SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2007 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number 1-9924
Citigroup Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
52-1568099 (I.R.S. Employer Identification No.) |
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399 Park Avenue, New York, New York (Address of principal executive offices) |
10043 (Zip Code) |
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(212) 559-1000 (Registrant's telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:
Common stock outstanding as of September 30, 2007: 4,981,134,274
Available on the Web at www.citigroup.com
Citigroup Inc.
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Item 1. | Financial Statements: | |||
Consolidated Statement of Income (Unaudited)Three and Nine Months Ended September 30, 2007 and 2006 |
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Consolidated Balance SheetSeptember 30, 2007 (Unaudited) and December 31, 2006 |
51 |
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Consolidated Statement of Changes in Stockholders' Equity (Unaudited)Nine Months Ended September 30, 2007 and 2006 |
52 |
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Consolidated Statement of Cash Flows (Unaudited)Nine Months Ended September 30, 2007 and 2006 |
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Consolidated Balance SheetCitibank, N.A. and Subsidiaries September 30, 2007 (Unaudited) and December 31, 2006 |
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Notes to Consolidated Financial Statements (Unaudited) |
55 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
5 - 47 |
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Summary of Selected Financial Data |
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Third Quarter of 2007 Management Summary |
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Events in 2007 and 2006 |
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Segment, Product and Regional Net Income and Net Revenues |
10 - 13 |
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Risk Management |
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Interest Revenue/Expense and Yields |
33 |
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Capital Resources and Liquidity |
41 |
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Off-Balance Sheet Arrangements |
45 |
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Forward-Looking Statements |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
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29 - 30 | ||||
75 - 77 | ||||
Item 4. |
Controls and Procedures |
48 |
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Part IIOther Information |
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Item 1. |
Legal Proceedings |
103 |
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Item 1A. |
Risk Factors |
103 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
104 |
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Item 6. |
Exhibits |
105 |
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Signatures |
106 |
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Exhibit Index |
107 |
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Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company) is a diversified global financial services holding company. Our businesses provide a broad range of financial services to consumer and corporate customers. Citigroup has more than 200 million customer accounts and does business in more than 100 countries. Citigroup was incorporated in 1988 under the laws of the State of Delaware.
The Company is a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956 registered with, and subject to examination by, the Board of Governors of the Federal Reserve System (FRB). Some of the Company's subsidiaries are subject to supervision and examination by their respective federal, state and foreign authorities.
This quarterly report on Form 10-Q should be read in conjunction with Citigroup's 2006 Annual Report on Form 10-K and Citigroup's Quarterly Reports on Form 10-Q for the quarter ended March 31, 2007 and June 30, 2007. Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Financial Supplement that was filed as Exhibit 99.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission (SEC) on October 15, 2007.
The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043. The telephone number is 212 559 1000. Additional information about Citigroup is available on the Company's Web site at www.citigroup.com. Citigroup's annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to these reports are available free of charge through the Company's web site by clicking on the "Investor Relations" page and selecting "SEC Filings." The SEC's web site contains reports, proxy and information statements, and other information regarding the Company at www.sec.gov.
Citigroup was managed along the following segment and product lines through the third quarter of 2007:
The following are the six regions in which Citigroup operates. The regional results are fully reflected in the product results.
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CITIGROUP INC. AND SUBSIDIARIES
SUMMARY OF SELECTED FINANCIAL DATA
The Company has revised its financial results for the third quarter of 2007 from the results released in the Company's October 15, 2007 Earnings Release and Current Report on Form 8-K filing. The revision relates to the correction of the valuation on the Company's $43 billion in Asset-Backed Securities Collateralized Debt Obligations (ABS CDOs) super senior exposures (see page 6 and 9 for further detail). The impact of this correction is a $270 million reduction in Principal Transactions Revenue, a $166 million reduction in Net Income and a $0.03 reduction in Diluted Earnings per Share.
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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In millions of dollars, except per share amounts |
% Change |
% Change |
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2007 |
2006 |
2007 |
2006 |
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Net interest revenue | $ | 12,157 | $ | 9,828 | 24 | % | $ | 34,153 | $ | 29,449 | 16 | % | |||||
Non-interest revenue | 10,236 | 11,594 | (12 | ) | 40,329 | 36,338 | 11 | ||||||||||
Revenues, net of interest expense | $ | 22,393 | $ | 21,422 | 5 | % | $ | 74,482 | $ | 65,787 | 13 | % | |||||
Restructuring expense | 35 | | | 1,475 | | | |||||||||||
Other operating expenses | 14,526 | 11,936 | 22 | 43,512 | 38,063 | 14 | |||||||||||
Provisions for credit losses and for benefits and claims | 5,062 | 2,117 | NM | 10,746 | 5,607 | 92 | |||||||||||
Income from continuing operations before taxes and minority interest | $ | 2,770 | $ | 7,369 | (62 | )% | $ | 18,749 | $ | 22,117 | (15 | )% | |||||
Income taxes | 538 | 2,020 | (73 | ) | 5,109 | 5,860 | (13 | ) | |||||||||
Minority interest, net of taxes | 20 | 46 | (57 | ) | 190 | 137 | 39 | ||||||||||
Income from continuing operations | $ | 2,212 | $ | 5,303 | (58 | )% | $ | 13,450 | $ | 16,120 | (17 | )% | |||||
Income from discontinued operations, net of taxes(1) | | 202 | (100 | ) | | 289 | (100 | ) | |||||||||
Net Income | $ | 2,212 | $ | 5,505 | (60 | )% | $ | 13,450 | $ | 16,409 | (18 | )% | |||||
Earnings per share | |||||||||||||||||
Basic: | |||||||||||||||||
Income from continuing operations | $ | 0.45 | $ | 1.08 | (58 | )% | $ | 2.74 | $ | 3.28 | (16 | )% | |||||
Net income | 0.45 | 1.13 | (60 | ) | 2.74 | 3.34 | (18 | ) | |||||||||
Diluted: | |||||||||||||||||
Income from continuing operations | 0.44 | 1.06 | (58 | ) | 2.69 | 3.22 | (16 | ) | |||||||||
Net income | 0.44 | 1.10 | (60 | ) | 2.69 | 3.28 | (18 | ) | |||||||||
Dividends declared per common share | $ | 0.54 | $ | 0.49 | 10 | $ | 1.62 | $ | 1.47 | 10 | |||||||
At September 30: | |||||||||||||||||
Total assets | $ | 2,358,266 | $ | 1,746,248 | 35 | % | |||||||||||
Total deposits | 812,850 | 669,278 | 21 | ||||||||||||||
Long-term debt | 364,526 | 260,089 | 40 | ||||||||||||||
Mandatorily redeemable securities of subsidiary trusts | 11,542 | 7,992 | 44 | ||||||||||||||
Common stockholders' equity | 126,913 | 116,865 | 9 | ||||||||||||||
Total stockholders' equity | 127,113 | 117,865 | 8 | ||||||||||||||
Ratios: | |||||||||||||||||
Return on common stockholders' equity(2) | 6.9 | % | 18.9 | % | 14.6 | % | 19.3 | % | |||||||||
Return on risk capital(3) | 12 | % | 37 | % | 25 | % | 39 | % | |||||||||
Return on invested capital(3) | 7 | % | 19 | % | 15 | % | 19 | % | |||||||||
Tier 1 Capital | 7.32 | % | 8.64 | % | |||||||||||||
Total Capital | 10.61 | % | 11.88 | % | |||||||||||||
Leverage(4) | 4.13 | % | 5.24 | % | |||||||||||||
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MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD QUARTER 2007 MANAGEMENT SUMMARY
Income from continuing operations declined 58% to $2,212 billion and diluted EPS from continuing operations was down 58%. The write-downs of highly-leveraged loans, losses in our Fixed Income structured credit and credit trading business and higher credit costs in our Global Consumer business drove the earnings decline. Results include a $729 million pretax gain on the sale of Redecard shares.
Revenues were $22.4 billion, up 5% from a year ago, primarily due to 29% growth in international revenues and partially offset by weakness in our Securities and Banking business, where revenues were down 50%. International Consumer revenues were up 35% and International Global Wealth Management revenues more than doubled reflecting double-digit organic growth and results from Nikko Cordial. U.S. Consumer revenues were flat to a year-ago while Alternative Investments revenues declined 63%. Transaction Services had another record quarter, with revenues up 38%.
Customer volume growth was strong, with average loans up 18%, average deposits up 20%, and average interest-earning assets up 36%. International Cards purchase sales were up 37%, while U.S. Cards sales were up 6%. In Global Wealth Management, client assets under fee-based management were up 38%. Branch activity included the opening or acquisition of 96 new branches during the quarter (47 internationally and 49 in the U.S.).
Since October of 2006, ten international acquisitions have been announced, consistent with our goal of expanding our international franchise through targeted acquisitions. On October 2, 2007, we announced an agreement to acquire the remaining 32% public stake in Nikko Cordial in a share-for-share exchange using Citigroup stock.
International businesses contributed 54% of the Company's revenue in the third quarter of 2007 and 79% of income, up from 44% and 43%, respectively, a year ago.
Net interest revenue increased 24% from last year reflecting volume increases across all products. Net interest margin in the third quarter of 2007 was 2.36%, down 26 basis points from the third quarter of 2006, as lower funding costs were offset by growth in lower-yielding assets in our trading businesses, and increased ownership in Nikko Cordial (see discussion of net interest margin on page 33).
Operating expenses increased 22% from the third quarter of 2006 driven by increased business volumes and acquisitions (which contributed 8%). The increase is due in large part to an unusually low level of expenses in the third quarter of 2006, which were the lowest in the last seven quarters, primarily reflecting reductions in advertising and marketing in U.S. Consumer, and lower expenses in Markets & Banking. Our business as usual expense growth of 14% was driven by higher business volumes throughout the franchise and the opening of more than 800 branches in the last 12 months. We are ahead of commitments on our Strategic Expense Initiatives. Expenses were down from the second quarter of 2007, primarily on lower compensation costs in Securities and Banking.
Credit costs increased $2.98 billion from year-ago levels, primarily driven by an increase in net credit losses of $780 million and a net charge of $2.24 billion to increase loan loss reserves. In U.S. Consumer, higher credit costs reflected an increase in net credit losses of $278 million and a net charge of $1.30 billion to increase loan loss reserves. The $1.30 billion net charge compares to a net reserve release of $197 million in the prior-year period. The increase in credit costs primarily reflected a weakening of leading credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth, and a change in estimate of loan losses inherent in the portfolio but not yet visible in delinquencies (referred to hereinafter as the change in estimate of loan losses). In International Consumer, higher credit costs reflected an increase in net credit losses of $460 million and a net charge of $717 million to increase loan loss reserves. The $717 million net charge compares to a net charge of $101 million in the prior-year period. The increase in credit costs primarily reflected the impact of recent acquisitions, portfolio growth, and a change in estimate of loan losses. Markets & Banking credit costs increased $98 million, primarily reflecting higher net credit losses and a $123 million net charge to increase loan loss reserves for specific counterparties. Credit costs reflected a slight weakening in portfolio credit quality. The Global Consumer loss rate was 1.81%, a 32 basis-point increase from the third quarter of 2006. Corporate cash-basis loans increased 76% from year-ago levels to $1.218 billion.
The Company's effective tax rate of 19.4% in the third quarter of 2007 reflects the tax benefits of permanent differences applied to the lower level of consolidated pretax earnings. These permanent differences primarily include the tax benefit for not providing U.S. income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested. The third quarter of 2006 effective tax rate of 27.4% included a $237 million tax reserve release in continuing operations relating to the resolution of the 2006 New York Tax Audits.
Our stockholders' equity and trust preferred securities were $138.7 billion at September 30, 2007. We distributed $2.7 billion in dividends to shareholders during the quarter. Return on common equity was 6.9% for the quarter. Citigroup maintained its "well-capitalized" position with a Tier 1 Capital Ratio of 7.32% at September 30, 2007.
In our U.S. Consumer business, revenue generated was affected by the market dislocation that also affected our fixed income business; however, the underlying business momentum that we have seen over the last few quarters continues to be very good. The Company expects that credit costs in the fourth quarter of 2007 will increase compared to the fourth quarter of 2006 with the expectation that the U.S. consumer credit environment will continue to deteriorate causing higher credit costs.
On October 12, 2007, we announced the formation of our Institutional Clients Group which combines our Markets & Banking and Alternative Investments businesses which will
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enhance our ability to serve institutional clients across the entire capital market spectrum. Vikram Pandit will lead this newly formed Group.
On November 4, 2007, the Company announced significant declines since September 30, 2007 in the fair value of the approximately $55 billion in U.S. sub-prime related direct exposures in its Securities and Banking business. Citigroup estimates that, at the present time, the reduction in revenues attributable to these declines ranges from approximately $8 billion to $11 billion (representing a decline of approximately $5 billion to $7 billion in net income on an after-tax basis). See page 9 for a further discussion.
On November 4, 2007, the Company's Board of Directors announced that Charles Prince, Chairman and Chief Executive Officer, has elected to retire from Citigroup. Robert E. Rubin, Chairman of the Executive Committee of Citigroup and a member of the Board of Directors, will serve as Chairman of the Board. In addition, Sir Win Bischoff, Chairman of Citi Europe and a member of Citigroup's Business Heads, Operating and Management Committees, will serve as acting Chief Executive Officer (CEO). The Board also announced that The Board has designated a special committee consisting of Mr. Rubin, Alain J.P. Belda, Richard D. Parsons, and Franklin A. Thomas to conduct the search for a new CEO.
Certain of the statements above are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 48.
EVENTS IN 2007 AND 2006
Certain of the following statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 48. Additional information regarding "Events in 2007 and 2006" is available in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007, and in the Company's Annual Report on Form 10-K for the year ended December 31, 2006.
3Q07 Items Impacting the Securities and Banking Business
CDO- and CLO-Related Losses
During the third quarter of 2007, unrealized losses of approximately $1.8 billion pre-tax, net of hedges, were recorded in the Securities and Banking business due to a decline in value of sub-prime mortgage-backed securities warehoused for future collateralized debt obligation (CDO) securitizations, CDO positions, and leveraged loans warehoused for future collateralized loan obligation (CLO) securitizations.
The $1.8 billion pretax of net write-downs consisted of $1.0 billion on asset-backed CDOs (primarily taken on the Company's CDO inventory which totaled $2.7 billion at September 30, 2007 inclusive of the write-down), $0.5 billion on super senior tranches of CDOs (senior-most positions of the capital structure where the predominant collateral is sub-prime U.S. residential mortgage-backed securities) and $0.3 billion on CLOs.
Certain types of credit instruments, such as investments in CDOs, high-yield bonds, debt issued in leveraged buyout transactions, mortgage- and asset-backed securities, and short-term asset- backed commercial paper, became very illiquid in the third quarter of 2007 and this contributed to the declines in value of those securities.
Write-downs on Highly-Leveraged Loans and Commitments
During the third quarter of 2007, Citigroup recorded write downs of approximately $1.352 billion pre-tax, net of underwriting fees, on funded and unfunded highly-leveraged finance commitments in the Securities and Banking business. Of this amount, approximately $901 million related to debt underwriting activities and $451 million related to lending activities. Write-downs were recorded on all highly-leveraged finance commitments where there was value impairment, regardless of the expected funding date.
Fixed Income Credit Trading Losses
During the third quarter of 2007, Citigroup recognized approximately $636 million in credit trading losses due to significant market volatility and the disruption of historical pricing relationships. This was primarily a result of the sharp decrease in the sub-prime markets in both North America and Europe. The resulting trading losses are reflected in the Securities and Banking business.
Market Value Gains Due to the Change in Citigroup Credit Spreads
SFAS 159 provides companies the ability to elect fair value accounting for many financial assets and liabilities. As part of Citigroup's adoption of this standard in the first quarter of 2007, the Company elected the fair value option on debt instruments that are provided to customers so that this debt and the associated assets the Company purchased to meet this liability are on the same fair value basis in earnings. At the end of the third quarter, $28.6 billion of debt related to customer products was classified as either short- or long-term debt on the Consolidated Balance Sheet.
Under fair value accounting, we are required to use Citigroup credit spreads in determining the market value of any Citigroup liabilities for which the fair value option was elected, as well as for Citigroup trading liabilities such as derivatives. The inclusion of Citigroup credit spreads in valuing Citigroup's liabilities gave rise to a pre-tax gain of $466 million in the third quarter of 2007 and is reflected in the Securities and Banking business.
Credit Reserves
During the third quarter of 2007, the Company recorded a net build of $2.24 billion to its credit reserves, including an increase in the allowance for unfunded lending commitments, consisting of a net build of $2.07 billion in Global Consumer and Global Wealth Management and $171 million in Markets & Banking.
The build of $2.07 billion in Global Consumer and Global Wealth Management primarily reflected a weakening of leading credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth, recent acquisitions, and the change in estimate of loan losses.
The build of $171 million in Markets & Banking primarily reflected loan loss reserves for specific counterparties. Credit costs reflected a slight weakening in portfolio credit quality.
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The net build to the Company's credit reserves in the third quarter of 2007 compares to the third quarter of 2006 net build of $37 million, which consisted of a net release/ utilization of $79 million in Global Consumer and Global Wealth Management, and a net build of $116 million in Markets & Banking.
Redecard IPO
During July and August 2007, Citigroup (a 31.9% shareholder in Redecard S.A., the only merchant acquiring company for MasterCard in Brazil) sold approximately 48.8 million Redecard shares in connection with Redecard's initial public offering in Brazil. Following the sale of these shares, Citigroup retained approximately 23.9% ownership in Redecard. An after-tax gain of approximately $469 million ($729 million pretax) was recorded in Citigroup's third quarter of 2007 financial results in the International Cards business.
CAI's Structured Investment Vehicles (SIVs)
CAI's Global Credit Structures investment center is the investment manager for seven Structured Investment Vehicles (SIVs). SIVs are special purpose investment companies that seek to generate attractive risk-adjusted floating-rate returns through the use of financial leverage and credit management skills, while hedging interest rate and currency risks and managing credit, liquidity and operational risks. The basic investment strategy is to earn a spread between relatively inexpensive short-term funding (commercial paper and medium-term notes) and high quality asset portfolios with a medium-term duration, with the leverage effect providing attractive returns to junior note holders, who are third-party investors and who provide the capital to the SIVs.
Citigroup has no contractual obligation to provide liquidity facilities or guarantees to any of the Citi-advised SIVs and does not own any equity positions in the SIVs. The SIVs have no direct exposure to U.S. sub-prime assets and have approximately $70 million of indirect exposure to sub-prime assets through CDOs which are AAA rated and carry credit enhancements. Approximately 98% of the SIVs' assets are fully funded through the end of 2007. Beginning in July 2007, the SIVs which Citigroup advises sold more than $19 billion of SIV assets, bringing the combined assets of the Citigroup-advised SIVs to approximately $83 billion at September 30, 2007. See additional discussion on page 46.
The current lack of liquidity in the Asset-Backed Commercial Paper (ABCP) market and the resulting slowdown of the CP market for SIV-issued CP have put significant pressure on the ability of all SIVs, including the Citi-advised SIVs, to refinance maturing CP.
While Citigroup does not consolidate the assets of the SIVs, the Company has provided liquidity to the SIVs at arm's-length commercial terms totaling $10 billion of committed liquidity, $7.6 billion of which has been drawn as of October 31, 2007. Citigroup will not take actions that will require the Company to consolidate the SIVs.
Master Liquidity Enhancing Conduit (M-LEC)
In October 2007, Citigroup, J.P. Morgan Chase and Bank of America initiated a plan to back a new fund, called the Master Liquidity Enhancing Conduit (M-LEC) that intends to buy assets from SIVs advised by Citigroup and other third-party institutions. This is being done as part of an effort to avert the situation where the SIVs will be forced to liquidate significant amounts of mortgage-backed securities, resulting in a broad-based repricing of these assets in the market at steep discounts.
SIVs, including those advised by Citigroup, have experienced difficulties in refinancing maturing commercial paper and medium-term notes, due to reduced liquidity in the market for commercial paper.
Nikko Cordial
Citigroup began consolidating Nikko Cordial's financial results and the appropriate minority interest on May 9, 2007, when Nikko Cordial became a 61%-owned subsidiary. Citigroup later increased its ownership stake in Nikko Cordial to 68%. Nikko Cordial results are included within Citigroup's Securities and Banking, Global Wealth Management and Global Consumer Group businesses.
On October 31, 2007, Citigroup announced a definitive agreement with Nikko Cordial to acquire all Nikko Cordial shares that Citigroup does not already own in exchange for shares of Citigroup. The agreement provides for the exchange ratio to be determined in mid-January 2008 and for the transaction to close on January 29, 2008. As of the date of the agreement, the transaction value for the acquisition of the remaining Nikko shares was approximately $4.6 billion.
On October 29, 2007, Citigroup received approval from the Tokyo Stock Exchange (TSE) to list Citigroup's shares on the TSE effective on November 5, 2007.
Acquisition of Bisys
On August 1, 2007, the Company completed its acquisition of Bisys Group, Inc. (Bisys) for $1.47 billion in cash. In addition, Bisys' shareholders received $18.2 million in the form of a special dividend paid by Bisys. Citigroup completed the sale of the Retirement and Insurance Services Divisions of Bisys to affiliates of J.C. Flowers & Co. LLC, making the net cost of the transaction to Citigroup approximately $800 million. Citigroup retained the Fund Services and Alternative Investment services businesses of Bisys which provides administrative services for hedge funds, mutual funds and private equity funds. Results for Bisys are included within Citigroup's Transaction Services business from August 1, 2007 forward.
Agreement to Establish Partnership with QuiñencoBanco de Chile
On July 19, 2007, Citigroup and Quiñenco entered into a definitive agreement to establish a strategic partnership that combines Citi operations in Chile with Banco de Chile's local banking franchise to create a banking and financial services institution with about 20% market share of the Chilean banking industry. The agreement gives Citigroup the option to acquire up to 50% of LQIF, the holding company through which Quiñenco controls Banco de Chile.
Under the agreement, Citigroup will initially acquire 18.77% interest in Banco de Chile through its approximate 32.85% stake in LQIF. In the initial phase, Citigroup will contribute Citigroup Chile and other assets (in cash or other businesses). As part of the overall transaction, Citigroup will also acquire the U.S. businesses of Banco de Chile. Citigroup has the option to acquire an additional 17.04% stake in LQIF within three years. The new partnership calls for active
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participation by Citigroup in management of Banco de Chile, including board representation at both LQIF and Banco de Chile.
The transaction is expected to close in the first quarter of 2008, and is subject to customary regulatory reviews. Citigroup will account for the investment in LQIF under the equity method of accounting.
Acquisition of Automated Trading Desk
On October 3, 2007, Citigroup completed its acquisition of Automated Trading Desk (ATD), a leader in electronic market making and proprietary trading, for approximately $680 million ($102.6 million in cash and approximately 11.17 million shares of Citigroup stock). ATD will operate as a unit of Citigroup's Global Equities business, adding a network of broker/dealer customers to Citigroup's diverse base of institutional, broker/dealer and retail customers.
Resolution of 2006 Tax Audits
New York State and New York City
In September 2006, Citigroup reached a settlement agreement with the New York State and New York City taxing authorities regarding various tax liabilities for the years 19982005 (referred to hereinafter as the "resolution of the 2006 New York Tax Audits").
For the 2006 third quarter, the Company released $254 million from its tax contingency reserves, which resulted in increases of $237 million in after-tax income from continuing operations and $17 million in after-tax income from discontinued operations, which are reflected in the year-to-date 2006 totals.
Federal
In March 2006, the Company received a notice from the Internal Revenue Service (IRS) that they had concluded the tax audit for the years 1999 through 2002 (referred to hereinafter as the "resolution of the 2006 Federal Tax Audit"). For the 2006 first quarter, the Company released a total of $657 million from its tax contingency reserves related to the resolution of the Federal Tax Audit, which are reflected in the segment and product year-to-date 2006 income tax expense disclosures.
The following table summarizes the 2006 tax benefits, by business, from the resolution of the New York Tax Audits and Federal Tax Audit (collectively, the 2006 Tax Audits):
In millions of dollars |
New York City and New York State Audits (2006 Third Quarter) |
Federal Audit (2006 First Quarter) |
Total |
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Global Consumer | $ | 79 | $ | 290 | $ | 369 | |||
Markets & Banking | 116 | 176 | 292 | ||||||
Global Wealth Management | 34 | 13 | 47 | ||||||
Alternative Investments | | 58 | 58 | ||||||
Corporate/Other | 8 | 61 | 69 | ||||||
Continuing Operations | $ | 237 | $ | 598 | $ | 835 | |||
Discontinued Operations | 17 | 59 | 76 | ||||||
Total | $ | 254 | $ | 657 | $ | 911 | |||
Adoption of the Accounting for Share-Based Payments
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), "Share-Based Payment" (SFAS 123(R)), which replaced the existing SFAS 123 and superseded Accounting Principles Board (APB) Opinion No. 25. SFAS 123(R) requires companies to measure and record compensation expense for stock options and other share-based payments based on the instruments' fair value, reduced by expected forfeitures.
In adopting this standard, the Company conformed to recent accounting guidance that restricted or deferred stock awards issued to retirement-eligible employees who meet certain age and service requirements must be either expensed on the grant date or accrued over a service period prior to the grant date. This charge consisted of $398 million after-tax ($648 million pretax) for the immediate expensing of awards granted to retirement-eligible employees in January 2006.
The following table summarizes the SFAS 123(R) impact, by segment, on the first quarter of 2006 and year-to-date 2006 pretax compensation expense for stock awards granted to retirement-eligible employees in January 2006 ("the 2006 initial adoption of SFAS 123(R)"):
In millions of dollars |
2006 First Quarter |
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Global Consumer | $ | 121 | |
Markets & Banking | 354 | ||
Global Wealth Management | 145 | ||
Alternative Investments | 7 | ||
Corporate/Other | 21 | ||
Total | $ | 648 | |
The Company recorded the quarterly accrual for the stock awards that were granted in January 2007 during each of the quarters in 2006. During the first, second and third quarters of 2007, the Company recorded the quarterly accrual for the estimated stock awards that will be granted in January 2008.
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Fourth Quarter of 2007 Subsequent Event
Sub-prime Related Exposure in Securities and Banking
On November 4, 2007, the Company announced significant declines since September 30, 2007 in the fair value of the approximately $55 billion in U.S. sub-prime related direct exposures in its Securities and Banking (S&B) business. Citi estimates that, at the present time, the reduction in revenues attributable to these declines ranges from approximately $8 billion to $11 billion (representing a decline of approximately $5 billion to $7 billion in net income on an after-tax basis).
These declines in the fair value of Citi's sub-prime related direct exposures followed a series of rating agency downgrades of sub-prime U.S. mortgage related assets and other market developments, which occurred after the end of the third quarter. The impact on Citi's financial results for the fourth quarter from changes in the fair value of these exposures will depend on future market developments and could differ materially from the range above.
Citi also announced that, while significant uncertainty continues to prevail in financial markets, it expects, taking into account maintaining its current dividend level, that its capital ratios will return within the range of targeted levels by the end of the second quarter of 2008. Accordingly, Citi has no plans to reduce its current dividend level.
The $55 billion in U.S. sub-prime direct exposure in S&B as of September 30, 2007 consisted of (a) approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and (b) approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities (ABS CDOs).
Lending and Structuring Exposures
Citi's approximately $11.7 billion of sub-prime related exposures in the lending and structuring business as of September 30, 2007 compares to approximately $13 billion of sub-prime related exposures in the lending and structuring business at the end of the second quarter and approximately $24 billion at the beginning of the year. (See Note 1 below.) The $11.7 billion of sub-prime related exposures includes approximately $2.7 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $4.2 billion of actively managed sub-prime loans purchased for resale or securitization at a discount to par primarily in the last six months, and approximately $4.8 billion of financing transactions with customers secured by sub-prime collateral. (See Note 2 below.) These amounts represent fair value determined based on observable transactions and other market data. Following the downgrades and market developments referred to above, the fair value of the CDO warehouse inventory and unsold tranches of ABS CDOs has declined significantly, while the declines in the fair value of the other sub-prime related exposures in the lending and structuring business have not been significant.
ABS CDO Super Senior Exposures
Citi's $43 billion in ABS CDO super senior exposures as of September 30, 2007 is backed primarily by sub-prime RMBS collateral. These exposures include approximately $25 billion in commercial paper principally secured by super senior tranches of high grade ABS CDOs and approximately $18 billion of super senior tranches of ABS CDOs, consisting of approximately $10 billion of high grade ABS CDOs, approximately $8 billion of mezzanine ABS CDOs and approximately $0.2 billion of ABS CDO-squared transactions. Although the principal collateral underlying these super senior tranches is U.S. sub-prime RMBS, as noted above, these exposures represent the most senior tranches of the capital structure of the ABS CDOs. These super senior tranches are not subject to valuation based on observable market transactions. Accordingly, fair value of these super senior exposures is based on estimates about, among other things, future housing prices to predict estimated cash flows, which are then discounted to a present value. The rating agency downgrades and market developments referred to above have led to changes in the appropriate discount rates applicable to these super senior tranches, which have resulted in significant declines in the estimates of the fair value of S&B super senior exposures.
Other Information
The fair value of S&B sub-prime related exposures depends on market conditions and assumptions that are subject to change over time. In addition, if sales of super senior tranches of ABS CDOs occur in the future, these sales might represent observable market transactions that could then be used to determine fair value of the S&B super senior exposures described above. As a result, the fair value of these exposures at the end of the fourth quarter will depend on future market developments.
Citi has provided specific targets for its two primary capital ratios: the Tier 1 capital ratio and the ratio of tangible common equity to risk-weighted managed assets (TCE/RWMA ratio). Those targets are 7.5% for Tier 1 and 6.5% for TCE/RWMA. At September 30, 2007, Citi had a Tier 1 ratio of 7.3% and a TCE/RWMA ratio of 5.9%.
Citi expects that market conditions will continue to evolve, and that the fair value of Citi's positions will frequently change.
9
SEGMENT, PRODUCT AND REGIONALNET INCOME AND REVENUE
The following tables show the net income (loss) and revenue for Citigroup's businesses on a segment and product view and on a regional view:
Citigroup Net IncomeSegment and Product View
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
% Change |
% Change |
|||||||||||||||||
2007 |
2006 |
2007 |
2006 |
||||||||||||||||
Global Consumer | |||||||||||||||||||
U.S. Cards | $ | 852 | $ | 1,085 | (21 | )% | $ | 2,475 | $ | 2,889 | (14 | )% | |||||||
U.S. Retail Distribution | 257 | 481 | (47 | ) | 1,098 | 1,564 | (30 | ) | |||||||||||
U.S. Consumer Lending | (227 | ) | 521 | NM | 573 | 1,428 | (60 | ) | |||||||||||
U.S. Commercial Business | 122 | 151 | (19 | ) | 394 | 415 | (5 | ) | |||||||||||
Total U.S. Consumer(1) | $ | 1,004 | $ | 2,238 | (55 | )% | $ | 4,540 | $ | 6,296 | (28 | )% | |||||||
International Cards | $ | 647 | $ | 287 | NM | $ | 1,386 | $ | 906 | 53 | % | ||||||||
International Consumer Finance | (320 | ) | 50 | NM | (301 | ) | 391 | NM | |||||||||||
International Retail Banking | 552 | 701 | (21 | ) | 1,763 | 2,092 | (16 | ) | |||||||||||
Total International Consumer | $ | 879 | $ | 1,038 | (15 | )% | $ | 2,848 | $ | 3,389 | (16 | )% | |||||||
Other | $ | (100 | ) | $ | (81 | ) | (23 | )% | $ | (276 | ) | $ | (240 | ) | (15 | )% | |||
Total Global Consumer | $ | 1,783 | $ | 3,195 | (44 | )% | $ | 7,112 | $ | 9,445 | (25 | )% | |||||||
Markets & Banking | |||||||||||||||||||
Securities and Banking | $ | (290 | ) | $ | 1,344 | NM | $ | 4,028 | $ | 4,374 | (8 | )% | |||||||
Transaction Services | 590 | 385 | 53 | % | 1,551 | 1,048 | 48 | ||||||||||||
Other | (20 | ) | (8 | ) | NM | 154 | (49 | ) | NM | ||||||||||
Total Markets & Banking | $ | 280 | $ | 1,721 | (84 | )% | $ | 5,733 | $ | 5,373 | 7 | % | |||||||
Global Wealth Management | |||||||||||||||||||
Smith Barney | $ | 379 | $ | 294 | 29 | % | $ | 1,024 | $ | 700 | 46 | % | |||||||
Private Bank | 110 | 105 | 5 | 427 | 333 | 28 | |||||||||||||
Total Global Wealth Management | $ | 489 | $ | 399 | 23 | % | $ | 1,451 | $ | 1,033 | 40 | % | |||||||
Alternative Investments | $ | (67 | ) | $ | 117 | NM | $ | 611 | $ | 727 | (16 | )% | |||||||
Corporate/Other | (273 | ) | (129 | ) | NM | (1,457 | ) | (458 | ) | NM | |||||||||
Income from Continuing Operations | $ | 2,212 | $ | 5,303 | (58 | )% | $ | 13,450 | $ | 16,120 | (17 | )% | |||||||
Income from Discontinued Operations(2) | | 202 | (100 | ) | | 289 | (100 | ) | |||||||||||
Total Net Income | $ | 2,212 | $ | 5,505 | (60 | )% | $ | 13,450 | $ | 16,409 | (18 | )% | |||||||
10
Citigroup Net IncomeRegional View
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
% of Total(1) |
% Change |
% Change |
||||||||||||||||||
2007 |
2006 |
2007 |
2006 |
||||||||||||||||||
U.S.(2) | |||||||||||||||||||||
Global Consumer | $ | 904 | $ | 2,157 | (58 | )% | $ | 4,264 | $ | 6,056 | (30 | )% | |||||||||
Markets & Banking | (692 | ) | 540 | NM | 1,291 | 1,802 | (28 | ) | |||||||||||||
Global Wealth Management | 333 | 342 | (3 | ) | 1,029 | 860 | 20 | ||||||||||||||
Total U.S. | 21 | % | $ | 545 | $ | 3,039 | (82 | )% | $ | 6,584 | $ | 8,718 | (24 | )% | |||||||
Mexico | |||||||||||||||||||||
Global Consumer | $ | 244 | $ | 395 | (38 | )% | $ | 976 | $ | 1,128 | (13 | )% | |||||||||
Markets & Banking | 125 | 95 | 32 | 334 | 261 | 28 | |||||||||||||||
Global Wealth Management | 10 | 9 | 11 | 37 | 27 | 37 | |||||||||||||||
Total Mexico | 15 | % | $ | 379 | $ | 499 | (24 | )% | $ | 1,347 | $ | 1,416 | (5 | )% | |||||||
EMEA | |||||||||||||||||||||
Global Consumer | $ | 58 | $ | 213 | (73 | )% | $ | 289 | $ | 613 | (53 | )% | |||||||||
Markets & Banking | (25 | ) | 489 | NM | 1,472 | 1,466 | | ||||||||||||||
Global Wealth Management | 4 | 7 | (43 | ) | 57 | 15 | NM | ||||||||||||||
Total EMEA | 1 | % | $ | 37 | $ | 709 | (95 | )% | $ | 1,818 | $ | 2,094 | (13 | )% | |||||||
Japan | |||||||||||||||||||||
Global Consumer | $ | (224 | ) | $ | 79 | NM | $ | (147 | ) | $ | 445 | NM | |||||||||
Markets & Banking | (96 | ) | 38 | NM | 63 | 195 | (68 | )% | |||||||||||||
Global Wealth Management | 60 | | | 90 | | | |||||||||||||||
Total Japan | (10 | )% | $ | (260 | ) | $ | 117 | NM | $ | 6 | $ | 640 | (99 | )% | |||||||
Asia | |||||||||||||||||||||
Global Consumer | $ | 334 | $ | 328 | 2 | % | $ | 1,143 | $ | 1,034 | 11 | % | |||||||||
Markets & Banking | 727 | 391 | 86 | 1,855 | 1,141 | 63 | |||||||||||||||
Global Wealth Management | 79 | 38 | NM | 218 | 123 | 77 | |||||||||||||||
Total Asia | 45 | % | $ | 1,140 | $ | 757 | 51 | % | $ | 3,216 | $ | 2,298 | 40 | % | |||||||
Latin America | |||||||||||||||||||||
Global Consumer | $ | 467 | $ | 23 | NM | $ | 587 | $ | 169 | NM | |||||||||||
Markets & Banking | 241 | 168 | 43 | % | 718 | 508 | 41 | % | |||||||||||||
Global Wealth Management | 3 | 3 | | 20 | 8 | NM | |||||||||||||||
Total Latin America | 28 | % | $ | 711 | $ | 194 | NM | $ | 1,325 | $ | 685 | 93 | % | ||||||||
Alternative Investments | $ | (67 | ) | $ | 117 | NM | $ | 611 | $ | 727 | (16 | )% | |||||||||
Corporate/Other | (273 | ) | (129 | ) | NM | (1,457 | ) | (458 | ) | NM | |||||||||||
Income from Continuing Operations | $ | 2,212 | $ | 5,303 | (58 | )% | $ | 13,450 | $ | 16,120 | (17 | )% | |||||||||
Income from Discontinued Operations(3) | | 202 | (100 | ) | | 289 | (100 | ) | |||||||||||||
Total Net Income | $ | 2,212 | $ | 5,505 | (60 | )% | $ | 13,450 | $ | 16,409 | (18 | )% | |||||||||
Total International | 79 | % | $ | 2,007 | $ | 2,276 | (12 | )% | $ | 7,712 | $ | 7,133 | 8 | % | |||||||
11
Citigroup RevenuesSegment and Product View
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
% Change |
% Change |
|||||||||||||||||
2007 |
2006 |
2007 |
2006 |
||||||||||||||||
Global Consumer | |||||||||||||||||||
U.S. Cards | $ | 3,386 | $ | 3,452 | (2 | )% | $ | 9,861 | $ | 9,937 | (1 | )% | |||||||
U.S. Retail Distribution | 2,539 | 2,382 | 7 | 7,510 | 7,177 | 5 | |||||||||||||
U.S. Consumer Lending | 1,548 | 1,481 | 5 | 4,705 | 4,048 | 16 | |||||||||||||
U.S. Commercial Business | 359 | 489 | (27 | ) | 1,248 | 1,475 | (15 | ) | |||||||||||
Total U.S. Consumer(1) | $ | 7,832 | $ | 7,804 | | $ | 23,324 | $ | 22,637 | 3 | % | ||||||||
International Cards | $ | 2,852 | $ | 1,519 | 88 | % | $ | 6,604 | $ | 4,309 | 53 | % | |||||||
International Consumer Finance | 782 | 998 | (22 | ) | 2,515 | 2,969 | (15 | ) | |||||||||||
International Retail Banking | 3,225 | 2,550 | 26 | 9,014 | 7,572 | 19 | |||||||||||||
Total International Consumer | $ | 6,859 | $ | 5,067 | 35 | % | $ | 18,133 | $ | 14,850 | 22 | % | |||||||
Other | $ | (8 | ) | $ | (37 | ) | 78 | % | $ | (6 | ) | $ | (70 | ) | 91 | % | |||
Total Global Consumer | $ | 14,683 | $ | 12,834 | 14 | % | $ | 41,451 | $ | 37,417 | 11 | % | |||||||
Markets & Banking | |||||||||||||||||||
Securities and Banking | $ | 2,270 | $ | 4,567 | (50 | )% | $ | 16,704 | $ | 15,732 | 6 | % | |||||||
Transaction Services | 2,063 | 1,500 | 38 | 5,548 | 4,377 | 27 | |||||||||||||
Other | | | | (1 | ) | (2 | ) | 50 | |||||||||||
Total Markets & Banking | $ | 4,333 | $ | 6,067 | (29 | )% | $ | 22,251 | $ | 20,107 | 11 | % | |||||||
Global Wealth Management | |||||||||||||||||||
Smith Barney | $ | 2,892 | $ | 1,994 | 45 | % | $ | 7,749 | $ | 5,971 | 30 | % | |||||||
Private Bank | 617 | 492 | 25 | 1,775 | 1,490 | 19 | |||||||||||||
Total Global Wealth Management | $ | 3,509 | $ | 2,486 | 41 | % | $ | 9,524 | $ | 7,461 | 28 | % | |||||||
Alternative Investments | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | |||||||
Corporate/Other | (257 | ) | (299 | ) | 14 | (463 | ) | (791 | ) | 41 | |||||||||
Total Net Revenues | $ | 22,393 | $ | 21,422 | 5 | % | $ | 74,482 | $ | 65,787 | 13 | % | |||||||
12
Citigroup RevenuesRegional View
|
|
Three Months Ended September 30, |
|
Nine Months Ended September |
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
% of Total(1) |
% Change |
% Change |
||||||||||||||||||
2007 |
2006 |
2007 |
2006 |
||||||||||||||||||
U.S.(2) | |||||||||||||||||||||
Global Consumer | $ | 7,824 | $ | 7,767 | 1 | % | $ | 23,318 | $ | 22,567 | 3 | % | |||||||||
Markets & Banking | 37 | 2,007 | (98 | ) | 6,792 | 7,733 | (12 | ) | |||||||||||||
Global Wealth Management | 2,454 | 2,153 | 14 | 7,278 | 6,456 | 13 | |||||||||||||||
Total U.S. | 46 | % | $ | 10,315 | $ | 11,927 | (12 | )% | $ | 37,388 | $ | 36,756 | 2 | % | |||||||
Mexico | |||||||||||||||||||||
Global Consumer | $ | 1,404 | $ | 1,238 | 13 | % | $ | 4,135 | $ | 3,579 | 16 | % | |||||||||
Markets & Banking | 247 | 197 | 25 | 657 | 582 | 13 | |||||||||||||||
Global Wealth Management | 38 | 32 | 19 | 115 | 96 | 20 | |||||||||||||||
Total Mexico | 7 | % | $ | 1,689 | 1,467 | 15 | % | $ | 4,907 | $ | 4,257 | 15 | % | ||||||||
EMEA | |||||||||||||||||||||
Global Consumer | $ | 1,738 | $ | 1,353 | 28 | % | $ | 4,802 | $ | 3,983 | 21 | % | |||||||||
Markets & Banking | 1,398 | 2,166 | (33 | ) | 7,218 | 6,505 | 11 | ||||||||||||||
Global Wealth Management | 139 | 83 | 67 | 384 | 241 | 59 | |||||||||||||||
Total EMEA | 15 | % | 3,275 | $ | 3,602 | (8 | )% | $ | 12,404 | $ | 10,729 | 16 | % | ||||||||
Japan | |||||||||||||||||||||
Global Consumer | $ | 649 | $ | 782 | (17 | )% | $ | 1,944 | $ | 2,364 | (18 | )% | |||||||||
Markets & Banking | 133 | 177 | (25 | ) | 798 | 742 | 8 | ||||||||||||||
Global Wealth Management | 547 | | | 833 | | | |||||||||||||||
Total Japan | 6 | % | $ | 1,329 | $ | 959 | 39 | % | $ | 3,575 | $ | 3,106 | 15 | % | |||||||
Asia | |||||||||||||||||||||
Global Consumer | $ | 1,520 | $ | 1,209 | 26 | % | $ | 4,343 | $ | 3,642 | 19 | % | |||||||||
Markets & Banking | 1,822 | 1,080 | 69 | 4,861 | 3,274 | 48 | |||||||||||||||
Global Wealth Management | 277 | 171 | 62 | 753 | 532 | 42 | |||||||||||||||
Total Asia | 16 | % | $ | 3,619 | $ | 2,460 | 47 | % | $ | 9,957 | $ | 7,448 | 34 | % | |||||||
Latin America | |||||||||||||||||||||
Global Consumer | $ | 1,548 | $ | 485 | NM | $ | 2,909 | $ | 1,282 | NM | |||||||||||
Markets & Banking | 696 | 440 | 58 | % | 1,925 | 1,271 | 51 | % | |||||||||||||
Global Wealth Management | 54 | 47 | 15 | 161 | 136 | 18 | |||||||||||||||
Total Latin America | 10 | % | $ | 2,298 | $ | 972 | NM | $ | 4,995 | $ | 2,689 | 86 | % | ||||||||
Alternative Investments | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | |||||||||
Corporate/Other | (257 | ) | (299 | ) | 14 | (463 | ) | (791 | ) | 41 | |||||||||||
Total Net Revenues | $ | 22,393 | $ | 21,422 | 5 | % | $ | 74,482 | $ | 65,787 | 13 | % | |||||||||
Total International | 54 | % | $ | 12,210 | $ | 9,460 | 29 | % | $ | 35,838 | $ | 28,229 | 27 | % | |||||||
13
Citigroup's Global Consumer Group provides a wide array of banking, lending, insurance and investment services through a network of 8,294 branches, approximately 19,500 ATMs, 706 Automated Loan Machines (ALMs), the Internet, telephone and mail, and the Primerica Financial Services salesforce. Global Consumer serves more than 200 million customer accounts, providing products and services to meet the financial needs of both individuals and small businesses.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
% Change |
% Change |
|||||||||||||||
2007 |
2006 |
2007 |
2006 |
||||||||||||||
Net interest revenue | $ | 8,285 | $ | 7,523 | 10 | % | $ | 24,118 | $ | 22,228 | 9 | % | |||||
Non-interest revenue | 6,398 | 5,311 | 20 | 17,333 | 15,189 | 14 | |||||||||||
Revenues, net of interest expense | $ | 14,683 | $ | 12,834 | 14 | % | $ | 41,451 | $ | 37,417 | 11 | % | |||||
Operating expenses | 7,506 | 6,316 | 19 | 21,329 | 19,052 | 12 | |||||||||||
Provisions for loan losses and for benefits and claims | 4,801 | 1,994 | NM | 10,256 | 5,311 | 93 | |||||||||||
Income before taxes and minority interest | $ | 2,376 | $ | 4,524 | (47 | )% | $ | 9,866 | $ | 13,054 | (24 | )% | |||||
Income taxes | 568 | 1,312 | (57 | ) | 2,689 | 3,559 | (24 | ) | |||||||||
Minority interest, net of taxes | 25 | 17 | 47 | 65 | 50 | 30 | |||||||||||
Net income | $ | 1,783 | $ | 3,195 | (44 | )% | $ | 7,112 | $ | 9,445 | (25 | )% | |||||
Average assets (in billions of dollars) | $ | 741 | $ | 620 | 20 | % | $ | 731 | $ | 586 | 25 | % | |||||
Return on assets | 0.95 | % | 2.04 | % | 1.30 | % | 2.15 | % | |||||||||
Average risk capital(1) | $ | 32,852 | $ | 27,938 | 18 | % | $ | 32,701 | $ | 27,725 | 18 | % | |||||
Return on risk capital(1) | 22 | % | 45 | % | 29 | % | 46 | % | |||||||||
Return on invested capital(1) | 11 | % | 21 | % | 15 | % | 21 | % | |||||||||
Key Indicators(in billions of dollars) | |||||||||||||||||
Average loans | $ | 502.6 | $ | 440.1 | 14 | % | |||||||||||
Average deposits | $ | 298.6 | $ | 253.9 | 18 | ||||||||||||
Total branches | 8,294 | 7,933 | 5 | % | |||||||||||||
14
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15
U.S. Consumer is composed of four businesses: Cards, Retail Distribution, Consumer Lending and Commercial Businesswhich operate in the U.S., Canada and Puerto Rico.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
% Change |
% Change |
|||||||||||||||
2007 |
2006 |
2007 |
2006 |
||||||||||||||
Net interest revenue | $ | 4,252 | $ | 4,141 | 3 | % | $ | 12,722 | $ | 12,468 | 2 | % | |||||
Non-interest revenue | 3,580 | 3,663 | (2 | ) | 10,602 | 10,169 | 4 | ||||||||||
Revenues, net of interest expense | $ | 7,832 | $ | 7,804 | | $ | 23,324 | $ | 22,637 | 3 | % | ||||||
Operating expenses | 3,710 | 3,426 | 8 | % | 10,983 | 10,546 | 4 | ||||||||||
Provisions for loan losses and for benefits and claims | 2,700 | 962 | NM | 5,674 | 2,690 | NM | |||||||||||
Income before taxes and minority interest | $ | 1,422 | $ | 3,416 | (58 | )% | $ | 6,667 | $ | 9,401 | (29 | )% | |||||
Income taxes | 413 | 1,162 | (64 | ) | 2,100 | 3,060 | (31 | ) | |||||||||
Minority interest, net of taxes | 5 | 16 | (69 | ) | 27 | 45 | (40 | ) | |||||||||
Net income | $ | 1,004 | $ | 2,238 | (55 | )% | $ | 4,540 | $ | 6,296 | (28 | )% | |||||
Average assets (in billions of dollars) | $ | 493 | $ | 422 | 17 | % | $ | 501 | $ | 398 | 26 | % | |||||
Return on assets | 0.81 | % | 2.10 | % | 1.21 | % | 2.12 | % | |||||||||
Average risk capital(1) | $ | 17,220 | $ | 15,312 | 12 | % | $ | 17,748 | $ | 15,059 | 18 | % | |||||
Return on risk capital(1) | 23 | % | 58 | % | 34 | % | 56 | % | |||||||||
Return on invested capital(1) | 11 | % | 26 | % | 17 | % | 25 | % | |||||||||
Key Indicators(in billions of dollars) | |||||||||||||||||
Average loans | $ | 353.4 | $ | 324.0 | 9 | % | |||||||||||
Average deposits | $ | 122.9 | $ | 105.5 | 16 | % | |||||||||||
Total branches | 3,482 | 3,353 | 4 | % | |||||||||||||
3Q07 vs. 3Q06
Net Interest Revenue was 3% higher than the prior year, as growth in average deposits and loans of 16% and 9%, respectively, was partially offset by a decrease in net interest margins (interest revenue less interest expense divided by average interest-earning assets). Net interest margin declined due to a shift in customer deposits to higher cost direct bank and time deposit balances, a mix toward lower-yielding mortgage assets, and the securitization of higher margin credit card receivables, partially offset by lower promotional credit card receivable balances.
Non-Interest Revenue decreased 2% primarily due to the absence of pilot-year gain on sale of Mortgage-Backed Securities (MBS) in Consumer Lending, and lower securitization gains and a decline in the residual interest in Cards.
Operating expenses increased primarily due to acquisitions and increased investment spending, including 49 new branch openings during the quarter (35 in CitiFinancial and 14 in Citibank) and lower marketing spending in the prior year.
Provisions for loan losses and for benefits and claims increased substantially primarily reflecting weakening credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment and the change in estimate of loan losses. The increase in provision for loan losses also reflected the absence of loan loss reserve releases recorded in the prior year. The net credit loss ratio increased 22 basis points to 1.37%.
The Net Income decline also reflected the absence of the 2006 third quarter $54 million tax benefit resulting from the resolution of the 2006 New York Tax Audits.
2007 YTD vs. 2006 YTD
Net Interest Revenue was 2% better than the prior year, as growth in average deposits and loans of 19% and 9%, respectively, and higher risk-based fees in Cards, was partially offset by a decrease in net interest margin. Net interest margin declined due to a shift in customer deposits to higher cost direct bank and time deposit balances and the securitization of higher margin credit card receivables.
Non-Interest Revenue increased 4% primarily due to higher loan and deposit volumes and 6% growth in Card purchase sales. The increase also reflected a pretax gain on the sale of MasterCard shares of $246 million, the impact of the acquisition of ABN AMRO Mortgage Group in the first quarter of 2007, and growth in net servicing revenues. Second quarter of 2006 results also included $132 million pretax gain from the sale of upstate New York branches.
Operating expenses increased primarily due to acquisitions, increased investment spending related to the 124 new branch openings during the nine months of 2007 (80 in CitiFinancial and 44 in Citibank) and costs associated with Citibank Direct. The increase in 2007 was also favorably affected by the absence of the charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006. Higher volume-related expenses primarily reflected 14% growth in loan originations in Consumer Lending businesses.
16
Provisions for loan losses and for benefits and claims increased primarily reflecting portfolio growth and weakening credit indicators, including increased delinquencies in first and second mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment and the change in estimate of loan losses. The increase in provision for loan losses also reflects the absence of loan loss reserve releases recorded in the prior year, as well as an increase in bankruptcy filings in 2007 versus unusually low filing levels experienced in the first three quarters of 2006. The net credit loss ratio increased 14 basis points to 1.31%.
The Net income decline in 2007 also reflects the absence of $229 million tax benefit resulting from the resolution of the 2006 Tax Audits.
17
International Consumer is composed of three businesses: Cards, Consumer Finance and Retail Banking. International Consumer operates in five regions: Mexico, Latin America, EMEA, Japan, and Asia.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
% Change |
% Change |
||||||||||||||||
2007 |
2006 |
2007 |
2006 |
|||||||||||||||
Net interest revenue | $ | 4,072 | $ | 3,445 | 18 | % | $ | 11,499 | $ | 9,921 | 16 | % | ||||||
Non-interest revenue | 2,787 | 1,622 | 72 | 6,634 | 4,929 | 35 | ||||||||||||
Revenues, net of interest expense | $ | 6,859 | $ | 5,067 | 35 | % | $ | 18,133 | $ | 14,850 | 22 | % | ||||||
Operating expenses | 3,627 | 2,769 | 31 | 9,867 | 8,091 | 22 | ||||||||||||
Provisions for loan losses and for benefits and claims | 2,101 | 1,032 | NM | 4,582 | 2,621 | 75 | ||||||||||||
Income before taxes and minority interest | $ | 1,131 | $ | 1,266 | (11 | )% | $ | 3,684 | $ | 4,138 | (11 | )% | ||||||
Income taxes | 232 | 227 | 2 | 798 | 744 | 7 | ||||||||||||
Minority interest, net of taxes | 20 | 1 | NM | 38 | 5 | NM | ||||||||||||
Net income | $ | 879 | $ | 1,038 | (15 | )% | $ | 2,848 | $ | 3,389 | (16 | )% | ||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||
Mexico | $ | 1,404 | $ | 1,238 | 13 | % | $ | 4,135 | $ | 3,579 | 16 | % | ||||||
EMEA | 1,738 | 1,353 | 28 | 4,802 | 3,983 | 21 | ||||||||||||
JapanCards and Retail Banking | 368 | 195 | 89 | 871 | 571 | 53 | ||||||||||||
Asia | 1,520 | 1,209 | 26 | 4,343 | 3,642 | 19 | ||||||||||||
Latin America | 1,548 | 485 | NM | 2,909 | 1,282 | NM | ||||||||||||
Subtotal | $ | 6,578 | $ | 4,480 | 47 | % | $ | 17,060 | $ | 13,057 | 31 | % | ||||||
Japan Consumer Finance | $ | 281 | $ | 587 | (52 | ) | $ | 1,073 | $ | 1,793 | (40 | ) | ||||||
Total revenues | $ | 6,859 | $ | 5,067 | 35 | % | $ | 18,133 | $ | 14,850 | 22 | % | ||||||
Net income by region | ||||||||||||||||||
Mexico | $ | 244 | $ | 395 | (38 | )% | $ | 976 | $ | 1,128 | (13 | )% | ||||||
EMEA | 58 | 213 | (73 | ) | 289 | 613 | (53 | ) | ||||||||||
JapanCards and Retail Banking | 64 | 42 | 52 | 165 | 139 | 19 | ||||||||||||
Asia | 334 | 328 | 2 | 1,143 | 1,034 | 11 | ||||||||||||
Latin America | 467 | 23 | NM | 587 | 169 | NM | ||||||||||||
Subtotal | $ | 1,167 | $ | 1,001 | 17 | % | $ | 3,160 | $ | 3,083 | 2 | % | ||||||
Japan Consumer Finance | $ | (288 | ) | $ | 37 | NM | $ | (312 | ) | $ | 306 | NM | ||||||
Total net income | $ | 879 | $ | 1,038 | (15 | )% | $ | 2,848 | $ | 3,389 | (16 | )% | ||||||
Average assets (in billions of dollars) | $ | 236 | $ | 187 | 26 | % | $ | 219 | $ | 179 | 22 | % | ||||||
Return on assets | 1.48 | % | 2.20 | % | 1.74 | % | 2.53 | % | ||||||||||
Average risk capital(1) | $ | 15,632 | $ | 12,626 | 24 | % | $ | 14,953 | $ | 12,665 | 18 | % | ||||||
Return on risk capital(1) | 22 | % | 33 | % | 25 | % | 36 | % | ||||||||||
Return on invested capital(1) | 11 | % | 16 | % | 13 | % | 17 | % | ||||||||||
Key indicators(in billions of dollars) | ||||||||||||||||||
Average loans | $ | 149.2 | $ | 116.1 | 29 | % | ||||||||||||
Average deposits | $ | 175.7 | $ | 148.4 | 18 | % | ||||||||||||
EOP AUMs | $ | 158.9 | $ | 123.1 | 29 | % | ||||||||||||
Total branches | 4,812 | 4,580 | 5 | % | ||||||||||||||
3Q07 vs. 3Q06
Net Interest Revenue increased 18%. Growth was driven by higher average deposits and loans of 18% and 29%, respectively, as well as the impact of the acquisitions of Grupo Financiero Uno (GFU), Egg and Grupo Cuscatlan.
Non-Interest Revenue increased 72%, primarily due to the gain on the sale of Redecard shares $(729 million pretax), a 37% increase in Card purchase sales and increased investment product sales. The positive impact of foreign currency translation also contributed to increases in revenues.
Operating expenses increased 31%, reflecting the acquisitions of GFU, Grupo Cuscatlan and Egg, and an increase in ownership in Nikko Cordial. Expense growth also reflects volume growth across the regions (excluding Japan Consumer Finance), the impact of foreign currency translation, write-downs of $152 million on customer intangibles and fixed assets and continued investment spending, including the opening of 47 branches.
18
Provisions for loan losses and for benefits and claims increased substantially, primarily due to the change in estimate of loan losses, portfolio growth, and the impact of recent acquisitions.
Net income was affected, in part, by the absence of the 2006 third quarter $24 million tax benefit resulting from the resolution of the 2006 New York Tax Audits.
Net income in Japan Consumer Finance declined significantly due to charges to increase reserves for customer refunds and credit losses, higher expenses due to write-downs on customer intangibles and fixed assets, and a decline in revenues primarily due to lower receivable balances. Financial results reflect recent adverse changes in the operating environment and the impact of consumer lending laws passed in the fourth quarter 2006.
Given the Company's recent experience with the level of Grey Zone related issues, the Company anticipates that the business will have net losses in 2007. The Company continues to analyze the prospects for this business thereafter in light of the difficult operating conditions.
Certain of the statements above are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See "Forward-Looking Statements" on page 48.
2007 YTD vs. 2006 YTD
Net Interest Revenue increased 16% overall, 28% after excluding the impact of Japan Consumer Finance. Growth was driven by higher average receivables, as well as the impact of the acquisitions of GFU, Egg, Grupo Cuscatlan and CrediCard, and increased ownership in Nikko Cordial.
Non-Interest Revenue increased 35%, primarily due to the gain on sale of Redecard, a 31% increase in purchase sales, a 19% increase in investment product sales and growth across all regions. The positive impact of foreign currency translation and a pretax MasterCard gain of $53 million also contributed to the increase in revenues.
Operating expenses increased, reflecting the integration of the CrediCard portfolio and the acquisitions of GFU, Grupo Cuscatlan and Egg, and increased ownership in Nikko Cordial along with volume growth across the products and regions, the impact of foreign currency translation and continued investment spending driven by 316 branches opened or acquired. The increase in 2007 expenses was favorably affected by the absence of the charge related to the initial adoption of FAS 123(R) in the first quarter of 2006.
Provisions for loan losses and for benefits and claims increased substantially, primarily due to portfolio growth, higher past due accounts in Mexico cards, the impact of recent acquisitions, and the change in estimate of loan losses.
Net Income was also affected by the absence of prior-year tax benefit of $214 million primarily from APB 23, as well as the absence of a prior-year $99 million tax benefit resulting from the resolution of the 2006 Tax Audits.
19
Markets & Banking provides a broad range of trading, investment banking, and commercial lending products and services to companies, governments, institutions and investors in approximately 100 countries. Markets & Banking includes Securities and Banking, Transaction Services and Other Markets & Banking.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
% Change |
% Change |
||||||||||||||||
2007 |
2006 |
2007 |
2006 |
|||||||||||||||
Net interest revenue | $ | 3,359 | $ | 1,913 | 76 | % | $ | 8,642 | $ | 6,294 | 37 | % | ||||||
Non-interest revenue | 974 | 4,154 | (77 | ) | 13,609 | 13,813 | (1 | ) | ||||||||||
Revenues, net of interest expense | $ | 4,333 | $ | 6,067 | (29 | )% | $ | 22,251 | $ | 20,107 | 11 | % | ||||||
Operating expenses | 4,011 | 3,622 | 11 | 14,070 | 12,537 | 12 | ||||||||||||
Provision for credit losses | 205 | 107 | 92 | 406 | 280 | 45 | ||||||||||||
Income before taxes And minority interest | $ | 117 | $ | 2,338 | (95 | )% | $ | 7,775 | $ | 7,290 | 7 | % | ||||||
Income taxes | (142 | ) | 598 | NM | 2,041 | 1,874 | 9 | |||||||||||
Minority interest, net of taxes | (21 | ) | 19 | NM | 1 | 43 | (98 | ) | ||||||||||
Net income | $ | 280 | $ | 1,721 | (84 | )% | $ | 5,733 | $ | 5,373 | 7 | % | ||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||
U.S. | $ | 37 | $ | 2,007 | (98 | )% | $ | 6,792 | $ | 7,733 | (12 | )% | ||||||
Mexico | 247 | 197 | 25 | 657 | 582 | 13 | ||||||||||||
EMEA | 1,398 | 2,166 | (35 | ) | 7,218 | 6,505 | 11 | |||||||||||
Japan | 133 | 177 | (25 | ) | 798 | 742 | 8 | |||||||||||
Asia | 1,822 | 1,080 | 69 | 4,861 | 3,274 | 48 | ||||||||||||
Latin America | 696 | 440 | 58 | 1,925 | 1,271 | 51 | % | |||||||||||
Total revenues | $ | 4,333 | $ | 6,067 | (29 | )% | $ | 22,251 | $ | 20,107 | 11 | % | ||||||
Net income by region: | ||||||||||||||||||
U.S. | $ | (692 | ) | $ | 540 | NM | $ | 1,291 | $ | 1,802 | (28 | )% | ||||||
Mexico | 125 | 95 | 32 | % | 334 | 261 | 28 | |||||||||||
EMEA | (25 | ) | 489 | NM | 1,472 | 1,466 | | |||||||||||
Japan | (96 | ) | 38 | NM | 63 | 195 | (68 | ) | ||||||||||
Asia | 727 | 391 | 86 | 1,855 | 1,141 | 63 | ||||||||||||
Latin America | 241 | 168 | 43 | 718 | 508 | 41 | ||||||||||||
Total net income | $ | 280 | $ | 1,721 | (84 | )% | $ | 5,733 | $ | 5,373 | 7 | % | ||||||
Average risk capital(1) | $ | 31,812 | $ | 21,967 | 45 | % | $ | 27,837 | $ | 21,438 | 30 | % | ||||||
Return on risk capital(1) | 3 | % | 31 | % | 27 | % | 34 | % | ||||||||||
Return on invested capital(1) | 2 | % | 23 | % | 21 | % | 25 | % | ||||||||||
3Q07 vs. 3Q06
Revenues, net of interest expense, decreased due to a significant decline in Securities and Banking, which was partially offset by strong growth in Transaction Services revenues. Securities and Banking revenues declined due to write-downs on highly-leveraged loans and commitments, CDO and CLO losses, and credit trading losses, related to dislocations in the mortgage-backed securities and credit markets. Decreased revenues in Fixed Income Markets, Debt Underwriting and Lending were partially offset by increased revenues in Equity Markets, Equity Underwriting and Advisory and other fees. Transaction Services revenues increased to a record level, driven by higher customer volumes, stable net interest margins and the acquisition of The Bisys Group, which closed in August 2007.
Operating expenses increased due to the acquisition of Grupo Cuscatlan, Ameriquest, Bisys, and increased ownership in Nikko Cordial, increased headcount, annual salary growth, increased legal expenses and higher business development costs offset by a decline in incentive compensation costs in Securities and Banking.
The provision for credit losses increased driven by higher net credit losses and an increase in loan loss reserves for specific counterparties.
2007 YTD vs. 2006 YTD
Revenues, net of interest expense, increased, driven by increased revenues in Equity Markets, driven by strong growth globally, including cash trading, derivatives products, equity finance, convertibles and prime brokerage, in Equity Underwriting, and in Advisory and other fees, and the $402 million benefit from the adoption of SFAS 157. Revenues decreased in Fixed Income Markets and Debt Underwriting due to the dislocations in the mortgage-backed securities and credit markets in the third quarter of 2007, which resulted in write-downs on highly-leveraged loans, CDO and CLO losses, and credit trading losses. Transaction Services revenues increased reflecting growth in liability balances and assets under custody, higher net interest margins in Cash Management and Securities and Funds Services.
20
Operating expenses growth was primarily driven by higher business volumes and compensation costs related to acquisitions and increased business volumes. 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 the first quarter of 2006 and a $300 million pretax release of litigation reserves in the second quarter of 2007.
The provision for credit losses increased due to net charges of $431 million to increase loan loss reserves due to portfolio growth, including higher commitments to leveraged transactions and an increase in average loan tenor, as well as an increase in reserve requirements for specific counterparties. These changes compare to a $267 million net increase to loan loss reserves recorded in the prior-year period.
21
Global Wealth Management is comprised of the Smith Barney Private Client businesses (including Citigroup Wealth Advisors, Nikko Cordial, Quilter and the legacy Citicorp Investment Services business), Citi Private Bank, Citi Investment Research and Citi Quilter.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
% Change |
% Change |
||||||||||||||||
2007 |
2006 |
2007 |
2006 |
|||||||||||||||
Net interest revenue | $ | 539 | $ | 480 | 12 | % | $ | 1,594 | $ | 1,384 | 15 | % | ||||||
Non-interest revenue | 2,970 | 2,006 | 48 | 7,930 | 6,077 | 30 | ||||||||||||
Revenues, net of interest expense | $ | 3,509 | $ | 2,486 | 41 | % | $ | 9,524 | $ | 7,461 | 28 | % | ||||||
Operating expenses | 2,614 | 1,894 | 38 | 7,171 | 5,910 | 21 | ||||||||||||
Provision for loan losses | 56 | 16 | NM | 85 | 29 | NM | ||||||||||||
Income before taxes and minority interest | $ | 839 | $ | 576 | 46 | % | $ | 2,268 | $ | 1,522 | 49 | % | ||||||
Income taxes | 312 | 177 | 76 | 762 | 489 | 56 | ||||||||||||
Minority interest, net of taxes | 38 | | | 55 | | | ||||||||||||
Net income | $ | 489 | $ | 399 | 23 | % | $ | 1,451 | $ | 1,033 | 40 | % | ||||||
Revenues, net of interest expense, by region: | ||||||||||||||||||
U.S. | $ | 2,454 | $ | 2,153 | 14 | % | $ | 7,278 | $ | 6,456 | 13 | % | ||||||
Mexico | 38 | 32 | 19 | 115 | 96 | 20 | ||||||||||||
EMEA | 139 | 83 | 67 | 384 | 241 | 59 | ||||||||||||
Japan | 547 | | | 833 | | | ||||||||||||
Asia | 277 | 171 | 62 | 753 | 532 | 42 | ||||||||||||
Latin America | 54 | 47 | 15 | 161 | 136 | 18 | ||||||||||||
Total revenues | $ | 3,509 | $ | 2,486 | 41 | % | $ | 9,524 | $ | 7,461 | 28 | % | ||||||
Net income by region: | ||||||||||||||||||
U.S. | $ | 333 | $ | 342 | (3 | )% | $ | 1,029 | $ | 860 | 20 | % | ||||||
Mexico | 10 | 9 | 11 | 37 | 27 | 37 | ||||||||||||
EMEA | 4 | 7 | (43 | ) | 57 | 15 | NM | |||||||||||
Japan | 60 | | | 90 | | | ||||||||||||
Asia | 79 | 38 | NM | 218 | 123 | 77 | ||||||||||||
Latin America | 3 | 3 | | 20 | 8 | NM | ||||||||||||
Total net income | $ | 489 | $ | 399 | 23 | % | $ | 1,451 | $ | 1,033 | 40 | % | ||||||
Average risk capital(1) | $ | 3,180 | $ | 2,364 | 35 | % | $ | 2,979 | $ | 2,423 | 23 | % | ||||||
Return on risk capital(1) | 61 | % | 67 | % | 65 | % | 57 | % | ||||||||||
Return on invested capital(1) | 22 | % | 41 | % | 29 | % | 35 | % | ||||||||||
Key indicators:(in billions of dollars) | ||||||||||||||||||
Total assets under fee-based management | $ | 515 | $ | 374 | 38 | % | ||||||||||||
Total client assets(2) | $ | 1,820 | $ | 1,362 | 34 | % | ||||||||||||
Net client asset flows | $ | 8 | $ | 3 | NM | |||||||||||||
Financial advisors (FA) / bankers(2) | 15,458 | 13,601 | 14 | % | ||||||||||||||
Annualized revenue per FA / banker (in thousands of dollars) | $ | 897 | $ | 729 | 23 | % | ||||||||||||
Average deposits and other customer liability balances | $ | 119 | $ | 106 | 12 | % | ||||||||||||
Average loans | $ | 57 | $ | 43 | 33 | % | ||||||||||||
3Q07 vs. 3Q06
Revenues, net of interest expense, increased 41%, primarily reflecting increased ownership of Nikko Cordial; an increase in fee-based and recurring net interest revenue, reflecting the continued advisory-based strategy; an increase in international revenues, driven by strong Capital Markets activity in Asia; and strong domestic branch transactional revenue and syndicate sales. Total assets under fee-based management were $515 billion at September 30, 2007, up 38% from the prior-year period.
Total client assets, including assets under fee-based management, increased 34%, reflecting organic growth and increased ownership of Nikko Cordial and Quilter client assets, as well as the transfer of CIS assets from U.S. Consumer in the second quarter of 2007. Global Wealth Management had 15,458 financial advisors/bankers as of September 30, 2007, compared with 13,601 as of September
22
30, 2006, driven by the Nikko Cordial and Quilter acquisitions, the CIS transfer, and hiring in the Private Bank. Annualized revenue per FA/banker of $897,000 increased 23% from the prior-year quarter.
Operating expenses increased 38% in the third quarter of 2007, versus the prior-year quarter. The expense increase in 2007 was mainly driven by the Nikko Cordial and Quilter acquisitions, as well as higher variable compensation associated with increased business volumes.
The provision for loan losses increased $40 million, driven by portfolio growth and a reserve increase for specific non-performing loan in the Private Bank.
2007 YTD vs. 2006 YTD
Revenues, net of interest expense, increased 28%, primarily due to a strong increase in international revenues, driven by the Nikko Cordial and Quilter acquisitions; strong Capital Markets activity in Asia, Latin America and EMEA; and higher domestic syndicate sales. Net flows were $14 billion compared to $2 billion in the prior-year period.
Operating expenses increased 21%, driven by the Nikko Cordial and Quilter acquisitions and higher variable compensation associated with increased business volumes, as well as the absence of a $145 million charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006.
The provision for loan losses increased $56 million, primarily driven by portfolio growth and a reserve increase for specific non-performing loan in the Private Bank.
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 2006 Tax Audits.
23
Alternative Investments (AI) manages capital on behalf of Citigroup, as well as for third-party institutional and high-net-worth investors. AI is an integrated alternative investment platform that manages a wide range of products across five asset classes, including private equity, hedge funds, real estate, structured products and managed futures.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
% Change |
% Change |
||||||||||||||||
2007 |
2006 |
2007 |
2006 |
|||||||||||||||
Net interest revenue | $ | 25 | $ | 5 | NM | $ | 2 | $ | 1 | 100 | % | |||||||
Non-interest revenue | 100 | 329 | (70 | )% | 1,717 | 1,592 | 8 | |||||||||||
Total revenues, net of interest expense | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | ||||||
Net realized and net change in unrealized gains | $ | (121 | ) | $ | 200 | NM | $ | 1,233 | $ | 1,238 | | |||||||
Fees, dividends and interest | 144 | 58 | NM | 221 | 156 | 42 | % | |||||||||||
Other | (68 | ) | (21 | ) | NM | (153 | ) | (86 | ) | (78 | )% | |||||||
Total proprietary investment activities revenues | (45 | ) | 237 | NM | 1,301 | 1,308 | (1 | )% | ||||||||||
Client revenues(1) | 170 | 97 | 75 | % | 418 | 285 | 47 | |||||||||||
Total revenues, net of interest expense | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | ||||||
Operating expenses | 238 | 137 | 74 | 633 | 517 | 22 | ||||||||||||
Provision for loan losses | (1 | ) | | | | (13 | ) | 100 | ||||||||||
Income before taxes and minority interest | $ | (112 | ) | $ | 197 | NM | $ | 1,086 | $ | 1,089 | | |||||||
Income taxes | $ | (44 | ) | $ | 70 | NM | $ | 391 | $ | 319 | 23 | % | ||||||
Minority interest, net of taxes | (1 | ) | 10 | NM | 84 | 43 | 95 | |||||||||||
Net income | $ | (67 | ) | $ | 117 | NM | $ | 611 | $ | 727 | (16 | )% | ||||||
Average risk capital(2) (in billions of dollars) |
$ | 4.3 | $ | 4.0 | 8 | % | $ | 4.1 | $ | 4.2 | (2 | )% | ||||||
Return on risk capital(2) | (6 | )% | 12 | % | 20 | % | 23 | % | ||||||||||
Return on invested capital(2) | (8 | )% | 8 | % | 17 | % | 20 | % | ||||||||||
Revenue by product: | ||||||||||||||||||
Client(1) | $ | 170 | $ | 97 | 75 | % | $ | 418 | $ | 285 | 47 | % | ||||||
Private Equity | $ | 233 | $ | 56 | NM | $ | 1,305 | $ | 785 | 66 | % | |||||||
Hedge Funds | (208 | ) | 1 | NM | (42 | ) | 65 | NM | ||||||||||
Other | (70 | ) | 180 | NM | 38 | 458 | (92 | )% | ||||||||||
Proprietary | $ | (45 | ) | $ | 237 | NM | $ | 1,301 | $ | 1,308 | (1 | )% | ||||||
Total | $ | 125 | $ | 334 | (63 | )% | $ | 1,719 | $ | 1,593 | 8 | % | ||||||
Key indicators:(in billions of dollars) | ||||||||||||||||||
Capital under management: | ||||||||||||||||||
Client | $ | 50.4 | $ | 33.5 | 50 | % | ||||||||||||
Proprietary | 11.6 | 10.2 | 14 | % | ||||||||||||||
Total | $ | 62.0 | $ | 43.7 | 42 | % | ||||||||||||
NM Not meaningful
3Q07 vs. 3Q06
Revenues, net of interest expense, decreased $209 million or 63%.
Total proprietary revenues, net of interest expense, for the third quarter of 2007 of ($45) million were composed of revenues from private equity of $233 million, other investment activity of ($70) million and hedge funds of ($208) million. Private equity revenue increased $177 million from the 2006 third quarter, primarily driven by higher realized and unrealized gains. Hedge fund revenue declined by $209 million, largely due to a lower investment performance. Other investment activities revenue decreased $250 million from the 2006 third quarter, largely due to a lower market value on Legg Mason shares and the absence of prior-year gains from the sale of Citigroup's investment in MetLife shares. Client revenues increased $73 million, reflecting the acquisition of Old Lane and a 46% growth in average client capital under management excluding Old Lane.
Operating expenses in the third quarter of 2007 of $238 million increased $101 million from the third quarter of 2006, primarily due to the inclusion of Old Lane, increased performance-driven compensation and higher employee-related expenses.
24
Minority interest, net of taxes, in the third quarter of 2007 of ($1) million decreased $11 million from the third quarter of 2006, primarily due to lower private equity gains related to underlying investments held by consolidated majority-owned legal entities. The impact of minority interest is reflected in fees, dividends, and interest, and net realized and net change in unrealized gains (losses) consistent with proceeds received by minority interests.
Proprietary capital under management of $11.6 billion increased $1.4 billion from the third quarter 2006 due to new investments in private equity and hedge funds.
Client capital under management of $50.4 billion in the 2007 third quarter increased $16.9 billion from the 2006 third quarter, due to the inclusion of Old Lane and inflows from institutional and high-net-worth clients.
On July 2, 2007, the Company completed the acquisition of Old Lane Partners, L.P. and Old Lane Partners, GP, LLC (Old Lane). Old Lane is the manager of a global, multi-strategy hedge fund and a private equity fund with total assets under management and private equity commitments of approximately $4.5 billion. Old Lane will operate as part of Alternative Investments.
2007 YTD vs. 2006 YTD
Revenues, net of interest expense, of $1.719 billion in the first nine months of 2007 increased $126 million, or 8%.
Total proprietary revenues, net of interest expense, for the first nine months of 2007 of $1.301 billion, were composed of revenues from private equity of $1.305 billion, other investment activity of $38 million and hedge funds of ($42) million. Private equity revenue increased $520 million from the first nine months of 2006, primarily driven by higher realized and unrealized gains. Hedge fund revenue decreased $107 million, largely due to lower investment performance. Other investment activities revenue decreased $420 million from the first nine months of 2006, largely due to the absence of gains from the liquidation during 2006 of Citigroup's investment in St. Paul shares and MetLife shares and a lower market value on Legg Mason shares. Client revenues increased $133 million, reflecting increased management fees from a 49% growth in average client capital under management excluding Old Lane.
Operating expenses in the first nine months of 2007 of $633 million increased $116 million from the first nine months of 2006, primarily due to increased performance-driven compensation, higher employee-related expenses and the inclusion of Old Lane.
Minority interest, net of taxes, in the first nine months of 2007 of $84 million increased $41 million from the first nine months of 2006, primarily due to higher private equity gains related to underlying investments held by consolidated majority-owned legal entities. The impact of minority interest is reflected in fees, dividends, and interest, and net realized gains (losses) consistent with proceeds received by minority interests.
Net Income in the first nine months of 2006 reflects higher tax benefits for $58 million resulting from the resolution of the 2006 Federal Tax Audit.
25
CORPORATE/OTHER
Corporate/Other includes treasury results, the 2007 restructuring charges, unallocated corporate expenses, offsets to certain line-item reclassifications reported in the business segments (inter-segment eliminations), the results of discontinued operations and unallocated taxes.
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
|||||||||||||
2007 |
2006 |
2007 |
2006 |
||||||||||
Revenues, net of interest expense | $ | (257 | ) | $ | (299 | ) | $ | (463 | ) | $ | (791 | ) | |
Restructuring expense | 35 | | 1,475 | | |||||||||
Other operating expense | 157 | (33 | ) | 309 | 47 | ||||||||
Provision for loan losses | | | (1 | ) | | ||||||||
Loss from continuing operations before taxes and minority interest | $ | (449 | ) | $ | (266 | ) | $ | (2,246 | ) | $ | (838 | ) | |
Income tax benefits | (156 | ) | (137 | ) | (774 | ) | (381 | ) | |||||
Minority interest, net of taxes | (21 | ) | | (15 | ) | 1 | |||||||
Loss from continuing operations | $ | (273 | ) | $ | (129 | ) | $ | (1,457 | ) | $ | (458 | ) | |
Income from discontinued operations | | 202 | | 289 | |||||||||
Net income/(loss) | $ | (273 | ) | $ | 73 | $ | (1,457 | ) | $ | (169 | ) | ||
3Q07 vs. 3Q06
Revenues, net of interest expense, increased, primarily due to improved treasury results, partially offset by Nikko Cordial losses and higher intersegment eliminations.
Restructuring expense. See Note 7 on page 62 for details on the 2007 restructuring charge.
Other operating expenses increased, primarily due to increased staffing, technology and other unallocated expenses, partially offset by higher intersegment eliminations.
Income tax benefits increased due to the higher pretax loss in the current year.
2007 YTD vs. 2006 YTD
Revenues, net of interest expense, increased, primarily due to improved treasury results and a gain on the sale of certain corporate-owned assets, partially offset by higher intersegment eliminations.
Restructuring expense. See Note 7 on page 62 for details on the 2007 restructuring charge.
Other operating expenses increased, primarily due to increased staffing, technology and other unallocated expenses, partially offset by higher intersegment eliminations.
Income tax benefits increased due to the higher pretax loss in the current year, offset by a prior-year tax reserve release of $69 million relating to the resolution of the 2006 Tax Audits.
Discontinued operations represent the operations in the Company's Sale of the Asset Management Business to Legg Mason Inc., and the Sale of the Life Insurance and Annuities Business. For 2006, income from discontinued operations included a gain from the Sale of the Asset Management Business in Poland, as well as a tax reserve release of $76 million relating to the resolution of the 2006 Tax Audits. See Note 2 on page 57.
MANAGING GLOBAL RISK
Citigroup's risk management framework balances strong corporate oversight with well-defined independent risk management functions within each business. The Citigroup risk management framework is described in Citigroup's 2006 Annual Report on Form 10-K.
RISK CAPITAL
At September 30, 2007, June 30, 2007, and September 30, 2006, risk capital for Citigroup was composed of the following risk types:
In billions of dollars |
Sept. 30, 2007 |
June 30, 2007 |
Sept. 30, 2006 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Credit risk | $ | 45.5 | $ | 42.8 | $ | 36.1 | ||||
Market risk | 30.6 | 28.9 | 18.8 | |||||||
Operational risk | 7.7 | 7.9 | 8.3 | |||||||
Intersector diversification(1) | (5.4 | ) | (5.4 | ) | (6.1 | ) | ||||
Total Citigroup | $ | 78.4 | $ | 74.2 | $ | 57.1 | ||||
Return on risk capital (third quarter) | 12 | % | 37 | % | ||||||
Return on invested capital (third quarter) | 7 | % | 19 | % | ||||||
Return on risk capital (nine months) | 25 | % | 39 | % | ||||||
Return on invested capital (nine months) | 15 | % | 19 | % | ||||||
Average risk capital, return on risk capital and return on invested capital are provided for each segment and are disclosed on pages 1424.
26
DETAILS OF CREDIT LOSS EXPERIENCE
In millions of dollars |
3rd Qtr. 2007 |
2nd Qtr. 2007 |
1st Qtr. 2007 |
4th Qtr. 2006 |
3rd Qtr. 2006 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for loan losses at beginning of period | $ | 10,381 | $ | 9,510 | $ | 8,940 | $ | 8,979 | $ | 9,144 | |||||||
Provision for loan losses | |||||||||||||||||
Consumer | $ | 4,623 | $ | 2,583 | $ | 2,443 | $ | 2,028 | $ | 1,736 | |||||||
Corporate | 153 | (63 | ) | 263 | 85 | 57 | |||||||||||
$ | 4,776 | $ | 2,520 | $ | 2,706 | $ | 2,113 | $ | 1,793 | ||||||||
Gross credit losses | |||||||||||||||||
Consumer | |||||||||||||||||
In U.S. offices | $ | 1,382 | $ | 1,264 | $ | 1,291 | $ | 1,223 | $ | 1,091 | |||||||
In offices outside the U.S. | 1,617 | 1,346 | 1,341 | 1,309 | 1,227 | ||||||||||||
Corporate | |||||||||||||||||
In U.S. offices | 18 | 22 | 6 | 13 | 6 | ||||||||||||
In offices outside the U.S. | 74 | 30 | 29 | 97 | 38 | ||||||||||||
$ | 3,091 | $ | 2,662 | $ | 2,667 | $ | 2,642 | $ | 2,362 | ||||||||
Credit recoveries | |||||||||||||||||
Consumer | |||||||||||||||||
In U.S. offices | $ | 166 | $ | 175 | $ | 214 | $ | 165 | $ | 153 | |||||||
In offices outside the U.S. | 279 | 343 | 286 | 307 | 350 | ||||||||||||
Corporate | |||||||||||||||||
In U.S. offices | 1 | 9 | 18 | 2 | 5 | ||||||||||||
In offices outside the U.S. | 59 | 80 | 40 | 26 | 48 | ||||||||||||
$ | 505 | $ | 607 | $ | 558 | $ | 500 | $ | 556 | ||||||||
Net credit losses | |||||||||||||||||
In U.S. offices | $ | 1,233 | $ | 1,102 | $ | 1,065 | $ | 1,069 | $ | 939 | |||||||
In offices outside the U.S. | 1,353 | 953 | 1,044 | 1,073 | 867 | ||||||||||||
Total | $ | 2,586 | $ | 2,055 | $ | 2,109 | $ | 2,142 | $ | 1,806 | |||||||
Othernet(1)(2)(3)(4)(5) | $ | 157 | $ | 406 | $ | (27 | ) | $ | (10 | ) | $ | (152 | ) | ||||
Allowance for loan losses at end of period | $ | 12,728 | $ | 10,381 | $ | 9,510 | $ | 8,940 | $ | 8,979 | |||||||
Allowance for unfunded lending commitments(6) | $ | 1,150 | $ | 1,100 | $ | 1,100 | $ | 1,100 | $ | 1,100 | |||||||
Total allowance for loan losses and unfunded lending commitments | $ | 13,878 | $ | 11,481 | $ | 10,610 | $ | 10,040 | $ | 10,079 | |||||||
Net consumer credit losses | $ | 2,554 | $ | 2,092 | $ | 2,132 | $ | 2,060 | $ | 1,815 | |||||||
As a percentage of average consumer loans | 1.81 | % | 1.56 | % | 1.69 | % | 1.64 | % | 1.49 | % | |||||||
Net corporate credit losses/(recoveries) | $ | 32 | $ | (37 | ) | $ | (23 | ) | $ | 82 | $ | (9 | ) | ||||
As a percentage of average corporate loans | 0.02 | % | NM | NM | 0.05 | % | NM | ||||||||||
NM Not meaningful
27
Consumer Loan Balances, Net of Unearned Income
|
End of Period |
Average |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In billions of dollars |
Sept. 30, 2007 |
June 30, 2007 |
Sept. 30, 2006 |
3rd Qtr. 2007 |
2nd Qtr. 2007 |
3rd Qtr. 2006 |
||||||||||||
On-balance sheet(1) | $ | 568.9 | $ | 548.6 | $ | 486.2 | $ | 558.7 | $ | 539.3 | $ | 483.1 | ||||||
Securitized receivables (all in U.S. Cards) | 104.0 | 101.1 | 99.2 | 101.0 | 97.5 | 97.3 | ||||||||||||
Credit card receivables held-for-sale(2) | 3.0 | 2.9 | 0.6 | 3.0 | 3.3 | 0.5 | ||||||||||||
Total managed(3) | $ | 675.9 | $ | 652.6 | $ | 586.0 | $ | 662.7 | $ | 640.1 | $ | 580.9 | ||||||
Citigroup's total allowance for loans, leases and unfunded lending commitments of $13.878 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup's allowance for credit losses attributed to the Consumer portfolio was $9.200 billion at September 30, 2007, $7.206 billion at June 30, 2007 and $6.087 billion at September 30, 2006. The increase in the allowance for credit losses from September 30, 2006 of $3.113 billion included net builds of $2.839 billion.
The build primarily reflected a weakening of leading credit indicators, including increased delinquencies on mortgages and unsecured personal loans, as well as trends in the U.S. macro-economic environment, portfolio growth, recent acquisitions, and the change in estimate of loan losses.
On-balance sheet consumer loans of $568.9 billion increased $82.7 billion, or 17%, from September 30, 2006, primarily driven by U.S. Consumer Lending, U.S. Retail Distribution, International Cards, International Retail Banking and Global Wealth Management. Net credit losses, delinquencies and the related ratios are affected by the credit performance of the portfolios, including bankruptcies, unemployment, global economic conditions, portfolio growth and seasonal factors, as well as macro-economic and regulatory policies.
The Company expects that credit costs in the fourth quarter of 2007 will increase compared to the fourth quarter of 2006 with the expectation that the U.S. consumer credit environment will continue to deteriorate causing higher credit costs.
28
EXPOSURE TO U.S. RESIDENTIAL REAL ESTATE
Sub-prime Related Exposure in Securities and Banking
The Company has approximately $55 billion in U.S. sub-prime related direct exposures in its Securities and Banking (S&B) business.
The $55 billion in U.S. sub-prime direct exposure in S&B as of September 30, 2007 consisted of (a) approximately $11.7 billion of sub-prime related exposures in its lending and structuring business, and (b) approximately $43 billion of exposures in the most senior tranches (super senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities (ABS CDOs).
Lending and Structuring Exposures
The $11.7 billion of sub-prime related exposures includes approximately $2.7 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $4.2 billion of actively managed sub-prime loans purchased for resale or securitization at a discount to par primarily in the last six months, and approximately $4.8 billion of financing transactions with customers secured by sub-prime collateral. (See Note 1 below.) These amounts represent fair value determined based on observable transactions and other market data. Following the downgrades and market developments discussed on page 9, the fair value of the CDO warehouse inventory and unsold tranches of ABS CDOs has declined significantly, while the declines in the fair value of the other sub-prime related exposures in the lending and structuring business have not been significant.
ABS CDO Super Senior Exposures
Citi's $43 billion in ABS CDO super senior exposures as of September 30, 2007 is backed primarily by sub-prime RMBS collateral. These exposures include approximately $25 billion in commercial paper principally secured by super senior tranches of high grade ABS CDOs and approximately $18 billion of super senior tranches of ABS CDOs, consisting of approximately $10 billion of high grade ABS CDOs, approximately $8 billion of mezzanine ABS CDOs and approximately $0.2 billion of ABS CDO-squared transactions.
Although the principal collateral underlying these super senior tranches is U.S. sub-prime RMBS, as noted above, these exposures represent the most senior tranches of the capital structure of the ABS CDOs. These super senior tranches are not subject to valuation based on observable market transactions. Accordingly, fair value of these super senior exposures is based on estimates about, among other things, future housing prices to predict estimated cash flows, which are then discounted to a present value. The rating agency downgrades and market developments referred to above have led to changes in the appropriate discount rates applicable to these super senior tranches, which have resulted in significant declines in the estimates of the fair value of S&B super senior exposures.
U.S. Consumer Mortgage Lending
The Company's U.S. Consumer Mortgage portfolio consists of both first and second mortgages. As of September 30, 2007, the first mortgage portfolio totaled approximately $155 billion, of which 84% ($131 billion) had a FICO (Fair Isaac Corporation) credit score of at least 620 at origination; the other 16% ($24 billion) were originated in the FICO<620 category, which is one working definition for "sub-prime" mortgages in the industry. The Company observed higher delinquencies in the under 620 FICO category (at origination), as well as across some higher FICO bands during the third quarter of 2007.
In the Company's $62 billion second mortgage portfolio, the vast majority of loans are in the higher FICO categories. However, the Company has approximately 34% ($21 billion) of its portfolio in the category where LTV>=90% at origination, where higher levels of delinquencies were observed during the third quarter of 2007.
In light of increased delinquencies in both its first and second mortgage portfolios during the first nine months of 2007, the Company has increased reserves for loans in these portfolios during this period of 2007. There were minimal changes in the (origination FICO/LTV) composition of the U.S. Consumer Mortgage portfolio from June 30, 2007 to September 30, 2007. The disclosures above exclude approximately $21 billion of consumer mortgage loans in Global Wealth Management (GWM). The GWM loans are largely in the U.S. and do not have any sub-prime classifications.
CORPORATE CREDIT RISK
Credit Exposure Arising from Derivatives and Foreign Exchange
The following tables summarize by derivative type the notionals, receivables and payables held for trading and asset/liability management hedge purposes as of September 30, 2007 and December 31, 2006. A portion of the asset/liability management hedges are accounted for under SFAS 133, as described in Note 15 on page 75.
29
Notionals(1)
|
Trading Derivatives(2) |
Asset/Liability Management Hedges(3) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
September 30, 2007 |
December 31, 2006 |
September 30, 2007 |
December 31, 2006 |
|||||||||
Interest rate contracts | |||||||||||||
Swaps | $ | 17,668,498 | $ | 14,196,404 | $ | 702,664 | $ | 561,376 | |||||
Futures and forwards | 2,104,898 | 1,824,205 | 113,710 | 75,374 | |||||||||
Written options | 4,094,788 | 3,054,990 | 16,831 | 12,764 | |||||||||
Purchased options | 4,254,835 | 2,953,122 | 132,006 | 35,420 | |||||||||
Total interest rate contract notionals | $ | 28,123,019 | $ | 22,028,721 | $ | 965,211 | $ | 684,934 | |||||
Foreign exchange contracts | |||||||||||||
Swaps | $ | 1,009,341 | $ | 722,063 | $ | 74,495 | $ | 53,216 | |||||
Futures and forwards | 2,495,058 | 2,068,310 | 42,869 | 42,675 | |||||||||
Written options | 635,168 | 416,951 | 327 | 1,228 | |||||||||
Purchased options | 611,682 | 404,859 | 621 | 1,246 | |||||||||
Total foreign exchange contract notionals | $ | 4,751,249 | $ | 3,612,183 | $ | 118,312 | $ | 98,365 | |||||
Equity contracts | |||||||||||||
Swaps | $ | 159,733 | $ | 104,320 | $ | | $ | | |||||
Futures and forwards | 37,481 | 36,362 | | | |||||||||
Written options | 641,920 | 387,781 | | | |||||||||
Purchased options | 588,452 | 355,891 | | | |||||||||
Total equity contract notionals | $ | 1,427,586 | $ | 884,354 | $ | | $ | | |||||
Commodity and other contracts | |||||||||||||
Swaps | $ | 40,624 | $ | 35,611 | $ | | $ | | |||||
Futures and forwards | 56,114 | 17,433 | | | |||||||||
Written options | 21,895 | 11,991 | | | |||||||||
Purchased options | 28,761 | 16,904 | | | |||||||||
Total commodity and other contract notionals | $ | 147,394 | $ | 81,939 | $ | | $ | | |||||
Credit derivatives | $ | 3,534,927 | $ | 1,944,980 | $ | | $ | | |||||
Total derivative notionals | $ | 37,984,175 | $ | 28,552,177 | $ | 1,083,523 | $ | 783,299 | |||||
Mark-to-Market (MTM) Receivables/Payables
|
Derivatives ReceivablesMTM |
Derivatives PayablesMTM |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
September 30, 2007 |
December 31, 2006(4) |
September 30, 2007 |
December 31, 2006(4) |
|||||||||||
Trading Derivatives(2) | |||||||||||||||
Interest rate contracts | $ | 211,400 | $ | 168,872 | $ | 207,856 | $ | 168,793 | |||||||
Foreign exchange contracts | 79,519 | 52,297 | 72,033 | 47,469 | |||||||||||
Equity contracts | 35,958 | 26,883 | 76,138 | 52,980 | |||||||||||
Commodity and other contracts | 7,078 | 5,387 | 7,019 | 5,776 | |||||||||||
Credit derivative | 52,389 | 14,069 | 49,334 | 15,081 | |||||||||||
Total | $ | 386,344 | $ | 267,508 | $ | 412,380 | $ | 290,099 | |||||||
Less: Netting agreements, cash collateral and market value adjustments | (301,186 | ) | (217,967 | ) | (298,465 | ) | (215,295 | ) | |||||||
Net Receivables/Payables | $ | 85,158 | $ | 49,541 | $ | 113,915 | $ | 74,804 | |||||||
Asset/Liability Management Hedges(3) | |||||||||||||||
Interest rate contracts | $ | 1,614 | $ | 1,801 | $ | 4,951 | $ | 3,327 | |||||||
Foreign exchange contracts | 6,350 | 3,660 | 1,328 | 947 | |||||||||||
Total | $ | 7,964 | $ | 5,461 | $ | 6,279 | $ | 4,274 | |||||||
30
MARKET RISK MANAGEMENT PROCESS
Market risk encompasses liquidity risk and price risk, both of which arise in the normal course of business of a global financial intermediary. Liquidity risk is the risk that an entity may be unable to meet a financial commitment to a customer, creditor, or investor when due. Liquidity risk is discussed in the "Capital Resources and Liquidity" on page 41. Price risk is the earnings risk from changes in interest rates, foreign exchange rates, equity and commodity prices, and in their implied volatilities. Price risk arises in non-trading portfolios, as well as in trading portfolios.
The exposures in the following table represent the approximate annualized risk to Net Interest Revenue assuming an unanticipated parallel instantaneous 100bp change, as well as a more gradual 100bp (25bp per quarter) parallel change in rates as compared with the market forward interest rates in selected currencies.
The exposures in the following tables do not include interest rate exposures (IRE) for Nikko Cordial due to the unavailability of information. Nikko Cordial's IRE exposure is primarily denominated in Japanese yen.
|
September 30, 2007 |
June 30, 2007 |
September 30, 2006 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
|||||||||||||||||||
Increase |
Decrease |
Increase |
Decrease |
Increase |
Decrease |
||||||||||||||
U.S. dollar | |||||||||||||||||||
Instantaneous change | $ | (684 | ) | $ | 738 | $ | (572 | ) | $ | 553 | $ | (375 | ) | $ | 258 | ||||
Gradual change | $ | (337 | ) | $ | 372 | $ | (309 | ) | $ | 329 | $ | (234 | ) | $ | 231 | ||||
Mexican peso | |||||||||||||||||||
Instantaneous change | $ | 5 | $ | (5 | ) | $ | (29 | ) | $ | 29 | $ | 46 | $ | (46 | ) | ||||
Gradual change | $ | (1 | ) | $ | 1 | $ | (14 | ) | $ | 14 | $ | 35 | $ | (35 | ) | ||||
Euro | |||||||||||||||||||
Instantaneous change | $ | (92 | ) | $ | 92 | $ | (97 | ) | $ | 97 | $ | (80 | ) | $ | 80 | ||||
Gradual change | $ | (38 | ) | $ | 38 | $ | (43 | ) | $ | 43 | $ | (39 | ) | $ | 39 | ||||
Japanese yen | |||||||||||||||||||
Instantaneous change | $ | 58 | NM | $ | (9 | ) | NM | $ | (14 | ) | NM | ||||||||
Gradual change | $ | 43 | NM | $ | (5 | ) | NM | $ | (8 | ) | NM | ||||||||
Pound sterling | |||||||||||||||||||
Instantaneous change | $ | (5 | ) | $ | 5 | $ | (19 | ) | $ | 19 | $ | (27 | ) | $ | 27 | ||||
Gradual change | $ | 8 | $ | (8 | ) | $ | 3 | $ | (3 | ) | $ | (18 | ) | $ | 18 | ||||
NM Not meaningful. A 100 basis point decrease in interest rates would imply negative rates for the Japanese yen yield curve.
The changes in the U.S. dollar interest rate exposures from June 30, 2007 primarily reflect movements in customer-related asset and liability mix, as well as Citigroup's view of prevailing interest rates.
The following table shows the risk to NIR from six different changes in the implied forward rates. Each scenario assumes that the rate change will occur on a gradual basis every three months over the course of one year.
|
Scenario 1 |
Scenario 2 |
Scenario 3 |
Scenario 4 |
Scenario 5 |
Scenario 6 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Overnight rate change (bp) | | 100 | 200 | (200 | ) | (100 | ) | | |||||||||||
10-year rate change (bp) | (100 | ) | | 100 | (100 | ) | | 100 | |||||||||||
Impact to net interest revenue (in millions of dollars) |
$ | 74 | $ | (377 | ) | $ | (779 | ) | $ | 836 | $ | 409 | $ | (60 | ) | ||||
31
For Citigroup's major trading centers, the aggregate pretax VAR in the trading portfolios was $135 million, $153 million, and $90 million at September 30, 2007, June 30, 2007, and September 30, 2006, respectively. Daily exposures averaged $141 million during the third quarter of 2007 and ranged from $126 million to $165 million.
The following table summarizes VAR to Citigroup in the trading portfolios at September 30, 2007, June 30, 2007, and September 30, 2006, including the Total VAR, the specific risk only component of VAR, and TotalGeneral market factors only, along with the quarterly averages:
In million of dollars |
September 30, 2007 |
Third Quarter 2007 Average |
June 30, 2007 |
Second Quarter 2007 Average |
September 30, 2006 |
Third Quarter 2006 Average |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest rate | $ | 96 | $ | 101 | $ | 117 | $ | 102 | $ | 89 | $ | 81 | |||||||
Foreign exchange | 28 | 29 | 32 | 31 | 28 | 26 | |||||||||||||
Equity | 104 | 98 | 100 | 87 | 44 | 42 | |||||||||||||
Commodity | 33 | 31 | 31 | 35 | 11 | 13 | |||||||||||||
Covariance adjustment | (126 | ) | (118 | ) | (127 | ) | (117 | ) | (82 | ) | (76 | ) | |||||||
TotalAll market risk factors, including general and specific risk | $ | 135 | $ | 141 | $ | 153 | $ | 138 | $ | 90 | $ | 86 | |||||||
Specific risk only component | $ | 24 | $ | 26 | $ | 8 | $ | 11 | $ | 9 | $ | 10 | |||||||
TotalGeneral market factors only | $ | 111 | $ | 115 | $ | 145 | $ | 127 | $ | 81 | $ | 76 | |||||||
The specific risk only component represents the level of equity and debt issuer-specific risk embedded in VAR. Citigroup's specific risk model conforms to the 4x-multiplier treatment approved by the Federal Reserve and is subject to extensive annual hypothetical back-testing.
The table below provides the range of VAR in each type of trading portfolio that was experienced during the quarters ended:
|
September 30, 2007 |
|
|
September 30, 2006 |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
June 30, 2007 |
|||||||||||||||||
In millions of dollars |
||||||||||||||||||
Low |
High |
Low |
High |
Low |
High |
|||||||||||||
Interest rate | $ | 87 | $ | 119 | $ | 88 | $ | 128 | $ | 68 | $ | 106 | ||||||
Foreign exchange | 23 | 35 | 27 | 35 | 17 | 39 | ||||||||||||
Equity | 82 | 120 | 64 | 112 | 35 | 49 | ||||||||||||
Commodity | 24 | 41 | 24 | 49 | 9 | 18 | ||||||||||||
COUNTRY AND CROSS-BORDER RISK
The table below shows all countries where total cross-border outstandings exceed 0.75% of total Citigroup assets:
|
September 30, 2007 |
December 31, 2006 |
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Cross-Border Claims on Third Parties |
|
|
|
|
|
||||||||||||||||||||||||
|
Investments in and Funding of Local Franchises |
|
|
Total Cross- Border Out- standings |
|
|||||||||||||||||||||||||
(Amounts in Billions of U.S.$) |
Banks |
Public |
Private |
Total |
Trading and Short- Term Claims(1) |
Total Cross- Border Out- standings |
Commit- ments(2) |
Commit- ments |
||||||||||||||||||||||
India | $ | 2.0 | $ | 0.9 | $ | 12.8 | $ | 15.7 | $ | 12.1 | $ | 20.0 | $ | 35.7 | $ | 1.4 | $ | 24.8 | $ | 0.7 | ||||||||||
Germany | 18.9 | 5.6 | 10.4 | 34.9 | 32.0 | 0.7 | 35.6 | 52.2 | 38.6 | 43.6 | ||||||||||||||||||||
United Kingdom | 6.3 | 0.1 | 24.0 | 30.4 | 28.7 | | 30.4 | 329.3 | 18.4 | 192.8 | ||||||||||||||||||||
France | 9.7 | 5.1 | 12.1 | 26.9 | 24.9 | | 26.9 | 116.1 | 19.8 | 60.8 | ||||||||||||||||||||
Netherlands | 6.9 | 1.9 | 17.5 | 26.3 | 20.6 | | 26.3 | 25.4 | 20.1 | 10.5 | ||||||||||||||||||||
South Korea | 0.9 | 0.1 | 4.2 | 5.2 | 5.1 | 16.1 | 21.3 | 9.0 | 19.7 | 11.4 | ||||||||||||||||||||
Spain | 3.1 | 5.3 | 8.9 | 17.3 | 16.1 | 3.6 | 20.9 | 7.3 | 19.7 | 6.8 | ||||||||||||||||||||
Italy | 1.8 | 8.8 | 4.3 | 14.9 | 14.4 | 0.5 | 15.4 | 6.0 | 18.6 | 4.0 | ||||||||||||||||||||
32
INTEREST REVENUE/EXPENSE AND YIELDS
Average RatesInterest Revenue, Interest Expense, and Net Interest Margin
In millions of dollars |
3rd Qtr. 2007 |
2nd Qtr. 2007 |
3rd Qtr. 2006 |
% Change 3Q07 vs. 3Q06 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest Revenue(1) | $ | 32,961 | $ | 30,598 | $ | 24,729 | 33% | |||||
Interest Expense(2) | 20,804 | 19,172 | 14,901 | 40 | ||||||||
Net Interest Revenue(1) | $ | 12,157 | $ | 11,426 | $ | 9,828 | 24% | |||||
Interest RevenueAverage Rate | 6.41% | 6.43% | 6.59% | (18)bps | ||||||||
Interest ExpenseAverage Rate | 4.43% | 4.43% | 4.44% | (1)bps | ||||||||
Net Interest Margin (NIM) | 2.36% | 2.40% | 2.62% | (26)bps | ||||||||
Interest Rate Benchmarks: | ||||||||||||
Federal Funds RateEnd of Period | 4.75% | 5.25% | 5.25% | (50)bps | ||||||||
2 Year U.S. Treasury NoteAverage Rate | 4.39% | 4.80% | 4.93% | (54)bps | ||||||||
10 Year U.S. Treasury NoteAverage Rate | 4.74% | 4.85% | 4.89% | (15)bps | ||||||||
10 Year vs. 2 Year Spread | 35 bps | 5 bps | (4)bps | |||||||||
A significant portion of the Company's business activities are based upon gathering deposits and borrowing money and then lending or investing those funds, including market-making activities in tradable securities. Net interest margin is calculated by dividing gross interest revenue less gross interest expense by average interest earning assets.
During 2007, pressure on net interest margin continued. Net Interest Margin was mainly affected by the results of Nikko Cordial, which was consolidated from May 9, 2007 forward. The average rate on assets reflected a highly competitive loan pricing environment, as well as a shift in the Company's loan portfolio from higher-yielding credit card receivables to assets that carry lower yields, such as mortgages and home equity loans.
See pages 3440 for a detailed analysis of Average Rates and Volumes.
33
AVERAGE BALANCES AND INTEREST RATESASSETS(1)(2)(3)(4)
|
Average Volume |
Interest Revenue |
% Average Rate |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
3rd Qtr. 2007 |
2nd Qtr. 2007 |
3rd Qtr. 2006 |
3rd Qtr. 2007 |
2nd Qtr. 2007 |
3rd Qtr. 2006 |
3rd Qtr. 2007 |
2nd Qtr. 2007 |
3rd Qtr. 2006 |
|||||||||||||||||
Assets | ||||||||||||||||||||||||||
Deposits with banks(5) | $ | 62,833 | $ | 55,580 | $ | 37,508 | $ | 874 | $ | 792 | $ | 590 | 5.52 | % | 5.72 | % | 6.24 | % | ||||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(6) | ||||||||||||||||||||||||||
In U.S. offices | $ | 213,438 | $ | 185,143 | $ | 166,526 | $ | 3,217 | $ | 3,002 | $ | 2,718 | 5.98 | % | 6.50 | % | 6.48 | % | ||||||||
In offices outside the U.S.(5) | 156,123 | 135,668 | 81,145 | 1,873 | 1,660 | 995 | 4.76 | 4.91 | 4.86 | |||||||||||||||||
Total | $ | 369,561 | $ | 320,811 | $ | 247,671 | $ | 5,090 | $ | 4,662 | $ | 3,713 | 5.46 | % | 5.83 | % | 5.95 | % | ||||||||
Trading account assets(7)(8) | ||||||||||||||||||||||||||
In U.S. offices | $ | 281,590 | $ | 264,112 | $ | 184,099 | $ | 3,662 | $ | 3,111 | $ | 1,960 | 5.16 | % | 4.72 | % | 4.22 | % | ||||||||
In offices outside the U.S.(5) | 206,098 | 180,361 | 100,196 | 1,494 | 1,274 | 789 | 2.88 | 2.83 | 3.12 | |||||||||||||||||
Total | $ | 487,688 | $ | 444,473 | $ | 284,295 | $ | 5,156 | $ | 4,385 | $ | 2,749 | 4.19 | % | 3.96 | % | 3.84 | % | ||||||||
Investments(1) | ||||||||||||||||||||||||||
In U.S. offices | ||||||||||||||||||||||||||
Taxable | $ | 127,706 | $ | 149,303 | $ | 105,713 | $ | 1,637 | $ | 1,860 | $ | 1,177 | 5.09 | % | 5.00 | % | 4.42 | % | ||||||||
Exempt from U.S. income tax | 19,207 | 18,971 | 12,285 | 242 | 273 | 153 | 5.00 | 5.77 | 4.94 | |||||||||||||||||
In offices outside the U.S.(5) | 112,901 | 113,068 | 100,999 | 1,478 | 1,444 | 1,276 | 5.19 | 5.12 | 5.01 | |||||||||||||||||
Total | $ | 259,814 | $ | 281,342 | $ | 218,997 | $ | 3,357 | $ | 3,577 | $ | 2,606 | 5.13 | % | 5.10 | % | 4.72 | % | ||||||||
Loans (net of unearned income)(9) | ||||||||||||||||||||||||||
Consumer loans | ||||||||||||||||||||||||||
In U.S. offices | $ | 377,380 | $ | 370,762 | $ | 345,064 | $ | 7,835 | $ | 7,663 | $ | 7,264 | 8.24 | % | 8.29 | % | 8.35 | % | ||||||||
In offices outside the U.S.(5) | 183,659 | 170,855 | 140,594 | 4,912 | 4,621 | 3,870 | 10.61 | 10.85 | 10.92 | |||||||||||||||||
Total consumer loans | $ | 561,039 | $ | 541,617 | $ | 485,658 | $ | 12,747 | $ | 12,284 | $ | 11,134 | 9.01 | % | 9.10 | % | 9.10 | % | ||||||||
Corporate loans | ||||||||||||||||||||||||||
In U.S. offices | $ | 39,346 | $ | 31,075 | $ | 28,604 | $ | 818 | $ | 608 | $ | 528 | 8.25 | % | 7.85 | % | 7.32 | % | ||||||||
In offices outside the U.S.(5) | 163,003 | 152,545 | 130,212 | 3,832 | 3,361 | 2,728 | 9.33 | 8.84 | 8.31 | |||||||||||||||||
Total corporate loans | $ | 202,349 | $ | 183,620 | $ | 158,816 | $ | 4,650 | $ | 3,969 | $ | 3,256 | 9.12 | % | 8.67 | % | 8.13 | % | ||||||||
Total loans | $ | 763,388 | $ | 725,237 | $ | 644,474 | $ | 17,397 | $ | 16,253 | $ | 14,390 | 9.04 | % | 8.99 | % | 8.86 | % | ||||||||
Other interest-earning assets | $ | 97,506 | $ | 82,459 | $ | 56,717 | $ | 1,087 | $ | 929 | $ | 681 | 4.42 | % | 4.52 | % | 4.76 | % | ||||||||
Total interest-earning assets | $ | 2,040,790 | $ | 1,909,902 | $ | 1,489,662 | $ | 32,961 | $ | 30,598 | $ | 24,729 | 6.41 | % | 6.43 | % | 6.59 | % | ||||||||
Non-interest-earning assets(7) | 255,962 | 249,358 | 194,550 | |||||||||||||||||||||||
Total assets | $ | 2,296,752 | $ | 2,159,260 | $ | 1,684,212 | ||||||||||||||||||||
Reclassified to conform to the current period's presentation.
34
AVERAGE BALANCES AND INTEREST RATESLIABILITIES AND EQUITY,
AND NET INTEREST REVENUE(1)(2)(3)(4)
|
Average Volume |
Interest Revenue |
% Average Rate |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
3rd Qtr. 2007 |
2nd Qtr. 2007 |
3rd Qtr. 2006 |
3rd Qtr. 2007 |
2nd Qtr. 2007 |
3rd Qtr. 2006 |
3rd Qtr. 2007 |
2nd Qtr. 2007 |
3rd Qtr. 2006 |
|||||||||||||||||
Liabilities | ||||||||||||||||||||||||||
Deposits | ||||||||||||||||||||||||||
In U. S. offices Savings deposits(5) | $ | 148,736 | $ | 147,517 | $ | 134,486 | $ | 1,221 | $ | 1,178 | $ | 1,092 | 3.26 | % | 3.20 | % | 3.22 | % | ||||||||
Other time deposits | 56,473 | 53,597 | 51,158 | 766 | 773 | 678 | 5.38 | 5.78 | 5.26 | |||||||||||||||||
In offices outside the U.S.(6) | 515,766 | 485,871 | 416,084 | 5,552 | 4,988 | 4,001 | 4.27 | 4.12 | 3.81 | |||||||||||||||||
Total | $ | 720,975 | $ | 686,985 | $ | 601,728 | $ | 7,539 | $ | 6,939 | $ | 5,771 | 4.15 | % | 4.05 | % | 3.81 | % | ||||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | ||||||||||||||||||||||||||
In U.S. offices | $ | 272,927 | $ | 233,021 | $ | 188,052 | $ | 4,052 | $ | 3,600 | $ | 2,992 | 5.89 | % | 6.20 | % | 6.31 | % | ||||||||
In offices outside the U.S.(6) | 155,354 | 152,984 | 93,032 | 2,379 | 2,312 | 1,404 | 6.08 | 6.06 | 5.99 | |||||||||||||||||
Total | $ | 428,281 | $ | 386,005 | $ | 281,084 | $ | 6,431 | $ | 5,912 | $ | 4,396 | 5.96 | % | 6.14 | % | 6.20 | % | ||||||||
Trading account liabilities(8)(9) | ||||||||||||||||||||||||||
In U.S. offices | $ | 48,063 | $ | 58,139 | $ | 37,601 | $ | 302 | $ | 312 | $ | 243 | 2.49 | % | 2.15 | % | 2.56 | % | ||||||||
In offices outside the U.S. (6) | 69,791 | 62,949 | 35,644 | 69 | 68 | 58 | 0.39 | 0.43 | 0.65 | |||||||||||||||||
Total | $ | 117,854 | $ | 121,088 | $ | 73,245 | $ | 371 | $ | 380 | $ | 301 | 1.25 | % | 1.26 | % | 1.63 | % | ||||||||
Short-term borrowings | ||||||||||||||||||||||||||
In U.S. offices | $ | 187,286 | $ | 170,962 | $ | 121,503 | $ | 1,755 | $ | 1,612 | $ | 1,175 | 3.72 | % | 3.78 | % | 3.84 | % | ||||||||
In offices outside the U.S.(6) | 79,450 | 66,077 | 23,446 | 294 | 325 | 98 | 1.47 | 1.97 | 1.66 | |||||||||||||||||
Total | $ | 266,736 | $ | 237,039 | $ | 144,949 | $ | 2,049 | $ | 1,937 | $ | 1,273 | 3.05 | % | 3.28 | % | 3.48 | % | ||||||||
Long-term debt(10) | ||||||||||||||||||||||||||
In U.S. offices | $ | 285,370 | $ | 267,496 | $ | 206,854 | $ | 3,837 | $ | 3,562 | $ | 2,802 | 5.33 | % | 5.34 | % | 5.37 | % | ||||||||
In offices outside the U.S. (6) | 43,627 | 37,391 | 24,416 | 577 | 442 | 358 | 5.25 | 4.74 | 5.82 | |||||||||||||||||
Total | $ | 328,997 | $ | 304,887 | $ | 231,270 | $ | 4,414 | $ | 4,004 | $ | 3,160 | 5.32 | % | 5.27 | % | 5.42 | % | ||||||||
Total interest-bearing liabilities | $ | 1,862,843 | $ | 1,736,004 | $ | 1,332,276 | $ | 20,804 | $ | 19,172 | $ | 14,901 | 4.43 | % | 4.43 | % | 4.44 | % | ||||||||
Demand deposits in U.S. offices | 13,683 | 11,234 | 11,127 | |||||||||||||||||||||||
Other non-interest-bearing liabilities(8) | 293,310 | 287,371 | 224,739 | |||||||||||||||||||||||
Total liabilities | $ | 2,169,836 | $ | 2,034,609 | $ | 1,568,142 | ||||||||||||||||||||
Total stockholders' equity(11) | $ | 126,916 | $ | 124,651 | $ | 116,070 | ||||||||||||||||||||
Total liabilities and stockholders' equity | $ | 2,296,752 | $ | 2,159,260 | $ | 1,684,212 | ||||||||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) | ||||||||||||||||||||||||||
In U.S. offices | $ | 1,129,443 | $ | 1,087,398 | $ | 892,120 | $ | 5,712 | $ | 5,212 | $ | 4,559 | 2.01 | % | 1.92 | % | 2.03 | % | ||||||||
In offices outside the U.S.(6) | 911,347 | 822,504 | 597,542 | 6,445 | 6,214 | 5,269 | 2.81 | % | 3.03 | % | 3.50 | % | ||||||||||||||
Total | $ | 2,040,790 | $ | 1,909,902 | $ | 1,489,662 | $ | 12,157 | $ | 11,426 | $ | 9,828 | 2.36 | % | 2.40 | % | 2.62 | % | ||||||||
Reclassified to conform to the current period's presentation.
35
AVERAGE BALANCES AND INTEREST RATESASSETS(1)(2)(3)(4)
|
Average Volume |
Interest Revenue |
% Average Rate |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
Nine Months 2007 |
Nine Months 2006 |
Nine Months 2007 |
Nine Months 2006 |
Nine Months 2007 |
Nine Months 2006 |
||||||||||||
Assets | ||||||||||||||||||
Deposits with banks(5) | $ | 54,573 | $ | 37,103 | $ | 2,375 | $ | 1,596 | 5.82 | % | 5.75 | % | ||||||
Federal funds sold and securities borrowed or purchased under agreements to resell(6) | ||||||||||||||||||
In U.S. offices | $ | 194,217 | $ | 163,043 | $ | 9,098 | $ | 7,523 | 6.26 | % | 6.17 | % | ||||||
In offices outside the U.S.(5) | 133,672 | 83,553 | 4,943 | 2,792 | 4.94 | 4.47 | ||||||||||||
Total | $ | 327,889 | $ | 246,596 | $ | 14,041 | $ | 10,315 | 5.73 | % | 5.59 | % | ||||||
Trading account assets(7)(8) | ||||||||||||||||||
In U.S. offices | $ | 260,893 | $ | 180,765 | $ | 9,595 | $ | 6,019 | 4.92 | % | 4.45 | % | ||||||
In offices outside the U.S.(5) | 173,244 | 96,269 | 3,876 | 2,478 | 2.99 | 3.44 | ||||||||||||
Total | $ | 434,137 | $ | 277,034 | $ | 13,471 | $ | 8,497 | 4.15 | % | 4.10 | % | ||||||
Investments(1) | ||||||||||||||||||
In U.S. offices | ||||||||||||||||||
Taxable | $ | 145,794 | $ | 91,981 | $ | 5,497 | $ | 2,834 | 5.04 | % | 4.12 | % | ||||||
Exempt from U.S. income tax | 18,329 | 13,954 | 705 | 488 | 5.14 | 4.68 | ||||||||||||
In offices outside the U.S.(5) | 111,016 | 96,856 | 4,272 | 3,595 | 5.14 | 4.96 | ||||||||||||
Total | $ | 275,139 | $ | 202,791 | $ | 10,474 | $ | 6,917 | 5.09 | % | 4.56 | % | ||||||
Loans (net of unearned income)(9) | ||||||||||||||||||
Consumer loans | ||||||||||||||||||
In U.S. offices | $ | 370,334 | $ | 337,362 | $ | 22,956 | $ | 20,997 | 8.29 | % | 8.32 | % | ||||||
In offices outside the U.S.(5) | 168,679 | 136,203 | 13,566 | 11,394 | 10.75 | 11.18 | ||||||||||||
Total consumer loans | $ | 539,013 | $ | 473,565 | $ | 36,522 | $ | 32,391 | 9.06 | % | 9.14 | % | ||||||
Corporate loans | ||||||||||||||||||
In U.S. offices | $ | 33,035 | $ | 27,175 | $ | 1,964 | $ | 1,399 | 7.95 | % | 6.88 | % | ||||||
In offices outside the U.S.(5) | 150,551 | 121,706 | 10,099 | 7,061 | 8.97 | 7.76 | ||||||||||||
Total corporate loans | $ | 183,586 | $ | 148,881 | $ | 12,063 | $ | 8,460 | 8.79 | % | 7.60 | % | ||||||
Total loans | $ | 722,599 | $ | 622,446 | $ | 48,585 | $ | 40,851 | 8.99 | % | 8.77 | % | ||||||
Other interest-earning assets | $ | 82,781 | $ | 57,003 | $ | 2,745 | $ | 1,998 | 4.43 | % | 4.69 | % | ||||||
Total interest-earning assets | $ | 1,897,118 | $ | 1,442,973 | $ | 91,691 | $ | 70,174 | 6.46 | % | 6.50 | % | ||||||
Non-interest-earning assets(7) | 236,525 | 190,833 | ||||||||||||||||
Total assets | $ | 2,133,643 | $ | 1,633,806 | ||||||||||||||
Reclassified to conform to the current period's presentation.
36
AVERAGE BALANCES AND INTEREST RATESLIABILITIES AND EQUITY, AND NET INTEREST REVENUE(1)(2)(3)(4)
|
Average Volume |
Interest Expense |
% Average Rate |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions of dollars |
Nine Months 2007 |
Nine Months 2006 |
Nine Months 2007 |
Nine Months 2006 |
Nine Months 2007 |
Nine Months 2006 |
||||||||||||
Liabilities | ||||||||||||||||||
Deposits | ||||||||||||||||||
In U. S. offices | ||||||||||||||||||
Savings deposits(5) | $ | 147,171 | $ | 133,571 | $ | 3,569 | $ | 2,962 | 3.24 | % | 2.96 | % | ||||||
Other time deposits | 55,005 | 46,286 | 2,346 | 1,756 | 5.70 | 5.07 | ||||||||||||
In offices outside the U.S.(6) | 483,237 | 393,770 | 15,121 | 10,762 | 4.18 | 3.65 | ||||||||||||
Total | $ | 685,413 | $ | 573,627 | $ | 21,036 | $ | 15,480 | 4.10 | % | 3.61 | % | ||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase(7) | ||||||||||||||||||
In U.S. offices | $ | 247,893 | $ | 186,848 | $ | 11,193 | $ | 8,623 | 6.04 | % | 6.17 | % | ||||||
In offices outside the U.S. (6) | 145,660 | 92,842 | 6,633 | 3,991 | 6.09 | 5.75 | ||||||||||||
Total | $ | 393,553 | $ | 279,690 | $ | 17,826 | $ | 12,614 | 6.06 | % | 6.03 | % | ||||||
Trading account liabilities(8) (9) | ||||||||||||||||||
In U.S. offices | $ | 49,507 | $ | 36,125 | $ | 849 | $ | 662 | 2.29 | % | 2.45 | % | ||||||
In offices outside the U.S. (6) | 59,360 | 37,164 | 209 | 163 | 0.47 | 0.59 | ||||||||||||
Total | $ | 108,867 | $ | 73,289 | $ | 1,058 | $ | 825 | 1.30 | % | 1.51 | % | ||||||
Short-term borrowings | ||||||||||||||||||
In U.S. offices | $ | 167,264 | $ | 117,847 | $ | 4,629 | $ | 2,912 | 3.70 | % | 3.30 | % | ||||||
In offices outside the U.S. (6) | 62,121 | 22,375 | 821 | 455 | 1.77 | 2.72 | ||||||||||||
Total | $ | 229,385 | $ | 140,222 | $ | 5,450 | $ | 3,367 | 3.18 | % | 3.21 | % | ||||||
Long-term debt(10) | ||||||||||||||||||
In U.S. offices | $ | 268,566 | $ | 197,575 | $ | 10,784 | $ | 7,467 | 5.37 | % | 5.05 | % | ||||||
In offices outside the U.S. (6) | 36,034 | 24,225 | 1,384 | 972 | 5.14 | 5.36 | ||||||||||||
Total | $ | 304,600 | $ | 221,800 | $ | 12,168 | $ | 8,439 | 5.34 | % | 5.09 | % | ||||||
Total interest-bearing liabilities | $ | 1,721,818 | $ | 1,288,628 | $ | 57,538 | $ | 40,725 | 4.47 | % | 4.23 | % | ||||||
Demand deposits in U.S. offices | 12,025 | 10,999 | ||||||||||||||||
Other non-interest-bearing liabilities(8) | 276,028 | 219,637 | ||||||||||||||||
Total liabilities | $ | 2,009,870 | $ | 1,519,264 | ||||||||||||||
Total stockholders' equity(11) | $ | 123,773 | $ | 114,542 | ||||||||||||||
Total liabilities and stockholders' equity | $ | 2,133,643 | $ | 1,633,806 | ||||||||||||||
Net interest revenue as a percentage of average interest-earning assets(12) | ||||||||||||||||||
In U.S. offices | $ | 1,088,805 | $ | 862,756 | $ | 15,900 | $ | 14,172 | 1.95 | % | 2.20 | % | ||||||
In offices outside the U.S.(6) | 808,313 | 580,217 | 18,253 | 15,277 | 3.02 | 3.52 | ||||||||||||
Total | $ | 1,897,118 | $ | 1,442,973 | $ | 34,153 | $ | 29,449 | 2.41 | % | 2.73 | % | ||||||
Reclassified to conform to the current period's presentation.
37
ANALYSIS OF CHANGES IN INTEREST REVENUE(1)(2)(3)
|
3rd Qtr. 2007 vs. 2nd Qtr. 2007 |
3rd Qtr. 2007 vs. 3rd Qtr. 2006 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Increase (Decrease) Due to Change in: |
|
Increase (Decrease) Due to Change in: |
|
||||||||||||||
In millions of dollars |
Average Volume |
Average Rate |
Net Change(2) |
Average Volume |
Average Rate |
Net Change(2) |
||||||||||||
Deposits with banks(4) | $ | 101 | $ | (19 | ) | $ | 82 | $ | 359 | $ | (75 | ) | $ | 284 | ||||
Federal funds sold and securities borrowed or purchased under agreements to resell | ||||||||||||||||||
In U.S. offices | $ | 437 | $ | (222 | ) | $ | 215 | $ | 720 | $ | (221 | ) | $ | 499 | ||||
In offices outside the U.S.(4) | 246 | (33 | ) | 213 | 900 | (22 | ) | 878 | ||||||||||
Total | $ | 683 | $ | (255 | ) | $ | 428 | $ | 1,620 | $ | (243 | ) | $ | 1,377 | ||||
Trading account assets(5) | ||||||||||||||||||
In U.S. offices | $ | 214 | $ | 337 | $ | 551 | $ | 1,200 | $ | 502 | $ | 1,702 | ||||||
In offices outside the U.S.(4) | 186 | 34 | 220 | 772 | (67 | ) | 705 | |||||||||||
Total | $ | 400 | $ | 371 | $ | 771 | $ | 1,972 | $ | 435 | $ | 2,407 | ||||||
Investments(1) | ||||||||||||||||||
In U.S. offices | $ | (273 | ) | $ | 19 | $ | (254 | ) | $ | 354 | $ | 195 | $ | 549 | ||||
In offices outside the U.S.(4) | (2 | ) | 36 | 34 | 155 | 47 | $ | 202 | ||||||||||
Total | $ | (275 | ) | $ | 55 | $ | (220 | ) | $ | 509 | $ | 242 | $ | 751 | ||||
Loansconsumer | ||||||||||||||||||
In U.S. offices | $ | 137 | $ | 35 | $ | 172 | $ | 672 | $ | (101 | ) | $ | 571 | |||||
In offices outside the U.S.(4) | 343 | (52 | ) | 291 | 1,155 | (113 | ) | 1,042 | ||||||||||
Total | $ | 480 | $ | (17 | ) | $ | 463 | $ | 1,827 | $ | (214 | ) | $ | 1,613 | ||||
Loanscorporate | ||||||||||||||||||
In U.S. offices | $ | 170 | $ | 40 | $ | 210 | $ | 217 | $ | 73 | $ | 290 | ||||||
In offices outside the U.S.(4) | 238 | 233 | 471 | 743 | 361 | 1,104 | ||||||||||||
Total | $ | 408 | $ | 273 | $ | 681 | $ | 960 | $ | 434 | $ | 1,394 | ||||||
Total loans | $ | 888 | $ | 256 | $ | 1,144 | $ | 2,787 | $ | 220 | $ | 3,007 | ||||||
Other interest-earning assets | $ | 168 | $ | (10 | ) | $ | 158 | $ | 458 | $ | (52 | ) | $ | 406 | ||||
Total interest revenue | $ | 1,965 | $ | 398 | $ | 2,363 | $ | 7,705 | $ | 527 | $ | 8,232 | ||||||
38
ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUE(1)(2)(3)
|
3rd Qtr. 2007 vs. 2nd Qtr. 2007 |
3rd Qtr. 2007 vs. 3rd Qtr. 2006 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Increase (Decrease) Due to Change in: |
|
Increase (Decrease) Due to Change in: |
|
||||||||||||||
In millions of dollars |
Average Volume |
Average Rate |
Net Change(2) |
Average Volume |
Average Rate |
Net Change(2) |
||||||||||||
Deposits | ||||||||||||||||||
In U.S. offices | $ | 40 | $ | (4 | ) | $ | 36 | $ | 189 | $ | 28 | $ | 217 | |||||
In offices outside the U.S.(4) | 315 | 249 | 564 | 1,035 | 516 | 1,551 | ||||||||||||
Total | $ | 355 | $ | 245 | $ | 600 | $ | 1,224 | $ | 544 | $ | 1,768 | ||||||
Federal funds purchased and securities loaned or sold under agreements to repurchase | ||||||||||||||||||
In U.S. offices | $ | 597 | $ | (145 | ) | $ | 452 | $ | 1,272 | $ | (212 | ) | $ | 1,060 | ||||
In offices outside the U.S.(4) | 36 | 31 | 67 | 954 | 21 | 975 | ||||||||||||
Total | $ | 633 | $ | (114 | ) | $ | 519 | $ | 2,226 | $ | (191 | ) | $ | 2,035 | ||||
Trading account liabilities(5) | ||||||||||||||||||
In U.S. offices | $ | (59 | ) | $ | 49 | $ | (10 | ) | $ | 66 | $ | (7 | ) | $ | 59 | |||
In offices outside the U.S.(4) | 7 | (6 | ) | 1 | 40 | (29 | ) | 11 | ||||||||||
Total | $ | (52 | ) | $ | 43 | $ | (9 | ) | $ | 106 | $ | (36 | ) | $ | 70 | |||
Short-term borrowings | ||||||||||||||||||
In U.S. offices | $ | 153 | $ | (10 | ) | $ | 143 | $ | 618 | $ | (38 | ) | $ | 580 | ||||
In offices outside the U.S.(4) | 58 | (89 | ) | (31 | ) | 208 | (12 | ) | 196 | |||||||||
Total | $ | 211 | $ | (99 | ) | $ | 112 | $ | 826 | $ | (50 | ) | $ | 776 | ||||
Long-term debt | ||||||||||||||||||
In U.S. offices | $ | 240 | $ | 35 | $ | 275 | $ | 1,056 | $ | (21 | ) | $ | 1,035 | |||||
In offices outside the U.S.(4) | 79 | 56 | 135 | 257 | (38 | ) | 219 | |||||||||||
Total | $ | 319 | $ | 91 | $ | 410 | $ | 1,313 | $ | (59 | ) | $ | 1,254 | |||||
Total interest expense | $ | 1,466 |