Q4 2008 Citigroup Inc. Earnings Conference Call on Jan. 16. 2009

FINAL TRANSCRIPT

C - Q4 2008 Citigroup Inc. Earnings Conference Call

Event Date/Time: Jan. 16. 2009 / 8:00AM ET

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CORPORATE PARTICIPANTS Scott Freidenrich Citigroup Inc. - IR Vikram Pandit Citigroup Inc. - CEO Gary Crittenden Citigroup Inc. - CFO

CONFERENCE CALL PARTICIPANTS Mike Mayo Deutsche Bank - Analyst John McDonald Sanford Bernstein - Analyst Guy Moszkowski Banc of America-Merrill Lynch - Analyst Meredith Whitney Oppenheimer & Co. - Analyst Glenn Schorr UBS - Analyst

PRESENTATION Operator Good morning, ladies and gentlemen and welcome to today's fourth-quarter and full-year 2008 earnings review featuring Citi Chief Executive Officer, Vikram Pandit and Citi Chief Financial Officer, Gary Crittenden. Today's call will be hosted by Scott Freidenrich, Head of Citi Investor Relations. Please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Mr. Freidenrich, you may begin.

Scott Freidenrich - Citigroup Inc. - IR Thank you, operator and thank you all for joining us. Good morning and welcome to our fourth-quarter and full-year 2008 earnings review. The presentation we will be going through is available on our website at citigroup.com. You may want to download it now if you have not already done so. The financial supplement is also available.

On the call this morning is Chief Executive Officer, Vikram Pandit, followed by Chief Financial Officer, Gary Crittenden, who will take you through the earnings presentation. Afterwards, we will be happy to take any questions you may have. Please limit follow-up questions to one.

Before we get started, I would like to remind you that today's presentation may contain forward-looking statements. Citi's financial results may differ materially from these statements, so please refer to our SEC filings for a description of the factors that could cause our actual results to differ from expectations. With that said, let me turn it over to Vikram.

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Vikram Pandit - Citigroup Inc. - CEO Scott, thank you and good morning, everybody. I appreciate you joining us this morning. Our results released this morning are clearly disappointing and I can assure you that my number one priority is to return this Company to profitability and in a few minutes, Gary will take you through the earnings.

I want to talk to you this morning about the strategic direction for Citi and really the strategic destination. Gary will then provide you a roadmap for restoring profitability and rebuilding our TCE. As you all know, the new management team has been here for a little over a year, working on your behalf. As you also know, we came into this with a lot of embedded challenges. We recognize what we needed to do and we started to act quickly. For much of the year, we have been dealing with dysfunctional markets, which deteriorated even further after Labor Day, but we kept working through all the dysfunctionalities.

In May, at Citi Day, we outlined our three-step plan -- to get fit, to restructure Citi, to maximize Citi. For all of 2008, we focused on getting fit and as a result, our assets were reduced from almost $2.4 trillion to $1.9 trillion. We had identified legacy assets, which we have reduced to about $300 billion; normalized expenses are down 16% to $12.8 billion in Q4 '08, excluding one-time items; and we are on track to achieving our targeted full-year expense base of $50 billion to $52 billion. Headcount is down from 375,000 to 323,000 with defined plans to reach approximately 300,000 in the near term. Our Tier 1 capital ratio is up from 7.1% in Q4 '07 to approximately 11.8% in Q4 '08. We sold a number of small and large businesses and as you know, we added a lot of experienced talent to the Company.

It is hard for people who are not here to truly understand the magnitude of change we have gone through at Citi. And I really want to thank all of the people at Citi who have worked so hard to address all our challenges and accomplish so much in such a short time.

As we have been getting fit, we have been continually focused on restoring profitability as fast as possible and positioning Citi for the markets of the future. The world is a different place than in May and particularly post-Lehman. The funding markets and capital markets have changed fundamentally. We are all relying on funding support in some form or another. I'm sure many companies are rethinking how to architect themselves for the future.

Considering that the dysfunctional markets and the extent to which the world has changed, as well as the progress we had already made, we have come to some conclusions about our future. First, there are businesses that we had exited such as traditional asset management. But then we inherited some from acquisitions, so, for example, we still have a few retail asset management businesses that are not core to our long-term strategy.

Secondly, the funding markets have changed and may have changed for the foreseeable future and we have to consider the impact on our strategy. We have concluded that certain aspects of our sales and trading business and our consumer lending businesses will be more challenged in this environment and need to be restructured.

Thirdly, we have a pool of assets that are not necessary to our business. This includes the ring-fenced assets with the US government loss sharing. Some of these we have highlighted to you previously.

Fourthly, we like the Smith Barney and Nikko Cordial businesses. They are good businesses and believe they have considerable value as evidenced by the transaction we just announced with Morgan Stanley. But they do not really add sufficiently to our global strategy and they do add to management complexity.

We have also come to the conclusion that our competitive advantage is our global presence, which is rich in history and relationships. We have an irreplaceable franchise and this is the heart of our Company. We have a presence in about 140 countries. We have built this over 200 years. Through this global network, we are helping the world globalize. We help local companies globalize. We help global companies access local markets. We also have deposit-taking capabilities throughout the world, which

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© 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Jan. 16. 2009 / 8:00AM, C - Q4 2008 Citigroup Inc. Earnings Conference Call we can put to work with our consumers and institutional customers in a diversified way that produces the highest returns. That is what a global universal bank is.

Given these conclusions, we have decided to restructure the Company into two -- Citicorp and Citi Holdings. By implementing this, we can focus on maximizing the value of Citi by operating Citicorp as our core business and by optimizing Citi Holdings through rationalization and managing it through the cycle.

With that as background, let me briefly describe what is in both and what we are trying to achieve. First, the strategic story and then the financial story. Let me begin with Citicorp. Citicorp is the global bank for businesses and consumers. Our distinctiveness is our globality. There are two parts to the business -- the global institutional bank, which includes our industry-leading transaction services businesses that has a global network spanning 140 countries.

Our institutional bank will encompass both corporate and investment banking and will remain a world-class banking business, providing a full range of services, including advisory, underwriting, lending and market-making. We are committed to remaining a top-tier player in this area. We will continue the process of derisking and refocusing the sales and trading businesses towards more market-making businesses.

We have and will continue to exit several forms of proprietary risk-taking. Where we continue to take principal risk, we will only do so when we have proven teams and a clear source of advantage. We have reduced the capital in the Securities and Banking business significantly. The balance sheet in this business is down approximately 25% since the beginning of 2008 and we intend to operate the Securities and Banking businesses within Citicorp with approximately $700 billion of assets.

We have great people and we have added substantial talent to those people. And we are building a risk culture that is consistent with our strategy. These changes and the accompanying risk profile will allow us to produce the desired consistent and stable earnings over time.

We will continue to build our distinctive private bank that is well-known globally and serves high net worth individuals, including over 30% of the world's billionaires. There are strong linkages between our private banking services and our advisory financing services. We are the number one wealth manager across Asia and the third largest in Latin America.

Let me turn to retail banking. We have a strong presence in the US, Asia, Latin America, Central and Eastern Europe and Middle East. This includes our credit card business, in addition to our consumer and commercial banking business. The retail banking business is strongly positioned with good growth prospects. In the US, a retail bank is well-positioned in primary metropolitan areas with an attractive affluent and small business customer base with over 1000 branches. Our branded cards business remains a top player.

We are already number two in Asia with a rich 100 plus year legacy and going forward, we will substantially expand our market leadership position and continue to focus on innovation, particularly via technology.

In Latin America, we are the leading local bank in Mexico with strong Central American businesses and an attractive presence in Brazil. In Central and Eastern Europe, we are a leading foreign payout player in Poland and Russia with smaller, but still attractive positions in Hungary and the Czech Republic and despite near-term economic challenges, we continue to see long-term growth potential.

The value of Citicorp is in its global scope and regional strength and its leading position in businesses and it's linkages in terms of clients, products, funding, risk, costs and infrastructure. For those of you who have followed the Citicorp of the past, you know that this has been a great business for years, producing strong profitability and growth. Today, we have updated and clarified that strategy for the new age and I am very excited about its prospects.

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Let me turn to Citi Holdings. Citi Holdings includes a great set of businesses with strong market positions. However, they are not central to the core Citicorp business and in many ways, compete for its resources. Citi Holdings has approximately $850 billion in assets and it is designed to recognize the managerial needs of the underlying businesses by focusing on risk management and where appropriate, accelerating in asset wind-downs. In fact, we hope to make an announcement regarding the CEO for this unit shortly.

Our goal is to maximize its value by running these businesses well, restructuring and managing through the cycle and being alert to dispositions and combination possibilities. We plan to run the three businesses within Citi Holdings with dedicated and experienced management and let me discuss each of them.

The brokerage and asset management business. These are excellent businesses with attractive returns, but as I said, they are not central to the core strategy of the new Citicorp. The Smith Barney with Morgan Stanley joint venture creates the biggest brokerage network in the US. Citi and our clients will continue to benefit from the joint venture and the distribution power it will have. It has earnings upside that we participate in and the deal generates tangible common equity for us.

Local consumer finance around the world. We have very strong consumer finance businesses in many countries, including CitiFinancial in the US. Some of these franchises are profitable today, but given the severity of economic downturn globally, these need special attention as do consumer mortgages and private-label cards, both of which are included in this unit.

Special asset pools. These include nonstrategic consumer assets and Securities and Banking assets. All of our ring-fenced assets that are under the US government's loss sharing program will be managed from this business.

Let me now turn to the financial story. First, this managerial shift is immediate. We will start managing the Company consistent with this structure immediately and our management reporting will reflect the structure starting second quarter 2009. Our plan is to transition to this structure to the maximum extent and as quickly as possible and taking into account the interest of all our stakeholders, including debtholders, preferred and common stockholders.

We also recognize the major legal vehicle restructuring changes will require regulatory approval and resolution of tax and other issues. The new Citicorp will have assets of about $1.1 trillion and approximately two-thirds of which will be deposit-funded. It is our goal that approximately 80% of our profits will be driven by Citicorp and based on an analysis we have done, we expect Citicorp to be profitable in 2008 and going forward in similar markets. Our pretax earnings on a pro forma basis from this company would have been about $10 billion plus in 2008. Virtually all of the write-downs will reside at Citi Holdings. With strong funding and relatively low risk, over time, Citicorp should be a significantly higher return, lower risk, higher growth business, particularly because of its footprint in the emerging markets.

The assets of Citi Holdings will be approximately $850 billion, including all of the assets subject to loss sharing. We will focus on continuing to harness the value of Citi Holdings. We will maximize its pre-provision earnings on the very attractive franchises in this unit. We will manage carefully to minimize loan losses in marks and we will maximize opportunities to monetize assets. The Smith Barney transaction represents an example of the approach and the significant value in these businesses and we will continue to look at all options dispassionately.

So let me sum up the separation. The separation is a result of the strategic conclusions I outlined earlier and is responsible to the reality of the environment and the funding markets and is designed to position Citi for the markets of the future. We believe this is good for debtholders because there is no diminution of existing claims in any manner. And there are improved prospects over time for a financial stronger Citigroup through greater realization of value from portfolio business and again, there is no legal vehicle separation at this time.

We believe this is good for shareholders. We can better contain the impact of our legacy assets through dedicated management. We can better manage the core businesses given reduced distractions and a simplified management model. We will be alert

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© 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Jan. 16. 2009 / 8:00AM, C - Q4 2008 Citigroup Inc. Earnings Conference Call to disposition and combination possibilities, but we are not in a rush to sell businesses. We believe this opens up the best and broadest range of options for Citigroup.

Let me just spend a minute on capital. Clearly on 2008, we raised a lot of capital. At Citi Day, I got a question about whether we raised too much. Clearly, the markets have evolved from everyone's expectations at that time and there are some concerns about our TCE.

Let me first start by saying that we have Tier 1 capital in excess of $118 billion. Tier 1 is the capital that supports our business with an estimated Tier 1 capital ratio of 11.8%. This is what drives our business. The government's TARP investment in us and the loss-sharing arrangement helped to ensure that we are well-capitalized. We look at it as a bridge to self-capitalization and rebuilding of tangible common equity over time.

We have a path to rebuilding TCE over time. It starts with restoring profitability, monetizing certain assets in Citi Holdings and there are other elements and Gary will take you through those in a minute. Gary will also take you through the details of earnings, but for 2009, let me just make a few points on profitability. Obviously, profitability will depend on revenue. Fourth-quarter adjusted revenues indicate that our number of our core customer franchises continue to perform well. While the flows and therefore the revenues are linked to market and economic environment, our clients continue to be active and engaged with us.

On costs, for Citigroup, we continue to believe we will be at $50 billion to $52 billion as we stated before. On risks, we have reduced our risky assets significantly. We continue to hedge where possible. In our consumer businesses, we are bending the curve on losses. We have a smaller balance sheet. We have ring-fenced assets with the US government and we have moved certain of our assets from mark-to-market to held-to-maturity accounts, which should provide some reduction in earnings volatility.

None of us have rose-colored glasses on and understand how challenging the environment might continue to be, but we are anticipating that and doing what we can to get ahead of it. I intend to provide you with a lot more transparency about both Citicorp and Citi Holdings. I am going to be speaking at the Citi Financial Services conference, I guess it's not next week, but the following week and hopefully that transparency leads you to appreciate and understand the separation and as well gives you the information to understand the value of the franchises.

Let me end by saying that I'm very excited about these moves that we make today. It focuses Citigroup on its strategic destination. We have clarity on how we are going to get there and I am going to turn it over to Gary to have him talk about clarity on profitability and getting to a higher level of TCE over time.

Gary Crittenden - Citigroup Inc. - CFO Thank you, Vikram and good morning to everyone. I'm going to start on slide 1 for the earnings discussion for the quarter. Slide 1 summarizes the main drivers of our fourth-quarter results. Negative Securities and Banking revenues, significantly higher credit costs and restructuring charges were the main factors this quarter.

There were three main components in Securities and Banking revenues. And you can see these on the left-hand side of the page. First, $7.3 billion of write-downs and losses; second, negative $2.5 billion in revenues in Securities and Banking, private equity and equity investments; and third, negative $5.3 billion in revenues on our non-monoline derivative positions. Outside the above mentioned items, revenues were $21.2 billion.

We saw our first absolute year-over-year expense decline since 2005 on a reported basis and this quarter's costs include approximately $2 billion of restructuring charges and $563 million of an intangible asset impairment charge. Adjusting for the restructuring charge and for other press-released disclosed items in all periods, the downward expense trend since the beginning

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© 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Jan. 16. 2009 / 8:00AM, C - Q4 2008 Citigroup Inc. Earnings Conference Call of the year has continued. Credit costs were $12.7 billion in the quarter, or $5 billion higher than last year. Together, the negative revenues in Securities and Banking and credit costs largely accounted for the quarter's performance.

I think when I mentioned the revenue marks, I mentioned $7.3 billion and they were actually $7.8 billion in the quarter.

During the quarter, we also completed the sale of our German retail operations and our interest in Citigroup Global Services for after-tax gains of $3.9 billion, including current quarter hedge gains and $192 million respectively.

I am going to turn now to slide number two. This shows you our consolidated results for the quarter. To summarize the fourth-quarter results, net revenues fell 13% year-over-year and 66% sequentially. Expenses were down 5% year-over-year. The cost of credit was up by $5 billion over last year, primarily due to higher net credit losses of $2.6 billion and a $2.1 billion incremental net charge to increase loan loss reserves. These factors drove a loss from continuing operations of $12.1 billion for the quarter or a loss of $2.44 a share. Including the gain from the German retail banking operations and other discontinued operations' items, the total net loss was $8.3 billion for the quarter or a loss per share of $1.72. The EPS is based on a basic share count of 5.3 billion shares.

We have performed a fourth-quarter goodwill impairment analysis as we have done in previous quarters in 2008. In light of recent market and economic events and today's restructuring announcements, we are continuing to review goodwill to determine whether an impairment results. While goodwill impacts our GAAP financial statements, any resulting change would not negatively impact regulatory Tier 1 capital or TCE. We expect to complete our further analysis prior to filing our 10-K.

I am turning now to slide number 3. Slide number 3 shows the components of the year-over-year decline in revenues. Adjusted for the marks we have taken in the Securities and Banking business, revenues for the quarter showed a $10.1 billion decline versus last year. In global cards, higher credit costs flowed through the securitization trusts and drove the $2.4 billion negative impact from securitization. Managed revenues were up 6%, excluding the impact of foreign exchange and prior year gains.

In consumer banking, lower mortgage servicing revenues, declining investment revenues driven by sharply lower investment sales and asset values, spread compression and foreign exchange were the primary drivers of the revenue decline. Securities and Banking had a difficult quarter and was the primary contributor to the year-over-year decline for the reasons that I mentioned earlier. The decline in wealth management revenues largely was due to the fall in asset values and decline in the capital markets, most acutely in the US and Asia.

Slightly offsetting these declines was transaction services where growth in balances and business wins in treasury and trade solutions were offset partially by a decline in securities services. Adjusting for the Securities and Banking items that I previously mentioned, including the $7.8 billion in revenue marks, the $2.5 billion in private equity and equity investment losses and $5.3 billion in negative revenues on our derivative positions for movements in credit spreads, revenues for the quarter would have been $21.2 billion.

Slides with the details on the results for each of our businesses are included in the appendix of this presentation.

I am turning now to slide number 4. The graph on slide 4 shows a nine-quarter sequential trend of net interest margin for the Company. Net interest margin for the quarter is 3.22%, a 73 basis point improvement over last year and a nine basis point improvement over last quarter. Benefiting net interest margin this quarter was a decrease in overall funding rates versus the prior quarter, which reflected the Fed's rate cuts at the end of October and in December. Average interest-earning assets were down by approximately $70 billion versus the prior quarter, driven by a decrease in trading account assets and loans.

Slide 5 shows the trend of our expense growth. The benefits of our reengineering program are clearly evident as the decline in expenses continues. Expenses fell 5% versus last year due to tight expense controls that we have been implementing during the course of the year.

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This quarter, there are two factors to consider in comparison versus last year. First, we incurred approximately $2 billion in repositioning charges and second, an intangible asset impairment charge of $563 million related to Nikko Asset Management.

In the prior-year period, there were also two components. They included $539 million of repositioning charges and $306 million due to the Visa-related litigation exposure. Excluding these four factors, expenses on a business-as-usual basis were down 16% versus last year. Excluding the impact of FX, reported expenses would have been essentially flat.

Sequentially, expenses increased 6% due to the restructuring charge and the intangible asset impairment, which were offset partially by the repositioning and auction-rate securities charges last quarter. Excluding these, expenses were down 8% sequentially.

Looking at the chart on the right, you can see that adjusting for the repositioning charge and the intangible asset impairment, our asset base for the quarter -- I'm sorry -- our expense base for the quarter would have been $12.8 billion.

I am turning now to slide number 6. This graph indicates that we have continued to reverse the year-over-year headcount growth. Divestitures accounted for about half of the 14% decrease. December was the 14th consecutive month in which we have reduced our headcount. We will generate additional reductions from the three areas that are shown on the right-hand side of the page. First, 5500 from those who are on notice and who have stopped working, but who technically remain on the Company's payroll through the notice period; second, 1700 from the divestiture of Citi Technology Services, which is expected to close in the first quarter; and finally, 15,000 from reductions for which we have already booked a reserve. Taking all this into account, we expect to reach our target of 300,000 over the course of the next six months.

Slide number 7 shows the key drivers of the year-over-year growth in our cost in credit. Net credit losses were $6.1 billion higher than last year -- net credit losses were $6.1 billion and higher than last year by $2.6 billion. Consumer banking in cards in North America comprise $1.8 billion, or about 70% of the increase. In the institutional clients group, net credit losses increased by $294 million to $1 billion, reflecting mortgage-related and financial institutional exposures in Europe and a generally weakening corporate credit environment.

The loan-loss reserve build was $6 million for the quarter, higher than last year's fourth-quarter build by $2.1 billion. The allowance for loan losses on our balance sheet now stands at $29.6 billion. The $2 billion of loan-loss reserve build -- $2 billion of the loan-loss reserve build was in the North American residential real estate portfolio and in North American cards. Additionally, we added reserves to our auto and personal loans portfolio. With the addition to reserves in our North American mortgage business, we are at a 14.8 month coincident reserve coverage ratio for the residential real estate portfolio, 15.7 months and 13.8 months of coincident reserve coverage in our first and second-mortgage portfolios respectively.

In North American cards, we have increased our coincident coverage ratio to 12.8 months. Our reserve build in cards and consumer banking also reflects incremental reserves for loan modification activity with our customers across all our productlines. In Securities and Banking, we added $2.2 billion net to our loan-loss reserves. Of this, $1.6 billion was due to reserve builds for specific names, including $1.2 billion for LyondellBassell. Of the remaining $0.6 billion, the majority reflects deterioration in certain segments of the loan portfolio, particularly highly leveraged industrial and commercial real estate borrowers.

Turning now to slide number 8. Most of you are familiar with this slide, which charts the net credit loss ratios of our North American cards and first-mortgage portfolios, as well as the unemployment rate. Looking at the green line at the bottom, you can see that the first-mortgage NCL rate has essentially reached the peak, which we experienced in the fourth quarter of 1992. Given the elevated first-mortgage NCL rate that persisted after the peak in the early 1990s as you can see on the left-hand side of the page and the ongoing deterioration in the current period, we could see above-average losses for the next several quarters to come.

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Turning to the cards NCL rate, you can see from the red and blue line that the loss rate has surpassed the early 1990s recession peaked by 160 basis points. Given current estimates of rising unemployment into late 2009 or early 2010, we could expect to see the cards NCL rate continue to rise.

Turning to the yellow box at the top of the page, you will see that the loss rate for Citi branded cards, our largest portfolio, remains well below our retail partners' portfolio. That said, the NCL rate for both continue to accelerate in the quarter. It is unclear how closely credit loss behavior in the current recession will correlate with the 1990s recession. Loss rates in cards have now surpassed their historic highs while in first mortgages the rate is rapidly approaching the previous peak. Trends in international consumer remains substantially unchanged from last quarter and we have provided additional detail on this in the appendix.

Slide 9 shows the historic corporate default rates and our corporate loan-loss ratio at the top. It shows historical corporate reserve build at the bottom. Investment grade and non-investment grade defaults have been trending upward since late 2007. We have been increasing our loan-loss reserve ratio over the same period, which is visible in the red line at the bottom. As it is apparent, there has been a correlation between corporate defaults and the rate at which we add to our loan-loss reserves.

Turning to the reserves, we show the split between general reserve build in blue and the FAS 114 or reserve builds for specific counterparties in gray. Specific reserve builds tend to be episodic by nature and are therefore unpredictable, but still closely correlated to the rate of corporate defaults. This quarter's $1.2 billion build for LyondellBassell is an example.

In addition, since the second quarter of this year, we have been building general reserves, reflecting overall weakness in the corporate credit portfolio. Moody's projects a 15% corporate default rate in 2009 for non-investment-grade companies. Given the historical correlation between corporate default rates and our reserve build, it is possible that we may continue to add to our non-specific reserve balances.

Slide number 10 provides the assets on the covered assets for which we have a loss-sharing agreement with the US government. On November 23, we announced an agreement with the US government to share losses on approximately $306 billion of securities, loans and commitments backed by residential and commercial real estate, among other assets. That agreement has now been finalized to include $301 billion of assets. The agreement stipulated that while these assets would remain on our books, they would be ring-fenced and receive an additional risk weighting benefiting our capital.

Under the agreement, Citi assumes the first $30 billion of pretax losses in addition to our existing reserves and assumes 10% of the remaining losses above the amount. Since the announcement on November 23, we, along with the US government, have concluded a detailed review of the composition of the covered assets.

There are three factors under the current agreement that most affected this composition. First, assets originated after March 13, 2008 would be excluded. Second, any foreign assets under a fairly broad definition of the term foreign would be excluded. The final factor, which was a term added subsequent to September 23, is that the loss sharing is determined on a portfolio basis. In other words, gain on the recapture of the liquidity premium and the recoveries related to the covered assets are netted against the covered losses across all of the assets in the portfolio. As a result of this final condition, certain mark-to-market assets, such as the ABCP CDO super senior portfolio, which totals approximately $9.9 billion, have been excluded from the ring-fenced assets. What we have shown here is a breakout of these assets by loans, securities and unfunded commitments.

There are four main categories of the assets in this portfolio -- first, $192 billion of funded consumer loans comprising primarily of first and second mortgages; second $26 billion of corporate loans, including leveraged finance and commercial real estate loans; third, $32 billion from various corporate securities; fourth, $51 billion of unfunded commitments, primarily home-equity and other corporate lines. Only $5 billion of the total corporate portfolio consists of mark-to-market assets. You can look at our website and you can get additional information on this loss-sharing agreement. As I mentioned, as a result of this loss-sharing agreement, we will have a reduced risk weighting against the assets that are in this portfolio.

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Slide 11 shows a historical trend for our asset balances where we have made significant progress in reducing them. Since last year's third quarter, we have reduced assets by approximately $413 billion. We have done this in a number of ways, including divestitures and a methodical effort to sell assets, which we anticipate will continue into 2009, particularly in the context of what Vikram has discussed earlier this morning.

Slide 12 shows the Tier 1 capital ratio and our structural liquidity position on the left side and our tangible common equity on the right. The Tier 1 capital ratio at quarter-end was approximately 11.8%. The Tier 1 ratio benefited from the $7 billion preferred issuance related to the covered asset guarantee. It is expected to be approximately 30 basis points. The higher ratio versus the third quarter primarily reflects the issuance of preferred shares under the TARP program, the reduction in risk-weighted assets as a result of the overall reduction in assets, including asset sales and the benefit of the government guarantee on the covered asset portfolio. This was partially offset by an increase in the Tier 1 disallowed deferred asset, losses incurred in the quarter and higher risk weighting on assets that were reclassified during the quarter.

We increased our structural liquidity from 55% of assets in last year's third quarter to approximately 66% at the end of this quarter. We achieved this through a combination of growing equity and shrinking assets, which was offset partially by lower deposits and long-term debt. We finished the quarter with tangible common equity of $29 billion, down from $44 billion at the end of last quarter.

The largest component of the decline was an additional $11 billion in other comprehensive income, otherwise known as OCI. Of the $11 billion change in OCI, $4.6 billion came from foreign currency translation adjustment, otherwise known as CTA. For the full year, the CTA contributed approximately $7 billion to the change in OCI. Based on the countries where we do business, movements in the CTA are most sensitive to changes in the peso, yen, pound sterling and euro. Changes in foreign currency translations are normal; however, this quarter's change was much higher than in the past, reflecting the significant weakening of some foreign currencies against the US dollar.

Additionally, approximately $3.3 billion of the change in OCI is attributable to the change in net unrealized losses on available-for-sale securities. These AFS marks are exacerbated by the severe illiquidity in the market. By definition, these AFS marks have been determined to be temporary and are expected to accrete back to their face value over the life of these positions.

Looking at the factors that we have already quantified that could potentially benefit tangible equity, we have first approximately $6.5 billion from the joint venture transaction between Citi and Morgan Stanley when it closes and secondly, approximately $7.5 billion from the conversion of the ADIA mandatorily convertible preferred stock. The first traunch in the amount of $1.9 billion is scheduled for conversion on March 15, 2010.

Citi's total deferred tax asset at year-end 2008 was approximately $44 billion. The DTA is mainly composed of US sourced booked tax timing differences related to loan-loss reserves, US sourced net operating loss carryforwards and foreign tax credit carryforwards. There were several factors considered in determining whether a valuation allowance would be necessary, including the fact that the carryover period for net operating loss utilizations is 20 years while the foreign tax credit carryover period is 10 years. We concluded that these DTAs are expected to be realized in the future periods and therefore, a valuation allowance was not needed. We will continue to review the DTA each quarter as the economic environment changes and we proceed with our planned reorganization.

Turning now to liquidity. The combined parent and broker-dealer entities continue to maintain sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing unsecured markets. Reserves of cash and highly liquid securities were $66.8 billion at the end of the quarter compared to $50.5 billion at the end of the prior quarter. Citigroup and other US financial services firms are currently benefiting from numerous government programs that are improving markets and enhancing our current liquidity position.

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At year-end, the weighted average maturity of our Citigroup Inc. senior unsecured borrowings was 6.9 years, relatively unchanged from the seven years at year-end 2007. We also reduced our commercial paper program from $34.9 billion at the end of 2007 to $28.7 billion.

I am turning now to slide number 13, which shows the nine-quarter trend in our deposits. Deposits in the US, shown in the blue bar, increased by $13 billion sequentially. We saw increases both in retail banking deposits, as well as a substantial increase in average transaction services deposits in the US.

In retail banking, average deposits in the US grew by almost $5 billion dollars. As I mentioned last quarter, our transaction services had deposit inflows of approximately $55 billion in the last two weeks of that quarter, most of which was in the US. That inflow, along with the continued deposit gathering in the US, increased average deposits in North America by $22 billion sequentially.

Internationally, average retail banking deposits were down 3% sequentially, excluding the impact of foreign exchange. Some customers continue to rebalance their portfolio for insurance purposes, particularly in countries such as the UK, which was partially offset by new deposit inflows. Average deposits in transaction services internationally were up 1% sequentially, excluding the impact of foreign exchange.

Turning to the Securities and Banking on slide number 14, the slide shows the major components of revenue for the quarter. First the $7.8 billion in disclosed revenue marks; second, the $2.5 billion in private equity and equity investment losses driven by the slowdown in global equity markets and asset value to clients. This category is inherently unpredictable, and in this quarter had a particularly outsized impact on our revenues which we have highlighted here.

Third, a $5.3 billion negative impact from the movement in credit spreads on our derivative positions, which I will address in more detail on the next slide. Taken together, these items accounted for $15.6 billion of negative revenues in Securities and Banking, which implies that excluding them would result in $5 billion of positive revenues.

Now slide 15 shows the significant impact from the movement in corporate credit spreads on our fourth-quarter results. The top graph shows a historical trend of three metrics; Citi's bond spreads in green, Citi's credit default spreads in red, and finally the CDX high-grade index in blue which is a depiction of overall corporate credit default spreads.

The graph shows historically Citi's bond spreads and credit default spreads have moved closely together and, therefore, we have used Citi's credit default spreads in more liquid and more easily accessible metric to determine the fair value of liabilities on which we elected the fair value option.

However, bond spreads and corporate default spreads began diverging towards the end of the third quarter, but it was not clear at the time if this trend would persist. The trend continued through the fourth quarter. As a result of this divergence, we made the decision to use bond spreads to estimate the impact of our own credit in the calculation of the fair value of those liabilities for which we elected the fair value option.

As the top graph shows, while our credit default spreads tightened during the quarter, our bond spreads widened, driving a $2 billion gain from the impact of our credit on debt for which we have elected the fair value option. Had we continued to use credit default swaps in the quarter, we would have reported a loss of $500 million.

We have historically used and continue to use our credit default spreads to determine the mark-to-market loss or gain on our derivative liability positions and counterparty credit default swaps to mark-to-market derivative asset positions, including our exposures to monolines. Historically, the two have been closely correlated as well as shown in the graph and, therefore, the impact on our essentially matched derivative asset and liability positions have offset one another.

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During the quarter, the two TARP infusions resulted in a tightening of our CDS spread, which you can see on the graph. This resulted in a negative CVA of $833 million on our derivative liabilities.

Corporate credit spreads across virtually every credit rating category widened substantially, which led to a $4.4 billion mark-to-market loss from the credit value adjustment related to our non-monoline derivative asset positions. Together, we recorded a negative $5.3 billion impact on our credit derivative positions, which I showed on the previous slide. And again, just a minor correction here, the negative CVA on our own derivative liabilities $883 million, not $833 million. The volatility in credit spreads along with the divergence of historical relationships had a significant impact on our results this quarter.

Slide 16 shows the asset reductions in seven of the categories that comprise the majority of the marks each quarter. The first two columns show our total exposures in seven -- several key risk categories at the end of 2007 and 2008. As you can see from the green column in the center, we have reduced all but one of these categories. While the majority of the reductions are driven by liquidations and sales, mark-to-market losses also contributed to the declines.

The numbers also reflect reduction through various hedging strategy. The total reduction in these exposures in the seven asset categories over the last year is $115 billion. The increase in auction-rate securities was due to the settlement announced in August, which caused us to repurchase these securities from certain clients.

The last two columns show how much of each of the total exposures in each asset categories are in mark-to-market at the end of 2007 and 2008. Here, the reduction has been $159 billion, which is greater than the reduction in exposures reflecting that we have moved many of these assets to held-to-maturity accounts. While this accounting change will not reduce risks associated with this portfolio, it has the potential to reduce earnings volatility associated with them. This would imply that the rate of decline in our assets in the future may be somewhat slower than it has been in the past few quarters.

Slide 17 shows the writedowns and other transactions for each category of our direct subprime exposure. The total writedowns, including higher credit-related costs for the quarter, were significantly higher than for the third quarter. They amounted to $4.6 billion as shown towards the bottom of this slide, including $3.9 billion taken against super senior net exposures of $16.3 billion shown in the middle of the first column and $705 million taken against the lending and structuring position of $3.3 billion. We started the quarter with a total subprime exposure of $19.6 billion and we ended with $14.1 billion as shown at the bottom of the last column. The discounted cash flow methodology and related assumptions used to value the positions generally remain consistent with what we did last quarter and have been described in detail on previous earnings calls.

As I described in the last earnings call, our evaluation methodology uses a discount margin that is calibrated to the price of the underlying instruments, such as the ABX indices and other cash bond marks. As a result of the significant decline in the values of these underlying instruments, the discount margins increased significantly this quarter, particularly for the ABCP exposures, which is the primary contributor to the writedown.

The credit value adjustment related to the monolines for the quarter was $897 million as is shown towards the bottom of this slide. At quarter-end, our CVA balance was $4.3 billion and the market value direct exposure increased to $6.8 billion from $6.6 billion during the fourth quarter reflecting in part the settlement and termination of transactions having a notional amount of $1.5 billion.

So now to wrap up, let me discuss some factors, which you may want to consider as you think about our results for 2009. First, on revenues. Starting with the number that we showed you on slide number 3, $13.4 billion after adjusting for marks and press-release disclosed items, which by nature can be episodic and not predictable, there are a few additional things to think about. A $5.3 billion negative impact from credit spreads and the impact that had on our derivative positions. While spreads will continue to move around with some degree of volatility, it is somewhat unusual for our derivative positions to have a credit value adjustment of the order of magnitude that we saw this quarter. As I explained earlier, much of this had to do with specific events that occurred during the quarter.

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The second factor to consider when thinking about revenues is approximately the $2.5 billion of negative revenue from private equity and equity investments. To the extent that equity markets recover, these valuations could improve. Adjusting for the above items would bring you to revenues of $21.2 billion for the fourth quarter.

Looking to 2009, there are a few additional factors to consider. First the impact of repricing our credit card portfolio. We have done a very thorough analysis of our card portfolio and have made pricing adjustments, which are expected to mitigate the credit costs in the business. Second, two TARP investments, along with the asset guarantee, have provided us with significant capital. Most of which has yet to be deployed. We are considering the use of this capital very carefully and will put it to work in a way that is best for our clients, the markets and for our shareholders. This will generate additional revenues that would otherwise not have been reflected in our historical numbers. Of course, preferred dividends related to the deferred stock ownership will reduce earnings to the common shareholders.

Third, as we have moved certain assets to the held-to-maturity accounts, we believe the current level of pricing makes them -- because we believe the current level of pricing makes them attractive opportunities. As a result, we expect to see some revenue accretion due to the liquidity-related marks on these assets over time.

Finally, we continue to divest nonstrategic businesses, such as our German retail banking operations, and we expect to record gains on these transactions, which will benefit revenues. Offsetting these positive factors could be continuing marks on certain exposures, which while reduced, still exist.

Moving to expenses. As we said on November 17, we are targeting a full-year expense base of between $50 billion and $52 billion. As you can see from our results this quarter, we are on track to achieving these expenses.

Credit costs will remain a headwind during 2009. First, on consumer credit, we have said that, based on our current assumption and scenario planning estimates as we go into the first half of 2009, we expect the NCLs for our consumer portfolios to be $1 billion to $2 billion higher each quarter when compared to the NCLs in the third quarter of 2008. We believe that they will be at the higher end of this range.

On loan-loss reserves, we said that assuming that unemployment peaks towards the end of 2009, we would be coming to the end of significant additions to our consumer loan-loss reserve over the next few quarters. Our assumption on employment has changed and based on current data, we believe that unemployment could peak as late as the first half of 2010. This implies that we will most likely continue to add to our reserves until the end of 2009 and could see the end of significant additions by the end of this year.

Corporate credit is inherently difficult to predict. It would be reasonable to assume that as corporate default rates rise, we expect to continue to add reserves and we will likely see higher net credit losses.

To sum up, while numerous risks remain, we have taken many steps to potentially mitigate their impact. First, we have built reserves and our total allowance stood at $29.6 billion at quarter-end. Second, we have completed the covered asset agreement with the government, which provides significant protection on $301 billion of assets and commitments on the downside. Finally, we have moved certain assets from mark-to-market account to held-to-maturity, which could provide some reductions in earnings volatility. Taken together, the Company has made very significant progress in derisking its balance sheet and building a strong base of capital to generate future earnings. With that, let me now open it up for questions and answers.

QUESTIONS AND ANSWERS Operator (Operator Instructions). Mike Mayo, Deutsche Bank.

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Mike Mayo - Deutsche Bank - Analyst Good morning. Can you elaborate more on Citi Holdings? I understand that it helps you focus more on risk management, maybe accelerates some dispositions, maybe helps you save some expenses and really get the firm focused on what his core and what is not core. Is this a step toward an eventual spin-off or will there be additional capital raised, so you can take markdowns? How far beyond are you going than simply separating out the bad stuff into a new structure?

Vikram Pandit - Citigroup Inc. - CEO Mike, as I said before, -- it's Vikram, hi, good morning -- as I said before, this is a managerial separation and that is where we are starting and we believe there is a lot of value in clarifying focus on these things and having them managed in a way to harness value. I also said that we are working on getting this -- getting this separation done as quickly as possible, it may translate into us thinking through legal and tax and other implications for legal structures, but that is not where we are today. It could open up options, but I want to be very clear that we are doing this in a way that takes into account the interests of all our stakeholders, including debtholders, preferred holders and common holders.

Mike Mayo - Deutsche Bank - Analyst And as a follow-up, of the $850 billion of assets, $300 billion is the ring-fenced assets and the rest of it, if you could just break it down into the major chunks by assets?

Vikram Pandit - Citigroup Inc. - CEO And I will, if you have a little bit of patience. When we get to the Citi Financial Services Day, you will have a lot of information.

Mike Mayo - Deutsche Bank - Analyst Okay. And just to be clear, you said Citi Holdings would include consumer mortgages, private-label, credit cards and then the banking and asset management businesses?

Vikram Pandit - Citigroup Inc. - CEO Not banking, brokerage.

Mike Mayo - Deutsche Bank - Analyst Sorry, sorry. Of course. Brokerage and asset management. And that includes all the subsets?

Vikram Pandit - Citigroup Inc. - CEO Yes, it includes all of that. That is correct.

Mike Mayo - Deutsche Bank - Analyst Great. All right, thank you.

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Operator John McDonald, Sanford Bernstein.

John McDonald - Sanford Bernstein - Analyst Good morning. Gary, a question on the covered asset pool, will you use normal loan loss reserve accounting for that or it seems like you have a $9.5 billion reserve for those loans, so as losses start coming in, will you start drawing down that reserve?

Gary Crittenden - Citigroup Inc. - CFO No, we will have the normal loss reserving against this pool. Now obviously, over time, as we exhaust the first loss associated with these assets and actually work through that, and we have no exposure on the remaining amount of assets, then the asset reserves that we have remaining against the assets against which we don't have any loss exposure comes into play and allows us to use some of that loan-loss reserve. But for the initial period here, hopefully we don't go through that $30 billion, but for the initial period, it will be just normal loan-loss reserving against that portfolio.

John McDonald - Sanford Bernstein - Analyst Okay. So that $9.5 billion, you will keep that and provide as you would as if they weren't covered?

Gary Crittenden - Citigroup Inc. - CFO That's correct.

John McDonald - Sanford Bernstein - Analyst Okay. Also under the new structure, will there be any change in the scope of the investment bank under the separation under Citicorp, risk activities, the scope of activities? Maybe Vikram could comment on that?

Vikram Pandit - Citigroup Inc. - CEO Yes, John and I talked about that briefly, particularly in the sales and trading businesses. I took you through the facts that our focus is going to be much more streamlined, market-making prop trading only where we do have the right teams and really an advantage. But overall effort to manage it with a much smaller amount of assets compared to where we have been. All that focus is still there.

Don't forget the true distinctiveness of our corporate investment banks comes from the multinational clients we have around the world and therefore, we are going to have an increased focus on some of the larger companies that need our services even more. And really the overall focus is that our distinctiveness is our globality and we want to serve those clients that value it most.

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John McDonald - Sanford Bernstein - Analyst And aside from the writedowns and we know it was a difficult quarter for everybody, could you just give us a little bit of color on the core trends in your investment bank this quarter where you saw signs that maybe you are gaining some marketshare with the dislocation of the investment banks?

Vikram Pandit - Citigroup Inc. - CEO Yes, there are pros and cons on both of those. There are certain businesses that actually did extremely well around the world. And then there are others that were challenged because of the market conditions and you know which ones they are, but things like our emerging market businesses did extremely well, particularly in the FX areas, etc.

But by and large, what I will say to you is that this is an environment where a lot of clients need a lot of things and a lot of services and we have been lucky enough that they have been turning to us and investment banking and those dialogs continue to be extremely active and we have benefited by that. And Gary, did you want to share any more information on that?

Gary Crittenden - Citigroup Inc. - CFO No, that's fine.

Vikram Pandit - Citigroup Inc. - CEO Okay, I think that is good enough for now, John.

John McDonald - Sanford Bernstein - Analyst Okay. And last thing I guess, Gary, you're going to be restating your financial supplement and kind of the way you present yourself in the next couple of -- or in the near term. Will we get a new update on how you look at yourself managerially differently?

Gary Crittenden - Citigroup Inc. - CFO We are. We know you look forward to having a change in the supplement layout and again, we apologize for making that change, but we really do think it is very fundamental to the understanding of the Company to split it along the lines of Citicorp and Citi Holdings. So by the time we report at the end of the second quarter, we hope to have made that split in our accounting.

John McDonald - Sanford Bernstein - Analyst Okay, by the end of the second quarter?

Gary Crittenden - Citigroup Inc. - CFO By the end of the second quarter, correct.

John McDonald - Sanford Bernstein - Analyst Okay, thanks.

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Operator Guy Moszkowski, Banc of America-Merrill Lynch.

Guy Moszkowski - Banc of America-Merrill Lynch - Analyst Good morning. I just want to revisit a question that came up a couple of minutes ago, but maybe ask it a little differently. As you split this managerially and people start to think about sort of the core businesses versus what will, over time, be managed down or separated, it seems to me that it does highlight for people the need for capital for both. And with, as you pointed out, your TCE down to about $29 billion this quarter, notwithstanding the fact that some of it is the OCI stuff that you talked about and there are some new capital rolling in over the next couple of years, it does seem thin and it seems basically as if all of that capital needs to be directed towards Citi Holdings. And it kind of articulates the need for capital for the ongoing businesses. Do you have any capital-raising plans? How do you think you can avoid that type of thought process for people?

Gary Crittenden - Citigroup Inc. - CFO Well, I guess the first thing I would say is that it is always better to have more capital than less capital in general terms and we clearly think about it that way. We believe we have very strong Tier 1 capital and as Vikram said in his introductory comments, we view the Tier 1 capital that we have received from the government as the primary way that we think about our capital and it obviously provides us a bridge as we increase the amount of tangible common equity that we have.

If you think about these businesses, there is a very strong deposit base associated with the left-hand side or with the Citicorp side of this entity and then obviously, you have asset-rich businesses that are part of Citi Holdings.

Now if you think about how this could evolve over time and if you think of Smith Barney as an analog for the kinds of things that could happen on that side of the business, there are ways by focusing on these assets that we could generate capital. We could generate capital in the case of Smith Barney without taking a material impact on our earnings going forward, at least based on the projections that we have done so far. And we have made pretty good progress in reducing assets.

Since we announced the legacy asset pool back in May, I think we have reduced the total legacy assets by about $120 billion or something like that. So that was roughly 25% of the total -- $160 billion, sorry. So a significant percentage of that total came down over the course of the last seven months and we are going to do the same thing on those assets that are in the special asset category.

Finally, I would say that some of these asset categories simply roll off with time, so you have got mortgages here, you've got auto loans here, you have got student loans here, you have categories on that right-hand side that mature with time. So we think we have got a very strong capital base today. We think we have got a good plan for how to think about the business going forward. We think better transparency about the business is always a plus and you are going to have better transparency about the individual components of the Company with both having a very clear plan for how we are going to manage them.

Guy Moszkowski - Banc of America-Merrill Lynch - Analyst And Gary, have you, or Vikram, have you begun exploring the potential sale of Primerica or is that a process that presumably only just now got started?

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Gary Crittenden - Citigroup Inc. - CFO So we never talk, as you know, Guy, about what we have with individual businesses. What I can tell you is that's a terrific business. It has got a great leadership team. We value Rick and John enormously and the contribution that they make to the Company and that is a great business and there are other great businesses in the Citi Holdings franchise. It includes Nikko Cordial. It includes our CitiFinancial business in North America. There are some really outstanding businesses in Citi Holdings and we are in no rush to necessarily separate ourselves from these businesses. But we clearly have a long-term plan and today is kind of the first step in the process of clarifying how the Company evolves over time.

Guy Moszkowski - Banc of America-Merrill Lynch - Analyst And then just sort of more about the quarter, maybe you can -- I know you did explain it, but there were a lot of things to capture. I would love it if you could explain how you had a $2 billion positive value adjustment on structured liabilities when your spreads actually narrowed?

Gary Crittenden - Citigroup Inc. - CFO I probably had you misunderstand me a little bit. So let me explain exactly what happened. So as regards to normal derivative contracts and I'll start with that and then I will move to the second piece. Regarding our normal derivative contracts, we had an overall loss there because the spreads on our own CDS widened out and the spreads on assets also widened and the combination of those two things together contributed to a higher loss.

On our own debt, on our own debt, we have transitioned the way we are calculating the credit value adjustment to utilize our cash bond spreads and our cash bond spreads were significantly wider in the quarter and as a -- I am sorry, significantly narrower in the quarter. And as a result of that -- you can see that on the chart that I showed in the deck. And as a result of that, we had the $2 billion pickup.

Guy Moszkowski - Banc of America-Merrill Lynch - Analyst Okay, thanks for the clarification. On the Lyondell reserve, the $1.2 billion, that is obviously I think a pretax number. Isn't that less than what you said in the press release last week?

Gary Crittenden - Citigroup Inc. - CFO I believe that is the same number, but we will doublecheck and let you know.

Guy Moszkowski - Banc of America-Merrill Lynch - Analyst Okay and then finally, the net interest margin improvement that you talk about, I was wondering if you would go over the sources again because -- is it primarily within S&B when you look at it on a business line basis because I am certainly having trouble seeing it when I look at the consumer unit.

Gary Crittenden - Citigroup Inc. - CFO Yes, it is primarily in S&B. There were some yield compression as you properly point out, but that was offset by the benefit that we got from lower funding costs. There was the lower funding cost that we have now had happen throughout the course of this quarter and the net of that lower funding cost delivered the wider net interest margin for the quarter.

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Guy Moszkowski - Banc of America-Merrill Lynch - Analyst Okay, thanks very much.

Operator Meredith Whitney, Oppenheimer.

Meredith Whitney - Oppenheimer & Co. - Analyst Hi there. I have a couple of questions. The first is have you done anything differently this quarter with your charge-offs? Meaning did you sell them early, have you been working them out? Because the recovery rate dropped again and that's an industrywide problem, but I was wondering if you were doing anything different with that? And then I have follow-ups.

Gary Crittenden - Citigroup Inc. - CFO Well, we haven't done anything with our charge-off rate methodology. We have done --

Meredith Whitney - Oppenheimer & Co. - Analyst No, not that, but in terms of how you are managing the charge-offs. I'm not talking about the accounting, I am talking about from an operation standpoint.

Gary Crittenden - Citigroup Inc. - CFO Operationally, we are doing a lot. We are doing a lot on loan modifications on the mortgage portfolio, we are doing a lot with the credit card customers. And so there is a very significant effort within the Company obviously. I think Vikram used the term to try and bend the curve, that is to try and have a positive influence on where we think the loss rates would go over time. So those loan modification programs obviously could be having the impact that you are seeing, Meredith.

Meredith Whitney - Oppenheimer & Co. - Analyst But I am referring to -- you mean loan modifications in terms of cramdowns or the loan modifications because that is still working out as far as I understand. I am talking about in terms of cards and are you working -- I guess put simply, are you working these loans at yourself or are you using third-party agents?

Gary Crittenden - Citigroup Inc. - CFO Well, in general, we work these loans out ourselves. There are -- it depends on where a loan is in its life and I don't know the specifics of the detail here. Generally, we work these loans out ourselves. There are certain loan categories. When they get to be very, very old and past due that we occasionally bring in third parties or sell these assets to third parties, that kind of activity takes place.

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Meredith Whitney - Oppenheimer & Co. - Analyst Okay, that sounds standard. Another question, I had just a housekeeping question and then I have a follow-up after this. Of the things that are in the holding company, specifically the private-label portfolio, anything is up for sale, is that a good understanding?

Gary Crittenden - Citigroup Inc. - CFO Well, here is the way I would think about it. I would put it in the context of what I just said. There are some very good assets in the Citi Holding side of the portfolio, assets that we feel very positively about. And I think Vikram used the terms that we are not in a rush to sell anything. I think that accurately captures this. These are good businesses that we have as part of the Company. What we have tried to do with this is provide strategic clarity and managerial clarity for these businesses going forward and what we are going to try and do is, over time, manage them to ensure that we protect the shareholders and that we enhance the value that we have for our shareholders and protect other key stakeholders, like bondholders and debtholders for example.

Meredith Whitney - Oppenheimer & Co. - Analyst Got it. So one last final question, which is given the fact that the government has obviously put a lot of money into the Company, have they in any way said they want you to limit your risk exposure overseas and is that why loan balances have pulled back dramatically because otherwise you are taking on risk beyond the US and providing liquidity beyond the US consumer? Do you follow?

Vikram Pandit - Citigroup Inc. - CEO Meredith, the answer to that is no and flat-out no. I don't even know how I would qualify that, but it's no.

Meredith Whitney - Oppenheimer & Co. - Analyst Okay, thank you.

Operator Glenn Schorr, UBS.

Glenn Schorr - UBS - Analyst Thanks. Might as well stick with the one-word answers for now. Vikram, did the government have anything to say about the Smith Barney decision? Maybe put it another way, was the Smith Barney deal decision solely that of Citi management team?

Vikram Pandit - Citigroup Inc. - CEO We made that decision. That is clearly true. It was our decision, very clearly. (technical difficulty). Somebody's BlackBerry, sorry about that. But you know about regulated banks and financial institutions. We constantly talk to our regulators, but that conversation is different from decision-making. We made this decision.

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Glenn Schorr - UBS - Analyst Okay, thank you. The split is interesting between Citicorp and Citi Holdings. And is the main reason you are not there yet from a tax and regulatory and legal perspective the funding and how you split out assets? Is that the obvious reason that that takes a lot more time?

Gary Crittenden - Citigroup Inc. - CFO You know, the way I would think about it, Glenn, is that there is a whole series of reasons. So if you -- the first and primary reason to do this is to ensure that we have real strategic clarity about the long-term destination of Citicorp and I think Vikram -- it was kind of the first thing that he said, to have real strategic clarity about what it is and to allow -- those of you who follow us very closely -- to have a clear picture in your mind of what the structure is going to look like, what that business looks like and the characteristics of it and just how attractive that underlying franchise is.

But there are, as you correctly point out, lots of things that would have to happen before you would ever consider having these businesses operate independently. There is intertwined legal entities. Meredith just mentioned the private-label card business. I am sure there are combined legal entities between the various parts of our card business. And all of that will take a very long time to kind of sort out, but you have to kind of start that process at some point.

And what we are doing actually today is taking the first step in that process and the first step in the process is to separate organizationally. The second step in the process is to make sure that we have the accounting separated properly. The third step in the process could lead us to do a legal entity separation and then that opens up a broad range of options for us, all being conscious during the entire time of the broad range of stakeholders that we have here -- the employees, the bondholders and the shareholders -- and that is the way we are thinking about this.

Glenn Schorr - UBS - Analyst Fair enough. Changing to -- I'm curious to get just a quick thought on the turnaround on the thought on the loan remodification bill and just the overall feel for what that means for the potential to accelerate losses and then the impact on the securitization markets that you feel if the bill gets passed, in current form, what that would mean.

Gary Crittenden - Citigroup Inc. - CFO Well, I don't think that -- I guess here is the way I would think about it. We have been very active in loan modification for a while now and in fact, the numbers of loans that we have modified are quite large and those loan modifications can vary from very minor kinds of things to much more significant factors. And the impact that that has on us and the way we account for it depends a little bit on where in the process you actually intervene and have the loan modified.

So without putting too fine a point on it, I can say that our efforts are very targeted on trying to have an impact on bending what our loan-loss curve is over time, not increasing that. And as you can see, there have been some pretty substantial increases in our loan losses in the mortgage portfolio. So we have got a lot of work to do there and so we are actively engaged in that and as you know, are supportive of that bill. But clearly, our overall effort is to try as much as we possibly can to eventually bend the curve on these losses.

Glenn Schorr - UBS - Analyst Okay. I'll follow up afterwards on that. Last two quickies. At current marks or current levels, do you have -- you might not want to tell me -- but do you have a process of being able to track that original $29 billion of first loss position on the $301 billion

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© 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Jan. 16. 2009 / 8:00AM, C - Q4 2008 Citigroup Inc. Earnings Conference Call where that mark-to-market is, how much of that first loss position has started to move through? Do you have the ability to track that?

Gary Crittenden - Citigroup Inc. - CFO Yes. So we have -- there is going to be rigorous reporting requirements around the $301 billion as you might imagine. So there is a head of this business that has been appointed. Rick Stuckey who actually runs this business, will have normal reporting around that, will share that reporting with you. Obviously, the US government is very interested in that reporting. And so we obviously signed the agreement last night and finalized the last assets that are going to be part of that portfolio last night. But we will have very specific reporting around this and that will be available to you and to others.

Glenn Schorr - UBS - Analyst Okay. And then this is the last one, just theoretical. Is it possible to do any sort of debt or equity swap for you guys or for anybody else for that matter in anywhere part of the capital structure that you can push a consolidation where you flip the script on us on the cap structure?

Gary Crittenden - Citigroup Inc. - CFO Well, you asked the question is it possible. Theoretically, I mean you are aware obviously of circumstances where people have done that in the past, so it is theoretically possible. What we describe today I think is clearly how we are thinking about the business. The way we are thinking about our Tier 1 capital, the way we plan to manager our Tier 1 capital, the way we're thinking about our tangible common and what we have on the horizon for managing our tangible common and that is where our thinking currently is.

Glenn Schorr - UBS - Analyst Okay, thanks very much, Gary.

Scott Freidenrich - Citigroup Inc. - IR Well, I think that concludes our call for today. Thank you all for joining and if you have any follow-up questions, please feel free to contact Investor Relations.

Operator Thank you. This does conclude today's conference call. You may now disconnect.

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