花旗銀行 (C) 2004 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to Citigroup's fourth quarter and full year 2004 earnings review featuring Citigroup's CEO Chuck Prince and CFO Sallie Krawcheck.

Today's call will be hosted by Art Tildesley, Director, Investor Relations.

We ask that you hold all questions until the completion of the formal remarks at which time you will be given instructions for the questions and answer session.

Mr. Tildesley, you may begin.

Thank you and good morning everyone.

Thanking you for joining us for our fourth quarter 2004 earnings presentation.

Chuck will start the call with some opening comments.

Sallie will take you through the presentation and then Chuck will have a few concluding remarks and then we'd be happy to take any of your questions.

With that let's begin and I'l turn it over to Chuck.

Thank you Art.

Good morning everybody.

Thank you for joining us this morning.

I'd like to go through and summarize a few things just to highlight them, things that went well for us and then some things that perhaps didn't go quite as well and areas therefore that we see as improvement.

Fourth quarter we felt we did pretty good, net income up 12 percent , a record $5.32 billion, $1.02 a share even with -- even with the charges for cleaning up some of the problems that we've had from the past.

It was as I say record quarterly income and, of course, a 9 percent revenue increase,.

Sometimes people wonder whether we're too big to grow.

I think 9 percent is pretty good.

For the full year 17 billion of net income.

Obviously that's down a touch from last year mostly because of the 5 billion charge in the second quarter but revenues for the year up 11 percent.

One of the things that I've stressed as one of our strategic imperitives going forward is to grow international and to grow consumer and the next thing I'd like to highlight is that we're doing that.

Income outside the U.S., up 43 percent in '04.

Mexico is up.

Asia's way up.

We increased our stake in Brazil just recently, again an effort to move up outside the U.S.

And I've talked frequently about our investment spending and I just want to highlight as I have many times the fact that we are investing by opening new offices in the international arena in ways where I think that we're going to do very, very well in the future.

The second strategic imperative I have mentioned after international and after consumer is to make sure that GCIB is best in class.

Most of you have heard me describe that concept and I think that our number one ranking in all major categories in the fourth quarter is really a pretty remarkable thing.

And I know one quarter is only one quarter, I understand that, but I'd rather have the one quarter than not.

And, you know, we -- we're number one in 12 out of 25 Thompson Financial number one categories.

I think that we've seen a real rebound from the weakness that most of the Streets saw on the third quarter.

And so I feel very good about our Capital Markets business.

I'd especially like to complement Frank Bisignano. who runs our G. T. S. Business.

That business is really accelerating -- and with income up 40 percent and over $1 billion for the first time I think that is really a growth engine for us.

Obviously long-launch reserves for the year were quite significant, $0.25 a share for the whole year.

I've described that as a highly unusual situation which is likely to lead to anomalous comparisons in a year-over-year sense.

But we continue to see a positive environment for credit.

One of the things I've also talked about a lot is capital allocation discipline.

I think you've seen over the year that we've gotten out of some of the businesses that we do not consider to be ideal long-term fits for us and I think that as we have put together our budget for '05 you will continue to see over the course of the year the capital allocation model result in -- in important improvements in our operating results and our focus as a company.

I'd also like to note that we've raised our dividend and -- that's obviously important, it's 10 percent, it's our 20th consecutive year if you go back in the public company sense for us to do that and it's a very positive thing.

The board feels good about the place.

I feel good about the place.

We think 2005 could be a very good year for us.

Obviously there are thing that also didn't go so well, whether it was the second quarter charge or in this quarter the reserve for Japan or for the transfer agency matter that goes back a number of years.

And these are things that we don't like to do but it's a key priority for this management team to take open issues off the table, to close out issues.

And that's something that I feel good about doing, although it pains me to have to spend the money to do it.

I also think that some of the headlines we had in 2005 are things that we're trying very hard -- in 2004, I'm sorry, are things we are trying very hard to avoid in 2005.

Most of you know that I've spent a lot of time going around the world talking to our employees about the company we want to be and about being the most respected and I -- I am hopeful and I expect that that will result in a -- a much better environment for us going forward in terms of our activities than we've had in the past.

Overall I would just like to say that I am very optimistic about how we are doing.

The underlying growth dynamics of the company I think are positive.

Sallie's going to go through some of the leading indicators we see and while the anomalies of year-over-year comparisons will no doubt trouble some people I feel that the growth prospects for the company feel very good to me.

And so with that, Sallie, if I can I'll turn it over to you and you'll do the heavy lifting, do all the hard work, all the details and then I'll come back at the end and give just a few closing thoughts about 2005.

Okay.

Thank you very much, Chuck.

Good morning to everyone.

I'm going to go in and plunge into the deck if I might, right on first page fourth quarter 2004 summary.

Chuck gave you some of the headline numbers, the $21.9 billion in revenues, $1.02 in diluted EPS, up 12 percent over last year and a return on common equity of 20 percent.

As I go down the list I'm going to start with some of the good news in the quarter.

Record quarterly revenues in cards, which actually translated into record earnings, record quarterly revenues in consumer finance, retail banking, ETS and Asset Management.

Our international net income during the quarter increased 25 percent.

International accounts to 35 percent of our net income.

But despite our view to the ideal credit environment was at last the wind remained at our backs in the course of this quarter and we saw continued favorable environment and as a result had $605 million in credit reserve releases in the quarter.

This well more than enabled the company to sustain our investment spending which we will deal with in a few minutes.

In terms of strategic action, Chuck I think has talked about having to doing a little bit around the edges, doing some medium-size acquisitions, divesting some businesses that don't make sense for us.

And so there was activity on that front in the quarter as well.

We closed the acquisition of Knight.

The derivative business.

We announced the acquisition of certain of A D Anamora's (ph)direct custody businesses.

We increased our ownership stake in credit card, our Brazilian credit card operation to 50 percent and we announced a divestiture of plan to close in the first quarter of CitiCapital Transportation Finance business.

Now the bad news.

We had negative operating leverage for the company in the quarter, true not only for the company overall but for most of our businesses.

We took, as Chuck mentioned, a $244 million after-tax charge related to the closing of the Japan Private bank.

This number represents our best estimate of the cost that we'll incur to close accounts -- close client accounts in that business.

We also took a reserve relating to transfer agent matter of $131 million after tax.

The -- however when you combine all of this we had some good news in the quarter, I've just talked about some bad news in the quarter.

But the bottom line when you combine all of it represents the most Citigroup has ever earned and enabled us, as Chuck mentioned, to increase the common dividend of $0.44 per share, up 10 percent.

I'd also would like before I leave this page to draw your attention to expanded disclosure that we've given you in our statistical supplement.

Some of you had complained that it wasn't big enough so wanted to put a few more pages in and we've put more information on the global consumer.

You were successful.

Thank you, Chuck.

And the allowance for credit losses.

I've had a number of requests from some of you, from a number of you since I've been on the job about looking for more information on these two items and we hope it'll be helpful to you in better understanding certainly the consumer business.

As we go to the next page I want to layout for you here some of the non-operating items that that impacted the business in the quarter.

To help you to bring them up to the front for you and therefore help you tease out the underlying business trends.

Mentioned the Japan Private Bank charge, mentioned the transfer agent matter.

We also had a tax benefit in the quarter which had a $0.04 diluted EPS impact for us and we had an insurance recovery at MCMB of $0.02.

Next page pulls it all together is our summary income statement.

This is our GAAP P&L where you can see where we layout here for you the forces that get us from the 9 percent revenue growth that we mentioned to 12 percent net income growth for the quarter.

And on to the next page.

I think in addition to understanding, trying to get -- help you understand the one timers to work through Citigroup's earnings, I also think the next few slides are important to understanding earnings drivers and the trends that we are seeing in the business.

A defined feature of Citigroup is the companies corebalities (ph) and on this slide I think you can see the benefits of that to us during 2004.

This -- this has during -- during the full year net revenue for each of our -- each of our regions outside of the U.S.

Asia had simply a spectacular year with revenues up 29 percent.

Consumer net revenues in the region were up 30 percent.

Card loans up 29 percent.

Corporate net revenues up 31 percent.

So truly a terrific, terrific result for the businesses in Asia.

EMEA as well, revenues up 21 percent led by consumer, up 34 percent.

Within that, card loans were up 24 percent and retail banking loans up 12 percent.

So the underlying drivers of the business and the leading indicators of the business also doing quite well.

Mexico is a terrific franchise for the company.

Net revenues there up 22 percent, cards up 55 percent.

Retail banking was up 10 percent.

We also should touch on Japan, of course.

Revenues up only 4 percent.

I think this is pretty self-explanatory and in fact pretty sad for the company.

Latin America up 1 percent.

The -- the -- the --the turn there to higher growth is in a corporate business we had less volatility in the market this year and so we are not the trading opportunities that we've seen in the past but this in turn was good news for our consumer business in the region which was up 13 percent.

Next page.

I think also defining the company and really the -- the point of a lot of -- of discussion and conversation and questions on the company has been our investments in our business.

Citigroup as you all know is known for using the capital that you give to us to grow our businesses through acquisitions.

In '04 we more aggressively invested in our businesses for organic growth and here we've laid out for you some of those investments that we're making both organic and acquisitions, and you've asked us on a number of occasions, how to track those investments.

What I want to show you here is how we think about the metrics that we're looking at to determine whether those investments are getting -- are beginning to get good returns for us, whether we are beginning to see success in them.

And as we think about how we look at this, as we think about the business, first we get the customer, so we get the accounts.

Then we get the sales.

Then we get the receivable.

Then the revenue.

And then the net income.

And so there's a process that occurs whereby you get the customer and you begin to get returns on that customer as you do a good job for them.

Now I'm going to go through a couple on the slides and I'm going to do it with a very aggressive caveat, a very aggressive caveat.

But in some areas we can go from one to the other.

For example, in North American cards we launched the Thank You Network and got that going through 2004.

And so clearly the 8.7 million thank you numbers, the fastest starting network in history.

That clearly is a one to one correlation there but there's some others through the page.

It's difficult to tease out that one to one correlation but clearly if we are doing our investments well we should see the results from them and we'll be sure to let you know when we don't see the results from them.

To North American cards, I'm sure you've seen advertising from them during the course of this year.

Rolled out the identity theft solution, the Thank You Network, the premiere path card and as I said 8.7 million that you members has translated into a 14 percent sales increase during the year, 4 percent loan growth.

So what we are seeing is we are seeing the customers, we are seeing the sales, and we are waiting for them to translate into solid very good loan growth for us.

International cards.

We increased also the advertising marketing and we may - we increased our investment in credit card during the course of the year. 31 percent sales increase. 23 percent loan growth. 21 percent revenue growth.

And we're seeing good growth in many areas of the world; most particularly the ones that really stand out are Poland, Korea and Slovakia.

North American Consumer Finance, we had the Wander (ph) acquisition, helped us in part in adding 314 new branches or in good part.

And what we saw here was again we saw loan growth, 13 percent, translating to go net revenue growth, translating to go very good net income growth.

I won't go through all of these but a different take of this is if you add the equity business, which I know Chuck has talked about in the past, where we've invested in technology, we bought Lava Trading, and Knight Trading.

And while this is one where it's much more difficult to make that leap from the investment to the net revenues we will be tracking net revenues for that as well as of course market share when it's available.

Next page takes a look at expense growth.

In 2004 and in the quarter we saw, you saw, the impact of these investments on our expense growth.

Here we break down the components for you of what is certainly is disappointing operating expense picture in the quarter.

We had as -- as mentioned the investment spending, if you look -- actually let me back up -- the way to read this is we had last year operating expense of $10 billion up to 12 this year.

So a $1.9 billion with rounding increase or up 19 percent.

Four points of that 19 was investment spending.

Now branch expansion, where we had 84 branches in the quarter, [INAUDIBLE] and Japan and during the course of '04 for example, goods into Finland, Thailand [INAUDIBLE] in our consumer finance business.

Five points of it was acquisition and FX, which of course you can also see on the revenue side.

Five points of this operating expense we are putting in here, the charges we took during the quarter as well as and these operating expenses and that clearly is a big driver of the disappointment in these numbers.

Five percent also was what we call business as usual which are expense growth.

It's not within a bucket.

I'll tell you the bulk of is this is compensation increase within the GCIB in the quarter.

What we've done here is where in prior years we sometimes had lower compensation in net revenue ratios in the fourth quarter, in '04 the reverse occurred, which drove this up-tick.

So if you look at the year the year is only up two basis points.

Continuing down the income statement, the credit environment has been the best and as we talked to [INAUDIBLE] certainly the best in -- in more than a decade.

And you can see here the consumer business, the credit continues to look very good.

With some continued improvement in stabilization of net credit losses as well as the delinquency numbers.

Now the combination of this and the fact that we build a lag into how we look at the consumer portfolio, it's enabled to us release reserves during this quarter.

Let me stop here and just give you one quick word on our reserving process, which I know many of you heard about.

We at this company work very hard to systematize the process around rigorous analytics and what we do is we use 20 years of sort of rolling twenty-year of Citibank credit data to drive the reserve amount which we keep within a band of between one standard deviation above and 10 percent below expected portfolio losses.

It doesn't take all the risk out of the process by any means but we do want to be highly quantified in the analysts to move to drive the process.

It's also -- it's also [INAUDIBLE].

This is formulaic; this is not judgmental on a quarter-by-quarter sense.

This is a formula which drivers a mathematical result.

The formula drivers the mathematical result and I would also add, Chuck, that we -- go through the process during the middle of the quarter.

Right.

And so it's something that we -- we put in place and we do try to systematize and quantify as much as --

Away from quarter end.

Away from quarter end.

In terms of the next page on the credit quality on the corporate side we have the same story here on the corporate side which is again a terrific credit environment driving $150 million in general reserve business for that business.

Next page.

Growth drivers.

I -- I hope you'll find this helpful.

Let me -- let me know if you don't but this was helpful pulling this chart together for me, it was helpful in driving a top down view of the ins and outs of Citigroup during the course of the quarter.

And the way to read it, cause I know it can be a little bit confusing at first, is up is good, and down is bad.

Above the line is good, below the line is bad.

What we attempted to let -- layout here for you (cough), excuse me, is the flow of the business that I talked about a couple of minutes ago.

First we get the account.

Then we get the products on the balance sheet.

Then they flow through into interest, int -- net interest margins.

And -- and so on.

Net interest into revenue and so on down to -- to net income.

And so what we've got here as you can see is average loan, average deposit growth of 17 percent and 18 percent respectively.

U.S. mid-teens this type of levels, international in -- in sort of low to mid 20 percent.

That's terrific growth.

Driving then you can see -- with a little bit of the interest rate increases we're seeing some mix shift, 20 percent growth in interest revenue.

However, what we're also seeing is really what one would expect given the flattening of the yield curve environment which is the cost of funds for us has been increasing.

The combination of this, takes net interest margin down 4 percent.

So that half of our revenues are fees, and other types of revenues, are up 13 percent and the combination together drives 9 percent of revenue growth.

We talked about the negative operating margin -- operating expenses and some of the drivers of that which as, see here are more than offset by the improved cost of credit.

And as you work your way through then it gets us from the 9 percent to 12 percent net income growth.

This is actually I think pretty much what one would expect in a good economy, or a good, not great economy where we have some good growth but we are seeing a flattening of the yield curve.

The question that often happenings here is, what happens when a loan loss reserve stops -- when those [INAUDIBLE] stop.

It typically means the economy is weakening and spreads therefore wide and dividing a nice if not complete offset.

Next page you are probably familiar with this page, this is earnings that we talked about has in turn driven some very strong returns for the company during the course of the quarter.

Both for a return on risk capital point of view and from a return on invested capital which actually I tend to prefer which includes goodwill.

The next page, fourth quarter, 2004 income allows you to turn to the businesses, Our O.T.

C. global consumer up 17 percent.

The global corporate and investment banking up 32 percent, global wealth management.

They are global, aren't they Chuck?

We're a global company.

We are a global company.

Global wealth management which is a newly formed combination of Smith Barney and the Private Bank, down because of the charges as is global investment which is T. L. and A. and the Asset Management business.

Turning then going into a product view and a regional view.

I think these exhibits together if you look at them over time tend to demonstrate the benefits of a diversified business mix listed over time.

Because if you watch them, again over time, you can see that the different businesses can exchange leadership positions on the growth.

In this quarter for example, Travelers Life and Annuity and Transaction Services posted the best growth while the Asset Management business and the Private Bank showed decline.

Page 13.

Now let me go down into businesses and give you some of the highlights there.

Credit card.

Our net income up 27 percent over last year.

In the North American business sales are up 14 percent versus last year's fourth quarter, very nicely as I mentioned, very nicely above fourth quarter retail sales were -- were being recorded.

The consumer is using our credit card.

We're also seeing what we view to be a very responsible consumer behavior.

With payments, payment rates in the credit card North American credit card business remaining and moving up to all time highs.

We are also seeing when you do that and we then have the rising interest rates we are having what you would typically expect in a strong economy.

The spread is compressing which then in turn is more than offset by the good credit.

So all of this is good for the health of the -- the health of the consumer and in turn we believe will in the long turn be very good for the business as well.

International sales up 31 percent to 3.6 billion.

In consumer finance business, a 22 percent increase over last year.

In North American average loans were up 13 percent and in our international business we are seeing good improvement in Japan as Marge and team mentioned on Consumer Day.

The team over there is doing an extraordinary amount of work to work through the issues over there helped by the fact that bankruptcies in the -- in the business are down.

And as we've also mentioned, we continue to invest in the business with 140 new sales points versus a year ago.

Retail banking, we are seeing great -- good global deposit growth of 10 percent.

Great loan growth of 25 percent.

What we did in the quarter -- have a challenging quarter in mortgages with higher cost of hedging impacting that business and maybe it's just a 7 percent growth rate for us in the quarter.

The GCIB.

This business rebounded nicely from a tough third quarter.

Revenues for this business are up 13 percent versus the fourth quarter of last year and up 14 percent from the third quarter of this year.

This was driven by strong results from interest rate and FX trading.

The equities business also did a good job, the business we've been investing in and equity we're underwriting had a good quarter.

In addition as I mentioned before we had some -- reserve releases in it.

And as Chuck mentioned, although I think it's easy to be critical of weak tables and poke holes in them, it is nice for the business to be number one in global equity investment grade and high yield debt and announced MNA (ph).

We aren't critical this quarter we think.

No, we're not this quarter.

We'll --we'll talk about it next quarter

We'll see.

You know, in the future if we have to.

Yes.

At transaction services great traction with our clients, also accomp -- the business is benefiting from the increasing interest rate driving net revenues up 22 percent over the fourth quarter of last year and a bit above that rate if you annualize it quarter over quarter based on a good -- good customer assets under control and liability balances.

Global wealth management.

Smith Barney net revenues up 5 percent.

This was driven by fee-based revenues up 13 percent for the transactional business, down 3 percent.

And in fact we are sort of seeing that cross our businesses, all the places where we do investment transactions for clients.

They -- they remain a little, they remain a little stepped back from re-engaging in the market completely but we are seeing the good news of net flows of $10 billion during the quarter and I should also mention that the business momentum in the business picked up during the course of the quarter.

The Private Bank, the story there of course is primarily the churn of $44 million asset backed charge, the closing of Private Bank.

Beyond that, net revenues were down 4 percent.

Fee based again up, transactional revenues down even more, down 33 percent.

We are seeing the impact of that in Japan and to a lesser extent in Asia.

Global investment management, Travelers Life Insurance and Annuities business, up 48 percent, TL&A up 46 percent.

We are seeing those good business volumes, which they've seen for awhile and in this quarter up 20 percent.

Translating to go good revenues.

The combination of that with the good investment returns draws some very good results for this business.

For the Asset Management business, again the story there unfortunately is the $131 million after tax reserve relating to the transfer agent matters.

Beyond that the assets under management were down a bit driven by some outflows in the business, which in turn are directly attributable to the issues in Japan.

I should also draw your attention, although there's not anything on a page here, to our proprietary investment activity, which had an unusually strong quarter to quarter.

In coming to the last page, we address as we always do the company's capital strengths, the end of the fourth quarter, we're on a $115.5 billion in shareholders equity and trust preferred securities, tier one capital ratio of 8.7 percent, total capital of 18.1 and GAAP assets of 1. -- coming up to $1.5 trillion.

It's actually nice after having taken a bit of a whack to our capital ratios in our second quarter charge it's nice to have built these ratios back up this strongly.

All right.

Now before I turn the call back over to Chuck, -- I'd like to take a minute to provide a bit of perspective if I might on 2005.

Having not participated the last few months in monthly business reviews and the budget reviews with Chuck and Bob I can tell you that our businesses are fundamentally strong and that our business people feel good about their direction and the investments they are making.

I have no doubt, however, as Chuck has mentioned, that 2004 was an unusual year for Citigroup.

And so there are a few things I'd like to point out to you going into 2005.

Looking forward the magnitude of the loan loss reserve releases in 2004 is unlikely to the repeat itself.

I say this aware that we put out this warning before, one certainly can't expect a replication of the terrific credit environment of this year and of the $0.25 per share that added to our earnings.

Second is the Fed remains in a tightened mode and short -term interest rates are rising.

We would expect lower treasury re -- results in 2005.

This is a trend that started in 2004, visible once you strip away the one timers in the corporate line.

And thirdly we expected our effective tax rate in 2005 will be more in line with 2003 than it was in 2004.

So considering all these factors on our 2005 outlook -- I'm more comfortable with the bottom end of analyst estimates than the top end.

I say this acknowledging that the market environment in 2005 will be a significant and very tough to forecast variable in our results.

And before you all start pressing star one to ask for further details we are not going to elaborate any further.

In going forward it's going to be our policy not to provide short-term earnings guidance.

In this case, however, I felt it was important to make an exception and share some general thoughts.

And having said that I want to reiterate a couple of observations from my presentation.

There are good fundamentals in our business.

Volume growth in our consumer businesses and particularly internationally was good momentum in the GCIB.

And so now for his thoughts on 2005, let me turn it back over to Chuck.

Thank you, Sallie.

I just have a couple of closing thoughts before we get to the questions.

The first is that there's been a lot of talk about negative operating leverage since I became CEO I have said repeatedly that positive operating leverage is the hallmark of a good business, of a well run business.

And naturally enough people have said to me during the course of '04, well, gosh, how does that square with what you are doing?

And we've tried to point out that in the unusual credit environment we have we've taken the opportunity to spend a little more to prime some of these organic growth initiatives.

And as that positive credit environment continues, with the loan loss reserves are unlikely to the repeat themselves, as I point out, I would expect that in '05 that rate of growth and investment spending would moderate.

We are going to still continue to invest.

We think that's important and we think we that we are beginning to see some of the organic growth aspects that we predicted would come.

But I think that we do expect, I do expect, that we will have positive operating leverage for 2005.

We may not get there in the first quarter because of the seasonality of revenue growth but for the full year and certainly after the first quarter I will be looking for, and you should feel free to look for, positive operating leverage in our business.

I just want to reiterate what I said in the past.

Our goals for 2005, four of them.

First, to be the most respected financial institution.

No more headaches.

Second, to grow consumer.

Third, to grow international.

And, fourth, to make sure that GCIB is absolutely the best in class.

My personal priorities for 2005 reflect that.

First, most respected financial institution.

Second, expense discipline.

I mentioned positive operating leverage.

Third, capital allocation.

I mentioned you're beginning to see the effects of that, you are going to see more of that.

Fourth, organic growth.

Fifth, the right kind of deals.

Meaning the fill-in-the-blanks, extend the platform and not the wrong kind of dealings.

Not swinging through the fence.

Personally a little greater invis -- a greater visibility.

Being out there with the employees, with all of you, with the regulators and so forth and I expect that will you see -- more evidence of our changes going forward.

So those are my final thoughts on the strategic goals for the company and my personal priorities for 2005.

And, Art, if anybody is still out there we'd be happy to turn it over for questions.

We're ready for questions, operator.

Thank you.

At this time if you would like to ask a question, please press press star followed by 1 on your touchtone phone.

Star 1 to ask a question.

Our first question comes from Glenn Schorr.

You may ask your question and please state your company name.

Thanks, it's UBS.

Being that it's one of the four strategic objectives I want to touch right on the investment bank real quick.

Did -- you did note the pop up in the comp ratio in the fourth quarter, Sallie, which is a little reverse from normal, but, the year like you mentioned not as bad.

I just want to see, is -- is that just a true up on the year again or did -- is there a little extraordinary comp pressure?

It's not overly visible given that you have a big corporate bank as well.

Do you feel your comp is in line with the Street, I guess is the first question?

Well, Glenn, I would say I've got numbers here that you don't have in front of you.

And so you --

So there.

So there.

And so you're going to have to trust me on this.

But you -- you were unable to subtract away some of the things in the corporate bank and look at the comp to net revenue ratio for the GCI, the sort of pure investment bank versus the competition.

I can see it.

And what I can tell as you looking at those numbers we are very comfortable with our compensation ratios which are very competitive meaning at the very low end of the Street.

And so from that point of view we are comfortable with what we are paying out to the GCIB as a percent of revenues during the course of the year.

As we look at what happened during year there are several things that drove the fourth quarter top up.

One of them was business mix.

We have a -- a formula that's determined by the different types of business and as the business mix shifts you will see shifts in that.

And the rest of it is the Franc (ph) that we under-accrued a little bit during the -- the first part of the year and as we get to the end of the year is all of your directors of research do and the head of your Asset Management firms, they take a look at what the competition is doing out there.

And our folks looked at what the competition was doing; there was a need to top this up a bit in the fourth quarter.

But again as you look at it, full year '03 versus full year '04, the 35.9 percent comp in benefits to net revenues versus a 36.1 in the full year '04 we are comfortable with it.

But no doubt there is great competition -- big competition for talent out there.

It's a competitive market and so we do have to remain competitive with ourselves.

Fair enough.

On -- on invest banking revenues in general, they were up great, awesome quarter, from a revenue perspective up 300 million yet it -- it's got a little weird just because the volume was down and market share was down.

Is that just timing of things or is there a specific focus on more profitable deals, anything like that?

Well, of course I'm going to answer yes to that.

All right.

Next off, all.

But the issue, it does depend on the type of deal, the mix of deals, et cetera, so it can be difficult to get from one to the other.

And a lot of the external services when one looks at these numbers don't pick up everything as well.

So in terms of the mix -- the changes there, I don't see anything unusual that's driving that.

Okay.

Last -- last one related to cards.

Beg your pardon?

Last question related to cards business.

Just a comment, a big reserve release, it just feels a little weird I know it's formulaic but it feels a little weird at this late point of the cycle when actually consumer credit is a tiny bit worse than at most companies that you'd have a big release, is -- is -- just a comment there.

Sure, um, I agree it does -- it does -- id does look that way in particularly versus what we are seeing from the other companies.

But we do have some things that are going on there.

Recall that we had purchased the Sears portfolio.

And so as we work our way through that and get that to the -- the right level, that is a portion of what's going on here.

In addition within the consumer business again I have some numbers you don't have, but is -- what you're seeing is a portion of the credit picture for our cards business.

When you look at the whole picture it's -- the picture remains really quite favorable.

There is a big of a lag effect as the portfolio ages.

And so as I was talking to our head of risk, if we assumed that we sort of freeze the consumer portfolio today that the consumer environment stays exactly as it is today.

Going into 2005 we would see a little bit more in terms of reserve releases.

But I agree with you, and there's a little bit in the budget, not a lot, certainly nothing like we've seen this year but I agree with your premise which is, boy, you know, that -- that was terrific, what about going forward and the answer is - and I say this acknowledging that Todd said it a couple of times in the past few quarters, please don't expect this to continue.

Okay.

Thank you very much.

Thank you, Glen.

Thank you.

Guy Moszkowski, you may ask your question and please state your company name.

Yes, good morning, I'm with Merrill Lynch.

Good morning Chuck, Good morning Sallie.

Good morning.

Good morning, Guy.

A question for you.

First of all, Sallie, if you could just follow up a little bit on the mix shift that you alluded to in terms of driving the top up in the comp ratio and the investment bank in the fourth quarter, that would be very interesting.

Well, if you actually look back, as I'm turning to the page, as you can see the mix shift we had more in terms of advisory and other fees during the quarter, more underwriting fees.

And so within that, as you can imagine, certain businesses pay out more in terms of compensation versus other ones.

Okay.

That's fair

As a percent -- as a percent of revenue.

Yes.

Yes.

That's fair, thanks.

Regarding the -- the loan loss reserve drawdowns and separately that significant item sheet that you first gave us in the third quarter, I notice that in the -- when you did it in the third quarter you listed among the significant items what those loan loss reserve drawdowns were, and then this quarter you -- you didn't sort of tag them as a quote unquote special item.

Did you have a change in philosophy there or something or was there something different about the drawdown.

Okay, you caught me, Guy.

If you go to page 18 of your deck.

I hope what you have there you have what we call a summary of press release disclosed items.

And on that page what you are going to see is you are going to see the loan loss reserves are there as well.

Okay.

You caught me.

Yes.

So -- so what I've got on the prior page is sort of what I view as some of the non-operating numbers, which are brought to your attention.

So what we're trying to do for you going forward because we recognize and we really do -- our goal, I'm going to add another goal; the Chuck goal

Hey, I've got enough.

Okay well then --

It can be your goal.

I'l add my goal, the other thing I heard from all of you please have a completely clean quarter at some point.

Until that point we are going to continue to put this out for you just to help you pull together the things we've talked about in the press release.

Some of you are going to say, that's an operating item for me.

Some of you are going to say, that's going to happen again but just to pull them all together, help you understand the to's and fro's of the business.

That -- that -- that's helpful.

And -- and again, this is -- this is great disclosure so thanks.

We'll see if we can continue to make the statistical supplement even larger of a War and Peace than --

Hey, thanks a lot.

I appreciate that.

And -- and this again will just be a -- a follow-up on -- on some of the other stuff.

But at -- at this point do you have any sense from the leading indicators that you're talking about at which -- at what point maybe during 2005 we should actually expect that provisions will become an expense item again?

Well, we obviously have a budget, which I am not going to share with you.

But I think you can see as we're grow -- as we are growing the businesses and you look back on the sheet that I showed in terms of the loan growth and some of the good growths that we're seeing, you know, to the extent that that happens, that our investments begin to pay off clearly we are going to have to begin making provisions at that point.

So, you know, my best guess is when I said we might see if things freeze a little bit more, of course the expectation that little bit more would be earlier in the year, and the credit nirvana also at some point next year also will become credit good as opposed to credit nirvana.

Right, fair enough.

Final question.

Can -- can you give a sense of the -- the revenue and earnings impact overall in the quarter on the various acquisitions that were included this quarter and not included in the same quarter a year ago?

Can you give us a ballpark for that?

Yes, I can.

Now remember if you will that we are having the acquisitions -- some of the acquisitions that we made last year are really rolling off as we look into this year.

And so in terms of the revenue growth, it's a couple or a few points on revenue.

It's about the same on expenses.

Okay.

Thanks very much, appreciate it.

Thank you.

Thank you.

John McDonald, you may ask your question and please state your company name.

Hi, good morning, Banc of America.

Sorry if you covered this but buybacks, did you buy back any stock this quarter?

No we did not.

Okay.

And-- I guess for Chuck -- with the capital ratios moving higher again this quarter are you closer to looking to get a little bit more aggressive on the buybacks, Chuck.

Well the -- I'll give you my standard answer if I may, John, which is that we have three or four different ways to spend our capital.

One is organic growth, one is acquisitions, one is dividends, one is stock buy back, we've obviously just raised the dividend.

We have very important goals for organic growth.

There is no acquisition opportunity in the world that is not presented to us for consideration.

So stock buybacks are on the list.

It's true that the capital ratios are much healthier and given our earning prospects will become even healthier.

And -- and I do want to minimize any effect of EPS dilution.

But beyond that I -- I think it's just we are going to have to see how the opportunities play out.

Are capital levels roughly where you'd like to see them or would you like to see them still move a little bit -- bit higher?

You can never have strong enough capital ratios.

Okay.

Question for Sallie.

Noticing a trend of declining net interest yields in some of the consumer businesses beyond what you mentioned in domestic card, I'm thinking like international card and global consumer finance.

Just wondering is -- is there a strategy there of maybe moving upstream?

Cause credit quality is also improving.

Is that part of a trend or is that more of a -- you know a cyclical issue?

Yes, a few things are going on.

In our consumer finance portfolio we are continuing a bit of a trend that you've seen of repositioning the portfolio.

Although I'd say we're at the tail end of that and so we are moving on the North American side.

We've been moving it to one level up in terms of the customer demographic, or half a level up.

And so that of course does have an impact then on that -- on the net interest revenue line.

In terms of if you're looking from the other businesses internationally, oftentimes it can be mix and oftentimes we can be looking at -- is that we do not tend to be the high cost provider in these markets.

And our folks have a real strategy here working again with, you know reams of Ph.D.s and statisticians and the like, to determine what the elasticity of demand is and so we will in different markets take down the pricing and be aggressive in some cases such that we can grow the business.

So it's a combination of different things in different markets.

Overall I think the net interest revenue for the business as a percentage up, but we are seeing different dynamics occurring in different businesses all of which frankly we feel from business a strategy we feel pretty good about.

Okay.

Thanks.

Final thing is, Sallie, could you give us a sense of your hedging strategy around currency exposure, how do you design that and what's it supposed to do?

Is it supposed to neutralize?

And any comment this quarter on how currency fluctuations in the dollar might have affected the reported results?

Yeah.

In terms of our strategy around income, what we do is we do hedge out forward a portion;

I am not going to tell you the portion, but a nice portion of the results of the company.

Clearly when you think about company as big and global as Citigroup we do want to not ride all of it particularly when currencies are as volatile as they are now.

And I should back up, however, and to say, that of course, we do have natural hedges in the business which is we have revenues and we have expenses overseas and so we have that natural -- those natural hedges but we do also have a policy of hedging some good portion of the EBIT as well.

We in addition -- there's some balance sheet hedging, too, obviously not wanting to take the capital that you've given us and -- and -- and let it all ride in terms of the -- the foreign exchange market.

If you are looking then in terms of the impact to FX there is a positive impact to FX to income for the quarter.

Again probably not as much as you -- you might think it is given the globality of the company but there is a positive in terms of low single-digit percentage impact to net income.

Is there any way for us to see that or to tease that out?

You would have to have my secret deck in order to that.

Okay.

Okay, thanks.

Thank you.

Thank you.

Mike Mayo, you may ask your question and please state your company name.

Prudential Equity Group.

Good morning.

Good morning, Mike.

What is Citigroup's posturing to higher interest rates?

I know at least in the last 10(Q) Citi would get hurt with a 100 basis points increase, when you would you get hurt and how much?

Yes.

Let me before I answer your question let me give you the -- the -- the little hedged answer on it, which is that in terms of priority which is a number I am about to cite for you, the IRE that we give to you assumes that we have a 100 basis point movement upward in interest rates across the entire yield curve and it happens as a shock.

And that -- in that scenario our folks in treasury who would -- who are very talented people do nothing.

Okay.

Do nothing at that point.

So that's -- when we talk about the IRE, again, I know I'm being a little teacher-like and schoolmarmish here, but we are talking about a shock scenario.

And we're not actually talking about any of the impact that increasing interest rates would have on our business.

When you see the -- the K when it comes out I think in a -- in a month or so, what you are going to see is the one year IRE that we report which again is the shock scenario, is going to be in the low 460s.

Now, the five-year IRE is going to be positive and it's going to be in a 300, let's call it 25 range.

This is down quite a bit from the year end-of-last-year and the first quarter of -- of last year but up somewhat from the third quarter.

All right.

Thank you.

Thanks, Mike.

Thank you.

Betsy Graseck you may ask your question and please state your company name.

Thanks, Morgan Stanley.

Two questions, one follow up on what was just discussed.

Could you give us a sense of what you did during the quarter to -- you know effect those results a little bit of a change from what you had before?

To effect the results of the IRE.?

Yes.

On some portion of it Betsy is growth in the portfolio if you are looking at the growth on the balance sheet and the customer volumes that we have by that nature that's going to move it up nothing else equal.

But in addition we -- we do have a little bit of GAAPing in the portfolio which -- which moved it up as well which we think is a prudent thing as a -- a financial services company to have given that the yield curve typically is positively sloped.

And I would expect that -- you know, your folks would actually will be doing something in an environment where rates are changing, you would expect that they would continue to have those kinds of activities.

I sure hope they do something when rates are changing.

Yes, as you can imagine the treasury group is -- is a dynamic group.

They -- they're not big traders, et cetera, but they obviously are quite aware of what's going on.

Not that the U.S. with regards to interest rates but of course remember we do get -- you know 35 percent of our net income globally, so they are actively managing that rate exposure and rate risk in conjunction with the businesses taking out a more, I hate the word, but holistic view of the business, because of course with have different rate exposures within the business lines themselves which of course aren't captured by these types of numbers.

And your comments earlier about being more comfortable with analysts estimates at the low end of the range which I believe is 420.

Is that also assuming that, you know, folks in treasury do nothing?

No, no, no.

They better be doing nothing.

They come into work here --

Be doing something.

They better -- they better not be doing nothing.

They -- you know they come in all the time.

What it's based on is that we -- we, you know, Chick and I probably don't have a vastly different outlook from -- from -- from some of the others out there, which is we are looking for a moderately increasing rate environment.

We are looking for fine capital markets environments going into next year.

We are looking - we are looking for in terms of the business for our investments to, as I showed you on the sheet, they're beginning to pay off, for them to continue on that trajectory.

And investment spending you think is obviously going to be continuing into '05 as well?

Yes, we are.

I know when -- when Marge got together with all of you at the Consumer Day she had talked about opening a number of branches.

On the consumer finance side I think she talked about something maybe in the 300, low -- very low 300s in '05 and looking at some retail expansion as well.

So we absolutely are going to be continuing into '05.

Yes, Chuck?

As, but I said, we -- we expect to moderate the rate of growth year over year.

That's right.

Given the -- the lack of the anomalous loan loss reserves that we had in '04.

Yes, make no mistake, the -- the trajectory that you've seen of growth of investments will be flattening substantially.

But we've got -- you know, we've got built into those plans given the level of investments that we have this year and continuing into next year.

Just seems to me that a 420 number might be anticipating a little bit slower return on investments than, you know, at least what I've been looking for?

Now -- now Betsy, I said that I wasn't going to comment any further.

Thanks.

Thank you.

Thank you.

Joseph Dickerson you may ask your question and please state your company name.

Hi, it's Joe Dickerson from Atlantic Equities.

I just had a quick question on the credit card side on the loss ratios, the seasonal trend was perhaps what one may not have expected and I just want to know, is that do to the Sears and Home Depot portfolios.

Where -- what -- tell me what you are looking at.

Just the sequential improvement in the loss ratio Q3 to Q4.

In North America?

Across -- across actually all of cards.

Okay, one second.

Cause I mean, generally -- sort of in the fourth quarter you would see loss rates increase.

Right.

Well I think is part of what we are talking about the good environment that we are having in the cards business driven by both Sears which is doing better as well as the underlying portfolio which is doing well as well.

You do see by the way in the -- in the -- in the consumer finance a bit of a seasonal uptick in the fourth quarter we do again attribute to lower losses.

Okay.

And -- and by the way I should say if we look at the first quarter we might expect to see an uptick in the first quarter given sort of the post-Christmas effect.

Right.

Okay.

Thanks.

Thank you.

Thank you.

David Hilder you may ask your question and please state your company name.

Bear Stearns, good morning Sallie and Chuck.

Sallie, a question that may also come from your secret deck.

On page 31 of the supplement you had a nice improvement in the negative accumulated other changes in equity from non-owner sources.

Could you bring out perhaps what the major sources of that swing were?

Yes.

The primary source of that swing, David, is the foreign currency translation.

In fact, I'd say 8 -- to give you the exact number, 84 percent of the swing is the currency translation.

We also had some nice results in the AFS Portfolio there as well as in the -- in the hedge -- the hedge adjustment.

It's nice to see, I know there's some concern about that, even though even [INAUDIBLE] it's nice to see it moved pretty -- pretty nicely in the other direction.

Great.

Thanks very much.

You're welcome.

Operator, does that conclude our?

Yes, that concludes the question and answer session.

Okay.

Well, thank you very much everyone for joining us this morning.

And -- please give us a call in Investor Relations for any follow up questions and thank you very much.