花旗銀行 (C) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Citigroup's fourth-quarter 2005 earnings review featuring Citigroup's Chief Executive Officer Chuck Prince and Chief Financial Officer Sally Krawcheck.

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

Today's call is being recorded at the request of Citigroup.

If you have any objections please disconnect at this time.

Mr. Tildesley, you may begin.

Thank you very much, operator, and thank you all for joining us this morning for our fourth-quarter 2005 earnings presentation.

The presentation we're going to take you through is available on our website under the Investor Relations link if you haven't already gone there to download that.

We'll follow our usual format today; we'll start with Chuck with some opening comments and then Sally will take you through the presentation, and then of course we'll be prepared to answer any questions you have at the end of that.

So let me hand it over to Chuck.

Art, thank you, and good morning, everyone.

Thank you for taking the time to join us today.

I'm going to take a few minutes to discuss our performance this quarter in an overall sense and the progress we're making on some of our strategic initiatives, and then I'm going to turn it over to Sally to take you through a more detailed presentation and then we'll be ready to answer questions.

This quarter we saw strong underlying performance in several of our businesses despite a challenging interest rate environment and competitive pricing conditions globally, and let me highlight some of those for you.

In international our revenues grew 13% on strong underlying volume growth; you've all heard me talk about the importance of our growth in international.

In U.S. consumer lending we achieved strong growth in loan originations, including 20% growth in our real estate loan originations and this led to a 17% growth in average loans.

In U.S. cards, although we had 9% growth in purchase sales which is pretty good, conditions continued to be challenging with high payment rates affecting receivables balances.

And of course across our entire U.S. consumer portfolio we felt the negative impact of rising short-term interest rates and a competitive pricing environment.

International consumer achieved loan growth across all products except in international retail banking.

You'll remember we wrote off the loans in EMEA in the third quarter.

And we were pleased to see net interest margin expansion for a change in the international consumer business as a result of pricing actions and new marketing initiatives.

In the Corporate and Investment Bank we saw strong revenue growth in equity markets -- I'm especially pleased with how we're doing there -- in M&A and transaction services, up 39%, 25% and 19% respectively.

And I can't help but note that for the first time ever we achieved number one ranking in global equity and equity linked underwriting.

Kudos to Jamie Forese and the team.

We also finished the year with a number two ranking in global completed M&A and I really think we're making very, very good progress in our Corporate Investment Bank.

In our wealth management businesses we saw good growth in client volumes, although this was partially offset by spread compression.

And despite a spike in bankruptcy filings at the beginning of the quarter, underlying credit conditions remain favorable.

We also released $600 million in WorldCom research litigation reserves this quarter reflecting the good progress we've made in favorably resolving these legal issues.

And I want to complement Michael Helfer, our General Counsel, and his team on all the good work they're doing there.

During the quarter we continued to execute on our buyback program, spending $4.4 billion to buy back an additional 93 million shares.

Overall during 2005 we've repurchased $12.8 billion of common stock and this morning we announced an 11.4% increase in our quarterly common dividend to $0.49 a share, our 21st consecutive annual increase in the common dividend.

Let me spend just a moment on some of our strategic initiatives and then turn it over to Sally.

These are the same strategic initiatives we talked about at Citigroup Day -- expanding distribution, transferring expertise, investing in people and technology, and allocating capital.

Let me just talk a few examples.

The pace of our distribution expansion increased in the fourth quarter as we opened 100 new Citibank branches and 107 new consumer finance branches around the world.

Now that's more than two new branch openings per day, including weekends and holidays, and more than double the number we opened during the third quarter.

In the last 12 months we opened a total of more than 500 new Citibank and CitiFinancial branches and we acquired an additional 142 branches, 106 at First American Bank in Texas and 36 at Insular in the Philippines.

Now we intend to maintain our fourth-quarter pace, as you know, with plans to open more than 900 Citibank and CitiFinancial branches around the world in 2006.

Another example of expanding distribution was our successful completion of the Legg Mason transaction which added more than 1,200 financial advisers and 124 branches to the Smith Barney network.

A good example of allocating our capital occurred in Japan where we reduced our ownership Nikko Cordial by selling down our equity stake to 4.9%, but at the same time announced that we would increase our investment in our successful joint venture, Nikko Citigroup Ltd.

And in China we deepened our relationship with Shanghai Pudong Development Bank where we've reached agreement to increase our ownership to 19.9% and broaden our business relationship beyond the success of our credit card joint venture.

So in summary, we have a challenging interest rate and competitive environment, but I'm pleased with the fundamental performance of our businesses and we remain very focused on executing against our strategic initiatives.

And with that introduction, Sallie, if I can ask you to take us all through a more detailed presentation of the financial results, and then, for those of the on the call, Sally and I will be ready to answer your questions.

Sallie?

Good morning, everybody.

Thank you, Chuck.

Let me start with the presentation that you should have up on the Web;

I hope you've all seen it.

We'll start on page 1, fourth-quarter summary.

Net revenues for the quarter, $20.8 billion, up 3% over last year.

Net income of just under $7 billion and diluted earnings per share of $1.37 per share.

Return on equity at 25%.

Now, this net income includes the gain from the sale of the asset management business.

Excluding that we had net income from continuing ops of about $5 billion and diluted earnings per share from continuing operations of $0.98 per share.

A few highlights, if I might, on the business and some of these Chuck touched on.

In our international consumer business our distribution expansion has been driving volumes up and double-digit revenue growth.

In the U.S. we had good volume growth in some of our lending businesses, our consumer lending business and our commercial lending business.

And in the cards business we saw very good purchase sales growth this quarter of about 9%.

So you are going to see that this good customer news is obscured in the earnings by some one-time items and in some of the businesses, as Chuck mentioned, a tough operating and interest rate environment.

Capital markets businesses are in good shape.

In the wake of the investments we've been making in these businesses, Chuck mentioned the momentum in equities and advisory is strong -- advisory at record levels as GTS on revenues.

And we have continued strong performance in alternative investments which has been a standout performer for us this year.

We did have the bankruptcy spike, and I will take you through the numbers for that.

But underneath that the credit environment remains quite good in the United States and around the world.

We took further actions, as Chuck went through, on the capital management front -- the Legg Mason transaction, you'll see the gain for that; closing the first phase of the Federated card portfolio, thereby adding $3.3 billion in receivables; reducing Nikko Cordial stake, but investing more in the joint venture; and deepening the relationship with Shanghai Pudong Development Bank.

The underlying strength of the business therefore enabled us to increase the quarterly dividend, up more than 11%, and it's the 21st consecutive annual increase for one branch of the family, the Travelers branch of the family.

And we do remain aggressive buyers of our own stock, buying back $4.4 billion worth of stock in the quarter to 93 million shares taking our common shares outstanding to less than 5 billion at year-end.

Moving to the summary income statement on page 2 of the deck; here you can see the net revenues that I referred to -- up 3%, up 5% for the year.

Operating expenses up 1% over last year.

We then move to the credit loss line, $2.1 billion in this quarter, a $530 million credit swing or the equivalent of $0.06 per share over last year.

You're going to remember that last year we had a 600 -- just over $600 million loan loss reserve release in the fourth quarter.

This takes us down to a continuing ops number, down a bit from last year at $5 billion.

The discontinued operations number has the earnings of the asset management business for the period -- the quarter in which we owned them as well as the 2 billion plus gain that we recorded in the quarter.

Now this is above the $1.6 billion that we talked about and that you would have expected at the time of the announcement and the increment is due to the appreciation in Legg Mason Stock since that time.

And then you see a number on the next line, the cumulative effect of accounting changes which rounds to 0 because the numbers on this page are in billions.

As you'll see below, this effect is actually a $49 million after-tax effect due to the adoption of FIN 47.

FIN 47 applies to certain real estate restoration activities required under some of our operating leases in our offices and branches around the world where we have to return the space in original condition.

The $49 million represents the catch up adjustment for costs that previously would have been recorded at the end of those leases.

Moving to page 3.

Page 3 is a page that we put together for you every quarter in which we work to bring together the various items that impact in this case our fourth-quarter results by more than a penny per share.

We do this to help you -- not to tell you what to add in or subtract out by any means, but to help you try to see what they are so that you can work to understand the underlying performance of our businesses.

I'm going to start at the top and work the way down.

The first item on the list is the release, as Chuck mentioned, of the WorldCom and research litigation reserve which were a positive force in the quarter of $600 million pretax, net income impact of $375 million or $0.07 per share recognized in the capital markets and banking business.

This release is the result of a decision that our lawyers took in the wake of the favorable resolution of our largest WorldCom case this quarter.

The decision affected not only that case but also their assessment of the potential exposure that we have in other WorldCom cases.

Based on this our lawyers determined this release was appropriate during the course of the quarter.

The second item on the list is the gain on the sale of the Nikko Cordial stock which took our stake in the Company from 12% to 4.9% with a $248 million gain, but reinvested $170 million into the joint venture.

The third on the list is the gain on the sale of our European merchant acquiring business to a subsidiary of U.S.

Bancorp for $89 million pretax, 57 after-tax, the cognition of which is in our EMEA cards business.

The other one which I'll -- next one which I'll spend a minute on is a change to conform the accounting practice for our customer rewards, our points program seen in the U.S. cards business and retail distribution.

The cost for this was $565 million pretax, [548] million of which are in the U.S. cards business, $354 million after-tax or a negative impact to us of $0.07 per share.

Given the significant growth of our very successful consumer rewards and points program in the cards and retail banking businesses, during the fourth quarter we conducted a review of the accounting policies for the rewards cost across all the businesses.

As a result of this review we decided to conform to a single policy of recognizing rewards cost in net income as incurred.

In the past we had capitalized some of the points and written them off over a period of months in the view that they drove increased customer loyalty and greater retention.

Accordingly U.S. consumer wrote off the December 31st unamortized deferred rewards cost balance of the $565 million pretax which went against revenues and prospectively will immediately recognize all such costs in the income statement against revenues.

The next topic -- the impact on our results from the increased consumer bankruptcy filings due to the new legislation.

I'm going to talk about this in a few buckets -- I'm going to talk about it on a managed net credit loss basis;

I'm going to talk about it on a GAAP or held basis impacting net credit losses and revenues;

I'm not going to talk about revenues that we otherwise may have had if these subs had not gone bankrupt; and I'm not going to talk about the loan loss reserve addition or subtractions that we've had as a result of this as well.

The numbers here first off not on the page is we've had a pretax managed net credit loss impact of $600 million in the U.S. cards business in the quarter.

Moving to a held basis, again which represents just the loans we hold in our books but do not securitize, we had a $180 million U.S. cards net credit loss impact; we had a $120 million cards lost revenue from reversed interest and reduced excess trust revenue; and we had an impact of $93 million in our consumer finance business now reported in retail distribution.

This net -- this came down on a tax-adjusted basis -- on an after-tax basis of $252 million on the GAAP NCL in the revenue.

Now, as you will recall when we had the last earnings call, after that the bankruptcy rate continued to spike and so the cards impact on a managed basis was a bit higher than what we had expected at that point.

But actually the real surprise here was in consumer finance.

If you hark back to the last quarter's call, we had had impact from -- we had an impact in our consumer finance business of just a single digit millions of dollars in the quarter.

As the timing for the bankruptcy law change got closer these sub 620 FICO scores, which had not been filing bankruptcies at a particularly increased rate, increased dramatically.

And as a result of that it caught us a bit by surprise given they hadn't moved much before.

We have a $93 million net credit loss in the consumer finance business in the quarter.

Finally, the last thing on the continuing ops part of the page, our increased reserve for previously disclosed legal matters -- $97 million after-tax or a hit of $0.02 per share.

We use a lot of words there and the reason for that is because we're actually not going to tell you which case it was in regards to at this or any point.

Now I'm also going to remind you that in the fourth quarter of '04, just to continue to make it more complicated, we had a number of one timers as well.

We had, as I mentioned before, the $605 million pretax, 384 million after-tax, and loan loss reserve releases in the quarter, $234 million sales in tax benefits, a $200 million pre-tax, $120 million after-tax legal insurance recovery in a corporate and investment bank, and a $400 million pre-tax, $244 million after-tax charge for the private bank shutdown in Japan all of which affected continuing operations.

Next page, page 4.

On to Revenue.

We're going to turn to the revenue picture here by product and by region.

And there are changes to the disclosure that we give to you from prior quarters in line with how we're now managing the businesses.

As you recall, we reorganized our U.S. consumer business in the fall and this is the first quarter we're reporting results on a reorganized basis.

The diagram, the schematic of how we've changed our reporting is on page 20, back in the appendix, and I know that there's a description attached to the press release as well as to the earnings supplement this quarter.

So going down the list -- international cards leading the growth rate for us this quarter, up 19% on 15% loan growth and some spread expansion; transaction services up 19%, continuing the good run that they've had all year; capital markets and banking 13% revenue growth; equity, I mentioned the strength there, up 39% for the quarter and 33% for the year;

U.S. consumer lending up 11% revenues, real estate leading the way there with revenues up 19%; international retail banking up 9%; alternative investments likewise up 9%;

Smith Barney 8% revenue growth, 19% growth in fee based revenue; and Citigroup overall up to 3%.

Retail distribution flat revenues for the quarter.

This has our U.S. bank branches, the CitiFinancial branches and PFS in it.

There's some good news, though, interesting to see, under the flat revenue growth.

CitiFinancial originations were up 10% in the quarter as the business building initiatives that the business had put in appear to be kicking in despite not participating in more exotic mortgage products for the lower FICO score customer base.

International consumer finance flat.

This may look surprising to you, so I'm going to discuss this in more detail in a few pages, but is a significant currency impact on this.

Private bank down 6% on transactional weakness;

U.S. commercial business down 17%, this is due to the runoff of some of those businesses which we've sold over the past couple of years and they continue to have an impact, although I think when you go through the numbers in the supplement you'll see that we are pleased and hope you'll be pleased at the core 20% loan growth.

And the U.S. cards business, as I mentioned before, hit by the rewards points charge as well as some bankruptcy impact.

Moving over to the regional view, we had Japan overall at 41%; so the biggest grower, although the Nikko share sale impacted those numbers and it goes down to a single digit gain ex that.

Mexico up 15%, consumer business remaining quite strong; the corporate business continuing to feel the impact of the flat yield curve and what it does to lower customer activity.

EMEA up 10%, a very good revenue year for EMEA.

Asia up 7%.

On the consumer side up 8% having a muted impact on the results because of labor negotiations we're having with [quorum] workers because of the negotiations not doing some of the business and so therefore taking that growth rate down a bit.

And Asia corporate up 6%.

Latin America down 1%.

They've had the headwind of a gain in '04 in those numbers on the consumer side.

And the U.S. down 4%, although this would be positive but for the rewards points charge.

Next page, page 5 -- I want to take a few minutes to give you a few product updates as we tent to do in the quarter.

The first off is U.S. cards.

Now I wanted to stop here because, of course, the last quarter we talked about the bankruptcies were increasing and I'm sure most of you have seen this chart on the bottom left hand side that shows the increase in bankruptcies.

When we had the last earnings call the weekly rate was running about 103,000; spiked to 315,000 and then came back down -- came back down, as you would expect, more than our expectation at the time and they're running at sort of the 3,000 to 5,500 type of levels since then.

So I think it certainly was uncomfortable and painful, but that should have a good effect on the business and on the underlying credit of the business going forward.

Moving to the right hand of the page, against exhibits that you've seen in the past, the red bar shows one of the headwinds we have faced which are the payment rates which have moved up significantly having run a few years ago in the 16%'ish types of levels, up into the 19 to 20% level in the third quarter coming back down to 19.5% in the quarter.

Now there's seasonality in the fourth quarter in the payment rates.

You can imagine people typically don't pay back as much during the Christmas holidays, but if you're going to be feeling in a good mood and you're going to point to the numbers a little bit, it may be that the payment rate has gone down a bit more this fourth quarter than it has in prior fourth quarter, so perhaps something going on there.

Purchase sales for us remain quite strong, up 9%, and you can see that on the green line which is nicely upward moving through the course of the chart.

We gave you a little bit more detail on the managed receivables for the business so that you could understand that there's a shift going on in the portfolio and a real headwind that the business is working against and good underlying growth in other parts of the portfolio.

We break out here for you the value portfolio which is really the more I'd say traditional, maybe classic, cards -- not the rewards points, not the premium types of cards.

That's a business that has been shrinking for us and for the industry while the rewards points that co-brands the private label has been growing, as you can see, at a very nice clip, up 8.7% on a compound growth rate over the past couple years.

So this is a shift that has happened both to us and the team in this card is working actually to accelerate as they move into some of these high-value, very valuable for consumer types of cards.

Page 6, page 6 I think is just a terrific slide.

While there are headwinds and tailwinds and cross currents on a prior page in U.S. cards, page 6 you can see all the lines and the bars start a little bit low on the left and get higher on the right, which is always nice to see.

So we've got purchase sales, which is the red line here on the chart, up 16% in '05, up 6% in the fourth quarter of '05, though up 9% on a constant currency basis.

Average net receivables up 22% in '05, 15% in the fourth quarter led by particularly strong growth in Mexico, Asia and Latin America.

The 15% was leveraged into 19% revenue growth as spreads expanded in both the fourth quarter and in the full year.

And a margin increase, as we say here, reflects target market expansion in good part as well as the ability as the first mover in the businesses to set pricing.

Pretax income up 20% in the fourth quarter for the business.

And you're going to see, however, that net income is up just 4% due to the absence of some tax benefits in this quarter which are going to continue through 2006.

Page 7, as promised I want to talk for a minute about international consumer finance, where we've been adding a lot of branches, as you can see here, 125 in the fourth quarter, 489 for the year.

But for those of you who've gotten to that page in our supplement, you may have been alarmed at seeing 0% revenue growth and the declining outstanding loans.

That's why we thought that it was important to provide you with this slide which FX adjusts these numbers.

The size of this swing -- I know the immediate follow-up question is how big this swing has been in prior quarters.

And the size of the swing typically for us because of actions we take typically runs no more than 1 to 2 points in any quarter.

But this quarter, given the big move in the euro and the yen, we have seen some sizable impacts.

Reported loans down negative 3%, a 10 point swing such they're growing at a 7% -- on a 7% constant dollar basis.

You can see double-digit growth through the regions with the exception of Japan where you're going to remember we had some credit issues and we're managing the portfolio down to work through those.

Revenues flat for the quarter but up in all regions of the world.

And, of course, particularly very strongly up in the regions in which we've been building aggressively which are still small but obviously growing very quickly, such that revenue growth in constant dollars is 9% for us, with Japan and EMEA, our more mature markets, putting a bit of a break on the very much faster growth in the other regions of the world.

So while it may appear that the business is slowing as you look through the numbers and supplement, you can be here I think some very good results and we feel very good about our investments here and the results that we're seeing.

Page 8, on this page we outline the Company's expense growth for the quarter.

First is the fourth quarter of last year, up 1%; 4% investment spending and a little bit, just a touch from acquisitions as we continue to invest in our businesses as we have all year.

We saw some of the branch expansion, and I'll show you some numbers on the next page.

We've also been investing in technology and training.

Now this was also helped by -- this quarter helped very much by the absence of some of the reserve actions and the insurance recoveries from last year.

Business as usual then up just 3% in the quarter of which 2 points is variable, 1 point is fixed.

And on page 9 then, this shows where a good bit of our investments are being spent with branches across the world and across the businesses up 11% over the prior year.

U.S., we opened 12 U.S. bank branches in the quarter which, again, if you look through the supplement and eyeball the growth there, on or any basis this represents a restart of the organic growth build in the bank branches for us in the U.S.

International 88 branches opened in the quarter, 183 in the year and the biggest countries here were Mexico, Brazil and Russia.

In consumer finance, going to the international, 97 branches in the quarter, 319 for the year; the leading countries there in order of magnitude are Mexico, India, Korea, Brazil, Poland and Thailand.

And the automated loan machines which are in the Japan consumer finance business up 28 for the quarter and up 170 for the year.

And the Smith Barney numbers, 124 in the fourth quarter, 125 in the full year.

The 124 represents the branches that we gained in the acquisition of Legg Mason.

Page 10, credit quality -- I won't spend much time on this at all but to say that you can eyeball the numbers and see that credit remains terrific.

The big spike you're going to recall in consumer in the blue line in the third quarter was the change in our EMEA write-off policy in the retail bank and a little bit in consumer finance and EMEA coming back down.

Page 11, this is where we put an income statement together in picture form.

You'll recall how it works which is the blue bars are the bars that are above the line have been tailwinds or good guys for us in driving earnings.

The green lines below the line -- the green bars below the lines are headwinds for us.

And so what we saw was we saw nice balance sheet growth -- 10% growth in average assets, 7% growth in average loans and average deposits.

Because of pricing actions, because of the profile or change in the mix of the portfolio, interest revenue up 22% over last year or $3.7 billion, while because of funds increased 63% over the prior year as rates also have moved up and the yield curve flattened a bit.

This has led us to net interest income, down 5% or 600 million; combine that with the 12% increase in other revenue gets us to a 3% revenue growth rate.

Let me just back up here and give you a few additional words on our net interest income.

Looking at this on a net interest income line, 5% over last year, I'm going to break it down into -- this is year-over-year -- I'm going to break it into a quarter-over-quarter progression for you of this measure starting with the first quarter.

So the first-quarter number will be versus the fourth-quarter number.

During that period it was down 2%, the next quarter -- the second quarter down 2%, the third quarter down 1%, and this quarter -- the fourth quarter over the third quarter flat.

I'm going to further break it down for you by taking out, as we did last quarter, the impact of our corporate investment banking trading business.

Now for those of you who cover the brokers, you know that the brokers fund very short, the net interest income tends to move more dramatically.

But also and more importantly, in the trading business one doesn't just do a trade for interest or dividend typically, one does it for that as well as for the principal transaction, the principal gain that comes from it.

And so we typically always look at the net interest income in the trading business together with the principal transactions.

They are [unseparable].

And so what you can see here is that in the trading business we had trading net interest income down 28% or 400 million along with the principal transactions up 600 million or 99%, so combined looking nice.

But I guess as importantly here, when you pull the trading net interest income out of it for all of Citigroup you see much less pressure on the non trading parts of the business.

One further cut which you're going to see as you go through our earnings supplement has shown a bit more pressure on the net interest margin side in our U.S. consumer businesses, particularly those that deal -- particularly those in the lending group that don't involve a direct end customer relationship.

But we have had some net interest revenue expansion in some of our international consumer businesses working to offset that.

So continuing down the income statement, revenue as I mentioned up 3%, expenses up 1%, so a headwind for us.

Here then is the provision headwind, the credit headwind that I talked about earlier, as well as a tag headwind from some tax benefits we had last year from the tax law change, takes us to net income from continuing operations down 3%.

The impact of the buyback this quarter, last quarter, the quarter before, then kicks in on the EPS basis.

So we go from a 3% down to flat, and moving on to the gas number, including the gain of 34% over last year.

Page 12, we're going to now look at net interest income growth side business for a minute.

I'm not going to go through the detailed business by business slides that we've had for you in the past, but they are all still available for you in the appendix to this -- to the specs.

So instead, I'm just going to touch here using these bars on some of the high points.

U.S. consumer lending up 33%, with that good revenue growth translating into even better bottom-line growth.

International consumer finance up 18% and even more, as mentioned on a constant currency basis.

Capital markets and banking 13%, transaction services up 5%.

We lost 14 points of growth in the comparison to the loan loss reserve releases and a tax benefit in this business last quarter.

So the good 19% revenue growth did not translate here into the bottom-line growth that you're used to seeing in this business.

International cards up 4%; remember, up 20% on a pretax earnings basis.

Alternative investments up 3 over a strong fourth quarter.

Private banks flat.

Well, actually I apologize.

Private bank has a not meaningful, given that we had a $244 million charge for Japan last year, big swing there.

International retail banking down 3%, the 9% revenue growth lost to a compare against tax releases in '04.

Smith Barney down 10%, some integration costs with Legg Mason.

U.S. commercial business, retail distribution down 25%.

We had, I mentioned, a bankruptcy net credit loss.

And in addition, we did have some addition to loan loss reserves of $42 million in the quarter trying to be in front of some of the bankruptcies that will continue to come through as we write them off with a lag in the first quarter, such that we are fully reserved for them, we believe.

U.S. retail distribution, as mentioned, 25%, U.S. cards down 60% due to the rewards points and the bankruptcy.

Japan again leading the way on the income growth from the Nikko sale which was good, but I should point out some nice underlying growth in the businesses there, particularly the Nikko joint venture.

EMEA up 72%, 26% in the consumer business which is a good number.

The 192% on the corporate business, we have the growth here and in Asia -- the Asia corporate business significantly impacted by an IT relocation across the region that the Corporate and Investment Bank did in the fourth quarter.

So if you put your eyeball down, they're down 16% in the Asia business for the corporate side; that business is much stronger on an underlying basis.

Down 2% in Asia in the consumer business.

We had some tax credits in '04.

Mexico down 13%, not again the good growth you're used to seeing from Mexico because we had the absence of prior year loan loss reserves in both businesses.

The U.S. down 20 and Latin America also impacted by prior-year loan loss reserve comparisons as well as a gain on the sale of Orbital last year.

Page 13, good returns across the businesses.

Page 14, titled "capital discipline" shows you some of the balance sheet numbers and metrics, return on equity of 25%, 22% for the year.

On stockholders equity at 118 -- $119 billion and shareholders equity and trust preferred, good strong ratios, common dividend up 7% over last year, going to be up even more going into '06 and the share repurchase.

So we feel good about the strength of the balance sheet, and we were pleased that in the quarter Moody's put Citibank on positive outlook for an upgrade.

And then finally in closing, I have a slide here that we showed you last year where as we get to the end of the year and we think about some of the investments we've made for the business, whether we are seeing, as you always ask us, the investments paying off.

And so we go through just some examples of things we've done in each of the businesses.

The U.S. cards business with the rewards program, target market expansion, showing 9% healthy sales increase and an underlying growth in some of the E&R as demonstrated to you on prior pages.

International cards, new products as well as a step up in the advertising and marketing leading to good loan growth throughout the year, good revenue growth and through the course of the year nice bottom-line growth.

International consumer finance, a number of new branches through the year, 14% revenue growth in the growing parts of the business ex Japan, 7% average loan growth.

International retail banking likewise, good numbers.

Capital markets and banking, I think the results this quarter speak for themselves.

NGTS as well which has been a standout performer for us.

So I'd say as we look back on the quarter we recognize it was another complicated quarter.

But as we look at it as managers and look at the businesses under all the noise, we feel very good about the performance of the investments we've been making.

Certainly there are businesses here that have their challenges, but the growth in card sales and loan originations, our record advisory fees, our new number one position in global equity underwriting, and the continued GTS growth, just to name a few, we think are clear indicators of the strength of the relationships we have with our customers and clients.

So with that I'm going to turn it over to Chuck for a few closing words and we'll then we'll take your questions.

Thank you, Sallie.

Just to close out a little bit here.

In the fourth quarter I visited a number of countries around the world talking with our employees about our prospects in '06 and our plans and also meeting with clients.

And coming back from those trips I must say I feel very good about how we're expanding internationally.

I've talked a lot about the international side of our business and now that's a distinguishing characteristic for Citigroup and I really feel that our situation internationally is very good and very strong and that the growth in these regions will really rebound to our benefit over 2006 and years to come.

Let me just talk about a couple of our franchises overall and then we'll turn to questions.

It's obvious that our U.S. consumer franchises continue to a face a challenging interest rate and pricing environment, and we are moving away from the silos of the past to a more integrated approach.

And we think that by doing that and by significantly expanding our distribution we're going to turn over, even in that challenging interest rate and pricing environment, a better return for the stockholders in our U.S. consumer business.

This is a clear plan that we have and Steve Freiberg and his team are sharply focused on executing against this plan.

And while this won't happen overnight, and while this is a time of change for our U.S. consumer business, it will happen and the changes we're making will have a positive payoff for us.

In international consumer we see very significant opportunities for growth and our challenge there really is to make sure that we are aligning our resources in a disciplined manner with the areas of greatest growth so that we're not all over the place in a scatter [gun] approach so that we're very focused in the areas where we want to expand.

And I'm pleased to see that our investments are already beginning to pay off in a very demonstrable way.

In the capital markets business and our corporate investment bank, obviously there is always volatility in these businesses, but we see very good momentum going into 2006.

I must say, I really feel that we are in an upward trend both in an absolute sense and in a competitive sense in this business.

I feel very good about the progress we've made in 2005, especially in our equity and in our value tree businesses and I believe we're very well positioned for growth in these businesses in 2006 and beyond.

And in our wealth management business -- in Smith Barney we're obviously focused on integrating our new partners from Legg Mason and our private bank is focused on moving towards an onshore platform rather than the offshore business that's traditionally been involved there.

And this after obviously the successful but difficult year in closing our Japan business.

So let me finish by reiterating our message from Citigroup Day.

We do believe we have significant opportunity to grow our franchises.

We know where we're going with the Company.

We have very specific clear initiatives, we talked about those on Citigroup Day, and 2006 is the year in which we are going to execute against those initiatives.

I'm excited.

I think 2006 is going to be a very good year for the Company.

Now with that, Sallie and I are prepared to answer your questions.

Operator, if you want to open it up for questions, that would be great.

(OPERATOR INSTRUCTIONS).

Guy Moszkowski, Merrill Lynch.

Wondering if we could dig in a little bit more first of all on the foreign exchange.

You highlighted it with respect to the impact on consumer finance, but I was wondering if you could quantify -- international consumer finance -- but I was wondering if you could quantify for us what the impact of translation was fourth quarter to fourth quarter in the other parts of the business as well?

As I said, in the other parts of the business, Guy, we didn't highlight it because it wasn't as particularly as big a deal.

In fact, for the whole Company it was pretty much to 1 point negative, 1 point hurt to flat.

As I mentioned in the other consumer businesses, it's a couple of points typically positive or negative, and that holds true for CitiInternational cards business, the retail banking business where we felt an impact from it to the negative but not nearly to the extent of the consumer finance business.

Now we shouldn't really feel an enormous impact for it because we do take action to hedge some of our foreign exchange exposure to our core EBIT earnings over time.

We do it on a -- we don't do it all at once for a quarter out, but we do it on a rolling go-forward basis.

And so depending on how currencies move during that course of time and how dramatically they move in between, we shouldn't see as much of an impact on the EBIT.

But we did see more on the EBIT in international consumer finance on the revenues and on the lending growth.

We will, by the way, see more of an impact on the balance sheet because we do not hedge our full balance sheet.

And so we typically see greater movement there, but here we've gone from something that was a modest positive for us in the beginning of the year to a modest negative for us this quarter, but a bigger negative in international consumer finance.

Okay, thanks for that.

Can you also talk a little bit more about Mexico and the disparity between the revenue growth and the net income growth?

You alluded to a loan loss reserve, but I also thought I heard some sort of an allusion to net interest margin compression, flatness of the yield curve there and I was wondering if you could give us a sense for how much was each?

I would say in terms of a flatness to the yield curve that we're talking about in Mexico, it's been a continuation of what we've seen in our trading businesses in Mexico during the course of the year with the yield curve being flat and inverted actually for a period of time, which has impacted not so much (indiscernible) talking so much about our positioning in Mexico, but actually has impacted the customer businesses as well.

So I think it's most of that.

It's not really a flat yield curve impact on our consumer businesses.

There in fact we're earning very nice spreads -- in some cases their spreads have been increasing -- but really an impact on customer volumes.

So what you are seeing is you are seeing an impact from a loan loss reserve release last year in Mexico which was on the order of $75 million pretax.

Okay, thanks.

And then with respect to the awards charge, over what period would you say that the $565 million had accrued or, maybe just more directly, how should we think about the going forward impact on a quarterly or annual basis?

We've had the policy in our U.S. cards business for -- I don't know the amount of time, but forever and a day is probably the right amount of time.

We have written off our rewards points over quite a short period of time, so this is not something that we wrote off over years.

It was written off over a period of let's call it six months.

So we moved through it pretty quickly.

The impact of that is as you think about what the implications for earnings are going forward, you typically think of a charge as having a positive impact to earnings for some period of time.

Because we've written it off so quickly we won't have a positive impact for much of a period of time.

And because the cost of the rewards points has been increasing we'll see that continue.

So I don't think you're going to see much either way in the next quarter, the next quarter or the next quarter but for the underlying increase in rewards costs in our businesses which we believe are paying off increased sales and therefore an increased interchange for us.

Okay, fair enough.

Thanks very much.

Andy Collins, Piper Jaffray.

Good morning.

Sallie, I know you're not in the habit of giving guidance, but EPS the last three quarters 97, 97, 98.

And I was wondering how comfortable you are with the 435 consensus in '06.

And if you can't talk about that, can you elaborate on the challenges a little bit more, particularly margins, U.S. cards, capital markets and credit?

Sure.

You've already guessed it; we are not going to give -- we really are not in the business of giving guidance and so we're not going to give guidance for any of the businesses going forward.

Let me make a couple of comments and then I'll turn it over to Chuck because he made some good comments about how he feels about the businesses.

Certainly in the U.S. cards business it has in a challenging business for us over the past year, the past couple of years.

And so there are the variables as we laid out for you on which could growth in the cards business turns.

We are seeing sales growth which is very good which, as I mentioned, in turn impacts our interchange fees, so that's been helpful.

But with the payment rate so high with the bankruptcies impacting it, we haven't had the receivables growth we would have hoped to have seen.

And so to the extent that the switch from card loans into mortgage loans continues we're going to see continued pressure on the card side.

To the extent that the yield curve stays flat for this business and for the other businesses, it just doesn't help.

I know we like to talk about financial services companies who manage better or worse through these high yield curve environments, but making them safe is not a business that any of us has that is a benefit from a flat yield curve.

A lot of that is behind us as the yield curve flattens this year, but certainly we will not have the opportunity to earn more going forward if the yield curves stay as flat as they have, not just in the U.S. but really around the world.

Credit I think for us remains very good.

We keep saying it has one direction it can go which is worse -- it certainly did with the bankruptcies this year.

We had the min due which is for the most part ahead of us next year, but underlying credit is very good.

So I'd say across the U.S. consumer businesses, those sort of wrap up the challenges for us.

International consumer -- it is hard not to be excited about those businesses given the investments we've been making.

They've been paying off as per plan.

We're going to continue to invest.

I will not say those environments are not challenging, they are, the places where we're seeing pricing pressure.

But in many of these areas of the world we are starting developing the market and we're having enormous success.

And the CIB, as Chuck mentioned, he feels very good about it, but we all know there's great volatility there and so it wouldn't be outside of the realm of the believable that next week something could go bad in the markets and we could feel -- or get even better.

But that we could feel worse or better about it.

In our wealth management businesses I think we have -- I think Todd and the team have work to do there on the private bank as they move it to onshore and work to do as they bring Legg Mason.

So you put all this together -- as we look into next year you don't hear sounds of weeping on the side of some.

Well, maybe a couple points to add to that.

Obviously the yield curve is historically flat and mass won't last forever and when that changes that will have a very significant positive impact on the Company.

I think in the U.S. consumer business, we do see -- as you saw, I think it was on page 5 -- a slight down tick in payment rates and that would be very positive from our standpoint.

That may be reflective of the cooling off of housing prices and the ability to take equity out and pay down cards receivables -- it may not.

We'll have to see there but it's just one early sign.

U.S. consumer finance we're seeing some resuming good growth in balances and that, again, may be the waning of some of these crazy products that we have chosen not to participate in.

As those tend to fade away the more traditional products where we are a strong participant we hope to see good growth in.

And quite frankly, we've had a lot of really unusual bad one times this year from the EMEA charge to the bankruptcies to the change in the amortization versus expensing on the rewards program.

This has been a year where there's been a lot of boulders rolling down the hill.

And obviously we're hoping not to have boulders rolling down the hill next year.

So we're not going to comment on guidance, but as Sallie says, we feel good about 2006.

Great, thank you.

And just one other follow-on question on the trading.

We've heard good news out of Merrill and even Goldman Sachs I guess.

I was just wondering how your operation there is different and what we might anticipate in terms of a core run rate going forward on the fixed income trading in particular.

How ours is different?

That's a very hard one to answer because it's hard to get under the hood and know the different mixes of the businesses at the competitors.

Or to know the different customer bases or the different steps that they're taking.

I can tell you our fixed income business is different in one way from all the others which is that we have an emerging market sales and trading business embedded in our fixed income business, that in any quarter makes up we'll call it 20%, 30% of the revenues for the business.

That is a business that typically provides a good ballast -- some balance to the business.

But with the flat yield curves that we've seen, as I mentioned, not just in the U.S. but around the world, the customer activity there has been weak.

And so we have not had that balance that we've seen in other places.

But in general I think it's hard to, as you say, look and any quarter.

You have to look at it over a period of time.

And we would like our fixed income business, the revenues there to increase over time with of course -- we'll expect to have volatility and it's priced where we are making investments to continue to develop that business, investments in people and technology at a good clip in the next year or two to ensure that that happens.

I'd just add we have traditionally had the best fixed income business on the Street and we're committed to having that.

And Tom Maheras and Randy Barker and Jeff Coley are personally committed to having the best fixed income franchise on the Street.

And we're investing in that area and that's what I expect.

So over the course of '06 we should look for that performance to reflect that standard.

I would say looking at this versus the third quarter, from what I've seen yes, we are in a fixed income down a little bit more than some of the other -- but we were up more than the others in the third quarter.

And our equities business continues to outperform, as I mentioned, the advisories are going very well.

The advisory business is going very well.

So I'd say all in all we feel pleased with the performance of the corporate and investment bank this quarter and this year.

Thank you.

Betsy Graseck, Morgan Stanley.

Sallie, could you give us a sense as to how you think about determining the reserves for the card business given the fact that the bankruptcy run rates have come down so much -- going forward?

Yes.

And I will say I appreciate the question on how I think about it.

I think the other question would be how independent risk thinks about it.

We work in finance, they are our partners and Dave Bushnell takes a lead role in determining what the reserve would be.

We did have some loan loss reserve movement, Betsy, this quarter in the card business.

We had a $200 million release as our (multiple speakers).

In the consumer finance part of the retail distribution business we've had a $42 million addition.

The $200 million release was in part because the bankruptcies we were reserved for, bankruptcies that would happen later happened into next year, for example.

And as those got pulled forward we no longer needed the loan loss reserve so we released them.

Now, in theory we could have released more, but we did not.

The 200 is a net number and the reason we did not release more is because we had the impact of minimum payments coming next year which we saw to a degree in this quarter.

We had an earnings impact from it on the order on a managed basis of we'll call it $95 - $100 million in the quarter.

And we're expecting that to pick up through the course of next year.

So for the receivables that we have on the books where we expect the impact of minimum payments to hit us, we increased the reserve allowance for it this quarter.

So as always a lot of models, a lot of analysis, a lot of Ph.D.'s -- a lot of Ph.D.'s who work through these numbers and come out with something in the cards business, as I said, nets to a 200, a little bit more per bank and a little bit less from (indiscernible) do and within the consumer finance business that netted to a $42 million number in the quarter.

So are you suggesting that the impact of min pay over the rest of '06 will offset any benefit that you might see from the very low levels of bankruptcies if the current run rate persists?

It's a hard one to forecast and we have been purposely vague, as you know, on what we expected the impact min due to be for next year.

I think what we will certainly see is that the impact on the NPL line of min pay will pick up through the year.

Whereas we'll get a benefit from bankruptcy we'll feel most dramatically in the first part of the year with the bankruptcy levels being down at unbelievably historically low levels.

Unclear what the tick up will be in the second half of the year.

So there are offsets to that -- I really don't want to venture and say which was bigger than the other.

We will wait and see, but we do believe on the min pay that we have reserves that are adequate to take care of that for the receivables that are on our books currently.

Okay.

And then just separately, can you give us a sense of the breakeven time for the Citibank and CitiFinancial branches that you've been opening?

Just trying to get a sense of your expectations for when those investments not only breakeven but then start to generate positive operating leverage?

Sure.

In terms of CitiFinancial branches, they are small.

If you've visited some of them, which I know you have, it's a few people in a branch be it in Korea, be it in Thailand, be it in South Carolina.

And so the investment costs are small typically and they pay back very quickly.

And so the pay back can be as little as seven months let's call it; more typically sort of a nine-month, 13-month type of payback and then give us a return pretty shortly thereafter.

So these are very fast payback branches.

In the Citibank branches, the payback, given there's more people, there's more stuff, there's more technology, there's more stuff, the Citibank branches have a payback of two to three years.

Obviously we've been opening more on the international side so we've seen that more, but we'll continue to -- we'll be doing that on the U.S. and we'd expect to have sort of the same type of thing.

Maybe two-year payback on the international side, maybe let's call it a three-year payback on the U.S. side.

I can tell you that the branches that we've opened this year, or last year have been paying back.

We -- Chuck and I do the business reviews every month and every month our colleagues in the consumer business come to us with their payback analyses and the lines are all going exactly in the direction that they should and the payback is happening as we expected.

So we feel very good about that and we feel very good about the investments we'll be making going into next year and the payback potential for those.

Thanks.

John McDonald, Banc of America.

Chuck, I just wanted to clarify something said at Citigroup Day.

You did indicate that you had expected to have good earnings growth in 2006, although operating leverage might be challenging given the flat yield curve in the near-term.

Is that fair (indiscernible) in terms of general sense of growth?

What I said then, and I'll repeat it again now, is that I think that we can grow organic revenue growth in the mid to high single digit range.

And that with good focused expenses, including investments, that we should be able to drop to the bottom line a somewhat higher number than that.

And so whatever we might do from an acquisition standpoint would be on top of that.

So I think that's what I said then and what I continue to say now.

Obviously the mix there in terms of operating leverage will depend on the mix in revenues and expenses obviously.

And we have some headwinds in terms of the yield curve in terms of revenues.

But I think we're still shooting toward the context of positive operating leverage over a long period of time.

When you start the building of new branches and so forth, as Betsy's question just highlighted, at the beginning of that cycle you have all the expenses and none of the revenues.

And then a year or two or three into that you reach a neutral momentum where you're generating revenues and you have both sides of the equation.

So if we have a break on the yield curve in '06, if we have some breaks that way we're going to do much better.

If we don't then we're going to have to see it through until that neutral momentum on the mix between investments and revenues catches up in a year or two.

Let me add to that that we are, as you probably tell from Chuck's answer, we're getting out of the business of forecasting operating leverage certainly on a quarterly basis going forward.

I think it's very important for us recognizing the volatility that can occur in our corporate and investment bank, recognizing some of the environmental things that can occur, that what we don't want to do with the Company is be so focused on delivering positive operating leverage in any quarter or even in a year because we promised it to you, our owners, and not do what would be right in terms of continuing to make these investments.

We think we're at a very important time for this Company, that we have investment opportunities that no one else has and it's important for us to act on them.

So as a company we have grown over time our earnings in excess of our revenues, both by having operating expenses lower than revenues and we as a company are very focused on those -- by good credit, by good taxes, and we believe that we can continue to do that.

But it's important for us to run this Company for the long-term so that I guess we can continue to stay here and work for the long-term.

I think that's totally fair.

I guess, Sallie, in 2005 the income from continuing operations was $3.82.

Is it fair to say that that's the base of earnings (indiscernible) that you hope to grow off of in 2006 or do you not want to go there?

Of course I don't want to go there.

Let me tell you this, because when we talk about earnings growth we really are trying to talk about it from a longer-term perspective.

I have built plenty of earnings models in my own time, and so I'm not desiring to go back and do that again.

But I can tell you that we recognize that this year, as we think about what the earnings base is of our company, we recognize that the gains are onetime, very onetime in nature so those sort of get pushed over to the side.

But we look at the earnings that we had as a company on a per-share basis and we know that we had the insurance business for part of the year, we know that we had the asset management business for part of the year, and we also know that we've had dilution for that -- a bit of dilution in this quarter.

But as we have executed the share buyback in that and we begin to feel the effects of that, that dilution will go away such that we're even by next year and we intend to grow off of that base.

So we -- again, I don't want to go into the ins and outs of the models, but we do recognize what we need to deliver to you as our owners and the base off of which we have to deliver it.

Okay.

Two quick follow-ups.

Could you comment on the Legg Mason integration costs this quarter?

You referenced those, could you quantify those at all?

Is that some of the dilution that you just referenced, was that perhaps or --?

We're making faces around the table right now.

It was not material in the context of Citigroup.

It did have an impact within Smith Barney.

In addition to that another expense item that we had which, again, was not material in the context of Citigroup, is there were some onetime legal charges that come through.

They tend to come through -- legal expenses -- they tend to come through in a lumpy fashion.

In general we've been feeling very good about what's going on with the legal expenses in Smith Barney as we put that bubble, post bubble period behind us.

So this quarter we did have some lumpiness.

So as I look at the revenue growth that we've seen there -- on an underlying basis for Smith Barney, we feel good about the margins of the business.

We certainly shouldn't be seeing this kind of pressure continue.

What else would be in the dilution that you mentioned this quarter that will go away?

Is that just the share count getting better?

Yes, that's right.

Okay.

Final thing.

Can you give a little more color on the weakness in the U.S. commercial banking business this quarter?

The U.S. commercial banking business, you're going to remember that we've had some sales in that business.

So we had not only as we've had -- excuse me, a liquidating portfolio there.

I'm just going to the page.

You can see the loan growth is up 20% on a continuing basis.

You can see the revenue growth down 17, that's because the total loan growth -- the total loans are up to 2%, but we also last year had a gain of $65 million after-tax on the sale of our transportation finance business.

So a couple things, a gain last year, some run-off of liquidating businesses this year, but underlying as we sort of hit the bottom and that liquidating portfolio gets smaller, you can see now it's just $500 million.

We would expect to see growth off of that base.

Okay.

So it's more that this is more the normal base this quarter?

Yes.

Oh, much closer, much closer.

And in the past it was a little higher?

And last quarter too, as you're going to eyeball the supplement you're going to also want to remember the last quarter we had a $108 million after-tax gain on Copelco.

So unfortunately I'm going to have to ask you to go back through the old press releases and you're going to see there's lumpiness there.

But this is a truer number that you're seeing than you have in the prior quarters.

they were a little high?

Yes.

Okay, thank you.

Glenn Schorr, UBS.

Sallie, on page 8 of the supplement you go through global consumer and you give us revenue and expense breakouts.

And it's awesome to see 1% year-over-year expense growth for Citi overall.

Trying to move away from some of the noise created by the investment bank, if you look at sequential expense growth in global consumer it's up 7%.

Would you say the overwhelming majority of the organic build that you guys have laid out (technical difficulty)?

I'm sorry, Glenn, I'm just trying to find the numbers.

Yes, it's up 7% over the prior quarter.

I'm moving to what -- there's some year-end expenses that go in there.

We're trying to look at their -- the Federated portfolio coming on board is going to have an impact on that as well.

Overall I don't think that 7% certainly is not an annualized rate at which we're going to see an increase.

There are investments in there, there's some year-end stuff, but in general I think the better number to look at is the growth rate of 5% over the prior year which you can see breaks into U.S. at 2% which is in line with how we should be thinking about expenses in a business that's growing at that type of U.S. rate.

But an 11% international operating expense growth, again, that's where the core of the investments are.

Got it.

And then just maybe polishing off the whole yield curve conversation, because I do think it's a big deal.

If we were able to get lucky and see some reshaping, if you will, on the positive side in '06, how quickly does that benefit?

It might be a backhanded way of asking what's your duration gap looking at, but how quickly can a monster like Citi benefit if you do get some shape to the curve?

In order to start -- what's a monster?

I don't like the "monster".

Chuck didn't like the monster comment.

A big company like Citigroup, I can tell you that our IRE is down quite a bit over last quarter and over this time period last year.

But the gradual IRE is $73 million in the fourth quarter.

It was $138 million in the third quarter and down from I guess the quarter before that, 189.

You can see we've been bringing that down as we've been closing our gap.

It's a quarter of a percent of earnings right now.

The [Shaff] IRE, which is the one we've traditionally given to you, is higher but has also been reducing at a pretty good rate.

So in order on the treasury side to see the impacts of all that we would open up some of those gaps, we would increase the IRE to see the impact.

But it really is a matter of what we do with pricing, how quickly the debt reprice.

But I think we start to see it and we've started to take action and we start to feel the impact a little bit faster probably in our U.S. cards portfolio which is more variable rate in nature.

A little bit fast -- with some degree our international cards business is fixed in nature so we feel that pretty quickly.

And maybe this is just a massive oversimplification, but I thank you're not alone to have made the comment to say, look, there's not a heck of a lot we could do in the flattened or inverted curve environment; in a more normal environment we do better just overall.

Isn't that what a swaps and futures market is for?

In other words, if you wanted to could you -- if we're in a flatter curve for a long period of time couldn't you reverse some of that?

I think it's a matter of operating theory here.

As a company overall in terms of trading the treasury and trying to make money on a corporate treasury or in the distributed treasury through the businesses, we do not aggressively work to trade and to make money there.

The philosophy here is that we have a plenty large trading business downtown in the corporate and investment bank and that they take plenty of risk, as you can see, coming through in our results which turns out very well for us.

So whether then to try to trade more aggressively in order to boost the results of this is not something that we as a company philosophically want to do.

But I will say again, if you have a flat yield curve and it's flat for a long time it's pretty difficult to make money.

You can override the impact of that over a shorter period of time, but if this is an environment that stays the same, I think it would be hard for anyone to make money out of that on the increment.

As I said however, in looking at what's happened to the net interest income movement through the course of the year, what you are seeing is you're seeing an abatement of that pressure for us.

You're seeing some spread expansion in some of our businesses internationally, all of which gets muddied by the impact of CIB.

And so as we go into next year, given what we've done with the IRE, we believe we are better positioned for interest rates going forward.

Got it.

Last quickie, tax rate assuming everything we know now in '06?

We don't typically forecast the tax rate.

There's nothing that's going on the tax rate this quarter that is of onetime enough in nature that we would point it out for you.

Got it.

Okay, thanks.

Diane Merdian, KBW.

I have a couple of specific questions and then if there's time one more general one.

First, to follow up on the impact of the spike in bankruptcies on the card business.

Sallie, you mentioned there was a 200 million reserve release on balance sheet, and I'm just curious if that number is different on a managed basis.

And I guess the more important question is if you look at net charge-offs and provisions for cards in '06, if you've accurately sized up at the end of this quarter the outlook, should we expect provisions to roughly match charge-offs in '06 on a managed basis?

A couple answers.

The loan loss reserve release is a GAAP number.

We don't hold -- on the managed basis we don't hold a reserve, we don't hold reserves for the balances -- at all for balance sheets.

So the loan loss reserve is always going to be on a GAAP basis for us.

In terms of what we expect from additions or subtractions to reserves into next year, clearly in '04 we had some big reserve releases.

We saw an abatement of that in '05 and right now we believe we are adequately and appropriately reserved.

And so, if we thought we were going to be adding or subtracting we would expect -- you'd expect to be seeing -- in any large number you'd expect to be seeing that from us.

So looking into next year we feel I think pretty good about credit.

We feel like it shouldn't be as good as it is because it's remained quite good for so long.

It is not at historically good levels; we saw somewhat better credit in our cards portfolio, for example, in about the 2000 time period.

So it's not the best it's ever been but it feels good and we're watching out and our folks in risk are watching out for any turning credit driven by min due.

For example, driven by underlying dynamics driven by weakness in the economy, although we're not seeing it.

And I can tell you from what's going on with our cards business that the consumer appears to -- the underlying (indiscernible) for consumer in the U.S. and in many areas around the world continues to be quite strong.

Okay, thank you.

And a separate topic, on the CIB expenses overall, it looks like -- and this is from page 22 of the supplement -- that the other expenses, the non comp piece, is a couple hundred million below what the run rate has been.

And if I'm guessing right at the factors affecting it, you probably have the reserve release helping that number and then the add to legal reserves hurting it.

But the net of those it looks to me like should have been about a $450 million impact.

So either there's something else going on in there or non comp expenses have ratcheted up about $250 million?

I'd say there are a couple of things.

I'd say that there was, as you have gone through, positive impact from the reserve releases in the fourth quarter to these results.

Last year we had a positive as well as if you look at last year's fourth quarter of that $200 million insurance settlement.

I would say the expenses underlying are in good shape.

We have been investing in the business through the course of the year.

And so the investments that we see in technology will show up in this line.

So all in all lots of movement in it and, again, here we often have some catch up as well.

But in general we feel very good about what's going on in underlying expenses.

But you're right; it's depressed this quarter beyond what you would typically see.

So if we think of -- again, not to try to push you for a forecast at all, but if we think about a run rate, what we have been seeing recently has allowed for some reasonable amount of investment spending, but perhaps we've ratcheted it up a bit with a little more investment spending.

I know you're looking for me to talk about what it's going to be next year and it's going to have to be an offset of great attention to expenses.

We have talked as we've gone through the budget for this year of expenses being a contract and that folks are expected to make their expense levels and offset by investment.

And so as we look into the expense level next year, it's going to be the net of those two which I'm not going to give you.

Okay.

And then a possibly more general question.

When you think about operating leverage, even as we get away from the quarter-to-quarter comparison, do you all just look at the numbers broadly on adjusted or do you, like us, sit here and try to back out the umpteen special items that affect revenues and expenses to get two what's really going on?

Or is that just a hopeless exercise?

We do it all.

I have got a sheet in front of me of what we call the normalization items that would make your head hurt.

And I actually have not needed reading glasses but I think I'm on the verge.

So we look at it all different ways because without looking at it all different ways it would be hard for us to manage the business.

But we -- and we recognize that you're going to want to pull some things in, you're going to want to take some things out.

But regardless, we view as a company that it is important for us to grow the revenues, to leverage that revenue growth at the bottom line over a period of time.

And how would you rate yourself in this quarter on operating leverage sort of having considered all those things that you do?

Hold on one second;

Chuck had wanted to say something.

I just wanted to add something, Diane, to what Sallie said.

We obviously do look at it two or three different ways.

Because, if you only look at it one way you can miss an underlying dynamic.

So we deliver GAAP to the shareholders, that's all that counts at the end of the day, but we look at it on, as Sallie called, internally a normalized basis.

That is we take out the one timers, good and bad, to try to make sure we're measuring the underlying trends of the business so that we are looking at it as nakedly as we can to make sure we're focused on the right measures for operating leverage.

I'm sorry, Diane, you had another question.

I think, Diane, your question was if we were to look at this quarter with the ins and outs how we actually think about it.

And I know that we look forward to the analyst reports on Monday because I know all of you are going to be putting things in and taking them out and taking your own cut at it.

But I'd say the way that we look at it; we've had some headwinds on the revenue side.

As I mentioned, we had the bankruptcy revenue hit that I outlined for you.

We had a Nikko gain; we had the reward points write-off.

So those things netted to underlying businesses that were growing a little bit more quickly.

We were helped, as you no doubt noticed, to the absence of some of the big numbers last year on the expense side.

But what's good to see is the things sort of evened themselves out, we believe, to revenue growing, expenses growing in line a little bit less than revenues here for this quarter which, given the flatness of the yield curve, given some of the challenging environments, we actually view it as being good.

The great thing -- and that's business as usual.

The great thing is that we can continue to spend in this high return investment that we have which has accounted for 4 points of the 1 point of operating expense for us.

Thank you very much.

I'd just add to that if I may.

I think if you do that analysis, I think given what we did with investment spending and with the yield curve;

I think our team did a good job in terms of operating leverage in the fourth quarter.

And we narrowly missed for the whole year, but that was -- given what happened with the capital market business in the second quarter, I think not a bad job given the environment.

Thank you.

Joseph Dickerson, Atlantic Equities.

I just had a question for Sallie.

I wanted to know, is the increase in payment rates driven by some of the run-off in the teaser or introductory rate offers?

We haven't -- no, is the answer.

I think what we've seen is it's been within the value portfolio, although across the portfolio.

It tends to be the way we cut it is it's a small group of people who have been paying back more than the minimum who then tend to pay back the whole thing.

And as a result of that we see them move into mortgages, we see that in part in our mortgages business which has been growing at a nice clip.

We see them pay back because they have more money with the economy strong.

But it's actually a single digit percent of people across the portfolio.

It's not everyone paying back more, it's a single digit group of people paying back all.

Our (indiscernible) counts have really been constant now across the portfolio for the past year.

Okay.

And then I just had one other very quick question.

I know you don't talk a lot about macroeconomic expectations going forward, but if you could look back over the quarter or over the past year, how the interest rate and yield curve environment faired relative to your expectations?

I would say the yield curve was a little bit flatter than we had expected at the beginning of the year, primarily because short rates in the U.S. went up a little bit more than we expected at the beginning of the year.

And I would put that also in probably a global context.

We had been looking for flat yield curves.

I'd say going into next year we're looking for a pretty flat yield curve through the economies of the world.

But I'd say in general as we look back it's gotten flatter than we would have expected.

Great, thank you.

David Hilder, Bear Stearns.

Just one question briefly on the outlook for stock buyback going forward.

And then secondly, I see on page 7 of the supplement there was really no net change from the third quarter in the accumulated other changes in equity from non owner sources, but I wondered if there was anything -- any other changes underneath that that were interesting?

The answer to the second question is actually sort of, no, in terms of the underlying.

We had a little bit of movement in currency, a little bit of movement in the FAS 115.

But if I were to give you the secret deck that I have you wouldn't raise any eyebrows from that.

So not much of anything going on there.

In terms of the share buyback, David, we have $4.4 billion remaining on the authorization.

I think it's fair to say that we will not be buying back at the type of clip you saw last quarter or this quarter.

In part those represented the increasing capital that we had from a gain of the asset management business.

In fact, we probably couldn't continue to buy back at this rate because with this and the dividend we essentially paid out close to 100% of our earnings during the course of the quarter.

But that we still feel good about executing this buyback which I think clearly we're going to do ahead of the plan that we had.

And we look to, as we go into next year, obviously in addition with the dividend increase we've seen; continue to return capital to shareholders.

Great, thanks very much.

Thank you very much.

Thank you all for joining us for this call today.

Any questions you have please feel free to call us in Investor Relations throughout the day.

And with that, operator, this call is terminated.

Thank you.

This concludes Citigroup's fourth-quarter 2005 earnings review.

You may now disconnect.