CITIGROUP CIB – ADVANCED RISK ISSUES

Advanced Risk Issues Course Outline and Pre-Course Reading

A senior Citigroup executive once described the goal of risk management as “having the ability to see around corners.” This is the major theme of Advanced Risk Issues – “seeing around corners” - identifying problems before they become obvious, or before they can harm Citigroup and its constituents.

Of course, the challenge is that the problems (risks) are increasingly broad and complex. Many aspects of the banking industry have changed drastically in the past ten years, posing new risks to Citi’s value and franchise.

The assumption of risk to foster product cross sell and revenue growth, and to respond to client requests, is a fundamental part of the business. Balancing risk and reward is what defines a good banker. Consequently part of this course is devoted to some fundamental aspects of credit risk – cash flow, industry risk, business risk, management and strategy, risk ratings, and deal structure. We will also spend a lot of time discussing developing techniques for managing credit risk – portfolio management and credit derivatives.

But, Advanced Risk Issues is not a “credit” course. It’s goal is to provide you with an opportunity to spend four days thinking about, and discussing with a group of very experienced colleagues, the risks that must be identified and managed in order for Citigroup to grow and prosper. Other key risks areas we’ll cover are market risk (convergence risk), operational risk, country risk, compliance, conflicts and underwriting risk.

For most of you, loan generation is not the primary generator of revenue growth. It’s the cross sale of a variety of complex products, often tied to the credit product. The distribution of risk, not the holding of risk, has become the driving force for much of the global banking industry. This adds another element to risk management at Citi – the management of potential conflicts of interests with investors, the buyers of risk.

Therefore, another major theme of ARI is that business decisions, and deal / risk decisions cannot be made without recognizing the potential impact on Citigroup’s reputation and franchise. Decisions must be made in the context of the impact on Citi’s constituents – clients (issuers and investors), bondholders, shareholders, regulators, governments and rating agencies. Some of the well known situations where this impact was underestimated (or not at all estimated) include World Com, “Dr Evil” bond trades, and the Japan Private Bank.

The market, regulators, and rating agencies can drastically affect Citigroup’s current value and its future value. We’ve spent a lot of time in ARI over the past three years discussing Franchise Risk – the risk to Citi’s value and its ability to generate and grow revenue. As you know, in the relatively benign credit environment of the past few years, losses due to conflicts, compliance and reputation issues have cost the company far more than credit losses. As global regulators and governments increase their attention on potential criminal use of the global banking system, compliance with banking and securities laws has gained increased attention. Discussions of compliance issues will be part of every aspect of the course.

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At the end of the program we’re confident that you’ll have a very current view of Citi’s objectives regarding risk and risk management; not just implications for its own P&L and balance sheet, but also regarding its interaction with all of its constituents.

The Advanced Risk Issues program has three components that are designed to address these issues of “seeing around corners”, “franchise risk”, and “how does Citi manage risk”:

1. Pre-course reading. The purpose of these articles is to set the tone of the course, and to remind you of the issues.

2. Cases spread throughout the week. These are being distributed to you with the reading material. Please try to review these cases prior to your arrival. Your active participation in the discussions is critical to the success of ARI, and we’d rather have you spend your limited free time networking rather than preparing the cases.

3. Presentations by senior Citigroup managers about current Citigroup CIB risk issues and business issues

We look forward to meeting you! Please don’t hesitate to contact me, Ken Loso, or Cynthia Mullally with questions or comments.

Arnie Ziegel Advance Risk Issues Course Facilitator

Arnold Ziegel Mountain Mentors Associates Stowe, Vermont USA 1 802 253 4231 Office 1 914 522 9339 Mobile 1 802 904 1018 Fax [email protected]

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