花旗銀行 (C) 2005 Q3 法說會逐字稿

Welcome to the Citigroup third-quarter 2005 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 question-and-answer session.

Please note that the call is being recorded.

Mr. Tildesley, you may begin.

Good morning, everyone; thanks for joining us for our third-quarter 2005 earnings presentation.

We'll follow our usual format today -- Chuck will start with some opening comments and then Sallie will take you through the presentation.

That presentation is available on our website on the Investor Relations link if you haven't had a chance to pull it up yet.

At the conclusion of the presentation both Chuck and Sally will be available to answer any questions that you may have.

So with that let me turn it over to Chuck.

Thank you, Art, and thanks, everybody, for joining us this morning.

I'm going to spend a few minutes discussing our performance this quarter and then I'll turn it over to Sallie who will take you through a more detailed presentation.

Let me start with my overview.

I was very pleased with the underlying performance of our businesses; we had 15% organic revenue growth -- I'm going to talk about that more in a minute, but I'm very proud of that.

And despite a number of unusual charges that were headwinds for us, we did very well on the earnings line.

Obviously in the headwind category we had year-over-year swinging credit costs of over $1.6 billion and yet we were able to earn our way through that headwind.

We also had the impact of hurricane Katrina to take account of this quarter.

Now Sallie will take you through all of this in detail, but it adds up to a net negative impact of $0.06 a share on earnings from continuing operations.

Now let me start with each of the businesses in turn.

I'll start with CIB, corporate investment banking.

We had a very, very good quarter in CIB.

In capital markets and banking we gained marketshare, a very important indicator.

We obviously achieved a number one rank in equity underwriting, debt underwriting, completed M&A and syndicated loans and were second in a couple of other categories.

Capital markets and banking revenues were up 39% over the prior year and up 20% over the six-quarter average, a very strong performance.

In GTS we're continuing to do very well -- revenues up 19%.

Smith Barney had a very good summer period; sometimes a slower time frame, but our FC's did a very good job and Smith Barney drove 13% revenue growth year-over-year.

And alternative investments continued to generate strong results.

In sum, a very good performance by our corporate and capital markets driven businesses.

International consumer also continued to expand.

In the quarter we opened 69 new retail bank and consumer finance branches and added 66 automated loan machines.

Over the past 12 months we've opened or acquired 308 new branches and 235 automated loan machines.

We're trying very hard to expand our distribution especially in the fast-growing international consumer space where we see very attractive long-term growth rates.

Now in our North America consumer franchise volume growth was okay -- pretty good, but it was offset by continued spread compression.

In our credit card business in North America we're seeing good customer acceptance of our new rewards programs and this contributed to a 10% growth in purchase sales.

And yet, payment rates continued to increase which helps our critical cost but obviously limits receivable growth and we continue to see spread compression in cards year-over-year.

Similarly, retail banking in North America deposit and loan growth was good, up 7% and 20% respectively, but this was offset by again continuing spread compression.

And finally, in consumer finance we had 4% growth in average net receivables which reflected strong growth in our personal and auto loan products, but also reflected quite small growth in our mortgage book reflecting our decision earlier made to avoid offering those very aggressive price teaser rates and interest only mortgage products that are such a large portion of our competitor's sales in this area.

And we continue to believe that avoiding these very aggressively priced and structured mortgage products for consumer finance is the right long-term decision for both our customers and for the franchise.

Overall we've had softer revenue growth in North American than we want and this is something where I think we can do better.

We've taken action to reorganize that group and I expect that we're going to do a better job there than we've done in the recent past.

Now let me spend a moment on hurricane Katrina.

We've worked very hard over the last seven weeks to provide financial assistance to our customers who have been affected by that disaster.

We've forgiven loan fees and interest.

These actions resulted in about 25 million of forgone revenue in the quarter.

And in addition, we've taken a 357 million pretax charge or about $0.04 a share after-tax to reflect the credit implications.

As you know, we obviously have credit card customers, we have loan customers, we have mortgages down there and this is our view of what's the right number to take in terms of the impact of this on our customers.

From the side of our foundation, the foundation and our employees together with the Company will donate about $11 million so far to help these communities recover and rebuild.

I also want to mention, if I may, the recent earthquake in Pakistan and India.

It doesn't have quite as direct an impact on our business, but we have pledged $1 million plus an additional $1 million in employee matching contributions for about $3 million of aid for people in that region.

So let me summarize.

As I said a minute ago, I feel very good about the quarter.

We had revenue growth of 15%, that's all organic.

We've been focused very hard, as you know, for the last year or so on organic revenue growth and the investments we've made -- not 100%, but in many, many, many areas are really beginning to show through in terms of organic revenue growth.

And net income, despite the net negative headwinds I spoke about, exceeded $5 billion.

Expenses grew 12%, so we had positive operating leverage -- not only year-over-year but on a sequential basis -- and most importantly, we continued to expand the franchise, continued to grow the global distribution network.

So we saw the benefits of a diverse business platform as strength in our corporate and capital markets businesses, Smith Barney as well, offset some weakness in our North American consumer franchises.

We feel very good about our diversified business platform.

I feel very good about our competitive position especially our gains in marketshare and we have a lot of opportunities in front of us to grow the Company.

That's why I feel very bullish on the stock.

During the quarter we increased the rate at which we were repurchasing the stock, acquiring over 124 million shares during the quarter, more than $5.5 billion.

And certainly at the valuation levels we see I think we're going to continue to be pretty active in terms of repurchasing our stock.

So now, with all that as an overview, let me turn it over to Sallie who will go through the detail of the deck in front of you.

Sallie?

Thank you, Chuck, and good morning, everybody; thank you for joining us this morning.

In terms of highlights for the quarter, I'm going to jump right into the deck that we have for you up on the Web which I hope many of you have accessed.

If we turn then to page 1 of the deck, what you can see, as Chuck mentioned -- net revenues of $21.5 billion, up 15%; net income of $7.1 billion being announced today; diluted earnings per share of $1.38; and a return on our common equity of 25.4% all GAAP number.

If we take a look at the net income from continuing operations, we earned $5 billion; diluted earnings per share of $0.97, up a penny from last year.

When we characterize the quarter, it is certainly characterized by franchise strength across our capital markets businesses, strong revenue growth in fixed income and the equities business, record revenue growth again in our global transaction services business.

Smith Barney as well, revenue up 13% with commissions in the transactional revenue up 10% on real strength during what is typically, but was not this year, the quieter summer months -- recurring income for them up 15%, so very strong as well.

And a continued strong performance from our alternative investments business.

In international consumer, volume growth here was driven by the expanding distribution -- we have more than 450 more branches internationally than we did a year ago.

We obviously have new products and marketing as well working with this such that we see 14% revenue growth outside of the United States.

North American consumer, as Chuck mentioned, more sluggish on the revenue front, slight decline in revenues as there was some volume growth that we had in retail banking which is offset by continued spread compression.

Hurricane Katrina -- Chuck mentioned an after-tax impact to credit of $0.04 per share; and credit overall was a real headwind for us this quarter.

The underlying credit environment is actually quite stable which means that it remains at a pretty outstanding level.

But we did see a negative pretax swing of $1.6 billion in credit costs which add up to $0.20 per share for the Company in terms of headwind last year versus to this year.

I'm going to talk in a second -- we standardized our EMEA retail banking consumer finance write-off portfolio which cost us $490 million pretax and the increased bankruptcy filings cost 200 million pretax.

We repurchased $5.5 billion worth of common stock in the quarter or 124 million shares.

Page 2 takes us to the income statement.

I'll just spend a second on this.

Net revenues here, you can see as mentioned, up 15%; operating expenses up 12%, that is the operating leverage; and we can see the swing in credit costs on the next line.

All this rounds to $5 billion rounding to -1% on the income from continuing ops, add the TL&A gain to $7.1 billion; and income up 35%.

The diluted EPS from continuing operations up 1%, that swing from -1 on the continuing ops line for aggregate income deposit of 1 is the effect of the share buyback beginning to kick in.

And diluted EPS up $1.38.

Page 3 of the slides, I'm going to take a minute with this because to say this is a complicated quarter for Citigroup is certainly an understatement.

We put page 3 in here for you in the interest of full transparency, going through any of the significant items impacting the Company by more than a cent per share.

First on the list of course is the gain on the sale of our life insurance and annuity business, a $2.12 billion after-tax impact to earnings $0.41 per share.

This is a bit higher, you may recall, than what we had told you at the time of the announcement just due to the closing adjustments.

And then moving on to continuing operations, let me spend a minute on the next topic which is the standardization of the EMEA loan write-off policy with the global policy.

The impact to that was 490 million pretax to earnings, $332 million after-tax or $0.06 a share.

For the past 18 years, due to the high recovery rates in Germany, Belgium, Italy and Spain, Citigroup's had an exception to our global bank write-off policy of 120 days for unsecured installment loans and 180 days for revolving loans.

The thinking here has been that one would charge these loans off only to later recover 30 to 40% of that amount.

We continually monitor underlying portfolio performance and, as a result of changes in bankruptcy and wage garnishment laws in Germany, we've observed a change in the characteristics of the German portfolio.

As a result you're going to recall that in the second quarter we added $127 million pretax to reserve to take into account the bankruptcy increases.

In this third quarter, Dave Bushnell, who many of you know -- our Chief Risk Officer, and I asked for a complete review of the portfolio.

Based on this work we determined that we would no longer support exceptions to the policy based on recovery rates.

While they are high they take years to realize; and we therefore conformed the EMEA portfolio to our global bank policy.

It doesn't relate to a change in portfolio quality, but rather to underlying environmental factors due to the law changes that have caused us to reevaluate the appropriateness of the exception.

In terms of what that means going forward, we may counter intuitively see a slight upward movement in net charge-offs in Germany in the nearer term due to the timing of the write-off, now at 120 days, versus a longer period of some over which one gets the recovery.

This is going to be before credit mitigation work that the team in Germany will be doing.

Plus, more importantly, we no longer have any portfolios that rely on high recovery rates for a policy exception.

While the charge in the near term hits earnings, and these are always very tough decisions, we believe that the move to the global policy represents the right move for the Company.

The next item here is right sizing (ph) a negative credit item for us.

We're taking a charge of $375 million pretax, $222 million after-tax primarily to credit reserves for the impact from hurricane Katrina.

This is based on a total exposure of $3.6 billion in a FEMA individual assistance areas across our credit card CitiFinancial and mortgage businesses.

It does not include the $25 million impact of wage, fees and interest for the quarter, which Chuck mentioned, which will continue into the fourth quarter.

The next topic here, the increase in bankruptcy due to the change in law of 197 -- $200 million pretax, 124 after-tax or $0.02 per share.

That law of course is affective today and bankruptcies have run over the past few weeks at historically unprecedented rates in advance of the law change.

The next item, corporate loan loss reserve billed (ph) of 150 pretax, $94 million after-tax or $0.02 a share in the CIB is based on growth in the portfolio as well as credit weakness specific to the auto sector.

The Home Line Investment Act, we're taking a tax benefit this quarter of $185 million as we repatriate $2.8 billion to the U.S.

Next is value added tax, $117 million after-tax from a Mexican Supreme Court decision that back taxes previously paid are subject to recovery.

Copelco litigation settlement of $108 million after-tax -- this is a small ticket vendor leasing company that we bought in 2000.

This litigation was with the previous owner relating to the acquisition.

And then we had a D&O insurance recovery in the quarter of $54 million after-tax in the CIB from Global Crossing.

I'm also going to remind you here, in 2004 we had significant loan loss reserve releases, $686 million pretax, $450 million after-tax or $0.09 a share, 281 million of it was in the consumer business, 169 in the corporate investment banking business.

Page 4 then, turning to the businesses and to revenue growth, 15% for the Company.

On a left side we have the product view, on the right side regional.

Capital markets and banking on the products leading here strength across the products within capital markets and banking.

Transaction services 19% growth as it continues to run very strongly with securities services up 31% and cash management up 18%.

Smith Barney up 13%, as mentioned strength there earlier.

Retail banking in total up 9%, the U.S. up 6% on 7% deposit and 20% loan growth with Mexico up 17% which is reported within the North America line.

Growth in the international retail bank up 14%, mid to high single digit deposit and loan growth and very strong investment sales driving this.

Consumer finance, 2% revenue growth.

Chuck had mentioned and we highlighted for you last quarter with the business taking what we believe is an appropriately conservative stance on credit, it is costing it revenue growth in market share.

In overseas we have slow growth in Japan as we come out of the credit cycle in our consumer finance business there, but ex Japan we're seeing revenues up 21%.

And the cards business down 2% in North America on revenue -- I'm going to talk about this in a bit more detail in a minute, but a continuation of high payment rates.

And on the card business overseas, international growth 19% on 15% loan growth, and the private bank revenues down on the continued runoff of the Japan portfolio the (indiscernible) events have closed this quarter.

Over on the regional side I think we have to be very proud -- the Company and the employees of the Company have to be very proud of the strength in top line in our international businesses.

Mexico overall up 23%, the consumer part of that up 26, corporate up 19.

EMEA also up 23% with another record revenue quarter for the CIB over there.

Asia up 17%, the first billion dollar plus revenue quarter for the CIB in the region, and consumer up 14%.

Latin America up 14%, again continued strength on consumer in the region.

In North America you can see down 1% on the consumer side revenues struggling with cards and consumer finance, but with the strength in the CIB and with the strength in Smith Barney up 10% over last year Japan again down.

So if you look at the consumer business outside of the U.S. -- I'm including Mexico in this -- revenues up 14%, CIB up 25% in revenues.

Next page, on page 5.

For the past couple of quarters we've highlighted one of our businesses for you -- one of the businesses typically been investing in -- and this quarter we're going to turn to the equities business.

This is a business which, as you know, the Company has been investing in for the past couple of years and it is also one I know that many of you are familiar with.

Having last year bought night options in Lava and having invested in technology, trading personnel and risk management, it's really rewarding to see that Jamie Ferisse (ph) and his team downtown are delivering 24% revenue growth year-to-date and 73% this third quarter over last third quarter.

It certainly represents a good market environment, there's no doubt, but these members also represent share gains as well.

And over here on the right side, we've shown you the revenue growth by product with the trading businesses up 31%, derivatives and equity finance both up more than 40%, equity underwriting up 8% and a little bit more work to be done in the IPO underwriting under that heading.

By region -- North America and EMEA, both very strong, just under 30%; for North America, 29%;

Asia up 30%.

So good work being done we think in the equities business.

Page 6 is the next thing I want to just spend a moment on, North American cards, given the challenging environment that we're seeing in that business right now.

As all of you know, in advance of today's implementation of the bankruptcy law bankruptcies have soared and we've actually had to change the scale on this chart several times to get on the week before last -- so this is not last week, but the week before last -- bankruptcies of just under 103,000.

Last week also will be very high -- in fact, it will be higher again I think for the first three days over 100,000.

As I mentioned, this quarter's impact was about $200 million in pretax fit to the income statement and we expect the fourth-quarter impact to be higher again, in fact more than 2.5 times that, even with the benefit we're going to see from the decline on the other side.

The other pressure to our card results, as we look over on the right hand side of this page, has been increasing payment rates shown here as the red line and moving up to 19.8% this quarter and thereby driving the flat results in our loans shown by the blue bars.

The work our cards business has done has shown this phenomenon as being driven by a relatively small portion of our customer base who are both paying down by taking out home equity loans as people have hypothesized as well as because they have more money with which to pay down.

And it's a little bit more, if we look at what folks are doing as they pay down, it's a little bit more the strong economy than it is actually the home equity loan.

Some part of the payment rate -- the increase in payment rate is also for us being driven by mix.

As our new products have tended to attract and are targeted towards transactors, the effect of which can be seen in our purchase sales numbers which here in the green line are up 10% over last year.

So all in all in cards it's a very challenging environment, some of which will abate soon, as in today, and some of which the team will be working through in the reorganized consumer organization.

Page 7 then -- we're still talking about revenues and the driver of revenues, clearly one of the most important contributors to our revenue growth is increasing or distribution footprint.

Currently we have 8,401 distribution points excluding ATMs here but including the automatic loan machines that we have in Japan.

Having opened -- we've opened 174 branches in ALMs in the quarter almost all outside of the U.S., and 561 in the last 12 months.

For example, this quarter we opened 27 consumer finance branches in India and 22 in Mexico as well as putting in our first consumer finance branches in Russia and Finland.

Turning then to page 8, this type of investment spending, as well as spending on derivatives, fund services initiatives and technology drove 3 points of the 12 points in expense increases over the past year.

There was 1 point from FX offset elsewhere in the income statement, so very little impact on our income from FX, and 8 points of business as usual expenses.

Of that 8 points, 10 points, or more than 100% of the BAU, was driven by variable expenses which in turn were driven by the increased revenues.

Over the second quarter, looking at it sequentially, more than 100% of the total increase was variable meaning the underlying business as usual expenses have gone down.

And over the past four orders you can see a leveling off of the operating expense growth.

Page 9.

Page 9 is credit quality in the consumer business and here you can very clearly see the impacts of the EMEA loan write-off policy action on retail banking and to a little bit lesser extent on consumer finance in EMEA.

You see here the retail banking NCLs jumped up, that of course will not be as at higher levels by any means next quarter.

And the 90 days past due has moved down for retail banking, the green line, and that will stay, all things all being equal, at these lowered levels.

The underlying credit remains excellent and stable even with the bankruptcies that we're seeing in the United States.

Page 10 goes to credit quality on the corporate side.

Not much to say on this slide except to say we remain in net recoveries on the corporate side and the credit continues to be excellent.

Then Page 11.

Page 11, my favorite chart.

This then pulls together the balance sheet and the income statement to break into what are across the Company the headwinds and tailwinds for the quarter.

I'll remind you how to read it.

If you look, the blue bars which are above the line are the tailwinds, the help to earnings.

The numbers that are -- the bars below, the green bars are things that have been hindrances or headwinds for us.

So we start with the balance sheet, and you can see that average loans and average deposits, etc., are growing 10% on the asset side, 8 to 9% on the loan and deposit side.

We then of course move from there to interest revenue, to the revenue we get off the balance sheet, and you can see here the interest revenue has increased more than the asset growth.

Now a good bit of that is in trading which I'll get to in a second, but it also is in pricing in North American cards and in our GTS businesses for example.

The cost of funds has increased as the rates have gone up and so as a result we have seen the two of those a NIM compression -- a compression in our net interest margin.

I'm going to have more on this in one second.

It represents -- the net interest represents 45% of the income statement, the other 55% of the income statement was up 40%.

And the combination of these two leads to up 15% in revenues for the quarter.

I just touched on the 12% increase in expenses and the $1.6 billion swing in credit which is on provisions there which is quite a headwind.

We then get to flattish but down 1% -- rounding to 1% decline in net income from continuing operations.

The share buybacks swings, that's a positive 1% on a cents per-share basis and the gain from TL&A takes the EPS on a GAAP basis up 35%.

Now, what I also wanted to break out for you -- and so we've put here on the CIB trading box on the slide -- since we're not solely a bank but have a sizable capital markets business, I thought it would be useful to pull these businesses out of the rest of Citigroup.

As you know, for the trading businesses you can't work with net interest income standalone but as part of the trading equation along with the principal transactions line supporting each other.

If you look at that, the net interest income for the trading businesses at CIB was down 33% or 400 million, the principal transactions overwhelms us at up $1.8 billion.

In other words, you give it up on the net interest income line for the principal transactions every day of the week.

As for the rest of Citigroup, once you've pulled that out and then subtracted away, there was still some net interest margin pressure but on the order of 2% rather than 6% and that pressure stems from active pricing decisions, such as in international cards and international consumer finance, and as we go through the businesses I'll point some of that out to you.

Moving then to page 12, we begin here to break down the quarter into the businesses and we give you a view first at the consumer level down 13% -- Katrina, bankruptcies, the EMEA loan loss reserve policy, the loan loss reserve of leases last year had an impact here -- consumer continues to account for the majority of our earnings, 53% for the Company.

Corporate and investment bank up 24%, global wealth management hindered by the close of Japan down 8%.

Going one level further, on page 13, breaking it down into income growth for the products, alternative investments is a leader in terms of the percent growth on private equity gains, capital markets and banking.

Some of that revenue growth that we saw given up in the loan loss reserve swing and applying (ph) 15% -- you can probably read this yourself -- retail banking, moving down there, up 12% in the U.S. down 13% overseas because of the EMEA credit change and consumer finance overall down 23% -- here on a relatively greater basis than in the cards business the impacts of Katrina.

Page 14 -- a few words on each business.

I've spent time with you starting here on cards, I've spent time with you on what's going on in the North American cards business.

Suffice it to say, purchase sales up 10% which is great to see with the high payment rates constraining the growth in A&R.

We've seen spread compression over last year, but on a GAAP basis a sequentially increase in spreads quarter-over-quarter from pricing actions that have been taken in the cards business.

I might however expected that to reverse in the fourth quarter due to the impact of the Katrina interest rate waivers that we will have in the fourth quarter as well as from the higher bankruptcies working their way through.

The bankruptcies tend to being our higher interest rate paying customers.

Continue with a favorable credit environment despite the spike in bankruptcies and reminding you of the LLR release of $160 million pretax in the third quarter of last year.

On the international cards business, purchase sales quite strong as well, up 11%;

A&R even stronger at 15%.

There's a bit of spread pressure here as these are primarily fixed loans oversees, more than 90% fixed loans, and we have chosen not to reprice them as rates have gone up for competitive reasons -- for proactive competitive reasons and so therefore our revenues are up 9%.

Organic growth across really all the regions -- Australia, Korea, Greece, India, etc., and again, a favorable credit environment.

And a headwind from last year when you look at the net income down of a loan loss reserve release of $42 million pretax, a big number for that business.

Page 15, turning to our consumer finance business.

Average loans up 4%, avoidance of the riskiest real estate lending products -- the sort of exotic, hybrid types of loans which this quarter the business tells us was 60% of originations for the industry.

A NIM contraction here as well of 4% translating into 1% on revenues.

This is because of an active mix change that the portfolio has been going through to a higher demographic customer and some risk-based pricing that's been a place for that demographic.

Our net credit losses improved by 23 basis points in the quarter.

In Mexico we continue to grow in Mexico being reported here in North America opening 22 new branches.

And Katrina cost 180 million pretax, 113 after-tax as compared to a loan loss reserve release last year of 45 million pretax.

International consumer finance average loans up 3%, really hindered by Japan or muted by Japan where we have, as I mentioned, been taking more of a go slow strategy, but ex Japan where we've been investing, loans up 15%.

The mix in the portfolio is shifting into real estate which is now 37% of the portfolio, so there's some spread pressure here on mix but made up in the credit line.

Concensus up 8% through continued branch openings.

The Japan net income up 28% as credit get better and we talked here about the branches we've opened, 58 this quarter, 66 ALM (ph) in Japan.

That's a rate of close to two a day -- business days.

Page 16, retail banking.

Average loans up well, 20%; deposits up 7% with some spread compression here from -- some of the other spread compression I've talked about has been moves that we've been proactively taking on mix shift.

The spread compression here is notable in our commercial business which is about 6% revenue growth.

We do have the Copelco litigation settlement in here and I'll remind you again of the loan loss reserve last year -- that we released last year of 164 million pretax, 109 after tax.

International retail banking loans up 8, deposits up 7%, getting pricing here, so this is spread expansion and some mix, driving net interest revenue up 10%.

We're also seeing very strong investment sales overseas, but part of our CitiGold offering of which I know many of you are aware, showing great success, driving 25%, a full quarter, of the revenue growth this year over last year.

The credit cost -- all this good stuff is obscured by the $476 million charge for the standardization of the EMEA banking write-off policy.

Corporate and investment bank on page 17.

Net revenues up 39%, favorable interest rate positioning and fixed income strength across the other businesses.

I think if you look at this you'll see good market share gains across several of the businesses, some of it muted by a negative playing of $375 million pretax in the provisions.

Transaction services, another record net income, another record net revenue, liability balances up 21%; assets in recovery (ph) up 15%, all really organic.

A very good story here and the pipeline continues to be very good, continues at record levels for that business.

Global wealth management, page 18.

As I mentioned, Smith Barney -- net revenues up 13%, assets under fee-based management up 17%.

So very good, very strong results over last year, a positive flow this quarter of $5 billion.

Private bank -- there were higher customer volumes.

People are giving their money to the private banks but there is continued weakness in transactions such that even ex Japan the net revenues are up 2%, a little bit more on the transactional but not the strength we're seeing across our other transactional businesses.

And ex Japan the net income is down as well.

And so I think there's work to be done in the private bank.

Alternative investments, strong private equity realized gains and hedge performance; the client business is going well as well up 19%.

And in corporate other, last year we had a benefit, a $147 million tax benefit in the third quarter which stayed in corporate other.

If you look at this versus last quarter, which was a negative 245, corporate other is doing better.

We've had here in our treasury lower overall funding requirements due to proceeds of life insurance and annuity coming in which of course we won't have as we continue to put those proceeds to work.

Going forward, page 20 -- this takes you to the returns on the business, those on invested capital and a risk capital basis.

Nice to see that all the businesses are turning above the cost of equity for us.

And page 21 -- last page, I promise -- talks to the capital discipline.

We've had growth in the stockholder's equity trust preferred to $118 billion.

A very strong Tier 1 capital ratio of 9.1%, total capital ratio 12.4%.

Dividends paid, we're turning lots of capital to shareholders this quarter; $2.3 billion dividend up 10% and, as Chuck had mentioned, $5.5 billion of share repurchase as well in the quarter.

So to finish up, this was certainly a complicated quarter -- actually before I finish up there is one last page which I won't spend time on, page 22, which is a summary of the items disclosed in the press release for us, both this year and last year for you.

So like I said, it was a complicated quarter and we know very much that you don't like it to be complicated when we have these unusual things.

And we, I assure you, don't like having this many unusual items either.

But we want to be as open and transparent on them as we can be with you to help you analyze the underlying businesses.

Despite what was $0.06 per share of pressure to continuing ops from this item, we have managers view the underlying strength and health of the business as very good.

It was a quarter, as Chuck mentioned, of all organic growth and we saw once again the benefits of a diversified and global platform with North America consumer pressure offset by continued strength in our international franchise and a terrific capital markets quarter.

And as Chuck said, we feel optimistic having the managers here, feel optimistic about the future as we continue to invest in our businesses and expand in the area of competitive advantage for us which is our global distribution network.

With that, Art, I think we're ready to take questions.

Operator, we're ready to begin the question-and-answer session.

(OPERATOR INSTRUCTIONS).

John McDonald.

Banc of America Securities.

Sallie, last quarter you mentioned that the yield curve was having an impact on the corporate other and obviously the results there improved.

You mentioned the lower funding requirements.

Can you just discuss what's going on there?

And is that less of a pressure point now with the yield curve on the corporate other specifically?

John, I'd say in terms of the quarter we didn't see a lot of abatement from any pressure in the yield curve because there wasn't a dramatic steepening of it by any means.

But as I mentioned, we did get in the proceeds of TL&A and, as you can imagine, we can't take those proceeds and buy back $5.5 billion worth of stock in one day or allocate it off to the businesses.

So we had lower funding requirements in the quarter within the corporate treasury and I guess, all things being equal, as we look going forward as we use those proceeds elsewhere clearly that will help other parts of the business, but you will then see some pressure on the corporate other side.

In terms of what you may be asking which is interest rate exposure for the Company, the interest rate exposure for the Company has gone down over the past quarter.

The IRE, which I know is a concept with which most folks are familiar, was last quarter $412 million, this is on a shock basis, the 100 basis points upward movement at a given point in time.

This quarter it's – lets call it $260 million which is less than 1% of pretax income annualized for the quarter and it's been higher than that, it's been 1.4, 1.9%.

The gradual IRE, which is something we haven't disclosed for you because we haven't calculated it for you in the past, but which is more in line with what the other banks out there calculate and disclose, was $138 million, down from 189 at the end of last quarter.

So this is less than 0.5% of our earnings and we took some actions here, not just in corporate treasury but really in consumer treasury to take advantage of the lower fixed-rate funding cost offset to a little bit of an extent by some mortgage duration extensions.

And so, what we're doing is there will be, all things being equal, as the funding -- the funding benefit of TL&A moves away from corporate treasury we are taking actions to mitigate -- to actively mitigate interest rate exposure and so we hope that you'll see the effects of that action as well.

But certainly we wouldn't expect it to be as positive, meaning less negative, as we saw this quarter.

So that corporate other loss, other things equal, that could grow in future quarters from where we are today?

It actually -- since it's a negative it will decline.

But, yes.

Right, the loss would grow?

Yes.

Okay.

And could you elaborate on the pricing actions you took in U.S. cards that kept the margin up this quarter?

Obviously you talked about what will impact it going forward, but give some color on what those were?

I think it was -- we saw some pricing actually I said in cards, I don't know that we have a lot more detail that we want to go into, but it was across some of the different lines of that business.

So we began to see -- or the different card products that we have.

And we did begin to see that as you look at the net interest revenue, the management's margin in cards you'll see the impact of that this quarter.

It wasn't just in North American cards, however.

We also had some across some of the international businesses where we are always looking very actively at the pricing.

In some cases we take the pricing down as we've been doing in our international consumer finance business where we're coming in and being very aggressive on pricing to gain some good share there.

And in other places we have -- we're also able to -- we also take some pricing up where we have the advantage of doing that.

I think the other thing that we're seeing in North American cards, just to go back to that, is the balance consolidation that we were growing at quite a high level when we talked the end of last year, this time last year.

As a percent of the portfolio those are going down so you're seeing some benefits of that as well.

Okay.

And last thing, could you or Chuck comment on whether you're optimistic about maintaining positive operating leverage as you go into the end of the year?

We are optimistic about maintaining positive operating leverage in the fourth quarter.

I think that given what happened to revenues in the capital markets in the second quarter and given what's happened in this continued sluggishness in North American consumer in the third quarter I'm not sure that we're going to make up enough in the fourth quarter for the whole year average.

But on an ongoing basis, looking quarter to quarter to quarter, we are still looking for positive operating leverage in the fourth quarter.

Okay, thank you.

Guy Moszkowski.

Merrill Lynch.

First thing I want to do is thank you for extending the explanation of the specials to the supplement on each business line page and in the text.

I think that's really helpful and I think we should give credit where credit is do stuff like that.

Thank you, Guy.

Thank you.

On the Europe reserve addition, can you give us some color for how much addition in provision we should expect each quarter going forward?

Yes.

That is a fair question, Guy.

I am pausing a little bit because as you can imagine the group over there is doing different things for credit given that when you're writing off at 120 day you do different things than if you're writing off a bit later so they are working very hard on that.

But I think it is going to be a little higher may be 10 million, $20 million higher with those affects.

So we would expect that to abate over a period of time as the group is working on that.

Okay, fair enough.

Do you have any visibility at this point, better visibility, than we talked about last quarter with respect to the FFIEC's minimum payment standards, timing of implementation, average increase in payment that your average customer might see on the credit card side and potential for increase in credit cost next year?

Sure.

The answer I have in terms of the outlook for next year actually is not much different from what I gave you last quarter which was actually quite deliberately vague.

I talked about hundreds of millions of dollars in impact and the range has moved a bit since then but it is still incredibly wide as we look at that so we are still looking for hundreds of millions of dollars.

I guess the happy news about the bankruptcy legislation impact, if there is any happy news, is that obviously we've had quite a headwind this year from bankruptcies and so that will transfer into the minimum due in the neg am.

We have implemented (indiscernible) due payment across the portfolio -- or almost all the way across the portfolio at this stage -- and in the third quarter we estimate that we saw just a minor increase in that -- sort of probably 8 million, $10 million after-tax impact to the negative from that.

And in the fourth quarter we would expect that that would pick up some and it will probably be in the range of maybe a penny per share in the fourth quarter.

Remember, it impacts a pretty small percent of the cardholder base, but it does tend to be the ones who can really support it.

And so, we will see an increase and the delinquencies and the net charge-offs which I'm not -- I don't think we've had as firm a number as I would be comfortable sharing with you today.

But it will certainly be a headwind for us next year.

Great.

And then just one more question.

Is there any visibility at this point on the Fed's comfort level with your implementation of the five point plan and any thought on timing at which they would no longer stand in the way of significant acquisitions?

I never like to comment on what the regulators are thinking.

My view has been that our job -- primary job this year is the implementation of the five point plan.

I've said since early in the year I expected that to be accomplished by the end of the year and we are on track for that.

So I can speak for ourselves, I would not want to put words into the mouths of the regulators.

Fair enough.

Thanks very much.

Mike Mayo.

Prudential Equity Group.

Could you comment more on your plans with your capital?

Your capital ratios have been building.

You said that you would be accelerating the rate of share buybacks.

Would you accelerate the pace from what you bought back this quarter and up to what price would you be willing to be aggressive with the buybacks?

Good morning.

The share buyback on the -- we have 8.9 -- 8.8, $8.9 billion left in the authorization.

I think we can certainly say that the ratios, which are running nicely now, are a little bit higher than that at which we would typically run the Company.

So you can expect us to continue to be aggressive in the purchasing the stock.

All things being equal certainly with the stockprice here we feel like this is a good use of our capital.

At some point we run into volume restrictions, however, on how much of the stock we can buy back.

So I think looking for us to buy back a great deal more than this number would be foolish for the time being.

Clearly we want to remain well capitalized.

We would not do anything crazy in terms of taking down our ratios much more because we do believe that the capital strength that we have at the Company and the balance sheet strength we have at the Company is a very important competitive advantage.

It gets us through tougher times, it helps us when we are able to buy something.

And so the balance sheet strength is something that is important to Chuck and to me.

But certainly we want to also invest in our businesses.

We're coming up to budget time.

I'm looking forward to it very much.

We actually start the budget meetings tomorrow.

So the first thing we would want to do is invest in our businesses where we can get higher returns and good growth.

We think we have lots of opportunity.

Obviously when able to do transactions we will look at those, but we will very much keep a disciplined eye as we have in the past when doing those.

And when those have been done, and particularly with the stockprice at this type of level, we look to return the capital pretty aggressively to shareholders.

So no, I'm not going to give you my target price for the stock, but it's certainly above where we are trading today.

And with regard to investment spending, you said 3% of the 12% growth year-over-year was due to -- or the growth in expenses year-over-year of 3 percentage points, that was due to investment spending?

Yes.

And Mike, it's interesting.

I was taking a look at this over the weekend.

I know that one of the things that we had talked to you all about was that the rate of growth of investment spending would slow as we came through the second half of this year and what's happened is we still have 3 points of growth, so it's not as much as it used to be.

But what's interesting to see is the businesses have quite rightly substituted investment spending for business as usual spending.

And so they've taken out some of the cost in their businesses and continue to invest across the businesses.

But it is the 3% this year over last year.

And where do you expect that to go?

Well, let us get through the budget, but certainly we're not going to stop investing in our businesses.

We think we're seeing good results from them and so we enter the budget season very optimistic about the opportunities that are out there and that the business heads will bring to us.

So I think you'll see continued incremental investment spending offset by good cost discipline.

And lastly, investment banking, how was September and momentum into the fourth quarter?

I would say the momentum into the fourth quarter is actually quite good.

If we look at the pipeline for the business it's up in some areas, a little bit down in other areas, but overall I would refer to it as being at strong levels and pretty flat over where we were coming out of last year.

July was the strongest month of the quarter.

August was less strong and September was quite good as well -- as one would expect.

All right, thank you.

Andy Collins.

Piper Jaffray.

Just wondering -- I'd like the breakout in terms of the cost of funds and trading.

I was just wondering if it was 50-50 or so, which it looked like it was in terms of impact on net interest margin this quarter -- what that was maybe in the past and also can we assume those kind of pressures will continue going forward?

It's hard for me to answer that question because in terms of the pressure going forward -- depends on what happens to rates.

Trading businesses typically fund quite short.

You'll see that really across the Street as you look at the results of the other investment banking trading firms that report and so to the extent short rates are going up that will increase.

But in terms of what level it is, I think a lot of that depends on how much risk they're taking, right, how active they are in trading.

So what you're going to see if you look back is that you're going to see real good volatility -- real good volatility in that number going forward.

And if you look historically I think it's about the same in terms of the impact it would have had.

And so what we have is we have -- the rate pressures have shown up more on the trading side, less so in the other Citigroup businesses.

But of course, in this quarter that net interest margin pressure was well more than offset in principal transactions in quarters obviously where it's weaker it isn't as much so.

I appreciate you liking it and so we'll see if we can continue pulling it together for you going forward.

Okay.

Just one other unrelated question.

About $1 billion in net charge-offs on the consumer side of the business.

I can understand about half of that the standardization was 490 million or so pretax.

I was just wondering what the rest of that was.

I know some of it was probably hurricane Katrina, but --.

You got it, you got it.

If you actually turn back to page 3 of the highlighted items, you've got the $490 million pretax for EMEA, you have 357 let's call it pretax for Katrina, you had the increase in bankruptcies, you have the corporate loan loss reserve build of 150 pretax.

And then as you compare it to last year, remember that we had the loan loss reserve release of 686 pretax.

That's I think more than the swing, but then of course you have underlying credit improving.

And if you pull those all together you're going to see the swing in the credit.

Okay, great.

Thank you.

James Mitchell.

Buckingham Research.

A quick question, your comp ratio in the investment bank increased about 38.3% from 36.7 prior quarter.

Do you feel that that's -- typically when you have a big revenue rise you have an opportunity to kind of pull a little off the table.

Surprised that went up.

Can you kind of give us some sense of where that goes in the fourth quarter?

Does that give you some cushion going into the fourth quarter?

Yes, but let me -- Chuck just said "cushion?"

Let me -- before we go into that let me tell you, as you look at this what I would actually suggest that you do is look not at any one quarter but to look really at a series of quarters, probably year-to-date obviously for this quarter is the best thing to look at.

The reason for that is there is volatility from mix shift that we see from quarter to quarter to quarter where in some quarters like this quarter the higher I see entire incentive compensation intensive businesses doing better and in some quarters doing a little bit worse so that can drive that difference.

But if you recall, last year we had a run rate and IC the pick up in the fourth quarter -- a 4 point pick up in IC in the fourth quarter as we adjusted the rates in for the competitive environment, something that clearly we're trying to avoid this year having that kind of volatility.

So last year overall ran at 36%, this year year-to-date the comp to net revenue ratio is running at 36%.

So you've got stability from there.

And the change last quarter over this quarter is wholly explained by the greater percent of revenues that are more IC, incentive compensation, intensive than last year.

So GTS, for example, is 19% of revenues this third quarter as compared to 22% and the list sort of goes on.

So mix and if you could -- if you could look at sort of a year-to-date as opposed to one quarter, I think that will help get you there.

Great.

And one unrelated question on net income -- net interest income, sorry.

Ex the investment bank management (ph) income seems like it was up modestly ex the investment bank.

Is that the proper way to look at it?

Let me go back, I think it was down.

The investment bank net interest income fell about 100 --.

Are you looking at the whole CIB or the trading businesses?

I'm just looking at the whole CIB, sorry.

Hold on.

And so ex the investment bank net interest margins fell?

Up a little bit (multiple speakers) cards business.

You'll see that in the cards business with the repricing the improvement in spread.

And you're also going to see some of that from corporate treasury as well with the lower funding balances (multiple speakers) that drove that.

Okay, great.

Thanks.

Glenn Schorr.

UBS.

Just a few follow-ups.

On the whole notion of the operating leverage, if you look at the step up in expenses in the third and fourth quarter of last year and then the flattening out, I guess that's what's behind Chuck's confidence in fourth-quarter operating leverage.

I guess my question is more on noncomp expenses over this time down 10% from last year and comp is up 25%.

So it's a mix of a couple of questions that have already been asked.

But does that make sense on the go forward?

What was taken on the non-comp side that will give us confidence that the expense line could continue to stay at this 11.4 billion range?

Let me do something if I could.

I talked a little bit about the comp in the CIB, and then you have now gone to the income statement overall and are looking at that and you've talked about the compensation being up 25% versus the revenue being up 15%, and clearly there appears to be a disconnect there.

I talked a little bit about the move into the higher IC intensive incentive compensation intensive businesses within the CIB.

The same thing is happening here in this quarter for Citigroup overall.

So we got this year -- 80% of the revenue growth over last year is driven by this corporate investment bank, alternative investment, Smith Barney, those that have higher compensation ratios.

So on a go forward, normalized basis we certainly would not expect to see that kind of disconnect between the revenues and the compensation expenses, but that is a function of what has happened this quarter.

So we certainly won't see that type of headwind.

And in terms of the other non compensation expenses and what's going on there, I'd say I don't have a dramatically surprising answer for you.

Remember, we took the repositioning charge in the first quarter, folks are working on the non compensation expenses.

There's some stuff in terms of some timing here for example.

Advertising and marketing is down a bit from last year because of the timing of some programs they had.

In fact balance consolidation programs they had in cards last year.

But the rest of it is just I think hard work by the businesses.

And then a couple of people asked questions on capital deployment and capital ratios.

The flip side of that is the ROE has been modestly slipping off of a high number, but it's now down below 18%.

When you all -- obviously you consider this, but to what degree do you consider the ROE and at what point do you manage towards an ROE as opposed to just your earnings growth?

Glenn, as you looked at the ROE and have expressed that concern about it, I assure you we look at it very hard here as well.

If you look at the ROE versus last year and the decline -- and I'll debate the 17.8% because obviously we had some real headwinds in the quarter which we laid out for you.

So we can have a nice healthy debate about what the underlying earnings power was in the quarter and this year, etc.

But let's take the 18%.

The decline from last year is solely explained by the strengthening of the balance sheet.

If you notice, it's the flip side of our ratios being stronger.

And what we're clearly thinking of as we look at the share buyback as we, again, look at going into the budget in which businesses we're going to be investing in, we clearly have made some moves here to move from some lower returning businesses such as the life insurance business and are of course looking to put our capital and businesses that can get us both higher growth and higher return.

So it is something we're aware of.

We feel like we track -- when we look at the competitors we track very, very well on the margin levels, on the pretax margin versus the competitive.

We track quite well on the ROEs -- again, sort of stringing together a few quarters.

So we feel okay about that, but it's clearly something we know that's important to our shareholders and it is therefore quite important to us as well.

Thank you.

Did you mention in your prepared remarks total outstandings to say the FEMA or Katrina impacted areas and how you feel about reserves?

Yes, let me give you some numbers here.

In terms of the individual assistance areas for Katrina, we have $3.6 billion in the FEMA individual assistance areas.

It's $700 million in credit cards, it's just over $1 billion or $0.5 billion -- $0.5 billion on balance sheet, just over $1 billion on and off balance sheet in the consumer asset business, sort of the mortgage business and CitiFinancial has $1.8 billion on balance sheet exposure as well.

We feel comfortable, we feel certainly as comfortable as we possibly can with the tremendous amount of work that's been done by the folks around here to determine what the right level of reserve should be for that.

We both took lots of incoming customer calls, outgoing customer calls.

Looked at statistical analyses of the portfolio, what has happened during prior natural disasters and went through portfolio by portfolio ticking off what we thought the exposure would be.

As you can imagine, it's smaller in more of our prime areas, it's certainly bigger and up to quite big in the consumer finance personal loan portfolio.

And sort of adding it all up we're as comfortable as we possibly can be at this stage of this is the right level of exposure.

It is as likely to be more as it is to be less.

Perfect answer.

Thanks.

David Hilder.

Bear Stearns.

I wanted to attack the capital question from a slightly different standpoint.

Should we view the larger amount of repurchase this quarter as a signal of a change in your overall thoughts about simply neutralizing share issuance for compensation plans or was this more of a onetime adjustment because of the combination of the Travelers life and annuity cash and the valuation of the stock?

David, I will correct you if I might.

When we announced the $15 billion share buyback it was not for neutralization of the compensation plan.

Certainly we do that when we buy back that much share, but in the second quarter as in this quarter we are well outstripping the compensation impact, the dilution from compensation.

So it's not a change in our thinking.

The announced share buyback was meant to reduce the number of shares outstanding and therefore increase the earnings per share.

In terms of the step up this quarter, we also have talked a little bit about trying to match capital generation, all things being equal, with the share buyback.

So you can see that we did have the proceeds from TL&A come in this quarter and so there was some of that.

But we also use judgment in terms of the timing of this and I think Chuck has signaled for you how we feel about the stock price and that opportunity for using our capital going into next quarter even though we obviously won't have as big a gain from the asset management sale as we do from TL&A.

And secondly, the change in accumulated other changes in equity from nonowner sources, the swing of about 1.5 billion from June 30th, what was the primary source of that?

I'm actually glad you asked that because it's a 1.5 billion swing.

Most of that is actually taking out of the Travelers life insurance and annuity business and giving it over two Met.

So the swing ex the TL&A takeaway within the AFS portfolio, that swing is 79 million negative.

So we had a little bit of pressure on the AFS, just a little bit, from some increasing interest rates.

We had almost neutral, neutral from changes in foreign currency, we had some foreign currencies that were a little bit weaker versus the dollar, some that were a little bit stronger versus the dollar and then we had a little bit of a positive from the cash flow hedges.

So all in all it comes out to I think a pretty manageable number.

We might expect that we would see less volatility in that line going forward with TL&A having been sold because of the big bonds portfolio that they had.

And so with that gone I think we might see -- and I know some swings have driven you all nuts a little bit over time, but that we should see lower levels of swings going forward with TL&A gone.

Thanks very much.

Betsy Graseck.

Morgan Stanley.

Just a question on North American card net interest margins.

They've been a little volatile in the quarter, obviously they've increased nicely.

I would be interesting if you could just drill down on or give us some color on what's driving that improvement and if we should be anticipating continued improvement going forward.

Okay.

Betsy, in terms of the improvement that you're seeing in North American cards net interest margin over last quarter, this is one pricing action that we've taken the quarter -- the North American cards business has taken to balance consolidations being a less important part of the portfolio.

So those have more than offset the increase that we're seeing in interest rates.

I'm not going to forecast for you that that abatement in pressure is going to continue.

Because with the higher BKs, which are the folks who are the most profitable on a net interest margin percent with those high BKs, clearly we're going to see some pressure there.

And then we expect the Katrina fees that we have for our clients -- our customers in the Louisiana/Texas area, those fee waivers are going to continue into the fourth quarter and so that will then have a direct impact as well on that.

So we've seen it, it's good to see that there is some pricing power there.

It's good to see that these guys are also actively managing their rate exposure.

I mentioned before the IRE coming down, a lot of actions taken in consumer to lengthen out the debt to take advantage of that.

So I think a combination of very good things showing that the team is working hard on that net interest margin, but it's hard for me to forecast sequentially that we'll see a continuation of that.

But there was part of the improvement coming from the way that you were managing the funding cost?

Absolutely.

So if you were to look at the pricing actions, the balance consolidations and the funding cost, is the impact to the margin this quarter in that order?

Let's see, it's probably pricing -- yes, it's all in there together, it's sort of a stew.

But I can tell you that of the IRE improvement that we saw over last quarter, I'd say the majority of it is in the consumer treasury function.

So they are very actively working on that.

It's probably -- we're doing a rough back of the envelope here, it's probably I think two-thirds pricing and one-third cost of funds very roughly, roughly, roughly.

Okay.

And so it's fair to say the cost of funds could continue to benefit somewhat at the margin, although pricing may diminish going forward?

Sure.

Okay.

Thanks.

Joseph Dickerson.

Atlantic Equities.

I just had a quick question on your growth in credit card balances.

I was wondering to what extent you were still using introductory rate offers and balance consolidation products.

And was wondering given it looked like you ceded a bit of market share.

I was wondering if you were doing the same thing that you're doing in the consumer finance business in North America which is stepping back from some of the more dubious products?

Yes.

I would say in cards we have not been as aggressive on the bal cons this year.

In fact in the first quarter stepped back from it quite a bit.

What you're seeing the impact of now actually put a fee on balance consolidations to work through that and test it out.

And so we've seen an impact from that therefore on our managed loan number.

This quarter you're seeing some of the -- that advertising and marketing has gone down.

That is the impact of a very strong bal con marketing campaign last year which obviously we don't have again this year.

So I'd say if we look, though, in terms of the net receivables and what they have done, I think it's, one, some bal cons; two, these higher payment rates that we had seen which are pressuring the portfolio -- a little bit of Sears as well.

I know they've made some comments about sales within their channel.

And you combine all of those and we have what is a pretty flat picture.

I'd say the other thing that's going on too, remember the bankruptcies.

Put that in the mix as well which obviously those get charged off so they are no longer there in the aggregate number.

Okay, thanks.

Miguel Sidelco (ph), Noonday (ph) Asset Management.

Noonday Asset Management.

Had a question for you on the spike in bankruptcies.

Are you guys thinking of this as just an acceleration of losses that you'd have later on or are you revising your accumulative loss assumptions upwards with this statement?

I'd say it's very much an acceleration of what we would see later on.

So we would expect to have a better result next year, better results in November and December.

Although that will come through with a lag.

We write off after ten days and it takes ten days to oftentimes get the notice.

So you'll see the impact in this quarter in our numbers through into next month.

But in general there should be folks who otherwise would have filed who have pulled forward and so we expect that all things being equal this will be a positive net present value for us as a Company, although it will take some time for us to realize -- we'll have to get back to breakeven, no doubt about that.

Got it.

And are you revising your loss assumptions upwards on other loan products that may have some sort of a related loss expectation?

It's interesting, in terms of our consumer finance business I think one might have expected that it would actually see quite high bankruptcies as well given the change in law, but given that the portfolio tends to be more real estate based we actually only saw a single digit million dollar impact this quarter from that.

Now if you're asking the question about the increased risks out there, etc., I would have to say looking really across the Company it was notable to me in talking with the business heads over the past week or so that while I wouldn't say anyone is pulling back on risk I would say people are really declining to participate in the riskier areas.

Again, consumer finance in North America is one we've talked about.

Some of the high yield market -- we're seeing the CIB being conservative about that as well in terms of the underwriting some of the corporate lending is close to irrational at this stage and so we're trying to have some conservatism there.

So I think people are very aware of what's going on in the markets right now and that we're in credit paradise and are trying to be quite careful because, of course, we always know how these paradises often end.

Great, thank you very much.

I think that concludes our questions and answers.

I'd like to thank everyone for joining us and please call us in Investor Relations throughout the day, through the week for any other questions you may have.

Thanks.