88% 9.96% 5.38% 10. offices $ 164.32% 5.354 $ 13.840 $ 2006 Assets Deposits with banks (5) 35.489 $ 11. Average rates reflect prevailing local interest rates. federal statutory tax rate of 35%) of $323 million. Reclassified to conform to the current period’s presentation.03 3.S.290 $ 28.55 10.537 3.429 $27.199 $ 8.803 $ 440.26% 2008 $ 78.941 $14.153 $ 106.50 10. See Note 24 to the Consolidated Financial Statements on page 189.086 $ 2.01% 5.840 $ 328.553 $52.158 $ 289.S. offices Taxable Exempt from U.65% 5.782 $ 47.799 661 4.611 7. (5) Total corporate loans Total loans Other interest-earning assets Total interest-earning assets Non-interest-earning assets (7) Total assets from discontinued operations Total assets (1) (2) (3) (4) (5) (6) $ 192.969 $ 734. (5) Total Investments In U. Detailed average volume.732 In offices outside the U. offices In offices outside the U.08% 6.336 $ 57.S.01% 6. offices In offices outside the U.797 35.311 $ 28.881 $93.657 124.09% 6.006 $ 62.183 $106.461 $ 550. offices In offices outside the U.922 176.456.253 $ 187.33% 6.113 $ 2. (7) The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest-bearing liabilities.331 100.308 $ 220.876 27. (8) Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue.

41 5.28% 4.689 $23.772 3.066 95.167.983 $ 1.83 3.679.831 $37.775 $1.394 Total liabilities and stockholders’ equity Net interest revenue as a percentage of average interest-earning assets (12) In U.60 1.994 236.271 $ 4.S.663 $11. (6) Total (1) (2) (3) (4) (5) (6) (7) (8) (9) $1.604 389. respectively.27 3.142 298 $ 1.46% 2.048. Detailed average volume.01% 4.39 1.979 $14.S.S.060 58.884. the majority of the funding provided by Treasury to CitiCapital operations is excluded from this line. Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories.683 $ 154.89 3.436 303. (6) Total Short-term borrowings In U.80% 3.309 27.49% 1. Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue.440 $ 6.183 $53.591 $17. (12) Includes allocations for capital and funding costs based on the location of the asset. Interest revenue and interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities.S.28% $ 284.079.874 $ 689. $125 million.04% 2.857 5.708 $2.92% 4.106 $2.148 $55.39 0. (6) Total $ 162. (6) Total Long-term debt (10) In U.477 $52.AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY.S.272 $28.20% 4.917 1. NOW accounts.37 1.12% 3.10% 3.68% 3.727 12.20% 3.694 1.532 $ 1.632 $ 9. (11) Includes stockholders’ equity from discontinued operations.726 $ 5.00% 3.451 $ 694.41% 0.069 23. Savings deposits consist of Insured Money Market accounts.41% 2.304 58.34% 5.241 24.59% 5.305 22.171.73% Federal funds purchased and securities loaned or sold under agreements to repurchase (7) In U.802 170 74. offices In offices outside the U.509 $ 149.628 $ 46.028 $ 1.846 Total Trading account liabilities (8) (9) In U.039 $ 194. offices $ 185.984 43.487 $1.748 $20.S.72 2.922 $ 880.673 $16.034 13.46% 2.51 0.005.32% 5.96% 6.467 $ $ 31.823 $2.80 2.378 $19.937 6.760 $ 2.558 2. AND NET INTEREST REVENUE (1)(2)(3)(4) Average volume In millions of dollars Interest expense 2008 2007 2006 2008 % Average rate 2007 2006 2008 2007 2006 Liabilities Deposits In U.383 58.17% 3.692 $22.921 48.58% 2.565 805. The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest-bearing liabilities.370 $ 386.621 In offices outside the U.865 $16. interest revenue and interest expense exclude discontinued operations.38% 1.87% 6.S.770 $ 132. offices In offices outside the U.874 $25.596 $ 311.12% 3.274 $ 230.071 $14.S.60% 5.733 15.771 $1.231 $11. offices Other non-interest-bearing liabilities (8) Total liabilities from discontinued operations Total liabilities Total stockholders’ equity (11) $ 244.264 $ 290.975 $ 104. See Note 24 to the Consolidated Financial Statements on page 189.048 $ 348.S.70 5.358 20.709 $ 122. offices Savings deposits (5) Other time deposits In offices outside the U. federal statutory tax rate of 35%) of $323 million.928 2.991 75.09% 4.752. and 2006. Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 and interest expense excludes the impact of FIN 41.171 $2.258 142.42 4.309 $45.439 37.44% 4.78 1.986 $ 134.785 $ 1. See Note 3 to the Consolidated Financial Statements on page 136.228 $ 194.820 $1. 2007.615.731 $ 266.051 $11. Reclassified to conform to the current period’s presentation.190 57.330 $ $ 36.06% 2. respectively.746 $ 572.406 $ 211.S.741 $ 217.234 837 $ 7.809 $21.979 $ 115.S.608 $ 4.478 $ 120.803 $ 302.107 37.873 17.S.110 $76.11 4.09 3. and other savings deposits.68% 1.21 3. (6) Total Total interest-bearing liabilities Demand deposits in U. Average rates reflect prevailing local interest rates.S.430 14. 84 .357 $1.98% 5.892 575.456.415 $1.234 $1.097 18.09% 6.300.123 $ 3.757 388.808 481. and $98 million for 2008.71 5.471 14.375 18.06% 3.339 8.402 $ 4.245 1. including inflationary effects and monetary corrections in certain countries.50% 2.21 5. offices In offices outside the U.563.336 1. Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.485 798 $ 144. In addition.414 746.91% 3. offices In offices outside the U.448 $ 891 228 2.714.60% Interest revenue excludes the taxable equivalent adjustments (based on the U. (6) 98. as these obligations are accounted for at fair value with changes recorded in Principal transactions.277 $14.800 $1. (10) Excludes hybrid financial instruments and beneficial interests in consolidated VIEs that are classified as Long-term debt.10 5.S.73% 5.34 6.034.457 61.195 437 $ 4.119 $ 4.046 $1.963 10.056 2.611 $ 169.998 473.968 35.

Detailed average volume. offices In offices outside the U.S. offices In offices outside the U.511 $1.791) $ 1.245) $(8.682 $ 6. 85 .938 $(5. (4) Total Trading account assets In U.116 Average rate $(1.S.141) 350 $(4. offices In offices outside the U.099 Average rate $ (226) $ Net change 873 Deposits with banks (4) Federal funds sold and securities borrowed or purchased under agreements to resell In U.992 3.740 $ 681 3. (4) Total Loans—consumer In U.316 $ 3. (4) Total Investments (1) In U.110) $ Net change 6 Average volume $ 1.297 $ 3.911) $ (6.688 $ 445 2.573 $ 4.S. 2006 Increase (decrease) due to change in: Average volume $ 1.S.774) $(5. including inflationary effects and monetary corrections in certain countries.325) (735) $(2.937 $ 3.685 $ 4.872) $(4. (4) Total Total loans Other interest-earning assets Total interest revenue (1) (2) (3) (4) (5) (5) $(1.S.S.516) (2.289 794 $ 3.760 $24.863) The taxable equivalent adjustment is based on the U.470 2.115 $ 1.552 $ 1.864 $ 9.060) $ 729 1.825) $(1.621 2. offices In offices outside the U. See Note 3 to the Consolidated Financial Statements on page 136.375 $11.275 $1.290 (576) $ 714 $ 619 167 $ 786 $ (14) 66 $ 52 $ 1.155 $ 5.083 $ 2.927) $(1. Interest revenue and interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities.S.076 731 $ 1.657) (2.062 $ 232 $ 2. (4) Total Loans—corporate In U. federal statutory tax rate of 35% and is excluded from this presentation.730 2.694 $ 2.179) $ (1.622 $ 6.S. offices In offices outside the U.013) $(14.245 $ (605) $ 2.818 $ (1.S.388) $(2.302) (523) $(2.020 1.928 $ 1.667 $ 538 (1.642 $ 2. interest revenue and interest expense exclude discontinued operations. Changes in average rates reflect changes in prevailing local interest rates.522) $ (9. respectively.198 $ 5. 2007 Increase (decrease) due to change in: In millions of dollars 2007 vs.419 $ (151) 369 $ 218 $1.290) (415) $ (2. Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue.807 $ (965) 320 $ (645) $(2.650) $ (655) 378 $ (277) $(2.ANALYSIS OF CHANGES IN INTEREST REVENUE (1) (2) (3) 2008 vs. Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change.670 627 $ 2.950 $27.S.748 $ 6.705) $ (1.851 $ $ $ $ 17 (117) (765) (882) (865) $ 1.563) (87) $(2.143) $ 236 1.834) 1.018) $ (2.563 $ 190 $3.006 3.226) 208 $ (1.S.

interest revenue and interest expense exclude discontinued operations.S.425) $(11. 2007 Increase (decrease) due to change in: In millions of dollars 2007 vs.S.032) $ $ 60 (124) (64) $ 1.773 Average rate $ 670 1.576) $ (6.177) $ (8.360 Net change $ 1.133) (187) $ (2. offices In offices outside the U.618) $ (417) (64) $ (481) $ (520) (54) $ (574) $ 2. 86 .084) (5.287) $(1. (4) Total Federal funds purchased and securities loaned or sold under agreements to repurchase In U.690 $2.871) (2. (4) Total Total interest expense Net interest revenue (1) (2) (3) (4) (5) (5) $ 4.801) $ 9.698) $ $ (35) (128) (163) $ 2.S. Interest revenue and interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities. offices In offices outside the U.080) $ $ 382 (64) 318 $ (9.S.131) Average volume $ 933 3. including inflationary effects and monetary corrections in certain countries. (4) Total Short-term borrowings In U.S.ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUE (1) (2) (3) 2008 vs.505 $17.314 The taxable equivalent adjustment is based on the U. offices In offices outside the U.951 $ 2.193 63 $ 2. Detailed average volume.605) (5. Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change.473) 15 $ (2.320) $(18.066 Deposits In U.328 634 $ 4.706 $(2.256 $(4.439 $ 4.402) 322 $ (6.463 $ 7. respectively.482 3. federal statutory tax rate of 35% and is excluded from this presentation.747) $(5.962 $20.823 $ 5. Changes in average rates reflect changes in prevailing local interest rates.S.890 $ (2. (4) Total Long-term debt In U.580 $ $ 251 70 321 $ (19) $ 235 (123) $ 112 $ 508 (51) $ 457 $2.450 $(23. offices In offices outside the U.993) (39) $ (3.526) $ (8.368 $ 7.S.458) $ (2. (4) Total Trading account liabilities In U.S.039 400 $ 2. See Note 3 to the Consolidated Financial Statements on page 136.746 $ 499 $ (2.S. offices In offices outside the U.744 $ $ 231 109 340 $ (439) 275 $ (164) $ 20 (39) $ 2.261) Net change $ (2.921 2.S.603 5.098 $ 5.088) $ 8.327 $ 3.273) (2.804 523 $ 2. 2006 Increase (decrease) due to change in: Average volume $ $ 479 (349) 130 Average rate $ (3. Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue.S.820 685 $ 4.622 $ 6.

Most of the debt securities previously classified as trading were bought and held principally for the purpose of selling them in the short term. As such. the Company determined through credit analysis that the cash recovery levels of these securities is expected to be significantly higher than current market prices might indicate. At the date of acquisition. AFS securities are carried at fair value on the balance sheet. Trading securities are carried at fair value on the balance sheet with unrealized holding gains and losses recognized in earnings currently. As market liquidity has decreased. rather than through an exit strategy in the short term. 115. SFAS 115 states that transfers of securities out of the trading category are expected to be rare. These market conditions were not foreseen at the initial purchase date of the securities. Debt Securities Reclassified to Available for Sale and Held to Maturity FASB Statement No. available for sale (AFS) or held to maturity (HTM). Both AFS and HTM are subject to review for other-thantemporary impairment (see discussion on page 129). subsequent declines in value of these securities are primarily related to the ongoing widening of market credit spreads reflecting increased risk and liquidity premiums that buyers are currently demanding. the primary buyers for these securities have typically demanded a return on investment that is significantly higher than previously experienced. many in the context of Citigroup’s acting as a market maker. the Company anticipates returns on these assets will be optimized by holding them for extended periods or until maturity. at acquisition. The Company believes that the expected cash flows to be generated from holding the assets significantly exceed their current fair value which has been significantly adversely impacted by the reduced liquidity in the global financial markets. and unrealized holding gains and losses are excluded from earnings and recognized as a separate component of equity in Accumulated other comprehensive income (AOCI). During the fourth quarter of 2008. the Company reclassified certain debt securities and loans into accounting categories with measurement based on amortized cost to align the accounting treatment with the revised asset holding periods. which was especially acute during the fourth quarter. Citigroup made a number of transfers out of the trading category in order to better reflect the revised intentions of the Company in response to the significant deterioration in market conditions. HTM debt securities are measured at amortized cost. 87 . Despite depressed market prices. requires that. However. During the fourth quarter of 2008.RECLASSIFICATION OF FINANCIAL ASSETS The Company reviewed portfolios of debt securities and loans throughout the fourth quarter of 2008 and identified positions where there has been a change of intent to hold the debt securities or loans for periods of time much longer than those originally anticipated. Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). an enterprise classify debt securities into one of three categories: trading. most of these positions were liquid and the Company expected active and frequent buying and selling with the objective of generating profits on short-term differences in price.

665 $68.719 4. These purchases consisted of $1.263 $ 72 2.327 24. The net unrealized losses arising prior to the reclassification date and classified in AOCI of $8. amortized cost is defined as the original purchase cost. (3) Excluded from these tables is $4.258 27. plus or minus any accretion or amortization of interest.9 billion of auto note securities.471 $27.282 $ 109 2.111 2.751 4. The impact of the transfers executed during the fourth quarter of 2008 is detailed in the following table followed by a. 2008(2) Fair value at December 31.368 $30.005 $60.263 $ 4. for debt securities reclassified from AFS investments to HTM investments have been segregated within AOCI.471 $ 4. amortized cost is defined as the fair value amount of the securities at the date of transfer.0 billion as of December 31.111 2.235 2. (2) The difference between the carrying value and fair value at December 31. 2008. 2008(2) Debt securities reclassified to held-to-maturity investments Mortgage-backed securities State and municipal Other debt securities Total debt securities reclassified to held-to-maturity investments Debt and equity securities reclassified to available-for-sale investments Mortgage-backed securities State and municipal Other debt and equity securities Total debt and equity securities reclassified to available-for-sale investments $37. while the difference for securities reclassified from Trading account assets to AFS is recognized with the change recorded in AOCI.3 billion of auction-rate securities and $2. 88 .898 25.510 $ 72 2.654 (1) For securities transferred to held-to-maturity from Trading account assets. For securities transferred to held-to-maturity from available-for-sale.Reclassifications of debt securities were made at fair value on the date of transfer. in accordance with prior commitments. 2008 for those securities reclassified to HTM is not recognized in the Company’s financial statements.977 $60. summarized by type of securities: In millions of dollars Carrying value at December 31.738 4. This will have no impact on the Company’s net income because the amortization of the unrealized holding loss reported in equity will offset the effect on the interest income of the accretion of the discount on these securities.654 $ 4. less any impairment previously recognized in earnings.712 $ 4.654 In millions of dollars Amortized cost(1) Carrying value at December 31.548 24.432 $56. 2008 Debt securities reclassified from Trading account assets to held-to-maturity investment Debt securities reclassified from available-for-sale investments to held-to-maturity investments Total debt securities reclassified to held-to-maturity investments Debt and equity securities reclassified from Trading account assets to available-for-sale investments $33. This balance will be amortized over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on the same transferred debt securities.2 billion of HTM securities that were purchased during the fourth quarter of 2008.

Accounting for Certain Mortgage Banking Activities (SFAS 65). Reclassifications of loans were made at fair value on the date of transfer.650 7.241 $15.891 $ 1. 65. Loans that the Company intends to sell should be classified as held for sale (HFS) and reported at the lower of cost or fair value. and AICPA Statement of Position 01-6.Loans Reclassified to Held for Investment FASB Statement No. Due to the severity and duration of current unfavorable market conditions. 2008 Loans reclassified to held for investment Highly leveraged loans Commercial real estate loans Other loans Total loans $ 3. Citigroup made a number of transfers from the HFS category to the HFI category to better reflect prevailing intentions of the Company. After transfer.318 7. Citigroup managed the risk associated with these loans by seeking to sell a majority of its exposure to the market prior to. adjusted by the allowance for loan losses. During the fourth quarter of 2008.049 5. or until maturity or payoff. It is now the Company’s intention to hold these positions for the foreseeable future. HFI loans are now subject to the Company’s allowance for loan loss review process.492 $15.150 5. the Company believes that the best value can now be obtained through a hold strategy. require that the accounting for a loan be based upon the Company’s intent and ability to hold the loan for the foreseeable future or until maturity. which is considered to be such time as the loan period expires. summarized by type of loan: Fair value at date of transfer Carrying value at December 31. Loans that the Company has the intent and ability to hold for the foreseeable future. Prior to the recent dislocation in the credit markets. The loans reclassified to HFI are assessed for intention to hold on an individual loan basis. or sufficient liquidity returns to the market place. the Company does not anticipate such liquidity returning in the foreseeable future. funding. The impact of the transfers executed during the fourth quarter of 2008 is detailed in the following table. or shortly after. such that the loans can be sold for a value which the Company believes is representative of the implicit credit risk of the position. 89 . should be classified as held for investment (HFI) and reported in the balance sheet at the amortized cost of the loan. 2008 Fair value at December 31. “Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others” (SOP 01-6).709 $ 3.110 5. which for these loans the Company generally defines to be within the next year.283 Loan balances reclassified relate to funded positions that were originated as part of a strategy to distribute.350 7.523 $14. For the reasons discussed under “Debt Securities Reclassified to Available-for-Sale and Held-to-Maturity” on page 87.

255 38.674.952 2.599 3.619.479.390 507.033.344 $ 945.811.362.732 292 686 $ 123.492 $32.087 29.441.793 $35.795.327 471.892 168.750 $ 75.168 153.286 676 $ 107.377 483.075 $25.094.315 17.117 1.904 2007 $16.157 567.587 $ — — — — — — — $ — — — — — — $1.005.147 $ — — — — — — — — — — 2007 $ 521.440 25.639.564 44.036 539.443 $23.165. 2008 $15.164 $ 4.816 $1.968 $ 882.332 $ — — — — — — — — — — $ 98.080 $ 881.862 $ 1.117 1.113.155.052.630 118.694 3.491 40.280 3.726 $ 140.963.082 90 .860 $ 1.625 31.676 $ 29.256 29.067.293 2.020 60.096.905 258 1.560.146 16.415 66.755.990 135 $ 3.069.233 625.440 12.622 46.890.267 2.071 3.741 167.530 2008 $ 763.669 $ 62.062.087 30.611 15.932 $ $ $ $ $ $ $ $ $ $ 1.327 2.746.DERIVATIVES Presented below are the notional and the mark-to-market receivables and payables for Citigroup’s derivative exposures as of December 31.433.708.395 32.030 $ 1.121 276 1.535 644. 2008 and 2007: Notionals (1) In millions of dollars Trading derivatives (2) Non-trading derivatives (5) As of December 31 Interest rate contracts Swaps Futures and forwards Written options Purchased options Total interest rate contract notionals Foreign exchange contracts Swaps Futures and forwards Written options Purchased options Total foreign exchange contract notionals Equity contracts Swaps Futures and forwards Written options Purchased options Total equity contract notionals Commodity and other contracts Swaps Futures and forwards Written options Purchased options Total commodity and other contract notionals Credit derivatives (4) Citigroup as the Guarantor: Credit default swaps Total return swaps Credit default options Citigroup as the Beneficiary: Credit default swaps Total return swaps Credit default options Total credit derivatives Total derivative notionals See the following page for footnotes.532 $ 1.860 27.783 176.180 653.744 $ 5.361.895 450 $ 3.

461 63. reduction of credit concentrations and diversification of overall risk.9 billion and received $6.785 7.328) $ 76.597 153. (5) Non-trading derivatives include only those end-user derivative instruments where the changes in market value are recorded in Other assets or Other liabilities. 2008 and 2007. First.292 22. including pledged cash or other collateral and any legal right of offset that exists with a counterparty through arrangements such as netting agreements. Individual derivative contracts that are subject to an enforceable master netting agreement with a counterparty are aggregated for this purpose. 133. are applied to the expected The following table presents the global derivatives portfolio by industry of the obligor as a percentage of credit exposure: 2008 Financial institutions Governments Corporations Total 73% 7 20 100% 2007 75% 6 19 100% 91 .197 35.476 65.652 (1.163 2007 (6) $ 237. (2) Trading derivatives include proprietary positions. the exposure profile for each counterparty is determined using the terms of all individual derivative positions and a Monte Carlo simulation or other quantitative analysis to generate a series of expected cash flows at future points in time.628 57.289 14.010 $ 1. in which the base valuation generally discounts expected cash flows using LIBOR interest rate curves.881 $ 8. The Company’s CVA methodology comprises two steps.148 Trading derivatives (2) Interest rate contracts Foreign exchange contracts Equity contracts Commodity and other contracts Credit derivatives: (4) Citigroup as the Guarantor Citigroup as the Beneficiary Cash collateral paid/received (3) Total Less: Netting agreements and market value adjustments Net receivables/payables Non-trading derivatives (5) Interest rate contracts Foreign exchange contracts Total $ 10.488 2007 (6) $ 237.417 (385.290 (1.634 $ 2008 654. point in time future cash flows that are subject to nonperformance risk. The liquidity reserve is based on the bid/offer spread for an instrument.408 17. since it is those aggregate net cash flows that are subject to nonperformance risk. (4) Credit derivatives are arrangements designed to allow one party (the “beneficiary”) to transfer the credit risk of a “reference asset” to another party (the “guarantor”).233 5.176 972 8.8 billion of marketable securities as collateral under derivative contracts.Mark-to-Market (MTM) Receivables/Payables In millions of dollars As of December 31 Derivatives receivables—MTM Derivatives payables—MTM 2008 $ 667. Second.755 2.172. adjusted to take into account the size of the position. a CVA is necessary to incorporate the market view of both counterparty credit risk and the Company’s own credit risk in the valuation. The calculation of this exposure profile considers the effect of credit risk mitigants.541 $ $ 7.163.980 66. as a percentage of credit exposure: December 31.540 4. rather than using the current recognized net asset or liability as a basis to measure the CVA.046.473 198. as well as certain hedging derivatives instruments that qualify for hedge accounting in accordance with SFAS No. These arrangements allow a guarantor to assume the credit risk associated with the reference asset without directly purchasing it.937 27.887 73.057. The Company has entered into credit derivatives positions for purposes such as risk management. (3) In addition to the cash collateral paid or received.903 71.363) $ $ $ 115.876) $ 103.916 8.717 23. Accounting for Derivative Instruments and Hedging Activities (SFAS 133).191 19.163 (1) Includes the notional amounts for long and short derivative positions. • Credit valuation adjustments (CVA) are applied to over-the-counter derivative instruments. as of December 31. Derivative Obligor Information Fair Valuation Adjustments for Derivatives The following table presents the global derivatives portfolio by internal obligor credit rating at December 31.103 11. This process identifies specific. Because not all counterparties have the same credit risk as that implied by the relevant LIBOR curve.742 3.746 11.209 (390.890 222.967 78.381 8. (6) Reclassified to conform to the current period’s presentation.529 1.924 5. 2008 the Company has provided $7. 2008 AAA/AA/A BBB BB/B CCC or below Unrated Total 68% 20 7 5 — 100% December 31.178 160.426 32.711 77.247 $ 467. yield enhancement.866 $ 1. market-based views of default probabilities derived from observed credit spreads in the credit default swap market.505) $ $ $ 116.437 $ 489. 2007 80% 11 7 1 1 100% The fair value adjustments applied by the Company to its derivative carrying values consist of the following items: • Liquidity adjustments are applied to items in Level 2 or Level 3 of the fairvalue hierarchy (see Note 26 on page 192 for more details) to ensure that the fair value reflects the price at which the entire position could be liquidated.

107) 2007 $(1. Through these contracts the Company either purchases or writes protection on either a single-name or portfolio basis.future cash flows determined in step one. and to facilitate client transactions.653) 2. each of which negatively affected revenues. 2008 $(8. or if terminated early.282 (4. the seller of protection may not be required to make payment until a specified amount of losses have occurred with respect to the portfolio and/or may only be required to pay for losses up to a specified amount.611 (4. 2007 $(1.736) $(10. in the fourth quarter of 2008. The Company uses credit derivatives to help mitigate credit risk in its corporate loan portfolio and other cash positions.266) 3. However. or changes in the credit mitigants (collateral and netting agreements) associated with the derivative instruments. which are defined by the form of the derivative and the referenced credit. Losses on non-derivative instruments. Own-credit CVA is determined using Citi-specific CDS spreads for the relevant tenor. debt restructuring. counterparty CVA is determined using CDS spread indices for each credit rating and tenor. The table below summarizes pre-tax gains (losses) related to changes in credit valuation adjustments on derivative instruments for the years ended December 31. For certain identified facilities where individual analysis is practicable (for example. The CVA adjustment is designed to incorporate a market view of the credit risk inherent in the derivative portfolio as required by SFAS 157. the CVA (both counterparty and own-credit) may not be realized upon a settlement or termination in the normal course of business. 92 . Credit derivative transactions referring to emerging market reference credits will also typically include additional settlement triggers to cover the acceleration of indebtedness and the risk of repudiation or a payment moratorium. 2008 and 2007: Credit valuation adjustment gain (loss) In millions of dollars 2008 $ (6.613) 1. Derivative instruments are normally settled contractually. Citigroup’s credit spreads generally narrowed and counterparty credit spreads widened. During 2008. and do not include: • Own-credit adjustments for non-derivative liabilities measured at fair value under the fair-value option. Credit derivatives generally require that the seller of credit protection make payments to the buyer upon the occurrence of predefined events (settlement triggers). Historically. are generally limited to the market standard of failure to pay on indebtedness and bankruptcy of the reference credit and.934) December 31. exposures to monoline counterparties) counterparty-specific CDS spreads are used. Citigroup’s credit spreads have moved in tandem with general counterparty credit spreads.329 (284) (967) $(1. In addition. However. in a more limited range of transactions. In certain transactions on a portfolio of referenced credits or asset-backed securities.655) (4. most derivative instruments are negotiated bilateral contracts and are not commonly transferred to third parties.329 28 (967) $ (939) Non-monoline counterparties Citigroup (own) Net non-monoline CVA Monoline counterparties Total CVA—derivative instruments The credit valuation adjustment amounts shown above relate solely to the derivative portfolio. general spread widening has negatively affected the market value of a range of financial instruments. 2008 and 2007. thus providing offsetting CVAs affecting revenue. See Note 26 on page 192 for further information. are terminated at a value negotiated bilaterally between the counterparties. related to counterparty credit risk are not included in the table above.279) $(8. These settlement triggers. Therefore. Credit valuation adjustment Contra liability (contra asset) In millions of dollars • The effect of counterparty credit risk embedded in non-derivative instruments.371) (5. Non-monoline counterparties Citigroup (own) Net non-monoline CVA Monoline counterparties (1) Total CVA—derivative instruments (1) Certain derivatives with monoline counterparties were terminated during 2008. all or a portion of the credit valuation adjustments may be reversed or otherwise adjusted in future periods in the event of changes in the credit risk of Citi or its counterparties. to take proprietary trading positions. Credit Derivatives December 31. the Company makes markets in and trades a range of credit derivatives. such as bonds and loans. both on behalf of clients as well as for its own account. Generally. The table below summarizes the CVA applied to the fair value of derivative instruments as of December 31.301) 1.251) Like all other derivative types.

253 205.393 $ Payable 129 84.949 365.280 $1.443. including both banks and broker-dealers. The Company actively participates in trading a variety of credit derivatives products as both an active two-way market-maker for clients and to manage credit risk.192 $228.294 Beneficiary $ 91.664 139 7.988 $1. The Company actively monitors its counterparty credit risk in credit derivative contracts.375 $ 83.294 $ 34.895 $1.217 633.989 $1. and to various market participants.393 $ 82.159 7.858 91 2.837 $ 970.094 $228.837 $1. 2008 and December 31.709 $203.956 $1.121 $1. 2008 compared to December 31. A majority of the Company’s top 15 counterparties (by receivable balance owed to the Company) are banks.709 $121.223 29.874 29.351 $128.501 9.837 $1.443.228 $228.035.393 $ 28.131 1. counterparty and derivative form as of December 31.183 5.280 By Activity: Credit portfolio Dealer/client Total by Activity By Industry/Counterparty: Bank Broker-dealer Monoline Non-financial Insurance and other financial institutions Total by Industry/Counterparty By Instrument: Credit default swaps and options Total return swaps and other Total by Instrument $ 943.The following tables summarize the key characteristics of the Company’s credit derivative portfolio by activity.441.220 489 $203. rather than entering into offsetting credit derivative contracts as and when desired.228 1.519.280 Notionals Guarantor — 1.443. The open risk exposures from credit derivative contracts are largely matched after certain cash positions in reference assets are considered and after notional amounts are adjusted.590.061 15.815.767.212 $1.767.042 59.425 31. The Company generally has a mismatch between the total notional amounts of protection purchased and sold and it may hold the reference assets directly.571 28.351 $221.882 $1.767.321 6. The majority of this activity was transacted with other financial intermediaries.906.560. These fair value increases were due to general credit spreads widening in the credit derivative market. especially for the credit derivatives.709 Fair values Receivable $ 626 82. and market or credit value adjustments.755. 2007 decreased $317 billion and $325 billion. 93 . 2007 increased by $145 billion for protection purchased and $119 billion for protection sold.561 22. Citigroup decreased its trading volumes.728 $1. 2008 compared to December 31.165 $ 84.956 Beneficiary $ 71.931 $ 84.752 641 $ 83.519 88 331 17.886 4. respectively.015 1. the total fair value as of December 31.081 $1.248 403. 2008 are from counterparties with which the Company maintains collateral agreements. The total notional amount of protection purchased and sold as of December 31.891. either to a durationbased equivalent basis or to reflect the level of subordination in tranched structures.905 $1. 2007: 2008: In millions of dollars Fair values Receivable $ 3. Contracts with these counterparties do not include ratings-based termination events.279 $ 84.767.212 Notionals Guarantor $ — 1.906.280 $1. financial institutions or other dealers. However.064 3. A number of the remaining significant counterparties are monolines. Approximately 88% of the gross receivables as of December 31.294 $ 83.956 $1. counterparty rating downgrades may have an incremental effect by lowering the threshold at which the Company may call for additional collateral.044 220 21.590.906.608 174.540 125.811 56.212 $ 996.243 4. During 2008. cash collateral.351 $ Payable 15 203.831 585.694 $203.716 12.767 $ 83. The volatility and liquidity challenges in the credit markets during 2008 drove derivatives trading values higher.257 225.388 $203.590.549 1.248 $1.961 $1.973 5.682 219.745 15.375 1.837 $ 2007: In millions of dollars By Activity: Credit portfolio Dealer/client Total by Activity By Industry/Counterparty: Bank Broker-dealer Monoline Non-financial Insurance and other financial institutions Total by Industry/Counterparty By Instrument: Credit default swaps and options Total return swaps and other Total by Instrument The fair values shown are prior to the application of any netting agreements. However.443.

$3. Common and Preferred Stock Issuances Citigroup is subject to risk-based capital ratio guidelines issued by the Federal Reserve Board (FRB). a non-risk-based asset ratio. and any additional U. Capital adequacy is measured via two riskbased ratios. On January 23.70 6.” 94 . legal entity. 9. government financial involvement with the Company could further impact the Company’s capital ratios. $12. Among other things.9 billion of common stock in public offerings. and not be subject to an FRB directive to maintain higher capital levels.12% 15. affected Citigroup’s capital ratios. Citigroup’s capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company’s risk profile. 44.62 per share to $26. Tier 1 Capital is considered core capital while Total Capital also includes other items such as subordinated debt and loan loss reserves.7 billion of non-convertible preferred stock in public offerings. This is augmented through issuance of common stock.35 per share. The Company’s uses of capital. preferred stock. government. and country level. The reset will result in Citigroup’s issuing approximately 79 million additional common shares if converted. all applicable regulatory standards and guidelines.” “TARP and Other Regulatory Programs. and changes that the FASB has proposed regarding off-balance-sheet assets. and external rating agency considerations. the conversion price was reset from $31. a bank holding company must have a Tier 1 Capital Ratio of at least 6%. corporate and bank liquidity. Both measures of capital are stated as a percentage of risk-weighted assets. and monitoring interest-rate risk.03 As discussed under “Events in 2008” on page 9. became severely restricted during the latter half of 2008. the impact of currency translation on non-U.CAPITAL RESOURCES AND LIQUIDITY CAPITAL RESOURCES Overview Capital Ratios Capital is generally generated via earnings from operating businesses. and equity issued through awards under employee benefit plans. ensuring that Citigroup and its regulated entities are adequately capitalized. At December 31.92% 7. Citigroup Regulatory Capital Ratios At year end 2008 2007 Tier 1 Capital Total Capital (Tier 1 and Tier 2) Leverage (1) (1) Tier 1 Capital divided by adjusted average assets. consolidation and sale treatment could also have an impact on capital ratios.S.08 4. 47 and 95. Risk-weighted assets are measured primarily on their perceived credit risk and include certain off-balance-sheet exposures. and the notional amounts of derivative and foreignexchange contracts. See “The Company. the reset will result in a reclassification from Retained earnings to Additional paid-in capital of $1. including the transactions with the U. convertible preferred stock. 2008.” “Management’s Discussion and Analysis – Events in 2008. and $4. See also Note 23 to the Consolidated Financial Statements on page 175. credit or operational losses. In addition. these targets exceeded the regulatory standards.5 billion convertible preferred stock issued in the private offering. respectively. Citigroup is also subject to the Leverage Ratio requirement. $11. 2009.” “Risk Factors” and “Common Equity” on pages 2. particularly to pay dividends and repurchase common stock. To be “well capitalized” under federal bank regulatory agency definitions.2 billion to reflect the benefit of the reset to the preferred stockholders. As noted in the following table. the Committee’s responsibilities include: determining the financial structure of Citigroup and its principal subsidiaries.S. total stockholders’ equity or capital ratios due to the reset.2 billion of convertible preferred stock in public offerings. The FinALCO has established capital targets for Citigroup and for significant subsidiaries. 11. subordinated debt. pursuant to our prior agreement with the purchasers of the $12. and a Leverage Ratio of at least 3%.70 10. including “Funding Liquidity Facilities and Subordinate Interests. future operations will affect capital levels. which is defined as Tier 1 Capital as a percentage of adjusted average assets. Citigroup maintained a “well capitalized” position during both 2008 and 2007. The capital management process is centrally overseen by senior management and is reviewed at the consolidated. However. Capital is used primarily to support assets in the Company’s businesses and to absorb unexpected market. reviewing the funding and capital markets plan for Citigroup. determining appropriate asset levels and return hurdles for Citigroup and individual businesses. during 2008. Events occurring during 2008. Tier 1 and Total Capital (Tier 1 + Tier 2 Capital). earnings and capital. There will be no impact to net income. Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup’s Finance and Asset and Liability Committee (FinALCO).S. such as unfunded loan commitments and letters of credit. the Company issued $45 billion in preferred stock and warrants under TARP. The Committee is composed of the senior-most management of Citigroup for the purpose of engaging management in decision-making and related discussions on capital and liquidity items. a Total Capital Ratio of at least 10%.5 billion of convertible preferred stock in a private offering.

364 — 41. (8) Can include up to 1. net of tax (3) Less: Accumulated net losses on cash flow hedges. and an increase in negative Accumulated other comprehensive income (AOCI) of $21 billion. In addition.9 billion for interest rate. (2) Reflects prior period adjustment to opening retained earnings as presented in the Consolidated Statement of Changes in Stockholders’ Equity on page 118. Risk-weighted assets also include the effect of other off-balance-sheet exposures.063 1. 2007.791 43 — $ 37. representing 3.3 billion as of December 31.0 billion.053 10.25% of risk-weighted assets. 2008 $113. including in the ordinary course of business as part of employee benefit programs. The federal bank regulatory agencies permit institutions to include in Tier 2 Capital up to 45% of pretax net unrealized holding gains on available-for-sale equity securities with readily determinable fair values. net of goodwill. net of tax (5.S.520 Less: Intangible assets: Goodwill 27.778 26. of $102. 95 .895 Common equity.364 44.398 $996. The Company’s other $6 billion of net deferred tax assets at December 31. (10) Includes risk-weighted credit equivalent amounts.01 per share per quarter for three years (beginning in 2009) without the consent of the U.8 billion at December 31.4 (27. in accordance with regulatory risk-based capital guidelines.5 billion of its existing preferred securities and trust preferred securities.664 Qualifying mandatorily redeemable securities of subsidiary trusts 23. The Company had no disallowed deferred tax assets at December 31. Market-risk-equivalent assets included in risk-weighted assets amounted to $101.6) 4. 2007 Net loss Employee benefit plans and other activities Dividends Issuance of shares for Nikko Cordial acquisition Issuance of common stock Net change in Accumulated other comprehensive income (loss). $14 billion were includable without limitation in regulatory capital pursuant to the risk-based capital guidelines.196) 1. while $24 billion exceeds the limitation imposed by these guidelines and as “disallowed deferred tax assets” were deducted in arriving at Tier 1 Capital. compared with $91.352 1.607 Other (840) Total Tier 1 Capital Tier 2 Capital Allowance for credit losses (8) Qualifying debt (9) Unrealized marketable equity securities gains (3) Restricted core capital elements (6) Total Tier 2 Capital Total Capital (Tier 1 and Tier 2) Risk-weighted assets (10) $118.6% at December 31. 2009. commodity and equity derivative contracts. 2008 compared to 4. Citigroup’s Tier 1 Capital Ratio was 11.511 (1. subject to certain exceptions. net of applicable bilateral netting agreements. Under TARP. net of tax (5) 3.4 billion and 5.0% at December 31.247 The table below summarizes the change in common stockholders’ equity during 2008: In billions of dollars $ 113. Tangible common equity (TCE) represents Common equity less Goodwill and Intangible assets (excluding MSRs). foreign-exchange contracts and credit derivatives as of December 31.966 Qualifying perpetual preferred stock 70. the Company announced an exchange offer of its common stock for up to $27.7 billion.253. Treasury. (6) Represents the excess of allowable restricted core capital in Tier 1 Capital.0 $ $ 134.4 4.9 (20.0 billion at December 31.594 4. 2007. and reflect deductions for certain intangible assets and any excess allowance for credit losses.92% at December 31. TCE was $29.132 Other disallowed intangible assets 10.1 (7. 2007. The Company and its bank regulators view the Tier 1 Capital Ratio as being the most important measure of risk capital for bank holding companies. December 31. compared to $58. 2008 compared to 7. This increase in riskweighted assets will affect the calculation of the Company’s risk-based capital ratios. 2007.7 billion at December 31.189) Less: Pension liability adjustment. 2007.321 (1) Reclassified to conform to the current period’s presentation.690 1.2% at December 31.447 — 23. The TCE Ratio (TCE divided by risk-weighted assets) was 3. $6. The primary drivers of the decline in TCE during the year were the 2008 net loss of $27. 2008 from $113.7 billion of stock repurchases remained under authorized repurchase programs after no material repurchases were made in 2008 and $0.077 471 (3.806 24.391 Less: Restricted core capital elements (6) — Less: Disallowed deferred tax assets (7) 23. The Company is currently in ongoing discussions with the Federal Reserve Board regarding an increase to the Company’s risk-weighted assets resulting from certain liquidity-facility transactions relating to the Company’s primary credit card securitization trusts. pending completion of discussions with the Federal Reserve Board. (3) Tier 1 Capital excludes unrealized gains and losses on debt securities available-for-sale in accordance with regulatory risk-based capital guidelines. (9) Includes qualifying subordinated debt in an amount not exceeding 50% of Tier 1 Capital. Any excess allowance is deducted from riskweighted assets.121 $1. 2007. 2008 and $109.163) (1.758 $ 12. However. net of tax Common equity.615) Less: Cumulative effect included in fair value of financial liabilities attributable to credit worthiness.7) 4. These transactions are intended to increase the Company’s TCE.7 billion of repurchases were made in 2007. such as unused loan commitments and letters of credit.899 Minority interest 1. As of December 31. in accordance with various TARP programs.7% of total assets as of December 31.12% at December 31.226 15. Restricted core capital is limited to 25% of all core capital elements.500) $ $ 89. (7) Of the Company’s $44 billion of net deferred tax assets at December 31.1 billion at December 31.4 billion to $71. See “Outlook for 2009” on page 7. the timing and extent of the increase is not yet certain. Citigroup has agreed not to pay a quarterly common stock dividend exceeding $0. Tangible Common Equity (TCE) Common stockholders’ equity decreased approximately $42. The U. net of tax. 2008. Institutions are required to deduct from Tier 1 Capital net unrealized holding gains on available-for-sale equity securities with readily determinable fair values.640 $156.S. On February 27. 2008. which are permitted to be excluded prior to deriving the amount of net deferred tax assets subject to limitation under the guidelines. primarily represented the deferred tax effects of unrealized gains and losses on available-for-sale debt securities.Components of Capital Under Regulatory Guidelines In millions of dollars at year end Common Equity 2007 (1) 2008 Tier 1 Capital Common stockholders’ equity (2) $ 70. December 31. the Company is restricted from repurchasing common stock. 2008. (5) The impact of including Citigroup’s own credit rating in valuing liabilities for which the fair value option has been selected is excluded from Tier 1 Capital. See “TARP and Other Regulatory Programs” on page 44. net of tax.268 Less: Net unrealized gains (losses) on securities (9.647) available-for-sale. 2007. government will match this exchange up to a maximum of $25 billion of its preferred.5) $ 71. (4) The FRB granted interim capital relief for the impact of adopting SFAS 158. 2008. net of tax (4) (2. 2008. See Note 23 to the Consolidated Financial Statements on page 175.

did not issue any additional subordinated notes in 2008.A. Citigroup’s depository institutions must have a Tier 1 Capital Ratio of at least 6%. At December 31. Under the rule. 2005.. The impact of this contribution is not reflected in the table above. At December 31. Citibank. Citigroup had approximately 16.3 billion in capital contribution from its parent company in January 2009. amounted to $28. Components of Capital and Ratios Under Regulatory Guidelines In billions of dollars at year end 2008 $ 71. less any associated deferred tax liability. risk-based capital guidelines and reporting instructions.A. N. 2007. Capital Resources of Citigroup’s Depository Institutions Citibank. which retains trust preferred securities in Tier 1 Capital of bank holding companies.65 Tier 1 Capital Total Capital (Tier 1 and Tier 2) Tier 1 Capital Ratio Total Capital Ratio (Tier 1 and Tier 2) Leverage Ratio (1) (1) Tier 1 Capital divided by adjusted average assets. These may affect reported capital ratios and net risk-weighted assets.Mandatorily Redeemable Securities of Subsidiary Trusts Total mandatorily redeemable securities of subsidiary trusts (trust preferred securities). N. had a net loss for 2008 amounting to $6. The FRB granted interim capital relief for the impact of adopting SFAS 158 at December 31.2 billion.1% against the limit.0 108. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 Capital. received contributions from its parent company of $6.8% against the limit.A. such as Citigroup.94% 15.33 6. To be “well capitalized” under federal bank regulatory agency definitions. all of Citigroup’s subsidiary depository institutions were “well capitalized” under the federal regulatory agencies’ definitions. The substantial events in 2008 impacting the capital of Citigroup. such as the equity units sold to ADIA. and the potential future events discussed on page 94 under “Citigroup Regulatory Capital Ratios. net of goodwill less any associated deferred tax liability. The FRB and the FFIEC may propose amendments to.1 billion. Citibank. 2008.18 5. Citigroup did not issue any new enhanced trust preferred securities. the aggregate amount of trust preferred securities and certain other restricted core capital elements included in Tier 1 Capital of internationally active banking organizations. as compared to $23. that were outstanding at December 31. Citibank. a Total Capital (Tier 1 + Tier 2 Capital) Ratio of at least 10% and a Leverage Ratio of at least 5%. were $23.98% 13. and issue interpretations of.A.82 2007 $ 82.’s Tier 2 Capital.” also affected. During 2008.4 9.899 billion at December 31. to be included in Tier 1 Capital up to 25% (including the restricted core capital elements in the 15% limit) of total core capital elements. Total subordinated notes issued to Citicorp Holdings Inc. after a five-year transition period. 2008. including Citigroup’s primary depository institution. At December 31. Citigroup’s subsidiary depository institutions in the United States are subject to risk-based capital guidelines issued by their respective primary federal bank regulatory agencies. The FRB issued a final rule.A. 2008 and December 31.6 8. received an additional $14. but with stricter quantitative limits and clearer qualitative standards. N. The FRB permits additional securities. In 2008. with an effective date of April 11. and not be subject to a regulatory directive to meet and maintain higher capital levels.A. which are similar to the FRB’s guidelines.594 billion at December 31. would be limited to 15% of total core capital elements.2 billion. N. N. Citigroup had approximately 11. Citibank. The Company expects to be within restricted core capital limits prior to the implementation date of March 31. 2009. which qualify as Tier 1 Capital. or could affect. Citibank. subject to restrictions. N. 2008 and December 31. 2008.0 121. as noted in the following table: 96 . 2007 and included in Citibank.A.A. N. N. 2007. Citibank. net of goodwill. 2008.

Furthermore. Total Capital Ratio Impact of $100 million change in total capital 1. CGMI had net capital.4 bps 1.6 bps 2.0 bps 1. At December 31. regulators have reserved the right to change how Basel II is applied in the U.6 billion. results of operations could have on these ratios. such as underwriting and trading activities and the financing of customer account balances. CGMI is also required to notify the SEC in the event that its tentative net capital is less than $5 billion.0 bps 1. CGMI had tentative net capital in excess of both the minimum and the notification requirements. which exceeded the minimum requirement by $1. following a review at the end of the second year of the transitional period. starting anytime between April 1. Compliance with the Net Capital Rule could limit those operations of CGMI that require the intensive use of capital. (CGMI). including requirements to maintain specified levels of net capital or its equivalent.4 bps Impact of $1 billion change in risk-weighted assets 1.S.A.-registered broker-dealer subsidiaries. 2008. the Company’s U. These rules require Citigroup. The international version of the Basel II framework will allow Citigroup to leverage internal risk models used to measure credit. and April 1. This methodology allows CGMI to compute market risk capital charges using internal value-at-risk models. computed in accordance with the Net Capital Rule.S. the U.3 bps 0.8 bps Leverage Ratio Impact of $1 billion change in adjusted average assets 0. This information is provided solely for the purpose of analyzing the impact that a change in the Company’s financial position or Tier 1 Capital Ratio Impact of $100 million change in Tier 1 Capital Citigroup Citibank. which in turn could limit CGMHI’s ability to pay dividends and make payments on its debt.S. Under the Net Capital Rule. including CGMI. or changes of $1 billion in risk-weighted assets or adjusted average assets (denominator) based on financial information as of December 31. CGMI computes net capital in accordance with the provisions of Appendix E of the Net Capital Rule. These sensitivities only consider a single change to either a component of Capital. consisting of central banks and bank supervisors from 13 countries.5 bps Impact of $1 billion change in risk-weighted assets 1.5 billion. and to retain the existing prompt corrective action and leverage capital requirements applicable to banking organizations in the U. In addition. Under NYSE regulations. 2008. CGMI is required to maintain minimum net capital equal to 2% of aggregate debit items. as defined. 97 . See further discussions on “Capital Requirements” on page 228. the Net Capital Rule does not permit withdrawal of equity or subordinated capital if the resulting net capital would be less than 5% of aggregate debit items.5 bps 0.The following table presents the estimated sensitivity of Citigroup’s and Citibank. of $2.S. typically starting 12 months after the beginning of parallel reporting. and market risk exposures to drive regulatory capital calculations. As of December 31. operational. published on June 26.A. banking regulators published the rules for large banks to comply with Basel II in the U. 2008. CGMI may be required to reduce its business if its net capital is less than 4% of aggregate debit items and may also be prohibited from expanding its business or paying cash dividends if resulting net capital would be less than 5% of aggregate debit items. risk-weighted assets or adjusted average assets. an event that affects more than one factor may have a larger basis-point impact than is reflected in this table. to comply with the most advanced Basel II approaches for calculating credit and operational risk capital requirements. 2004 (and subsequently amended in November 2005) by the Basel Committee on Banking Supervision. are subject to the Securities and Exchange Commission’s Net Capital Rule. Under Appendix E.’s Capital Ratios to changes of $100 million of Tier 1 or Total Capital (numerator).2 bps 1. 2008.4 bps Broker-Dealer Subsidiaries The Company’s broker-dealer subsidiaries—including Citigroup Global Markets Inc. The U. certain of the Company’s broker-dealer subsidiaries are subject to regulation in the other countries in which they do business. (CGMHI)—are subject to various securities and commodities regulations and capital adequacy requirements of the regulatory and exchange authorities of the countries in which they operate. The Company intends to implement Basel II within the timeframe required by the final rules. Regulatory Capital Standards Developments Citigroup supports the move to a new set of risk-based regulatory capital standards. Specifically. as a large and internationally active bank. 2010 followed by a three-year transition period. N. On December 7. and also restrict CGMHI’s ability to withdraw capital from its broker-dealer subsidiaries. Rule 15c3-1 (the Net Capital Rule) under the Exchange Act and related NYSE regulations. 2008. The Company’s broker-dealer subsidiaries were in compliance with their capital requirements at December 31. 2007.S.1 bps Impact of $100 million change in Tier 1 Capital 0. The U. Accordingly. an indirect wholly owned subsidiary of Citigroup Global Markets Holdings Inc. CGMI is also required to hold tentative net capital in excess of $1 billion and net capital in excess of $500 million. implementation timetable consists of a parallel calculation period under the current regulatory capital regime (Basel I) and Basel II.S. N.S.

have not yet been announced. Citigroup had $9. announced in February 2009. A significant portion of Citigroup’s existing commercial paper is guaranteed under this program. such as commercial mortgage-backed securities. • In March 2008. the Federal Reserve Board authorized the Federal Reserve Bank of New York to establish the Primary Dealer Credit Facility to provide overnight financing to primary dealers in exchange for a broad range of collateral.8 billion as compared with $24. 2008.S. Department of Education (DOE) has been working to ensure uninterrupted and timely access to Federal student loans by taking steps to maintain stability in student lending. • In March 2008. issuers of commercial paper. In January and February 2009. An expansion of this program. 2008.9 billion in senior unsecured debt under the program. On December 31. substantially all of its net earnings are generated within its operating subsidiaries. government programs have allowed the combined parent and broker-dealer entities to maintain sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon. on November 8. including federal agency debt. auto loans. the parent company liquidity portfolio (a portfolio of cash and highly liquid securities) and broker-dealer “cash box” (unencumbered cash deposits) were increased substantially and the amount of unsecured overnight bank borrowings was reduced. • The U. the DOE announced that it would provide liquidity support to one or more conforming Asset-Based Commercial Paper (ABCP) conduit(s). 2009. the Company filed a required Notice of Intent to Participate with the Department under a program limited to qualifying loans originated during the 2008-2009 academic year. For each of the past eight months in the period ending December 31. Legislation passed in October 2008 provides for a one year extension of authority for the DOE to purchase certain guaranteed student loans as defined under ECASLA through the 2009-2010 academic year. financial services firms are currently benefiting from numerous government programs that are improving markets and supporting their current liquidity positions. during the second half of 2007 and the full year of 2008. It has been proposed that the TLGP be extended from its current expiration date of June 30. • In October 2008. Citigroup and its affiliates issued an additional $14. 2009 will be eligible for inclusion. PDCF and the TSLF be extended from their current expiration dates of June 30.3 billion Credit Card Asset-Backed Commercial Paper outstanding under the program. credit card loans and loans guaranteed by the Small Business Administration (SBA). it is intended that all fullydisbursed non-consolidation Federal Family Education Loan Program (FFELP) loans awarded between October 1. Citigroup issued approximately $5. On July 3. primarily in the form of dividends. 2012. Citigroup and other U. dollar-denominated commercial paper of eligible issuers through primary dealers. the Company was. could broaden the eligible collateral to encompass other types of newly issued AAA-rated asset-backed securities. 2008 the DOE announced that it will take the additional step of using existing authority to purchase certain 2007-2008 academic year FFELP loans. in December 2008.S. the parent company liquidity portfolio and broker-dealer “cash box” totaled $66. As of December 31. The amount of commercial paper outstanding was reduced and the weighted-average maturity was extended.S. On December 31. Citigroup had funded $13. These subsidiaries make funds available to Citigroup. the FDIC established the Temporary Liquidity Guarantee Program (TLGP). It has been proposed that the CPFF. Under the CPFF. on average.0 billion Commercial Paper and $3. 2009. private-label residential mortgage-backed securities and other asset-backed securities. In addition. 98 .75 billion of senior unsecured debt under this program. 2008. The securities are made available through a weekly auction process. 2009 to October 30. On November 20. the Federal Reserve lends up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days by a pledge of other securities. While details of this conduit are forthcoming. In addition. federal agency residentialmortgage-backed securities (MBS) and non-agency AAA/Aaa-rated private-label residential MBS. regulatory requirements and/or ratingagency requirements that also impact their capitalization levels. Citigroup uses the TSLF to facilitate secured funding transactions for its inventory as well as that of its customers. 2008. Global financial markets faced unprecedented disruption in the latter part of 2008. 2007. 2003 and July 1. the Federal Reserve Board expanded its securities lending program to promote liquidity in the financing markets for Treasury securities and other collateral and thus foster the functioning of financial markets more generally. These include: • In October 2008.S. without accessing the unsecured markets. 2009 to October 30. a facility designed to support the issuance of asset-backed securities (ABS) collateralized by student loans. 2008. Citigroup utilizes this program to supplement its secured financing capabilities. The TALF is currently scheduled to expire on December 31. the Company took a series of actions to reduce potential funding risks related to short-term market dislocations. the Federal Reserve Bank of New York finances purchases of unsecured highly rated three-month U. Under the Term Securities Lending Facility (TSLF). including its commencement date. These programs provide Citigroup with significant current funding capacity and significant liquidity support. Certain subsidiaries’ dividend-paying abilities may be limited by covenant restrictions in credit agreements.S. In addition to the above programs. thrifts and certain holding companies.2 billion at December 31. a net lender of funds in the interbank market or had excess cash placed in its account at the Federal Reserve Bank of New York. • In November 2008. 2008. These actions to reduce funding risks. The TLGP provides a guarantee of certain newly issued senior unsecured long-term debt of banks.8 billion on a secured basis under this program. the Federal Reserve Board announced the creation of the Term Asset-Backed Securities Loan Facility (TALF). The Company received its initial funding through the Participation Program on December 5. and by providing full coverage of non-interest-bearing deposit transaction accounts. the reduction of the balance sheet and the substantial support provided by U. The TLGP guarantees coverage of qualifying senior unsecured debt issued with a maturity prior to July 1. 2009. regardless of dollar amount. the Federal Reserve Board established the Commercial Paper Funding Facility (CPFF) to provide a liquidity backstop to U. Details of this program. 2008. The Ensuring Continued Access to Student Loans Act of 2008 (ECASLA) enacted by Congress in May 2008 allows the DOE to purchase qualifying Stafford and PLUS Loans originated during the 2003-2009 academic years.FUNDING Overview Because Citigroup is a bank holding company.

in the case of federal savings banks. (2) subsidiaries $37. collateralized financing transactions. Retail Banking and Smith Barney.6 $ — Citigroup Other Funding Citigroup Inc. including CGMHI.4 $28. investor. consistent with the Company’s de-leveraging efforts. asset-backed outstandings. in the case of national banks. 2008. Deposits that qualify under the Company’s qualitative assessments are then subjected to quantitative analysis. There are various legal restrictions on the extent to which a bank holding company and certain of its non-bank subsidiaries can borrow or obtain credit from Citigroup’s subsidiary depository institutions or engage in certain other transactions with them. and declines in International Consumer Banking and the Private Bank. and preferred and common stock. its impact on the cashflows of the trusts. commercial paper. These deposits are diversified across products and regions.S. CGMHI monitors and evaluates the adequacy of its capital and borrowing base on a daily basis to maintain liquidity and to ensure that its capital base supports the regulatory capital requirements of its subsidiaries. CGMHI’s consolidated balance sheet is liquid. medium-term notes.5 Long-term debt Commercial paper (1) At December 31. . State-chartered depository institutions are subject to dividend limitations imposed by applicable state law. including Citibank. Decisions regarding the ultimate currency and interest rate profile of liquidity generated through these borrowings can be separated from the actual issuance through the use of derivative instruments. long-term debt and commercial paper outstanding for Citigroup. and certain borrowings of foreign subsidiaries. pay dividends or otherwise supply funds to Citigroup and its non-bank subsidiaries. 99 There are various legal limitations on the ability of Citigroup’s subsidiary depository institutions to extend credit. as a result of the Company’s qualitative analysis certain deposits with wholesale funding characteristics are excluded from consideration as core. The approval of the Office of the Comptroller of the Currency. long-term debt related to the consolidation of ICG’s Structured Investment Vehicles. and are considered to be core. For example. There are qualitative as well as quantitative assessments that determine the Company’s calculation of core deposits. 2008. In determining the declaration of dividends. guarantees all of CFI’s debt and CGMHI’s publicly issued securities. and plans to provide additional enhancement to the Master Trust (see Note 23 to Consolidated Financial Statements on page 175 for a further discussion). Other significant elements of longterm debt on the Consolidated Balance Sheet include collateralized advances from the Federal Home Loan Bank system. Non-Banking Subsidiaries Citigroup also receives dividends from its non-bank subsidiaries. CGMHI. Some of Citigroup’s non-bank subsidiaries. which issues commercial paper.3 (1) $ 0. which issues long-term debt. At December 31. stable and low-cost source of funding. Excluding the impact of changes in foreign exchange rates and the sale of our retail banking operations in Germany during the year ending December 31. Funding for Citigroup and its major operating subsidiaries includes a geographically diverse retail and corporate deposit base of $774. N. and purchased/wholesale funds. or regulatory reasons cannot be freely and readily funded in the international markets. with approximately two-thirds of them outside of the U. medium-term notes and structured equity-linked and credit-linked notes. 2008. However. trust preferred and preferred securities. This was partially offset by the Company’s decision to reduce deposits considered wholesale funding. sovereign risk. Citigroup is a provider of liquidity facilities to the commercial paper programs of the two primary Credit Card securitization trusts with which it transacts. This diversification provides the Company with an important. Each of Citigroup’s major operating subsidiaries finances its operations on a basis consistent with its capitalization. is required if total dividends declared in any calendar year exceed amounts specified by the applicable agency’s regulations. U. all of which are guaranteed by Citigroup. instrument and currency. each depository institution must also consider its effect on applicable risk-based capital and leverage ratio requirements.3 $ — CGMHI (2) $20. Citigroup’s borrowings have historically been diversified by geography.Sources of Liquidity Primary sources of liquidity for Citigroup and its principal subsidiaries include: • • • • • • deposits. as well as policy statements of the federal regulatory agencies that indicate that banking organizations should generally pay dividends out of current operating earnings. The Company’s capital markets funding activities have been primarily undertaken by two legal entities: (i) Citigroup Inc. As a result of the recent economic downturn. The first step in this process is a qualitative assessment of the deposits. regulatory structure and the environment in which it operates.6 $109. and (ii) Citigroup Funding Inc. the Company increased the credit enhancement in the Omni Trust. trust preferred securities. CFI and Citigroup’s subsidiaries were as follows: In billions of dollars Citigroup parent company $192. In general. deposit increases were noted in Transaction Services.A. these restrictions require that transactions be on arm’s length terms and be secured by designated amounts of specified collateral. (2) Citigroup Inc.. the Company’s deposit base remained stable. as discussed in “Capital Resources and Liquidity” on page 94. These non-bank subsidiaries are generally not subject to regulatory restrictions on dividends. and is expected to be. Particular attention is paid to those businesses that for tax. have credit facilities with Citigroup’s subsidiary depository institutions.S. and in response to credit rating agency reviews of the trusts. a benefit of its global franchise. A significant portion of these deposits has been. Borrowings under these facilities must be secured in accordance with Section 23A of the Federal Reserve Act. approximately $67.4 billion relates to collateralized advances from the Federal Home Loan Bank. Banking Subsidiaries Citigroup’s funding sources are diversified across funding types and geography. senior and subordinated debt. On a volume basis. Citigroup may also provide other types of support to the trusts. (CFI). with the vast majority of its assets consisting of marketable securities and collateralized short-term financing agreements arising from securities transactions. This support preserves investor sponsorship of our card securitization franchise. a first-tier subsidiary of Citigroup. See Note 20 to the Consolidated Financial Statements on page 169. an important source of liquidity. or the Office of Thrift Supervision. long-term and stable. the ability of CGMHI to declare dividends can be restricted by capital considerations of its broker-dealer subsidiaries. Citigroup and its subsidiaries have historically had a significant presence in the global capital markets.2 billion.

” In doing so. 2008.’s long-term rating to “A+” from “AA. is highly dependent on its credit ratings.” In doing so.’s shortterm obligations. N. Moody’s removed the rating from “Under Review for possible downgrade” and applied a “Stable Outlook. Moody’s Investors Service lowered Citigroup Inc. 2009. Standard & Poor’s lowered Citigroup Inc. are the same as those of Citigroup noted above. N. as well as the cost of these funds and its ability to maintain certain deposits. 2008. On February 27. Fitch removed the rating from “Watch Negative” and applied a “Stable Outlook.’s senior debt rating to “A” from “AA-” and Citibank. As a result of the Citigroup guarantee. 2009. 100 .” while maintaining the “Stable Outlook” for Citibank N. N. 2008.See Note 20 to the Consolidated Financial Statements on page 169 for further detail on long-term debt and commercial paper outstanding.’s long-term rating to “Aa3” from “Aa1.A. 2009. Standard & Poor’s removed the rating from “CreditWatch Negative” and applied a “Stable Outlook. 2008. N.A.A. The table below indicates the current ratings for Citigroup. N. Moody’s removed the ratings from “Under Review for possible downgrade” and applied a “Stable Outlook.A.A.A. On February 27.” On December 19.” On December 19.’s and Citibank. Credit Ratings Citigroup’s ability to access the capital markets and other sources of wholesale funds. changes in ratings and ratings outlooks for Citigroup Funding Inc. Fitch Ratings lowered Citigroup Inc. and its subsidiaries on “Negative Outlook”.’s senior debt ratings to “A3” from “A2” and Citibank. to “A-1” from “A-1+”. Moody’s placed the ratings outlook of Citigroup Inc. On November 24. Standard & Poor’s placed the ratings of Citigroup Inc.’s long term rating to “A1” from “Aa3. Moody’s Investors Service lowered Citigroup Inc. Standard & Poor’s also lowered the short-term and commercial paper ratings of Citigroup and Citibank. and its subsidiaries on “Under Review for possible downgrade” from “Stable Outlook.’s senior debt rating to “A2” from “Aa3” and Citibank.” In doing so.” On December 18.” In doing so.” On January 16.’s senior debt rating to “A+” from “AA-.

Citigroup’s Debt Ratings as of December 31, 2008
Citigroup Inc. Senior debt Fitch Ratings Moody’s Investors Service Standard & Poor’s A+ A2 A Commercial paper F1+ P-1 A-1 Citigroup Funding Inc. Senior debt A+ A2 A Commercial paper F1+ P-1 A-1 Citibank, N.A. Longterm A+ Aa3 A+ Shortterm F1+ P-1 A-1

Ratings downgrades by Fitch Ratings, Moody’s Investors Service or Standard & Poor’s have had and could have impacts on funding and liquidity, and could also have further explicit impact on liquidity due to collateral triggers and other cash requirements. Because of the current credit ratings of Citigroup Inc., a one-notch downgrade of its senior debt/long-term rating would likely impact Citigroup Inc.’s commercial paper/short-term rating. As of January 31, 2009, a one-notch downgrade of the senior debt/ long-term rating of Citigroup Inc. accompanied by a one-notch downgrade

of Citigroup Inc.’s commercial paper/short-term rating would result in an approximately $11.0 billion funding requirement in the form of collateral and cash obligations. Further, as of January 31, 2009, a one-notch downgrade of the senior debt/long-term ratings of Citibank, N.A. would result in an approximately $7.0 billion funding requirement in the form of collateral and cash obligations. Because of the credit ratings of Citibank, N.A., a one-notch downgrade of its senior debt/long-term rating is unlikely to have any impact on its commercial paper/short-term rating.

101

LIQUIDITY Overview

Citigroup’s liquidity management is structured to ensure the availability of funds and to optimize the free flow of funds through the Company’s legal and regulatory structure. Principal constraints relate to legal and regulatory limitations, sovereign risk and tax considerations. Consistent with these constraints and the consolidated funding activities described in the “Funding” section on page 98, Citigroup’s primary objectives for liquidity management are established by entity and in aggregate across three main operating entities as follows: • Holding Company (Parent); • Broker-Dealer (CGMHI); and • Bank Entities.
Management of Liquidity

Within this construct, there is a funding framework for the Company’s activities. The primary benchmark for the Parent and Broker-Dealer is that, on a combined basis, Citigroup maintains sufficient liquidity to meet all maturing unsecured debt obligations due within one year without accessing the unsecured markets. The resulting “short-term ratio” is monitored on a daily basis. The short-term ratio consists of the following significant components:
Liquidity Sources

Management of liquidity at Citigroup is the responsibility of the Treasurer. A uniform liquidity risk management policy exists for Citigroup and its major operating subsidiaries. Under this policy, there is a single set of standards for the measurement of liquidity risk in order to ensure consistency across businesses, stability in methodologies and transparency of risk. Management of liquidity at each operating subsidiary and/or country is performed on a daily basis and is monitored by Corporate Treasury and independent risk management. The basis of Citigroup’s liquidity management is strong decentralized liquidity management at each of its principal operating subsidiaries and in each of its countries, combined with an active corporate oversight function. As discussed in “Capital Resources” on page 94, Citigroup’s FinALCO undertakes this oversight responsibility along with the Treasurer. One of the objectives of the FinALCO is to monitor and review the overall liquidity and balance sheet positions of Citigroup and its principal subsidiaries. Similarly, Asset and Liability Committees are also established for each country and/or major line of business.
Monitoring Liquidity

• Cash and Liquid Securities Portfolio The Company maintains cash and a portfolio of highly liquid/highlyrated securities that could be sold or financed on a secured basis. The cash balances are available for same-day settlement. • Unencumbered Securities of the Broker-Dealer CGMHI has unencumbered securities that are available for sale or can be financed on a secured basis. The liquidity assumptions are reviewed periodically to assess liquidation horizons and required margins in line with market conditions. • 23A Capacity As discussed further in the “Funding” section beginning on page 98, some of Citigroup’s non-bank subsidiaries, including CGMHI, have credit facilities with Citigroup’s subsidiary depository institutions, including Citibank, N.A. Borrowings under these facilities must be secured in accordance with Section 23A of the Federal Reserve Act.
Liquidity Obligations

Each principal operating subsidiary and/or country must prepare an annual funding and liquidity plan for review by the Treasurer and approval by independent risk management. The funding and liquidity plan includes analysis of the balance sheet, as well as the economic and business conditions impacting the liquidity of the major operating subsidiary and/or country. As part of the funding and liquidity plan, liquidity limits, liquidity ratios, market triggers, and assumptions for periodic stress tests are established and approved. At a minimum, these parameters are reviewed on an annual basis.
Liquidity Limits

Liquidity limits establish boundaries for market access in business-as-usual conditions and are monitored against the liquidity position on a daily basis. These limits are established based on the size of the balance sheet, depth of the market, experience level of local management, stability of the liabilities and liquidity of the assets. Finally, the limits are subject to the evaluation of the entities’ stress test results. Generally, limits are established such that in stress scenarios, entities are self-funded or net providers of liquidity. Thus, the risk tolerance of the liquidity position is limited based on the capacity to cover the position in a stressed environment. These limits are the key daily risk-management tool for the Parent and Bank Entities.
102

• Commercial Paper Maturing commercial paper issued by CFI. See Note 20 to the Consolidated Financial Statements on page 169 for further information. • LT Debt Maturing Within 12 Months This includes debt maturing within the next 12 months of Citigroup, CFI and CGMHI. • Guaranteed Money Market Notes Represents a portion of notes issued through Citi’s Private Bank via a non-bank subsidiary that is an element of Parent Company funding. • Maturing Bank Loans As further described in Note 20 to the Consolidated Financial Statements on page 169, CGMHI has a series of committed and uncommitted thirdparty bank facilities that it uses in the ordinary course of business. • Interest and Preferred Dividends Represents interest on the Company’s debt and dividends on its preferred stock. • Other At December 31, 2008, this category included miscellaneous payables and potential payments under letters of credit, legal settlements and structured notes. In addition, a series of funding and risk-management benchmarks and monitoring tools are established for the parent, broker-dealer and bank entities, as further described in the following sections below.

Liquidity Ratios

Stress Testing

A series of standard corporate-wide liquidity ratios has been established to monitor the structural elements of Citigroup’s liquidity. As discussed on page 102, for the Parent and CGMHI, ratios are established for liquid assets against short-term obligations. For bank entities, key liquidity ratios include cash capital (defined as core deposits, long-term debt, and capital compared with illiquid assets), liquid assets against liquidity gaps, core deposits to loans, and deposits to loans. Several measures exist to review potential concentrations of funding by individual name, product, industry, or geography. Triggers for management discussion, which may result in other actions, have been established against these ratios. In addition, each individual major operating subsidiary or country establishes targets against these ratios and may monitor other ratios as approved in its funding and liquidity plan. For CGMHI and Bank Entities, one of the key structural liquidity measures is the cash capital ratio. Cash capital is a broader measure of the ability to fund the structurally illiquid portion of the Company’s balance sheet than traditional measures such as deposits to loans or core deposits to loans. The ratio measures the ability to fund illiquid assets with structurally long-term funding over one year. At December 31, 2008, both CGMHI and the aggregate Bank Entities had an excess of structural long-term funding as compared with their illiquid assets.
Market Triggers

Market triggers are internal or external market or economic factors that may imply a change to market liquidity or Citigroup’s access to the markets. Citigroup market triggers are monitored on a weekly basis by the Treasurer and the head of Risk Architecture and are presented to the FinALCO. Appropriate market triggers are also established and monitored for each major operating subsidiary and/or country as part of the funding and liquidity plans. Local triggers are reviewed with the local country or business ALCO and independent risk management.

Simulated liquidity stress testing is periodically performed for each major operating subsidiary and/or country. A variety of firm-specific and marketrelated scenarios are used at the consolidated level and in individual countries. These scenarios include assumptions about significant changes in key funding sources, credit ratings, contingent uses of funding, and political and economic conditions in certain countries. The results of stress tests of individual countries and operating subsidiaries are reviewed to ensure that each individual major operating subsidiary or country is either a self-funded or net provider of liquidity. In addition, a Contingency Funding Plan is prepared on a periodic basis for Citigroup. The plan includes detailed policies, procedures, roles and responsibilities, and the results of corporate stress tests. The product of these stress tests is a series of alternatives that can be used by the Treasurer in a liquidity event. During 2008, Citigroup increased the frequency, duration, and severity of certain stress testing, particularly related to the interconnection of idiosyncratic and systemic risk. In addition, in conformity with recommendations made by the Credit Risk Management Policy Group III, Citigroup instituted a 30-day maximum cash flow for some of its key operating entities. CGMHI monitors liquidity by tracking asset levels, collateral and funding availability to maintain flexibility to meet its financial commitments. As a policy, CGMHI attempts to maintain sufficient capital and funding sources in order to have the capacity to finance itself on a fully collateralized basis in the event that its access to uncollateralized financing is temporarily impaired. This is documented in CGMHI’s Contingency Funding Plan. This plan is reviewed periodically to keep the funding options current and in line with market conditions. The management of this plan includes an analysis used to determine CGMHI’s ability to withstand varying levels of stress, including rating downgrades, which could impact its liquidation horizons and required margins. CGMHI maintains liquidity reserves of cash and available loan value of unencumbered securities in excess of its outstanding short-term uncollateralized liabilities. This is monitored on a daily basis. CGMHI also ensures that long-term illiquid assets are funded with long-term liabilities.

103

OFF-BALANCE-SHEET ARRANGEMENTS

Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements, including special purpose entities (SPEs), primarily in connection with securitization activities in the Consumer Banking and Institutional Clients Group. Citigroup and its subsidiaries use SPEs principally to obtain liquidity and favorable capital treatment by securitizing certain of Citigroup’s financial assets, assisting clients in securitizing their financial assets and creating investment products for clients. For further

information about the Company’s securitization activities and involvement in SPEs, see Note 23 to Notes to Consolidated Financial Statements on page 175 and “Significant Accounting Policies and Significant Estimates— Securitizations” on page 18. The following tables describe certain characteristics of assets owned by certain identified significant unconsolidated VIEs as of December 31, 2008. These VIEs and the Company’s exposure to the VIEs are described in Note 23 to the Consolidated Financial Statements on page 175.
Credit rating distribution Total assets (in billions) $59.6 Weighted average life 4.2 years

Citi-Administered Asset-Backed Commercial Paper Conduits

AAA 41%

AA 45%

A 10%

BBB/BBB+ 4% % of total portfolio 24% 13% 10% 12% 17% 13% 8% 3% 100%

Asset class

Student loans Trade receivables Credit cards and consumer loans Portfolio finance Commercial loans and corporate credit Export finance Auto Residential mortgage Total

Credit rating distribution

Collateralized Debt and Loan Obligations
Collateralized debt obligations (CDOs) Collateralized loan obligations (CLOs)

Total assets (in billions) $17.6 $20.1

Weighted average life 4.5 years 5.9 years

A or higher 23% 1%

BBB 13% 3%

BB/B 11% 45%

CCC 34% 1%

Unrated 19% 50%

Credit rating distribution

Municipal Securities Tender Option Bond Trusts (TOB)
Customer TOB trusts (not consolidated) Proprietary TOB trusts (consolidated and non-consolidated) QSPE TOB trusts (not consolidated)

Total assets (in billions) $ 8.1 $15.5 $ 6.5

Weighted average life AAA/Aaa 11.4 years 19.0 years 9.0 years 48% 50% 62%

AA/Aa1 – AA-/Aa3 42% 41% 29%

Less than AA-/Aa3 10% 9% 9%

Credit Commitments and Lines of Credit

The table below summarizes Citigroup’s credit commitments as of December 31, 2008 and December 31, 2007:
In millions of dollars

U.S. $ 68,100 5,809 2,187 628 22,591 2,084 867,261 217,818 $1,186,478

Outside of U.S. $ 26,136 10,487 6,028 309 2,621 618 135,176 92,179 $273,554

December 31, 2008 $ 94,236 16,296 8,215 937 25,212 2,702 1,002,437 309,997 $1,460,032

December 31, 2007 $ 87,066 18,055 9,175 4,587 35,187 4,834 1,103,535 473,631 $1,736,070

Financial standby letters of credit and foreign office guarantees Performance standby letters of credit and foreign office guarantees Commercial and similar letters of credit One- to four-family residential mortgages Revolving open-end loans secured by one- to four-family residential properties Commercial real estate, construction and land development Credit card lines (1) Commercial and other consumer loan commitments (2) Total

(1) Credit card lines are unconditionally cancelable by the issuer. (2) Includes commercial commitments to make or purchase loans, to purchase third-party receivables, and to provide note issuance or revolving underwriting facilities. Amounts include $140 billion and $259 billion with original maturity of less than one year at December 31, 2008 and December 31, 2007, respectively.

See Note 29 to the Consolidated Financial Statements on page 208 for additional information on credit commitments and lines of credit.

104

Contractual Obligations

The following table includes aggregated information about Citigroup’s contractual obligations that impact its short- and long-term liquidity and capital needs. The table includes information about payments due under specified contractual obligations, aggregated by type of contractual obligation. It includes the maturity profile of the Company’s consolidated long-term debt, operating leases and other long-term liabilities. The Company’s capital lease obligations are included in purchase obligations in the table. Citigroup’s contractual obligations include purchase obligations that are enforceable and legally binding for the Company. For the purposes of the table below, purchase obligations are included through the termination date of the respective agreements, even if the contract is renewable. Many of the purchase agreements for goods or services include clauses that would allow the Company to cancel the agreement with specified notice; however, that impact is not included in the table (unless Citigroup has already notified the counterparty of its intention to terminate the agreement). Other liabilities reflected on the Company’s Consolidated Balance Sheet include obligations for goods and services that have already been received, litigation settlements, uncertain tax positions, as well as other long-term liabilities that have been incurred and will ultimately be paid in cash.

Excluded from the following table are obligations that are generally short term in nature, including deposit liabilities and securities sold under agreements to repurchase. The table also excludes certain insurance and investment contracts subject to mortality and morbidity risks or without defined maturities, such that the timing of payments and withdrawals is uncertain. The liabilities related to these insurance and investment contracts are included on the Consolidated Balance Sheet as Insurance Policy and Claims Reserves, Contractholder Funds, and Separate and Variable Accounts. Citigroup’s funding policy for pension plans is generally to fund to the minimum amounts required by the applicable laws and regulations. At December 31, 2008, there were no minimum required contributions, and no contributions are currently planned for the U.S. pension plans. Accordingly, no amounts have been included in the table below for future contributions to the U.S. pension plans. For the non-U.S. plans, discretionary contributions in 2009 are anticipated to be approximately $167 million and this amount has been included in purchase obligations in the table below. The estimated pension plan contributions are subject to change, since contribution decisions are affected by various factors, such as market performance, regulatory and legal requirements, and management’s ability to change funding policy. For additional information regarding the Company’s retirement benefit obligations, see Note 9 to the Consolidated Financial Statements on page 144.
Contractual obligations by year

In millions of dollars at year end

2009 $ 88,472 1,470 2,214 38,221 $130,377

2010 $41,431 1,328 750 792 $44,301

2011 $42,112 1,134 700 35 $43,981

2012 $27,999 1,010 444 36 $29,489

2013 $25,955 922 395 38 $27,310

Thereafter $133,624 3,415 1,316 3,193 $141,548

Long-term debt obligations (1) Operating lease obligations Purchase obligations Other liabilities reflected on the Company’s Consolidated Balance Sheet (2) Total

(1) For additional information about long-term debt and trust preferred securities, see Note 20 to the Consolidated Financial Statements on page 169. (2) Relates primarily to accounts payable and accrued expenses included in Other liabilities in the Company’s Consolidated Balance Sheet. Also included are various litigation settlements.

105

PENSION AND POSTRETIREMENT PLANS

Expected Rate of Return

The Company has several non-contributory defined benefit pension plans covering substantially all U.S. employees and has various defined benefit pension and termination indemnity plans covering employees outside the United States. The U.S. defined benefit plan provides benefits under a cash balance formula. Employees satisfying certain age and service requirements remain covered by a prior final pay formula. The Company also offers postretirement health care and life insurance benefits to certain eligible U.S. retired employees, as well as to certain eligible employees outside the United States. The following table shows the pension (benefit) expense and contributions for Citigroup’s plans:
U.S. plans
In millions of dollars

Non-U.S. plans 2008 $205 286 2007 $123 223 2006 $115 382

2008
(1)(2) $(160)

2007 $179 —

2006 $182 —

Pension (benefit) expense Company contributions (3)

(1) The 2008 expense includes a $23 million curtailment loss for the U.S. plans and $22 million for the non-U.S. plans recognized in the fourth quarter relating to the Company’s restructuring actions. (2) The 2006 expense for the U.S. plans includes an $80 million curtailment gain recognized as of September 30, 2006 relating to the Company’s decision to freeze benefit accruals for all cash-balance participants after 2007. (3) In addition, the Company absorbed $13 million, $15 million and $20 million during 2008, 2007 and 2006, respectively, relating to certain investment management fees and administration costs for the U.S. plans, which are excluded from this table.

Citigroup determines its assumptions for the expected rate of return on plan assets for its U.S. pension and postretirement plans using a “building block” approach, which focuses on ranges of anticipated rates of return for each asset class. A weighted range of nominal rates is then determined based on target allocations to each asset class. Citigroup considers the expected rate of return to be a long-term assessment of return expectations and does not anticipate changing this assumption annually unless there are significant changes in investment strategy or economic conditions. This contrasts with the selection of the discount rate, future compensation increase rate, and certain other assumptions, which are reconsidered annually in accordance with generally accepted accounting principles. The expected rate of return for the U.S. pension and post-retirement plans was 7.75% at December 31, 2008 and 8.0% at December 31, 2007 and 2006, reflecting the performance of the global capital markets. Actual returns in 2008 were less than the expected returns, while actual returns in 2007 and 2006 were more than the expected returns. This expected amount reflects the expected annual appreciation of the plan assets and reduces the annual pension expense of the Company. It is deducted from the sum of service cost, interest and other components of pension expense to arrive at the net pension (benefit) expense. Net pension (benefit) expense for the U.S. pension plans for 2008, 2007 and 2006 reflects deductions of $949, $889 million and $845 million of expected returns, respectively.

The following table shows the combined postretirement expense and contributions for Citigroup’s U.S. and foreign plans:
U.S. and non-U.S. plans
In millions of dollars

2008 $115 103

2007 $69 72

2006 $ 71 260

Postretirement expense (1) Company contributions

(1) The 2008 expense includes a $6 million curtailment loss related to the Company’s fourth-quarter restructuring actions.

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1% for the pension plans and at 6. which corresponds to the plans’ net pension and postretirement liabilities and the write-off of the existing prepaid asset. Actual returns were higher in 2007 and 2006 than the expected returns in those years. 2006 remeasurement and year-end analysis. The discount rates for the foreign pension and postretirement plans are selected by reference to high-quality corporate bond rates in countries that have developed corporate bond markets. the U.86%. For the foreign plans. 2008. However.75% 8.S. At December 31. respectively. 2008.0% for the postretirement plans. Discount Rate The 2008 and 2007 discount rates for the U.2% for the pension plans and 6. see Note 9 to the Company’s Consolidated Financial Statements on page 144. 202 and 207. which was rounded to 5. Employer’s Accounting for Defined Benefit Pensions and Other Postretirement Benefits (SFAS 158). pension expense for 2008 was reduced by the expected return of $487 million. as well as the effects of a one percentage-point change in the expected rates of return and the discount rates. 27 and 28 to the Consolidated Financial Statements on pages 192. see “Significant Accounting Policies and Significant Estimates” on page 18 and Notes 26. at December 31. Under the September 30. 158. referencing a Citigroup-specific cash flow analysis. the discount rates are selected by reference to local government bond rates with a premium added to reflect the additional risk for corporate bonds. where developed corporate bond markets do not exist. at December 31.9%. Adoption of SFAS 158 Upon the adoption of SFAS No. As of September 30.S.6 billion. compared with the actual return of $(883) million.S. Pension expense for 2007 and 2006 was reduced by expected returns of $477 million and $384 million. pension and postretirement plans were selected by reference to a Citigroup-specific analysis using each plan’s specific cash flows and compared with the Moody’s Aa Long-Term Corporate Bond Yield for reasonableness. 2006. pension and postretirement plans: 2008 Expected rate of return Actual rate of return 2007 2006 8. which relates to unamortized actuarial gains and losses.42)% 13.7% 7. the resulting plan-specific discount rate for the pension plan was 5. and on discount rates used in determining pension and postretirement benefit obligations and net benefit expense for the Company’s plans. effective January 1. 107 . For additional information on the pension and postretirement plans.0% for the postretirement welfare plans. the Company recorded an after-tax charge to equity of $1.FAIR VALUATION The following table shows the expected versus actual rate of return on plan assets for the U. prior service costs/benefits and transition assets/liabilities.0% 14. Citigroup’s policy is to round to the nearest tenth of a percent. pension plan was remeasured to reflect the freeze of benefits accruals for all non-grandfathered participants. the discount rate was set at 6. 2006. Accordingly. the discount rate was set at 6.2% For a discussion of fair value of assets and liabilities. 2007.0% (5.

The Company has established an ethics hotline for employees. • the effect of default rates on the cost of credit. including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). descriptions in the section titled “Management’s Discussion and Analysis. in the event of material changes in market conditions. 2nd Floor. with the participation of the Company’s CEO and CFO. the CEO and CFO have concluded that at that date the Company’s disclosure controls and procedures were effective.” “may increase. housing market could have on the Consumer Banking business’ cost of credit in the first mortgage and second mortgage portfolios. The Company’s management.S. Financial Reporting There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended December 31.” “should. has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31. 2008 that materially affected. but are not limited to: • levels of activity and volatility in the capital markets. tax and investor relations professionals) that applies worldwide. • the possibility of further adverse rating actions by credit rating agencies in respect of structured credit products or other credit-related exposures or of monoline insurers. to allow for timely decisions regarding required disclosure and appropriate SEC filings.S. the Personnel and Compensation Committee. Other risks and uncertainties disclosed herein include. The Code of Conduct is supplemented by a Code of Ethics for Financial Professionals (including finance. The Code of Conduct can be found by clicking on “About Citi.” and similar expressions. including. 425 Park Avenue. including ABS CDOs. New York 10043. Both the Code of Conduct and the Code of Ethics for Financial Professionals can be found on the Citigroup Web site.” “would.S. or future or conditional verbs such as “will.com. treasury.” and “could.” “estimate. Corporate Governance. regulatory and other proceedings.” particularly in the “Outlook” sections. subprime RMBS and related products.” “anticipate. Citigroup has a Code of Conduct that maintains the Company’s commitment to the highest standards of conduct.. those described under “Risk Factors” beginning on page 47. The Company’s actual results may differ materially from those included in the forward-looking statements. Controls and Procedures Disclosure The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management. accounting. The Company’s Disclosure Committee is responsible for ensuring that there is an adequate and effective process for establishing. maintaining and evaluating disclosure controls and procedures for the Company’s external disclosures. based on that evaluation. which are indicated by words such as “believe.” and the Code of Ethics for Financial Professionals can be found by further clicking on “Corporate Governance. • the impact the elimination of QSPEs from the guidance on SFAS 140 may have on Citigroup’s consolidated financial statements.” The Company’s Corporate Governance Guidelines and the charters for the Audit and Risk Management Committee. • the difficult environment surrounding the Japan Consumer Finance business and the way courts will view grey zone claims. including the level of interest rates.citigroup. 108 .” “may fluctuate.” “expect. and around the world. and • the outcome of legal. but not limited to. the Company makes certain statements that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. • the effect that possible amendments to. the credit environment. the Nomination and Governance Committee. • global economic conditions. and interpretations of.” These forward-looking statements are based on management’s current expectations and involve external risks and uncertainties including.” “intend. www. • the dividending capabilities of Citigroup’s subsidiaries. • the effect continued deterioration in the U. unemployment rates. • the effectiveness of the hedging products used in connection with Securities and Banking’s trading positions in U. but not limited to. and political and regulatory developments in the U. New York. and the Public Affairs Committee of the Board are also available under the “Corporate Governance” page. or by writing to Citigroup Inc.CORPORATE GOVERNANCE AND CONTROLS AND PROCEDURES Corporate Governance FORWARD-LOOKING STATEMENTS When describing future business conditions in this Annual Report on Form 10-K. 2008 and. the Company’s internal control over financial reporting. risk-based capital guidelines and reporting instructions might have on Citigroup’s reported capital ratios and net risk-weighted assets. or are reasonably likely to materially affect.

These are primarily credit card receivables. APB 23 Benefit—In accordance with paragraph 31(a) of SFAS No. “Accounting for Income Taxes” (SFAS 109). Leverage Ratio—The Leverage Ratio is calculated by dividing Tier 1 Capital by leverage assets. Defined Contribution Plan—A retirement plan that provides an individual account for each participant and specifies how contributions to that account are to be determined. the return on investments of those contributions. In situations where the lender reasonably expects that only a portion of the principal and interest owed ultimately will be collected. The benefits a participant will receive depend solely on the amount contributed to the participant’s account. published June 26. Defined Benefit Plan—A retirement plan under which the benefits paid are based on a specific formula. certain other intangible assets. service and compensation. which is backed by a pool of bonds. a deferred tax liability is not recognized for the excess of the amount for financial reporting over the tax basis of an investment in a foreign subsidiary unless it becomes apparent that the temporary difference will reverse in the foreseeable future. or financial or commodity indices. including residential or commercial mortgage-backed securities and other assetbacked securities. and excludes the impact of card securitization activity. Managed Loans—Includes loans classified as Loans on the balance sheet differences and carryforwards. Managed Basis—Managed basis presentation includes results from both party pays the other a fixed coupon over a specified term. The Financial Accounting Standards Board (FASB). and forfeitures of other participants’ benefits that may be allocated to such participant’s account. deferred tax assets that are dependent upon future taxable income. prices of securities or commodities. A non-contributory plan does not require employee contributions. Generally Accepted Accounting Principles (GAAP)—Accounting rules defines the ultimate benefit as a hypothetical account balance based on annual benefit credits and interest earnings. Assets Under Management (AUMs)—Assets held by Citigroup in a differences. These assets are not included on Citigroup’s balance sheet. that earned at the original contractual rate if the loans were on accrual status. and certain equity investments that are subject to a deduction from Tier 1 Capital. Foregone Interest—Interest on cash-basis loans that would have been internationally active banking organizations. Managed basis disclosures assume that securitized loans have not been sold and present the result of the securitized loans in the same manner as the Company’s owned loans. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. self-regulatory organization. 109 . The other party makes no payment unless a specified credit event such as a default occurs. at which time a payment is made and the swap terminates. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law. Managed Average Yield—Gross managed interest revenue earned. representing the remaining value of expected net cash flows to the Company after payments to third-party investors and net credit losses. or other assets. Interest-Only (or IO) Strip—A residual interest in securitization trusts interest payments are considered impaired and are classified as non-performing or non-accrual assets. all payments are credited directly to the outstanding principal. which consists of central banks and bank supervisors from 13 countries and is organized under the auspices of the Bank for International Settlements (“BIS”). Credit Default Swap—An agreement between two parties whereby one divided by average managed loans. plus loans held-for-sale that are included in other assets plus securitized receivables. foreign exchange rates. loans. is the primary source of accounting rules. investments in subsidiaries or associated companies that the Federal Reserve determines should be deducted from Tier 1 Capital.GLOSSARY OF TERMS Accumulated Benefit Obligation (ABO)—The actuarial present value of Deferred Tax Liability—A liability attributable to taxable temporary benefits (vested and unvested) attributed to employee services rendered up to the calculation date. certain credit-enhancing interest-only strips. 2004 (subsequently amended in November 2005) by the Basel Committee on Banking Supervision. Cash-Basis Formula—A formula. net of goodwill. The formula is usually a function of age. Deferred Tax Asset—An asset attributable to deductible temporary on-balance-sheet loans and off-balance-sheet loans. 109. Cash-Basis Loans—Loans in which the borrower has fallen behind in and conventions defining acceptable practices in preparing financial statements in the United States of America. Leverage assets are defined as each year’s fourth quarter adjusted average of total assets. instead of specifying the amount of benefits the participant will receive. Adjusted Average Assets—Each year’s fourth quarter adjusted average of total GAAP assets (net of allowance for loan losses) less goodwill. within a defined benefit plan. Collateralized Debt Obligations (CDOs)—security issued by a trust. Basel II—A new set of risk-based regulatory capital standards for in interest rates. an independent. Federal Funds—Non-interest-bearing deposits held by member banks at the Federal Reserve Bank. intangibles and certain other items as required by the Federal Reserve. Derivative—A contract or agreement whose value is derived from changes fiduciary capacity for clients.

Managed Net Credit Losses—Net credit losses adjusted for the effect of

Projected Benefit Obligation (PBO)—The actuarial present value of all

credit card securitizations. See Managed Loans.
Market-Related Value of Plan Assets—A balance used to calculate the

expected return on pension-plan assets. Market-related value can be either fair value or a calculated value that recognizes changes in fair value in a systematic and rational manner over not more than five years.
Minority Interest—When a parent owns a majority (but less than 100%) of

pension benefits accrued for employee service rendered prior to the calculation date, including an allowance for future salary increases if the pension benefit is based on future compensation levels.
Purchase Sales—Customers’ credit card purchase sales plus cash

advances.
Qualified Plan—A retirement plan that satisfies certain requirements of the

a subsidiary’s stock, the Consolidated Financial Statements must reflect the minority’s interest in the subsidiary. The minority interest as shown in the Consolidated Statement of Income is equal to the minority’s proportionate share of the subsidiary’s net income and, as included in Other Liabilities on the Consolidated Balance Sheet, is equal to the minority’s proportionate share of the subsidiary’s net assets.
Mortgage Servicing Rights (MSRs)—An intangible asset representing

Internal Revenue Code and provides benefits on a tax-deferred basis. Contributions to qualified plans are tax deductible.
Qualifying SPE (QSPE)—A Special Purpose Entity that is very limited in its

servicing rights retained in the securitization of mortgage loans.
Net Credit Losses—Gross credit losses (write-offs) less gross credit

activities and in the types of assets it can hold. It is a passive entity and may not engage in active decision making. QSPE status allows the seller to remove assets transferred to the QSPE from its books, achieving sale accounting. QSPEs are not consolidated by the seller or the investors in the QSPE.
Return on Assets—Annualized income divided by average assets. Return on Common Equity—Annualized income less preferred stock

recoveries.
Net Credit Loss Ratio—Annualized net credit losses divided by average

dividends, divided by average common equity.
Securities Purchased Under Agreements to Resell (Reverse Repo Agreements)—An agreement between a seller and a buyer, generally of

loans outstanding.
Net Credit Margin—Revenues less net credit losses. Net Excess Spread Revenue—Net cash flows from our credit card

securitization activities that are returned to the Company, less the amortization of previously recorded revenue (i.e., residual interest) related to prior periods’ securitizations. The net cash flows include collections of interest income and fee revenue in excess of the interest paid to securitization trust investors, reduced by net credit losses, servicing fees, and other costs related to the securitized receivables.
Net Interest Revenue (NIR)—Interest revenue less interest expense. Net Interest Margin—Interest revenue less interest expense divided by

government or agency securities, whereby the buyer agrees to purchase the securities and the seller agrees to repurchase them at an agreed-upon price at a future date.
Securities Sold Under Agreements to Repurchase (Repurchase Agreements)—An agreement between a seller and a buyer, generally of

government or agency securities, whereby the seller agrees to repurchase the securities at an agreed-upon price at a future date.
Securitizations—A process by which a legal entity issues to investors

average interest-earning assets.
Non-Qualified Plan—A retirement plan that is not subject to certain

certain securities which pay a return based on the principal and interest cash flows from a pool of loans or other financial assets.
Significant Unconsolidated VIE—An entity where the Company has any

Internal Revenue Code requirements and subsequent regulations. Contributions to non-qualified plans do not receive tax-favored treatment; the employer’s tax deduction is taken when the benefits are paid to participants.
Notional Amount—The principal balance of a derivative contract used as a

variable interest, including those where the likelihood of loss, or the notional amount of exposure, is small. Variable interests are ownership interests, debt securities, contractual arrangements or other pecuniary interests in an entity that absorbs the VIE’s expected losses and/or returns.
Special Purpose Entity (SPE)—An entity in the form of a trust or other

reference to calculate the amount of interest or other payments.
On-Balance-Sheet Loans—Loans originated or purchased by the

legal vehicle, designed to fulfill a specific limited need of the company that organized it (such as a transfer of risk or desired tax treatment).
Standby Letter of Credit—An obligation issued by a bank on behalf of a

Company that reside on the balance sheet at the date of the balance sheet.
Other Real Estate Owned (OREO)—The carrying value of all property

acquired by foreclosure or other legal proceedings when the Company has taken possession of the collateral.

bank customer to a third party where the bank promises to pay the third party, contingent upon the failure by the bank’s customer to perform under the terms of the underlying contract with the beneficiary, or it obligates the bank to guarantee or stand as a surety for the benefit of the third party to the extent permitted by law or regulation.

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TARP—Troubled Asset Relief Program established by the Emergency

Unfunded Commitments—Legally binding agreements to provide

Economic Stabilization Act of 2008, under which broad authority was conferred upon the U.S. Department of the Treasury to undertake various programs and initiatives to aid in the restoration of stability and liquidity to U.S. financial markets and strengthen U.S. financial institutions. Among the mechanisms employed under the Troubled Asset Relief Program to enhance the capital of U.S. financial institutions are the Capital Purchase Program and the Targeted Investment Program.
Tier 1 and Tier 2 Capital—Tier 1 Capital includes common stockholders’

financing at a future date.
Variable Interest Entity (VIE)—An entity that does not have enough

equity to finance its activities without additional subordinated financial support from third parties. VIEs may include entities with equity investors that cannot make significant decisions about the entity’s operations. A VIE must be consolidated by its primary beneficiary, if any, which is the party that has the majority of the expected losses or residual returns of the VIE or both.

equity (excluding certain components of accumulated other comprehensive income), qualifying perpetual preferred stock, qualifying mandatorily redeemable securities of subsidiary trusts, and minority interests that are held by others, less certain intangible assets. Tier 2 Capital includes, among other items, perpetual preferred stock to the extent that it does not qualify for Tier 1, qualifying senior and subordinated debt, limited-life preferred stock, and the allowance for credit losses, subject to certain limitations.
Unearned Compensation—The unamortized portion of a grant to

employees of restricted or deferred stock measured at the market value on the date of grant. Unearned compensation is displayed as a reduction of stockholders’ equity in the Consolidated Balance Sheet.

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Citigroup is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Citigroup’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management maintains a comprehensive system of controls intended to ensure that transactions are executed in accordance with management’s authorization, assets are safeguarded, and financial records are reliable. Management also takes steps to ensure that information and communication flows are effective and to monitor performance, including performance of internal control procedures. Citigroup management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that, as of December 31, 2008, the Company’s internal control over financial reporting is effective. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 has been audited by KPMG LLP, the Company’s independent registered public accounting firm, as stated in their report appearing on page 113, which expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008.

112

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM— INTERNAL CONTROL OVER FINANCIAL REPORTING
In our opinion, Citigroup maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Citigroup as of December 31, 2008 and 2007, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2008, and our report dated February 27, 2009 expressed an unqualified opinion on those consolidated financial statements.

The Board of Directors and Stockholders Citigroup Inc.: We have audited Citigroup Inc. and subsidiaries’ (the “Company” or “Citigroup”) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

New York, New /s/ KPMG LLP York February 27, 2009

113

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM— CONSOLIDATED FINANCIAL STATEMENTS
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Citigroup’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

The Board of Directors and Stockholders Citigroup Inc.: We have audited the accompanying consolidated balance sheets of Citigroup Inc. and subsidiaries (the “Company” or “Citigroup”) as of December 31, 2008 and 2007, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2008, and the related consolidated balance sheets of Citibank, N.A. and subsidiaries as of December 31, 2008 and 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Citigroup as of December 31, 2008 and 2007, the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2008, and the financial position of Citibank, N.A. and subsidiaries as of December 31, 2008 and 2007, in conformity with U.S. generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 2007 the Company changed its methods of accounting for fair value measurements, the fair value option for financial assets and financial liabilities, uncertainty in income taxes and cash flows relating to income taxes generated by a leverage lease transaction.

New York, New /s/ KPMG LLP York February 27, 2009

114

2007 and 2006 Consolidated Balance Sheet— Citibank. Securities Borrowed.A. 2008 and 2007 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 116 117 118 120 121 Note 1 – Summary of Significant Accounting Policies 122 Note 2 – Business Developments 134 Note 3 – Discontinued Operations 136 Note 4 – Business Segments 138 Note 5 – Interest Revenue and Expense 139 Note 6 – Commissions and Fees 139 Note 7 – Principal Transactions 140 Note 8 – Incentive Plans 140 Note 9 – Retirement Benefits 144 Note 10 – Restructuring 150 Note 11 – Income Taxes 152 Note 12 – Earnings per Share 155 Note 13 – Federal Funds. N. and Subsidiaries—December 31. SFAS 156 and SFAS 159) Note 28 – Fair Value of Financial Instruments (SFAS 107) Note 29 – Pledged Assets. Loaned. and Subject to Repurchase Agreements 156 Note 14 – Brokerage Receivables and Brokerage Payables 157 Note 15 – Trading Account Assets and Liabilities 157 Note 16 – Investments 158 Note 17 – Loans 163 Note 18 – Allowance for Credit Losses 165 Note 19 – Goodwill and Intangible Assets 166 Note 20 – Debt 169 Note 21 – Preferred Stock and Stockholders’ Equity Note 22 – Changes in Accumulated Other Comprehensive Income (Loss) Note 23 – Securitizations and Variable Interest Entities Note 24 – Derivatives Activities Note 25 – Concentrations of Credit Risk Note 26 – Fair-Value Measurement (SFAS 157) Note 27 – Fair-Value Elections (SFAS 155. 2008. N. 2008 and 2007 Consolidated Statement of Changes in Stockholders’ Equity— For the Years Ended December 31.FINANCIAL STATEMENTS AND NOTES TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Income— For the Years Ended December 31. Commitments and Guarantees Note 30 – Contingencies Note 31 – Citibank.A. 2007 and 2006 Consolidated Balance Sheet— December 31. Stockholder’s Equity Note 32 – Subsequent Event Note 33 – Condensed Consolidating Financial Statement Schedules Note 34 – Selected Quarterly Financial Data (Unaudited) 172 174 175 189 192 192 202 207 208 214 214 215 216 225 115 . 2008. 2007 and 2006 Consolidated Statement of Cash Flows— For the Years Ended December 31. Collateral. 2008.

22 4.791 2.17 0.538 $ $ 4.766 22.832 935 150 $ 17.42) 0.83 (5.684) $ $ (6.73 4.094) $ 1.60 0. $ 52.378 $ 20.440 7.134 $ (53.692 $ 11.125 4.560 (2.132 1.429 76.528 10.714 $ 32.537 $ 29.410 $ (27.72 4.989 $ 925 — 297 628 $ $ 3.995. net of taxes Income from discontinued operations.59 0.498) 285 2006 $ 93. net of taxes Net income (loss) Adjusted weighted average common shares outstanding (1) Diluted shares used in the diluted EPS calculation represent basic shares for 2008 due to the net loss.051 $ 45.403 (363) $ 34.892 6. and Subsidiaries Year ended December 31 In millions of dollars.320 967 250 $ 7.59) 5.674 1.301 $ 28.614 $ 71.897 2.13 0.8 $ $ 0. Using actual diluted shares would result in anti-dilution.617 $ $ 0.221 342 $ (899) 2007 $121.612) (349) $ (32.327 $ 6.3 116 .399 $ 86.803 1.655 52. See Notes to the Consolidated Financial Statements.22 4.420 $ 59.4 $ $ (6. net of taxes Income (loss) from continuing operations Discontinued operations Income from discontinued operations Gain on sale Provision (benefit) for income taxes and minority interest.802 $ 776 (2.83 (5.706 (12.749 289 $ 20.752 5.062 11. net of taxes Net income (loss) Basic earnings per share (1) Income (loss) from continuing operations Income from discontinued operations. net of taxes Net income (loss) Weighted average common shares outstanding Diluted earnings per share (1) Income (loss) from continuing operations Income from discontinued operations.087 $ 21.135 $ 33.489 7.096 $ 48.917 $ 33.794 3.683 $ 37.793 $ 33.850 7.09 0.42) 0.168 3.31 4.1 $ 2.990 6.905.188) 8.177 219 309 $ 1.511 2.139 207 $ 4.086) 9.1 Revenues Interest revenue Interest expense Net interest revenue Commissions and fees Principal transactions Administration and other fiduciary fees Realized gains (losses) from sales of investments Insurance premiums Other revenue Total non-interest revenues Total revenues.055) (20.903 1.887.13 0.59) 5.3 $ $ 4.648 4.495 $ 16.986.117 $ 78. except per share amounts 2008 $106.265.471 — 8.543 $ 50.928 $ 18.963 $ 53.292 1.741 2.769 10.611 55.478 3.39 4.795. net of interest expense Provisions for credit losses and for benefits and claims Provision for loan losses Policyholder benefits and claims Provision for unfunded lending commitments Total provisions for credit losses and for benefits and claims Operating expenses Compensation and benefits Net occupancy Technology/communication Advertising and marketing Restructuring Other operating Total operating expenses Income (loss) from continuing operations before income taxes and minority interest Provision (benefit) for income taxes Minority interest.CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME Citigroup Inc.061) 3.227 (22.451 $ 1.

380 at December 31. 2007. 2007. 2008.159 5.875 and $21. at fair value) Total assets Liabilities Non-interest-bearing deposits in U. There is no tax benefit and there is no income statement impact from this adjustment. 2007 respectively. at fair value) 184.616) $ 664.01 par value. and Subsidiaries December 31 In millions of dollars. 2008 and 5.272 $1.866 and $199.112 102.600 27. respectively.568 as of December 31.906 37.840 $ 70.S. 2007.743.691 359.307 8.198 43.053 14.480 Assets Cash and due from banks (including segregated cash and other deposits) $ 29.195) $ 141. 2008 and December 31.117) $ 761.132 14. net Goodwill Intangible assets (other than MSRs) Mortgage servicing rights (MSRs) (including $5. respectively) 377. This reduction adjusts Goodwill to reflect a portion of the losses incurred in January 2002.271 and $2.630 $1.230 304. at fair value) $ 694.568 shares Accumulated other comprehensive income (loss) Total stockholders’ equity Total liabilities and stockholders’ equity $1.722 and $9. net of unearned income Allowance for loan losses Total loans.086 at December 31.984 215. offices Interest-bearing deposits in U. 2007 Additional paid-in capital Retained earnings (1) Treasury stock. 2008 and December 31.221 pledged to creditors at December 31.331 Federal funds sold and securities borrowed or purchased under agreements to resell (including $70.293 70.724) (4.635 Investments (including $14. respectively) 256. 2008 and December 31.070 229.938.927 $2. 2007.243 84.573 at December 31. 2007.859 225.951 182. (including $1.033 $ — 55 18.447 $2.727 at December 31. 2008 and December 31. authorized shares: 30 million). issued shares: 5. related to the sale of an Argentinean subsidiary of Banamex.593 92. See Notes to the Consolidated Financial Statements.307 185.S. at fair value) Other liabilities (including $3.607 and $13.675.854 as of December 31.582) (25.074. respectively. 2008 and December 31. 2007. issued shares: 828. Interest-bearing deposits in offices outside the U. 2008 and December 31.CONSOLIDATED BALANCE SHEET Citigroup Inc.S.185 205.696 and $1. 2008 and December 31. respectively.478 126.671. 2008) 519.916 167.380 168.938.807 at December 31.278 Trading account assets (including $148. at aggregate liquidation value Common stock ($0.477.657 165.470 $ 60. respectively. Bansud.008 592.875 $2.686 $ 777.261 at December 31. offices (including $1.769 (21. 2007.488 427. at fair value) Non-interest-bearing deposits in offices outside the U. 2008 and December 31. except shares 2008 $ 2007 38.684 Total deposits $ Federal funds purchased and securities loaned or sold under agreements to repurchase (including $138. net of unearned income Consumer (including $36 at fair value as of December 31.696 and $3. 2007. at fair value) Long-term debt (including $27.719 shares and 2007—482. at fair value) Other assets (including $5.335 and $1.480 $ 40.337 at December 31.312 at December 31.876 41. respectively. at fair value) Brokerage payables Trading account liabilities Short-term borrowings (including $17.187. at fair value) 174.673 Corporate (including $2.543 Loans.703 and $157.082 146.416. 2008 and December 31.066 57.00 par value.802 as of December 31.305 as of December 31.335 516.187.359 538.366 274.838 $ 826.834.796. 117 . respectively.305 and $84.133 Brokerage receivables 44. respectively.165 86.020 Loans.657 and $8.487 at December 31. 2008 and December 31.216 (29.993 (16. at fair value) Total liabilities Stockholders’ equity Preferred stock ($1.449 pledged to creditors at December 31. 2008 and December 31. authorized shares: 15 billion).412 446. respectively.664 57 19. 2007.253 Deposits with banks 170.007 121.797 774.470 (1) Citigroup’s opening Retained earnings balance has been reduced by $151 million to reflect a prior period adjustment to Goodwill.S.263 and $79.521 (9.206 69. 2007.660) $ 113. respectively. 2007. at cost: 2008—221. that was recorded as an adjustment to the purchase price of Banamex. 2008 and December 31.

416 — 194.538 (9.835) 84.724) (482.514) $ 86.000 (1.416 — — — — — — — — 5.664 $ 18.684) (6.761) (65) $129.CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY Citigroup Inc. net of taxes (2) Adjusted balance.538 769 — — — — — — 1 $ 18.050) (1.858 — — 21 $ (9. end of year Retained earnings Balance.839 (12.000) — — 5.911 (3.000) — $ — 2006 $ 1.416 2006 4.930 3.664 2007 $ 1.116 (186) $128.250 (250) — 4.192) 75.192 11.500) 1.422) (Statement continues on next page) 118 . beginning of year Employee benefit plans Issuance of new common stock Issuance of shares for Nikko acquisition Issuance of TARP I & II warrants Issuance of shares for Grupo Cuscatlán acquisition Issuance of shares for ATD acquisition Present value of stock purchase contract payments Other Balance.521 $ (21. end of year Common stock and additional paid-in capital Balance. beginning of year (1) Adjustment to opening balance.270 (7) 7.404 21.631 (144.149) 3.724 (343) 174.222 $121.308 $117.404 — $117.125 (125) — $ 1.477.724) 4. beginning of year Redemption or retirement of preferred stock Issuance of new preferred stock Balance. except shares in thousands Shares 2008 — — 829 829 5.416 — — — — — — — — 5.000 $ 17.653 — — 2.463) — 14.853 (663) — 637 503 38 $ (21.416 2008 $ — — 70.769 $ (25.116 $ (21.769 (27.422) 68.062 (1.092) 2.051 (7.062 $129.582) $ 18. and Subsidiaries Year ended December 31 Amounts In millions of dollars.033) — — — 172 (565.125 (221.328 — — — — — — 5.000) — — — 6 $ (25.477.477. end of year $ 70.092) Preferred stock at aggregate liquidation value Balance.308 455 — — — 118 74 (888) (5) $ 18.000 5. end of year Treasury stock.921) 4.671.797 — — — (127) $ 19.000 (4.477.617 (10.676) (565. beginning of year Issuance of shares pursuant to employee benefit plans Treasury stock acquired (4) Issuance of shares for Nikko acquisition Issuance of shares for Grupo Cuscatlán acquisition Issuance of shares for ATD acquisition Other Balance.769 — $121.477.744 2007 4.835) (497.172 847 (482. beginning of period Net income (loss) Common dividends (3) Preferred dividends Balance. at cost Balance.733) (45) $121.

such as the U.450.447 $ 3. See Notes to the Consolidated Financial Statements. 192 and 202 for further discussion.118) (2. as required by SFAS 158.294 (1) (1. second. reflects additional minimum liability. 26 and 27 to the Consolidated Financial Statements on pages 122. Bansud. The related unrealized gains and losses were reclassified to Retained earnings upon the adoption of the fair value option in accordance with SFAS 157 and SFAS 159.49 per share in the first. (6) In 2008.195) $ 70.102) 2.660) (10.632 $ 21. net of taxes Pension liability adjustment. beginning of year Adjustment to opening balance. (4) All open market repurchases were transacted under an existing authorized share repurchase plan.370 5.660) $113. third and fourth quarters of 2007. and Subsidiaries .617 (1. • SFAS 159 for $(99) million. (3) Common dividends declared were as follows: $0.630 $ (27. nonqualified pension plans and certain foreign plans. net of taxes (5) Adjusted balance. third and fourth quarters of 2006.CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued) Citigroup Inc. the Board of Directors authorized up to an additional $15 billion in share repurchases.532) — $ (2. as required by SFAS No. Additionally.972) (1. the Board of Directors authorized up to an additional $10 billion in share repurchases.54 per share in the first.700) $118.508 2006 $ (2. 192 and 202. See Notes 1. net of taxes Net change in foreign currency translation adjustment. $0. beginning of period Net change in unrealized gains and losses on investment securities.700) 149 $ (3. that was recorded as an adjustment to the purchase price of Banamex.16 in the fourth quarter of 2008. 2005. net of taxes (6) Adjustments to initially apply SFAS 158. respectively.911. related to the sale of an Argentinean subsidiary of Banamex.219) (1) Citigroup’s opening Retained earnings balance has been reduced by $151 million to reflect a prior period adjustment to Goodwill.168) $ 20. (2) The adjustment to the opening balance of Retained earnings represents the total of the after-tax gain (loss) amounts for the adoption of the following accounting pronouncements: • SFAS 157 for $75 million. Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). end of year Total common stockholders’ equity and common shares outstanding Total stockholders’ equity Comprehensive income (loss) Net income (loss) Net change in Accumulated other comprehensive income (loss) Comprehensive income (loss) $ (4. net of taxes Net change in Accumulated other comprehensive income (loss) Balance. 2006.538 (1. • FSP 13-2 for $(148) million.535) $ (25.966 $141.660) — $ (4. which increased the PBO (Projected Benefit Obligation).026) (6. On April 14.024 590 — $ (1. related to unfunded or book reserve plans. on April 17. and • FIN 48 for $(14) million. second.109) $ 2. 26 and 27 to the Consolidated Financial Statements on pages 122. Employers’ Accounting for Pensions (SFAS 87).068 4.32 per share in the first. (5) The after-tax adjustment to the opening balance of Accumulated other comprehensive income (loss) represents the reclassification of the unrealized gains (losses) related to the Legg Mason securities as well as several miscellaneous items previously reported in accordance with SFAS No. In 2007. In 2006. except shares in thousands Year ended December 31 Shares 2008 2007 2006 2008 2007 $ (3. See Notes 1. Amounts In millions of dollars. $0.994. second and third quarters of 2008. There is no tax benefit and there is no income statement impact from this adjustment. net of taxes Net change in cash flow hedges. 119 .535) $ (48.684) (20.447 $113.647) $ (1.168) $ (3.994 Accumulated other comprehensive income (loss) Balance. $0.419) — $ (20.532) (141) (673) 1.109) $ (4.581 4.632 $119.S.551) (621) (3. 87. 115. reflects decreased fair value of plan assets and a lower discount rate. This reduction adjusts Goodwill to reflect a portion of the losses incurred in January 2002. reflects changes in the funded status of the Company’s pension and postretirement plans.

027) (3.606 (15.611) $ (17.466 2.203 (13.035) 4.336) 93.253 $ 38.882 $ 23.451 206 $ 369 $ 287 (397) (482) (381) 2.176 (274.798) (98.903 $ (24.060 1.422 121.000) (400) (951) (685) 90.346 121.948) $ 1.877) (361.537) $ (165) $(100. See Notes to the Consolidated Financial Statements.540 $ (71.494 $ 206.614) — $ (62. net of taxes Gain on sale. net of taxes Income (loss) from continuing operations Adjustments to reconcile net income to net cash provided by (used in) operating activities of continuing operations Amortization of deferred policy acquisition costs and present value of future profits Additions to deferred policy acquisition costs Depreciation and amortization Deferred tax (benefit) provision Provision for credit losses Change in trading account assets Change in trading account liabilities Change in federal funds sold and securities borrowed or purchased under agreements to resell Change in federal funds purchased and securities loaned or sold under agreements to repurchase Change in brokerage receivables net of brokerage payables Realized losses (gains) from sales of investments Change in loans held-for-sale Other.487 $ (2.230 $ 55.932 $ (32.574 6.845 (62.216) $ (10.678 72.062) 273.168) (1.282) (16.791) 29.111 (4.901) (65.468) (37.311 17.666 209.538 628 948 — 139 2.529) 12.003) (4.005 $ 645 $ (397) $ 107 $ (8.778) $ (9.265) 17.094) $ $ 2007 (1) 2006 (1) Cash flows from operating activities of continuing operations Net income (loss) Income from discontinued operations.526) $ (20.796) 10.312 (2.514 $ 29.421 2.811) 93.611 (7.893 24.632 $ 26.933 38.604) 20. 3.514 $ 3.537) $ 144.928) 102 33.517) (46.170 $ 5.988 123.377) $(204.654 15.414 118.526) $ (10.521) 313.105) (14.478 2.009 (30.709) $ 128.843 (954) (15.206 $ 26.617 $ 21.989 $ 20.983) 106.798 70.124) 211.891 2.503 2.000) (125) (7) (663) (7.061 (1. net Treasury stock acquired Stock tendered for payment of withholding taxes Issuance of long-term debt Payments and redemptions of long-term debt Change in deposits Change in short-term borrowings Net cash (used in) provided by financing activities of continuing operations Effect of exchange rate changes on cash and cash equivalents Discontinued operations Net cash (used in) provided by discontinued operations Change in cash and due from banks Cash and due from banks at beginning of period Cash and due from banks at end of period Supplemental disclosure of cash flow information for continuing operations Cash paid during the year for income taxes Cash paid during the year for interest Non-cash investing activities Transfers to repossessed assets Transfers to investments (held-to-maturity) from trading account assets Transfers to investments (available-for-sale) from trading account assets Transfers to loans held for investment (loans) from loans held-for-sale (1) Reclassified to conform to the current period’s presentation.503 (21.634 $ (74.496 113.692 $ 38.934) (356.464 253. subsidiaries and affiliates.616) $ 96.472 $ 3.206 $ 121 $ 2.966 — $ (77.953) $ 11.287 $ — — — 1.965) $(270.426) (296.864 1. and repossessed assets Business acquisitions Net cash used in investing activities of continuing operations Cash flows from financing activities of continuing operations Dividends paid Issuance of common stock Issuances (Redemptions) of preferred stock.950) (56.CONSOLIDATED STATEMENT OF CASH FLOWS Citigroup Inc.353) (98.626 (1.253 1.923 $ 9.425 33.687 (132.258 4. and Subsidiaries Year ended December 31 In millions of dollars 2008 $ (27.826) 6.999 121.541) 23.684) $ 1.753 86. net Total adjustments Net cash provided by (used in) operating activities of continuing operations Cash flows from investing activities of continuing operations Change in deposits with banks Change in loans Proceeds from sales and securitizations of loans Purchases of investments Proceeds from sales of investments Proceeds from maturities of investments Capital expenditures on premises and equipment Proceeds from sales of premises and equipment.206) $ (7.439 $ 33.808 (344.414 — — — 120 .732 51.143 (65.779 89.649) (1.

007 8.333 8.716 pledged to creditors at December 31.925 10. offices Interest-bearing deposits in U. 2008 and December 31.958 95.534.808 180.092 and $22.409 $ 751 69.227.251.S. except shares 2008 $ 22. 2008 and December 31.613 197. and for pension liability adjustments of ($676) million and ($835) million.040 $ 59.040 $1.247) billion and ($2.938 19.895) 81. for cash flow hedges of ($3. net of unearned income Allowance for loan losses Total loans. respectively) Investments (including $3.454 150.682 $ 751 74.317 39.472 74.735 (15. N.S. 2007 include the after-tax amounts for net unrealized gains (losses) on investment securities of ($8. 2008 and December 31.687 billion.085) billion.A. net Interest and fees receivable Other assets Total assets Liabilities Non-interest-bearing deposits in U.715 $ 41.352 $1. net Goodwill Intangible assets Premises and equipment.306 $ $ $1.052 165.316 $1. 2007.553 in each period Surplus Retained earnings Accumulated other comprehensive income (loss) (1) Total stockholder’s equity Total liabilities and stockholder’s equity $ 536.752 184. See Notes to the Consolidated Financial Statements.070 $1.099 pledged to creditors at December 31.331 7.191 8.358 $ 782.294 11.008) billion and ($1.517 $ 755.112 12.192 113. Total deposits Trading account liabilities Purchased funds and other borrowings Accrued taxes and other expenses Long-term debt and subordinated notes Other liabilities Total liabilities Stockholder’s equity Capital stock ($20 par value) outstanding shares: 37.495) 99. and Subsidiaries December 31 In millions of dollars.404 59.058 644.769 480.S.CONSOLIDATED BALANCE SHEET Citibank.775 516.S.145.251.135 31. respectively) Loans.227.715 (1) Amounts at December 31.964) billion and $1.563 215.216 23. respectively.028 and $3.914 555.298 110. offices Non-interest-bearing deposits in offices outside the U.984 $ 633.152. 121 .032 186. Interest-bearing deposits in offices outside the U.273) $ 2007 28.659) Assets Cash and due from banks Deposits with banks Federal funds sold and securities purchased under agreements to resell Trading account assets (including $12.915 (2.774 41.262) billion. respectively.148 7.737 33.879 $1.080 38.171 76.689 5.966 57. 2007.381 41. respectively.107 156.597 (10.198 (18. respectively. for foreign currency translation of ($3.599 116.767 21.

these VIEs as well as all other unconsolidated VIEs are regularly monitored by the Company to determine if any reconsideration events have occurred that could cause its primary beneficiary status to change. 51. a VIE must be consolidated by the Company if it is deemed to be the primary beneficiary of the VIE. Income from investments in less than 20%-owned companies is recognized when dividends are received. cash management. option and swap contracts and designated issues of non-U. Equity securities include common and nonredeemable preferred stocks. are primarily included in Other revenue along with the related hedge effects. Fixed income instruments include bonds. commercial banking. • Fixed income securities and marketable equity securities classified as “available-for-sale” are carried at fair value with changes in fair value reported in a separate component of Stockholders’ equity. Citigroup consolidates entities deemed to be variable interest entities when Citigroup is determined to be the primary beneficiary. As discussed below. or (2) the entity has equity investors that cannot make significant decisions about the entity’s operations or that do not absorb their proportionate share of the expected losses or receive the expected returns of the entity.” Foreign Currency Translation Citibank. (See Note 31 to the Consolidated Financial Statements on page 214. investment banking. Investment securities are classified and accounted for as follows: • Fixed income securities classified as “held to maturity” represent securities that the Company has both the ability and the intent to hold until maturity. Citibank’s principal offerings include consumer finance. and “EITF Issue No. including those in highly inflationary environments. 04-5. or investments accounted for at fair value under the fair value option. However. Certain reclassifications have been made to the prior-period’s financial statements and notes to conform to the current period’s presentation. Investment Securities Investments include fixed income and equity securities. which cause Citigroup’s overall variable interest ownership to change. mortgage lending. N.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. as specified in FIN 46(R). are included in Other revenue. with resulting gains and losses included in income. and private banking products and services. which is the party involved with the VIE that has a majority of the expected losses or a majority of the expected residual returns or both. and other investments and charges for management’s estimate of impairment in their value that is other than temporary. These include multi-seller finance companies. and the pro rata share of their income (loss) is included in Other revenue. are not consolidated because the Company is not the primary beneficiary. subsidiaries.A. directly or indirectly. Consolidated Financial Statements. Gains and losses on the disposition of branches.A. N. 94. the Company has significant variable interests in other VIEs that Assets and liabilities denominated in foreign currencies are translated into U. In addition. Citibank. trade finance and e-commerce products and services. and various investment funds.S.S. All other entities not deemed to be VIEs with which the Company has involvement are evaluated for consolidation under Accounting Research Bulletin (ARB) No. Interest income on such securities is included in Interest revenue. and • providing support to an entity that results in an implicit variable interest. dollar debt. dollar as the functional currency.A. The effects of translating net assets with a functional currency other than the U. declines in 122 . The Company includes a balance sheet and statement of changes in stockholder’s equity for Citibank. net of applicable income taxes. dollars using year-end spot foreign exchange rates. notes and redeemable preferred stocks. As set out in Note 16 on page 158. The effects of translating income with the U. many structured finance transactions. such that recovery of the carrying amount is deemed unlikely. Hedges of foreign currency exposures include forward foreign currency. are accounted for under the equity method. The Company consolidates subsidiaries in which it holds. • changes in contractual arrangements in a manner that reallocates expected losses and residual returns among the variable interest holders. dollar are included in a separate component of stockholders’ equity along with related hedge and tax effects.S. is a commercial bank and wholly owned subsidiary of Citigroup Inc. to provide information about this entity to shareholders and international regulatory agencies. affiliates. as well as certain loan-backed and structured securities that are subject to prepayment risk. and retail banking products and services. Entities where the Company holds 20% to 50% of the voting rights and/or has the ability to exercise significant influence. Revenues and expenses are translated monthly at amounts that approximate weighted average exchange rates. certain collateralized debt obligations (CDOs). buildings. other than investments of designated venture capital subsidiaries. and are carried at amortized cost.S. 46(R). Along with the VIEs that are consolidated in accordance with these guidelines. Consolidation of Variable Interest Entities (revised December 2003) FIN 46(R).) Variable Interest Entities An entity is referred to as a variable interest entity (VIE) if it meets the criteria outlined in FASB Interpretation No. N. more than 50% of the voting rights or where it exercises control. Consolidation of All Majority-Owned Subsidiaries (SFAS 94). SFAS No. These events include: • additional purchases or sales of variable interests by Citigroup or an unrelated third party. which are: (1) the entity has equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support from other parties. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The Consolidated Financial Statements include the accounts of Citigroup and its subsidiaries (the Company).

Realized gains and losses on sales of commodities inventory are included in Principal transactions on a “first in. Realized gains and losses on sales are included in income primarily on a specific identification cost basis. Loan origination . caps and floors. Securities Borrowed and Securities Loaned Securities borrowing and lending transactions generally do not constitute a sale of the underlying securities for accounting purposes. as set out in Note 16 on page 158. and additional collateral is obtained where appropriate to protect against credit exposure. Changes in fair value of such investments are recorded in earnings. • Venture capital investments held by Citigroup’s private equity subsidiaries that are considered investment companies are carried at fair value with changes in fair value reported in Other revenue. and interest and dividend income on such securities is included in Interest revenue. and derivatives in a net payable position. As described in Note 26 on page 192.fair value that are determined to be other than temporary are recorded in earnings immediately. the Company has elected to apply fair-value accounting to a majority of such transactions. which are described in Note 27 on page 202. warrants. Where the conditions of FIN 39 are met. The Company’s policy is to take possession of securities purchased under agreements to resell. Accounting for Certain Hybrid Financial Instruments (SFAS 155) as set out in Note 27 on page 202. fees paid or received for all securities lending and borrowing transactions are recorded in Interest expense or Interest revenue at the contractually specified rate. currency. Derivatives used for trading purposes include interest rate. accrual of interest income is suspended for investments that are in default or on which it is likely that future interest payments will not be made as scheduled. all trading account assets and liabilities are carried at fair value. As described in Note 26 on page 192. The Company monitors the market value of securities borrowed and loaned on a daily basis with additional collateral received or paid as necessary. residual interests in securitizations and physical commodities inventory. since the Company has elected to apply fair value accounting in accordance with SFAS 159. Physical commodities inventory is carried at the lower of cost or market (LOCOM) with related gains or losses reported in Principal transactions. Any transactions for which fair-value accounting has not been elected are recorded at the amount of cash advanced or received plus accrued interest. are met. “Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements” (FIN 41). Other than physical commodities inventory. Trading Account Assets and Liabilities The Company uses a number of techniques to determine the fair value of trading assets and liabilities. and commodity swap agreements. 123 Securities sold under agreements to repurchase (repos) and securities purchased under agreements to resell (reverse repos) generally do not constitute a sale for accounting purposes of the underlying securities. 39. Repurchase and Resale Agreements Trading account assets include debt and marketable equity securities. amounts recognized in respect of securities borrowed and securities loaned are presented net on the Consolidated Balance Sheet. credit. are also included in Trading account assets. Loans Loans are reported at their outstanding principal balances net of any unearned income and unamortized deferred fees and costs. the Company has elected under SFAS 159 to apply fair value accounting to a number of securities borrowing and lending transactions. Interest income on trading assets is recorded in Interest revenue reduced by interest expense on trading liabilities. equity. first out” basis. Irrespective of whether the Company has elected fair-value accounting. with changes in fair-value reported in earnings. As set out in Note 27 on page 202. certain assets that Citigroup has elected to carry at fair value under SFAS 159. interest paid or received on all repo and reverse repo transactions is recorded in Interest expense or Interest revenue at the contractually specified rate. The Company uses a number of valuation techniques for investments carried at fair value. For investments in fixed-income securities classified as held-to-maturity or available-for-sale. These subsidiaries include entities registered as Small Business Investment Companies and engage exclusively in venture capital activities. As set out in Note 27 on page 202. In addition (as set out in Note 27 on page 202). all of which are described in Note 26 on page 192. as well as certain liabilities that Citigroup has elected to carry at fair value under SFAS 159 or SFAS 155. Derivative asset and liability positions are presented net by counterparty on the Consolidated Balance Sheet when a valid master netting agreement exists and the other conditions set out in FASB Interpretation No. and financial and commodity futures and forward contracts. Where the conditions of FASB Interpretation No. 41. “Offsetting of Amounts Related to Certain Contracts” (FIN 39) are met. The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). repos and reverse repos are presented net on the Consolidated Balance Sheet. • Certain non-marketable equity securities are carried at cost and periodically assessed for other-than-temporary impairment. Revenues generated from trading assets and trading liabilities are generally reported in Principal transactions and include realized gains and losses as well as unrealized gains and losses resulting from changes in the fair value of such instruments. options. the Company uses a discounted cash flow technique to determine the fair value of repo and reverse repo transactions. the Company uses a discounted cash-flow technique to determine the fair value of securities lending and borrowing transactions. With respect to securities borrowed or loaned. Such transactions are recorded at the amount of cash advanced or received plus accrued interest. Irrespective of whether the Company has elected fair-value accounting. • Certain investments in non-marketable equity securities and certain investments that would otherwise have been accounted for using the equity method are carried at fair value. such as loans and purchased guarantees. the Company pays or receives cash collateral in an amount in excess of the market value of securities borrowed or loaned. not yet purchased (short positions). and so are treated as collateralized financing transactions. and so are treated as collateralized financing transactions when the transaction involves the exchange of cash. Trading account liabilities include securities sold. The market value of securities to be repurchased and resold is monitored. derivatives in a receivable position.

the loan is reclassified to held-for-sale. In certain consumer businesses in the U. Corporate Loans Corporate loans represent loans and leases managed by ICG.S. Securities received in exchange for loan claims in debt restructurings are initially recorded at fair value. Unsecured loans (both open. With the exception of certain mortgage loans for which the fair-value option has been elected under SFAS 159. credit card receivables. Loans that are held-for-investment are classified as Loans. unsecured closed-end installment loans are charged off at 120 days past due and unsecured open-end (revolving) loans are charged off at 180 days contractually past due. Impaired corporate loans and leases are written down to the extent that principal is judged to be uncollectible. however. Cash-basis loans are returned to an accrual status when all contractual principal and interest amounts are reasonably assured of repayment and there is a sustained period of repayment performance in accordance with the contractual terms. Lease Financing Transactions Loans include the Company’s share of aggregate rentals on lease financing transactions and residual values net of related unearned income. Unsecured loans in bankruptcy are charged off within 30 days of notification of filing by the bankruptcy court or within the contractual write-off periods. the Company has elected fair value accounting under SFAS 159 and SFAS 155 for certain loans. prime mortgage loans or U. with any write-downs or subsequent recoveries charged to Other revenue. As a general rule. For credit cards. Allowance for Loan Losses Allowance for loan losses represents management’s estimate of probable losses inherent in the portfolio. and interest is thereafter included in earnings only to the extent actually received in cash. Loans secured with non-real-estate collateral are written down to the estimated value of the collateral. Substantially all of the consumer loans sold or securitized by Citigroup are U. credit card receivables are classified at origination as loans-held-for sale to the extent that management does not have the intent to hold the receivables for the foreseeable future or until maturity.S.and closed-end) are charged off at 180 days contractually past due and 180 days from the last payment. at 180 days contractually past due. whichever occurs earlier. Additions to the allowance are made through the provision for credit losses. In CitiFinancial. However. Gains and losses from sales of residual values of leased equipment are included in Other revenue. when the initial intent for holding a loan has changed from held-for-investment to held-for-sale.S. and the related cash flows are included within the cash flows from investing activities category in the Consolidated Statement of Cash Flows on the line Changes in loans. Loans for which the fair value option has not been elected under SFAS 159 or SFAS 155 are classified upon origination or acquisition as either held-for-investment or held-for-sale. Corporate loans are identified as impaired and placed on a cash (non-accrual) basis when it is determined that the payment of interest or principal is doubtful or when interest or principal is 90 days past due. The related cash flows are classified in the Consolidated Statement of Cash Flows in the cash flows from operating activities category on the line Change in loans held-for-sale. Real-estate secured loans (both open. U. with any gain or loss reflected as a recovery or . prime mortgage conforming loans are classified as held-for-sale at the time of origination. at 120 days past due. except when the loan is well collateralized and in the process of collection. When there is doubt regarding the ultimate collectibility of principal. Cash flows related to U. credit card securitization forecast for the three months following the latest balance sheet date is the basis for the amount of such loans classified as held-for-sale.S. secured real estate loans are written down to the estimated value of the property.S. Impaired collateral-dependent loans and leases.. Lease financing transactions represent direct financing leases and also include leveraged leases.fees and certain direct origination costs are generally deferred and recognized as adjustments to income over the lives of the related loans. are written down to the lower of cost or collateral value. Closed-end 124 Corporate and consumer loans that have been identified for sale are classified as loans held-for-sale included in Other assets. This classification is based on management’s intent and ability with regard to those loans. at the earlier of the receipt of title or 12 months in foreclosure (a process that must commence when payments are 120 days contractually past due). The U. prime mortgage business has been to sell all of its loans except for nonconforming adjustable rate loans. Credit losses are deducted from the allowance. As a general rule. Consumer Loans loans secured by non-real-estate collateral are written down to the estimated value of the collateral. these loans are accounted for at the lower of cost or market value. Any interest accrued on impaired corporate loans and leases is reversed at 90 days and charged against current earnings. interest accrual ceases for open-end revolving and closed-end installment and real estate loans when payments are 90 days contractually past due.and closed-end) are written down to the estimated value of the property. at 180 days contractually past due.S. unsecured loans in bankruptcy are charged off when they are 30 days contractually past due. and the entire allowance is available to absorb probable credit losses inherent in the overall portfolio. less costs to sell. The practice of the U. Such loans are carried at fair value with changes in fair value reported in earnings. the Company accrues interest until payments are 180 days past due.S. Interest income on such loans is recorded in Interest revenue at the contractually specified rate.S. but the related cash flows continue to be reported in cash flows from investing activities in the Consolidated Statement of Cash Flows on the line Proceeds from sales and securitizations of loans. credit card loans classified as held-for-sale at origination or acquisition are reported in the cash flows from operating activities category on the line Change in loans held-for-sale. but in no event can these loans exceed 360 days contractually past due. Loans Held-for-Sale Consumer loans represent loans and leases managed by the Global Cards and Consumer Banking businesses and GWM. less costs to sell. where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment. Unearned income is amortized under a method that results in an approximate level rate of return when related to the unrecovered lease investment. U. less costs to sell. net of unearned income on the Consolidated Balance Sheet. less costs to sell. all cash receipts are thereafter applied to reduce the recorded investment in the loan. As set out in Note 27 on page 202. and subsequent recoveries are added. Attribution of the allowance is made for analytical purposes only.

the Company discontinued the application of SFAS 133 fair-value hedge accounting. the secondary market value of the loan and the fair value of collateral less disposal costs. Mortgage Servicing Rights (MSRs) Intangible assets—including core deposit intangibles. delinquent. and portfolio concentrations. In the Corporate portfolios. as appropriate. geographic. present value of future profits. are not amortized and are subject to annual impairment tests. historical and forecasted write-offs. as of January 1. other customer relationships. an impairment is recognized if the carrying amount is not recoverable and exceeds the fair value of the Intangible asset. The MSR valuation allowance at the date of adoption of SFAS 156 was written off against the recorded value of the MSRs. valuation allowances are determined for impaired smallerbalance homogenous loans whose terms have been modified due to the borrowers’ financial difficulties and it was determined that a concession was granted to the borrower. The remaining portion. the prospects for support from any financially responsible guarantors and. principal forgiveness and/or term extensions. loan underwriting criteria. These analyses consider historical and project default rates and loss severities. including historical credit losses. 2006.S. including trends in internally risk-rated exposures. resources. Management also considers overall portfolio indicators. In addition. which are included in Intangible assets in the Consolidated Balance Sheet. non-homogeneous exposures representing significant individual credit exposures are evaluated based upon the borrower’s overall financial condition. on any business dispositions. non-performing. An impairment exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. which was hedged with instruments that did not qualify for hedge accounting under SFAS 133. but excluding MSRs—are amortized over their estimated useful lives. credit approvals. Prior to 2006. revolving credit. each portfolio of smaller-balance. classified exposures. the calculation of amortization and the assessment of impairment for the MSRs. including credit limit setting and compliance. and most other consumer loans—is collectively evaluated for impairment.e. Intangible assets deemed to have indefinite useful lives. Any excess of the carrying value of the capitalized servicing rights over the fair value by stratum was recognized through a valuation allowance for each stratum and charged to the provision for impairment on MSRs. and geographic. management considers the current business strategy and credit process. Allowance for Unfunded Lending Commitments or when the Company sells or securitizes loans acquired through purchase or origination and retains the right to service the loans. the realizable value of any collateral. only the portion of the MSR portfolio that was hedged with instruments qualifying for hedge accounting under SFAS 133 was recorded at fair value. Goodwill is allocated to the business disposed of based on the ratio of the fair value of the business disposed of to the fair value of the reporting unit. Goodwill Goodwill represents an acquired company’s acquisition cost over the fair value of net tangible and intangible assets acquired. Reserves are established for these loans based upon an estimate of probable losses for the individual loans deemed to be impaired. purchased credit card relationships. whereby Goodwill is allocated to the Company’s reporting units and an impairment is deemed to exist if the carrying value of a reporting unit exceeds its estimated fair value. Goodwill is subject to annual impairment tests. internal risk ratings. based on the relative fair values at the date of securitization. The allowance for loan losses attributed to these loans is established via a process that estimates the probable losses inherent in the portfolio based upon various analyses. among other items. in which historical delinquency and credit loss experience is applied to the current aging of the portfolio. including current developments within those segments. industry. deferred tax assets. and payment record. equity-method investments. was accounted for at the lower of cost or market. which were believed to be the predominant risk characteristics of the Company’s servicing portfolio. interest and fees receivable. trends in volumes and terms of loans. In addition. and are subsequently accounted for as securities available-for-sale. and a review of industry. For other Intangible assets subject to amortization. and other intangible assets. and economic. Upon electing the fair-value method of accounting for its MSRs. the present value of the expected future cash flows discounted at the loan’s contractual effective rate. Furthermore. Additional information on the Company’s MSRs can be found in Note 23 to the Consolidated Financial Statements on page 175.. and other environmental factors. Impairment of MSRs was evaluated on a disaggregated basis by type (i. For Consumer loans. together with analyses that reflect current trends and conditions. including lending policies and procedures. product and other environmental factors. MSRs in the U. Other Assets and Other Liabilities Mortgage servicing rights (MSRs). with changes in value recorded in current earnings. Such modifications may include interest rate reductions. fixed rate or adjustable rate) and by interest-rate band. the credit process. mortgage and student loan classes of servicing rights are accounted for at fair value.charge-off to the allowance. The allowance for credit losses attributed to the remaining portfolio is established via a process that estimates the probable loss inherent in the portfolio based upon various analyses. are recognized as assets when purchased 125 Other assets includes. homogeneous loans—including consumer mortgage. With the Company’s electing to early-adopt SFAS 156. an evaluation of overall credit quality. larger-balance. and classified loans. loans held-for-sale. This estimate considers all available evidence including. Accounting for Servicing of Financial Assets. This reserve is classified on the balance sheet in Other liabilities. Intangible Assets A similar approach to the allowance for loan losses is used for calculating a reserve for the expected losses related to unfunded loan commitments and standby letters of credit. primarily certain asset management contracts and trade names. These include migration analysis. These allowances are determined by comparing estimated cash flows of the loans discounted at the loans’ original contractual interest rates to the carrying value of the loans. installment. MSRs were amortized using a proportionate cash flow method over the period of the related net positive servicing income to be generated from the various portfolios purchased or loans originated. and loan workout procedures. geographical. premises and . if appropriate. cash-basis loans. Servicing rights retained in the securitization of mortgage loans were measured by allocating the carrying value of the loans between the assets sold and the interests retained. Management also considers overall portfolio indicators.

and who reaps the rewards and bears the risks of the entity. To qualify as a hedge. Retained interests in securitized mortgage loans and student loans are classified as Trading account assets. Interests in the securitized and sold assets may be retained in the form of subordinated interest-only strips. and purchased option positions. These end-user derivatives are carried at fair value in Other assets or Other liabilities. typically using quantitative measures of correlation with hedge ineffectiveness measured and recorded in current earnings. Other types of securitized assets include corporate debt instruments (in cash and synthetic form) and student loans. unfunded lending commitments. and other matters. accrued expenses and other payables. net of a valuation allowance for selling costs and net declines in value as appropriate. The Company values its securitized retained interests at fair value using quoted market prices. Second. Additional information on the Company’s securitization activities can be found in Note 23 to the Consolidated Financial Statements on page 175. who controls the securitization entity. and other receivables. However. and reserves for legal. a derivative must be highly effective in offsetting the risk designated as being hedged. a decision must be made as to whether that transfer is considered a sale under U. deferred tax liabilities. and the Company may not have an option or any obligation to reacquire the assets. detailing the particular risk management objective and strategy for the hedge. as is a majority of the retained interests in securitized credit card receivables. prior to January 1. the assets will remain on the Company’s Consolidated Balance Sheet with an offsetting liability recognized in the amount of proceeds received. 2006. the Company consolidates the VIE if it is the primary beneficiary. First. For a transfer to be eligible for sale accounting. when the transfer would be considered to be a financing rather than a sale. end-user derivatives in a net payable position. including how much of the entity’s ownership is in the hands of third-party investors. as well as how effectiveness will be assessed and ineffectiveness measured. spread accounts. internally calculated fair values of retained interests are compared to recent sales of similar assets. these models estimate the fair value of these retained interests by determining the present value of expected future cash flows. including prepayment speeds. and the sale proceeds are recognized as the Company’s liability. Other liabilities includes. when observable inputs are not available. the assets are removed from the Company’s Consolidated Balance Sheet. the securitization entity is not consolidated by the seller of the transferred assets. See Note 23 to the Consolidated Financial Statements on page 175. The hedge relationship must be formally documented at inception. but servicing rights are included in Intangible assets. or financial models that incorporate observable and unobservable inputs. If the conditions for sale are not met. which includes the item and risk that is being hedged and the derivative that is being used. a determination must be made as to whether the securitization entity would be included in the Company’s Consolidated Financial Statements. Accordingly. loans are adjusted. If the securitization entity’s activities are sufficiently restricted to meet accounting requirements to be a qualifying special purpose entity (QSPE). A legal opinion on a sale is generally obtained for complex transactions or where the Company has continuing involvement with assets transferred or with the securitization entity. either directly or through the use of derivative financial products. More specifically. futures. In addition. repossessed assets. were allocated between the loans sold and the retained interests based on their relative fair values at the date of sale. For each securitization entity with which it is involved. to the estimated fair value of the underlying collateral and transferred to repossessed assets. Repossessed Assets Upon repossession. among other items. including interest rate swaps. those opinions must state that the asset transfer is considered a sale and that the assets transferred would not be consolidated with the Company’s other assets in the event of the Company’s insolvency. it no longer qualifies as a hedge and 126 . using modeling techniques that incorporate management’s best estimates of key assumptions. if such positions are actively traded. Generally Accepted Accounting Principles (GAAP). which is not in securitized form.S. if available. in the case where Citigroup originated or owned the financial assets transferred to the securitization entity. This is reported in Other assets. the Company makes a determination of whether the entity should be considered a subsidiary of the Company and be included in its Consolidated Financial Statements or whether the entity is sufficiently independent that it does not need to be consolidated. 2006. and servicing rights. the assets must have been isolated from the Company. the Company retains a seller’s interest in the credit card receivables transferred to the trusts. Transfers of Financial Assets For a transfer of financial assets to be considered a sale. Securitizations The Company primarily securitizes credit card receivables and mortgages. The effectiveness of these hedging relationships is evaluated on a retrospective and prospective basis. restructuring. the purchaser must have the right to sell the assets transferred or the purchaser must be a QSPE. credit losses and discount rates. forwards. Certain other retained interests are recorded as available-for-sale investments. For all other securitization entities determined not to be VIEs in which Citigroup participates. Risk Management Activities—Derivatives Used for Non-Trading Purposes The Company manages its exposures to market rate movements outside its trading activities by modifying the asset and liability mix. taxes. as well as foreignexchange contracts. even in bankruptcy or other receivership. the transferred assets are removed from the Company’s Consolidated Balance Sheet with a gain or loss recognized. since January 1. In credit card securitizations. minority interest. Only securitization entities controlled by Citigroup are consolidated. servicing rights are initially recorded at fair value. the seller’s interest is carried on a historical cost basis and classified as Consumer loans. If the securitization entity is determined to be a VIE. subordinated tranches. Gains are recognized at the time of securitization and are reported in Other revenue. Gains or losses on securitization and sale depend in part on the previous carrying amount of the loans involved in the transfer and. If it is a sale. Alternatively. a consolidation decision is made by evaluating several factors. if necessary. There are two key accounting determinations that must be made relating to securitizations.equipment. If these sale requirements are met. If a hedge relationship is found to be ineffective. the assets remain on the Consolidated Balance Sheet. the transfer is considered to be a secured borrowing. end-user derivatives in a net receivable position.

These changes in fair value will be included in earnings of future periods when the hedged cash flows come into earnings. Employee Benefits Expense Employee benefits expense includes current service costs of pension and other postretirement benefit plans. 2007. the amortization of restricted stock awards and costs of other employee benefits. contributions and unrestricted awards under other employee plans. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. 123. the Company must make judgments and interpretations about the application of these inherently complex tax laws. representing hedge ineffectiveness. Citigroup’s fair value hedges are primarily hedges of fixed-rate long-term debt. It is 127 . with changes in value included in Principal transactions or Other revenue. the Company recognizes compensation expense over the related service period based on the grant date fair value of the stock award. For fair-value hedges. if the hedged forecasted transaction is no longer likely to occur. rather than qualifying for SFAS 133 hedge accounting. which replaced the existing SFAS 123 and APB 25. consistent with the level at which market risk is managed. both domestic and foreign. However. and available-for-sale securities. on January 1. Disputes over interpretations of the tax laws may be subject to review/ adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit. in which derivatives hedge the fair value of assets or liabilities. changes in their fair values are immediately included in Other revenue. the accounting treatment will similarly depend on the effectiveness of the hedge. Accounting for Stock-Based Compensation (SFAS 123). Citigroup periodically evaluates its hedging strategies in other areas and may designate either a qualifying hedge or an economic hedge. For cash-flow hedges. the Company adopted SFAS No. liability or forecasted transaction may be an individual item or a portfolio of similar items. but are reported in Accumulated other comprehensive income (loss). Citigroup often uses economic hedges when qualifying for hedge accounting would be too complex or operationally burdensome. any changes in fair value of the end-user derivative are immediately reflected in Other revenue. Citigroup’s cash flow hedges primarily include hedges of floating and fixed rate debt. These are expected to. The effective portion of the change in fair value of the derivative. examples are hedges of the credit risk component of commercial loans and loan commitments. and generally do. the end-user derivative is terminated or transferred to the trading account. are recognized in Other revenue. the hedge accounting treatment described in the paragraphs above is no longer applied. On January 1. the effective portion of the changes in the derivatives’ fair values will not be included in current earnings. See “Accounting Changes” on page 129. Share-Based Payment (SFAS 123(R)). changes in the fair value of derivatives are reflected in Other revenue. Income Taxes The Company is subject to the income tax laws of the U. Commissions. Stock-Based Compensation Under SFAS No. The Company must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. To the extent these derivatives are effective in offsetting the variability of the hedged cash flows. the accounting treatment depends on the effectiveness of the hedge. is reflected in current earnings. Underwriting and Principal Transactions Commissions. after considering the relative cost and benefits. Economic hedges are also employed when the hedged item itself is marked to market through current earnings.and fixed-rate assets. For net investment hedges in which derivatives hedge the foreign currency exposure of a net investment in a foreign operation. including any forward premium or discount. but are subject to various limits and controls. which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. 123 (revised 2004).any gains or losses attributable to the derivatives. any changes in fair-value of the end-user derivative remain in Accumulated other comprehensive income (loss) and are included in earnings of future periods when the hedged cash flows impact earnings. its states and municipalities and those of the foreign jurisdictions in which the Company operates. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. See “Accounting Changes” on page 129. “Accounting for Uncertainty in Income Taxes” (FIN 48). liabilities or forecasted transactions. are also carried at fair value. For those hedge relationships that are terminated or when hedge designations are removed. which are accrued on a current basis. is reflected in Accumulated other comprehensive income (loss) as part of the foreign currency translation adjustment. For fair value hedges. 2006. such as hedges of commitments to originate one-to-four-family mortgage loans to be held-for-sale and mortgage servicing rights (MSRs). Instead. See Note 11 to the Consolidated Financial Statements on page 152 for a further description of the Company’s provision and related income tax assets and liabilities. End-user derivatives that are economic hedges. The Company treats interest and penalties on income taxes as a component of Income tax expense. any changes in the fair value of the hedged item remain as part of the basis of the asset or liability and are ultimately reflected as an element of the yield. Deferred taxes are recorded for the future consequences of events that have been recognized for financial statements or tax returns. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. together with changes in the fair value of the related hedged item. excluding restricted stock. The foregoing criteria are applied on a decentralized basis. For cash flow hedges. 48. Earnings per Share Earnings per share is computed after recognition of preferred stock dividend requirements. offset each other. The underlying asset. as well as rollovers of short-term fixed rate liabilities and floating-rate liabilities.. Any net amount. underwriting and principal transactions revenues and related expenses are recognized in income on a trade-date basis. In establishing a provision for income tax expense. To the extent these derivatives are not effective. The Company implemented FASB Interpretation No. based upon enacted tax laws and rates. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised. as well as subsequent changes in fair value.S. in which derivatives hedge the variability of cash flows related to floating.

These transactions. Cash Flows Cash equivalents are defined as those amounts included in cash and due from banks. “Accounting for Uncertainty in Income Taxes. See Note 26 on page 192 for further discussions on estimates used in the determination of fair value. Moreover. and FIN 48. which are primarily short-term in nature. Such estimates are used in connection with certain fair value measurements. Accounting for Income Taxes. actual amounts or results could differ from those estimates. Accounting by Creditors for Impairment of a Loan. impairments of goodwill and other intangible assets. collateralized financing transactions. Related Party Transactions The Company has related party transactions with certain of its subsidiaries and affiliates. Current market conditions increase the risk and complexity of the judgments in these estimates. 109. derivative trading. provisions for potential losses that may arise from credit-related exposures and probable and estimable losses related to litigation and regulatory proceedings in accordance with SFAS No. Cash flows from risk management activities are classified in the same category as the related assets and liabilities. and tax reserves in accordance with SFAS No. 128 . Use of Estimates Management must make estimates and assumptions that affect the Consolidated Financial Statements and the related footnote disclosures.” and SFAS 114. charges for operational support and the borrowing and lending of funds and are entered into in the ordinary course of business. The Company also uses estimates in determining consolidation decisions for special purpose entities as discussed in Note 23 on page 175. While management makes its best judgment.computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and the shares issued under the Company’s Capital Accumulation Program and other restricted stock plans. include cash accounts. estimates are significant in determining the amounts of other-than-temporary impairments. margin accounts. Accounting for Contingencies. 5.

2008 and applied prospectively. These two types of inputs create the following fair value hierarchy: . The impact of adopting this FSP is not expected to be material. but rather clarifies the principles in SFAS 157. Adoption of SFAS 157—Fair Value Measurements In January 2009. 99-20 with that of FASB Statement 115. which was the Company’s prior accounting practice. SAB 109 was applied prospectively to loan commitments issued or modified in fiscal quarters beginning after December 15. while unobservable inputs reflect the Company’s market assumptions. the related fair value. 2009. The FSP was effective upon issuance and did not have a material impact. (3) the financial asset is readily obtainable in the marketplace and the transfer and repurchase financing are executed at market rates.ACCOUNTING CHANGES Sale with Repurchase Financing Agreements In February 2008. The FSP confirms a joint statement by the FASB and the SEC in which they stated that companies can use internal assumptions when relevant market information does not exist and provides an example of how to determine the fair value for a financial asset in a non-active market. “Amendments to the Impairment Guidance of EITF Issue 99-20. This FSP requires the disclosure of the maximum potential amount of future payments. 2007. 161. the FASB issued FSP EITF 99-20-1. The FASB emphasized that the FSP is not new guidance. The impact of adopting this SAB was not material. The FSP requires the recognition of the transfer and the repurchase agreement as one linked transaction. The FSP eliminates the requirement to consider market participants’ views of cash flows of a security in determining whether or not impairment has occurred. Enhanced Disclosures of Credit Derivative Instruments and Guarantees This FSP aligns the impairment model of Issue No. and the current status of the payment/performance risk for certain guarantees and credit derivatives sold. SFAS 115 requires entities to assess whether it is probable that the holder will be unable to collect all amounts due according to the contractual terms. as of January 1. expands disclosure requirements around fair value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. and Clarification of the Effective Date of FASB Statement No. Accounting for Certain Investments in Debt and Equity Securities. the FASB issued FSP FAS 133-1 and FIN 45-4. and (2) other written loan commitments that are accounted for at fair value through earnings under SFAS 159’s fair-value election. Revisions resulting from a change in the valuation technique or its application should be accounted for prospectively as a change in accounting estimate. Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. and do not necessarily have to rely on broker quotes. this amendment did not affect the Company’s consolidated financial statements. unless all of the following criteria are met: (1) the initial transfer and the repurchase financing are not contractually contingent on one another. However. (2) the initial transferor has full recourse upon default.” to achieve more consistent determination of whether other-than-temporary impairments of available-for-sale or held-to-maturity debt securities have occurred.” This amendment clarified the acceptability of the existing market practice of offsetting the amounts recorded for cash collateral receivables or payables against the fair value amounts recognized for net derivative positions executed with the same counterparty under the same master netting agreement. the FASB issued FSP FAS 157-3. the Company adopted Staff Accounting Bulletin No. Fair Value Measurements (SFAS 157). Measurement of Impairment for Certain Securities During April 2007. The FSP is effective for interim and annual reporting periods ending after December 15. SAB 109 supersedes SAB 105. 133 and FASB Interpretation No. 129 The Company elected to early-adopt SFAS No. which applied only to derivative loan commitments and allowed the expected future cash flows related to the associated servicing of the loan to be recognized only after the servicing asset had been contractually separated from the underlying loan by sale or securitization of the loan with servicing retained.” The FSP clarifies that companies can use internal assumptions to determine the fair value of a financial asset when markets are inactive. “Amendment of FASB Interpretation No. 2007. This FSP provides implementation guidance on whether a security transfer with a contemporaneous repurchase financing involving the transferred financial asset must be evaluated as one linked transaction or two separate de-linked transactions. 157. “Offsetting of Amounts Related to Certain Contracts. SEC Staff Guidance on Loan Commitments Recorded at Fair Value through Earnings In September 2008. SAB 109 applies to two types of loan commitments: (1) written mortgage loan commitments for loans that will be held-for-sale when funded that are marked to market as derivatives under SFAS 133 (derivative loan commitments). 2008. Netting of Cash Collateral against Derivative Exposures In October 2008.” which requires additional disclosures for sellers of credit derivative instruments and certain guarantees. Observable inputs reflect market data obtained from independent sources. SFAS 157 defines fair value. Determining Fair Value in Inactive Markets On January 1. “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. The impact of adopting this FSP was not material. The FSP becomes effective for Citigroup on January 1. 39” (FSP FIN 39-1) modifying certain provisions of FIN 39. 109 (SAB 109). the FASB issued FSP FIN 39-1. 45. the FASB issued FASB Staff Position (FSP) FAS 140-3. and the repurchase agreement’s price is fixed and not at fair value. which requires that the fair value of a written loan commitment that is marked-to-market through earnings should include the future cash flows related to the loan’s servicing rights. The scope of this FSP is limited to transfers and subsequent repurchase financings that are entered into contemporaneously or in contemplation of one another. “Determining Fair Value of Financial Assets When the Market for That Asset is Not Active. Thus. the fair value measurement of a written loan commitment still must exclude the expected net cash flows related to internally-developed intangible assets (such as customer relationship intangible assets). and (4) the maturity of the repurchase financing is before the maturity of the financial asset.

The following table shows the effects of adopting SFAS 158 at December 31. Employer’s Accounting for Defined Benefit Pensions and Other Postretirement Benefits (SFAS 158). 2007 of making these changes was a gain of $250 million after-tax ($402 million pretax). This hierarchy requires the Company to use observable market data.147 $ 1.05 per diluted share.620 $ — After application of SFAS 158 $ 2. as of January 1. which was recorded in the first quarter of 2007 earnings within the S&B business. 2007. primarily as a result of the timing of tax payments. 2007 retained earnings of $99 million. net Accumulated other comprehensive income (loss) Total stockholders’ equity $ 3.430 (1) Adjustment to initially apply SFAS 158.647) (1) Other assets Prepaid benefit cost Other liabilities Accrued benefit liability Deferred taxes. derivatives) while having to measure the assets and liabilities being economically hedged using an accounting method other than fair value. 2007 retained earnings of $75 million. The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). Citigroup recorded the funded status of each of its defined benefit pension and postretirement plans as an asset or liability on its Consolidated Balance Sheet with a corresponding offset. the Company early-adopted SFAS 159.• Level 1–Quoted prices for identical instruments in active markets. recorded in Accumulated other comprehensive income (loss) within Stockholders’ equity. Since changes in the timing and/or amount of these tax benefits may have a significant effect on the cash flows of a lease transaction. Under SFAS 157. The adoption of SFAS 159 resulted in a decrease to January 1. This decrease to retained earnings will be recognized in earnings over the remaining lives of the leases as tax benefits are realized. the Company adopted SFAS No.783 In conjunction with the adoption of SFAS 157. • Level 2–Quoted prices for similar instruments in active markets. Previous accounting guidance allowed the use of block discounts in certain circumstances and prohibited the recognition of day-one gains on certain derivative trades when determining the fair value of instruments not traded in an active market. In millions of dollars Adjustments $ (534) $ 2. Fair Value Option (SFAS 159) Under the SFAS 159 transition provisions. Previously. Leveraged Leases On January 1. 2007 retained earnings of $148 million. the Company adopted FSP FAS 13-2.647 billion. net of taxes. When and if these markets become liquid.687 $ (3. net of taxes. “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leverage Lease Transaction” (FSP 13-2). when available. observable inputs may not always be available. SFAS 157 also precludes the use of block discounts for instruments traded in an active market. See Note 9 on page 144. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that resulted prior to its adoption from being required to apply fair value accounting to certain economic hedges (e. in accordance with FSP 13-2. 158. and model derived valuations in which all significant inputs and significant value drivers are observable in active markets. or $0. For example.653 $ (2. In accordance with this standard. resulting in an after-tax decrease in equity of $1. Leveraged leases can provide significant tax benefits to the lessor. the election is made at the acquisition of a financial asset. and to minimize the use of unobservable inputs when determining fair value. which provides guidance regarding changes or projected changes in the timing of cash flows relating to income taxes generated by a leveraged lease transaction.g. Accounting for Defined Benefit Pensions and Other Postretirement Benefits As of December 31. After the initial adoption.086 $ 2.147 $ 4. certain markets became illiquid.034 $(1.647) (1) $(1.053) $121. a financial liability. the valuation of these exposures will use the related observable inputs available at that time from these markets. For some products or in certain market conditions. 2007. The cumulative effect at January 1. 2006: Before application of SFAS 158 $ 2. 2006.700) $119. and requires the recognition of trade-date gains after consideration of all appropriate valuation adjustments related to certain derivative trades that use unobservable inputs in determining their fair value. The adoption of FSP 13-2 resulted in a decrease to January 1. SFAS 159 provides an option on an instrument-by-instrument basis for most financial assets and liabilities to be reported at fair value with changes in fair value reported in earnings. or a firm commitment and it may not be revoked.. The adoption of SFAS 157 has also resulted in some other changes to the valuation techniques used by Citigroup when determining fair value. • Level 3–Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. 2007 with future changes in value reported in earnings. 130 . Citigroup is required to take into account its own credit risk when measuring the fair value of derivative positions as well as the other liabilities for which fair value accounting has been elected under SFAS 155. during the market dislocations that started in the second half of 2007. The cumulative effect of these changes resulted in an increase to January 1. Citigroup did not recalculate the tax benefits if only the timing of cash flows had changed. most notably the changes to the way that the probability of default of a counterparty is factored in and the elimination of a derivative valuation adjustment which is no longer necessary under SFAS 157. will be required to perform a recalculation of a leveraged lease when there is a change or projected change in the timing of the realization of tax benefits generated by that lease. quoted prices for identical or similar instruments in markets that are not active. Accounting for Certain Hybrid Financial Instruments and SFAS 159. the Company elected to apply fair value accounting to certain financial instruments held at January 1. a lessor. and some key observable inputs used in valuing certain exposures were unavailable. The Fair Value Option for Financial Assets and Financial Liabilities. which were previously applied to large holdings of publicly traded equity securities. 2006 on individual line items in the Consolidated Balance Sheet at December 31.

The program provides that employees who meet certain age plus years-of-service requirements (retirement-eligible employees) may terminate active employment and continue vesting in their awards provided they comply with specified non-compete provisions. 123 (revised 2004). generally have three. For example. For stock options. 2006. 2006. primarily on a prospective basis. 156. the Company began to recognize compensation expense for restricted or deferred stock awards net of estimated forfeitures. which replaced the existing SFAS 123 and APB 25. Accounting for Servicing of Financial Assets (SFAS 156).or four-year vesting periods and six-year terms. Accounting for Stock Issued to Employees. it permits a one-time irrevocable election to remeasure each class of servicing rights at fair value. 2006. See Note 8 to the Company’s Consolidated Financial Statements on page 140. 2003 (the date the Company adopted SFAS 123). 2006. The Company has elected fair value accounting for its mortgage and student loan classes of servicing rights. hybrid financial instruments—such as structured notes containing embedded derivatives that otherwise would require bifurcation. the majority of management options granted since 2005 were due to stock option elections and carried the same vesting period as the restricted or deferred stock awards in lieu of which they were granted (ratably. The impact to 2007 was $467 million ($290 million after tax) for awards granted in January 2008. the Company elected to early-adopt. Under CAP. Accounting for Certain Hybrid Financial Instruments (SFAS 155). an offsetting increase to stockholders’ equity is recorded equal to the amount of compensation expense. however. Options granted in 2003 and thereafter do not have a reload feature. 2003 (and subsequent reload options stemming from such grants) retain a reload feature. reload options received upon the exercise of options granted prior to January 1. 131 . The classes of servicing rights are identified based on the availability of market inputs used in determining their fair values and the methods for managing their risks. Beginning January 1. This pronouncement requires all servicing rights to be initially recognized at fair value. In addition. That expense equaled the remaining unvested portion of the grant date fair value of those stock options. over four years). the compensation cost is determined using option pricing models intended to estimate the fair value of the awards at the grant date. Pursuant to a stock ownership commitment. The most significant is the Capital Accumulation Program (CAP). the Company adopted SFAS No. SFAS 123(R) requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period (which is generally equal to the vesting period). The impact of adopting this standard was not material. The changes in fair value are recorded in current earnings. the effects of forfeitures were recorded as they occurred. In accordance with this standard. in January 2005. as well as certain interest-only instruments—may be accounted for at fair value if the Company makes an irrevocable election to do so on an instrument-by-instrument basis. Accounting for Certain Hybrid Financial Instruments On January 1. unless participants elect to receive all or a portion of their award in the form of stock options. The Company maintains a number of incentive programs in which equity awards are granted to eligible employees. senior executives are generally required to retain 75% of the shares they own and acquire from the Company over the term of their employment. with the changes in fair value being recorded in current earnings. the Company grants deferred and restricted shares to eligible employees. The impact to 2006 was a charge of $648 million ($398 million after tax) for the immediate expensing of awards granted to retirement-eligible employees in January 2006. Subsequent to initial recognition. Under SFAS 123(R). 2003 is restricted for a two-year period. Earnings per share dilution is recognized as well.Stock-Based Compensation On January 1. Thus. reduced by forfeitures. Share-Based Payment (SFAS 123(R)). Accounting for Servicing of Financial Assets On January 1. and to record expense based on that fair value reduced by expected forfeitures. In adopting SFAS 123(R). Citigroup recorded incremental expense for stock options granted prior to January 1. 155. SFAS No. 2003. Previously. Stock options granted since January 1. The Company adopted this standard by using the modified prospective approach. the sale of underlying shares acquired upon the exercise of options granted since January 1. Awards granted to retirement-eligible employees after the adoption of SFAS 123(R) must be either expensed on the grant date or accrued in the year prior to the grant date. For awards granted to retirement-eligible employees prior to the adoption of SFAS 123(R). and $824 million ($526 million after tax) for the accrual of the awards that were granted in January 2007. The Company has made changes to various stock-based compensation plan provisions for future awards. The impact to 2008 was $110 million ($68 million after tax) for awards granted in January 2009. the Company has been and will continue to amortize the compensation cost of these awards over the full vesting periods. the Company largely moved from granting stock options to granting restricted and deferred stock awards. The impact of adopting this standard was not material. SFAS 123(R) requires companies to measure compensation expense for stock options and other share-based payments based on the instruments’ grant date fair value. the Company elected to early-adopt SFAS No.

noncontractual contingencies that do not meet the more-likelythan-not criteria will continue to be recognized when they are probable and reasonably estimable. Upon adoption. on an annual basis. the FASB issued Statement No. representational faithfulness. Fair Value Disclosures about Pension Plan Assets In December 2008. Loss-Contingency Disclosures In June 2008. This Statement replaces SFAS 141. unvested share-based payment awards that contain nonforfeitable rights to dividends will be considered to be a separate The FASB has issued an exposure draft of a proposed standard that would eliminate Qualifying Special Purpose Entities (QSPEs) from the guidance in SFAS 140. partners. the FASB issued an exposure draft proposing expanded disclosures regarding loss contingencies accounted for under FASB Statement No. with subsequent changes in fair value reflected in earnings.” The FSP will be effective for the Company on January 1. the FASB issued FSP EITF 03-6-1. SFAS 141(R) is effective for Citigroup on January 1. the FASB also issued a revised Exposure Draft of a proposed amendment to FASB Statement No. 2009. and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. this change may have a significant impact on Citigroup’s consolidated financial statements as the Company may lose sales treatment for certain assets previously sold to a QSPE. but would have no effect on the Consolidated Balance Sheet or Statement of Income. The Company is currently evaluating the impact of these changes. (2) stock consideration will be measured based on the quoted market price as of the acquisition date instead of the date the deal is announced. and is applied prospectively. “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. Noncontrolling Interests in Consolidated Financial Statements (SFAS 160). 5. SFAS 160 is effective for Citigroup on January 1.FUTURE APPLICATION OF ACCOUNTING STANDARDS Business Combinations In December 2007. if it is issued in its current form. when a subsidiary is deconsolidated. Early application is not allowed. and goodwill is recorded as if a 100% interest was acquired. and (4) acquirer will record a 100% step-up to fair value for all assets and liabilities. the FASB issued Statement No. (3) contingent consideration arising from contractual and noncontractual contingencies that meet the more-likely-than-not recognition threshold will be measured and recognized as an asset or liability at fair value at the acquisition date using a probability-weighted discounted cash flows model.” Under the FSP. Business Combinations. 141(revised).392 billion of noncontrolling interests will be reclassified from Other liabilities to Stockholders’ equity. which establishes standards for the accounting and reporting of noncontrolling interests in subsidiaries (previously called minority interests) in consolidated financial statements and for the loss of control of subsidiaries. The disclosures about plan assets required by this FSP are effective for fiscal years ending after December 15. including the minority interest portion. The Exposure Draft does not contain an effective date. the FASB issued FSP FAS 132(R)-1. any retained noncontrolling equity investment in the former subsidiary must be measured at fair value at the date of deconsolidation. $2. Business Combinations (SFAS 141(R)). Disclosures about Derivative Instruments and Hedging Activities. which is designed to improve the relevance. 161. The proposed effective date is December 31. This proposed amendment reaffirms the requirements of FSP EITF 03-6-1 for basic EPS and also changes the calculation of diluted EPS. The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of the remaining investment. This proposal increases the number of loss contingencies subject to disclosure and requires substantial quantitative and qualitative information to be provided about those loss contingencies. While the proposed standard has not been finalized. 2009. 160. 2009 and will require restatement of all prior periods presented. SFAS 160 requires that the equity interest of noncontrolling shareholders. rather than the previous carrying amount of that retained investment. The most significant changes in SFAS 141(R) are: (1) acquisition costs and restructuring costs will now be expensed. Elimination of QSPEs and Changes in the FIN 46(R) Consolidation Model In June 2008. based on the fair value disclosure requirements of SFAS 157. or other equity holders in subsidiaries be presented as a separate item in stockholders’ equity. and SFAS 141(R). Additional Disclosures for Derivative Instruments In December 2007. The standard will be effective for all of the Company’s interim and annual financial statements beginning with the first quarter of 2009. SFAS 141(R) retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. The standard expands the disclosure requirements for derivatives and hedged items and has no impact on how Citigroup accounts for these instruments. an amendment to SFAS 133 (SFAS 161). 2009. After the initial adoption. The standard requires enhanced disclosures about derivative instruments and hedged items that are accounted for under SFAS 133 and related interpretations. and for certain transfers of portions 132 . the FASB issued SFAS No. 2009. SFAS 141(R) also retains the guidance in SFAS 141 for identifying and recognizing intangible assets separately from goodwill.” This FSP requires that information about plan assets be disclosed. rather than as a liability. “Employers’ Disclosures about Postretirement Benefit Plan Assets. As of January 1. Accounting for Contingencies. Noncontrolling Interests in Subsidiaries class of common stock and will be included in the basic EPS calculation using the “two-class method. Citigroup would be required to separate plan assets into the three fair value hierarchy levels and provide a rollforward of the changes in fair value of plan assets classified as Level 3. Earnings per Share. 128. as well as for certain future sales. 2009. while promoting the international convergence of accounting standards. In August 2008. Revisions to the Earnings per Share Calculation In March 2008. This proposed amendment seeks to simplify the method of calculating EPS. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

and is not expected to have a material impact.e. First. the FASB ratified the consensus reached by the EITF on Issue 07-5. an acquired defensive asset shall be accounted for as a separate unit of accounting (i. Derivative contracts on a company’s own stock may be accounted for as equity instruments. The existing rules require reconsideration only when specified reconsideration events occur.” Issue 08-4 provides transition guidance for those conforming changes and is effective for Citigroup’s financial statements issued after January 1. 2009. “Consolidation of Variable Interest Entities” [FIN 46(R)]. 98-5 In June 2008. “Equity Method Investment Accounting Considerations” (Issue 08-6). the FASB ratified the consensus reached by the EITF on Issue 08-4. FASB is currently redeliberating these proposed standards. Share issuance by an investee shall be accounted for as if the equity method investor had sold a proportionate share of its investment. or if the instrument contains a feature (such as a leverage factor) that increases exposure to those variables. has transferred assets and received sales treatment were approximately $822. As of December 31. we expect to consolidate only certain of the VIEs and QSPEs. 2009.1 billion. “Transition Guidance for Conforming Changes to Issue No. According to Issue 08-7.” and SFAS 150. However. 46 (Revised December 2003). Finally. with gain or loss recognized in earnings. 98-5 to Certain Convertible Instruments. and is not expected to have a material impact. which was expected to be effective for fiscal years beginning on or after December 15. acting as principal. “Clarification of the Scope of the Audit and Accounting Guide for Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (SOP 07-1). In addition. therefore. “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios. Issue 08-7 is effective for Citigroup on January 1. In June 2008. with which Citigroup is involved. conforming changes were made to Issue 98-5. Issue 08-6 is effective for Citigroup on January 1. an entity shall measure its equity method investment initially at cost in accordance with SFAS 141(R). An equity method investor shall not separately test an investee’s underlying assets for impairment.of assets that do not meet the proposed definition of participating interests. the FASB supports amending FIN 46(R) to change the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE (the primary beneficiary) to that of a qualitative determination of power combined with benefits and losses instead of the current risks and rewards model. 2009. Under Issue 08-6. “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (Issue 07-5). 2008. the FASB delayed the effective date indefinitely by issuing an FSP SOP 07-1-1. and is not expected to have a material impact. “Application of Issue No. Investment companies record all their investments at fair value with changes in value reflected in earnings. the total assets of QSPEs to which Citigroup. “Accounting for Defensive Intangible Assets” (Issue 08-7). In connection with the proposed changes to SFAS 140.. Under Issue 07-5. Issue 07-5 is effective for Citigroup on January 1. in February 2008. they are still subject to change. only if they are both indexed solely to the company’s stock and settleable in shares. The Company is currently evaluating the impact of these changes on Citigroup’s Consolidated Financial Statements. Issue 08-4 is not expected to have a material impact. SOP 07-1 establishes new criteria for a parent company or equity method investor to retain investment company accounting in their consolidated financial statements. the total assets of significant unconsolidated VIEs with which Citigroup is involved were approximately $288. 98-5” (Issue 08-4). The Company is currently evaluating the potential impact of adopting SOP 07-1. Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. 2007. “Effective Date of AICPA Statement of Position 07-1. Since QSPEs will likely be eliminated from SFAS 140 and thus become subject to FIN 46(R) consolidation guidance and since FIN 46(R)’s method of determining which party must consolidate a VIE will likely change.” SOP 07-1 sets forth more stringent criteria for qualifying as an investment company than does the predecessor Audit Guide. 2008. Equity Method Investment Accounting Considerations In July 2007. an instrument (or embedded feature) would not be considered indexed to an 133 . the FASB has also issued a separate exposure draft of a proposed standard that details three key changes to the consolidation model in FASB Interpretation No. the AICPA issued Statement of Position 07-1. An equity-linked financial instrument (or embedded feature) would not be considered indexed to the entity’s own stock if the strike price is denominated in a currency other than the issuer’s functional currency. Any other-thantemporary impairment of an equity method investment should be recognized in accordance with Opinion 18. Accounting for Defensive Intangible Assets In November 2008. an asset separate from other assets of the acquirer). Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock In November 2008. the FASB ratified the consensus reached by the EITF on Issue 08-6. In addition. the Board will now include former QSPEs in the scope of FIN 46(R). This proposed revision could become effective in January 2010 and should this occur these QSPEs will then become subject to review under FIN 46(R). Because of Issue 00-27. Investment Company Audit Guide (SOP 07-1) entity’s own stock if its settlement amount is affected by variables other than those used to determine the fair value of a “plain vanilla” option or forward contract on equity shares. the proposed standard requires that the analysis of primary beneficiaries be reevaluated whenever circumstances change. Issue 08-7 states that it would be rare for a defensive intangible asset to have an indefinite life. the FASB ratified the consensus reached by the EITF on Issue 08-7. rather than as assets and liabilities. 2009. The useful life assigned to an acquired defensive asset shall be based on the period during which the asset would diminish in value.0 billion. As of December 31. Transition Guidance for Conforming Changes to Issue No.

Results for Old Lane are included within ICG. The results for GFU are included within Citigroup’s Global Cards and Latin America Consumer Banking businesses from March 5. Citigroup completed the sale of the Retirement and Insurance Services Divisions of BISYS to affiliates of J. a subsidiary of LaSalle Bank Corporation and ABN AMRO Bank N. The new partnership calls for active participation by Citigroup in the management of Banco de Chile including board representation at both LQIF and Banco de Chile. Results for BISYS are included within Citigroup’s Transaction Services business from August 1. As part of the overall transaction. In addition. BOOC offers a broad 134 . GFU has more than one million retail clients and operates a distribution network of 75 branches and more than 100 mini-branches and points of sale. making the net cost of the transaction to Citigroup approximately $800 million. Citigroup completed its acquisition of Bank of Overseas Chinese (BOOC) in Taiwan for approximately $427 million. with assets of $5. mutual funds and private equity funds. Citigroup completed the acquisition of the remaining Nikko Cordial shares that it did not already own by issuing 175 million Citigroup common shares (approximately $4. The share exchange was completed following the listing of Citigroup’s common shares on the Tokyo Stock Exchange on November 5. Citigroup completed its acquisition of Grupo Financiero Uno (GFU). Inc.P.47 billion in cash. BISYS’ shareholders received $18. and Global Wealth Management businesses. when Nikko Cordial became a 61%-owned subsidiary. On June 12. Citigroup purchased approximately $12 billion in assets. a leader in electronic market making and proprietary trading. Citigroup and Quiñenco entered into a definitive agreement to establish a strategic partnership that combines Citigroup operations in Chile with Banco de Chile’s local banking franchise to create a banking and financial services institution with approximately 20% market share of the Chilean banking industry.V. Acquisition of Old Lane Partners. BUSINESS DEVELOPMENTS STRATEGIC ACQUISITIONS North America Acquisition of ABN AMRO Mortgage Group In 2007.S. broker-dealer and retail customers. 2007 forward. Results for AAMG are included within Citigroup’s North America Consumer Banking business from March 1. Citigroup completed its acquisition of Automated Trading Desk (ATD). Acquisition of Grupo Cuscatlán In 2007. Japan Nikko Cordial In 2007. with $2. On January 29. Old Lane is the manager of a global. Acquisition of BISYS In 2007. for approximately $680 million ($102. Citigroup purchased substantially all of the assets of the Fund at fair value on June 30.2 million shares of Citigroup common stock) from Corporacion UBC Internacional S. Under the agreement. forward and are recorded in Latin America Consumer Banking. LLC. the largest credit card issuer in Central America. Citigroup announced the restructuring of Old Lane and its multi-strategy hedge fund (the “Fund”) in anticipation of redemptions by all unaffiliated. Acquisition of Automated Trading Desk In 2007. AAMG is a national originator and servicer of prime residential mortgage loans. branches of Banco de Chile for approximately $130 million. enhances its credit card business in the region and establishes a platform for regional growth in Consumer Finance and Retail Banking. a wholly owned subsidiary of Quiñenco that controls Banco de Chile. Agreement to Establish Partnership with Quiñenco— Banco de Chile In 2007. Flowers & Co. multi-strategy hedge fund and a private equity fund.P. L. (BISYS) for $1.04% stake in LQIF for approximately $1 billion within three years. The fair value of assets purchased from the Fund was approximately $6 billion at June 30. 2007 forward. 2007 forward. 2008. L. the Company completed the acquisition of Old Lane Partners. Citigroup sold Citigroup’s Chilean operations and other assets in exchange for an approximate 32. expands the presence of Citigroup’s Latin America Consumer Banking franchise. The acquisition of GFU. LLC (Old Lane). To accomplish this restructuring. The transaction closed on January 1.96% stake in LQIF. As part of this acquisition. Asia Acquisition of Bank of Overseas Chinese Citigroup began consolidating Nikko Cordial’s financial results and the related minority interest on May 9.2. Results for ATD are included within Citigroup’s Securities and Banking business from October 3.2 billion in assets. Grupo Cuscatlán has operations in El Salvador. Citigroup completed the acquisition of the subsidiaries of Grupo Cuscatlán for $1. ATD operates as a unit of Citigroup’s Global Equities business. adding a network of broker-dealer customers to Citigroup’s diverse base of institutional. The results of Grupo Cuscatlán are included from May 11. 2007 forward. Citigroup’s Securities and Banking. Nikko Cordial results are included within In 2007. 2008. and its affiliates.A. 2008. Citigroup also acquired the U. Latin America Acquisition of Grupo Financiero Uno In 2007.4 billion based on the exchange terms) in exchange for those Nikko Cordial shares. and deposits of $3.2 million in the form of a special dividend paid by BISYS simultaneously. 2008. non-Citigroup employee investors. including $3 billion of mortgage servicing rights. from July 2.51 billion ($755 million in cash and 14.4 billion. loans of $3.5 billion. Grupo Cuscatlán is one of the leading financial groups in Central America. 2007. which provides administrative services for hedge funds. Citigroup has entered into an agreement to acquire an additional 17. Costa Rica. and is accounted for under the equity method of accounting. Honduras and Panama. and Old Lane Partners. Guatemala. GP.6 million in cash and approximately 11. which resulted in the addition of approximately 1. 2007 forward. 2007.17 million shares of Citigroup common stock). 2008. 2007.4 billion. Citigroup later increased its ownership stake in Nikko Cordial to approximately 68%. Citigroup acquired ABN AMRO Mortgage Group (AAMG).5 million servicing customers.C. Citigroup retained the Fund Services and Alternative Investment services businesses of BISYS. the Company completed its acquisition of BISYS Group.

(CTS). the second-largest privately owned bank by assets in Turkey. pending regulatory approvals and other closing conditions. This transaction closed on January 20. from Morgan Stanley. Global Cards sold substantially all of the Upromise Cards portfolio to Bank of America for an after-tax gain of $127 million ($201 million pretax).’s leading online financial services providers. Citigroup sold all of its interest in Citigroup Global Services Limited (CGSL) to Tata Consultancy Services Limited (TCS) for all-cash consideration of approximately $515 million. 2008. Citigroup completed the sale of Diners Club International (DCI) to Discover Financial Services. wealth advisory firm with over $10. accounted for under the equity method of accounting. the Company completed the acquisition of Quilter. one of the U. process outsourcing services to Citigroup and its affiliates in an aggregate amount of $2. Acquisition of Egg On June 30.suite of corporate banking. prior to the sale. CitiStreet is a joint venture formed in 2000 which. Citigroup signed an agreement with TCS for TCS to provide.5 years.1 billion. to ING Group in an all-cash transaction valued at $900 million.K. Purchase of 20% Equity Interest in Akbank In 2008. Sale of Citigroup Technology Services Limited In 2007. subject to certain purchase price adjustments.9 billion of assets under management. 2008. for all-cash consideration of approximately $127 million. Banco Itau received half of CrediCard’s assets and customer accounts in exchange for its 50% ownership. 2009.. EMEA Acquisition of Quilter Sale of CitiStreet On July 1. leaving Citigroup as the sole owner of CrediCard. Results for Egg are included in Citigroup’s Global Cards and EMEA Consumer Banking businesses from May 1. resulting in an after-tax gain of $192 million ($263 million pretax). a benefits servicing business. was owned 50 percent each by Citigroup and State Street. The sale is expected to close on or around April 1. Sabanci Holding. Citigroup and Banco Itau dissolved their joint venture in CrediCard. mortgages. In addition to the sale. a U.5 billion over a period of 9. Ireland and the Channel Islands. and its subsidiaries have granted Citigroup a right of first refusal or first offer over the sale of any of their Akbank shares in the future. Global Cards and Securities and Banking businesses from December 1. from Prudential PLC for approximately $1. full-service retail. 135 . The following divestitures occurred in 2008 and do not qualify as Discontinued operations: Sale of Upromise Cards Portfolio During 2008. 2007 forward. corporate and private bank. 2007 forward. Citigroup has otherwise agreed not to increase its percentage ownership in Akbank.000 clients and 300 staff located in 10 offices throughout the U. CGSL was the Citigroup captive provider of business process outsourcing services solely within the Banking and Financial Services sector. through CGSL. Quilter’s results are included in Citigroup’s Global Wealth Management business from March 1. The transaction closed on July 1. Citigroup completed its purchase of a 20% equity interest in Akbank for approximately $3. a Brazilian consumer credit card business.39 billion. a 34% owner of Akbank shares.K. 2008. and result in an estimated after-tax gain of $53 million ($89 million pretax). A substantial portion of the proceeds from this sale will be recognized over the period in which Citigroup has a service contract with Wipro Limited. At the closing. Citigroup and State Street Corporation completed the sale of CitiStreet. consumer and wealth management products and services to more than one million clients through 55 branches in Taiwan. insurance and investments. is a premier. Quilter has more than 18. Results for BOOC are included in Citigroup’s Asia Consumer Banking. 2009 and a loss of approximately $7 million was booked at that time. Divestiture of Diners Club International In 2007. Egg offers various financial products and services including online payment and account aggregation services.K. Citigroup’s India-based captive provider of Technology Infrastructure support and Application Development. 2008. This transaction will strengthen Citigroup’s presence in Asia. Subject to certain exceptions. personal loans. commercial. In accordance with the dissolution agreement. Akbank. Citigroup announced an agreement with Wipro Limited to sell all of Citigroup’s interest in Citi Technology Services Ltd. savings accounts. Sale of Citigroup Global Services Limited In 2007. Sale of Citi’s Nikko Citi Trust and Banking Corporation In 2006. The portfolio sold had balances of approximately $1. and generated an after-tax gain of $222 million ($347 million pretax). MUTB will pay an all-cash consideration of 25 billion yen. Citigroup will continue to issue Diners Club cards and support its brand and products through ownership of its many Diners Club card issuers around the world. making it the largest international bank and 13th largest by total assets among all domestic Taiwan banks. STRATEGIC DIVESTITURES Citigroup has executed a definitive agreement to sell all of the shares of Nikko Citi Trust and Banking Corporation to Mitsubishi UFJ Trust and Banking Corporation (MUTB). resulting in an after-tax gain of approximately $56 million ($111 million pretax). Consolidation of Brazil’s CrediCard On December 23. credit cards. including purchases from Sabanci Holding and its subsidiaries. 2007 forward.2 billion of credit card receivables. Citigroup completed its acquisition of Egg Banking plc (Egg).

126 $ 837 — 266 $ 571 2006 $ 2. This payment resulted in an additional after-tax gain of $51 million ($83 million pretax).9 billion including the after-tax gain on the foreign currency hedge of $383 million recognized during the fourth quarter of 2008. Inc. Summarized financial information for Discontinued operations.227 (1. in cash plus the German retail bank’s operating net earnings accrued in 2008 through the closing. including cash flows. as well as the net loss recognized in 2008 from this sale. 2006. 2008. The sale does not include the corporate and investment banking business or the Germany-based European data center.596 (2. was postponed due to delays in obtaining local regulatory approval. Results for all of the German retail banking businesses sold. Summarized financial information for Discontinued operations.258 billion resulted in a pretax gain of $24 million in ICG. Citigroup sold substantially all of CitiCapital. the equipment finance unit in North America.592 $ 1. 2008. respectively. 2005.3.5 billion.000 customers throughout North America. In September 2006.212 $ 652 — 214 $ 438 2007 $ 2. Citigroup sold its German retail banking operations to Credit Mutuel for Euro 5. and CitiCapital Canada. of $15. The assets and liabilities for CitiCapital totaled approximately $12.438 3. This loss is included in Income from discontinued operations on the Company’s Consolidated Statement of Income for the second quarter of 2008.148) 1. net of taxes $ 4.226) (398) Sale of the Asset Management Business Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net cash provided by (used in) discontinued operations $ CitiCapital On July 31.147 $ 77 Total revenues. DISCONTINUED OPERATIONS Sale of Citigroup’s German Retail Banking Operations On December 5. The total proceeds from the transaction were approximately $12. On December 1. 136 . related to the sale of the German retail banking operations is as follows: In millions of dollars This transaction encompassed seven CitiCapital equipment finance business lines. related to the sale of CitiCapital is as follows: In millions of dollars 2008 $ 24 $ 40 (506) (202) 2007 $ 991 $ 273 — 83 $ 190 2007 $(1. net of interest expense Income from discontinued operations Gain on sale Provision for income taxes and minority interest. recorded in Discontinued operations. the Company sold 10. Results for all of the CitiCapital businesses sold. 2008. The net sale proceeds of $1.547 (14.9 billion and $0. net of interest expense Income (loss) from discontinued operations Loss on sale Provision (benefit) for income taxes and minority interest. the Company received from Legg Mason the final closing adjustment payment related to this sale. are reported as Discontinued operations for all periods presented. including Healthcare Finance. which was originally part of the overall Asset Management business sold to Legg Mason on December 1. The German retail banking operations had total assets and total liabilities as of November 30. CitiCapital had approximately 1.2 billion. During March 2006. 2008. On January 31. 2005. This transaction. the Company completed the sale of substantially all of its Asset Management business to Legg Mason.400 employees and 160. (Legg Mason). Franchise Finance.190 (43) $ (1) 2006 $ 1. CitiCapital’s Tax Exempt Finance business was not part of the transaction and was retained by Citigroup.664) 3 $ (65) Total revenues. respectively.8 billion. the Company completed the sale of its Asset Management business within Bank Handlowy (an indirect banking subsidiary of Citigroup located in Poland) to Legg Mason.906) (213) $ 108 2006 $ 2. net of taxes $(264) In millions of dollars 2008 $(287) 349 (61) $ 1 Income from discontinued operations. A gain from this sale of $18 million after-tax and minority interest ($31 million pretax and minority interest) was recognized in the first quarter of 2006 in Discontinued operations. Bankers Leasing. The sale resulted in an after-tax gain of approximately $3. at June 30.162 $ 313 — 86 $ 227 2006 $ 2.719) 18. Construction Equipment Finance. Material Handling Finance. Private Label Equipment Finance.5 billion and resulted in an after-tax loss to Citigroup of $305 million. net of taxes 2008 $ 6.695 426 2007 $ 2. as well as the net gain recognized in 2008 from this sale. are reported as Discontinued operations for all periods presented. including cash flows.316) 1. net of taxes Income (loss) from discontinued operations.6 billion and $11.3 million shares of Legg Mason stock through an underwritten public offering.707 In millions of dollars Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net cash provided by (used in) discontinued operations 2008 $ (4.246 (3.

Citi agreed to reimburse MetLife for certain liabilities related to the sale of the long-term-care business to Genworth’s predecessor. and TPC: In millions of dollars 2008 $6.842 (5. The following is summarized financial information for the German retail banking operations. Under the terms of the 2005 sales agreement of Citi’s Life Insurance and Annuities business to MetLife. which has been reported in Discontinued operations. The assumption of the final 10% block by Genworth at December 31. (MetLife).203 $ 925 — 297 $ 628 2006 $3.006) 18. This gain was reported in income from continuing operations in ICG.287) (397) 2007 $1.087 Total revenues.507 $1. net of taxes Cash Flows from Discontinued Operations In millions of dollars 2008 $ (5. $15 million of the total $657 million federal tax contingency reserve release was reported in Discontinued operations as it related to the Life Insurance and Annuities business sold to MetLife. during the third quarter of 2006.177 219 309 $1. In addition. the Company fulfilled its previously agreed upon obligations with regard to its remaining 10% economic interest in the longterm care business that it had sold to the predecessor of Genworth Financial in 2000. net of interest expense Income from discontinued operations Gain on sale Provision (benefit) for income taxes and minority interest. a release of $42 million of deferred tax liabilities was reported in Discontinued operations as it related to the Life Insurance & Annuities business sold to MetLife. Asset Management business. resulting in an after-tax gain of $75 million ($115 million pretax). net of taxes Income from discontinued operations.896 (14. Inc. 2008. In December 2008.079 (716) (256) $ 107 2006 $ 4. In July 2006.478 3.139 207 $4. which was recorded in Discontinued operations. the Company received the final closing adjustment payment related to this sale. In July 2006.150 $ 121 Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net cash provided by (used in) discontinued operations $ 137 . Life Insurance and Annuities business.Sale of the Life Insurance and Annuities Business Combined Results for Discontinued Operations On July 1. the Company completed the sale of Citigroup’s Travelers Life & Annuity and substantially all of Citigroup’s international insurance businesses to MetLife. CitiCapital.616 $1.410 2007 $3. Citigroup recognized an $85 million after-tax gain from the sale of MetLife shares. During the first quarter of 2006. resulted in a pretax loss of $50 million ($33 million after-tax).871) 1. 2005.

3 billion.817) 12.5 billion and $3.498) $7.6 billion and $9. unallocated corporate expenses. institutions and investors in approximately 100 countries with a broad range of banking and financial products and services. The Consumer Banking segment includes a global. in North America of $13. $9. net of changes in estimates.051 $19. $10. Global Wealth Management (GWM) and Corporate/Other business segments.978 6. Corporate/Other recorded a pretax credit of $1 million and a provision of $(2) million for 2008 and 2007.661) $2. of $1.793 $78.8 billion.451 Identifiable assets at year end 2008 2007 $23.812 29.317 99 104 226 76 $1. full-service consumer franchise delivering a wide array of banking.155) 1. The Global Wealth Management segment is composed of the Smith Barney Private Client businesses and Citigroup Private Bank. Visa. $1.280) (20. (2) The effective tax rates for 2006 reflect the impact of the resolution of the Federal Tax Audit and the New York Tax Audits.495 $86.6 billion and $51.019 704 (421) (922) (498) $ 114 $ 127 496 563 1.054) 3.327 $(20.9 billion.8 billion in 2008. $382 million to Consumer Banking. Diners Club.177 (752) (944) (84) $ 2.635 13.073 8. 2007 and 2006. offices and electronic delivery systems. net of interest expense (1) In millions of dollars.136 (15. Of this total charge. The accounting policies of these reportable segments are the same as those disclosed in Note 1 to the Consolidated Financial Statements on page 122 The following table presents certain information regarding the Company’s continuing operations by segment: Revenues.094) (1) Includes total revenues. Private Bank provides personalized wealth management services for high-net-worth clients.8 billion and $13.1 billion.354) 181 2. 138 .458 26.612) $(2. $13.443 (654) $20. Corporate/Other includes net treasury results. offsets to certain line-item reclassifications (eliminations). in the Consumer Banking results of $19.5 billion and $532 million. $18.207 28.6 billion.7 billion. Institutional Clients Group (ICG).052 652 1. the results of discontinued operations and unallocated taxes.6 billion.1 billion. in the ICG results of $5. See Note 10 on page 150 for further discussion. in EMEA of $11. respectively.4.647 12.187 $52. and $383 million to Corporate/Other. lending. and in Asia of $15.355 (5.4 billion.278 $2.974 (1.157 (4.117) 1.2 billion and $12. Private Label and American Express platforms.611 1. Regional numbers exclude Corporate/Other. governments.740 30. The Company’s activities are conducted through the Global Cards.6 billion.405) (5. in Latin America of $13. Smith Barney provides investment advice.601 (850) 2007 2006 $ Provision (benefit) for income taxes (2) 2008 2007 2006 $ 2008 166 (12. respectively. The Global Cards segment is a global issuer of credit cards through the MasterCard.8 billion for 2007.749 $(32.998 10.989 2006 $ 4.8 billion and $3. (4) Corporate/Other reflects the restructuring charge. $305 million to GWM. companies and non-profits. Consumer Banking. net of interest expense.938 $2.2 billion. $119 million is attributable to Global Cards.2 billion.S. and in the Global Wealth Management results of $301 million. The businesses included in the Company’s ICG segment provide corporations. $608 million to ICG. which primarily operates within the U. $37. $101 million and $24 million for 2008. insurance and investment services through a network of local branches. except identifiable assets in billions Global Cards Consumer Banking Institutional Clients Group Global Wealth Management Corporate/Other (4) Total 2008 $20. (3) Includes pretax provisions (credits) for credit losses and for benefits and claims in the Global Cards results of $9.091 (954) Income (loss) from continuing operations (1) (2) (3) 2007 $4.652 (7. respectively. financial planning and brokerage services to affluent individuals.003 1. BUSINESS SEGMENTS Citigroup is a diversified bank holding company whose businesses provide a broad range of financial services to consumer and corporate customers around the world. $5. 2007 and 2006.674 2.

958 2. The following table presents commissions and fees revenue for the years ended December 31: In millions of dollars 2008 $ 2.692 33. respectively. on funded and unfunded highly leveraged finance commitments. standby letters of credit and other deposit and loan servicing activities.051 $ 45.831 $121.378 $ 16.5 billion in 2007.320 $31.423 1.336 17.850 Interest expense Deposits $ 20.322 1.429 $ 28.036 3.881 $93.271 Federal funds purchased and securities loaned or sold under agreements to repurchase 11.517 2. Write-downs were recorded on all highly leveraged finance commitments where there was value impairment. lending and deposit-related transactions.706 2006 $ 4. investment management-related fees. and insurance fees and commissions.718 17.071 16.546 2006 $52.228 5.963 $ 53.832 $ 28.108 1.227 2007 $ 5. interest revenue and expense consisted of the following: In millions of dollars 2008 $ 62.731) 415 747 (141) (4.354 13.028 1. regardless of funding date. 2008.402 23.674 $ 20.865 2. (3) Includes write-downs of approximately $4.277 Short-term borrowings 4. advisory and equity and debt underwriting services.683 $37.928 $ 6.093 5.608 Interest revenue Loan interest.507 4.876) $11.086 2. such as loan commitments. (1) Commissions and fees for Nikko Cordial have not been detailed due to unavailability of the information.148 $55.119 4.175 10. including fees Deposits with banks Federal funds sold and securities purchased under agreements to resell Investments.119 9.191 2. The mark-to-market on the underlying economic hedges of the MSRs is included in Other revenue.464 911 859 279 — 660 399 243 58 735 $18.284 4.340 11. COMMISSIONS AND FEES For the years ended December 31.018 Investment banking Credit cards and bank cards Smith Barney ICG trading-related Checking-related Transaction Services Other Consumer Nikko Cordial-related (1) Loan servicing (2) Primerica Other ICG Other Corporate finance (3) Total commissions and fees (1) Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue from Trading account assets.265 2.113 18.836 2.201 3.655 2007 $ 63.440 7.086 (1.336 3.5. 2007 and 2006. recorded at fair value and reported as loans held for sale in Other assets.423 18.110 $ 76.330 Trading account liabilities (1) 1. INTEREST REVENUE AND EXPENSE 6.134 1.166 649 834 560 455 295 71 (667) $20.9 billion in 2008 and $1. 139 . net of underwriting fees. including transaction-processing fees and annual fees. (2) Includes fair value adjustments on mortgage servicing assets.211 1.632 11.046 Total interest expense Net interest revenue Provision for loan losses Net interest revenue after provision for loan losses $ 52. including brokerage services and custody and trust services. including dividends Trading account assets (1) Other interest Total interest revenue Commissions and fees revenue includes charges to customers for credit and bank cards.706 1.199 10.818 $106.489 3.611 $21.448 1.039 Long-term debt 16.240 14.

and other commodities. (4) Includes revenues from common. the recipient of a restricted stock award can direct the vote of the shares and receive dividend equivalents. and exchange-traded and OTC equity options and warrants. caps and floors.299 2006 $ 648 824 129 — 1.990 Institutional Clients Group Fixed income (2) Credit products (3) Equities (4) Foreign exchange (5) Commodities (6) Total ICG Consumer Banking/Global Cards (7) Global Wealth Management (7) Corporate/Other Total principal transactions revenue The Company has adopted a number of equity compensation plans under which it administers stock options. which trades crude oil. forward. except for those awards granted to retirement-eligible 140 . Recipients of deferred stock awards receive dividend equivalents.616 836 840 $(22. In 2007 and 2008.290 (1) Management Committee Long-Term Incentive Plan (MC LTIP) was created in 2007. (3) Includes revenues from structured credit products such as North America and Europe collateralized debt obligations. 2006. SFAS 123(R) charges for January 2006 awards to retirement-eligible employees $ — SFAS 123(R) charges for estimated awards to retirement-eligible employees 110 Option expense 29 Amortization of MC LTIP awards (1) 18 Amortization of restricted and deferred stock awards 3. The following table presents principal transactions revenue for the years ended December 31: In millions of dollars 2008 $ (6.614) (394) 2.166 (1) Reclassified to conform to the current period’s presentation. 2007. CAP participants in 2008.188) 2007 $ 4. during the applicable vesting period. refined oil products. approximately 142 million shares were authorized and available for grant under Citigroup’s stock incentive and stock purchase plans. natural gas. Not included in the table below is the impact of net interest revenue related to trading activities. equity-linked notes.565 $3. For all stock award programs. employees and non-employee directors. 2007 and 2006: In millions of dollars 2008 $ 2007 — 467 86 18 2.222 686 $(15.315 397 $(12.162) 1. the shares awarded cannot be sold or transferred by the participant. The award programs are used to attract. The 2008. shares would be issued out of Treasury stock upon exercise or vesting.086) 2006 (1) $5. losses recorded were related to subprime-related exposures in ICG’s lending and structuring business and exposures to super senior CDOs. preferred stock.or three-year vesting period. and to encourage employee stock ownership. municipal securities. Amortization includes estimated forfeitures of awards. equities and foreign exchange transactions. 2006 and 2005 generally vest 25% per year over four years. and other debt instruments.7. mortgage securities. preferred and convertible preferred stock. 2007.455) (21. Losses in 2008 reflect the volatility and dislocation in the credit and trading markets. (2) Includes revenues from government securities and corporate debt. Stock awards granted in January 2008. financial futures. STOCK AWARD PROGRAMS The Company. which is composed entirely of independent non-employee directors. In accordance with Citigroup practice. The figures presented in the stock option program tables include options granted under CAP. option and swap contracts. At December 31. 2007 and 2006 periods also include amortization expense for all unvested awards to non-retirement-eligible employees on or after January 1.480) 1. primarily through its Capital Accumulation Program (CAP). Unearned compensation expense associated with the stock awards represents the market value of Citigroup common stock at the date of grant and is recognized as a charge to income ratably over the full vesting period. to compensate them for their contributions to the Company. issues shares of Citigroup common stock in the form of restricted or deferred stock to participating officers and employees. The plans are administered by the Personnel and Compensation Committee of the Citigroup Board of Directors. as well as translation gains and losses. the shares become freely transferable (subject to the stock ownership commitment of senior executives). and some or all of the shares awarded are subject to cancellation if the participant’s employment is terminated. 2008.053 (21. Stock awards granted in 2003 and 2004 generally vested after a two. OTC options. The following table shows components of compensation expense relating to the Company’s stock-based compensation programs as recorded during 2008. which is an integral part of trading activities’ profitability. PRINCIPAL TRANSACTIONS 8. convertible corporate debt.805) 682 1. (6) Primarily includes the results of Phibro LLC. currency swaps. From the date of the award. and forward contracts on fixed income securities. except for awards to certain employees at Smith Barney that vest after two years and July 2007 Management Committee Long-Term Incentive Plan awards (further described below) that vest in January 2010. options on fixed income securities. INCENTIVE PLANS Principal transactions revenue consists of realized and unrealized gains and losses from trading activities. interest rate swaps. (7) Includes revenues from various fixed income.133 (excluding MC LTIP) (2) Total $3. Also includes spot and forward trading of currencies and exchange-traded and over-the-counter (OTC) currency options. After the award vests. but cannot vote shares until they have vested. restricted or deferred stock and stock purchase programs.895 504 680 (89) $7. (5) Includes revenues from foreign exchange spot. swap options. retain and motivate officers. 2006 and 2005 could elect to receive all or part of their award in stock options.728 $3. (2) Represents amortization of expense over the remaining life of all unvested restricted and deferred stock awards granted to all employees prior to 2006.364 1.593 (744) 866 693 487 $6.316 667 $(25.

06 $36. 2008 Awards Cancellations Deletions Vestings (1) Unvested at December 31.210. That cost is expected to be recognized over a weighted-average period of 2. If. Under COP. Executives must remain employed through the vesting dates to receive the shares awarded. except for those awards granted to retirement-eligible employees.018) (1. No awards were earned for 2008 or 2007 because performance targets were not met. Each participant received an equity award that will be earned based on Citigroup’s performance for the period from July 1. No new awards were made under the MC LTIP since the initial award in July 2007. post-employment vesting is not provided for participants who meet specified age and years of service conditions.314 (20. 2008 Shares 153. the Personnel and Compensation Committee of Citigroup’s Board of Directors approved the Management Committee LongTerm Incentive Plan (MC LTIP). Shares subject to some of the awards are exempted from the stock ownership commitment. The awards will generally vest after 30 months.207.222. disability.132 149. Unlike CAP.140.or four-year periods.6 years. 2008. 2008. is presented below: Unvested stock awards Unvested at January 1. Unearned compensation expense associated with the stock grants represents the market value of Citigroup common stock at the date of grant and is recognized as a charge to income ratably over the vesting period.92 $25. CAP and certain other awards provide that participants who meet certain age and years of service conditions may continue to vest in all or a portion of the award without remaining employed by the Company during the entire vesting period. awards granted in January 2006 were required to be expensed in their entirety at the date of grant. See Note 1 to the Consolidated Financial Statements on page 122 for the impact of adopting SFAS 123(R). As of December 31. CitiBuilder and Citigroup Ownership stock option programs. Citigroup granted restricted or deferred shares annually under the Citigroup Ownership Program (COP) to eligible employees. However. full year 2008 and full year 2009). 2008. 2008. under the terms of the shareholderapproved 1999 Stock Incentive Plan. 2010.94 $47. awards to these retirement-eligible employees are recognized in the year prior to the grant in the same manner as cash incentive compensation is accrued. an opportunity to earn stock awards based on Citigroup’s performance. 2007 to December 31.04 $42. 2007. The ultimate value of the award will be based on Citigroup’s performance in each of these periods with respect to (1) total shareholder return versus Citigroup’s current key competitors and (2) publicly stated return on equity (ROE) targets measured at the end of each calendar year. Beginning in 2006. including the CEO. From 2003 to 2007. The MC LTIP provides members of the Citigroup Management Committee. 2009. The last award under this program was in 2007. so long as they do not compete with Citigroup during that time.70 $26. and changes during the 12 months ended December 31.3 billion of total unrecognized compensation cost related to unvested stock awards net of the forfeiture provision.824) (53. CFO and the named executive officers in the Citigroup Proxy Statement.31 per share. As explained below. The awards vest ratably over two. 2007. there was $3.employees.945. In order to receive the shares. On January 22. 2007 to December 31. 141 . special retention stock awards were made to key senior executive officers and certain other members of senior management.968. a participant generally must be a Citigroup employee on January 5.745) 226. pursuant to SFAS 123(R). Three periods will be measured for performance (July 1. all awards were recognized ratably over the stated vesting period. in any of the three performance periods. Prior to 2006. the participants will not receive award shares for that period. eligible employees received either restricted or deferred shares of Citigroup common stock that vest after three years. This program replaced the WealthBuilder.23 (1) The weighted average market value of the vestings during 2008 was approximately $22. On July 17. Citigroup’s total shareholder return does not exceed the median performance of the peer group. the charge to income for awards made to retirement-eligible employees is accelerated based on the dates the retirement rules are met. The final expense for each of the three calendar years will be adjusted based on the results of the ROE tests. or involuntary termination other than for gross misconduct. The charge to income for awards made to retirement-eligible employees is accelerated based on the dates the retirement rules are met. except in cases of death.859 Weighted average grant date fair value $50. A summary of the status of Citigroup’s unvested stock awards as of December 31.

448 15. generally vested at a rate of 20% per year over five years (with the first vesting date occurring 12 to 18 months following the grant date) and had 10-year terms. directors’ options cliff vest after two years.21 $52.067. given certain conditions.56 $13. Options have not been granted under these programs since 2002.19 $38. Vikram Pandit. The reload options are granted for the remaining term of the related original option and vest after six months.530.50).70 $28. These options do not have a reload feature.818) 212.66 $46.814 $41.024.935 3.08 $24. 2003.370 (8. 2006 and 2005..659) (20.584) (2.255.26 $43. Occasionally.654) 143.123. permit an employee exercising an option under certain conditions to be granted new options (reload options) 2008 Weighted average exercise price Intrinsic value per share in an amount equal to the number of common shares used to satisfy the exercise price and the withholding taxes due upon exercise.Stock Option Programs The Company has a number of stock option programs for its non-employee directors. 2008. The first installment of these options vested on January 22.83 142 . one-third have an exercise price equal to a 25% premium over the grant date closing price ($30.27 $48.87 $52.16 $ — 277. Information with respect to stock option activity under Citigroup stock option plans for the years ended December 31. Options granted under the WealthBuilder and the Citigroup Ownership programs vest over a five-year period.067.36 $41.093. mostly granted prior to January 1. end of period Exercisable at end of period 172.30 $45.917 2. 2008.37 $41. and options granted under the CitiBuilder program vest after five years.540.60).080. Generally.26 — — 3. Certain options. The options vest 25% per year beginning on the first anniversary of the grant date and expire on the tenth anniversary of the grant date. 2007. Options granted from January 2003 through 2008 typically vest ratably over three.178.06 12. Generally.767.259.402) (843.122 18.57 $44.654.52 4.424. These options did not have a reload feature. options granted from 2003 through 2008 have six-year terms.900 $40.441. but there have been grants with terms of up to 10 years. the Company’s eligible employees participated in WealthBuilder. stock options also may be granted as sign-on awards.36 4.08 $13. Prior to 2003.122 165.136 3.84 $ $ — — — — — — — 212.or four-year periods. On January 22.917 179. 2009. Inc.38 11. One-third of the options have an exercise price equal to the NYSE closing price of Citigroup stock on the grant date ($24. Reload options may in turn be exercised using the reload method. beginning of period Granted—original Granted—reload Forfeited or exchanged Expired Exercised Outstanding.860.110) (2.87 $ 8. stock options were granted only to CAP participants who elected to receive stock options in lieu of restricted or deferred stock awards. Options granted in 2004 and 2003 typically vest in thirds each year over three years (with the first vesting date occurring 17 months after the grant date).984 (24.643) 172.62 $43.021.832. 2007 and 2006 is as follows: 2007 Weighted average exercise price Intrinsic value per share Weighted average exercise price 2006 Intrinsic value per share Options Options Options Outstanding. however.547 12.87 $54.256) (34. officers and employees.932.796.88 $22. and to non-employee directors who elected to receive their compensation in the form of a stock option grant. Citigroup options. or the Citigroup Ownership Program. All stock options are granted on Citigroup common stock with exercise prices that are no less than the fair market value at the time of grant. including options granted since the date of the merger of Citicorp and Travelers Group. was awarded stock options to purchase three million shares of common stock. and vesting schedules for sign-on grants may vary. The sale of shares acquired through the exercise of employee stock options granted since January 2003 is restricted for a two-year period (and may be subject to the stock ownership commitment of senior executives thereafter).87 $36. and had 10-year terms. An option may not be exercised using the reload method unless the market price on the date of exercise is at least 20% greater than the option exercise price. in 2008.795 $43.318 (14. CitiBuilder.140.955) (64. CEO.40 $36.767. To further encourage employee stock ownership.05 $42. and one-third have an exercise price equal to a 50% premium over the grant date closing price ($36.657 123.83 — — 1.40).

265 123. Valuation assumptions Expected volatility Risk-free interest rate Expected dividend yield Expected annual forfeitures Original and reload grants 25. Fair Value Assumptions SFAS 123(R) requires that reload options be treated as separate grants from the related original grants. as well as certain other options.006.11% 2.56 yrs.99 $20. The exercise price of a reload grant is the fair market value of Citigroup common stock on the date the underlying option is exercised. the existence of the reload feature results in a greater number of options being valued.577. 1.66 yrs.764 143.9 years.00–$19. but only if the market price on the date of exercise is at least 20% greater than the option exercise price. However.2 years 2.53% 7% 143 .0 years 2.8 million of total unrecognized compensation cost related to stock options.99 $50.22 $52.795 Options exercisable Weighted average exercise price $ 7. therefore.86 yrs.38 $43.6 years 2.170 86.00–$49.99 $30.52 4. 19.200.60% 3.11 $46.676 14.54 $24.59 4. this cost is expected to be recognized over a weighted average period of 1.627 97. are subject to restrictions on sale.77–$9.779.57 yrs.83 As of December 31. if employees use previously owned shares to pay the exercise price and surrender shares otherwise to be received for related tax withholding. such values are expensed more quickly due to the shorter vesting period of reload options.3 years Weighted average exercise price $ 7.627 2. Reload options vest after six months and carry the same expiration date as the option that gave rise to the reload grant.657 Weighted average contractual life remaining 2.985 1.100.21% 4.475 12.27 $25.48 $33.04 yrs. Reload grants 1. they will receive a reload option covering the same number of shares used for such purposes. Pursuant to the terms of currently outstanding reloadable options.76% 4. 2008: Options outstanding Number outstanding 1. at December 31 $ 3.568.592.03% 7% $ 2006 6.2 years 1.77 $17.62 Weighted averaged expected life Original grants 5. these options have shorter expected lives.00–$56. 2008.0 years 5.815 84. 2.77 $14. Shares received through option exercises under the reload program.00–$39. Additional valuation and related assumption information for Citigroup option plans is presented below.628 25.61 $33.654. there was $45. Citigroup uses a lattice-type model to value stock options. For options granted during 2008 $ 2007 6. In addition.97 Range of exercise prices $7.325.99 $10.07 $46.074 13. 20. Shorter option lives result in lower valuations.79% 4.263.00–$29.26 $52.59 $41.The following table summarizes the information about stock options outstanding under Citigroup stock option plans at December 31.6 years 7.860. since reload options are treated as separate grants.99 $40.00 yrs.15% 4.95% 7% Weighted average per share fair value.84 Number exercisable 1.346 27. upon exercise of an option. Reload options are intended to encourage employees to exercise options at an earlier date and to retain the shares acquired. The result of this program is that employees generally will exercise options as soon as they are able and.

Accordingly. the Company recognized a curtailment gain resulting from the January 1. qualified pension plan was frozen. plans 2008 $ 1 62 (12) — — 4 16 $ 71 2007 $ 1 59 (12) — (3) 3 9 $ 57 2006 $ 2 61 (13) — (4) 8 — $ 54 2008 Non-U. Restructuring charges for the pension plans include $23 million for the U. employees satisfying certain age and service requirements remain covered by a prior final average pay formula under that plan. In 2007. the U.S.S. the Company recognized a net curtailment loss resulting from accelerated expected payment of benefits following restructuring actions. (3) The 2008 curtailment loss in the non-U. the Company recognized a net curtailment loss primarily resulting from accelerated vesting of benefits under reorganization actions outside the U. retired employees.S.9. qualified defined benefit plan provides benefits under a cash balance formula. plans 2008 $ 201 354 (487) 1 4 24 108 $ 205 2007 $ 202 318 (477) 2 3 39 36 $ 123 2006 $ 164 274 (384) 2 1 51 7 $ 115 2008 $ 23 674 (949) — (2) — 56 $(198) 2007 $ 301 641 (889) — (3) 84 — $ 134 2006 $ 260 630 (845) — (19) 185 (80) $ 131 Benefits earned during the year Interest cost on benefit obligation Expected return on plan assets Amortization of unrecognized: Net transition obligation Prior service cost (benefit) Net actuarial loss Curtailment (gain) loss (2)(3) Net (benefit) expense (1) The U. plans. plans as well as the plans outside the United States. Effective January 1.S.S pension plans includes $71 million reported under Discontinued operations reflecting the sale of Citigroup’s German retail banking operations to Credit Mutuel. The following tables summarize the components of net (benefit) expense recognized in the Consolidated Statement of Income and the funded status and amounts recognized in the Consolidated Balance Sheet for the Company’s U. plans 2007 2006 $ 21 65 (78) — 1 8 — $ 17 $ 36 $ 27 96 75 (109) (103) — — 21 — $ 44 — — 13 — $ 12 Non-U. no additional compensation-based contributions were credited to the cash balance plan for existing plan participants.S.S.S. qualified pension plan.S.S.S.S. However.S. The estimated net actuarial loss. as well as to certain eligible employees outside the United States. In 2006. employees in 2008 and has various defined benefit pension and termination indemnity plans covering employees outside the United States. qualified pension plan. RETIREMENT BENEFITS The Company has several non-contributory defined benefit pension plans covering substantially all U.S. $2 million and $(1) million. the estimated 2009 net actuarial loss and service cost are approximately $21 million and $(1) million. The Company uses a December 31 measurement date for the U. Pension plans U. plans exclude nonqualified pension plans.S. The Company also offers postretirement health care and life insurance benefits to certain eligible U. (2) In 2008.S. respectively. plans and $22 million for the non-U. for defined benefit pension plans. However. Restructuring charges for the postretirement plans include $6 million for U. The U. 2008 freeze of the U.S. respectively. 2008. postretirement plans and plans outside the United States. for which the net expense was $38 million in 2008. plans. employees still covered under the Net (Benefit) Expense prior final pay plan will continue to accrue benefits. For postretirement plans. $45 million in 2007 and $51 million in 2006. prior service cost and net transition obligation that will be amortized from Accumulated other comprehensive income (loss) into net expense in 2009 are approximately $68 million. 144 . plans (1) In millions of dollars Postretirement benefit plans U.

S pension plans include $29 million of projected benefit obligations from newly material plans.029 23 674 — (167) (607) — — — — 58 — $11.008 (182) 72 2007 $ 825 27 75 — 296 (39) — — — — — 9 $1.629 $ 622 $1.029 $11.120 $ 786 4.007 $5. Accumulated other comprehensive income (loss) reflects pretax charges of $72 million and $85 million at December 31. (2) Acquisitions in the non-U.101 1 1 62 59 — 3 1 (67) (72) (75) 11 11 — — — — — — 17 9 — — 1.840 (730) 13 — — — — (607) — $11. These plans are unfunded. 2008 and 2007.S.193 $10.363 202 318 12 (28) (269) — 156 — (21) 25 249 $6.840 $ 1.219 $ 8 30 786 $ — $ — (10) (11) 41 23 31 $ 12 $ 1 (1) 442 $ 2 (1) 374 $ $1.811 Change in projected benefit obligation Projected benefit obligation at beginning of year Benefits earned during the year Interest cost on benefit obligation Plan amendments Actuarial loss (gain) Benefits paid Expected Medicare Part D subsidy Acquisitions (2) Divestitures Settlements Curtailments (3) Foreign exchange impact Projected benefit obligation at year end Change in plan assets Plan assets at fair value at beginning of year Actual return on plan assets Company contributions (4) Employee contributions Acquisitions (5) Divestitures Settlements Benefits paid Foreign exchange impact Plan assets at fair value at year end Funded status of the plan at year end Net amount recognized Benefit asset Benefit liability Net amount recognized on the balance sheet Amounts recognized in Accumulated other comprehensive income (loss): Net transition obligation Prior service cost (benefit) Net actuarial loss Net amount recognized in equity—pretax Accumulated benefit obligation at year end $1.145 $ 824 $5. pension plan include $13 million and $15 million during 2008 and 2007. relating to certain investment advisory fees and administrative costs that were absorbed by the Company.243 $4.978 1.193 36 96 (79) (41) — — — — (2) (266) $ 937 $1.419) Other assets Prepaid benefit cost Other liabilities Accrued benefit liability Funded status Deferred taxes.193 $ 984 66 3 — — — — (39) (6) $1.042 $ 191 $ 175 (7) 22 31 69 — — — — — — — — (72) (75) — — $ 143 $ 191 (42) (185) $ 671 $ (266) $ — (266) $ (919) $ (851) $ — $ — (919) (851) $ (919) $ (851) $ (266) $ (185) $ — (4) 1. plans 2008 2007 Non-U. respectively. pension plans include $55 million and $47 million of benefits directly paid by the Company during 2008 and 2007.629 (883) 286 6 165 (380) (57) (282) (948) $4.974 $ — (7) 467 460 $ (5) 29 1.179 2007 $2. respectively. net Amortization and other Change in Accumulated other comprehensive income (loss) (1) (1) Primarily related to changes in net actuarial gain/loss of the Company’s pension and postretirement plans. (5) Acquisitions in the non-U. that primarily relate to net actuarial loss.516 $ $ $ 506 506 — 506 2007 $11. 2008 and 2007: In millions of dollars 2008 $ 1.536 $ (27) $ 511 (538) $ (27) 2007 $5. 2008 and 2007.008 $ (185) $ 34 (219) Non-U.937 $10.S.960 $1. the funded status of these plans is $(586) million and $(611) million at December 31. respectively.S. plans 2008 $6. (3) Changes in projected benefit obligation due to curtailments in the non-U. for which the aggregate projected benefit obligation was $586 million and $611 million and the aggregate accumulated benefit obligation was $580 million and $604 million at December 31.889) 189 $(2.292) 5. respectively.S.S. pension plans in 2008 include $(9) million in curtailment gains and $12 million in special termination costs.007 201 354 2 (625) (282) — 206 (380) (65) 3 (858) $4.S.S. plans (1) In millions of dollars Postretirement benefit plans U.062 $1.261 Change $(1.Net Amount Recognized Pension plans U.476 15 — — — — (583) — $12. plans exclude nonqualified pension plans. respectively.403 $ $ 442 $ 937 $ 375 $1.811 — $ 1. 2008 and 2007. 145 . plans 2008 $1.563 $6.078) 918 (259) $(1.906 2.010 $12. (4) Company contributions to the U.309 $(1.932 1. The following table shows the change in Accumulated other comprehensive income (loss) for the years ended December 31.811 $ 1. Company contributions to the non-U.017 2.S pension plans include $10 million of plan assets from newly material plans.S.042 $1.109 301 641 — (439) (583) — — — — — — $11.061 (439) $ 622 2008 $11.042 (1) The U.062 $1. As such.906 432 223 8 90 — (21) (269) 260 $6.

2008 and December 31.5 4. Assumptions The discount rate and future rate of compensation assumptions used in determining pension and postretirement benefit obligations and net benefit expense for the Company’s plans are shown in the following table: At year end 2008 2007 Discount rate U.0 6. qualified pension plan was frozen. 2007 were 2.S. plans 2008 $586 580 — 2007 $611 604 — Non-U.S.S.0%. plans Non-U.25 4.S.S.S.2 3.0 to 10.S. nonqualified plans.0 2. plans equal the stated rates. the U. plans Range Weighted average Future compensation increase rate U. plans (1) Pension Postretirement Non-U.640 1.0 4. 2007 was 1.0 billion and $3.S. (2) At December 31. were as follows: PBO exceeds fair value of plan assets U.25 6. plans (1) Pension Postretirement Non-U. plans Range (2) Weighted average During the year 6.0 1.5% to 9.0% or 6. (3) Effective January 1.0 1. (4) Future compensation increase rate for the non-U. plans 2008 $1.75 to 17. excluding U.9% 5.0 2.2 3.866 1.S.2% 6. plans (3) Non-U.At the end of 2008 and 2007. 146 .5 2008 6.4 5.0 to 10.0 to 8.7 2.S.S.0 1. 2008. the aggregate accumulated benefit obligation (ABO).0 to 8.25 4. Discount rates for the same group of countries as of December 31. Future compensation increase rates for small groups of employees were 4.5 4.3 (1) Weighted average rates for the U. Future compensation increase rates for the same group of countries as of December 31. and pension plans with an accumulated benefit obligation in excess of plan assets. plans (3) Non-U.374 1. 2008. plans Range (2) Weighted average Future compensation increase rate U.S.S.S.0 to 11.0% to 13.0 3. the aggregate projected benefit obligation (PBO). for both qualified and nonqualified plans and for both funded and unfunded plans.328 2007 $944 749 505 ABO exceeds fair value of plan assets U. pension plans. Only the future compensation increases for the grandfathered employees will affect future pension expense and obligations.4 2007 Discount rate U.S.0%.0 1. 2007. plans Range (4) Weighted average 6.S plans differs from the year end 2007 rates due to inclusion of newly material plans in 2008. exceeded the accumulated benefit obligations by $1. and non-U.25 to 11.2% 6.S.0 to 10. and the aggregate fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets.1 billion at December 31. respectively.25 6.6 3.0 6.231 875 2007 $804 668 396 In millions of dollars Projected benefit obligation Accumulated benefit obligation Fair value of plan assets 2008 $586 580 — 2007 $611 604 — Combined plan assets for the U.1% 6.S. the range includes plans in countries that were not reported earlier due to immateriality. plans 2008 $1.0%.

S.0% 2014 2014 A one-percentage-point change in assumed health care cost trend rates would have the following effects: One-percentagepoint increase In millions of dollars One-percentagepoint decrease 2008 $ (2) (41) 2007 $ (3) (44) 2008 $ 3 47 2007 $ 3 50 Effect on benefits earned and interest cost for U.5% 3.14 to 12. 2008. 2008. and an increase in the discount rate would increase pension expense.A one-percentage-point change in the discount rates would have the following effects on pension expense: One-percentagepoint increase In millions of dollars One-percentagepoint decrease 2008 $(24) 94 2007 $ (5) 80 2006 $120 72 2008 (1) 2007 $ 25 (59) 2006 $(100) (52) Effect on pension expense for U. plans Citigroup considers the expected rate of return to be a longer-term assessment of return expectations. As of December 31.S. Assumed health care cost trend rates were as follows: 2008 Health care cost increase rate–U.5% 8.S. As a result. plans equal the stated rates. Market performance over a number of earlier years is evaluated covering a wide range of economic conditions to determine whether there are sound reasons for projecting forward any past trends.5% 7.S. the Company lowered its expected rate of return to 7. plans Following year Ultimate rate to which cost increase is assumed to decline Year in which the ultimate rate is reached 2007 7.0% 5.0% (1) Weighted average rates for the U. plans Effect on accumulated postretirement benefit obligation for U. plans Effect on pension expense for non-U. pension expense for the U. plans Effect on pension expense for non-U.S. plans (1) Non-U. A one-percentage-point change in the expected rates of return would have the following effects on pension expense: One-percentagepoint increase In millions of dollars One-percentagepoint decrease 2008 $118 66 2007 $118 59 2006 $110 61 2008 $(118) (66) 2007 $(118) (59) 2006 $(110) (61) Effect on pension expense for U.S.S.0% 5.S. the majority of the prospective service cost has been eliminated and the gain/loss amortization period was changed to the life expectancy for inactive participants. The expected long-term rates of return on assets used in determining the Company’s pension expense are shown below: 2008 Rate of return on assets U. plans 147 .S. plans $ 36 (58) (1) Due to the freeze of the U. and does not anticipate changing this assumption annually unless there are significant changes in economic conditions or portfolio composition.75%.S. qualified pension plan is driven more by interest costs than service costs.0% 3.62% 8.0% 2007 8.25 to 12. plans Range Weighted average 8. qualified pension plan commencing January 1.S. based on each plan’s expected asset allocation. while a decrease in the discount rate would decrease pension expense.S.

75% that.26% 37.34% 0.S.6 to 100 — — — 24. and the weighted average target allocations for 2009 by asset category based on asset fair values.11 to 100 41.53 100% 2007 57. when combined with Citigroup’s contributions to the plans. Third-party investment managers and affiliated advisors provide their respective services to Citigroup’s U.8% 0. 148 .6 100% 2007 56. postretirement assets at December 31 at December 31 2008 6% 42 6 17 29 100% 2007 27% 17 6 15 35 100% 2008 6% 42 6 17 29 100% 2007 27% 17 6 15 35 100% (1) Equity securities in the U.1 0. In January 2007. fixed income securities and cash.1% 53. plans and the actual ranges at the end of 2008 and 2007. These allocations may vary by geographic region and country depending on the nature of applicable obligations and various other regional considerations.5 100% Asset category Equity securities Debt securities Real estate Other investments Total 2009 37. or local country securities. The investment strategies are targeted to produce a total return that.71 — 100% Citigroup’s global pension and postretirement funds’ investment strategies are to invest in a prudent manner for the exclusive purpose of providing benefits to participants. will maintain the funds’ ability to meet all required benefit obligations.0 to 10.5 5.S.0 to 56.6 — — 100% 39.6 9.75 0. pension plans. plans is a result of differing local statutory requirements and economic conditions.0 to 85. pension plans Weighted average Target asset allocation Actual range at December 31 2008 2007 Weighted average at December 31 2008 34.4 0.S. Citigroup’s pension and postretirement plans’ weighted average asset allocations for the non-U. Citigroup’s investment strategy with respect to its pension assets is to maintain a globally diversified investment portfolio across several asset classes targeting an annual rate of return of 7.0 to 40.0 to 53. Risk is controlled through diversification of asset types and investments in domestic and international equities.4% 42.0 to 75.13 36. plans at the end of 2008 and 2007.0 to 58.S. and the target allocations for 2009 by asset category based on asset fair values. will maintain the plans’ ability to meet all required benefit obligations. in certain countries local law requires that all pension plan assets must be invested in fixed income investments.S. Assets are rebalanced as the plan investment committee deems appropriate.9 7.Plan Assets Citigroup’s pension and postretirement plans’ asset allocations for the U.95 0. postretirement plans Weighted average Target asset allocation Asset category Equity securities Debt securities Real estate Other investments Total 2009 Actual range at December 31 2008 2007 Weighted average at December 31 2008 52.S.61% 0. The target asset allocation in most locations outside the U.18% 0.0 to 35.4% 55.0 to 100 0.4% 36. government funds.0 to 100 100% Non-U. pension plans sold all the Citigroup common stock it held (approximately $137. For example.2% 37. pension assets U. The wide variation in the actual range of plan asset allocations for the funded non-U.0 to 100 0.S.8 0. when combined with Citigroup’s contributions to the funds.5 0. are as follows: Target asset allocation Asset category Equity securities (1) Debt securities Real estate Private equity Other investments Total 2009 3 to 38% 25 to 62 3 to 8 0 to 15 12 to 32 U.2 million) to the Company at its fair value.S.S.S. are as follows: Non-U. is to have the majority of the assets in either equity or debt securities. pension plans include no Citigroup common stock at the end of 2008.S.21 — 10.69 0.53 0. the U.

since contribution decisions are affected by various factors.S. 2008 and 2007. there were no minimum required cash contributions and no discretionary or non-cash contributions are currently planned. the Company expects to contribute $27 million of benefits to be directly paid by the Company for its unfunded non-U.000 or less. for all of the U.148 2009 2010 2011 2012 2013 2014–2018 2009 2010 2011 2012 2013 2014–2018 Citigroup 401(k) Under the Citigroup 401(k) plan. the Company may increase its contributions above the minimum required contribution under ERISA. For the U. employees receive matching contributions up to 6% of their compensation. The pretax expense associated with this plan amounted to approximately $580 million in 2008. $81 million in 2007. and $77 million in 2006. These estimates are subject to change.S. plans In millions of dollars Before Medicare Part D subsidy $105 107 107 107 105 490 Medicare Part D subsidy $11 12 12 13 13 68 Non-U. The redesign provides for a significantly enhanced 401(k) company contribution offset by the elimination of future accruals under the Citigroup U. there are no expected or required contributions for 2009. eligible U. subject to statutory limits. a defined contribution plan.” and a federal subsidy to sponsors of U.Contributions Prescription Drugs Citigroup’s pension funding policy for U. This fixed contribution is invested initially in the Citigroup common stock fund. pension plans.S. The expected subsidy reduced the accumulated postretirement benefit obligation (APBO) by approximately $142 million and $141 million as of January 1. accordingly. postretirement welfare plans for 2008 and 2007. plans Pension benefits $ 276 258 275 284 288 1.S. in addition. 149 . management has the ability to change funding policy. 2008. discretionary cash contributions in 2009 are anticipated to be approximately $167 million. The Act of 2003 established a prescription drug benefit under Medicare known as “Medicare Part D. for eligible employees whose compensation is $100. respectively. postretirement benefit plans. For the non-U. postretirement benefit payments In millions of dollars The Company expects to pay the following estimated benefit payments in future years: U. The increase in expense from 2007 to 2008 reflects the redesign of retirement programs effective January 1.S. The benefits provided to certain participants are at least actuarially equivalent to Medicare Part D and. a fixed contribution of up to 2% of compensation is provided. Employees are free to transfer to alternative plan investments immediately. plans. expected cash contributions for 2009 are $91 million including $3 million of benefits to be directly paid by the Company. postretirement benefit plans.S.S. the Medicare Prescription Drug. retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. 2008. For the non-U. For the U. plans is generally to fund to applicable minimum funding requirements rather than to the amounts of accumulated benefit obligations. pension and postretirement plans. such as market performance and regulatory requirements. The following table shows the estimated future benefit payments without the effect of the subsidy and the amounts of the expected subsidy in future years: Expected U. pension plans. at December 31. Additionally. and the 2008 and 2007 postretirement expense by approximately $17 million and $18 million.S. the Company is entitled to a subsidy. respectively.S. if appropriate to its tax and cash position and the plans’ funded position. Estimated Future Benefit Payments In December 2003.S. For the U.S. Pension Plan.S. In addition. plans and non-U.680 Postretirement benefits $ 37 39 41 44 47 291 Pension benefits $ 740 745 752 769 789 4.S. The matching contribution is invested according to participants’ individual elections.S.S. Improvement and Modernization Act of 2003 (the “Act of 2003”) was enacted.

2008 2007 Structural Expense Review Restructuring Charges Severance Contract termination costs $ 25 $ 29 2 (28) (6) $ 22 $ 43 (4) (22) (2) $ 37 Asset Employee writetermination downs (3) cost $ 352 $ 27 — (363) (1) $ 15 $ 6 — (7) (4) $ 39 $ 11 — (33) (8) $ 9 $— — (6) (3) $— Total Citigroup $1. which is recorded as part of the Company’s Restructuring charge in the Consolidated Statement of Income. The remaining depreciable lives of these assets were shortened. and accelerated depreciation charges began in the second quarter of 2007 and fourth quarter of 2008 for the 2007 and 2008 initiatives. a pretax restructuring charge of $1.746 (219) $1. the Company completed a review of its structural expense base in a Company-wide effort to create a more streamlined organization. 144. Citigroup recorded a pretax restructuring expense of $1. Accounted for in accordance with SFAS No. In 2007. 2007 Additional charge Foreign exchange Utilization Changes in estimates Balance at December 31. Accounted for in accordance with SFAS No. Severance Contract termination costs $55 (2) $53 Asset Employee writetermination downs (3) cost $ 123 (100) $ 23 $19 — $19 Total Citigroup (4) $1. RESTRUCTURING In the fourth quarter of 2008. Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). increase the use of shared services. respectively. Additional net charges of $151 million were recognized in subsequent quarters throughout 2007 and a net release of $31 million in 2008 due to a change in estimates. 2008 (1) (2) (3) (4) $ 10 $ 100 Accounted for in accordance with SFAS No. reduce expense growth. 2008 Re-engineering Projects Restructuring Charges The primary goals of the 2007 Structural Expense Review and Restructuring. middle-office and corporate functions. The charges related to the 2008 Re-engineering Projects Restructuring Initiative are reported in the Restructuring line on the Company’s Consolidated Statement of Income and are recorded in each segment. Employer’s Accounting for Post Employment Benefits (SFAS 112). The charges related to the 2007 Structural Expense Review Restructuring Initiative are reported in the Restructuring line on the Company’s Consolidated Statement of Income. 112. The implementation of these restructuring initiatives also caused certain related premises and equipment assets to become redundant. and continue to rationalize operational spending on technology. and the 2008 Re-engineering Projects and Restructuring Initiatives were: • • • • • eliminate layers of management/improve workforce management. Total Citigroup charge in the table above does not include a $51 million one-time pension curtailment charge related to this restructuring initiative. The following tables detail the Company’s restructuring reserves. consolidate certain back-office.4 billion was recorded in Corporate/Other during the first quarter of 2007.046) (54) $ 503 $ 73 (15) (357) (104) In millions of dollars SFAS 112 (1) SFAS 146 (2) $ 950 $ 42 19 (547) (39) $ 425 $ 10 (11) (288) (93) $ 43 $ 11 $ 96 — (75) — $ 32 $ 14 — (34) (2) $ 10 Total Citigroup (pretax) Original restructuring charge Additional charge Foreign exchange Utilization Changes in estimates Balance at December 31. in addition to normal scheduled depreciation.527 In millions of dollars SFAS 112 (1) SFAS 146 (2) $1. 146.600. As a result of this review.797 billion pre-tax related to the implementation of a Company-wide re-engineering plan. This initiative will generate headcount reductions of approximately 20.254 (114) $1.140 $295 (3) $292 Total Citigroup (pretax) Original restructuring charge Utilization Balance at December 31. Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146).10.377 $ 205 21 (1. and provide investment funds for future growth initiatives. 150 . expand centralized procurement.

third. 2008 $ 265 111 515 293 343 $1. 2008 Total restructuring reserve balance as of December 31. the gross restructuring charges for the year then ended and the cumulative net restructuring expense incurred to date for the 2007 restructuring initiative are presented 2007 Structural Expense Review below by business segment.527 Total restructuring charges. and fourth quarters of 2008.The total balance as of December 31. 2008 Re-engineering Projects For the year ended December 31. In millions of dollars Total restructuring reserve balance as of December 31. 2008 related to the 2008 Re-engineering Projects Restructuring Initiatives are presented below by business segment in the following table. 2008 $ 27 5 2 17 49 $100 Total restructuring charges for the year ended December 31. 2008 $23 1 3 4 42 $73 Total restructuring charges since inception (1) $ 815 142 286 98 156 $1.497 Consumer Banking Global Cards Institutional Clients Group Global Wealth Management Corporate/Other Total Citigroup (pretax) (1) Amounts shown net of $158 million related to changes in estimates recorded during the fourth quarter of 2007 and second.797 Consumer Banking Global Cards Institutional Clients Group Global Wealth Management Corporate/Other Total Citigroup (pretax) (1) Represents the total charges incurred since inception. These charges are reported in the Restructuring line on the Company’s Consolidated Statement of Income and are recorded in each segment. The total restructuring reserve balance and total charges as of December 31.746 In millions of dollars Pension curtailment charges $26 1 14 5 5 $51 Total restructuring charges (1) $ 382 119 608 305 383 $1. excluding pension curtailment $ 356 118 594 300 378 $1. 2008. 151 . These net charges were included in the Corporate/Other segment because this company-wide restructuring was a corporate initiative.

968 29 $ 415 2007 $(2.071 18.498) 297 (109) $ 7.977 2. INCOME TAXES In millions of dollars Deferred income taxes at December 31 related to the following: 2008 $ (4. 2008 that. would affect the effective tax rate is $2.0) 38. including the tax benefit for not providing U.577 Current Federal Foreign State Total current income taxes Deferred Federal Foreign State Total deferred income taxes $(16.371 5.865) (765) (2.749 306 — 565 (759) (410) (1. 2008 $3.6 (4.430 $(2.354) Pension liability adjustments (918) Income taxes before minority interest $(29. 2008(1) (1) Includes $9 million for foreign penalties. The effective tax rate (benefit) of (322)% primarily resulted from pretax losses in the Company’s ICG and N.075) $ (9.585) (2.9)% Total unrecognized tax benefits at January 1. 2008 Total interest and penalties in the 2008 statement of operations Total interest and penalties in the balance sheet at December 31.833 — 1.404 $22. In millions of dollars (1) Includes the effect of securities transactions resulting in a (benefit) provision of $(721) million in 2008. The reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate applicable to income from continuing operations (before minority interest and the cumulative effect of accounting changes) for the years ended December 31 was as follows: 2008 Federal statutory rate State income taxes. relates to the resolution of the Federal and New York tax audits.3) (2.361) (222) (2.079 — $52. acquisitions and dispositions Total unrecognized tax benefits at December 31. $409 million in 2007 and $627 million in 2006.0% 2. 2008 to December 31.2) 0.0) 0. is a higher tax rate jurisdiction).027) Deferred tax assets Credit loss deduction Deferred compensation and employee benefits Restructuring and settlement reserves Unremitted foreign earnings Investments Cash flow hedges Tax credit and net operating loss carryforwards Other deferred tax assets Gross deferred tax assets Valuation allowance Deferred tax assets after valuation allowance Deferred tax liabilities Investments Deferred policy acquisition costs and value of insurance in force Leases Fixed assets Intangibles Credit valuation adjustment on Company-issued debt Other deferred tax liabilities Gross deferred tax liabilities Net deferred tax asset Provision (benefit) for income tax on continuing operations before minority $(20.610) $44.158) $(21. if recognized. net Effective income tax rate (2) 2007 2006 35.612) interest (1) Provision (benefit) for income taxes on discontinued operations 207 Provision (benefit) for income taxes on cumulative effect of accounting changes — Income tax expense (benefit) reported in stockholders’ equity related to: Foreign currency translation (2.113) (1.255) (954) (2.717 4.812) $(2.116) Securities available-for-sale (5.468 Total amount of unrecognized tax benefits at December 31.9) — (1.260) 3.332 The following is a roll-forward of the Company’s FIN 48 unrecognized tax benefits from January 1.6) 1.158 $52.469 2007 $ 5.365) (1.8) (0. 2008 Net amount of increases for current year’s tax positions Gross amount of increases for prior years’ tax positions Gross amount of decreases for prior years’ tax positions Amounts of decreases relating to settlements Reductions due to lapse of statutes of limitation Foreign exchange.615 75 $ 1. The remainder of the uncertain tax positions have offsetting amounts in other jurisdictions or are temporary differences.S.4) 27.9% (321. In millions of dollars (1) For 2006.647 $ (552) 490 164 $ 102 In millions of dollars 2008 $11.367 1. 152 . 2008.242 4.033) $ 6.582) 4.703 3.649 — $22.473) (758) $ (7. In addition.039) (776) $(3. Pretax $618 $114 $663 Net of tax $389 $ 81 $420 Total interest and penalties in the balance sheet at January 1.5 1.079 — $ (805) (1.928) 2006 $ 3. favorably impacted the Company’s effective tax rate.2 (180.284) (2.312 3. net of federal benefit Foreign income tax rate differential Audit settlements (1) Goodwill Tax advantaged investments Other.193) 52 271 (607) (406) (1.705) 426 $(4.698 254 252 (581) (21) (30) (104) $3.S. (2) The Company recorded an income tax benefit for 2007.2% 35. and Consumer Banking businesses (the U.A.686 2.644 2. Interest and penalties (not included in the “unrecognized tax benefits” above) are a component of the Provision for income taxes.388 2.766 178 $ 7.0% 35.468) Employee stock plans 449 Cash flow hedges (1.4 billion. the tax benefits of permanent differences.424 4.072) $13.6 (34.8) — — (2.0% 1.134 4.11.649 (1.6 (58. income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested.023) (761) (1.7 (84.

5 billion. 2008. This consists of $2. subsidiaries are subject to U.8 billion and $3. that could be implemented if necessary to prevent a carryforward from expiring.9 billion of which. $19.4 billion and $1. other than the following items.9 billion in compensation deductions. The gross uncertain tax position for this item at December 31.5 billion are deferred tax liabilities of $4 billion that will reverse in the relevant carryforward period and may be used to support the DTA.5 billion consists of approximately $36. taxation when effectively repatriated. tax rules such taxes will become payable only to the extent such amounts are distributed in excess of limits prescribed by federal law. In addition. As a U. The Company has a U. as defined in SFAS 109.S.2 billion. subsidiaries except to the extent that such earnings are indefinitely invested outside the United States. At December 31. At the existing U. Citigroup would need to generate approximately $85 billion of taxable income during the respective carryforward periods to fully realize its federal. Income taxes are not provided for on the Company’s savings bank base year bad debt reserves that arose before 1988 because under current U. At December 31.The Company is currently under audit by the Internal Revenue Service and other major taxing jurisdictions around the world. One of the issues relates to the timing of the inclusion of interchange fees received by the Company relating to credit card purchases by its cardholders. the amount of the base year reserves totaled approximately $358 million (subject to a tax of $125 million). taxation currently on all foreign pretax earnings earned by a foreign branch.9 billion in New York State and New York City. respectively.S. federal DTA are $10.2 billion and $4. 2007. The Company provides income taxes on the undistributed earnings of non-U. 2008 for the items expected to be resolved is approximately $350 million plus gross interest of $70 million.S.3 billion in 2008. and $0. Although realization is not assured. the Company believes that the realization of the recognized net deferred tax asset of $44. federal consolidated income tax returns for the years 2003–2005 within the next 12 months. 2008 and December 31. the Company has recorded deferred-tax assets in APB 23 subsidiaries for foreign net operating loss carryforwards of $130 million (which expires in 2018) and $101 million (with no expiration). foreign tax-credit carryforward of $10. state and local DTAs.S. the only effect to the Company’s effective tax rate would be due to net interest and state tax rate differentials. along with less significant net operating losses in various other states for which the Company has recorded a deferred-tax asset of $399 million and which expire between 2012 and 2028. In addition. $5. The Company also has a general business credit carryforward of $0. $0. subsidiaries were indefinitely invested. respectively.S.S.S. 153 .6 billion in a net-operating-loss carryforward. corporation.1 billion in 2007. $22. which reduced Additional paid-in capital in January 2009 and for which SFAS 123(R) did not permit any adjustment to such DTA at December 31. Included in the net federal DTA of $36.5 billion in foreign tax-credit carryforwards. $9. It is thus reasonably possible that significant changes in the gross balance of unrecognized tax benefits may occur within the next 12 months.8 billion of accumulated undistributed earnings of non-U. federal DTAs. The Company has state and local net operating loss carryforwards of $16.7 billion and $0.9 billion in net deductions that have not yet been taken on a tax return.1 billion. foreign tax credits) of $6. If the reserve were to be released.S. additional taxes (net of U.S. 2008. the Company expects to conclude the IRS audit of its U. whose expiration date is 2027 and $13. Pretax earnings of a foreign subsidiary or affiliate are subject to U. $0.5 billion of net U.6 billion in 2006 ($5.3 billion whose expiry date is 2017 and $4. It is reasonably possible that within the next 12 months the Company can either reach agreement on this issue at Appeals or decide to litigate the issue.6 billion whose expiration dates are 2027-2028. and $13. The gross uncertain tax position at December 31. The Company has no valuation allowance on deferred tax assets at December 31. At December 31.2 billion.S. are in discontinued operations). The major components of the U.8 billion whose expiry date is 2018. 2008.5 billion is more likely than not based on expectations as to future taxable income in the jurisdictions in which it operates and available tax planning strategies. 2008 is $542 million. 2008 because the related stock compensation was not yet deductible to the Company. This issue is presently being litigated by another company in a United States Tax Court case. In general. The Company’s net deferred tax asset (DTA) of $44.7 billion whose expiration date is 2028 and for which the Company has recorded a deferred-tax asset of $1. the tax benefit could be as much as $168 million.S. federal income tax rate. The current year’s effect on the income tax expense from continuing operations is included in the Foreign income tax rate differential line in the reconciliation of the federal statutory rate to the Company’s effective income tax rate on the previous page. $4. The Company is currently at IRS Appeals for the years 1999–2002. but the Company does not expect such audits to result in amounts that would cause a significant change to its effective tax rate. $4 billion of net state DTAs and $4 billion of net foreign DTAs.4 billion whose expiry date is 2016. The following are the major tax jurisdictions in which the Company and its affiliates operate and the earliest tax year subject to examination: Jurisdiction Tax year 2003 2006 2005 2007 2000 2005 2006 2004 United States Mexico New York State and City United Kingdom Germany Korea Japan Brazil Foreign pretax earnings approximated $10. The potential net tax benefit to continuing operations could be approximately $325 million.1 billion would have to be provided if such earnings were remitted currently.S. Citigroup and its U.S. $0.6 billion in a general-business-credit carryforward. the Company had a U. Since this is a temporary difference.S federal consolidated net operating loss (NOL) carryforward of approximately $13 billion whose expiration date is 2028.

overall domestic losses that the Company has incurred of approximately $35 billion are allowed to be reclassified as foreign source income to the extent of 50% of domestic source income produced in subsequent years and are in fact sufficient to cover the foreign tax credits being carried forward. its funding structure has been changed by the issuance of preferred stock. if necessary. can produce significant taxable income within the relevant carryforward periods. the “core” businesses have been negatively affected by the large increase in consumer credit losses during this sharp economic downturn cycle. as well as Smith Barney and Primerica Financial Services. could be significantly reduced in the near term if estimates of future taxable income during the carryforward period are significantly lower than forecasted due to further decreases in market conditions. The Company has concluded that there is sufficient positive evidence to overcome this negative evidence. the sale or restructuring of certain businesses. the Company has sufficient tax planning strategies. utilization of foreign tax credits is restricted to 35% of foreign source taxable income in that year. the Company has projected its pretax earnings based upon the “core” businesses that the Company intends to conduct going forward. and New York State and City net operating loss carryforward period of 20 years provides enough time to utilize the DTAs pertaining to the existing net operating loss carryforwards and any NOL that would be created by the reversal of the future net deductions which have not yet been taken on a tax return. selling appreciated intangible assets and electing straight-line depreciation). the Company forecasts sufficient taxable income in the carryforward period. while purchasing assets which produce fully taxable income. In addition. The positive evidence includes two means by which the Company is able to fully realize its DTA. to prevent a carryforward from expiring. The Company has taken steps to “ring-fence” certain legacy assets to minimize any losses from the legacy assets going forward. foreign tax-credit carryforward period is 10 years. Based upon the foregoing discussion. A cumulative loss position is considered significant negative evidence in assessing the realizability of a DTA. and selling certain assets which produce tax exempt income. As such. the Company is projecting that it will generate sufficient pretax earnings within the 10-year carryforward period alluded to above to be able to fully utilize the foreign tax credit carryforward. such as the announced Smith Barney joint venture with Morgan Stanley with an estimated pretax gain of $9. as well as tax planning opportunities and other factors discussed below. Regarding the estimate of future taxable income.S. The Company has already taken steps to reduce its cost structure. 2008. These strategies include repatriating low taxed foreign earnings for which an APB 23 assertion has not been made. which are funded by tax deductible interest payments. holding on to AFS debt securities with losses until they mature. however. which is funded by non-tax deductible dividends. even under stressed scenarios. Taking these items into account.. the U. During 2008. The U.S. including potential sales of businesses and assets that could realize the excess of appreciated value over the tax basis of its assets. The amount of the deferred tax asset considered realizable. The Company has also examined “tax planning strategies” available to it in accordance with SFAS 109 which would be employed. 154 .As a result of the losses incurred in 2008. the Company is in a three-year cumulative pretax loss position at December 31. exclusive of tax planning strategies. the foreign source taxable income limitation will not be an impediment to the foreign tax credit carryforward usage as long as the Company can generate sufficient domestic taxable income within the 10-year carryforward period. Due to the passage of the American Jobs Creation Act of 2004.5 billion. in an amount sufficient to fully realize its DTA. as opposed to debt type securities. First. In addition.g. accelerating taxable income into or deferring deductions out of the latter years of the carryforward period with reversals to occur after the carryforward period (e. These businesses have produced steady and strong earnings in the past. in addition to any foreign tax credits produced in such period. In addition. Secondly.

12. EARNINGS PER SHARE

The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the years ended December 31:
In millions, except per share amounts

2008 $(32,094) 4,410 (1,732) (29,416) 877 $(28,539) 5,265.4 0.3 26.2 503.2 5,795.1 $ (6.42) 0.83 $ (5.59) $ (6.42) 0.83 $ (5.59) $ $ $ $

2007 $ 2,989 628 (36) 3,581 — $ 3,581 4,905.8 18.2 71.3 — 4,995.3 0.60 0.13 0.73 0.59 0.13 0.72 $ $ $ $

2006 $ 20,451 1,087 (64) 21,474 — $ 21,474 4,887.3 27.2 71.6 — 4,986.1 4.17 0.22 4.39 4.09 0.22 4.31

Income (loss) from continuing operations Discontinued operations Preferred dividends Income (loss) available to common stockholders for basic EPS Effect of dilutive securities Income (loss) available to common stockholders for diluted EPS (1) Weighted average common shares outstanding applicable to basic EPS Effect of dilutive securities: Options Restricted and deferred stock Preferred stock Adjusted weighted average common shares outstanding applicable to diluted EPS Basic earnings per Income (loss) from continuing operations Discontinued operations Net income (loss) Diluted earnings per share (1)(2) Income (loss) from continuing operations Discontinued operations Net income (loss) share (2)

(1) Due to the net loss in 2008, income (loss) available to common stockholders for basic EPS was used to calculate diluted earnings per share. Adding back the effect of dilutive securities would result in anti-dilution. (2) Diluted shares used in the diluted EPS calculation represent basic shares for 2008 due to the net loss. Using actual diluted shares would result in anti-dilution.

During 2008, 2007 and 2006, weighted average options of 156.1 million, 76.3 million, and 69.1 million shares, respectively, with weighted average exercise prices of $41.99, $50.40, and $49.98 per share, respectively, were

excluded from the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the Company’s common stock.

155

13. FEDERAL FUNDS, SECURITIES BORROWED, LOANED, AND SUBJECT TO REPURCHASE AGREEMENTS

Federal funds sold and securities borrowed or purchased under agreements to resell, at their respective fair values, consisted of the following at December 31:
In millions of dollars at year end

2008 $ — 78,701 105,432 $

2007 196 98,258 175,612

Federal funds sold Securities purchased under agreements to resell Deposits paid for securities borrowed Total

$184,133

$274,066

Federal funds purchased and securities loaned or sold under agreements to repurchase, at their respective fair values, consisted of the following at December 31:
In millions of dollars at year end

A majority of the deposits paid for securities borrowed and deposits received for securities loaned are recorded at the amount of cash advanced or received and are collateralized principally by government and government agency securities and corporate debt and equity securities. The remaining portion is recorded at fair value as the Company elected fair value option for certain securities borrowed and loaned portfolios in accordance with SFAS 159. This election was made effective in the second quarter of 2007. Securities borrowed transactions require the Company to deposit cash with the lender. With respect to securities loaned, the Company receives cash collateral in an amount generally in excess of the market value of securities loaned. The Company monitors the market value of securities borrowed and securities loaned daily, and additional collateral is obtained as necessary. Securities borrowed and securities loaned are reported net by counterparty, when applicable, pursuant to FIN 39.

2008 $ 5,755 177,585 21,953 $205,293

2007 $ 6,279 230,880 67,084 $304,243

Federal funds purchased Securities sold under agreements to repurchase Deposits received for securities loaned Total

The resale and repurchase agreements represent collateralized financing transactions used to generate net interest income and facilitate trading activity. These instruments are collateralized principally by government and government agency securities and generally have terms ranging from overnight to up to a year. It is the Company’s policy to take possession of the underlying collateral, monitor its market value relative to the amounts due under the agreements and, when necessary, require prompt transfer of additional collateral or reduction in the balance in order to maintain contractual margin protection. In the event of counterparty default, the financing agreement provides the Company with the right to liquidate the collateral held. As disclosed in Note 27 on page 202, effective January 1, 2007, the Company elected fair value option accounting in accordance with SFAS 159 for the majority of the resale and repurchase agreements. The remaining portion is carried at the amount of cash initially advanced or received, plus accrued interest, as specified in the respective agreements. Resale agreements and repurchase agreements are reported net by counterparty, when applicable, pursuant to FIN 41. Excluding the impact of FIN 41, resale agreements totaled $114.0 billion and $151.0 billion at December 31, 2008 and 2007, respectively.

156

14. BROKERAGE RECEIVABLES AND BROKERAGE PAYABLES

15. TRADING ACCOUNT ASSETS AND LIABILITIES

The Company has receivables and payables for financial instruments purchased from and sold to brokers, dealers and customers. The Company is exposed to risk of loss from the inability of brokers, dealers or customers to pay for purchases or to deliver the financial instruments sold, in which case the Company would have to sell or purchase the financial instruments at prevailing market prices. Credit risk is reduced to the extent that an exchange or clearing organization acts as a counterparty to the transaction. The Company seeks to protect itself from the risks associated with customer activities by requiring customers to maintain margin collateral in compliance with regulatory and internal guidelines. Margin levels are monitored daily, and customers deposit additional collateral as required. Where customers cannot meet collateral requirements, the Company will liquidate sufficient underlying financial instruments to bring the customer into compliance with the required margin level. Exposure to credit risk is impacted by market volatility, which may impair the ability of clients to satisfy their obligations to the Company. Credit limits are established and closely monitored for customers and brokers and dealers engaged in forwards, futures and other transactions deemed to be credit sensitive. Brokerage receivables and brokerage payables, which arise in the normal course of business, consisted of the following at December 31:
In millions of dollars

Trading account assets and liabilities, at fair value, consisted of the following at December 31:
In millions of dollars

2008 $ 44,369 9,510 57,422 54,654 115,289 48,503 21,830 26,058 $377,635 $ 50,693 116,785 $167,478

2007 $ 32,180 18,574 52,332 181,333 76,881 106,868 56,740 14,076 $538,984 $ 78,541 103,541 $182,082

Trading account assets U.S. Treasury and federal agency securities State and municipal securities Foreign government securities Corporate and other debt securities Derivatives (1) Equity securities Mortgage loans and collateralized mortgage securities Other (2) Total trading account assets Trading account liabilities Securities sold, not yet purchased Derivatives (1) Total trading account liabilities
(1) Pursuant to master netting agreements. (2) Includes commodity inventory measured at lower of cost or market.

2008

2007 $39,137 18,222 $57,359 $54,038 30,913 $84,951

Receivables from customers $26,297 Receivables from brokers, dealers, and clearing organizations 17,981 Total brokerage receivables Payables to customers Payables to brokers, dealers, and clearing organizations Total brokerage payables $44,278 $54,167 16,749 $70,916

157

16. INVESTMENTS
In millions of dollars

2008 $175,189 64,459 9,262 7,110 $256,020

2007 $193,113 1 13,603 8,291 $215,008

Securities available-for-sale Debt securities held-to-maturity (1) Non-marketable equity securities carried at fair value (2) Non-marketable equity securities carried at cost (3) Total investments

(1) Recorded at amortized cost. (2) Unrealized gains and losses for non-marketable equity securities carried at fair value are recognized in earnings. (3) Non-marketable equity securities carried at cost primarily consist of shares issued by the Federal Reserve Bank, Federal Home Loan Bank, foreign central banks and various clearing houses in which Citigroup is a member.

Securities Available-for-Sale

The amortized cost and fair value of securities available-for-sale at December 31, 2008 and December 31, 2007 were as follows:
2008 Amortized cost $ 32,798 23,702 18,156 79,505 10,258 12,172 $176,591 $ 5,768 $182,359 Gross unrealized gains $ 266 340 38 945 59 42 $1,690 $ 554 $2,244 Gross unrealized losses $3,196 77 4,370 408 590 314 $8,955 $ 459 $9,414 Amortized cost $ 63,888 19,428 13,342 72,339 9,648 12,336 $190,981 $ 1,404 $192,385 Gross unrealized gains $ 158 66 120 396 70 97 $ 907 $2,420 $3,327 Gross unrealized losses $ 971 70 256 660 120 464 $2,541 $ 58 2007(1)

In millions of dollars

Fair value $ 29,868 23,965 13,824 80,042 9,727 11,900 $169,326 $ 5,863 $175,189

Fair value $ 63,075 19,424 13,206 72,075 9,598 11,969 $189,347 $ 3,766 $193,113

Debt securities available-for-sale: Mortgage-backed securities (2) U.S. Treasury and federal agencies State and municipal Foreign government U.S. corporate Other debt securities Total debt securities available-for-sale Marketable equity securities available-for-sale Total securities available-for-sale
(1) Reclassified to conform to the current periods presentation. (2) Includes mortgage-backed securities of U.S. federal agencies.

$2,599

At December 31, 2008, the cost of approximately 5,300 investments in equity and fixed income securities exceeded their fair value by $9.414 billion. Of the $9.414 billion, the gross unrealized loss on equity securities was $459 million. Of the remainder, $5.692 billion represents fixed-income investments that have been in a gross unrealized loss position for less than a year and, of these, 97% are rated investment grade; $3.263 billion represents fixed income investments that have been in a gross unrealized loss position for a year or more and, of these, 91% are rated investment grade. Available-for-sale mortgage-backed securities portfolio fair value balance of $29.868 billion consists of $23.727 billion of government-sponsored agencies securities, and $6.141 billion of privately sponsored securities of which the majority is backed by mortgages that are not Alt-A or subprime. This balance decreased from $63.075 billion as of December 31, 2007, or $33.207 billion, due to unrealized losses, pay-downs received, and the reclassification of Alt-A and non-agency securities from available-for-sale to held-to-maturity investments.

The increase in gross unrealized losses on mortgage-backed securities was primarily related to a widening of market spreads, reflecting an increase in risk/liquidity premiums. The increase in gross unrealized losses on state and municipal debt securities during 2008 was a result of market disruption, causing reduced liquidity and an increase in municipal bond yields. For these securities, management has asserted significant holding periods that in certain cases now approach maturity of the securities. As discussed in more detail below, the Company conducts and documents periodic reviews of all securities with unrealized losses to evaluate whether the impairment is other than temporary, pursuant to FASB Staff Position No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP FAS 115-1). Any unrealized loss identified as other than temporary is recorded directly in the Consolidated Statement of Income.

158

The table below shows the fair value of investments in available-for-sale securities that have been in an unrealized loss position for less than 12 months or for 12 months or longer as of December 31, 2008 and 2007:
Less than 12 months Fair value Gross unrealized losses 12 months or longer Fair value Gross unrealized losses Fair value Total Gross unrealized losses

In millions of dollars at year end

2008: Securities available-for-sale Mortgage-backed securities U.S. Treasury and federal agencies State and municipal Foreign government U.S. corporate Other debt securities Marketable equity securities available-for-sale Total securities available-for-sale 2007: Securities available-for-sale Mortgage-backed securities U.S. Treasury and federal agencies State and municipal Foreign government U.S. corporate Other debt securities Marketable equity securities available-for-sale Total securities available-for-sale

$ 7,800 1,654 12,827 10,697 1,604 1,325 3,254 $39,161

$1,177 76 3,872 201 214 152 386 $6,078

$ 3,793 1 3,762 9,080 3,872 824 102 $21,434

$2,019 1 498 207 376 162 73 $3,336

$ 11,593 1,655 16,589 19,777 5,476 2,149 3,356 $ 60,595

$3,196 77 4,370 408 590 314 459 $9,414

$ 4,432 7,369 7,944 34,929 1,489 3,214 60 $59,437

$

65 28 190 305 52 49 12

$27,221 4,431 1,079 9,598 1,789 879 39 $45,036

$ 906 42 66 355 418 65 46 $1,898

$ 31,653 11,800 9,023 44,527 3,278 4,093 99 $104,473

$ 971 70 256 660 470 114 58 $2,599

$ 701

159

407 836 475 $10.435 (267) $1.824 $ 26.168 2006 $2. The Company purchased an additional $4.044 (3.791 Gross realized investment gains Gross realized investment losses Net realized gains (losses) Debt Securities Held-to-Maturity $ 18. Reclassification of debt securities were made at fair value on the date of transfer. (2) Investments with no stated maturities are included as contractual maturities of greater than 10 years.557 3.119 (328) $1.2 billion of held-to-maturity securities during the fourth quarter of 2008. subsequent declines in value of these securities are primarily related to the ongoing widening of market credit spreads reflecting increased risk and liquidity premiums that buyers are currently demanding.937 45.340 Taxable interest Interest exempt from U.868 $ 15. federal income tax Dividends Total interest and dividends Mortgage-backed securities (1) Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years (2) Total U. corporations. 160 . federal agencies.798 $ 15.096 660 584 $10.755 1.061) 2007 $1. many in the context of Citigroup’s acting as a market maker. and other debt securities.736 5. in accordance with prior commitments.362 30.0 billion. the primary buyers for these securities have typically demanded returns on investments that are significantly higher than previously experienced.326 (1) Includes mortgage-backed securities of U.423 2006 $ 9. Citigroup made a number of transfers out of the trading and available-for-sale categories in order to better reflect the revised intentions of the Company in response to the recent significant deterioration in market conditions.160 2. The Company believes that the expected cash flows to be generated from holding the assets significantly exceed their current fair value.356 $ 26.S. Actual maturities may differ due to call or prepayment rights.977 235 $ 23.710 $ 80 567 1. corporate.319 2.462 6.647 $ 29.774 $ 21. the Company reviewed portfolios of debt securities classified in Trading account assets and available-for-sale securities.591 $ 13.965 $ 214 84 406 13. However.662 12. (3) Includes U. and identified positions where there has been a change of intent to hold the debt securities for much longer periods of time than originally anticipated.169 897 357 $13.141 28.452 6.481 45. most of these positions were liquid.S.718 2007 $12. asset-backed securities issued by U.051 $ 22.771 601 $ 79.3 billion and $27.692 11.042 $ 4.S. SFAS 115 requires transfers of securities out of the trading category be rare. respectively. During the fourth quarter of 2008. The gross realized investment losses include losses from other-than-temporary impairment: In millions of dollars 2008 $ 1. which were especially acute during the fourth quarter of 2008.907 1. which has been significantly and adversely impacted by the reduced liquidity in the global financial markets. 2008: In millions of dollars Amortized cost Fair value The following table presents interest and dividends on investments: In millions of dollars 2008 $ 9.899 744 $ 80.S.627 $169.The following table presents the amortized cost and fair value of debt securities available-for-sale by contractual maturity dates as of December 31.305 $ 4. At the date of acquisition. As market liquidity has decreased.120 The following table presents realized gains and losses on investments.702 $ 214 84 411 17. Treasury and federal agencies Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years (2) Total State and municipal Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years (2) Total Foreign government Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years (2) Total All other Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years (2) Total Total debt securities available-for-sale (3) $ 87 639 1. Most of the debt securities previously classified as trading were bought and held principally for the purpose of selling them in the short term.105) $(2.080 $ 32. 2008 carrying value of the securities transferred from Trading account assets and available-for-sale securities was $33. and the Company expected active and frequent buying and selling with the objective of generating profits on short-term differences in price. The December 31.902 309 $ 23. These rare market conditions were not foreseen at the initial purchase date of the securities.846 5.430 $176.S.842 2.

367 27.751 5.981 Carrying value $ 1. The net unrealized losses classified in accumulated other comprehensive income that relates to debt securities reclassified from available-for-sale investments to held-to-maturity investments was $8.719 6. which have been in a loss position for twelve months or longer.753 Gross unrealized losses $2.478 $6. 2008.368 $30.738 billion with a fair value of $27.030 339 973 $4.716 16.112 Total Gross unrealized losses $3.128 $6.S. other than impairment charges. includes the following: Amortized cost $ 1. 2008.259 $60.0 billion of gross unrealized losses recorded in AOCI related to the held-to-maturity securities that were reclassified from available-for-sale investments.030 Fair value $ 1. 161 .377 In millions of dollars Debt securities held-to-maturity Mortgage-backed securities State and municipal Other debt securities Total debt securities held-to-maturity (1) For securities transferred to held-to-maturity from Trading account assets.751 In millions of dollars Mortgage-backed securities held-to-maturity U.708 $72.700 held-to-maturity securities exceeded their fair value. Approximately $5.481 1.738 Gross unrecognized gains $— 23 — 15 5 $43 Gross unrecognized losses $ 45 1.976 $27. This balance is amortized over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on the same transferred debt securities.500 $14.045 1. are not reported on the financial statements. (2) Held-to-maturity securities are carried on the Balance Sheet at amortized cost and the changes in the value of these securities.719 Net unrealized loss on date of transfer $ 76 4.020 $64.941 4.243 9.658 7. non-government agency sponsored securities Alt-A Prime Subprime Non-U. 2008.344 — 14. the amortized cost of approximately 1. amortized cost is defined as the original purchase cost.701 28. amortized cost is defined as the fair value amount of the securities at the date of transfer.359 Gross unrealized losses $ 676 339 237 $1. This will have no impact on the Company’s net income.422 1.030 339 973 $4. 2008.019 Gross Carrying unrecognized value (2) gains $30.9 billion at December 31. The table below shows the fair value and the unrealized losses of these securities as of December 31.090 Fair value $27.918 5.095 8. For securities transferred to held-to-maturity from available-for-sale.436 125 1.918 19.342 Fair value $27.S.442 6.368 10. an other-than-temporary impairment charge of $337 million was recorded in earnings.2 billion of these unrealized losses relate to securities with a fair value of $16.0 billion as of December 31.459 $ 43 5 212 $260 Gross unrecognized losses $3.216 1.354 — 736 $3. plus or minus any accretion or amortization of interest. 2008: Less than 12 months Fair value $ 3.051 28. The held-to-maturity mortgage-backed securities portfolio’s carrying value of $30.981 350 688 $8.751 billion as of December 31. government agency sponsored securities U.595 10.342 In millions of dollars at year end Debt securities held-to-maturity Mortgage-backed securities State and municipal Other debt securities Total debt securities held-to-maturity (1) (1) Subsequent to the transfer of the securities to held-to-maturity. less any impairment previously recognized in earnings.640 12.409 $37.The carrying value and fair value of securities held-to-maturity at December 31.S.663 5.285 4.252 12 months or longer Fair value $23. because the amortization of the unrealized holding loss reported in equity will offset the effect on interest income of the accretion of the discount on these securities.802 623 163 397 $3.496 $37. 2008: Net unrealized loss on date of Amortized transfer cost (1) $37.909 $52. Excluded from the gross unrealized losses presented in this table is the $8.738 5. mortgage-backed securities Total mortgage-backed securities held-to-maturity At December 31.

Evaluating Investments for Other-than-Temporary Impairments The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss. given the declines in fair values of mortgage-backed securities.459 $ 5. including an evaluation of factors or triggers that could cause individual investments to qualify as having other-than-temporary impairment and those that would not support other-than-temporary impairment. • discussion of evidential matter.738 $ 138 137 105 5.322 $27. in Accumulated other comprehensive income (AOCI) for available-for-sale securities.531 Fair value $ 50 101 32 27. amortized cost is defined as the original purchase cost.The following table presents the carrying value and fair value of debt securities held-to-maturity by contractual maturity dates as of December 31. considering the transaction structure and any subordination and credit enhancements that exist in that structure. The extent of the Company’s analysis regarding credit quality and the stress on assumptions used in the analysis have been refined for securities where the current fair value or other characteristics of the security warrant.604 5.821 5.259 $60. The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP FAS 115-1).448 11. mortgage-backed securities (and in particular for Alt-A and other mortgage-backed securities that have significant unrealized losses as a percentage of amortized cost). including default rates. Actual maturities may differ due to call or prepayment rights. • the cause of the impairment and the financial condition and near-term prospects of the issuer.020 $64.992 $ 5. Factors considered in determining whether a loss is temporary include: • the length of time and the extent to which fair value has been below cost. $30. prepayment rates.701 $ 4. • activity in the market of the issuer which may indicate adverse credit conditions. while such losses related to held-to-maturity securities are not recorded. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and then projects the remaining cash flows using a number of assumptions. in accordance with FASB Staff Position No. net of tax. Unrealized losses that are determined to be temporary in nature are recorded.367 $ 4.321 $27. and recovery rates (on foreclosed properties).471 10. 162 . using the security-specific collateral and transaction structure. • analysis of individual investments that have fair values less than amortized cost. plus or minus any accretion or amortization of interest. the Company’s analysis for identifying securities for which it is not probable that all principal and interest contractually due will be recovered have been refined. amortized cost is defined as the fair value amount of the securities at the date of transfer. 115-1. less any impairment recognized in earnings. For securities transferred to held-to-maturity from available-for-sale. 2008: In millions of dollars Mortgage-backed securities Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years (1) Total State and municipal Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years (1) Total All other (2) Due within 1 year After 1 but within 5 years After 5 but within 10 years After 10 years (1) Total Total debt securities held-to-maturity Carrying value $ 73 102 32 30.751 $ 138 137 100 4. general concerns regarding housing prices and the delinquency and default rates on the mortgage loans underlying these securities. credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgages. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities. as required under business policies. as these investments are carried at their amortized cost (less any permanent impairment). and • documentation of the results of these analyses. For securities transferred to held-to-maturity from Trading account assets.609 $28. the Company has assessed each position for credit impairment. (2) Includes asset-backed securities and all other debt securities. For example.142 6. including consideration of the length of time the investment has been in an unrealized loss position and the expected recovery period. and • the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery.568 Regardless of the classification of the securities as available-for-sale or held-to-maturity.862 6. for U.S. The Company’s review for impairment generally entails: • identification and evaluation of investments that have indications of possible impairment. More specifically. • the severity of the impairment.377 (1) Investments with no stated maturities are included as contractual maturities of greater than 10 years.

480 18.826 31 $360.145 4. The weighted-average estimated life of the securities is currently approximately 7 years for U.151 $395. $337 million of which was recorded on held-to-maturity investments after they had been reclassified.124 $195.660) $174. that it is not probable that a mortgage-backed security will recover all principal and interest due. Impaired loans are those which Citigroup believes it is probable that it will not collect all amounts due according to the original contractual terms of the loan. Impaired loans include smaller-balance homogeneous loans whose terms have been modified due to the borrower’s financial difficulties and Citigroup granted a concession to the borrower. home equity loans).450 10. offices Mortgage and real estate (1) Installment. these products are not material to Citigroup’s financial position and are closely managed via credit controls that mitigate their additional inherent risk.645 $591. Commercial and industrial Mortgage and real estate (1) Loans to financial institutions Lease financing Governments and official institutions Total corporate loans Net unearned income(4) Corporate loans.220 $ 42.778 1. Includes loans not otherwise separately categorized.850 385 $127. offices Commercial and industrial (2) Loans to financial institutions Lease financing Mortgage and real estate (1) In offices outside the U.502 $186. mortgage-backed securities.686 Loans secured primarily by real estate. principal forgiveness and/or term extensions.932 304 $158.686 $ 99. given the forward-looking assumptions.467 2. because of the market disruption that occurred late in the third quarter of 2008 for state and municipal debt securities. In most cases. In addition.927 140. revolving credit and other Lease financing $229.307 In offices outside the U. net of unearned income (1) (2) (3) (4) $ 48.560 $ 51. The estimated life of the securities may change depending on future performance of the underlying loans. However. Increase in unearned income in 2008 relates to the transfer of loans from the held-for-sale category to the held-for-investment category at a discount to par.517 $179. the secondary market value of the loan and the fair value of collateral less disposal costs.543 $ 30. the present value of the expected future cash flows discounted at the loan’s original contractual effective rate. Such modifications may include interest rate reductions for other than a temporary period. Reclassified to conform to current year’s presentation. Management has asserted significant holding periods for mortgage-backed securities that in certain cases now approach the maturity of the securities.S. This excludes smallerbalance homogeneous loans that have not been modified and are carried on a non-accrual basis. including prepayment activity and experienced credit losses. multiple loans supported by the same collateral (e. the securities’ decline in fair value is deemed to be other-than-temporary and is recorded in earnings.673 $ 33.935 $ 738 $519.S. the analysis regarding these potential impairments have also been refined. revolving credit and other Lease financing Total consumer loans Net unearned income Consumer loans.520 $ 787 $592.8 billion of pretax losses for other-than-temporary impairments. Valuation allowances for these loans are estimated considering all available evidence including.476 6. As a result of these analyses.S.156 20.720 $116. management has asserted that it has the intent and ability to hold investments for the forecasted recovery period. as appropriate. Credit cards with below-market introductory interest rates.513 $518.152 139.292 442 $143.200 1.S. Included in the previous loan table are lending products whose terms may give rise to additional credit issues.565 130.Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. If the models predict.. the Company records other-than-temporary impairment in the Consolidated Statement of Income equal to the entire decline in fair value of the mortgage-backed security.413 1.389 7. 163 .277 109. 17.797 3.g.092 8.422 $251.369 1. or interest-only loans are examples of such products. LOANS In millions of dollars at year end 2008 2007 (3) Consumer In U. Mortgage and real estate (1) Installment. which in some cases may be the security’s maturity date.S. management performs additional analysis to assess whether it has the intent and ability to hold each security for a period of time sufficient for a forecasted recovery of fair value.222 (536) $185. during 2008 the Company recorded approximately $2.203 (4.630 2. net of unearned income Corporate In U. Where such an assertion has not been made. Where a mortgage-backed security held as AFS is not deemed to be credit impaired.875 $ 55.

(3) The balance reported in the column “Carrying amount of loan receivable” consists of $995 million of loans accounted for under the level-yield method and $515 million accounted for under the cost recovery method. related allowance and carrying amount net of accretable yield for 2008 are as follows: Accretable yield $ 219 38 — (171) 4 — 2 $ 92 Carrying amount of loan receivable $ 2.547 2007 $1. Where the expected cash flows cannot be reliably estimated. information derived from the Company’s risk management systems indicates that such modifications were approximately $12.698 2. (2) The balance reported in the column “Carrying amount of loan receivable” consists of $114 million of purchased loans accounted for under the level-yield method and $293 million under the cost recovery method.976 $1.The following table presents information about impaired loans: In millions of dollars at year end 2008 $ 9.510 million gross of an allowance of $122 million. subsequent decreases to the expected cash flows for a purchased distressed loan require a build of an allowance so the loan retains its level yield. December 31.151 billion. these loans have been excluded from the impaired loan information presented above. which are loans that have evidenced significant credit deterioration subsequent to origination but prior to acquisition by Citigroup. 164 . 03-3. such modified impaired Consumer loans amounted to $8. Accordingly.735 241 $1. per SOP 03-3.266 $ $ 49 276 (1) Prior to 2008. The changes in the accretable yield. respectively. In accordance with SOP 03-3.071 $ 4. the purchased distressed loan is accounted for under the cost recovery method. (3) Includes amounts related to Consumer loans not separately tracked in the Company financial accounting systems prior to 2008.163 5. However. However. (4) Included in the Allowance for loan losses.457) 171 — 42 (26) $ 1. which became effective in 2005. “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (SOP 03-3). The carrying amount of the purchased distressed loan portfolio at December 31. the Company’s financial accounting systems did not separately track impaired smallerbalance. The related total expected cash flows for the level-yield loans were $151 million at their acquisition dates. (2) Excludes loans purchased for investment purposes.0 billion and $4. the difference between the total expected cash flows for these loans and the initial recorded investments must be recognized in income over the life of the loans using a level yield.373 $ 5. In addition. In addition. These balances represent the fair value of these loans at their acquisition date.7 billion at December 31.050 — $ 101 — 2006 $458 360 $818 $439 — $122 — $122 $767 — $ 63 — Impaired corporate loans Impaired consumer loans (1) Total impaired loans (2) Impaired corporate loans with valuation allowances (3) $ 9. these purchased loans were reclassified from Other assets to Loans.011 $18.3 billion.510 In millions of dollars Allowance $ 76 — — — 46 — — $122 Beginning balance (1) Purchases (2) Disposals/payments received Accretion Builds (reductions) to the allowance Increase to expected cash flows FX/Other Balance. In conforming to the requirements of Statement of Position No.536 9. 2007 and 2006. $7.573 Impaired corporate valuation allowance (3) Impaired consumer valuation allowance Total valuation allowances (3)(4) During the year Average balance of impaired corporate loans (3) Average balance of impaired consumer loans Interest income recognized on Impaired corporate loans Impaired consumer loans $ 2. 2008 was $1.373 407 (1. included in the loan table are purchased distressed loans. homogeneous Consumer loans whose terms were modified due to the borrowers’ financial difficulties and it was determined that a concession was granted to the borrower.531 Impaired consumer loans with valuation allowances 8. 2008. increases in the expected cash flows are first recognized as a reduction of any previously established allowance and then recognized as income prospectively over the remaining life of the loan by increasing the loan’s level yield. 2008 (3) (1) Reclassified to conform to the current period’s presentation.724 — $ 388 — $ 388 $1. During 2008.

832 $10. For the quarter ended June 30.03 per diluted share.503 $ 1. 2007. (2) Consumer credit losses primarily relate to U.02 per diluted share.940 15.848 (1. or $0.11 per diluted share.117 28. Grupo Cuscatlán and Grupo Financiero Uno. 2007.250 $17.781 $ $ 312 (232) 80 Allowance for loan losses at beginning of year Additions Consumer provision for credit losses (1) Corporate provision for credit losses Total provision for credit losses Deductions (2) Consumer credit losses Consumer credit recoveries Net consumer loan losses Corporate credit losses Corporate credit recoveries Net corporate credit losses (recoveries) Other. ALLOWANCE FOR CREDIT LOSSES In millions of dollars 2008 $16.547) $ 6. the change in estimate decreased the Company’s pretax net income by $240 million.600) $17. 2007 primarily includes reductions to the loan loss reserve of $475 million related to securitizations and transfers to loans held-for-sale.916 (1. 2006 primarily includes reductions to the loan loss reserve of $429 million related to securitizations and portfolio sales and the addition of $84 million related to the acquisition of the CrediCard portfolio.674 $18. the Company changed its estimate of loan losses inherent in the Global Cards and Consumer Banking portfolios that were not yet visible in delinquency statistics.282 5.18.250 (363) $ 887 $30.320 $ 8. For the quarter ended September 30.K. $102 million related to securitizations.040 (1) During 2007. or $0. Nikko Cordial.154) $29. the change in estimate decreased the Company’s pretax net income by $170 million.367 $ 1.940 $ 850 250 $16. CitiFinancial portfolio to held-for-sale. net (3) Allowance for loan losses at end of year Allowance for credit losses on unfunded lending commitments at beginning of year Provision for unfunded lending commitments Allowance for credit losses on unfunded lending commitments at end of year (4) Total allowance for credit losses $ (301) $ 8. For the quarter ended March 31. $244 million for the sale of the German retail banking operations. mortgages. and additions of $610 million related to the acquisition of Egg. 165 . Recoveries primarily relate to revolving credit and installment loans.248 $ 1.224 96 $ 6. The changes in estimate were accounted for prospectively.328 (1.773 $ (1.255 $ $ $ 948 (277) 671 271 2006 $ 9.661) $ 9. the change in estimate decreased the Company’s pretax net income by $900 million. 2007.100 $10.S.782 6. (4) Represents additional credit loss reserves for unfunded corporate lending commitments and letters of credit recorded within Other liabilities on the Consolidated Balance Sheet. or $0.922 (149) $ 1.233 $16. reductions of $83 million related to the transfer of the U.599 1. revolving credit and installment loans. (3) 2008 primarily includes reductions to the loan loss reserve of approximately $800 million related to foreign currency translation.117 $ 1.100 150 $ 1.392 $33. and $156 million for the sale of CitiCapital partially offset by additions of $106 million related to the Cuscatlán and Bank of the Overseas Chinese acquisitions.616 (4) 2007 $ 8.

747 $ 1. 2007 Sale of German retail bank Sale of CitiCapital Sale of Citigroup Global Services Limited Purchase accounting adjustments—BISYS Purchase of the remaining shares of Nikko Cordial—net of purchase accounting adjustments Acquisition of Legg Mason Private Portfolio Group Foreign exchange translation Impairment of goodwill Smaller acquisitions.688 (1.127) (9.568) (10. goodwill was reallocated to disposals and tested for impairment under the new reporting units. (2) Other changes in goodwill primarily reflect foreign exchange effects on non-dollar-denominated goodwill.109 $ 269 (6) — (522) $1. the Company performed impairment testing for selected reporting units as of May 31.378) (9. using a relative fair-value approach. 2008. 2008 (Citigroup Alternative Investments) and October 31. 2007 Goodwill acquired during 2008 Goodwill disposed of during 2008 Goodwill impaired during 2008 Other (2)(3) Balance at December 31.19. 2008 $ 3. As a result. July 1. 142. North America Consumer Banking and Latin America Consumer . 2008.568) (4.053 $ 1. In addition.116) (9. as well as purchase accounting adjustments. Changes in the management structure in 2008 resulted in the creation of new business segments. 2008 (Securities and Banking.331 (35) — 301 $11. (3) As of June 30.132 Balance at December 31.944 $ — (210) — 6.253 $ 88 (1. Citigroup’s market capitalization remained below book value for most of the period and the Company performed goodwill impairment testing for all reporting units as of February 28. purchase accounting adjustments and other Balance at December 31. Subsequent to the reorganization. commencing with the third quarter of 2008.085 (118) 822 $41.280 1.047) (221) (85) (184) 287 98 (3.850 Corporate/ Other $— — — — $— $— — — — $— Total $33. 2006 Goodwill acquired during 2007 Goodwill disposed of during 2007 Other (2) Balance at December 31.540) Institutional Clients Group $ 6. the Company identified new reporting units as required under SFAS No. 2008.471 516 872 712 569 (118) 821 $41.106 (1) Reclassified to conform to the current period’s presentation. smaller acquisitions and other Balance at December 31.344 Global Wealth Management $1.171 — 74 $ 4.120 844 — 145 $2.699 1. the Company’s structure was reorganized and new operating segments were established.132 Balance at December 31.663) $27.832 $ 3. The changes in goodwill by segment during 2007 and 2008 were as follows: Global Cards (1) In millions of dollars Consumer Banking $ 22. Goodwill and Other Intangible Assets (SFAS 142). In this environment. Goodwill impairment testing is performed at a level below the business segments (referred to as a reporting unit). 2008 (1) Includes a reduction of $965 million related to the recognition of certain tax benefits. reporting units under the new operating segments have been established. Goodwill affected by the reorganization has been reallocated from seven reporting units to ten.098 $10.315 — 267 $ 9.165 3. 166 During 2008. As goodwill is required to be tested for impairment at the reporting unit level. 2006 Acquisition of GFU Acquisition of Quilter Acquisition of Nikko Cordial (1) Acquisition of Grupo Cuscatlán Acquisition of Egg Acquisition of Old Lane Acquisition of BISYS Acquisition of BOOC Acquisition of ATD Sale of Avantel Foreign exchange translation.755 (118) 336 $ 24. 2008 and December 31.568) (85) $27. the share prices of financial stocks continued to be very volatile and were under considerable pressure in sustained turbulent markets.264 $ 865 268 892 921 1.053 $ (1. GOODWILL AND INTANGIBLE ASSETS Goodwill The changes in goodwill during 2007 and 2008 were as follows: In millions of dollars Goodwill $33.264 7.

066 3. 2008 and approximately $74 billion at October 31. The following table shows reporting units with goodwill balances and the excess of fair value of allocated book value as of December 31.259 592 North America Cards International Cards Asia Consumer Banking Securities & Banking Global Transaction Services North America GWM International GWM While no impairment was noted in step one of our Securities and Banking reporting unit impairment test at October 31. Furthermore. 2008. results. goodwill present in that reporting unit may be particularly sensitive to further deterioration in economic conditions. 2008 and. and selected 2013 as the terminal year. 2008 and December 31. 2008. Reporting Unit ($ in millions) assumption is based on management’s view that this recovery will occur based upon various macro. 2008.7 billion after tax) goodwill impairment charge in the fourth quarter of 2008. liabilities and intangibles were for the purpose of measuring the implied fair value of goodwill and such adjustments are not reflected in the Consolidated Balance Sheet. despite the significant losses experienced in 2008.765 4. Fair Value as a % of Allocated Book Value 139% 218% 293% 109% 994% 386% 171% Goodwill (post-impairment) 6. restoring marketplace confidence and improved risk-management practices on an industry-wide basis. the Company recorded a $9. as well as in the global economic outlook particularly during the period beginning mid-November through year end 2008. For the valuation under the income approach. The results of the first step of the impairment test showed no indication of impairment in any of the reporting units at any of the periods except December 31. government stimulus actions. including the increased possibility of further government intervention.Banking).570 1. This deterioration further weakened the near-term prospects for the financial services industry. Company-specific actions such as its recently announced realignment of its businesses to optimize its global businesses for future profitable growth. the Company could potentially experience future material impairment charges with respect to the goodwill remaining in our Securities and Banking reporting unit. Latin America Consumer Banking and EMEA Consumer Banking reporting units and. representing the entire amount of goodwill allocated to these reporting units. Based on the results of the second step of testing. This 167 . 2008. The more significant fair-value adjustments in the pro forma purchase price allocation in the second step of testing were to fair-value loans and debt and were made to identify and value identifiable intangibles. Any such charges by themselves would not negatively affect the Company’s Tier 1 and Total Regulatory Capital Ratios. except for the test performed as of December 31. Tangible Capital or the Company’s liquidity position.106 9. Under the market approach for valuing this reporting unit. As of December 31. If the future were to differ adversely from management’s best estimate of key economic assumptions and associated cash flows were to decrease by a small margin.774 1. the value was derived assuming a return to historical levels of core-business profitability for the reporting unit. the Company did not perform the second step of the impairment test. In 2013. the Company utilized a discount rate which it believes reflects the risk and uncertainty related to the projected cash flows. 2008 to approximately $36 billion at December 31. the second step of testing was performed on these reporting units. 2008. the earnings multiples and transaction multiples were selected from multiples obtained using data from guideline companies and acquisitions. accordingly. Small deterioration in the assumptions used in the valuations.6 billion pretax ($8. The selection of the actual multiple considers operating performance and financial condition such as return on equity and net income growth of Securities and Banking as compared to the guideline companies and acquisitions. These and other factors. could significantly affect the Company’s impairment evaluation and. will also be a factor in returning the Company’s core Securities and Banking business to historical levels. also resulted in the decline in the Company’s market capitalization from approximately $90 billion at July 1. hence.S. in particular the discount rate and growth rate assumptions used in the net income projections. there was an indication of impairment in the North America Consumer Banking. accordingly.economic factors such as the recent U. The primary cause for the goodwill impairment in the above reporting units was the rapid deterioration in the financial markets. The adjustments to measure the assets.

657 $19.205) (1) During the first quarter of 2008.474 5.343 $19.513 662 168 264 1.626 $12.890 1.454 917 2.174 Net carrying amount $ 4. 2008 Gross carrying amount $ 8.816 Gross carrying amount $ 8.253 million in The changes in intangible assets during 2008 were as follows: Net carrying amount at December 31.474 5. an impairment loss of $202 million. it was determined that triggering events occurred that required further testing of the intangible assets for impairment.427) Net carrying FX amount at and December 31. $1.687 In millions of dollars Purchased credit card relationships Core deposit intangibles Other customer relationships Present value of future profits Other (1) Total amortizing intangible assets Indefinite-lived intangible assets Mortgage servicing rights Total intangible assets (1) Includes contract-related intangible assets. $1.708 Accumulated amortization $4.474 4. 168 .285 $6.044 million in 2013.842 million for 2008. respectively.380 $22. In millions of dollars Acquisitions $ 103 15 1. During the fourth quarter.816 Purchased credit card relationships Core deposit intangibles Other customer relationships Present value of future profits Indefinite-lived intangible assets Other $(1.746 427 5.591 8.355 — 550 189 $2.591 4.157 $6.058 $14.212 Amortization $ (664) (155) (225) (13) — (370) $(1.930 683 3.Intangible Assets The components of intangible assets were as follows: December 31.380 $28.224 million in 2010. without restriction.577 1. The fair value was estimated using a discounted cash flow approach. (2) In the fourth quarter of 2008.657 $26.159 5.892 N/A N/A $6.454 917 2.662 Purchased credit card relationships Customer relationship intangibles Core deposit intangibles Other intangibles Total intangible assets recorded during the period (1) (1) There was no significant residual value estimated for the intangible assets recorded during 2007.380 $22. was recorded in the first quarter of 2008 operating expenses in the results of the ICG segment.783 $18. The intangible assets recorded during 2008 and their respective amortization periods are as follows: Weighted-average amortization period in years 15 25 11 2 22 In millions of dollars 2008 $ 103 1. 2008. $1. representing the remaining unamortized balance of the intangible assets.930 683 3.267 million and $1. effective July 31. substantially all unaffiliated investors had notified Old Lane of their intention to redeem their investments.058 $12.174 N/A N/A $6.716 1. In April 2008. Old Lane notified investors in its multistrategy hedge fund that they would have the opportunity to redeem their investments in the fund. the Company expected that the cash flows from the hedge fund management contract will be lower than previously estimated. (3) Includes foreign exchange translation and purchase accounting adjustments. Intangible assets amortization expense was $1.685 1.626 $14.499 1. As a result.591 8.443 1. which resulted in the $937 million impairment charge. Impairments (1)(2) other (3) 2008 $ (28) — (1) — (937) (239) $ 65 (94) 185 (6) 270 (148) $ 272 $ 3.162 million in 2012.892 Net carrying amount $ 3.307 Mortgage servicing rights (4) Total intangible assets 8.435 2. $1. 2007 $ 4.687 2009. and $1.863 151 1. 2007 Accumulated amortization $4. The Company performed an impairment analysis of the intangible asset relating to the hedge fund management contract.188 million in 2011. N/A Not Applicable.549 170 1.861 December 31.031 415 5.355 15 189 $1. Based on the Company’s expectation of the level of redemptions in the fund.345 4.427 million. 2007 and 2006.657 $19. Citigroup recorded a $937 million impairment charge on a Nikko Asset Management contract intangible.045 518 197 257 1. Intangible assets amortization expense is estimated to be $1.549 170 4.863 151 4. (4) See page 182 for the roll-forward of mortgage servicing rights.

CGMHI owned all of the voting securities of the CGMHI Trusts.680 28. Other Citigroup subsidiaries Other borrowings Total 1.488 6.025 billion available under these facilities. including Citibank. CGMHI has committed financing with unaffiliated banks. revenues or cash flows other than those related to the issuance. 2008. A bank can terminate these facilities by giving CGMHI prior notice (generally one year).375 $359. (4)(5) Senior notes Total Senior notes Subordinated notes Junior subordinated notes relating to trust preferred securities Other Total Short-term borrowings consist of commercial paper and other borrowings with weighted average interest rates as follows: 2008 In millions of dollars at year end Maturities 2008 $138.395 290 23.417 $427.343 2. but where no contractual lending obligation exists. 2008. of which $475 million is guaranteed by Citigroup. 2008-4. 2008-1. 2007 ( the “CGMHI Trusts”).756 180. which matures in 2011.331 39.0 billion. CGMHI has a syndicated five-year committed uncollateralized revolving line of credit facility with unaffiliated banks totaling $3.112 (1) Includes $250 million of notes maturing in 2098.A. At December 31. 169 . revenues or cash flows other than those related to the issuance. 2007 (collectively.56 3.62% Balance $ 28.404 $ 37. At December 31. 2008 and 2007.628 33.005 30. 2007-4. 2007-1. administration and repayment of the Safety First Trust Securities and the Safety First Trusts’ common securities.619 4 37. The Safety First Trusts have no assets. (2) At December 31.38 2. CFI owned all of the voting securities of the CFI Trusts.69 3. CGMHI had drawn down the full $1.40% $109. The CFI Trusts’ obligations under the CFI TARGETS were fully and unconditionally guaranteed by CFI.37 2009-2036 Commercial paper Citigroup Funding Inc. 2008 and $301 million issued by Safety First Trust Series 2006-1. the “Safety First Trusts”) at December 31.125 $ 97. (3) Includes Targeted Growth Enhanced Term Securities (TARGETS) with no carrying value at December 31.66% $ 34. CGMHI had drawn down the full $1. The Safety First Trusts’ obligations under the Safety First Trust Securities are fully and unconditionally guaranteed by CFI. Borrowings under these facilities must be secured in accordance with Section 23A of the Federal Reserve Act. 2007-2.689 6. The CGMHI Trusts had no assets. and CGMHI’s guarantee obligations were fully and unconditionally guaranteed by Citigroup.20.216 2007 $119. (5) Includes Principal-Protected Trust Securities (Safety First Trust Securities) with carrying values of $452 million issued by Safety First Trust Series 2006-1. collateralized advances from the Federal Home Loan Bank are $67. N.02 2.33% 2009-2098 5. They also have substantial borrowing agreements consisting of facilities that CGMHI has been advised are available. 2007-1.145 $146.615 26.691 Weighted average 4.856 36.629 3. 2007.060 290 $359. The CGMHI Trusts’ obligations under the TARGETS were fully and unconditionally guaranteed by CGMHI. 2007-3.654 471 $ 29. and CFI’s guarantee obligations are fully and unconditionally guaranteed by Citigroup.15 3. administration and repayment of the TARGETS and the CGMHI Trusts’ common securities. CD rates.593 $301.551 433 Borrowings under bank lines of credit may be at interest rates based on LIBOR.05% 3.185 2007 Balance Weighted average 5. CGMHI also has committed long-term financing facilities with unaffiliated banks.4 billion and $86. revenues or cash flows other than those related to the issuance. administration and repayment of the CFI TARGETS and the CFI Trusts’ common securities. 2007-3 and 2007.050 billion available under these facilities.545 4. and CFI’s guarantee obligations were fully and unconditionally guaranteed by Citigroup.09 2009-2097 2010 2009-2051 20. CGMHI also has a $75 million bilateral facility which matures in 2010. CFI owns all of the voting securities of the Safety First Trusts. and 2008-6 (collectively. the “CFI Trusts”). of which $600 million is guaranteed by Citigroup. 3.566 $126. CGMHI has bilateral facilities totaling $500 million with unaffiliated banks with maturities occurring on various dates in the second half of 2009. These arrangements are reviewed on an ongoing basis to ensure flexibility in meeting CGMHI’s short-term requirements. operations.4 at December 31.756 433 $427.92 2027-2067 2009-2045 2009-2022 2009-2017 24.94 2. 2008 and $55 million issued by TARGETS Trusts XXV and XXVI at December 31.112 $363. Citigroup pays commitment fees for its lines of credit. 2008-5. The CFI Trusts had no assets. (4) Includes Targeted Growth Enhanced Term Securities (CFI TARGETS) with no carrying value at December 31. or bids submitted by the banks. Some of Citigroup’s nonbank subsidiaries have credit facilities with Citigroup’s subsidiary depository institutions. 2008-3. operations. 2008-2. DEBT SHORT-TERM BORROWINGS LONG-TERM DEBT Balances Weighted average In millions of dollars at year end coupon Citigroup parent company Senior notes (1) Subordinated notes Junior subordinated notes relating to trust preferred securities Other Citigroup subsidiaries Senior notes (2) Subordinated notes Secured debt Citigroup Global Markets Holdings Inc. (3) Senior notes Subordinated notes Citigroup Funding Inc. 2008 and $48 million issued by TARGETS Trust XXIV at December 31. operations.060 105.72 3. 2007-2.9 billion.593 23. the prime rate.592 24.939 2. respectively.

It uses derivative contracts.02 to Citigroup’s Current Report on Form 8-K filed on March 8.300% Fixed Rate/Floating Rate Enhanced Trust Preferred Securities of Citigroup Capital XXI before December 21.463 55. respectively.02 to Citigroup’s Current Report on Form 8-K filed on August 17. and in Exhibit 4.607 1. (iv) the 6. 2056.632 $88. 2047.756 million.975 7. The trusts exist for the exclusive purposes of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust.198 2.472 2010 $17.624 Citigroup parent company Other Citigroup subsidiaries Citigroup Global Markets Holdings Inc. and (iii) engaging in only those activities necessary or incidental thereto.893 1. operations.164 $133. In addition. (ii) investing the gross proceeds of the Trust Securities in junior subordinated deferrable interest debentures (subordinated debentures) of its parent.718 2.500 16. At December 31. Citigroup has the right to redeem these securities.03 to Citigroup’s Current Report on Form 8-K filed on September 18. 2006. respectively. 2007.999 2013 $17. Citigroup Funding Inc. in Exhibit 4.875% Enhanced Trust Preferred Securities of Citigroup Capital XX before December 15.2 to Citigroup’s Current Report on Form 8-K filed on November 27. The Company formed statutory business trusts under the laws of the state of Delaware.431 2011 $19. the Company’s overall weighted average interest rate for long-term debt was 3. (vi) the 7. 2007. 2007. but where no contractual lending obligation exists. 2067 unless certain conditions.135 2.154 $42. Citigroup has contractually agreed not to redeem or purchase (i) the 6.50% Enhanced Trust Preferred Securities of Citigroup Capital XV before September 15.524 17.829% Fixed Rate/Floating Rate Enhanced Trust Preferred Securities of Citigroup Capital XVIII before June 28. 2046.19% including the effects of derivative contracts. 2007 includes $24.352 5.112 2012 $21. 2008 and December 31.83% on a contractual basis and 4.794 11. Total Long-term debt at December 31. These subsidiary trusts’ obligations are fully and unconditionally guaranteed by Citigroup.691 11. (ii) the 6.250% Enhanced Trust Preferred Securities of Citigroup Capital XIX before August 15. 2067.853 1. in Exhibit 4. 2007. in Exhibit 4.02 to Citigroup’s Current Report on Form 8-K filed on November 28. Aggregate annual maturities of long-term debt obligations (based on final maturity dates) including trust preferred securities are as follows: In millions of dollars 2009 $13.955 Thereafter $102. These subsidiary trusts have no assets. The maturity structure of the derivatives generally corresponds to the maturity structure of the debt being hedged. 2057.487 2. to effectively convert a portion of its fixed rate debt to variable rate debt and variable rate debt to fixed rate debt. 2007. primarily interest rate swaps.525 4. These agreements are for the benefit of the holders of Citigroup’s 6. The Company issues both fixed and variable rate debt in a range of currencies. of junior subordinated debt.2 to Citigroup’s Current Report on Form 8-K filed on December 21.00% Junior Subordinated Deferrable Interest Debentures due 2034. the Company uses other derivative contracts to manage the foreign exchange impact of certain debt issuances. 170 .248 392 3.864 18. and (vii) the 8. Upon approval from the Federal Reserve. (v) the 7. revenues or cash flows other than those related to the issuance. Citigroup owns all of the voting securities of these subsidiary trusts. in Exhibit 4.381 $41. 2008.790 $25.CGMHI also has substantial borrowing arrangements consisting of facilities that CGMHI has been advised are available. in Exhibit 4.02 to Citigroup’s Current Report on Form 8-K filed on July 2. 2006.45% Enhanced Trust Preferred Securities of Citigroup Capital XVI before December 31. administration and repayment of the subsidiary trusts and the subsidiary trusts’ common securities. described in Exhibit 4. These arrangements are reviewed on an ongoing basis to ensure flexibility in meeting CGMHI’s short-term requirements.253 $27.35% Enhanced Trust Preferred Securities of Citigroup Capital XVII before March 15.060 million and $23. are met. (iii) the 6. 2047.

000.500.875. LIB +335 bp.625% 7. 15. 2014 Sept. 2006 Mar. 21.000 44. except share amounts Issuance date Dec.557 742. 2031 Feb.000. 3 mo. 17.350% 6.000. 2077 Mar. 2033 Sept.825 618. 17.875 18 26 41 36 $23. 31.000 20.000 46. 2012 June 28.250% 7. 17. 2003 Sept.501 1. 2011 Mar. 15.000 35. 31.875% 8.450% 6.100% 6.262 Coupon rate 7.875 18 25 40 35 $23. 2067 Aug.500% 6. 15. 2007 Nov. 2007 Nov. 2066 Sept.125% 6.875. 2031 Sept. 15. 26.000% 6.443 1. 2008 Dec.700% 6. 2002 Dec.186 1.875 1.000.238 1.000 1.100 731 1.225 788 3. 2033 Sept.422. 2007 Dec.000 1. 2011 Sept. 2017 Aug. 15. 2034 June 30. 15. 2007 Sept.000 Liquidation value $ 200 1. 2041 Mar.935% 3 mo.000 20.400. 2009 June 30. 14. 1996 July 2001 Sept.150 1. 2037 Mar.500. 3 mo. except for Citigroup Capital III.500 25. 21. 2066 Mar. 2003 Mar. LIB +279 bp.320% 6. 2012 Dec. 1. 2033 Mar.600. 17.360.000.186 1.000 56. 15.000 1. 2001 Feb.000 20.959 1.875.000 22.681 1. Citigroup Capital XVIII and Citigroup Capital XXI on which distributions are payable semiannually.600 1.731. 27.000 24. 2042 Jan. 15.000.000 40. 2004 June 2006 Sept.829% 7.186 1. 2014 Jan.134 515 619 566 1.000 31. 2008 Sept.083 Junior subordinated debentures owned by trust Redeemable by issuer beginning Not redeemable July 31.875 1. 2006 Feb. 2033 Dec.875 1.000% 6. 7. 7. 30. 2032 Sept. 2042 Sept. 2067 Dec.400 1. 27.269 40.500 1. 2008: Trust securities with distributions guaranteed by Citigroup In millions of dollars. 15. Common shares issued to parent 6. 2002 Sept. During 2008. 2007 June 2007 Aug.455% 6.000 1.185 1. 15. 2006 Nov. 13.000 3.300% 6.000 500 10 10 10 10 542 774 1. 2007 Nov. Distributions on the trust securities and interest on the debentures are payable quarterly.000 17. 17. 2034 Citigroup Capital III Citigroup Capital VII Citigroup Capital VIII Citigroup Capital IX Citigroup Capital X Citigroup Capital XI Citigroup Capital XIV Citigroup Capital XV Citigroup Capital XVI Citigroup Capital XVII Citigroup Capital XVIII Citigroup Capital XIX Citigroup Capital XX Citigroup Capital XXI Citigroup Capital XXIX Citigroup Capital XXX Citigroup Capital XXXI Citigroup Capital XXXII Adam Capital Trust III Adam Statutory Trust III Adam Statutory Trust IV Adam Statutory Trust V Total obligated (1) Represents the proceeds received from the Trust at the date of issuance. In each case.The following table summarizes the financial structure of each of the Company’s subsidiary trusts at December 31. 171 . 2067 June 28.226 788 3. 2067 Dec.424 Maturity Dec. 2008 Mar. Citigroup did not issue any Enhanced Trust Preferred Securities.875 1. 15.000 40. 15. 15.000 50 20 20.000 64. 2004 Securities issued 200.000 500.875.950% 6. 15.100 500 600 565 1. 15. 2012 Dec.601 1.875 1. 2003 Sept.000. 2008 Sept. 2007 Nov. 2007 Dec. 15.000.000 44. 2009 Amount (1) $ 206 1. 2066 Dec. 2013 Sept. 2036 July 31.875% 6. 26.000 47.101 731 1. 3 mo. LIB +295 bp. 15. 30. 2011 Dec. 2007 Nov.875 1. the coupon rate on the debentures is the same as that on the trust securities. 2041 Sept. 2006 Sept. LIB +325 bp. 2013 Mar.000 49.

each representing a 1/25th interest in a share of the corresponding series of Fixed Rate/Floating Rate Non-Cumulative Preferred Stock. Redemption is subject to a capital replacement covenant.293. 2008 and May 28. K. Redeemable in whole or in part subject to approval of the investor and compliance with certain conditions.169 3.373. 2018. except that the Conversion Price and Conversion Rate of the New Preferred Stock have been reset to $26. 2015.000% 8. (4) Issued on October 28.179. 2009. (5) Issued on December 31.000 25. 172 . as and if declared by the Company’s Board of Directors.53 per depositary share is payable quarterly when. 2008 as depositary shares.000.3503 per share.000% 7. (6) Issued on January 23. D.286 189. Redeemable in whole or in part on or after February 15. PREFERRED STOCK AND STOCKHOLDERS’ EQUITY The following table summarizes the Company’s Preferred stock outstanding at December 31.000. (3) Issued on May 13. as and if declared by the Company’s Board of Directors.000 1. each representing a 1/1.000 6.000 63. 2008 and December 31. (2) Issued on April 28. as and if declared by the Company’s Board of Directors.986 — 568.880 3.000% 7. The dividend of $0.940.741 569. Under the terms of pre-existing conversion price reset agreements with holders of Series A. 2008 as Cumulative Preferred Stock to the United States Treasury under the Troubled Asset Relief Program. Redeemable in whole or in part on or after February 15. Redeemable in whole or in part on or after April 30. Convertible into Citigroup common stock at a conversion rate of approximately 1.948. each representing a 1/1.000th interest in a share of the corresponding series of Non-Cumulative Convertible Preferred Stock.000 8. The dividend of $20.500% 8. The terms and conditions of the New Preferred Stock are identical in all material respects to the terms and conditions of the Old Preferred Stock.500 per preferred share and thereafter at $22. respectively. 2018 at $42.844. 2008 as depositary shares.000th interest in a share of the corresponding series of Non-Cumulative Convertible Preferred Stock.000. 2007 $— — — — — — — — — — — — — — $— (1) Issued on January 23.076.531 450 400 5 15 3. as and if declared by the Company’s Board of Directors.21.000 300.648 37. The dividend or in $0.000% 6.000% 7.162 — — — — 17.040 23. 2013 at $12. on February 17.000 100.000th interest in a share of the corresponding series of Non-Cumulative Preferred Stock. B.726 113. If dividends are declared on Series E as scheduled.000.000 50 50 50 50 50 25 Convertible to approximate number of Citigroup common shares 261.88 per depositary share is payable quarterly when.400% 8. as and if declared by the Company’s Board of Directors.709 19.715 $70. 2008 as depositary shares.4108.000 20.461.600. 2018.000 2.000% 7.70 per depositary share and thereafter quarterly at a floating rate when.000. 2015.000 750 6.000 1. All shares of the Old Preferred Stock were canceled.81 per depositary share is payable quarterly when. (7) Issued on January 25.685 Dividend rate Series A (1) Series B (1) Series C (1) Series D (1) Series E (2) Series F (3) Series H (4) Series I (5) Series J (1) Series K (1) Series L1 (1) Series N (1) Series T (6) Series AA (7) 7.000. the impact from preferred dividends on earnings per share in the first and third quarters will be lower than the impact in the second and fourth quarters.000th interest in a share of the corresponding series of Non-Cumulative Preferred Stock. Redemption is subject to a capital replacement covenant. Redeemable in whole or in part on or after June 15.000.664 December 31. Redeemable in whole or in part subject to approval of the investor and compliance with certain conditions.482.51 per depositary share is payable quarterly when.000 60.3517 and 1.000% 7.000 9. as and if declared by the Company’s Board of Directors. each representing a 1/1. Redemption is subject to a capital replacement covenant. J.000. The dividend of $0.000% 8. C. L1 and N (the “Old Preferred Stock”). 2008 $ 6. Dividends are payable semi-annually for the first 10 years until April 30.500 per preferred share when.897.000 20.000 81. as and if declared by the Company’s Board of Directors.000 25 1. 2007: Carrying value (in millions of dollars) Redemption price per depositary share / preference share $ 50 50 50 50 1.000 December 31.125% Number of depositary shares 137.223 93. 2008 as depositary shares.000% 7. 2008 as Cumulative Preferred Stock to the United States Treasury under the Troubled Asset Relief Program.600.500% 5. 2008 as depositary shares. 2008 and January 29.000 per preferred share is payable quarterly when.600. which is subject to adjustment under certain conditions.697 15. All other series currently have a quarterly dividend declaration schedule. 2013. Redeemable in whole or in part on or after February 15.000% 7. The dividend of $0. Dividends are payable quarterly for the first five years until February 15.000 148.083. each representing a 1/1.000 15. Citigroup exchanged shares of new preferred stock (the “New Preferred Stock”) for an equal number of shares of Old Preferred Stock.216 28.

regulatory capital as set forth in guidelines issued by the U. of approximately $69 million. 173 . In millions of dollars Subsidiary Jurisdiction Net capital or equivalent Excess over minimum requirement Citigroup Global Markets Inc. For bank holding companies to be “well capitalized. Citigroup’s subsidiary depository institutions can declare dividends to their parent companies. The approval of the Office of the Comptroller of the Currency. is required if total dividends declared in any calendar year exceed amounts specified by the applicable agency’s regulations. including Citibank.0 (3) (1) Total Capital includes Tier 1 and Tier 2.08 $ 70. Citigroup Global Markets Limited Citigroup (3) Citibank. These non-bank subsidiaries are generally not subject to regulatory restrictions on dividends.888 4. in the case of federal savings banks.S.94% 15. 2008. (3) Applicable only to depository institutions.355 9.0 6.490 $1.92% 15. In determining the dividends. insured subsidiary depository institutions were “well capitalized. The ability of CGMHI to declare dividends can be restricted by capital considerations of its broker-dealer subsidiaries.0% 10.S. These guidelines are used to evaluate capital adequacy and include the required minimums shown in the following table. N. (2) Tier 1 Capital divided by adjusted average assets.A. N. pay dividends or otherwise supply funds to Citigroup and its non-bank subsidiaries.18 5. State-chartered depository institutions are subject to dividend limitations imposed by applicable state law.” At December 31.0 3.S.758 156. 2008 and 2007. As of December 31. insured depository institution subsidiaries. in the case of national banks. federal bank regulators is as follows: Required minimum Wellcapitalized minimum Citigroup also receives dividends from its non-bank subsidiaries. 2008.A. all of Citigroup’s U.639 $3. (3) $118. each depository institution must also consider its effect on applicable risk-based capital and leverage ratio requirements. without regulatory approval. are subject to similar guidelines issued by their respective primary federal bank regulatory agencies.Regulatory Capital Non-Banking Subsidiaries Citigroup is subject to risk-based capital and leverage guidelines issued by the Board of Governors of the Federal Reserve System (FRB). The regulatory agencies are required by law to take specific prompt actions with respect to institutions that do not meet minimum capital standards. or the Office of Thrift Supervision..0 5.70 6. Its U. as well as policy statements of the federal regulatory agencies that indicate that banking organizations should generally pay dividends out of current operating earnings. As of December 31.888 $3.398 11.977 108.S. Securities and Exchange Commission Uniform Net Capital Rule (Rule 15c3-1) United Kingdom’s Financial Services Authority $2.82 In millions of dollars Tier 1 Capital Total Capital (1) Tier 1 Capital Ratio Total Capital Ratio (1) Leverage Ratio (2) U. Banking Subsidiaries There are various legal limitations on the ability of Citigroup’s subsidiary depository institutions to extend credit.0% 8.” they must maintain a minimum Leverage Ratio of 3%.

(7) The net unrealized loss related to securities transferred to held-to-maturity is $5. See Notes 1 and 27 on pages 122 and 202. net of taxes (2) Cash flow hedges. December 31.102) 590 $ (1.22.422) 1.972) — — $(6.S.102) — $ 1. December 31. and the movements in the Mexican peso. Korean won and the Brazilian real against the U. December 31. net of taxes Minimum pension liability adjustment. nonqualified pension plans and certain foreign pension plans. The declining market interest rates in 2007 and 2008 have had a negative impact on the cash flow hedges portfolio.6) billion for net unrealized losses on investment securities consists of $(4. 87. net of hedges Accumulated other comprehensive income (loss) In millions of dollars Cash flow hedges Pension liability adjustments Balance. 2008.026) (1. Polish zloty and Mexican peso against the U.294 (673) (1) (1.972) $(7.092 138 (759) — — — $ $ (621) 471 (11. Korean won. 174 .084 1. net of taxes (5) Pension liability adjustment. Brazilian real. which is the difference between the projected benefit obligation and the fair value of the plans’ assets. net of taxes (6) Change Balance. net of taxes (2) Cash flow hedges.419) $(1. net of taxes (4) Adjusted balance. such as the U.S.660) (11.304 (6. dollar. as required by SFAS No.647) $(1. related to unfunded or book reserve plans. 2006 Increase in net unrealized gains on investment securities.615) $(10. British pound. (5) Primarily driven by Citigroup’s pay fixed/receive floating rate swap programs that are hedging the floating rate on deposits and long-term debt. net of taxes (6) Change Balance. Canadian dollar.786) — — — — 590 $ 590 $ (2.744) $ 612 — — — (673) — — $ (138) — — — — (1) (1. the movements in the Euro. Polish zloty. 2006 Adjustment to opening balance. 158.786) — $(1.294 $(2.648) $(1. January 1.2 billion as of December 31.024 $ (772) — — (6. Indian rupee and Australian dollar against the U.422) 1.796) — — 2.419) $(2.972) (2. beginning of year Increase in net unrealized gains on investment securities. (4) The after-tax adjustment to the opening balance of Accumulated other comprehensive income (loss) represents the reclassification of the unrealized gains (losses) related to the Legg Mason securities.195) $ (673) $ $ (61) — (61) — — — (3. among other items: the movements in the British pound. net of taxes (3) Adjustment to initially apply SFAS No.196) — — — — (1.S. The related unrealized gains and losses were reclassified to Retained earnings upon the adoption of the fair value option in accordance with SFAS 159. 2008 balance of $(9.164) 1. net of taxes Foreign currency translation adjustment.024 (3. net of taxes (2) Cash flow hedges.163) — — — (2. (2) Reflects.535) $(25.118) $ (9.S. 2008 (1) $ 1.189) $(1. dollar. Euro. 2008 are as follows: Net unrealized gains (losses) on investment securities Foreign currency translation adjustment.419) $(20.551) 138 (759) 2. dollar.647) (1) The December 31. respectively. net of taxes Less: Reclassification adjustment for net gains included in net income.109) $ (4. and changes in related tax effects and hedges in 2008. and changes in related tax effects and hedges in 2006.2) billion for those classified as held-to-maturity.026) — $(2. net of taxes Change Balance. (6) Reflects adjustments to funded status of pension and postretirement plans as required by SFAS 158. 2007 Increase in net unrealized gains (losses) on investment securities.024 — — $ 2. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Changes in each component of “Accumulated Other Comprehensive Income (Loss)” for the three-year period ended December 31. Euro.102) $(3. net of taxes Less: Reclassification adjustment for net gains included in net income.164) — — — — $ $ (141) 943 149 $(4. and related tax effects and hedges in 2007. (3) Additional minimum liability.023 (1.304 — — — $(3. net of taxes Less: Reclassification adjustment for net losses included in net income.4) billion for those investments classified as available-for-sale and $(5. Polish zloty. net of taxes Foreign currency translation adjustment.700) 149 $ (3.294 — — — $ 1. net of taxes (5) Pension liability adjustment. as well as several miscellaneous items previously reported in accordance with SFAS 115. Employers’ Accounting for Pensions (SFAS 87).168) $ (3. net of taxes Foreign currency translation adjustment.090) — — 1.796) — $(2.023 (1.026) $(5. for further discussions.647) $ (1.532) 1.

interest rate swap. bonds or other debt instruments) or an equity investment (e. which consider various scenarios on a probability-weighted basis. which are recorded on the balance sheet of the SPE and not reflected on the transferring company’s balance sheet. trustee. such as a collateral account or overcollateralization in the form of excess assets in the SPE. Consolidation under FIN 46(R) is based on expected losses and residual returns. Qualifying SPEs QSPEs are a special class of SPEs defined in (SFAS 140). receive a majority of the entity’s expected residual returns. and FASB Interpretation No. they may not lead to consolidation of the VIE. rather than based on scenarios that are considered more remote. In various other transactions. such as a line of credit. or may make a market in debt securities or other instruments issued by VIEs. “Consolidation of Variable Interest Entities (revised December 2003) (FIN 46 (R)). but if those scenarios are considered very unlikely to occur. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140). may act as underwriter or placement agent. In some cases. if any. or • certain transactions where the Company is the investment manager and receives variable fees for services. subordinated fee arrangements. or both. 175 . • writing a “liquidity put” or other liquidity facility to support the issuance of short-term notes. partnerships. The Company generally considers the following types of involvement to be significant: • assisting in the structuring of a transaction and retaining any amount of debt financing (e. or purchaser of credit protection under a credit default swap or total return swap where the Company pays the total return on certain assets to the SPE). as entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest (i. or other services. Certain variable interests may absorb significant amounts of losses or residual returns contractually. QSPEs are passive entities designed to purchase assets and pass through the cash flows from those assets to the investors in the QSPE. Generally.g.g. The variable interest holder. The SPE may also enter into derivative contracts in order to convert the yield or currency of the underlying assets to match the needs of the SPE investors. credit default swaps or total return swaps where the Company receives the total return or risk on the assets held by the VIE). letters of credit. the Company may act as a derivative counterparty (for example. Citigroup may be the provider of certain credit enhancements as well as the counterparty to any related derivative contracts. guarantees. loans. require consolidation of the related VIE or otherwise rise to the level where disclosure would provide useful information to the users of the Company’s financial statements. or from a liquidity facility. notes. Consolidation of a VIE is. • writing credit protection (e. QSPEs are generally exempt from consolidation by the transferor of assets to the QSPE and any investor or counterparty. Variable Interest Entities VIEs are entities defined in (FIN 46(R)). that will absorb a majority of the entity’s expected losses.” Uses of SPEs An SPE is an entity designed to fulfill a specific limited need of the company that organized it. or corporations. the company transferring assets to an SPE converts those assets into cash before they would have been realized in the normal course of business. or certain types of derivative contracts. QSPEs may not actively manage their assets through discretionary sales and are generally limited to making decisions inherent in servicing activities and issuance of liabilities. are variable interest holders in the entity. See Note 1 on page 122 for a discussion of proposed accounting changes to SFAS 140. to assist clients in securitizing their financial assets.. The principal uses of SPEs are to obtain liquidity and favorable capital treatment by securitizing certain of Citigroup’s financial assets. 46. Investors that finance the VIE through debt or equity interests or other counterparties that provide other forms of support. by itself. partnership interests or warrants). is deemed to be the primary beneficiary and must consolidate the VIE. The SPE can typically obtain a more favorable credit rating from rating agencies than the transferor could obtain for its own debt issuances. common shares. may provide administrative. determined based primarily on variability generated in scenarios that are considered most likely to occur. SECURITIZATIONS AND VARIABLE INTEREST ENTITIES Overview Citigroup and its subsidiaries are involved with several types of off-balance sheet arrangements. therefore. right to receive the expected residual returns of the entity and obligation to absorb the expected losses of the entity)..g. In other cases.e. commercial paper. cross-currency swap. ability to make significant decisions through voting rights.. The Company generally considers such involvement. and other notes of indebtedness. SPEs may be organized in many legal forms including trusts. a more detailed and quantitative analysis is required to make such a determination. it is qualitatively clear based on the extent of the Company’s involvement or the seniority of its investments that the Company is not the primary beneficiary of the VIE. resulting in less expensive financing costs. or to limit or change the credit risk of the SPE. including special purpose entities (SPEs). certificates. All of these facts and circumstances are taken into consideration when determining whether the Company has variable interests that would deem it the primary beneficiary and. In a securitization. and to create investment products for clients.23. such as guarantees. “not significant” under FIN 46(R).. assuming applicable accounting requirements are satisfied. SPEs may be Qualifying SPEs (QSPEs) or Variable Interest Entities (VIEs) or neither. liquidity put option or asset purchase agreement. therefore. through the SPE’s issuance of debt and equity instruments. QSPEs have significant limitations on the types of assets and derivative instruments they may own or enter into and the types and extent of activities and decisionmaking they may engage in. Investors usually have recourse to the assets in the SPE and often benefit from other credit enhancements.

138 9.948 16.399 8.132 $46.106 The definition of maximum exposure to loss is included in the text that follows. 2008 and 2007 is presented below: In millions of dollars As of December 31. 2008 Consolidated Balance Sheet.799 7.668 $ 1.589 20.096 $ $ $ 10 — 10 — $200 17 315 — — 112 162 — — — — — $806 $ — — $ — $ — $806 $ 407.154 584.635 20.307 8.527 $ 59.537 — — 784 $ — — — — — 45 3 2. 176 .209 87.415 $ $ $ 45 9 54 — $30.154 — 30.746 — — 156 99 $59.054 $822.653 — 8. A significant unconsolidated VIE is an entity where the Company has any variable interest considered to be significant as discussed on page 175 regardless of the likelihood of loss or the notional amount of exposure.668 6.899 $ — — — — $45.067 790 — — 2 379 $72.755 17.117 $723.504 — — — — 4.650 1.131 — 98.272 5.446 $ — — — — — $ — — — — — $ — — — — — $ — — — — — $ — — — — $ — $ 123.209 102.049 $ $ — — — $ 23.466 122 — 3.755 — 29.157.Citigroup’s involvement with QSPEs.380 230 14 — 2.435 1.430 — 25.867 584.275 652 — 1.899 $288.151 15.055 — 20.608 $ $ $ 22 — 22 — $3.650 15.449 $ $ $ $ $ 59.071 17. 2008 Maximum exposure to loss in significant unconsolidated VIEs (1) Funded exposures (3) Unfunded exposures (4) Total involvement with SPE assets Consumer Banking Credit card securitizations Mortgage securitizations Student loan securitizations Other Total Institutional Clients Group Citi-administered asset-backed commercial paper conduits (ABCP) Third-party commercial paper conduits Collateralized debt obligations (CDOs) Collateralized loan obligations (CLOs) Mortgage loan securitization Asset-based financing Municipal securities tender option bond trusts (TOBs) Municipal investments Client intermediation Structured investment vehicles (SIVs) Investment funds Other Total Global Wealth Management Investment funds Other Total Corporate/Other Trust preferred securities Total Citigroup (1) (2) (3) (4) Significant Guarantees QSPE Consolidated unconsolidated Debt Equity Funding and assets VIE assets VIE assets (2) investments investments commitments derivatives $ — 3 — 1. Consolidated and Unconsolidated VIEs with which the Company holds significant variable interests as of December 31.958 $ 98.918 $30.464 — 10.211 $1.630 $72.635 $ — 20.004 $ 162 $3.811 — 2.464 $ $ $ 71 $ 9 80 $ 23. Not included in Citigroup’s December 31.556 21.619 866 3.253 — 87.079 $ $ 26 — 26 $ — 2 928 1.157 8. 2008 Consolidated Balance Sheet. Included in Citigroup’s December 31.390 $264.751 $ — — 11.867 $123.446 — $ 725.847 14.

326 $106.297 17.420 Significant unconsolidated VIE assets (2) $ — — — — — Maximum exposure to loss in significant unconsolidated VIE assets (3) $ — — — — — $ $ 1.263 — 10.604 22.422 37.558 27.902 14.558 $152.109 550.570 13.345 $ $ $ — — — — $119.893 Consolidated VIE assets $ — 63 — 1.643 — 212 1.635 1.762 — 34.715 12.593 — 11. (2) A significant unconsolidated VIE is an entity where the Company has any variable interest considered to be significant as discussed on page 175.As of December 31.262 $106.282 10.556 — — — — 14.559 $ $ $ 32 — 32 162 $ 72. 2007 (1) Total maximum exposure to loss in significant unconsolidated VIEs (continued)(3) $ — — — — — Total involvement with SPEs $ 125.238 $121.882 — $690.753 $1.895 $ — — — — 92.965 14.471 $ $ $ 604 — 604 — $ 23.790 58.558 27.376 QSPE assets $125.109 550.536 1.286.979 4.882 1.662 9.809 $ 72. 2008 (continued) In millions of dollars As of December 31.021 74.468 17.312 1.231 7.021 51.420 $ 692.353 — 4.041 $ $ $ 45 — 45 162 $ 569.003 53 2.383 58.560 $332.227 92.756 $117.543 11. (3) The definition of maximum exposure to loss is included in the text that follows. regardless of the likelihood of loss or the notional amount of exposure.483 $ $ $ 59.248 (1) Reclassified to conform to the current period’s presentation.399 1.884 3.543 140 12.154 13.263 96.122 $808.444 — 28.334 $ $ $ 656 — 656 23.129 13.526 $ — — 22.711 1.072 50.843 2.537 — 158 1.882 $152.874 — 91.473 1.106 23.518 $ $ 52 — 52 $ 72.558 2.794 21. 177 .756 $356.

except where the Company has provided a guarantee to the investors or is the counterparty to certain derivative transactions involving the VIE.9 22.1 $33. The maximum funded exposure represents the balance sheet carrying amount of the Company’s investment in the VIE. or where the Company is the purchaser of credit protection under a credit default swap or total return swap where the Company pays the total return on certain assets to the SPE). trustee and/or investment management services. Intercompany liabilities are excluded from the table.6 $1. Thus. including liquidity and credit facilities provided by the Company. 2007 $ 12. the Company’s maximum exposure to loss related to consolidated VIEs is significantly less than the carrying value of the consolidated VIE assets due to outstanding third-party financing.. or the notional amount of a derivative instrument considered to be a variable interest. the Company includes the full original notional amount of the derivative as an asset. • certain investment funds for which the Company provides investment management services and personal estate trusts for which the Company provides administrative.. The carrying amount may represent the amortized cost or the current fair value of the assets depending on the legal form of the asset (e. the asset balances represent an amortized cost basis without regard to impairments in fair value. • certain limited partnerships where the Company is the general partner and the limited partners have the right to replace the general partner or liquidate the funds.9 3.5 2. 2008 $0. In certain transactions. synthetic CDOs).2 Trading account assets Investments Loans Other assets Total assets In billions of dollars Trading account liabilities Long-term debt Other liabilities Total liabilities 178 . In general.2 4. It reflects the initial amount of cash invested in the VIE plus any accrued interest and is adjusted for any impairments in value recognized in earnings and any cash principal payments received. In most cases. The maximum exposure of unfunded positions represents the remaining undrawn committed amount.7 December 31. These investments are made on arm’s-length terms. the Company has entered into derivative instruments or other arrangements that are not considered variable interests in the VIE under FIN 46(R) (e. In addition.3 87. 2008 $ 6.0 $27. The asset balances for consolidated VIEs represent the carrying amounts of the assets consolidated by the Company.8 $121.7 $46. security or loan) and the Company’s standard accounting policies for the asset type and line of business.4 15.8 17.2 0. cross-currency swaps. unless fair value information is readily available to the Company. and • transferred assets to a VIE where the transfer did not qualify as a sale and where the Company did not have any other involvement that is deemed to be a variable interest with the VIE. adjusted for any declines in fair value recognized in earnings. These transfers are accounted for as secured borrowings by the Company.6 Cash Trading account assets Investments Loans Other assets Total assets of consolidated VIEs The following table presents the carrying amounts and classification of the third-party liabilities of the consolidated VIEs: In billions of dollars December 31.6 Trading account liabilities Short-term borrowings Long-term debt Other liabilities Total liabilities of consolidated VIEs The consolidated VIEs included in the table above represent hundreds of separate entities with which the Company is involved. 2008 $ 1.This table does not include: • certain venture capital investments made by some of the Company’s private equity subsidiaries.6 2. The asset balances for unconsolidated VIEs where the Company has significant involvement represent the most current information available to the Company. Receivables under such arrangements are not included in the maximum exposure amounts.3 8. Significant Interest in VIEs—Balance Sheet Classification The following table presents the carrying amounts and classification of significant interests in VIEs: In billions of dollars December 31. For VIEs that obtain asset exposures synthetically through derivative instruments (for example.8 3.0 2.9 December 31.3 15. the thirdparty investors in the obligations of consolidated VIEs have recourse only to the assets of the VIEs and do not have recourse to the Company.g. interest rate swaps.g.4 0. as the Company accounts for these investments in accordance with the Investment Company Audit Guide. 2008 $ 0. Consolidated VIEs—Balance Sheet Classification The following table presents the carrying amounts and classification of consolidated assets that are collateral for consolidated VIE obligations: In billions of dollars December 31. the assets are generally restricted only to pay such liabilities.2 17. • VIEs structured by third parties where the Company holds securities in inventory.0 6.

9 Proceeds from new securitizations Proceeds from collections reinvested in new receivables Contractual servicing fees received Cash flows received on retained interests and other net cash flows After securitization of credit card receivables. The effect of two negative changes in each of the key assumptions used to determine the fair value of retained interests is required to be disclosed.7 Amounts payable to trusts 1.9% 12.7% to 9.8% 7. the cash proceeds are used to purchase new receivables and replenish the receivables in the trust. Credit card securitizations are revolving securitizations.1 Residual interest in securitized assets(1) 1. the Company considers the securitized credit card receivables to be part of the business it manages.0% 4.9 Other amounts recorded on the balance sheet related to interests retained in the trusts: Other retained interest in securitized assets $ 3. At December 31.9% 3.534) million.8% to 21.1% 6. The following table reflects amounts related to the Company’s securitized credit card receivables at December 31.2 213.267 million during 2008. respectively. As a result.084 million and $1.1 Total ownership interests in principal amount of trust credit card receivables $123.6 2006 $ 20.5% to 22.050 $ (63) (126) $ — — — — Carrying value of retained interests Discount rates Adverse change of 10% Adverse change of 20% Constant prepayment rate Adverse change of 10% Adverse change of 20% Anticipated net credit losses Adverse change of 10% Adverse change of 20% $ $ (66) (133) Managed Loans 2008 $ 28.5 18. This results in a high payment in the early life of the securitized balances followed by a much lower payment rate. $1. Citigroup sells receivables into the QSPE trusts on a non-recourse basis. 179 . • net gains on replenishments of the trust assets offset by other-thantemporary impairments.8% 5.7% to 16.9 2007 $125. excluding new card purchases.4 1. holding all other assumptions constant.3 2.9% Other retained interests $3. net of recoveries.069 $ (36) (70) $ (81) (153) $ (273) (541) Retained certificates $6.1 7.3 $125. that is. respectively.2 218. 2008 and 2007: In billions of dollars Key assumptions used for the securitization of credit cards during 2008 and 2007 in measuring the fair value of retained interests at the date of sale or securitization are as follows: 2008 Discount rate Constant prepayment rate Anticipated net credit losses 2007 13.6 billion and $0.0 2.0 3. 2007 and 2006: In billions of dollars In millions of dollars Residual interest $1. The valuation of retained interests is performed separately for each trust.1 Principal amount of credit card receivables in trusts Ownership interests in principal amount of trust credit card receivables: Sold to investors via trust-issued securities Retained by Citigroup as trust-issued securities Retained by Citigroup via non-certificated interests recorded as consumer loans 98.7 billion as of December 31.3 4.1 2.6 (1) Includes net unbilled interest in sold balances of $0.2 6. Net gains (losses) reflect the following: • incremental gains (losses) from new securitizations.2 102. 2008 and 2007. The Company recorded net gains (losses) from securitization of credit card receivables of $(1.The Company’s unfunded exposure to loss is determined based on the Company’s maximum contractual commitment less these liabilities recognized in the Balance Sheet as displayed above.2 2007 $ 36.3% to 20. resulting in the disclosed range for the key assumptions. 2008.4% to 9. the key assumptions used to value retained interests and the sensitivity of the fair value to adverse changes of 10% and 20% in each of the key assumptions were as follows: 2008 Discount rate Constant prepayment rate Anticipated net credit losses 16. Because the key assumptions may not in fact be independent. the Company continues to maintain credit card customer account relationships and provides servicing for receivables transferred to the trusts.8% to 18.5 19. The following tables present a reconciliation between the managed basis and on-balance sheet credit card portfolios and the related delinquencies (loans which are 90 days or more past due) and credit losses. The Company relies on securitizations to fund a significant portion of its managed North America Cards business. • the reversal of the allowance for loan losses associated with receivables sold. as customers pay their credit card balances. the net effect of simultaneous adverse changes in the key assumptions may be less than the sum of the individual effects shown below.7 There are two primary trusts through which the Company securitizes credit card receivables.1 7.4% 2008 $123.4% to 6.2% to 19. and • mark-to-market changes for the portion of the residual interest classified as trading assets. The following table summarizes selected cash flow information related to credit card securitizations for the years 2008. The constant prepayment rate assumption range reflects the projected payment rates over the life of a credit card balance. Credit Card Securitizations The Company securitizes credit card receivables through trusts which are established to purchase the receivables. 2007 and 2006. The negative effect of each change must be calculated independently.0 7. which is depicted in the disclosed range.7% 5.7 214.763 $ (10) (20) $ — — $ 3.

A. Both facilities are made available on market terms to each trust. Citibank (South Dakota). Citigroup expects to issue the Class D note in the second quarter of 2009 and to effect the subordination of seller’s interest cash flows in March 2009. insurer or guarantor. respectively. 2008 and $7. Mortgage Securitizations The Company provides a wide range of mortgage loan products to a diverse customer base. the servicer agrees to share credit risk with the owner of the mortgage loans. The Palisades liquidity commitment amounted to $8. N.918 7. In addition.728 — $8.00% and 4. The subordinated notes pay interest installments and principal upon maturity in December 2009. The Omni Trust has issued approximately $3. provides this facility on market terms. the Company is currently holding ongoing discussions with Board staff from the Federal Reserve regarding the application of the associated risk-based capital requirements. On balance sheet Securitized amounts Loans held-for-sale Total managed (1) Includes $1. The funds in the spread account can only be paid to investors if the Master Trust goes into liquidation. Failure to service the loans in accordance with contractual requirements may lead to a termination of the servicing rights and the loss of future servicing fees.5 billion at December 31. The liquidity facility requires Citibank (South Dakota). Citibank (South Dakota).5 billion at December 31. the liquidity commitment for this transaction was $4. In recourse servicing. the required funding of the spread account is $680 million. Standard & Poor’s placed its BBB rating on the Master Trust Class C notes on “ratings watch negative. net of recoveries. this event requires the excess cash in the Master Trust to be diverted to a spread account set aside for the benefit of the investors in the Trust. including commercial paper and medium. for the year ended December 31. In connection with the securitization of these loans. but the timing and extent of such increase would not yet be certain pending resolution of discussions with the Federal Reserve.325 2007 $3.A. The Dakota liquidity commitment amounted to $11 billion at December 31. As a result of this action. the funds in the spread account will be released to Citigroup.986 5 $7.A.6 billion bond issued by the Omni Trust.A. N. Citibank (South Dakota). N. At December 31.929 1. 2008. typically in the form of subordinated notes.50% of the outstanding principal balance.877 4. Consumer mortgage business retains the servicing rights.208 3.199 Loan amounts. the Class C bonds will be removed from “ratings watch negative” and the BBB rating will be affirmed by S&P.655 — $5. In February 2009. N.In millions of dollars. such as FNMA or FHLMC. 2008. the excess spread for the Master Trust fell below the trigger level of 4. a wholly owned subsidiary of Citigroup. typically in the form of subordinated notes. Funding. In December 2008. 2007.407 — $13.807 2006 $3.864 14 $3. loses its A-1/P-1 credit rating.50%. or with a private investor. 180 In October 2008. entered into an agreement to provide liquidity to a third-party non-consolidated multi-seller commercial paper conduit (the Conduit). N. Losses on recourse servicing occur primarily when foreclosure sale proceeds of the property underlying a defaulted mortgage loan are less than the . Citigroup’s riskweighted assets will be increased. acquired subordinated bonds issued by the Omni Trust having an aggregate notional principal of $265 million.A. which entitle the Company to a future stream of cash flows based on the outstanding principal balances of the loans and the contractual servicing fee. the Company has decided to issue a Class D note as well as subordinate a portion of principal cash flows due to the Company in the form of non-certificated seller’s interest.2 billion in interest and fee receivables. The trusts are funded through a mix of sources. except loans in billions 2008 $ 87. Term notes can be issued at a fixed or floating rate. Should these actions be deemed satisfactory.. Beginning in January 2009. However. during 2008 Citibank (South Dakota). The excess spread is a measure of the profitability of the credit card accounts in the Master Trust expressed as a percent of the principal balance outstanding. instead of reverting back to Citigroup immediately. The Conduit holds a $3. Liquidity Facilities and Subordinate Interests Citigroup securitizes credit card receivables through three securitization trusts.9 — $193. If the three-month average excess spread moves back above the 4.0 $202. During 2008. N.5 105.605 2007 $ 93. Citigroup is a provider of liquidity facilities to the commercial paper programs of the two primary securitization trusts with which it transacts.and long-term notes. at year end On balance sheet Securitized amounts Loans held-for-sale Total managed delinquencies Credit losses. at which time Standard & Poor’s will re-evaluate the credit rating of the bonds unless Citigroup takes action in the interim. at year end On balance sheet Securitized amounts(1) Loans held-for-sale Total managed loans Delinquencies. the timing and extent of the increase is not yet certain. which is not a VIE.” This status applies for 90 days. to purchase Palisades’s commercial paper at maturity if the commercial paper does not roll over as long as there are available credit enhancements outstanding. A.5 108. N. N.A. also became the sole provider of a full-liquidity facility to the Dakota commercial paper program of the Citibank Master Credit Card Trust (the “Master Trust”).0 billion. Citibank (South Dakota). If these actions are executed.4 $2.3 billion of commercial paper through the Commercial Paper Funding Facility (CPFF).S.490 2. will be required to act in its capacity as liquidity provider as long as there are available credit enhancements outstanding and if: (1) the Conduit is unable to roll over its maturing commercial paper. This facility requires Citibank (South Dakota).145 2008 $ 5.A. or (2) Citibank (South Dakota). N.50% trigger level. Citibank (South Dakota). The action will increase risk-weighted assets for purposes of calculating the Company’s riskbased capital ratios. was effected in order to avert a downgrade of all of Omni Trust’s outstanding AAA and A securities by Standard & Poor’s. the Company’s U.1 1. The issuance of these bonds by the Omni Trust to Citibank (South Dakota). N.A. In response. In non-recourse servicing. pending completion of discussions with the Federal Reserve. is the sole provider of a full-liquidity facility. the principal credit risk to the Company is the cost of temporary advances of funds. If the three-month average excess spread stays between 4.6 $1.A. With respect to the Palisades commercial paper program in the Omni Master Trust (the “Omni Trust”). to purchase Dakota commercial paper at maturity if the commercial paper does not roll over as long as there are available credit enhancements outstanding.

0% 2007 U. However.0% to 100.2% 3. At December 31. Securities and Banking retains servicing for a limited number of its mortgage securitizations. This resulted in a significant variation in assumed prepayment rates and discount rates. $(27) million.S. Consumer mortgages $67.4% 30.9% to 24.S.8% 5. Consumer mortgages Discount rate Constant prepayment rate Anticipated net credit losses 9. These mortgage loan securitizations are primarily non-recourse.5% to 30. the net effect of simultaneous adverse changes in the key assumptions may be less than the sum of the individual effects shown below.2 Key assumptions used for the securitization of mortgages during 2008 and 2007 in measuring the fair value of retained interests at the date of sale or securitization are as follows: 2008 U. thereby effectively transferring the risk of future credit losses to the purchasers of the securities issued by the trust. 2007 and 2006: 2008 U.6% to 17.S.5% 10.2 1.4% 2. securitizing these assets also reduces the Company’s credit exposure to the borrowers.2% 40.0% In billions of dollars Proceeds from new securitizations Contractual servicing fees received Cash flows received on retained interests and other net cash flows In billions of dollars In 2008.0% to 18.1% to 52.3 Securities and Banking mortgages $40. Consumer mortgages $107.6% 2. 2007 and 2006. respectively. The following tables summarize selected cash flow information related to mortgage securitizations for the years 2008.outstanding principal balance and accrued interest of the loan and the cost of holding and disposing of the underlying property.1% to 39.5% to 18.S. 2007 and 2006 were $(16) million. The effect of two negative changes in each of the key assumptions used to determine the fair value of retained interests is required to be disclosed. These QSPEs are funded through the issuance of Trust Certificates backed solely by the transferred assets.6% to 32. The negative effect of each change must be calculated independently. $145 million and $302 million.S.0 — Securities and Banking mortgages $31. U. interest-only strips and residual interests in future cash flows from the trusts.S.7 0.2% — Securities and Banking mortgages 2.S.3 2006 U. the Company often securitizes these loans through the use of QSPEs.2% 0.2 2. Consumer mortgages $89. These certificates have the same average life as the transferred assets.1 — 0. Because the key assumptions may not in fact be independent. the key assumptions used to value retained interests and the sensitivity of the fair value to adverse changes of 10% and 20% in each of the key assumptions were as follows: 2008 U. respectively.1% 6. The interests retained by Securities and Banking range from highly rated and/or senior in the capital structure to unrated and/or residual interests.S. thereby effectively transferring the risk of future credit losses to the purchasers of the securities issued by the trust.9 — 0.9% — Securities and Banking mortgages 5.S. Gains (losses) recognized on the securitization of Securities and Banking activities during 2008. 181 .1 0. The Company’s mortgage loan securitizations are primarily non-recourse.2 2007 U.0% to 85.0% to 18.571 $ (149) (290) $ (480) (910) $ (26) (49) Securities and Banking mortgages $ 956 $ (45) (90) $ (9) (18) $ (62) (113) In billions of dollars Proceeds from new securitizations Contractual servicing fees received Cash flows received on retained interests and other net cash flows In millions of dollars Carrying value of retained interests Discount rates Adverse change of 10% Adverse change of 20% Constant prepayment rate Adverse change of 10% Adverse change of 20% Anticipated net credit losses Adverse change of 10% Adverse change of 20% The Company recognized gains (losses) on securitizations of U. The Company’s Consumer business provides a wide range of mortgage loan products to its customers. Consumer mortgages Discount rate Constant prepayment rate Anticipated net credit losses 4. The range in the key assumptions for retained interests in Securities and Banking is due to the different characteristics of the interests retained by the Company. Consumer mortgage rates exhibited considerable variability due to economic conditions and market volatility.5 1.0% to 85% U. the Company generally retains the servicing rights and in certain instances retains investment securities. holding all other assumptions constant.1% 40. In addition to providing a source of liquidity and less expensive funding. Consumer mortgages of $73 million. Consumer mortgages Discount rate Constant prepayment rate Anticipated net credit losses Securities and Banking mortgages Proceeds from new securitizations Contractual servicing fees received Cash flows received on retained interests and other net cash flows 7.5% 4.3 — 0. and $82 million for 2008. 2008. Consumer mortgages $ 7.7 Securities and Banking mortgages $6. Once originated.1% to 39.

as well as to MSR broker valuations and industry surveys. respectively. The model assumptions and the MSR’s fair value estimates are compared to observable trades of similar MSR portfolios and interest-only security portfolios.7% Retained interests $1. 2008 and 2007. forward purchase commitments of mortgage-backed securities and purchased securities classified as trading.137 Servicing fees Late fees Ancillary fees Total MSR fees 3.1 Cash flows received on retained interests and other net cash flows 0. The market for MSRs is not sufficiently liquid to provide participants with quoted market prices.8% 0.380 Balance.151 $ (26) (51) $ (9) (17) (6) (13) Carrying value of retained interests Discount rates Adverse change of 10% Adverse change of 20% Constant prepayment rate Adverse change of 10% Adverse change of 20% Anticipated net credit losses Adverse change of 10% Adverse change of 20% These fees are classified in the Consolidated Statement of Income as Commissions and fees.e.121 123 81 $2.6% 9.843 3.. A substantial portion of the credit risk associated with the securitized loans has been transferred to third party guarantors or insurers either under the Federal Family Education Loan Program.6 — — Proceeds from new securitizations $2. interest-only strips) and servicing rights.380 1. The following table summarizes selected cash flow information related to student loan securitizations for the years 2008. In managing this risk.682) (163) (1.026) (1.Mortgage Servicing Rights The fair value of capitalized mortgage loan servicing rights (MSR) was $5.307) $ 8.S. The fair value of the MSRs is primarily affected by changes in prepayments that result from shifts in mortgage interest rates. The following table summarizes the changes in capitalized MSRs: In millions of dollars 2008 $ 8. the Company uses an option-adjusted spread valuation approach to determine the fair value of MSRs. The cash flow model and underlying prepayment and interest rate models used to value these MSRs are subject to validation in accordance with the Company’s model validation policies.9% 0.9% to 10. the Company generally retains interests in the form of subordinated residual interests (i.4% 0. For off-balance sheet securitizations. Under terms of the trust arrangements the Company has no obligations to provide financial support and has not provided such support.4 billion at December 31. This approach consists of projecting servicing cash flows under multiple interest rate scenarios and discounting these cash flows using risk-adjusted discount rates.190) $ 5. respectively.5% 2007 5.657 2007 $ 5. $ 182 . 2008.834 2006 $1. The Company receives fees during the course of servicing previously securitized mortgages. 2008 and 2007.678 (247) (1.3% At December 31.1 2006 $7. Therefore.1 0. beginning of year Originations Purchases Changes in fair value of MSRs due to changes in inputs and assumptions Transfer to Trading account assets Other changes (1) Balance.9 0. end of year (1) Represents changes due to customer payments and passage of time. the key assumptions used to value retained interests and the sensitivity of the fair value to adverse changes of 10% and 20% in each of the key assumptions were as follows: Retained interests Discount rate Constant prepayment rate Anticipated net credit losses In millions of dollars 2008 $2. the Company economically hedges a significant portion of the value of its MSRs through the use of interest rate derivative contracts. as available. The amount of these fees for the years ending December 31. The key assumptions used in the valuation of MSRs include mortgage prepayment speeds and discount rates.9% to 13.1 Key assumptions used for the securitization of student loans during 2008 and 2007 in measuring the fair value of retained interests at the date of sale or securitization are as follows: 2008 Discount rate Constant prepayment rate Anticipated net credit losses 10.036 56 45 $1.3% to 0. Under the Company’s securitization programs.325 2007 $1.7 billion and $8.311 1 (2. These QSPEs are funded through the issuance of pass-through term notes collateralized solely by the trust assets.8% to 8. authorized by the U. 2007 and 2006: In billions of dollars 2008 2007 $2. transactions qualifying as sales are off-balance sheet transactions in which the loans are removed from the Consolidated Financial Statements of the Company and sold to a QSPE.5% 3. The MSRs correspond to principal loan balances of $662 billion and $586 billion as of December 31.439 1. were as follows: In millions of dollars Student Loan Securitizations The Company maintains programs to securitize certain portfolios of student loan assets.1% to 3. or private credit insurance.683 90 61 $1. Department of Education under the Higher Education Act of 1965. as amended.0% 0.0 Contractual servicing fees received 0.

The assets are privately negotiated and structured transactions that are designed to be held by the conduit. the weighted average life of the commercial paper issued was approximately 37 days. direct recourse or third-party guarantees. 2007 $ 0. The APA is not designed to provide credit support to the conduit. The net result across all multi-seller conduits administered by the Company is that. the Company has agreed to lend to the conduits in the event of a short-term disruption in the commercial paper market. The cash flows from these assets are the only source used to pay down the associated liabilities. which is equal to the income from client program and liquidity fees of the conduit after payment of interest costs and other fees. In addition. In return. Second. the Subordinate Loss Notes issued by each conduit absorb any credit losses up to their full notional amount. cash and excess spread collateral accounts.1) $ 7. since most risks and rewards of the underlying assets are passed back to the customers and. among other events. The following table presents the carrying amounts and classification of consolidated assets and liabilities transferred in transactions from the consumer credit card. As administrator to the conduits. As of December 31.5 (0. thereby making the single investor in the Subordinate Loss Note the primary beneficiary under FIN 46(R). costs and fees are relatively stable as a percentage of the conduit’s size.On-Balance Sheet Securitizations The Company engages in on-balance sheet securitizations.1 0. monitoring the quality and performance of the conduits’ assets. each conduit has obtained a letter of credit from the Company. mortgage and auto businesses. 2008. Each asset of the conduit is supported by a transaction-specific liquidity facility in the form of an asset purchase agreement (APA).1 7. The total notional exposure under the program-wide liquidity agreement is $11. the Company has agreed to purchase non-defaulted eligible receivables from the conduit at par.2 7. The conduits purchase assets from or provide financing facilities to customers and are funded by issuing commercial paper to third-party investors. subject to specified conditions. thus passing interest rate risk to the client. once the asset pricing is negotiated. Under these commitments. most ongoing income. the Company earns structuring fees from clients for individual transactions and earns an administration fee from the conduit.4 $ 6. These are securitizations that do not qualify for sales treatment. The funding of the conduit is facilitated by the liquidity support and credit enhancements provided by the Company and by certain third parties. accounted for as secured borrowings: In billions of dollars December 31. The conduits generally do not purchase assets originated by the Company. there are two additional forms of credit enhancement that protect the commercial paper investors from defaulting assets. also provides the conduits with two forms of liquidity agreements that are used to provide funding to the conduits in the event of a market disruption. This administration fee is fairly stable.6 December 31. The multi-seller commercial paper conduits are designed to provide the Company’s customers access to low-cost funding in the commercial paper markets. which is generally 8-10% of the conduit’s assets.1) $ 7.6 $ 5. including overcollateralization.8 $ 6. The APA covers all assets in the conduits and is considered in the Company’s maximum exposure to loss. based on the Company’s internal risk ratings. The primary credit enhancement provided to the conduit investors is in the form of transaction-specific credit enhancement described above.3 0. in the event of defaulted assets in excess of the transaction-specific credit enhancement described above. and also as a service provider to single-seller and other commercial paper conduits sponsored by third parties.3 $ 6.3 billion and is considered in the Company’s maximum exposure to loss.2 Cash Available-for-sale securities Loans Allowance for loan losses Total assets Long-term debt Other liabilities Total liabilities All assets are restricted from being sold or pledged as collateral. the Company is responsible for selecting and structuring of assets purchased or financed by the conduits. the conduits have issued Subordinate Loss Notes and equity with a notional amount of approximately $80 million and varying remaining tenors ranging from six months to seven years. The letters of credit provided by the Company total approximately $5. rather than actively traded and sold. and facilitating the operations and cash flows of the conduits. It is expected that the Subordinate Loss Notes issued by each conduit are sufficient to absorb a majority of the expected losses from each conduit.3 0. These credit enhancements are sized with the objective of approximating a credit rating of A or above. as it generally does not permit the purchase of defaulted or impaired assets and generally reprices the assets purchased to consider potential increased credit risk. Substantially all of the funding of the conduits is in the form of shortterm commercial paper. 2008 $ 0. First. 183 .8 billion and are included in the Company’s maximum exposure to loss. Each asset purchased by the conduit is structured with transaction-specific credit enhancement features provided by the third-party seller. any losses in each conduit are allocated in the following order: • Subordinate loss note holders • the Company • the commercial paper investors The Company.8 0. The conduits administered by the Company do not generally invest in liquid securities that are formally rated by third parties. In addition. including determining the tenor and other features of the commercial paper issued. thus. The yield earned by the conduit on each asset is generally tied to the rate on the commercial paper issued by the conduit. the Company provides the conduits with program-wide liquidity in the form of short-term lending commitments. which are non-recourse to the Company’s general assets. student loan. making decisions regarding the funding of the conduits. along with third parties. Any assets purchased under the APA are subject to increased pricing. The Company receives fees for providing both types of liquidity agreement and considers these fees to be on fair market terms. the assets remain on the Company’s balance sheet. In addition.4 (0. Under the APA. Citi-Administered Asset-Backed Commercial Paper Conduits The Company is active in the asset-backed commercial paper conduit business as administrator of several multi-seller commercial paper conduits.

A synthetic CDO is similar to a cash CDO. In these transactions. A third-party manager is typically retained by the CDO to select the pool of assets and manage those assets over the term of the CDO. Using this credit data. and are collateralized by the assets of each conduit. or arbitrage CDO. Thus. the Company is one of several named dealers in the commercial paper issued by the conduits and earns a market-based fee for providing such services. “Cash flow” CDOs are vehicles in which the CDO passes on cash flows from a pool of assets. The Company’s continuing involvement in cash CDOs is typically limited to investing in a portion of the notes or loans issued by the CDO and making a market in those securities. 2008. As of December 31. which is then applied on a probability-weighted basis to determine expected losses due to credit risk. the Company makes a market in the commercial paper and may from time to time fund commercial paper pending sale to a third party. Along with third-party dealers. name-specific changes in credit spreads. The Company then sells the debt securities to the CDO in exchange for cash raised through the issuance of notes. The Company also analyzes the variability in the fees that it earns from the conduit using monthly actual historical cash flow data to determine average fee and standard deviation measures for each conduit. as the cash is needed to purchase the debt securities. 2008. a third-party investment manager selects a portfolio of assets. the CDO writes credit protection on select referenced debt securities to the Company or third parties and the risk is then passed on to the CDO investors in the form of funded notes or purchased credit protection through derivative 184 . Because FIN 46(R) requires these risks and related enhancements to be excluded from the analysis. rather than the risks associated with extreme outcomes (for example. The calculation of variability under FIN 46(R) focuses primarily on expected variability. In a typical cash CDO. they do not provide significant protection against extreme or unusual credit losses. Because any unhedged interest rate and foreign-currency risk not contractually passed on to customers is absorbed by the fees earned by the Company. The C-VaR model considers changes in credit spreads (both within a rating class as well as due to rating upgrades and downgrades). On specific dates with less liquidity in the market. In addition. The Company models the credit risk of the conduit’s assets using a Credit Value at Risk (C-VaR) model. the Company owned $57 million of commercial paper issued by its administered conduits. which the Company funds through a warehouse financing arrangement prior to the creation of the CDO. $2 million was funded under these facilities as of December 31. interest-rate risk and fee variability. Because the CDO does not need to raise cash sufficient to purchase the entire referenced portfolio. as well as conduits administered by third parties. The expected variability absorbed by the Subordinate Loss Note investors is therefore measured to be greater than the expected variability absorbed by the Company through its liquidity arrangements and other fees earned. the fee variability analysis incorporates those risks. the Company may hold in inventory commercial paper issued by conduits administered by the Company. a substantial portion of the senior tranches of risk is typically passed on to CDO investors in the form of unfunded liabilities or derivative instruments. credit defaults and recovery rates and diversification effects of pools of financial assets.4 billion as of December 31. The facilities provided by the Company typically represent a small portion of the total liquidity facilities obtained by each conduit. The fee variability and credit risk variability are then combined into a single distribution of the conduit’s overall returns. In conducting this analysis. such as credit default swaps. Collateralized Debt and Loan Obligations A collateralized debt obligation (CDO) is an SPE that purchases a pool of assets consisting of asset-backed securities and synthetic exposures through derivatives on asset-backed securities and issues multiple tranches of equity and notes to investors. This return distribution is updated and analyzed on at least a quarterly basis to ensure that the amount of the Subordinate Loss Notes issued to third parties is sufficient to absorb greater than 50% of the total expected variability in the conduit’s returns. is a CDO designed to take advantage of the difference between the yield on a portfolio of selected assets. the remaining risks and expected variability are quantitatively small. the Company has retained interests in many of the CDOs it has structured and makes a market in those issued notes. The model incorporates data from independent rating agencies as well as the Company’s own proprietary information regarding spread changes. while “market value” CDOs pay to investors the market value of the pool of assets owned by the CDO at maturity. the Company considers three primary sources of variability in the conduit: credit risk. therefore. large levels of default) that are expected to occur very infrequently. the Company continuously monitors the specific credit characteristics of the conduit’s assets and the current credit environment to confirm that the C-VaR model used continues to incorporate the Company’s best information regarding the expected credit risk of the conduit’s assets. a Monte Carlo simulation is performed to develop a distribution of credit risk for the portfolio of assets owned by each conduit. and the investors in commercial paper and medium-term notes. The amount of commercial paper issued by its administered conduits held in inventory fluctuates based on market conditions and activity. In addition. and the cost of funding the CDO through the sale of notes to investors. These conduits are independently owned and managed and invest in a variety of asset classes. The Company earns fees for warehousing assets prior to the creation of a CDO.Finally. The Company performs this analysis on a quarterly basis and has concluded that the Company is not the primary beneficiary of the conduits as defined in FIN 46(R) and. So while the Subordinate Loss Notes are sized appropriately compared to expected losses as measured in FIN 46(R). Both types of CDOs are typically managed by a thirdparty asset manager. depending on the nature of the conduit. all of the equity and notes issued by the CDO are funded. While the notional amounts of the Subordinate Loss Notes are quantitatively small compared to the size of the conduits. and acting as derivative counterparty for interest rate or foreign currency swaps used in the structuring of the CDO. FIN 46(R) requires that the Company quantitatively analyze the expected variability of the conduit to determine whether the Company is the primary beneficiary of the conduit. this is reflective of the fact that most of the substantive risks of the conduits are absorbed by the enhancements provided by the sellers and other third parties that provide transaction-level credit enhancement. except that the CDO obtains exposure to all or a portion of the referenced assets synthetically through derivative instruments. A cash CDO. The notional amount of these facilities is approximately $1. Third-Party Commercial Paper Conduits The Company also provides liquidity facilities to single. ratings transitions and losses given default. typically residential mortgage-backed securities. does not consolidate the conduits it administers. 2008. structuring CDOs and placing debt securities with investors.and multi-seller conduits sponsored by third parties.

Upon a reconsideration event.3 Maximum exposure $ 9. Due to reconsideration events during 2007 and 2008.2% CLOs 4. the Company had purchased all $25 billion of the commercial paper subject to the liquidity puts. Asset-Based Financing The Company provides loans and other forms of financing to VIEs that hold assets. entering into interest-rate swap and total-return swap transactions with the CDO.5% to 31. In millions of dollars CDOs $928 $(21) (41) CLOs $763 $ (11) (23) Carrying value of retained interests Discount rates Adverse change of 10% Adverse change of 20% The Company has retained significant portions of the “super senior” positions issued by certain CDOs. The following table summarizes selected cash flow information related to asset-based financing for the years 2008. the net result of such consolidation may reduce the Company’s balance sheet by eliminating intercompany derivative receivables and payables in consolidation. The Company continues to monitor its involvement in unconsolidated VIEs and if the Company were to acquire additional interests in these vehicles or if the CDOs’ contractual arrangements were to be changed to reallocate expected losses or residual returns among the various interest holders. which amounts are not considered material.5 2. if the CDO was unable to issue commercial paper at a rate below a specified maximum (generally LIBOR + 35bps to LIBOR + 40 bps).2 Commercial and other real estate Hedge funds and equities Corporate loans Asset purchasing vehicles/SIVs Airplanes. Financings in the form of debt securities or derivatives are. The collateral is then used to support the CDO’s obligations on the credit default swaps written to counterparties. Consolidation Cash Flows and Retained Interests The following tables summarize selected cash flow information related to CDO and CLO securitizations for the year 2008: In billions of dollars CDOs 0. lending to the CDO.1 0. the Company is at risk for consolidation only if the Company owns a majority of either a single tranche or a group of tranches that absorb the remaining risk of the CDO. Citigroup has been required to provide loans to those vehicles to replace maturing commercial paper and short-term notes. The declines in value of the subordinate tranches and in the super senior tranches indicate that the super senior tranches are now exposed to a significant portion of the expected losses of the CDOs. are as follows: CDOs Discount rate 28. For cash CDOs.9 28. the subordinate tranches of the CDOs have diminished significantly in value and in rating. leading to an inability to re-issue maturing commercial paper and short-term notes. Since inception of many CDO transactions. in the form of both unfunded derivative positions (primarily super senior exposures discussed below) and funded notes. and making a market in those funded notes. Certain of the assets owned by the vehicles have suffered significant declines in fair value. were senior to tranches rated AAA by independent rating agencies.3 $98. 2007 and 2006: In billions of dollars 2008 $ 1. in accordance with the original terms of the backstop liquidity facilities.2 $28. in most circumstances.2% The effect of two negative changes in discount rates used to determine the fair value of retained interests is disclosed below. the Company may be required to consolidate the CDOs. the Company was obligated to fund the senior tranche of the CDO at a specified interest rate.4 2007 — — 2006 — — Proceeds from new securitizations Cash flows received on retained interests and other net cash flows 185 . 2008 are shown below.7 0. Any cash raised from investors is invested in a portfolio of collateral securities or investment contracts. used for the securitization of CDOs and CLOs during 2008 in measuring the fair value of retained interests at the date of sale or securitization. Those vehicles finance a majority of their asset purchases with commercial paper and short-term notes. These positions are referred to as “super senior” because they represent the most senior positions in the CDO and. For the Company to realize that maximum loss.4 11. The Company’s continuing involvement in synthetic CDOs generally includes purchasing credit protection through credit default swaps with the CDO. rather than assetbacked debt securities. For synthetic CDOs. the Company has consolidated 34 of the 46 CDOs/CLOs in which the Company holds a majority of the senior interests of the transaction. the net result of such consolidation would be to gross up the Company’s balance sheet by the current fair value of the subordinate securities held by third parties. at the time of structuring. These positions include facilities structured in the form of short-term commercial paper. ships and other assets Total The Company’s involvement in the asset purchasing vehicles and SIVs sponsored and managed by third parties is primarily in the form of provided backstop liquidity. Those loans are subject to the same credit approvals as all other loans originated or purchased by the Company and related loan loss reserves are reported as part of the Company’s Allowance for credit losses in Note 18 on page 165. 2008. reported in Trading account assets and accounted for at fair value through earnings.2 9.1 8. where the Company wrote put options (“liquidity puts”) to certain CDOs. The Company evaluates these transactions for consolidation when reconsideration events occur. In billions of dollars Type Total assets $46.7% to 5. The primary types of asset-based financing.1 CLOs — Cash flows received on retained interests The key assumptions. Under the terms of the liquidity puts. As of December 31. A collateralized loan obligation (CLO) is substantially similar to the CDO transactions described above. except that the assets owned by the SPE (either cash instruments or synthetic exposures through derivative instruments) are corporate loans and to a lesser extent corporate bonds.5 3. based on current market assumptions. total assets of the unconsolidated VIEs with significant involvement and the Company’s maximum exposure to loss at December 31. owning a portion of the capital structure of the CDO.3 7. the VIE (borrower) would have to default with no recovery from the assets held by the VIE. as defined in FIN 46(R).instruments.

the Company does not consolidate the Customer TOB trusts. the Company held approximately $1.and floating-rate. which are frequently less than 1% of a trust’s total funding. including any credit enhancement provided by monoline insurance companies or the Company in the primary or secondary markets. The Company sponsors three kinds of TOB trusts: customer TOB trusts. the Company’s involvement and variable interests include only its role as remarketing agent and liquidity provider.5 billion. it can declare a failed remarketing (in which case the trust is unwound) or may choose to buy the Floaters into its own inventory and may continue to try to sell it to a third-party investor. in which case the financing (the Floaters) is recognized on the Company’s balance sheet as a liability. Approximately $3. a similar reimbursement arrangement is made whereby the Company (or a consolidated subsidiary of the Company) as Residual holder absorbs any losses incurred by the liquidity provider. As of December 31. Proprietary and QSPE TOB trusts issue the Floaters to third parties and the Residuals are held by the Company. the Company has a reimbursement agreement with the Residual holder under which the Residual holder reimburses the Company for any payment made under the liquidity arrangement. If Floaters are tendered and the Company (in its role as remarketing agent) is unable to find a new investor within a specified period of time. Because third-party investors hold the Residual and Floater interests in the customer TOB trusts. Through this reimbursement agreement. and the Floaters bear interest rates that are typically reset weekly to a new market rate (based on the SIFMA index). facilitates the sale of the Floaters to third parties at inception of the trust and facilitates the reset of the Floater coupon and tenders of Floaters. Finally. Floater holders have an option to tender the Floaters they hold back to the trust periodically. on the other hand. certain proprietary TOB trusts and QSPE TOB trusts are not consolidated by . the Residual holder remains economically exposed to fluctuations in value of the municipal bond. The Residuals are generally rated based on the long-term rating of the underlying municipal bond and entitle the holder to the residual cash flows from the issuing trust. the underlying municipal bond is sold in the secondary market. The tenor of the Floaters matches the maturity of the TOB trust and is equal to or shorter than the tenor of the municipal bond held by the trust. The trusts are typically single-issuer trusts whose assets are purchased from the Company and from the secondary market.9 billion of the municipal bonds owned by TOB trusts have an additional credit guarantee provided by the Company. The Company’s variable interests in the Proprietary TOB trusts include the Residual as well as the remarking and liquidity agreements with the trusts. as discussed below. which precludes consolidation of owned investments. While 186 the trusts have not encountered any adverse credit events as defined in the underlying trust agreements. If a trust is unwound early due to an event other than a credit event on the underlying municipal bond. liquidity agreements provided with respect to customer TOB trusts totaled $7. If there is an accompanying shortfall in the trust’s cash flows to fund the redemption of the Floaters after the sale of the underlying municipal bond. The Company considers the customer and proprietary TOB trusts (excluding QSPE TOB trusts) to be variable interest entities within the scope of FIN 46(R). The trusts issue long-term senior floating rate notes (“Floaters”) and junior residual securities (“Residuals”).5 billion to QSPE TOB trusts and other non-consolidated proprietary TOB trusts described above. • QSPE TOB trusts provide the Company with the same exposure as proprietary TOB trusts and are not consolidated by the Company. Customer TOB trusts issue the Floaters and Residuals to third parties. where the Residuals are held by hedge funds that are consolidated and managed by the Company. In addition. the Company generally consolidates the Proprietary TOB trusts. The TOB trusts fund the purchase of their assets by issuing Floaters along with Residuals. In cases where a third party provides liquidity to a proprietary or QSPE TOB trust.9 billion of Floater inventory related to the Customer. proprietary TOB trusts and QSPE TOB trusts. Credit rating distribution is based on the external rating of the municipal bonds within the TOB trusts.1 billion. the Company has provided liquidity arrangements with a notional amount of $6. • Proprietary TOB trusts are generally consolidated. On the basis of the variability absorbed by the customer through the reimbursement arrangement or significant residual investment. 2008. Proprietary and QSPE TOB programs as of December 31. While the level of the Company’s inventory of Floaters fluctuates. the assets are either unenhanced or are insured with a monoline insurance provider in the primary market or in the secondary market. the Company has proactively managed the TOB programs by applying additional secondary market insurance on the assets or proceeding with orderly unwinds of the trusts. the trust draws on a liquidity agreement in an amount equal to the shortfall. On the basis of the variability absorbed through these contracts (primarily the Residual). 2008. However. Liquidity agreements are generally provided to the trust directly by the Company. In all other cases. In these cases. in its capacity as remarketing agent. For customer TOBs where the Residual is less than 25% of the trust’s capital structure. tax-exempt securities issued by state or local municipalities. The Floaters have a long-term rating based on the long-term rating of the underlying municipal bond and a short-term rating based on that of the liquidity provider to the trust. certain monoline insurance companies have experienced downgrades. The assets and the associated liabilities of these TOB trusts are not consolidated by the hedge funds (and. are not consolidated by the Company) under the application of the AICPA Investment Company Audit Guide. certain proprietary TOB trusts are not consolidated by the Company. thus. • Customer TOB trusts are trusts through which customers finance investments in municipal securities and are not consolidated by the Company. Certain of the Company’s equity investments in the hedge funds are hedged with derivatives transactions executed by the Company with third parties referencing the returns of the hedge fund. Proprietary and QSPE TOB trusts. offset by reimbursement agreements in place with a notional amount of $5. The Company. These reimbursement agreements are actively margined based on changes in value of the underlying municipal bond to mitigate the Company’s counterparty credit risk.9 billion of assets where the Residuals are held by a hedge fund that is consolidated and managed by the Company. The remaining exposure relates to TOB transactions where the Residual owned by the customer is at least 25% of the bond value at the inception of the transaction. provide the Company with the ability to finance its own investments in municipal securities. The Company consolidates the hedge funds.Municipal Securities Tender Option Bond (TOB) Trusts The Company sponsors TOB trusts that hold fixed. The total assets for proprietary TOB Trusts (consolidated and non-consolidated) includes $0. because the Company holds controlling financial interests in the hedge funds.

6 billion. As of December 31. the Company. the SPE typically obtains exposure to the underlying security. which is a percentage of capital under management.5 billion. for some of these funds the Company has an ownership interest in the investment funds. The Company funded the purchase of the SIV assets by assuming the obligation to pay amounts due under the medium-term notes issued by the SIVs. In these transactions. On February 12. The derivative instrument held by the Company may generate a receivable from the SPE (for example. hedge funds. The Company’s maximum risk of loss in these transactions is defined as the amount invested in notes issued by the SPE and the notional amount of any risk of loss absorbed by the Company through a separate instrument issued by the SPE. referenced asset or index. in a nearly cashless transaction. 2007.3 billion on SIV assets. where the Company purchases credit protection from the SPE in connection with the SPE’s issuance of a credit-linked note). For the nonconsolidated proprietary TOB trusts and QSPE TOB trusts. The junior notes are subject to the “first loss” risk of the SIVs. 2008. Citigroup became the SIVs’ primary beneficiary and began consolidating these entities. The Company has also established a number of investment funds as opportunities for qualified employees to invest in private equity investments. Interest was paid on the drawn amount of the facilities and a per annum fee was paid on the unused portion. The SPE invests the proceeds in a financial asset or a guaranteed insurance contract (GIC) that serves as collateral for the derivative contract over the term of the transaction. Client Intermediation Client intermediation transactions represent a range of transactions designed to provide investors with specified returns based on the returns of an underlying security. Citigroup finalized the terms of the support facilities. with the additional commitment funded during the fourth quarter of 2008. The Company’s involvement in these transactions includes being the counterparty to the SPE’s derivative instruments and investing in a portion of the notes issued by the SPE.2 0. The facilities were at arm’s-length terms. and may earn performance fees. The Company acts as manager for the SIVs and. The facilities rank senior to the junior notes but junior to the commercial paper and medium-term notes. In turn the SPE issues notes to investors that pay a return based on the specified underlying security. with a trade date of November 18. Citigroup announced its commitment to provide support facilities that would support the SIVs’ senior debt ratings. The following table summarizes selected cash flow information related to municipal bond securitizations for the years 2008. 2007 and 2006: In billions of dollars 2008 $1. of which $16. which is collateralized by the assets owned by the SPE. was not contractually obligated to provide liquidity facilities or guarantees to the SIVs. real estate. The Company earns a management fee. as the medium-term notes mature. the Company recognizes only its residual investment on its balance sheet at fair value and the third-party financing raised by the trusts is off-balance sheet. The net funding provided by the Company to fund the purchase of the SIV assets was $0.5 billion is classified as HTM assets. 2008. fixed income and infrastructure.3 billion. The Company acts as investment manager to these funds and may provide employees with financing on both a recourse and non-recourse basis for a portion of the employees’ investment commitments.5 2007 $10. These derivative instruments are not considered variable interests under FIN 46(R) and any associated receivables are not included in the calculation of maximum exposure to the SPE. the Company wrote down $3. In addition. These transactions include credit-linked notes and equity-linked notes.application of specific accounting literature. 2007. The mezzanine capital facility was increased by $1 billion to $4. The SIVs provide a variable return to the junior note investors based on the net spread between the cost to issue the senior debt and the return realized by the high quality assets. In order to complete the wind-down of the SIVs. . Investment Funds The Company is the investment manager for certain investment funds that invest in various asset classes including private equity. which took the form of a commitment to provide $3.5 — 2006 — — Proceeds from new securitizations Cash flows received on retained interests and other net cash flows Municipal Investments Municipal investment transactions represent partnerships that finance the construction and rehabilitation of low-income affordable rental housing.5 billion of mezzanine capital to the SIVs in the event the market value of their junior notes approaches zero. 2008. on December 13. In certain transactions. prior to December 13. As a result of this commitment. 2008. The Company generally invests in these partnerships as a limited partner and earns a return primarily through the receipt of tax credits earned from the affordable housing investments made by the partnership. such as a total-return swap or a credit-default swap. referenced asset or index. purchased the remaining assets of the SIVs at fair value. 187 In response to the ratings review of the outstanding senior debt of the SIVs for a possible downgrade announced by two ratings agencies and the continued reduction of liquidity in the SIV-related asset-backed commercial paper and medium-term note markets. the investor’s maximum risk of loss is limited and the Company absorbs risk of loss above a specified level. During the period to November 18. the carrying amount of the purchased SIV assets was $16. Structured Investment Vehicles Structured Investment Vehicles (SIVs) are SPEs that issue junior notes and senior debt (medium-term notes and short-term commercial paper) to fund the purchase of high quality assets. referenced asset or index through a derivative instrument.

These trusts’ obligations are fully and unconditionally guaranteed by the Company. has fully guaranteed the trusts’ obligations. administration and repayment of the preferred equity securities held by third-party investors. These trusts have no assets. operations. The trust issues preferred equity securities to third-party investors and invests the gross proceeds in junior subordinated deferrable interest debentures issued by the Company. In these transactions. revenues or cash flows other than those related to the issuance. even though the Company owns all of the voting equity shares of the trust. The Company recognizes the subordinated debentures on its balance sheet as long-term liabilities. the Company is not permitted to consolidate the trusts under FIN 46(R). 188 . Because the sole asset of the trust is a receivable from the Company. and has the right to redeem the preferred securities in certain circumstances.Trust Preferred Securities The Company has raised financing through the issuance of trust preferred securities. the Company forms a statutory business trust and owns all of the voting equity shares of the trust.

• Option contracts which give the purchaser. However. Thus. as it minimizes interest cost in certain yield curve environments. commodity or currency at a contracted price that may also be settled in cash. dollar functional currency foreign subsidiaries (net investment in a foreign operation) are called net investment hedges. to buy or sell within a limited time a financial instrument. Credit risk is the exposure to loss in the event of nonperformance by the other party to the transaction where the value of any collateral held is not adequate to cover such losses. the amount of payables in respect of cash collateral received that was netted with unrealized gains from derivatives was $52 billion and $26 billion. Market risk on a derivative product is the exposure created by potential fluctuations in interest rates. while the amount of receivables in respect of cash collateral paid that was netted with unrealized losses from derivatives was $58 billion and $37 billion. the changes in value of the hedging derivative. based on differentials between specified financial indices. as well as the changes in value of the related hedged item. respectively. controls focused on price verification. The recognition in earnings of unrealized gains on these transactions is subject to management’s assessment as to collectibility. payables and receivables in respect of cash collateral received from or paid to a given counterparty are included in this netting. If certain hedging criteria specified in SFAS 133 are met. foreign-exchange rates and other values and is a function of the type of product. DERIVATIVES ACTIVITIES In the ordinary course of business. corporate and consumer loans. Derivatives are also used to manage risks inherent in specific groups of on-balance sheet assets and liabilities.24. net capital exposures and foreign-exchange transactions. and the underlying volatility. Alternatively. liability or a forecasted transaction that may affect earnings. are reflected in current earnings.S. such as interest-rate or foreign-exchange risk. any ineffectiveness resulting from the hedging relationship is recorded in current earnings. in either case. the tenor and terms of the agreement. Trading limits and price verification controls are key aspects of this activity. deposit liabilities. As of December 31. that causes changes in the fair value of an asset or liability. modify or reduce their interest rate. Hedge ineffectiveness. Citigroup enters into various types of derivative transactions. Derivatives may expose Citigroup to market. based on differentials between specified indices or prices. Citigroup enters into these derivative contracts for the following reasons: • Trading Purposes—Customer Needs – Citigroup offers its customers derivatives in connection with their risk-management actions to transfer. with its associated changes in fair value recorded in earnings. with any changes in fair value reflected in earnings. As part of this process. commodity or currency at a contracted price and may be settled in cash or through delivery. including testing for hedge effectiveness. As a general rule. The debt would continue to be carried at amortized cost and. including investments. and daily reporting of positions to senior managers. In addition. and the business purpose for the transaction. For asset/liability management hedging. Hedges that utilize derivatives or debt instruments to manage the foreign exchange risk associated with equity investments in non-U. due to the risk being hedged. 2008 and December 31. The hedgeeffectiveness assessment methodologies for similar hedges are performed in a similar manner and are used consistently throughout the hedging relationships. The related interest-rate swap is also recorded on the balance sheet at fair value. Liquidity risk is the potential exposure that arises when the size of the derivative position may not be able to be rapidly adjusted in periods of high volatility and financial stress at a reasonable cost. • Swap contracts which are commitments to settle in cash at a future date or dates that may range from a few days to a number of years. an economic hedge. credit or liquidity risks in excess of the amounts recorded on the Consolidated Balance Sheet. foreign. but not the obligation.exchange contracts are used to hedge non-U. non-cash collateral is not included. Citigroup may issue fixed-rate long-term debt and then enter into a receive-fixed. All derivatives are reported on the balance sheet at fair value.S. GAAP. the volume of transactions. This strategy is the most common form of an interest rate hedge. where applicable. by electing to use SFAS 133 hedge accounting. therefore. In addition. SFAS 133 hedge accounting is permitted for those situations where the Company is exposed to a particular risk. or variability in the expected future cash flows of an existing asset. pay-variable-rate interest rate swap with the same tenor and notional amount to convert the interest payments to a net variable-rate basis. • Trading Purposes—Own Account – Citigroup trades derivatives for its own account. which does not meet the SFAS 133 hedging criteria. special hedge accounting may be applied. current earnings would be impacted only by the interest rate shifts that cause the change in 189 .S. as applied to a notional principal amount. Gross positive fair values are netted with gross negative fair values by counterparty pursuant to a valid master netting agreement. would involve only recording the derivative at fair value on the balance sheet. as well as other interest-sensitive assets and liabilities. available-for-sale securities. • Asset/Liability Management Hedging—Citigroup uses derivatives in connection with its risk-management activities to hedge certain risks or reposition the risk profile of the Company. Citigroup considers the customers’ suitability for the risk involved. foreign exchange and other market/ credit risks or for their own trading purposes. In addition. For example. the fixed-rate long-term debt may be recorded at amortized cost under current U. the right. Derivative contracts hedging the risks associated with the changes in fair value are referred to as fair value hedges. is reflected in current earnings. Accounting for Derivative Hedging Citigroup accounts for its hedging activities in accordance with SFAS 133. for a fee. with any such changes in value recorded in current earnings. Citigroup also manages its derivative-risk positions through offsetting trade activities. For cash flow hedges and net investment hedges. dollar denominated debt. respectively. the carrying value of the debt is adjusted for changes in the benchmark interest rate. while contracts hedging the risks affecting the expected future cash flows are called cash flow hedges. 2007. all such contracts covered by master netting agreements are reported net. the changes in value of the hedging derivative are reflected in Accumulated other comprehensive income (loss) in Stockholders’ equity. These derivative transactions include: • Futures and forward contracts which are commitments to buy or sell at a future date a financial instrument. However. For fair value hedges. to the extent the hedge was effective.

Citigroup does not exclude any terms from consideration when applying the matched terms method. the hedging instrument employed is a forward foreign-exchange contract. the amount of hedge ineffectiveness is not significant even when the terms do not match perfectly. the difference would be reflected in current earnings. To the extent all terms are not perfectly matched. which may be within or outside the U. SFAS 133 allows hedging of the foreign-currency risk of a net investment in a foreign operation. Since efforts are made to match the terms of the derivatives to those of the hedged forecasted cash flows as closely as possible. including deposits. this is excluded from the assessment of hedge effectiveness and reflected directly in earnings. The fixed cash flows from those financing transactions are converted to benchmark variable-rate cash flows by entering into receivefixed. These fair-value hedge relationships use dollar-offset ratio analysis to determine whether the hedging relationships are highly effective at inception and on an ongoing basis. pay-variable interest rate swaps. the amount of hedge ineffectiveness is not significant even when the terms do not match perfectly. options and swaps and foreign-currency-denominated debt instruments to manage the foreign-exchange risk associated with Citigroup’s equity investments in several non-U. Depending on the risk-management objectives. the change in fair value of the hedged available-for-sale security attributable to the portion of foreign exchange risk hedged is reported in earnings and not Accumulated other comprehensive income—a process that serves to offset substantially the change in fair value of the forward contract that is also reflected in earnings. The hedging instruments used are receive-variable. Citigroup does not exclude any terms from consideration when applying the matched terms method. 52.S. pay-fixed interest rate swaps. Fair value hedges • Hedging of benchmark interest rate risk—Citigroup hedges exposure to changes in the fair value of outstanding fixed-rate issued debt and borrowings. Another alternative for the Company would be to elect to carry the note at fair value under SFAS 159. Citigroup uses foreign-currency forwards. with changes in fair value also reflected in earnings. dollar functional currency foreign subsidiaries. As a result.S. while certain others use regression analysis. Dollar-offset method is typically used to assess hedge effectiveness. To the extent all terms are not perfectly matched. these cash-flow hedging relationships use either regression analysis or dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis. short-term borrowings and long-term debt (and the forecasted issuances or rollover of such items) that are denominated in a currency other than the functional currency of the issuing entity. pay-fixed interest-rate swaps and receive-variable. The related interest rate swap. Variable cash flows from those assets are converted to fixed-rate cash flows by entering into receivefixed. Since efforts are made to align the terms of the derivatives to those of the hedged forecasted cash flows as closely as possible. the amount of hedge ineffectiveness is not significant. Typically. In accordance with SFAS 52. Foreign Currency Translation (SFAS 52). Citigroup matches all terms of the hedged item and the hedging derivative at inception and on an ongoing basis to eliminate hedge ineffectiveness. the hedge ineffectiveness is eliminated by matching all terms of the hedged item and the hedging derivative at inception and on an ongoing basis. Net investment hedges Consistent with SFAS No. • Hedging of foreign exchange risk—Citigroup hedges the change in fair value attributable to foreign-exchange rate movements in available-for-sale securities that are denominated in currencies other than the functional currency of the entity holding the securities. and the hedging instruments used are foreign-exchange forward contracts. Since that assessment is based on changes in fair value attributable to changes in spot rates on both the available-for-sale securities and the forward contracts for the portion of the relationship hedged. To the extent the two offsets would not be exactly equal. Citigroup also hedges variable cash flows resulting from investments in floating-rate. Citigroup records the change in the carrying amount of these investments in the cumulative translation adjustment account within Accumulated other comprehensive income (loss). the full change in fair value of the note would be reported in earnings. Efforts are made to match up the terms of the hypothetical and actual derivatives used as closely as possible. • Hedging of foreign exchange risk—Citigroup locks in the functional currency equivalent of cash flows of various balance sheet liability exposures. Variable cash flows from those liabilities are converted to fixed-rate cash flows by entering into receivevariable. Once the irrevocable election is made upon issuance of the note. Citigroup typically considers the premium associated with forward contracts (differential between spot and contractual forward rates) as the cost of hedging. Simultaneously. including available-for-sale debt securities and loans. Cash flow hedges • Hedging of benchmark interest rate risk—Citigroup hedges variable cash flows resulting from floating-rate liabilities and roll over (re-issuance) of short-term liabilities.the swap’s value and the underlying yield of the debt. This type of economic hedge is undertaken when the Company prefers to follow this simpler method that achieves similar financial statement results to an SFAS 133 fair-value hedge. available-for-sale debt securities. these types of hedges are designated as either cash-flow hedges of only foreignexchange risk or cash-flow hedges of both foreign-exchange and interestrate risk. any ineffectiveness is measured using the “hypothetical derivative method” from FASB Derivative Implementation Group Issue G7. For some hedges. pay-fixed forward-starting interest-rate swaps. These cash-flow hedging relationships use either regression analysis or dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis. pay-variable interest-rate swaps. the effective portion of the hedge of this exposure is also 190 . In this type of hedge. This type of hedge is undertaken when SFAS 133 hedge requirements cannot be achieved or management decides not to apply SFAS 133 hedge accounting. Citigroup also hedges exposure to changes in the fair value of fixed-rate assets. cross-currency swaps and foreign-currency options. provides a natural offset to the note’s fair value change. Most of these fair-value hedging relationships use dollar-offset ratio analysis to determine whether the hedging relationships are highly effective at inception and on an ongoing basis. the amount of hedge ineffectiveness is not significant. For some hedges.

9 billion.189) $ 2007 (61) (2. Any ineffectiveness in the hedge relationship is recognized in current earnings. which is the functional currency of Citigroup. are recorded in the cumulative translation adjustment account. The assessment of effectiveness excludes changes in the value of the hedged item that are unrelated to the risks being hedged. the assessment of effectiveness may exclude changes in the fair value of a derivative related to time value that.811 $(1. 2007 and 2006 can be summarized as follows (after-tax): In millions of dollars 2008 $(3. all changes in fair value. A derivative must be highly effective in accomplishing the hedge objective of offsetting either changes in the fair value or cash flows of the hedged item for the risk being hedged.S.recorded in the cumulative translation adjustment account and the ineffective portion. 191 .932) (170) 2006 $ 612 (29) (644) $ (61) Beginning balance Net gain (loss) from cash flow hedges Net amounts reclassified to earnings Ending balance $(3. if any. For derivatives used in net investment hedges. The net loss associated with cash flow hedges expected to be reclassified from Accumulated other comprehensive income within 12 months of December 31. Hedge effectiveness Key aspects of achieving SFAS 133 hedge accounting are documentation of hedging strategy and hedge effectiveness at the hedge inception and substantiating hedge effectiveness on an ongoing basis. 2008. in the case of the non-derivative debt instrument. no ineffectiveness is recorded in earnings. For foreign-currencydenominated debt instruments that are designated as hedges of net investments. is immediately recorded in earnings.051) $(569) For cash flow hedges. 2007 and 2006: In millions of dollars The change in Accumulated other comprehensive income (loss) from cash flow hedges for the years ended December 31. if excluded. According to that method.738) 712 $(5.163) (2. are recognized in current earnings. Similarly. including changes related to the forward-rate component of the foreign-currency forward contracts and the time-value of foreign-currency options. 2008. the translation gain or loss that is recorded in the cumulative translation adjustment account is based on the spot exchange rate between the functional currency of the respective subsidiary and the U. dollar. To the extent the notional amount of the hedging instrument exactly matches the hedged net investment and the underlying exchange rate of the derivative hedging instrument relates to the exchange rate between the functional currency of the net investment and Citigroup’s functional currency (or. 2008 is approximately $1. such instrument is denominated in the functional currency of the net investment).163) 2008 $ (559) 178 (27) (17) $ 2007 91 420 — — 2006 $ 245 302 (18) — Fair value hedges Hedge ineffectiveness recognized in earnings Net gain excluded from assessment of effectiveness Cash flow hedges Hedge ineffectiveness recognized in earnings Net gain (loss) excluded from assessment of effectiveness Net investment hedges Net gain (loss) included in foreign currency translation adjustment in accumulated other comprehensive income $2. The following table summarizes certain information related to the Company’s hedging activities for the years ended December 31. any changes in the fair value of the end-user derivative remaining in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheet will be included in earnings of future periods to offset the variability of the hedged cash flows when such cash flows affect earnings. Citigroup follows the forward-rate method from FASB Derivative Implementation Group Issue H8.

amounted to $93. The Company’s exposure to Mexico amounted to $35. Citigroup’s most significant concentration of credit risk was with the U. establishes a consistent framework for measuring fair value and expands disclosure requirements about fair-value measurements. and also eliminate the portfolio servicing adjustment that is no longer necessary under SFAS 157. 2008 and 2007. respectively.7 billion and $73. material transactions are completed with other financial institutions. FAIR-VALUE MEASUREMENT (SFAS 157) Concentrations of credit risk exist when changes in economic. It also requires recognition of trade-date gains related to certain derivative transactions whose fair value has been determined using unobservable market inputs. In addition. the size of the bid-ask spread and the amount of adjustment necessary when comparing similar transactions are all factors in determining the liquidity of markets and the relevance of observed prices in those markets. requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. 2008 and 2007. include for the first time the impact of Citigroup’s own credit risk on derivatives and other liabilities measured at fair value. 2008. the Company has made some amendments to the techniques used in measuring the fair value of derivative and other positions. government and its agencies. which are rated investment grade by both Moody’s and S&P.0 billion and $32. Accounting 192 . • Level 2—Quoted prices for similar instruments in active markets. SFAS 157. After the U. respectively. which primarily results from trading assets and investments issued by the U. SFAS 157 defines fair value. 156. product.8 billion at December 31.1 billion and $26. 02-3. loans and trading assets. government and its agencies. In connection with the Company’s efforts to maintain a diversified portfolio. These amendments change the way that the probability of default of a counterparty is factored into the valuation of derivative positions. and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. • Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available.S.S. The Company considers relevant and observable market prices in its valuations where possible. Although Citigroup’s portfolio of financial instruments is broadly diversified along industry. among other things. which discounts were previously applied to large holdings of publicly traded equity securities. Determination of Fair Value For assets and liabilities carried at fair value. 2007. the Company’s next largest exposures are to the Mexican and Japanese governments and their agencies. 155. loans and trading assets.1 billion at December 31. industry or geographic factors similarly affect groups of counterparties whose aggregate credit exposure is material in relation to Citigroup’s total credit exposure. Observable inputs reflect market data obtained from independent sources. quoted prices for identical or similar instruments in markets that are not active. particularly in the securities trading. which prohibited the recognition of trade-date gains for such derivative transactions when determining the fair value of instruments not traded in an active market. country or individual creditor and monitors this exposure on a continuous basis. Effective January 1. while unobservable inputs reflect the Company’s market assumptions. CONCENTRATIONS OF CREDIT RISK 26. respectively. The Company’s exposure to Japan amounted to $29. SFAS 157 precludes the use of block discounts when measuring the fair value of instruments traded in an active market. At December 31. The frequency of transactions. the Company measures such value using the procedures set out below. The Company’s exposure. “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” (EITF Issue 02-3). As a result of the adoption of SFAS 157. and foreign exchange businesses. and is composed of investment securities. the Company adopted SFAS 157. the Company limits its exposure to any one geographic region. This guidance supersedes the guidance in Emerging Issues Task Force Issue No. and is composed of investment securities. Fair-Value Hierarchy SFAS 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. irrespective of whether these assets and liabilities are carried at fair value as a result of an election under SFAS 159. and geographic lines. derivatives. FASB Statement No.S. government. Accounting for Certain Hybrid Financial Instruments (SFAS 155). or FASB Statement No.0 billion at December 31.25. 2008 and 2007. These two types of inputs have created the following fair-value hierarchy: • Level 1—Quoted prices for identical instruments in active markets.

For bonds and secondary market loans traded over the counter. Accordingly. However. If available. these loan portfolios are classified as Level 2 in the fair-value hierarchy. adjusted for transformation costs (i. The fair values of derivative contracts reflect cash the Company has paid or received (for example. currency rates. the Company will make use of acceptable practical expedients (such as matrix pricing) to calculate fair value.e. foreignexchange rates. Where appropriate.e. Fair-value estimates from internal valuation techniques are verified. an item may be classified in Level 3 even though there may be some significant inputs that are readily observable. fair value is based upon internally developed valuation techniques that use. Where the Company’s principal market for a portfolio of loans is the securitization market. direct costs other than transaction costs) and securitization uncertainties such as market conditions and liquidity. If quoted market prices are not available. Correlation and items with longer tenors are generally less observable. where possible. etc. other valuation techniques would be used and the item would be classified as Level 3. where possible. the Company uses the securitization price to determine the fair value of the portfolio.. When available. Vendors compile prices from various sources and may apply matrix pricing for similar bonds or loans where no price is observable. the Company generally uses quoted market prices to determine fair value and classifies such items in Level 1. a quoted price is stale or prices from independent sources vary. observable securitization prices for certain directly comparable portfolios of loans have not been readily available. such as those related to conforming prime fixed-rate and conforming adjustable-rate mortgage loans. Expected cash flows are discounted using market rates appropriate to the maturity of the instrument as well as the nature and amount of collateral taken or received. the Company may also use quoted prices for recent trading activity of assets with similar characteristics to the bond or loan being valued. Therefore. The frequency and size of transactions and the amount of the bid-ask spread are among the factors considered in determining the liquidity of markets and the relevance of observed prices from those markets. the Company generally determines fair value utilizing internal valuation techniques. Trading Account Assets and Liabilities—Derivatives Exchange-traded derivatives are generally fair valued using quoted market (i. taking into account any embedded derivative or other features. Accordingly. the Company may also make use of quoted prices for recent trading activity in positions with the same or similar characteristics to that being valued. Cash flows are estimated based on the terms of the contract. If relevant and observable prices are available. exchange) prices and so are classified in Level 1 of the fair-value hierarchy. such portfolios of loans are generally classified in Level 3 of the fair-value hierarchy. current market-based or independently sourced market parameters. to prices obtained from independent vendors or brokers. such as interest rates. a loan or security is generally classified as Level 3. Black-Scholes and Monte Carlo simulation. Fair 193 . option premiums paid and received). the key inputs to those models as well as any significant assumptions. since these markets have remained active. including an indication of the level in the fair-value hierarchy in which each instrument is generally classified. the Company uses quoted market prices to determine the fair value of trading securities. in which case the items are classified in Level 2.for Servicing of Financial Assets (SFAS 156). those valuations would be classified as Level 2. The item is placed in either Level 2 or Level 3 depending on the observability of the significant inputs to the model. where possible. Trading Account Assets and Liabilities—Trading Securities and Trading Loans When available. when less liquidity exists for a security or loan.. the fair value of these exposures is based on management’s best estimates based on facts and circumstances as of the date of these Consolidated Financial Statements. pricing verification of the hypothetical securitizations has been possible. such items are classified in Level 1 of the fairvalue hierarchy. to prices obtained from independent vendors. Fair-value estimates from internal valuation techniques are verified. such instruments are classified within Level 2 of the fair-value hierarchy as the inputs used in the fair valuation are readily observable. the spot price of the underlying volatility and correlation. The principal techniques used to value these instruments are discounted cash flows. or whether they were previously carried at fair value. The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instrument. The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves. Citigroup’s CDO super senior subprime direct exposures are not subject to valuation based on observable transactions. The majority of derivatives entered into by the Company are executed over the counter and so are valued using internal valuation techniques as no quoted market prices exist for such instruments. However. Securities purchased under agreements to resell and securities sold under agreements to repurchase No quoted prices exist for such instruments and so fair value is determined using a discounted cash-flow technique. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. If prices are not available. Trading securities and loans priced using such methods are generally classified as Level 2. Where available. for other loan securitization markets. Generally. The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value. the description includes details of the valuation models. Subprime-Related Direct Exposures in CDOs The Company accounts for its CDO super senior subprime direct exposures and the underlying securities on a fair-value basis with all changes in fair value recorded in earnings. Thus. option volatilities. As a result of the severe reduction in the level of activity in certain securitization markets since the second half of 2007. In some cases where a market price is available. The securitization price is determined from the assumed proceeds of a hypothetical securitization in the current market. Examples include some government securities and exchange-traded equity securities. Citigroup’s CDO super senior subprime direct exposures are Level 3 assets and are subject to valuation based on significant unobservable inputs. Vendors and brokers’ valuations may be based on a variety of inputs ranging from observed prices to proprietary valuation models.

194 . To determine the discount margin. The Company uses an established process for determining the fair value of such securities. such as age. Given the above. Such instruments are generally classified in Level 2 of the fair-value hierarchy as all inputs are readily observable. inflation or currency risks) and hybrid financial instruments (performance linked to risks other than interest rates. In addition. unemployment rates. in accordance with the requirements of SFAS 157. using commonly accepted valuation techniques. in order to estimate its current fair value. which are. Thus. initial public offerings. The model is calibrated using available mortgage loan information including historical loan performance. the Company’s CDO super senior subprime direct exposures were classified in Level 3 of the fair-value hierarchy. Bilateral or “own” credit-risk adjustments are applied to reflect the Company’s own credit risk when valuing derivatives and liabilities measured at fair value. the Company also considers events such as a proposed sale of the investee company. the discount rates were based on a weighted average combination of the implied spreads from single name ABS bond prices. Starting in the third quarter of 2008. whose fair value is determined using the same procedures described for trading securities above or. depending on vintage and asset types. Determining the fair value of nonpublic securities involves a significant degree of management resources and judgment as no quoted prices exist and such securities are generally very thinly traded. other market data for similar assets in markets that are not active and other internal valuation techniques. Short-Term Borrowings and Long-Term Debt Where fair-value accounting has been elected. The primary drivers that currently impact the super senior valuations are the discount rates used to calculate the present value of projected cash flows and projected mortgage loan performance. fair value is determined utilizing observable transactions where available. Unlike the ABCP and CDO-squared positions. Market Valuation Adjustments Liquidity adjustments are applied to items in Level 2 and Level 3 of the fairvalue hierarchy to ensure that the fair value reflects the price at which the entire position could be liquidated. The liquidity reserve is based on the bid-offer spread for an instrument. Private equity securities are generally classified in Level 3 of the fair-value hierarchy. the fair value of non-structured liabilities is determined by discounting expected cash flows using the appropriate discount rate for the applicable maturity. This rate assumes declines of 16% and 13% in 2008 and 2009. Citigroup intends to use trader marks to value this portion of the portfolio going forward so long as it remains largely hedged. including housing price changes. a period of sharp home price declines and high levels of mortgage foreclosures. documentation status. Also included in investments are nonpublic investments in private equity and real estate entities held by the S&B business. Investments The investments category includes available-for-sale debt and marketable equity securities. Counterparty credit-risk adjustments are applied to derivatives. so it is necessary to consider the market view of the credit risk of a counterparty in order to estimate the fair value of such an item. Beginning with the third quarter of 2008. In addition. To determine the performance of the underlying mortgage loan portfolios. such as over-the-counter derivatives. where the base valuation uses market parameters based on the LIBOR interest rate curves. industry-specific non-earnings-based multiples and discounted cash flow models. by necessity. there may be transfer restrictions on private equity securities. this change brings closer symmetry in the way these long and short positions are valued by the Company. in some cases. For most of the lending and structuring direct subprime exposures (excluding super seniors). using vendor prices as the primary source. the Company estimates the prepayments. defaults and loss severities based on a number of macroeconomic factors. Such instruments are classified in Level 2 or Level 3 depending on the observability of significant inputs to the model. The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates. loan-to-value (LTV) ratios and debt-to-income (DTI) ratios. Not all counterparties have the same credit risk as that implied by the relevant LIBOR curve. the inputs of home price appreciation (HPA) assumptions and delinquency data were updated during the fourth 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. trader priced. ABX indices and CLO spreads. the methodology estimates the impact of geographic concentration of mortgages and the impact of reported fraud in the origination of subprime mortgages. equity issuances. to reflect ongoing market developments. 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. adjusted to take into account the size of the position. during the last three quarters of 2008. An appropriate discount rate is then applied to the cash flows generated for each ABCP and CDO-squared tranche. When necessary. in part. credit scores. The valuation as of December 31.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. 2008 assumes a cumulative decline in U.S. the high grade and mezzanine positions are now largely hedged through the ABX and bond short positions. as well as CLO spreads. In determining the fair value of nonpublic securities. including the use of earnings multiples based on comparable public securities. In addition. respectively. the remainder of the 33% decline having already occurred before the end of 2007. the Company’s mortgage default model uses recent mortgage performance data. housing prices from peak to trough of 33%. This change was made because the Loan Performance Index provided more comprehensive geographic data. it incorporated the S&P/Case-Shiller Index. the valuation methodology used by Citigroup is refined and the inputs used for the purposes of estimation are modified. interest rates and borrower and loan attributes. More specifically. inflation or currency risks) using the appropriate derivative valuation methodology (described above) given the nature of the embedded risk profile. the Company applies the mortgage default model to the bonds underlying the ABX indices and other referenced cash bonds and solves for the discount margin that produces the market prices of those instruments. or other observable transactions. the Company used the Loan Performance Index to estimate the impact of housing price changes. In addition. Previously.

respectively. consider estimated housing price changes. as the assets were subject to valuation using significant unobservable inputs. For ARS with U. which varies according to the current credit rating of the issuer) and the discount rate used to calculate the present value of projected cash flows. rather than a point-in-time assessment of the current recognized net asset or liability. Where available. Alt-A mortgage securities backed by Alt-A mortgages of lower quality or more recent vintages are mostly classified in Level 3 due to the reduced liquidity that exists for such positions. such as callability. unemployment rates. ARS holders receive a “fail rate” coupon. which is specified by the original issue documentation of each ARS. at December 31. and Trading investments. The securities classified as trading and available-for-sale are recorded at fair value with changes in fair value reported in current earnings and OCI. The key assumptions that impact the ARS valuations are estimated prepayments and refinancings. the credit-risk adjustments take into account the effect of credit-risk mitigants. liquidity in the ARS market deteriorated significantly. municipal securities as underlying assets. auctions failed due to a lack of bids from third-party investors. securitizations and preferred stocks with interest rates or dividend yields that are reset through periodic auctions. In the event of an auction failure. Similar to the valuation methodologies used for other trading securities and trading loans. 195 . For ARS which are subject to SFAS 157 classification. available-for-sale and trading securities. They also consider prepayment rates as well as other market indicators. because the auctions had a short maturity period (7. such as callability.Counterparty and own credit adjustments consider the estimated future cash flows between Citi and its counterparties under the terms of the instrument and the effect of credit risk on the valuation of those cash flows. discounted at an appropriate rate in order to estimate the current fair value. Auction Rate Securities Auction rate securities (ARS) are long-term municipal bonds. where possible. Alt-A Mortgage Securities The Company classifies its Alt-A mortgage securities as Held-to-Maturity. future cash flows are estimated based on the terms of the securities underlying each individual ARS and discounted at an estimated discount rate in order to estimate the current fair value. Prior to our first auction’s failing in the first quarter of 2008. to prices obtained from independent vendors. However. corporate bonds. Accordingly. Available-for-Sale. For ARS with student loans as underlying assets. In order to arrive at the appropriate discount rate. typically in a short timeframe. Following a number of ARS refinancings. the primary dealer or auction agent would traditionally have purchased any residual unsold inventory (without a contractual obligation to do so). the Company generally determines the fair value of Alt-A mortgage securities utilizing internal valuation techniques. After this date.. the Company may also make use of quoted prices for recent trading activity in securities with the same or similar characteristics to that being valued. these observed rates were adjusted upward to factor in the specifics of the ARS structure being valued. The key assumptions that impact the ARS valuations are the expected weighted average life of the structure. which reduces the reliability of prices available from independent sources. and Citigroup ceased to purchase unsold inventory. Furthermore. and the illiquidity in the ARS market. The Company classifies its ARS as held-to-maturity. estimated fail rate coupons. Alt-A mortgage securities that are valued using these methods are generally classified as Level 2. The discount rate used for each ARS is based on rates observed for straight issuances of other municipal securities. the rate paid in the event of auction failure. such as pledged collateral and any legal right of offset (to the extent such offset exists) with a counterparty through arrangements such as netting agreements. and the illiquidity in the ARS market. interest rates and borrower attributes. Fair-value estimates from internal valuation techniques are verified. The coupon paid in the current period is based on the rate determined by the prior auction. 28 and 35 days). Citigroup valued ARS based on observation of auction market prices. Vendors compile prices from various sources. This residual inventory would then be repaid through subsequent auctions. Citigroup continued to act in the capacity of primary dealer for approximately $37 billion of outstanding ARS. Once the auctions failed. the majority continue to be classified in Level 3. For these purposes. RMBS have 30% or less of the underlying collateral composed of full documentation loans. This generally resulted in valuations at par. estimated fail rate coupons (i. future cash flows are estimated based on the terms of the loans underlying each individual ARS. Citigroup acted in the capacity of primary dealer for approximately $72 billion of ARS and continued to purchase residual unsold inventory in support of the auction mechanism until mid-February 2008. the amount of leverage in each structure and the discount rate used to calculate the present value of projected cash flows.S. During the first quarter of 2008. 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. the fair value of ARS is currently estimated using internally developed discounted cash flow valuation techniques specific to the nature of the assets underlying each ARS. In order to arrive at the appropriate discount rate. 2008. The discount rate used for each ARS is based on rates observed for basic securitizations with similar maturities to the loans underlying each ARS being valued. Due to this auction mechanism and generally liquid market. these observed rates were adjusted upward to factor in the specifics of the ARS structure being valued. The internal valuation techniques used for Alt-A mortgage securities. Where insufficient orders to purchase all of the ARS issue to be sold in an auction were received. ARS have historically traded and were valued as short-term instruments. as with other mortgage exposures.e. ARS could no longer be valued using observation of auction market prices. ARS for which the auctions failed and where no secondary market has developed were moved to Level 3.

which are carried at fair value with changes in fair-value reported in AOCI. using quoted secondary-market prices and classified in Level 2 of the fair-value hierarchy if there is a sufficient level of activity in the market and quotes or traded prices are available with suitable frequency. including the use of earnings multiples based on comparable public securities. including securities. Vendors compile prices from various sources. equity issuances. Fair-value estimates from internal valuation techniques are verified. Highly Leveraged Financing Commitments The Company reports a number of highly leveraged loans as held for sale. liquidity in the market for highly leveraged financings has been limited. loans and investments in entities that hold commercial real estate loans or commercial real estate directly. or other observable transactions. using commonly accepted valuation techniques. to prices obtained from independent vendors. adjusted for the specific attributes of the loan being valued. initial public offerings. the Company generally determines the fair value of securities and loans linked to commercial real estate utilizing internal valuation techniques. the Company may also make use of quoted prices for recent trading activity in securities or loans with the same or similar characteristics to that being valued. which are measured on a LOCOM basis. However. Similar to the valuation methodologies used for other trading securities and trading loans. Therefore. industry-specific non-earnings-based multiples and discounted cash flow models. Such investments are generally classified in Level 3 of the fair-value hierarchy. due to the dislocation of the credit markets and the reduced market interest in higher risk/higher yield instruments since the latter half of 2007. The Company uses an established process for determining the fair value of such securities. Where available. The fair value of investments in entities that hold commercial real estate loans or commercial real estate directly is determined using a similar methodology to that used for other non-public investments in real estate held by the S&B business. 196 . a majority of such exposures are classified in Level 3 as quoted secondary market prices do not generally exist.Commercial Real Estate Exposure Citigroup reports a number of different exposures linked to commercial real estate at fair value with changes in fair value reported in earnings. such as a proposed sale of the investee company. In determining the fair value of such investments. where possible. where possible. the Company also considers events. Securities and loans linked to commercial real estate valued using these methodologies are generally classified as Level 3 as a result of the reduced liquidity currently in the market for such exposures. The Company also reports securities backed by commercial real estate as Available-for-sale investments. The fair value for such exposures is determined using quoted prices for a similar asset or assets. The fair value of such exposures is determined.

3% 8.732 5.289 184.085 50. The effects of these hedges are presented gross in the following table.530 9.252 111.866 50.693 116.444.278 16.109) $646.696 Liabilities Interest-bearing deposits $ — Federal funds purchased and securities loaned or sold under agreements to repurchase — Trading account liabilities Securities sold.652 184.516 3.886 $1.502 8.4% 100.607 27.606 165.346 115.505) — — (4.524 262.767 $(1.263 3.734.346 1.552 153. not yet purchased 36.249 $ Netting(1) (26.198 1 $ 2. In addition.043 1.434.527) $ 2.219) — (1.222 $ 54 11. 2008 category with financial instruments that have been classified as Level 1 or Level 2.117 $145.848 Derivatives 10.657 5.451 2.096.785 17. The Company often hedges positions that have been classified in the Level 3 In millions of dollars at December 31.167 653 57.163.057.7% 100.572 — 9.947 $1.890 $ Level 3 — 50.3% 83.3% 91.251) $357.693 1.773 60.102.657 10.547 $1.451 2.113 16.305 262.722 Assets Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Trading securities and loans Derivatives Investments Loans (2) Mortgage servicing rights Other financial assets measured on a recurring basis Total assets $144.172.541 $1.290 17.342 — — — $ Level 2 96. Level 1 $ — 90.0% 197 .088.0% 5.219) — (1. the Company also hedges items classified in the Level 3 category with instruments classified in Level 3 of the fair value hierarchy.732 5.918 13.836 2.675 44.223 $ — (26.329 11. 2008 and December 31.139 1.524 121.077.263 8.0% $ 2.340 $ 81.363) — — — (4.527) Net balance $ 70.606 138.046.607 27.273 160 5.725 28.065 8.Items Measured at Fair Value on a Recurring Basis The following tables present for each of the fair-value hierarchy levels the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31.657 359 $ Gross inventory 96.306. 2007.038 Short-term borrowings — Long-term debt — Other financial liabilities measured on a recurring basis — Total liabilities $ 46.192 1.611 $(1.

The effects of these hedges are presented gross in the following tables.901 8.717 3.359 6.0% $ — — 68.854 78.881 206.158 473 33.718 — 13.094) — (390.541 489.361) $851. The Company often hedges positions with offsetting positions that are classified in a different level.598 247. not yet purchased Derivatives Short-term borrowings Long-term debt Other financial liabilities measured on a recurring basis Total liabilities $ 77.939) $ 3.915 17.103 76.541 13.717 3.487 79. In addition to these unobservable inputs.399 462.0% (1) Represents netting of: (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase in accordance with FIN 41.727 8. the gains and losses for assets and liabilities in the Level 3 category presented in the tables below do not reflect the effect of offsetting losses and gains on hedging instruments that have been classified by the Company in the Level 1 and Level 2 categories.578 $133.790 9.927 $ 54.542 241. 2008 and 2007.928 8.282 3.602 — — — $ 3.103 467.383 234.779 125.568 Liabilities Interest-bearing deposits Federal funds purchased and securities loaned or sold under agreements to repurchase Trading account liabilities Securities sold.328) — — — (4.312 6. (2) There is no allowance for loan losses recorded for loans reported at fair value. In addition.541 103.953 1 $ 3.573 31.7% 5.171 Gross inventory $ 132. Thus.380 9.226 17.507 $ — (48. the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.276 $(443.375 — — — Level 2 $132.417 13.741 Netting(1) $ (48.506 $ 56 6.939) Net balance $ 84.119 8.380 1. Changes in Level 3 Fair-Value Category The following tables present the changes in the Level 3 fair-value category for the years ended December 31.140 447.312 1.876) — — (4. cash collateral and the market value adjustment. For example.570 $ Level 3 16 75. the Company hedges items classified in the Level 3 category with instruments also classified in Level 3 of the fair-value hierarchy.727 8.802 Assets Federal funds sold and securities borrowed or purchased under agreements to resell Trading account assets Trading securities and loans Derivatives Investments Loans (2) Mortgage servicing rights Other financial assets measured on a recurring basis Total assets $223.684 7.353 $ 918.263 $938.060 9 8.380 14.3% 100. 2007 Level 1 $ — 151.5% 10. The Company classifies financial instruments in Level 3 of the fair-value hierarchy when there is reliance on at least one significant unobservable input to the valuation model.305 462.9% 100.909) $479. 198 . and (ii) derivative exposures covered by a qualifying master netting agreement in accordance with FIN 39.2% 72.487 79.810 $(438.094) — (385.4% 85.204 64.Items Measured at Fair Value on a Recurring Basis (continued) In millions of dollars at December 31.209 206.846 428.598 199.948 78.471 70.435 $1.696 5.295. the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.530 $786.016 8.

280) 1.953 1 Principal transactions $ — (28.319) (61) Purchases.573 17.573 (2.917) (15) (1.470 5. not yet purchased Short-term borrowings Long-term debt Other financial liabilities measured on a recurring basis Net realized/unrealized gains (losses) included in In millions of dollars January 1. (3) Represents the amount of total gains or losses for the period.840) 9 (11) — Other (1) (2) $ — — 895 — 621 2 $ 34 — — — (80) (689) (23) December 31.262) 136 — 1.783) (34.778 467 (1.787 — — 422 $ 13 6.449) — (8) — — $ 12 (194) (139) (3. 199 .870) 86 — — — — — (61) Transfers in and/or out of Level 3 $ — 7.052) 7.115 — Unrealized gains (losses) still held(3) $ — (10.046 810 2. while gains from sales and losses due to other-than-temporary impairments are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of Income.273 160 5.475 3.592 1.320 264 $ 75 (892) 908 3.228 — $ $ Other (1) (2) — — — (4.188) 5.158 1. issuances and settlements $ — 43.158 473 5.060 9 8. 2008 and 2007.214 1.Net realized/unrealized gains (losses) included in In millions of dollars December 31.792 — Transfers in and/or out of Level 3 $ — 21. (4) Total Level 3 derivative exposures have been netted on these tables for presentation purposes only. not yet purchased Derivatives. 2007 $ 16 22.171 $ 56 6.167 653 1.329 11.785 1. 2007 $ 16 75.953 1 Assets Securities purchased under agreements to resell Trading account assets Trading securities and loans Investments Loans Mortgage servicing rights Other financial assets measured on a recurring basis Liabilities Interest-bearing deposits Securities sold under agreements to repurchase Trading account liabilities Securities sold.870) 86 $ (3) (136) 328 (63) 1.422) (703) (1.036 (1.470) 17.158 473 2.171 $ 56 6.439 948 $ 60 6.600 (1) Purchases.798) 38.166) 440 10. 2008 $ — 50.139 4.468 — 5.041) (3. included in earnings (and Accumulated other comprehensive income (loss) for changes in fair value of Available-for-sale investments) attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at December 31.462) (53) (776) — Assets Securities purchased under agreements to resell Trading account assets Trading securities and loans Derivatives.960 (21) December 31.572) 9.657 359 $ 54 11.892 20 $ (45) (141) (260) (9.693 — Principal transactions $ — (11.418 (2. net (4) Investments Loans Mortgage servicing rights Other financial assets measured on a recurring basis Liabilities Interest-bearing deposits Securities sold under agreements to repurchase Trading account liabilities Securities sold.320) $ (20) (1.016 8.198 1 Unrealized gains (losses) still held(3) $ — (19.773 3.060 9 8.875) 2.415 11. (2) Unrealized gains (losses) on MSRs are recorded in Commissions and fees on the Consolidated Statement of Income. net (4) Short-term borrowings Long-term debt Other financial liabilities measured on a recurring basis (1) Changes in fair value for available-for-sale investments (debt securities) are recorded in Accumulated other comprehensive income (loss).380 1.132 1. 2007 $ 16 75.622 (801) (19) (1.343 166 (853) (1.380 1. issuances and settlements $ (16) (4.651 (793) — (43) $ (33) 78 (1.804 — — — — $ (5) (273) 153 106 2.016 8.586 28.

8 billion as valuation methodology inputs considered to be unobservable were determined not to be significant to the overall valuation. 2008 in Level 3 assets and liabilities are due to: A net decrease in trading securities and loans of $24. such as those linked to credit. The increase in Level 3 Investments of $11. (ii) The net transfer in of investment securities from Level 2 to Level 3 of $5. 200 The increase in the Level 3 balance for Securities sold under agreements to repurchase of $5 billion is driven by a $6. junior tranches.3 billion decrease from net settlements/payments. offset by transfers out of Level 3 of approximately $19 billion primarily related to Level 3 trading inventory being reclassified to held-to-maturity investments during the fourth quarter of 2008.4 billion. which consisted of approximately $26 billion of net transfers in from Level 2 to Level 3 as the availability of observable pricing inputs continued to decline due to the current credit crisis. consolidated SIV debt classified as Level 3 with Citigroup debt classified as Level 2.4 billion.2 billion increase from net transfers in as the continued credit crisis impacted the availability of observable inputs for the underlying securities related to this liability. 2007 to December 31. The shift in the Level 3 net unrealized gains/(losses) from trading derivatives driven by: (i) A net gain of $7.2 billion that was driven primarily by: (i) The net additions/purchases of $43. These gains include both realized and unrealized gains during 2008 and are partially offset by losses recognized in instruments that have been classified in Levels 1 and 2.1 billion for items previously classified as Level 2 as prices and other valuation inputs became unobservable with the market dislocation crises that began in the second half of 2007. 2007 to December 31.7 billion is due to net transfers out of $1. The decrease in Mortgage Servicing Rights of $2. In addition. and (iii) Net settlements of trading securities of $4.9 billion which was recorded in Accumulated other comprehensive income (loss) primarily related to Alt-A MBS classified as available-for-sale investments. which included asset-backed commercial paper purchases where the Company had liquidity puts and assets bought with Nikko Cordial acquisitions (ii) The net transfers in of $21. 2007 in Level 3 assets and liabilities are due to: The increase in trading securities and loans of $53. in accordance with the Auction Rate Securities settlement agreement .8 billion were made during 2008 against the Level 3 short-term debt obligations.2 billion in net transfers in and/or out of Level 3.2 billion in Level 3.2 billion primarily resulted from: (i) The addition of $10. and (iii) Mark-to-market losses of $11. (ii) $2.4 billion was due to mark-to-market losses and net purchases/originations of $3.8 billion. - .8 billion that was driven by: (i) Net realized and unrealized losses of $28.2 billion in gains recognized as credit spreads widened during the year. This was offset by a reduction from net settlements of $1.1 billion recorded in Principal transactions. substantially all of which related to the transfer of consolidated SIV debt in the first quarter of 2008. ABCP and other related inventory. which included $8. (ii) Net transfers in of $7.3 billion from net purchases. The increase in Level 3 Long-term debt of $2. issuances and settlements.7 billion in senior debt securities retained by the Company from its sale of a corporate loan portfolio that included highly leveraged loans during the second quarter of 2008. as the availability of observable pricing inputs continued to decline due to the current credit crisis. as the availability of observable inputs continued to decline due to the current crisis. which composed mostly of write-downs recognized on various trading securities including ABCP of $9 billion. primarily resulting from the acquisition of Nikko Cordial. equity and commodity exposures. This replacement occurred in connection with the purchase of the SIV assets by the Company in November 2008. (iii) $34. The increase in Level 3 Investments of $5. offset by net transfers in of Level 3 trading derivative liabilities of $3.9 billion which was primarily due to the first quarter 2007 acquisition of ABN AMRO Mortgage Group. offset by (ii) $2. plus $3 billion of ARS securities purchased from GWM clients. The decrease in Level 3 short-term borrowings of $3.The following is a discussion of the changes to the Level 3 balances for each of the roll-forward tables presented above.8 billion.8 billion.6 billion. Included in these settlements were $21 billion of payments made on maturing SIV debt and the replacement of $17 billion of non-recourse.4 billion primarily attributable to writedowns on super senior tranches. net payments of $1. The significant changes from January 1. representing a net transfer in of derivative liabilities during the year.3 billion.2 billion is driven by: (i) The net transfers in of $38. The decrease in net derivative trading account assets of $4.5 billion. The increase in Mortgage servicing rights of $2.8 billion relating to complex derivative contracts. and (iii) Net losses recognized of $4.7 billion was primarily attributed to mark-to-market losses recognized in the portfolio due to decreases in the mortgage interest rates and increases in refinancing. The significant changes from December 31.

The Company performed an impairment analysis of intangible assets related to the Old Lane multi-strategy hedge fund during the first quarter of 2008.1 33. a pre-tax write-down of $202 million. The following table presents all loans held-for-sale that are carried at LOCOM as of December 31. During the fourth quarter of 2008.9 Level 2 $0.8 5. assets such as loans held for sale that are measured at the lower of cost or market (LOCOM) that were recognized at fair value below cost at the end of the period. 2007 $ 3. Such loans are generally classified in Level 2 of the fair-value hierarchy given the level of activity in the market and the frequency of available quotes.6 Fair value $ 2. 2008 December 31. resulted from transfers in of Level 2 positions as prices and other valuation inputs became unobservable. 201 . These include assets measured at cost that have been written down to fair value during the periods as a result of an impairment. See Note 19.1 Level 3 $ 1. As a result.- The increase in Level 3 Short-term borrowings and Long-term debt of $2. In addition.3 26. 2008. The related fair value was determined using an income approach which relies on key drivers and future expectations of the business that are considered Level 3 input factors. plus the additions of new issuances for fair value accounting was elected. respectively.8 Loans held-for-sale that are carried at LOCOM as of December 31. adjusted for the specific attributes of that loan. These factors contributed to the overall decline in the stock price and the related market capitalization of Citigroup. the Company performed an impairment analysis of Japan's Nikko Asset Management fund contracts which represent the rights to manage and collect fees on investor assets and are accounted for as indefinite-lived intangible assets. as determined based on Level 3 inputs. 2008 significantly declined compared to December 31.8 billion and $7.1 31.6 billion as of December 31. The primary cause of goodwill impairment was the overall weak industry outlook and continuing operating losses. Items Measured at Fair Value on a Nonrecurring Basis Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. The measurement of fair value was determined using Level 3 input factors along with a discounted cash flow approach. was recorded during the first quarter of 2008. an impairment loss of $937 million pre-tax was recorded.3 billion. The Company recorded goodwill impairment charges of $9. representing the remaining unamortized balance of the intangible assets. If no such quoted price exists. 2008 and December 31. for additional information on goodwill impairment. As a result. The fair value of loans measured on a LOCOM basis is determined where possible using quoted secondary-market prices. “Goodwill and Intangible Assets” on page 166. 2007 because most of these loans were either sold or reclassified to held-for-investment category. 2007 (in billions): Aggregate cost December 31. the fair value of a loan is determined using quoted prices for a similar asset or assets.

Additionally. as well as certain interest-only instruments. the election is made upon the acquisition of an eligible financial asset. the Company may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. See Note 23 on page 175 for further discussions regarding the accounting and reporting of mortgage servicing rights. the transition provisions of SFAS 159 permit a one-time election for existing positions at the adoption date with a cumulative-effect adjustment included in opening retained earnings and future changes in fair value reported in earnings.27. The fair-value election may not be revoked once an election is made. At its initial adoption. such as structured notes containing embedded derivatives that otherwise would require bifurcation. The impact of adopting this standard was not material. 202 . In accordance with SFAS 155. the standard permits a one-time irrevocable election to re-measure each class of servicing rights at fair value. SFAS 156 requires all servicing rights to be recognized initially at fair value. SFAS 156 AND SFAS 159) Under SFAS 159. financial liability or firm commitment or when certain specified reconsideration events occur. which was primarily adopted on a prospective basis. hybrid financial instruments. Additional discussion regarding the applicable areas in which SFAS 155 was adopted is presented in Note 26 on page 192. with the changes in fair value recorded in current earnings. may be accounted for at fair value if the Company makes an irrevocable election to do so on an instrument-by-instrument basis. FAIR-VALUE ELECTIONS (SFAS 155. The classes of servicing rights are identified based on the availability of market inputs used in determining their fair values and the methods for managing their risks. After the initial adoption. The Company also has elected the fair-value accounting provisions permitted under SFAS 155 and SFAS 156 for certain assets and liabilities. The Company has elected fair-value accounting for its mortgage and student loan classes of servicing rights. The changes in fair value are recorded in current earnings.

866 $ 72 4.312 $303.The following table presents.952 49.254 33 3.651 $ 1.292 $ 782 (1) Reflects netting of the amounts due from securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase in accordance with FASB Interpretation No.095 27.607 $ 3.606 $138.131 $ 15. securities loaned (1) Trading account liabilities: Selected letters of credit hedged by credit default swaps or participation notes Certain hybrid financial instruments Total trading account liabilities Short-term borrowings: Certain non-collateralized short-term borrowings Certain hybrid financial instruments Certain structured liabilities Certain non-structured liabilities Total short-term borrowings Long-term debt: Certain structured liabilities Certain non-structured liabilities Certain hybrid financial instruments Total long-term debt Total $ 70. and SFAS 155.315 36 381 $ 2.727 $ 8.679 $ 3.305 $ 614 10 26.228 $ 5. Changes in fairvalue gains (losses) 2008 Changes in fairvalue gains (losses) 2007 In millions of dollars Fair value at December 31.011 $ 102 — (63) $ 39 $ (106) $ (1.334 $ 3 129 $ 2.657 4.462 $ (183) (4) (778) — 343 $ (622) $ $ 58 9 67 $ 19. 41.435) $ (489) $ 320 2.154) $ (8.980 $ 3. as of December 31.821 $ 13.283) $(1. 203 .026 $ 2.265 $ 79. 2007.479 $ (409) $ (64) 56 — — (8) (40) 99 1.663 $ 4.561 — 4.105 3.392 1.313 $ $ 469 295 764 $ (8.233 $ $ $ $ $ 7.582 $ (9) 277 1 250 519 160 3.112 3 13. as well as the changes in fair value for the years ended December 31. SFAS 156.870) 78 (362) $ (2.272) 3 (1.854 $ — 7.991 $ 27.866 $103.189 $ 17.228 $ 132 $ (225) $ — (409) $ (319) $ (81) 4.438 $ (13) — (6.751 $ 2.217 $ $ 539 320 859 $ 2.273 936 $ 10.093 $ 4. the fair value of those positions selected for fair-value accounting in accordance with SFAS 159.172) $ (254) (35) $ (289) $ (59) (34) (13) $ 29.189 16. 2008.802 3.305 $ — — 16.732 $ 5.083 7.380 6. 2008 and December 31.598 $199.303 2.730 $ 7. 2008 Fair value at December 31.020 97 2. securities borrowed (1) Trading account assets: Legg Mason convertible preferred equity securities originally classified as available-for-sale Selected letters of credit hedged by credit default swaps or participation notes Certain credit products Certain hybrid financial instruments Retained interests from asset securitizations Total trading account assets Investments: Certain investments in private equity and real estate ventures Other Total investments Loans: Certain credit products Certain mortgage loans Certain hybrid financial instruments Total loans Other assets: Mortgage servicing rights Certain mortgage loans Certain equity method investments Total other assets Total Liabilities Interest-bearing deposits: Certain structured liabilities Certain hybrid financial instruments Total interest-bearing deposits Federal funds purchased and securities loaned or sold under agreements to repurchase Selected portfolios of securities sold under agreements to repurchase.038 — 689 $ 3. 2007 Assets Federal funds sold and securities borrowed or purchased under agreements to resell Selected portfolios of securities purchased under agreements to resell.890) $ 84.487 $ 2.903 $134.286 $ $ — 177 177 $ 264 3.263 $191.554) 74 45 $(1. “Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements” (FIN 41).692 $12.476 $ 1.

Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the Company’s current observable credit spreads into the relevant valuation technique used to value each liability as described above. The estimated change in the fair value of these liabilities due to such changes in the Company’s own credit risk (or instrument-specific credit risk) was a gain of $1.788 3. 2006 carrying values prior to adoption of SFAS 159. the Company sold the remaining 8. The related interest revenue and interest expense are measured based on the contractual rates specified in the transactions and are reported as interest revenue and expense in the Consolidated Statement of Income. Selected letters of credit and revolving loans hedged by credit default swaps or participation notes The Company has elected the fair-value option for certain letters of credit that are hedged with derivative instruments or participation notes. 2008 and December 31. and a gain of $4. primarily with derivative instruments that are accounted for at fair value through earnings. 2007 after adoption) for those items that were selected for fair-value option accounting and that had an impact on Retained earnings: Cumulative-effect adjustment to January 1.284 — 96 January 1. SFAS 159 The Fair-Value Option for Financial Assets and Financial Liabilities Detailed below are the December 31. securities sold under agreements to repurchase. Selected portfolios of securities purchased under agreements to resell. 2007.7 million aftertax). the shares were classified as available-for-sale securities with the unrealized loss of $232 million as of December 31. 2006 included in Accumulated other comprehensive income (loss). the election was made because the related interest-rate risk is managed on a portfolio basis.558 million and $888 million for the years ended December 31. the carrying values at January 1. Legg Mason convertible preferred equity securities The Legg Mason convertible preferred equity securities (Legg shares) were acquired in connection with the sale of Citigroup’s Asset Management business in December 2005. Additional information regarding each of these items and other fair-value elections follows.291 14 96 Legg Mason convertible preferred equity securities originally classified as available-for-sale (1) Selected portfolios of securities purchased under agreements to resell (2) Selected portfolios of securities sold under agreements to repurchase (2) Selected non-collateralized short-term borrowings Selected letters of credit hedged by credit default swaps or participation notes Various miscellaneous eligible items (1) Pretax cumulative effect of adopting fair-value option accounting After-tax cumulative effect of adopting fair-value option accounting (1) The Legg Mason securities as well as several miscellaneous items were previously reported at fair value in available-for-sale securities. securities borrowed.3 million ($6.Own-Credit Valuation Adjustment The fair value of liabilities for which the fair-value option was elected (other than non-recourse and similar liabilities) was impacted by the widening of the Company’s credit spread. 2006 (carrying value prior to adoption) $ 797 167. 2007 Retained earnings as part of the cumulative-effect adjustment.550 237. In connection with the Company’s adoption of SFAS 159. Prior to the election of fair-value option accounting. respectively.525 237. respectively. the transition adjustments booked to opening Retained earnings and the fair values (that is. these positions were accounted for on an accrual basis. Changes in fair value for transactions in these portfolios are recorded in Principal transactions. 204 . The fair-value option was also elected prospectively in the second quarter of 2007 for certain portfolios of fixed-income securities lending and borrowing transactions based in Japan. The cumulative-effect adjustment represents the reclassification of the related unrealized gain/loss from Accumulated other comprehensive income (loss) to Retained earnings upon the adoption of the fair value option. 2007 retained earnings– gain (loss) $(232) 25 40 (7) 14 3 $(157) (99) In millions of dollars December 31.4 million Legg shares at a pretax loss of $10. During the first quarter of 2008.982 million and $212 million for the three months ended December 31. this unrealized loss was recorded as a reduction of January 1. Citigroup elected the fair-value option for these transactions because the risk is managed on a fair-value basis and to mitigate accounting mismatches. the related portions of the allowance for loan losses and the allowance for unfunded lending commitments were reversed. Previously.748 3. 2007. 2007 fair value (carrying value after adoption) $ 797 167. 2008 and December 31. Upon electing the fair-value option. (2) Excludes netting of the amounts due from securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase in accordance with FIN 41. securities loaned and certain non-collateralized short-term borrowings The Company elected the fair-value option retrospectively for our United States and United Kingdom portfolios of fixed-income securities purchased under agreements to resell and fixed-income securities sold under agreements to repurchase (and certain non-collateralized short-term borrowings). In each case.

Citigroup has elected the fair-value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplifications. Significant groups of transactions include loans and unfunded loan products that are expected to be either sold or securitized in the near term. The change in fair value for these structured liabilities is reported in Principal transactions in the Company’s Consolidated Statement of Income. The Company has elected the fair-value option for the following eligible items. These investments are classified as Other assets on Citigroup’s Consolidated Balance Sheet.4 billion as of December 31.501 $ 77 Loans $2. are managed on a fair-value basis. or transactions where the economic risks are hedged with derivative instruments such as purchased credit default swaps or total return swaps where the Company pays the total return on the underlying loans to a third party. Related interest expense is measured based on the contractual interest rates and reported as such in the Consolidated Income Statement. 2008 and $7 million as of December 31.315 $ 3 Carrying amount reported on the Consolidated Balance Sheet Aggregate unpaid principal balance in excess of fair value Balance on non-accrual loans or loans more than 90 days past due Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due $1. 2007. The amount funded was insignificant with no amounts 90 days or more past due or on a non-accrual status at December 31. As required by SFAS 159. inflation or currency risks (“structured liabilities”). The changes in fair value for the years ended December 31.The notional amount of these unfunded letters of credit was $1. including where those management objectives would not be met.038 $ (5) Trading assets $16. The Company elected fair-value accounting to reduce operational and accounting complexity. such as guarantees and letters of credit.254 $ 6. • certain structured liabilities. • certain non-structured liabilities. 2007. including certain unfunded loan products. because such investments are considered similar to many private equity or hedge fund activities in our investment companies. None of these credit products is a highly leveraged financing commitment. 2007. Citigroup also holds various non-strategic investments in leveraged buyout funds and other hedge funds that previously were required to be accounted for under the equity method. These investments are classified as Investments on Citigroup’s Consolidated Balance Sheet. all investments (debt and equity) in such private equity and real estate entities are accounted for at fair value. Certain structured liabilities The Company has elected the fair-value option for certain structured liabilities whose performance is linked to structured interest rates. 2008 and December 31. 2008 and December 31. $72 million and $141 million of unfunded loan commitments related to certain credit products selected for fair-value accounting were outstanding as of December 31. therefore. For those structured liabilities classified as Long-term debt for which the fair-value option has been elected. which are reported at fair value. executed by Citigroup’s trading businesses. because these exposures are considered to be trading-related positions and. this fair-value election had no impact on opening Retained earnings. The fair-value option brings consistency in the accounting and evaluation of certain of these investments. • certain investments in private equity and real estate ventures and certain equity-method investments. the aggregate unpaid principal balance exceeds the aggregate fair value of such instruments by $277 million as of December 31. These positions will continue to be classified as debt. 205 . respectively. Other items for which the fair-value option was selected in accordance with SFAS 159 Changes in fair value of funded and unfunded credit products are classified in Principal transactions in the Company’s Consolidated Statement of Income. Related interest revenue is measured based on the contractual interest rates and reported as Interest revenue on trading account assets or loans depending on their balance sheet classifications. 2008 and December 31. The following table provides information about certain credit products carried at fair value: 2008 In millions of dollars 2007 Trading assets $26. and • certain mortgage loans Certain credit products Citigroup has elected the fair-value option for certain originated and purchased loans.292 $ 190 $ (4) $ 68 $ — In addition to the amounts reported above. Thus. Fair value was not elected for most lending transactions across the Company. deposits or derivatives (Trading account liabilities) on the Company’s Consolidated Balance Sheet according to their legal form. Changes in the fair values of these investments are classified in Other revenue in the Company’s Consolidated Statement of Income. respectively. Certain investments in private equity and real estate ventures and certain equity method investments Citigroup invests in private equity and real estate ventures for the purpose of earning investment returns and for capital appreciation. 2008 and 2007 due to instrument-specific credit risk totaled to a loss of $38 million and $188 million. which did not affect opening Retained earnings: • certain credit products. These items have been classified appropriately in Trading account assets or Trading account liabilities on the Consolidated Balance Sheet. Certain non-structured liabilities The Company has elected the fair-value option for certain non-structured liabilities with fixed and floating interest rates (“non-structured liabilities”). Changes in fair value of these items are classified in Principal transactions in the Company’s Consolidated Statement of Income. The Company elected the fairvalue option. the impact of applying the equity method to Citigroup’s investment in these funds was equivalent to fair-value accounting.113 $1.020 $ $ 899 186 Loans $3. Since the funds account for all of their underlying assets at fair value. The Company has elected the fair-value option for certain of these ventures. 2007.

The change in fair value of these non-structured liabilities reported a gain of $1. Trading account liabilities (for prepaid derivatives). 2008. 2007. These positions are reported in Short-term borrowings and Long-term debt on the Company’s Consolidated Balance Sheet.g.392 $ 136 $ 17 Carrying amount reported on the Consolidated Balance Sheet Aggregate fair value in excess of unpaid principal balance Balance on non-accrual loans or loans more than 90 days past due Aggregate unpaid principal balance in excess of fair value for non-accrual loans or loans more than 90 days past due $ 2 $ — The changes in fair values of these mortgage loans is reported in Other revenue in the Company’s Consolidated Statement of Income. 206 December 31. The change in fair values of the SIVs’ liabilities reported in earnings was $2. 2007. respectively. The fair-value option was not elected for loans held-for-investment. The change in fair value during 2007 due to instrument-specific credit risk was immaterial. 2008 due to instrumentspecific credit risk resulted in a $32 million loss. are recorded in Principal transactions in the Company’s Consolidated Statement of Income. The Company has elected the fair-value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplifications. Short-term borrowings or Long-Term Debt on the Company’s Consolidated Balance Sheet according to their legal form.7 billion and $8. therefore. 2007 $6. The fair value of MSRs is primarily affected by changes in prepayments that result from shifts in mortgage interest rates. 2008. the aggregate unpaid principal exceeds the aggregate fair value by $1. Loans.4 billion as of December 31. Changes in fair value for hybrid financial instruments.273 $ 138 $ 9 December 31. Certain mortgage loans Citigroup has elected the fair-value option for certain purchased and originated prime fixed-rate and conforming adjustable-rate first mortgage loans held-forsale. 2008 and December 31. The change in fair value for these non-structured liabilities is reported in Principal transactions in the Company’s Consolidated Statement of Income. Items selected for fair-value accounting in accordance with SFAS 155 and SFAS 156 Certain hybrid financial instruments The Company has elected to apply fair-value accounting under SFAS 155 for certain hybrid financial assets and liabilities whose performance is linked to risks other than interest rate. The changes in fair value during the year ended December 31. In addition. are classified as Mortgage servicing rights on Citigroup’s Consolidated Balance Sheet. the Company has elected fair-value accounting under SFAS 155 for residual interests retained from securitizing certain financial assets. The Company has elected fair-value accounting for these instruments because these exposures are considered to be trading-related positions and. which totaled $5. 2008.The Company has elected the fair-value option where the interest-rate risk of such liabilities is economically hedged with derivative contracts or the proceeds are used to purchase financial assets that will also be accounted for at fair value through earnings. See Note 23 on page 175 for further discussions regarding the accounting and reporting of MSRs. while residual interests in certain securitizations are classified as Trading account assets. equity. This election was effective for applicable instruments originated or purchased on or after September 1. This approach consists of projecting servicing cash flows under multiple interest-rate scenarios and discounting these cash flows using risk-adjusted rates. the accounting for these instruments is simplified under a fair-value approach as it eliminates the complicated operational requirements of bifurcating the embedded derivatives from the host contracts and accounting for each separately. For all other non-structured liabilities classified as Long-term debt for which the fair-value option has been elected. Deposits. forwardpurchase commitments of mortgage-backed securities. Interest accruals for certain hybrid instruments classified as trading assets are recorded separately from the change in fair value as Interest revenue in the Company’s Consolidated Statement of Income. as those loans are not hedged with derivative instruments. foreign exchange or inflation (e. which in most cases includes a component for accrued interest. The majority of these non-structured liabilities are a result of the Company’s election of the fair-value option for liabilities associated with the Citi-advised Structured Investment Vehicles (SIVs). the Company hedges a significant portion of the values of its MSRs through the use of interest-rate derivative contracts. Related interest expense continues to be measured based on the contractual interest rates and reported as such in the Consolidated Income Statement. For hybrid financial instruments for which fair-value accounting has been elected under SFAS 155 and that are classified as Long-term debt. These MSRs. the aggregate unpaid principal balance exceeds the aggregate fair value of such instruments by $97 million as of December 31. The hybrid financial instruments are classified as Trading account assets. 2008 $4. Mortgage servicing rights The Company accounts for mortgage servicing rights (MSRs) at fair value in accordance with SFAS 156.. 2008. and purchased securities classified as trading. The model assumptions used in the valuation of MSRs include mortgage prepayment speeds and discount rates. which were consolidated during the fourth quarter of 2007. 2007.6 billion for the year ended December 31. These loans are intended for sale or securitization and are hedged with derivative instruments. For these non-structured liabilities the aggregate fair value is $263 million lower than the aggregate unpaid principal balance as of December 31. The election has been made to mitigate accounting mismatches and to achieve operational simplifications.2 billion for the year ended December 31. Fair value for MSRs is determined using an option-adjusted spread valuation approach. The following table provides information about certain mortgage loans carried at fair value: In millions of dollars interest income continues to be measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.9 billion as of December 31. credit or commodity risks). Changes in fair value of MSRs are recorded in Commissions and fees in the Company’s Consolidated Statement of Income. while the aggregate fair value exceeds the aggregate unpaid principal balance by $460 million as of December 31. Related . are managed on a fair-value basis. The difference for those instruments classified as Loans is immaterial. In addition. 2008 while the aggregate fair value exceeded the aggregate unpaid principal by $112 million as of December 31. In managing this risk. 2007.

7 billion in 2007. reinsurance recoverable. expected cash flows are discounted using an appropriate rate considering the time of collection and the premium for the uncertainty of the flows. (2) Includes cash and due from banks.7 316.1 377. The disclosure excludes leases.2 billion of lease finance receivables in 2008 and 2007. by $18. (3) Includes brokerage payables.0 Estimated fair value $215.6 Other financial assets (2) 184. excess fair value associated with deposits with no fixed maturity and other expenses that would be incurred in a market transaction. a decrease of $28. and SFAS 159. 2007 Carrying value $215.2 Estimated fair value $772. SFAS 156. The carrying value of short-term financial instruments not accounted for at fair value under SFAS 155 or SFAS 159. contractual cash flows are discounted at quoted secondary market rates or estimated market rates if available. For performing loans not accounted for at fair value under SFAS 155 or SFAS 159. and market perceptions of value and as existing assets and liabilities run off and new transactions are entered into.1 Trading account assets 377.6 253. see Note 27 on page 202.2 The table below presents the carrying value and fair value of Citigroup’s financial instruments.1 539. any premium or discount that could result from offering for sale at one time the entire holdings of a particular instrument.1 253.6 280. with quoted prices. in aggregate. the carrying values exclude $3. The carrying values net of allowance exceeded the estimated fair values by $2.7 billion and $8. In addition. FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS 107) Estimated Fair Value of Financial Instruments In billions of dollars at year end 2008 Carrying value $774.6 billion for 2008 and $16.3 167. Quoted market prices are used when available for investments and for both trading and end-user derivatives.2 billion in 2008 while the estimated fair values of Citigroup loans. The value of collateral is also considered. For loans with doubt as to collectibility. relationship and intangible values (but includes mortgage servicing rights). The estimated fair values of loans reflect changes in credit status since the loans were made.9 Assets Investments $256. affiliate investments.4 (1) The carrying value of loans is net of the Allowance for loan losses of $29.1 539.28.8 274.7 268. exceeded the carrying values (reduced by the allowance for loan losses) by $15.2 182.4 269.0 753.5 317. including items accounted for at fair value under SFAS 155.0 Federal funds sold and securities borrowed or purchased under agreements to resell 184. all of which the carrying value is a reasonable estimate of fair value. Otherwise. approximates fair value because of the relatively short period of time between their origination and expected realization.6 Loans (1) 660. as well as receivables and payables arising in the ordinary course of business. The fair value represents management’s best estimates based on a range of methodologies and assumptions.9 Carrying value $826. market borrowing rates of interest are used to discount contractual cash flows. 2008 In billions of dollars at year end Liabilities Deposits Federal funds purchased and securities loaned or sold under agreements to repurchase Trading account liabilities Long-term debt Other financial liabilities (3) 205. Also as required. For additional information regarding the Company’s determination of fair value. such as long-term debt. which are integral to a full assessment of Citigroup’s financial position and the value of its net assets. in aggregate. carrying values net of allowance exceeded estimated fair value for consumer loans by $15.9 304.6 642. For liabilities such as long-term debt not accounted for at fair value under SFAS 155 or SFAS 159 and without quoted market prices. respectively.2 182. a decrease of $5.1 280.6 274.1 427. separate and variable accounts and other financial instruments included in Other assets on the Consolidated Balance Sheet.1 422.3 167. deposits with banks. The carrying values (reduced by the Allowance for loan losses) exceeded the estimated fair values of Citigroup’s loans. In addition. pension and benefit obligations and insurance policy claim reserves.3 billion from 2007. contractholder fund amounts exclude certain insurance contracts.9 billion. In addition.1 billion for 2007. changes in interest rates in the case of fixed-rate loans. all of which the carrying value is a reasonable estimate of fair value.6 billion from 2007. and premium values at origination of certain loans.9 205.9 316. credit quality. mortgage servicing rights. including interest rates. the disclosure excludes the effect of taxes.0 207 . short-term borrowings and other financial instruments included in Other Liabilities on the Consolidated Balance Sheet.2 2007 Estimated fair value $826.3 billion for corporate loans. Fair values vary from period to period based on changes in a wide range of factors. Within these totals. as well as for liabilities.0 769.4 304. sales of comparable loan portfolios or current market origination rates for loans with similar terms and risk characteristics are used. brokerage receivables. the table excludes the values of non-financial assets and liabilities.0 Carrying value Estimated fair value $251. as well as a wide range of franchise. separate and variable accounts.5 359.

9 45.134 1. at December 31.8 Expire after 1 year $ 62.5 — — 47. not yet purchased. segregation requirements under securities laws and regulations.1 billion and $5. This collateral was received in connection with resale agreements. 2008. excluding the impact of FIN 39 and FIN 41.572 151. net of sublease income. At December 31. Collateral Guarantees At December 31.321 For securities sold under agreements to repurchase $237. respectively.470 1. Future minimum annual rentals under noncancelable leases. at inception. the Company had pledged $236 billion and $196 billion. a substantial portion of the collateral received by the Company had been sold or repledged in connection with repurchase agreements. a liability for the fair value of the obligation undertaken in issuing the guarantee. Including Indirect Guarantees of Indebtedness of Others” (FIN 45).312 For securities loaned 51. The following tables present information about the Company’s guarantees at December 31.819. 2008 and 2007.301. 2008 and 2007. derivative transactions and bank loans.055 As collateral for securities borrowed for approximately equivalent value 81.9 0.991 75. the Company had $3.7 billion and $9. of cash segregated under federal and other brokerage regulations or deposited with clearing organizations.847 $689. respectively.0 billion. Rental expense (principally for offices and computer equipment) was $2. COLLATERAL. FIN 45 requires that. pledges to clearing organizations.1 Total amount outstanding $ 94.6 56.3 67. securities borrowings and loans. for certain contracts meeting the definition of a guarantee.9 billion for the years ended December 31.7 — $167.6 $137. are as follows: In millions of dollars $608. excluding amounts netted in accordance with FIN 39 and FIN 41. “Guarantor’s Accounting and Disclosure Requirements for Guarantees.4 0. 2007 and 2006.793 94. of outstanding letters of credit from third-party banks to satisfy various collateral and margin requirements.279 In addition.4 — — 149. $2. 2008 and 2007.2 16. was $340.3 billion.7 2008 Financial standby letters of credit Performance guarantees Derivative instruments considered to be guarantees Guarantees of collection of contractual cash flows (1) Loans sold with recourse Securities lending indemnifications (1) Credit card merchant processing (1) Custody indemnifications and other Total 208 . were as follows: In millions of dollars 2008 2007(1) $296. the guarantor must disclose the maximum potential amount of future payments the guarantor could be required to make under the guarantee. of collateral that may not be sold or repledged by the secured parties.6 9. securities borrowings and loans.5 — 56. included in cash and due from banks at December 31.158 Other 52. Such amounts bear no relationship to the anticipated losses. if any. derivative transactions and margined broker loans. FASB Interpretation No.957 42.3 billion and $1.740 As collateral on bank loans 144.328 1. the approximate fair values of securities sold under agreements to repurchase and other assets pledged.6 56.2 billion and $405.3 0.9 Carrying value (in millions) $ 289. the approximate market value of collateral received by the Company that may be sold or repledged by the Company. provides initial measurement and disclosure guidance in accounting for guarantees. 2007: Maximum potential amount of future payments In billions of dollars at December 31. The Company provides a variety of guarantees and indemnifications to Citigroup customers to enhance their credit standing and enable them to complete a wide variety of business transactions.3 — — 21.6 billion. Lease Commitments At December 31. respectively. In addition.823 2009 2010 2011 2012 2013 Thereafter Total $1. respectively.576 Total (1) Reclassified to conform to the current period’s presentation. 2008 and 2007. if there were a total default by the guaranteed parties. on these guarantees.7 21.6 1.7 billion.2 $1. 45.29. 2008 and December 31. the guarantor must recognize. 2008 and 2007 are $11.3 47. At December 31.161 27.415 $9.6 $304. PLEDGED ASSETS.0 23. except carrying value in millions Expire within 1 year $ 31. The determination of the maximum potential future payments is based on the notional amount of the guarantees without consideration of possible recoveries under recourse provisions or from collateral held or pledged.982 To clearing organizations or segregated under securities laws and regulations 41. COMMITMENTS AND GUARANTEES Pledged Assets In addition.3 0. securities sold.4 22.6 6. 2008 and 2007. respectively.010 922 3.

including risk management. and whose terms require or permit net settlement.5 153.5 — — 306. or an equity security held by the guaranteed party.4 Expire after 1 year $ 43.0 45. Securities Lending Indemnifications Owners of securities frequently lend those securities for a fee to other parties who may sell them short or deliver them to another party to satisfy some other obligation.9 0. except carrying value in millions Expire within 1 year $ 43. In addition.8 0. the borrower is obligated to repay Citigroup. or maintenance or warranty services to a third party.4 Carrying value (in millions) $160. 209 Guarantees of Collection of Contractual Cash Flows Guarantees of collection of contractual cash flows protect investors in credit card receivables securitization trusts from loss of interest relating to insufficient collections on the underlying receivables in the trusts. Financial institutions often act as intermediaries for their clients. the notional amount of the contract is disclosed. The risk of loss is mitigated as the cash flows between the third party or the Company and the merchant are settled on a net basis and the third party or the Company has the right to .5 — — 53. Derivative Instruments Considered to Be Guarantees Derivatives are financial instruments whose cash flows are based on a notional amount or an underlying instrument. derivative instruments considered guarantees include certain over-the-counter written put options where the counterparty is not a bank.6 6. non-credit derivative contracts that are cash settled and for which the Company is unable to assert that it is probable the counterparty held the underlying instrument at the inception of the contract also are excluded from the disclosure above. Financial standbys also backstop loans. However.Maximum potential amount of future payments In billions of dollars at December 31.1 18. In addition. Credit Card Merchant Processing Credit card merchant processing guarantees represent the Company’s indirect obligations in connection with the processing of private label and bankcard transactions on behalf of merchants.2 — 153. a liability. where there is little or no initial investment. commodities. Loans Sold with Recourse Loans sold with recourse represent the Company’s obligations to reimburse the buyers for loan losses under certain circumstances. Banks may administer such securities lending programs for their clients. Derivatives may be used for a variety of reasons. or to enhance returns. include only those instruments that require Citi to make payments to the counterparty based on changes in an underlying that is related to an asset.0 53.4 $105. helping clients reduce their risks.4 163. as the Company has determined that the amount and probability of potential liabilities arising from these guarantees are not significant. More specifically. securities lending indemnifications and credit card merchant processing are not material.7 0.3 4. If the third party is unable to collect this amount from the merchant. and also support options and purchases of securities or are in lieu of escrow deposit accounts. and may therefore not hold the underlying instruments).4 $381. However.1 4. Financial standby letters of credit include guarantees of payment of insurance premiums and reinsurance risks that support industrial revenue bond underwriting and settlement of payment obligations to clearing houses.5 11. In instances where the Company’s maximum potential future payment is unlimited.0 $699. which are presented in the table above. Recourse refers to the clause in a sales agreement under which a lender will fully reimburse the buyer/investor for any losses resulting from the purchased loans. Securities lending indemnifications are issued by the bank to guarantee that a securities lending customer will be made whole in the event that the security borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of the security. promissory notes and trade acceptances. In the event of a billing dispute with respect to a bankcard transaction between a merchant and a cardholder that is ultimately resolved in the cardholder’s favor. Performance Guarantees Performance guarantees and letters of credit are issued to guarantee a customer’s tender bid on a construction or systems-installation project or to guarantee completion of such projects in accordance with contract terms. Standby letters of credit protect a third party from defaults on contractual obligations. hedge fund or broker-dealer (such counterparties are considered to be dealers in these markets. the third party holds the primary contingent liability to credit or refund the amount to the cardholder and charge back the transaction to the merchant. If a letter of credit is drawn down. the Company provides transaction processing services to various merchants with respect to bankcard and private-label cards. The Company continues to have the primary contingent liability with respect to its portfolio of private-label merchants. as they are disclosed separately within this note below. credit derivatives sold by the Company are excluded from this presentation. They are also issued to support a customer’s obligation to supply specified products.6 24. Financial Standby Letters of Credit Citigroup issues standby letters of credit which substitute its own credit for that of the borrower.0 — $276.0 Total amount outstanding $ 87. credit facilities. derivatives may also be used to take a risk position.5 2007 (2) Financial standby letters of credit Performance guarantees Derivative instruments considered to be guarantees Loans sold with recourse Securities lending indemnifications (1) Credit card merchant processing (1) Custody indemnifications and other Total (1) The carrying values of guarantees of collections of contractual cash flows. This may be accomplished by the seller’s taking back any loans that become delinquent.4 64.4 64. (2) Reclassified to conform to the current period’s presentation. The derivative instruments considered guarantees. Citigroup’s primary credit card business is the issuance of credit cards to individuals. it bears the loss for the amount of the credit or refund paid to the cardholder.

respectively. at December 31. Collateral Cash collateral available to the Company to reimburse losses realized under these guarantees and indemnifications amounted to $33 billion and $112 . Citigroup is contingently liable to credit or refund cardholders. Citigroup recorded a $306 million (pretax) charge related to certain of Visa USA’s litigation matters. warranties and tax indemnifications are essential components of many contractual relationships. The Company’s potential obligations as a shareholder or member of VTN associations are excluded from the scope of FIN 45. The carrying value of derivative instruments is included in either Trading liabilities or Other liabilities. Other In the fourth quarter of 2007. the Company’s participation in VTNs is not reported in the table and there are no amounts reflected on the Consolidated Balance Sheet as of December 31. they do not represent the underlying business purpose for the transactions. as most products and services are delivered when purchased and amounts are refunded when items are returned to merchants. services or a refund to its private label cardholders. 2008. The Company assesses the probability and amount of its potential liability related to these programs based on the extent and nature of 210 its historical loss experience. the carrying value of the liability is included in Other liabilities. The indemnification clauses are often standard contractual terms related to the Company’s own performance under the terms of a contract and are entered into in the normal course of business based on an assessment that the risk of loss is remote. respectively. this maximum potential exposure was estimated to be $57 billion and $64 billion. 2008 or December 31. In many cases. As a condition of membership. However. There are no amounts reflected on the Consolidated Balance Sheet as of December 31. including programs that provide insurance coverage for rental cars. or include event triggers to provide the third party or the Company with more financial and operational control in the event of the financial deterioration of the merchant. there are no stated or notional amounts included in the indemnification clauses and the contingencies potentially triggering the obligation to indemnify have not occurred and are not expected to occur. if ever. 2007. related to these indemnifications and they are not included in the table. 2008 and December 31. the third party or the Company may require a merchant to make an escrow deposit. The Company’s maximum potential contingent liability related to both bankcard and private label merchant processing services is estimated to be the total volume of credit card transactions that meet the requirements to be valid chargeback transactions at any given time. the total carrying amounts of the liabilities related to the guarantees and indemnifications included in the table amounted to approximately $1. These guarantees are not included in the table. While such representations. In addition. the Company is a member of or shareholder in hundreds of value-transfer networks (VTNs) (payment clearing and settlement systems as well as securities exchanges) around the world. since the shareholders and members represent subordinated classes of investors in the VTNs. In the unlikely event that a private label merchant is unable to deliver products. Other liabilities on the Consolidated Balance Sheet include an allowance for credit losses of $887 million and $1. 2008 and December 31. Other Guarantees and Indemnifications The Company. At December 31. 2007. this contingent liability is unlikely to arise. Often these clauses are intended to ensure that terms of a contract are met at inception (for example. depending upon whether the derivative was entered into for trading or non-trading purposes.820 million and $700 million. The protection is limited to certain types of purchases and certain types of losses and it is not possible to quantify the purchases that would qualify for these benefits at any given time. At December 31. although a third party holds the primary contingent liability with respect to the processing of bankcard transactions. the carrying value of the reserve was $149 million and was included in Other liabilities. 2007. since the total outstanding amount of the guarantees and the Company’s maximum exposure to loss cannot be quantified. At December 31. As of December 31. respectively. No compensation is received for these standard representations and warranties. 2008 and December 31. In the normal course of business. 2008 and December 31. result in a payment. price protection for certain purchases and protection for lost luggage. 2007 for potential obligations that could arise from the Company’s involvement with VTN associations. 2007.25 billion relating to letters of credit and unfunded lending commitments. many of these VTNs require that members stand ready to backstop the net effect on the VTNs of a member’s default on its obligations. the Company believes that the maximum exposure is not representative of the actual potential loss exposure based on the Company’s historical experience and its position as a secondary guarantor (in the case of bankcards). The Company assesses the probability and amount of its contingent liability related to merchant processing based on the financial strength of the primary guarantor (in the case of bankcards) and the extent and nature of unresolved chargebacks and its historical loss experience. Custody Indemnifications Custody indemnifications are issued to guarantee that custody clients will be made whole in the event that a third-party subcustodian or depository institution fails to safeguard clients’ assets. provides various cardholder protection programs on several of its card products. 2007. coverage for certain losses associated with purchased products. the estimated losses incurred and the carrying amounts of the Company’s contingent obligations related to merchant processing activities were immaterial. Citigroup would be liable to credit or refund the cardholders. The carrying value of financial and performance guarantees is included in Other liabilities. the actual and estimated losses incurred and the carrying value of the Company’s obligations related to these programs were immaterial. 2008 and December 31. and it is not possible to determine their fair value because they rarely. Counterparties to these transactions provide the Company with comparable indemnifications. In addition. In most cases. delay settlement. Accordingly. At December 31. To further mitigate this risk. in the event that the third party does not have sufficient collateral from the merchant or sufficient financial resources of its own to provide the credit or refunds to the cardholders. or require various credit enhancements (including letters of credit and bank guarantees). the Company provides standard representations and warranties to counterparties in contracts in connection with numerous transactions and also provides indemnifications that protect the counterparties to the contracts in the event that additional taxes are owed due either to a change in the tax law or an adverse interpretation of the tax law. For loans sold with recourse. that loans transferred to a counterparty in a sales transaction did in fact meet the conditions specified in the contract at the transfer date).offset any payments with cash flows otherwise due to the merchant. In addition. through its credit card business. 2008 and 2007.

6 5.4 — — — — — 3. the beneficiary will be obligated to make a payment any time the floating interest rate payment according to the total return swap agreement and any depreciation of the reference asset exceed the cash flows associated with the underlying asset. The decrease from the prior year is in line with the decrease in the notional amount of these indemnifications. The range of credit derivatives sold includes credit default swaps.3 0.6 56. respectively. the value of such property has not been determined. 2008 and December 31. Securities and other marketable assets held as collateral amounted to $27 billion and $54 billion. and in return the protection seller receives the cash flows associated with the reference asset. 2008. for a fee.7 Non-investment grade $28. while anything below is considered non-investment grade. As previously mentioned.6 Total $ 94. and to facilitate client transactions.0 Not rated $ 16.9 0. debt restructuring. as defined by the specific derivative contract.9 0. the majority of which collateral is held to reimburse losses realized under securities lending indemnifications.7 — $194.7 67. Maximum potential amount of future payments In billions of dollars Credit Derivatives Investment grade $49.1 $36. 2007. total return swaps and credit options. which are collateralized. In certain transactions. A total return swap transfers the total economic performance of a reference asset. The Company makes markets in and trades a range of credit derivatives. the guarantor will be required to make a payment to the beneficiary. Thus. however. protection may be provided on a portfolio of referenced credits or asset-backed securities.3 47. as well as capital appreciation or depreciation.4 5. investment-grade ratings are considered to be Baa/BBB and above. Additionally.6 56. On certain underlying referenced credits or entities. The maximum potential amount of the future payments related to guarantees and credit derivatives sold is determined to be the notional amount of these contracts. If there is no credit default event or settlement trigger.3 0.5 $73. to take proprietary trading positions. A total return swap may terminate upon a default of the reference asset subject to the provisions in the related total return swap agreement between the protection seller (guarantor) and the protection buyer (beneficiary). 211 . A credit default swap is a contract in which. on these guarantees. 2008 and December 31.2 16.7 21. plus any appreciation. These settlement triggers are defined by the form of the derivative and the reference credit and are generally limited to the market standard of failure to pay on indebtedness and bankruptcy of the reference credit and. which includes all associated cash flows.billion at December 31. Other property may also be available to the Company to cover losses under certain guarantees and indemnifications. The Citigroup internal ratings are in line with the related external rating system. Through these contracts. in a more limited range of transactions. Performance Risk Citigroup evaluates the performance risk of its guarantees based on the assigned referenced counterparty internal or external ratings. the Company either purchases or writes protection on either a single name or a portfolio of reference credits. However. the determination of the maximum potential future payments is based on the notional amount of the guarantees without consideration of possible recoveries under recourse provisions or from collateral held or pledged. The protection buyer (beneficiary) receives a floating rate of interest and any depreciation on the reference asset from the protection seller (guarantor). 2007.9 A credit derivative is a bilateral contract between a buyer and a seller under which the seller sells protection against the credit risk of a particular entity (“reference entity” or “reference credit”).2 5. letters of credit in favor of the Company held as collateral amounted to $503 million and $370 million at December 31. Such amounts bear no relationship to the anticipated losses. The Company uses credit derivatives to help mitigate credit risk in its corporate loan portfolio and other cash positions. Credit derivatives generally require that the seller of credit protection make payments to the buyer upon the occurrence of predefined credit events (commonly referred to as “settlement triggers”). Such referenced credits are included in the “Not-rated” category. respectively. Where external ratings are used. ratings are not available. Credit derivative transactions referring to emerging market reference credits will also typically include additional settlement triggers to cover the acceleration of indebtedness and the risk of repudiation or a payment moratorium. Presented in the table below is the maximum potential amount of future payments classified based upon internal and external credit ratings as of December 31. if any.8 67. both on behalf of clients as well as for its own account.3 47. a protection seller (guarantor) agrees to reimburse a protection buyer (beneficiary) for any losses that occur due to a credit event on a reference entity.3 Financial standby letters of credit Performance guarantees Derivative instruments deemed to be guarantees Guarantees of collection of contractual cash flows Loans sold with recourse Securities lending indemnifications Credit card merchant processing Custody indemnifications and other Total — — — — — 18. The seller of such protection may not be required to make payment until a specified amount of losses has occurred with respect to the portfolio and/or may only be required to pay for losses up to a specified amount. if a credit event occurs and in accordance with the specific derivative contract sold. which is the par amount of the assets guaranteed.6 $304. then the guarantor makes no payments to the beneficiary and receives only the contractually specified fee.

212 . as such payments would be calculated after netting all derivative exposures.428 55. should a credit event (or settlement trigger) occur. Thus the maximum amount of the exposure is the carrying amount of the creditlinked note. in a credit spread option. and receives a return which will be negatively affected by credit events on the underlying reference credit. with that counterparty in accordance with a related master netting agreement. Citi will generally have a right to collect on the underlying reference credit and any related cash flows.664 139 7. the Company is usually liable for the difference between the protection sold and the recourse it holds in the value of the underlying assets. or purchase it from. This risk mitigation activity is not captured in the table above.A credit option is a credit derivative that allows investors to trade or hedge changes in the credit quality of the reference asset.371 $1.949 365. Where external ratings by nationally recognized statistical rating organizations (such as Moody’s and S&P). For example. The purchaser of the note writes credit protection to the issuer.443. The non-investment grade category in the table above primarily includes credit derivatives where the underlying referenced entity has been downgraded subsequent to the inception of the derivative. The payments on credit spread options depend either on a particular credit spread or the price of the underlying credit-sensitive asset. The Citigroup internal ratings are in line with the related external credit rating system. while being liable for the full notional amount of credit protection sold to the buyer.375 1.700 $198. including any credit derivatives.233 $ 83. On certain underlying referenced credit. Credit derivatives written on an underlying noninvestment grade referenced credit represent greater payment risk to the Company.053 $198.981 252 $198. 2008: Maximum potential amount of future payments $ 943.280 $ 851. The option purchaser (beneficiary) buys the right to sell the reference asset to.905 $1. the amount of credit-linked notes held by the Company in trading inventory was immaterial. As of December 31. the purchaser of the credit-linked note may assume the long position in the debt security and any future cash flows from it but will lose the amount paid to the issuer of the credit-linked note. Thus. The following table summarizes the key characteristics of the Company’s credit derivative portfolio as protection seller (guarantor) as of December 31. are used. ratings are not available.233 The maximum potential amount of future payments under credit derivative contracts presented in the table above is based on the notional value of the derivatives.233 $197. mainly related to over-thecounter credit derivatives.672 87.458 91 2. The options usually terminate if the underlying assets default. The Company believes that the maximum potential amount of future payments for credit protection sold is not representative of the actual loss exposure based on historical experience. the option writer at the strike spread level. A credit-linked note is a form of credit derivative structured as a debt security with an embedded credit default swap. if the reference entity defaults. and manages this exposure using a variety of strategies including purchased credit derivatives. cash collateral or direct holdings of the referenced assets.443. The Company actively monitors open credit risk exposures.556 21. 2008.426 410. while anything below is considered non-investment grade.508 27.280 Fair value (payable) $118. the option writer (guarantor) assumes the obligation to purchase or sell the reference asset at a specified “strike” spread level. If the reference entity defaults. determining the amount of collateral that corresponds to credit derivative exposures only is not possible. In accordance with most credit derivative contracts.280 $1.988 $1.540 125.441. investment grade ratings are considered to be Baa/BBB or above. In millions of dollars By industry/counterparty Bank Broker-dealer Monoline Non-financial Insurance and other financial institutions Total by industry/counterparty By instrument: Credit default swaps and options Total return swaps and other Total by instrument By rating: Investment grade Non-investment grade Not rated Total by rating Citigroup evaluates the payment/performance risk of the credit derivatives to which it stands as guarantor based on the credit rating which has been assigned to the underlying referenced credit. Due to such netting processes. Furthermore. this maximum potential amount of future payments for credit protection sold has not been reduced for any cash collateral paid to a given counterparty.443.483 181. This maximum potential amount has not been reduced by the Company’s rights to the underlying assets and the related cash flows. and these are included in the not-rated category.

Both secured-by-real-estate and unsecured commitments are included in this line. where there is an obligation to advance for construction progress. construction and land development Commercial real estate.500 December 31.to four-family residential properties Commercial real estate. to purchase third-party receivables and to provide note issuance or revolving underwriting facilities. Commercial real estate.818 $1.349. One. 2008 and December 31.212 2.S.to four-family residential mortgage commitment is a written confirmation from Citigroup to a seller of a property that the bank will advance the specified sums enabling the buyer to complete the purchase.834 1. Commercial and other consumer loan commitments Commercial and other consumer loan commitments include commercial commitments to make or purchase loans.176 92.112.187 628 22. Commercial commitments generally have floating interest rates and fixed expiration dates and may require payment of fees. In addition. $ 2. 2007. However.215 937 25.949 The majority of unused commitments are contingent upon customers’ maintaining specific credit standards. $ 6.103. In millions of dollars Commercial and similar letters of credit One.587 35.to four-family residential properties Revolving open-end loans secured by one. respectively.437 309.702 1. Such fees (net of certain direct costs) are deferred and. Commercial and similar letters of credit A commercial letter of credit is an instrument by which Citigroup substitutes its credit for that of a customer to enable the customer to finance the purchase of goods or to incur other commitments.631 $1.621 618 135.535 473.931 December 31. the customer then is required to reimburse Citigroup.569 Outside U. included in this line item are highly leveraged financing commitments which are agreements that provide funding to a borrower with higher levels of debt (measured by the ratio of debt capital to equity capital of the borrower) than is generally considered normal for other companies. 2008 $ 8.084 867. 2007.to four-family residential mortgages A one.to four-family residential mortgages Revolving open-end loans secured by one. undistributed loan proceeds. Credit card lines Citigroup provides credit to customers by issuing credit cards.S. construction and land development include unused portions of commitments to extend credit for the purpose of financing commercial and multifamily residential properties as well as land development projects. upon exercise of the commitment. this line only includes those extensions of credit that once funded will be classified as Loans on the Consolidated Balance Sheet.to four-family residential properties are essentially home equity lines of credit. When drawn.591 2. construction and land development Credit card lines Commercial and other consumer loan commitments Total U. amortized over the commitment period. Citigroup issues a letter on behalf of its client to a supplier and agrees to pay the supplier upon presentation of documentary evidence that the supplier has performed in accordance with the terms of the letter of credit.997 $1. The credit card lines are unconditionally cancellable by the issuer. 213 .179 $236. payments are also included in this line. 2007 $ 9.028 309 2. Amounts include $140 billion and $259 billion with an original maturity of less than one year at December 31.Credit Commitments The table below summarizes Citigroup’s other commitments as of December 31. This type of financing is commonly employed in corporate acquisitions.630. In addition. A home equity line of credit is a loan secured by a primary residence or second home to the extent of the excess of fair market value over the debt outstanding for the first mortgage. amortized over the life of the loan or. if exercise is deemed remote.002.187 4.175 4. management buy-outs and similar transactions.261 217. 2008 and December 31. Revolving open-end loans secured by one.

if involving monetary liability. may be material to the Company’s operating results for any particular period.495) — $ (2. end of year Common stock ($20 par value) Balance.338 (3. beginning of year Adjustment to opening balance.062 9. (iii) transactions and activities related to research coverage of companies other than WorldCom. end of year Accumulated other comprehensive income (loss) Balance. In addition.534. and seek to resolve them in the manner management believes is in the best interests of the Company.735 $43.143 (1. As described in the “Legal Proceedings” discussion on page 229.553 in 2008. CONTINGENCIES 31. Citigroup and its subsidiaries are defendants or co-defendants or parties in various litigation and regulatory matters incidental to and typical of the businesses in which they are engaged.042) — $30. was approximately $0. beginning of year — shares: 37.978 5.8 billion. end of year $ $ 751 751 $ $ 751 751 $ $ 751 751 $ 69. The Company believes that this reserve is adequate to meet all of its remaining exposure for these matters.534. WorldCom. CITIBANK.135 6.30.062 — $24.215) (41) (3.895) (1.767 $ 31.651) (1. beginning of year Adjustment to opening balance. net of amounts previously paid or not yet paid but committed to be paid in connection with the Enron class action settlement and other settlements arising out of these matters. and (iv) transactions and activities related to the IPO Securities Litigation.954) 168 — $ (785) $ (2. In view of the large number of litigation matters.753 $24.710) $ (2. end of year Retained earnings Balance. the Company is also a defendant in numerous lawsuits and other legal proceedings arising out of alleged misconduct in connection with other matters. net of taxes Adjustment to initially apply SFAS 158.589 176 10 $43.A. it is possible that the ultimate costs of these matters may exceed or be below the Company’s litigation reserves.753 25.550) (6. beginning of period Net income (loss) Dividends paid Other (1) Balance. 2007 and 2006 Surplus Balance. 2008 $ $ — — — $ $ 2007 — — — $ $ 2006 — — — Preferred stock ($100 par value) Balance.924) $ 21.135 $30.358 $ (2.553 in 2008.746) (5. except shares As described in the “Legal Proceedings” discussion on page 229.915 $37. N. and the significant amounts involved.550) — $ (2. in the ordinary course of business. the ultimate resolution of these legal and regulatory proceedings would not be likely to have a material adverse effect on the consolidated financial co