花旗銀行 (C) 2009 Q3 法說會逐字稿

Hello and welcome to Citi's third-quarter 2009 earnings review with Chief Executive Officer, Vikram Pandit and Chief Financial Officer, John Gerspach.

Today's call will be hosted by John Andrews, head of Citi Investor Relations.

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

Also, as a reminder, this conference is being recorded today.

If you have any objections, please disconnect at this time.

Mr.

Andrews, you may begin.

Thank you Dixie and good morning to everyone and thank you for joining us this morning.

On the call today, our CEO, Vikram Pandit, will speak first and give a brief overview of our results and then John Gerspach, our CFO, will take you through the earnings presentation, which is now available for download on our website, Citigroup.com.

Afterwards, Vikram and John will be happy to take your questions.

Before we get started, I would like to remind you that today's presentation may contain forward-looking statements.

Citi's financial results may differ materially from these statements, so please refer to our SEC filings for a description of the factors that could cause our actual results to differ from expectations.

With that said, let me turn you over to Vikram.

Vikram?

John, thank you very much and good morning, everybody.

As you know, for the past 18 months, we have been steadily executing our plan to build financial strength and to return Citi to sustained profitability and we have actually made very good progress on that each quarter.

This is an important quarter for us because it reflects many of the steps we have taken to build a foundation for our future growth.

Our balance sheet has been meaningfully strengthened.

Our tangible common equity is now over $100 billion and our Tier 1 ratio of 12.7% was stable versus the last quarter.

Today, our tangible book value grew to $4.47 per share.

We have over $36 billion in loan loss reserves and we are operating with much higher liquidity.

We ended the quarter with $244 billion in cash and equivalents, which is 70% higher than a year ago.

So not only have we meaningfully improved the financial strength of the Company, but our underlying franchise remains strong.

We have had record revenues in our institutional clients group business this year that reflects not only a favorable environment, but it also reflects a significant restructuring of our Securities & Banking business and the fact that our people have worked very hard to support our clients.

We had a strong third quarter in Securities & Banking.

Ex CVA, our revenues were up more than 40% versus a year ago and sequentially, we had strong customer activity, but our revenues were down versus a very strong first half.

In GTS, momentum continues to be good.

We grew our average deposits and liabilities by $26 billion and we have been operating at or near record net income levels.

In Citicorp's consumer banking businesses, we had good deposit growth this quarter and while credit costs remain elevated in some areas around the world, three out of four of our regions were profitable this quarter.

Our credit costs remain elevated and clearly US consumer credit remains the number one issue affecting our near-term results.

I will talk to you more about this a little bit later.

But our NCLs declined for the first time since the cycle began, but we do remain cautious since the underlying trends remain mixed.

We are seeing further confirmation of signs of improvement in our international markets, but challenges remain in the US.

John Gerspach will take you through more of the details in this area.

We also continue to make progress in reducing Citi Holdings assets.

In the third quarter, these assets were reduced by $32 billion and are now down $281 billion from their peak levels in the first quarter of 2008.

Assets in our special asset pool were reduced by $19 billion in the third quarter, primarily through sales, which were executed at or near our marks.

Our goal is to wind down Holdings as quickly and as prudently as possible and I am confident we will continue to make progress against this goal.

We have the capital, we have the funding and the liquidity to work these assets down in a way that is in the best interest of all our stakeholders.

As you can imagine, we are also focused on repaying TARP as soon as possible and we are going to do so in consultation with the government and our regulators.

Lastly, while I know that the consumer credit environment remains challenging in the US and that it will continue to impact our near-term results, I feel really good about the progress we have made, about our financial strength and about all the people at Citi who have worked extremely hard.

I couldn't be more proud of them.

I also feel very good about our strategic clarity and aspirations, our competitive advantages are clear.

We are the world's most global bank in a world that becomes more global everyday.

Because of our global network, we offer services that our peers just can't offer and it is our job to build upon that.

I can assure you that we are very, very focused on this.

I am going to ask John Gerspach now to take you through the quarter and then both he and I will be back to take your questions.

Thank you, Vikram and good morning, everyone.

Before we go into the quarter in more detail, I wanted to highlight three significant items, which are reflected in our third-quarter results.

First, we had a negative CVA of $1.7 billion in Securities & Banking, driven by tightening in our own credit spreads.

Second, we recorded positive net revenue marks of $1.5 billion in Citi Holdings and finally, we recorded a $1.4 billion pretax gain in the corporate other segment related to our exchange offers.

Now, turning to our consolidated results on slide 3, we reported revenues of $20.4 billion, up 25% year-over-year.

As I just mentioned, this included the $1.4 billion gain related to the exchange offers.

While provisions for credit losses, claims and benefits remained flat versus the prior year at $9.1 billion, the composition has changed significantly.

This quarter, our credit costs were largely driven by net credit losses of $8 billion.

In the prior year quarter, credit costs were split roughly evenly between net credit losses and additions to our loan loss reserves.

Expenses of $11.8 billion were down 16% versus last year.

This resulted in a pretax loss from continuing operations of $529 million, but net income of $101 million due to a $1.1 billion benefit from taxes.

The tax provision benefit reflected a higher proportion of income earned and indefinitely reinvested in countries with relatively lower tax rates, as well as a higher proportion of income from tax-advantaged sources.

Slide 4 walks through our EPS calculation.

Starting at the top of the slide, we show net income of $101 million, or $0.01 per share for the quarter.

As I mentioned, this includes a $1.4 billion pretax, or $851 million after-tax benefit from the exchange offers.

This gain translates into a $0.07 benefit to net income on a per-share basis.

Moving to the next item, prior to closing our exchange offers, we recognized $288 million, or $0.02 per share, in preferred dividends.

Finally, we recorded a $3.1 billion reduction to retained earnings related to the exchange offers.

This primarily represents a reclassification from retained earnings to additional paid-in capital.

While this had no impact on net income, the adjustment reduced net income available to common for the quarter.

Average share count for the quarter was 12.1 billion shares, resulting in a loss per share of $0.27.

Share count at the end of the quarter was $22.9 billion and there is a page with this information in the appendix.

Slide 5 shows the revenue trend for Citigroup and our component businesses.

The bars show reported revenues for the last seven quarters for Citicorp in blue, Citi Holdings in gray and corp other in green.

Shown in the box at the bottom of the slide, Citigroup generated $21.7 billion of managed revenues this quarter, excluding the gain on the exchange offers and the impact of net revenue marks.

This was down 8% from last year and roughly flat sequentially, excluding the gain on Smith Barney in the second quarter.

You should note that this quarter's revenues did not include revenues from Smith Barney, which were $2 billion and $1 billion in the prior year and prior quarter respectively.

Excluding net revenue marks, Citicorp generated $16.3 billion in managed revenues, up 6% versus last year and down 6% sequentially.

This is largely driven by lower revenues in Securities & Banking.

Also recorded in Citicorp was a $1.7 billion negative CVA this quarter.

On the same basis, Citi Holdings revenues were $6.1 billion, down 30% versus last year and up 18% sequentially.

Positive net revenue marks of $1.5 billion in Citi Holdings primarily reflect our mark-to-market gains in the special asset pool.

Corporate other revenues of $671 million included the $1.4 billion gain related to the exchange offer.

Looking at slide 6, a word on our global regional consumer banking businesses in Citicorp.

This quarter, we are seeing clear signs of higher customer activity, particularly in Asia and Latin America where economic recovery is in the beginning stages.

Even in North America and EMEA, most key revenue drivers were stable or higher.

The key to recovery will be driven by an improvement in credit in the key North American businesses, which I will discuss in a minute.

Also on slide 6, you've seen North America managed revenues were $3.6 billion, up 4% sequentially, reflecting growth in both deposits and managed loan volumes.

We grew our average deposit base in North America by over 2% this quarter while lowering the average rate on deposits.

In this business, the key focus remains on engagement with customers to raise deposits, to offer loans and to drive an improvement in credit.

Slide 7 shows the quarterly revenue from our international Regional Consumer Banking businesses.

To put it in context, over half of our total Regional Consumer Banking managed revenues are generated outside North America.

Taken together, our international Regional Consumer Banking revenues were $3.9 billion, up 2% versus the prior quarter and roughly flat in constant dollars.

Asia generated $1.7 billion of revenues, up 3% over last year with growth across all drivers, including average loans, deposits, card purchase sales and investment sales.

Investment sales grew 19% this period as signs of economic recovery and higher levels of customer activity were most evident in this region.

Latin America generated $1.8 billion of revenues, roughly flat with the prior quarter.

Average loans and card purchase sales grew this period while deposits remained relatively flat and investment sales were down.

And finally, EMEA generated $415 million of revenues, up 5% from last quarter with growth in average loans, deposits and purchased sales.

Slide 8 shows the quarterly revenue from Securities & Banking.

Securities & Banking revenues were $4.9 billion this quarter, down 33% from last year and 29% sequentially.

Our results versus the second quarter were largely explained by two factors.

First, CVA was a negative $1.7 billion in the quarter, $823 million worse than the second quarter, reflecting the continued tightening of our credit spreads.

And second, fixed income and equity markets revenues were down $1.5 billion, excluding CVA, from a strong second quarter.

Excluding the CVA impact, Securities & Banking revenues were down 15% on a sequential basis.

Looking more closely at our individual businesses, fixed income market revenues were $4.7 billion, excluding CVA, down 17% sequentially.

Our rates and currencies business showed continued strength despite normalizing market conditions and its impact on trading opportunities.

Fixed income client activity was strong.

Equity market revenues were $1.3 billion, excluding CVA, down 26% sequentially.

The first two quarters were particularly strong in equities while the third quarter was characterized by low volatility and lower trading volumes, which affected our revenues.

Investment banking revenues were $1.2 billion or flat with the second quarter.

Advisory fees grew 43% quarter-over-quarter, but remained light versus historical levels due to the continued overall decline in global M&A.

Importantly, we are gaining momentum with a number two ranking and announced M&A in the quarter.

Debt underwriting fees were lower versus the second quarter due to a lighter new issue calendar.

Private bank revenues were $520 million in the quarter, up 9% versus last quarter's level.

In lending, we saw a $229 million improvement reflecting lower mark-to-market losses on hedging activities.

Slide 9 shows the quarterly revenue from our Transaction Services business.

Transaction Services revenues were $2.5 billion, down 4% from last year and down 1% from a strong second quarter.

Overall, the Transaction Services business remained steady this quarter despite the pressures of a continued low interest rate environment.

However, we were particularly encouraged by the level of customer engagement reflective of our unique global platform and capabilities.

As an example, we were awarded the largest purchasing card contract in Asia-Pacific with the Hong Kong government.

In addition, we closed a $1.25 billion funding facility for the IFC, part of the World Bank.

This facility is intended to stimulate the growth of trade in emerging markets.

Average deposits grew 9%, including sequential gains in all regions and assets under custody grew by 6%.

Slide 10 shows asset and revenue trends in Citi Holdings.

As the chart on the left shows, we continue to reduce assets in Citi Holdings, consistent with our strategy to reduce our exposures.

Since peak levels of early 2008, we have reduced assets by almost one-third and continue to vigilantly manage the portfolio.

As the chart on the right shows, Citi Holdings reported $6.7 billion of revenue in the third quarter compared to $704 million last year and $4.7 billion last quarter, excluding the gain on Smith Barney.

Since the beginning of this year, net revenue marks have improved consistently, driving the overall trend in revenues.

This quarter, we recorded positive net revenue marks of $1.5 billion.

Turning to each of the businesses in Holdings on slide 11, brokerage and asset management consist primarily of our interest in the Morgan Stanley/Smith Barney joint venture.

As we mentioned earlier, we no longer consolidate the full revenues of Smith Barney; only our interest in the operating earnings of the venture.

Third-quarter revenues were $670 million, including a $320 million gain on the sale of the managed futures business.

Local consumer lending is the biggest portion of Holdings.

On a managed basis, local consumer lending generated $5.6 billion of revenues, up 3% quarter-over-quarter reflecting the absence of the FDIC's special assessment in the second quarter and higher fee revenues, offset by lower net interest revenues in real estate lending as a result of higher delinquencies and loan modifications.

Average managed loan balances were down 3% sequentially as we continue to manage down the portfolio.

The special asset pool reported revenues of $1.4 billion in the third quarter, up from a negative $519 million last quarter.

The increase was driven by higher positive net revenue marks and lower losses on our hedging activity.

Slide 12 shows the trend of our expenses, which were $11.8 billion this quarter, down 16% from last year and down 1% from the second quarter.

Quarter-over-quarter, expenses within Citi Holdings declined by 16% to $3.2 billion, reflecting the benefit of the Smith Barney transaction, as well as continued reengineering efforts.

At Citicorp, expenses grew 4% to $8.2 billion.

Roughly two-thirds of the increase was driven by higher compensation costs, primarily in Securities & Banking and the remaining increase was largely attributable to foreign exchange translation.

Turning to credit costs on slide 13, the bars show a seven-quarter trend of total credit costs for Citigroup.

This quarter, we recorded $9.1 billion in total credit costs with $8 billion in net credit losses, an addition of $802 million to loan reserves and the remainder in policyholder benefits and claims.

In a sequential quarter comparison, total credit costs were down by $3.6 billion, largely due to lower loan loss reserve builds in the quarter.

Our overall loan loss reserve stands at 5.85% of total loans, up from 5.6% in the prior quarter.

The two smaller charts to the right show that the majority of net credit losses were within the Consumer segment.

Within the Consumer segment, as I will share with you in a moment, the majority of the losses were concentrated in three of our North America businesses.

Corporate credit costs totaled $1.5 billion this quarter, which were principally net credit losses.

Net credit costs remained elevated year-over-year, but declined 39% sequentially as we have continued to manage down the riskiest segments of our corporate loan portfolio and as a result have seen a stabilization in credit quality.

However, as always, we continue to manage our loan book and reserve levels vigilantly.

A word on the levels of corporate non-accrual loans.

The total balance of corporate non-accrual loans stood at $14.8 billion at the end of the quarter, up $2.3 billion versus the prior quarter.

As I said in last quarter's call, we have been actively moving loans into this category at the earliest signs of anticipated distress.

In fact, of the total portfolio of non-accrual loans, over two-thirds are current and continue to make their contractual payments.

Our total loan loss reserve balance for funded corporate loans remained stable at $8 billion at the end of the quarter, or 4.4% of corporate loans, up from 4.1% in the second quarter.

Slide 14 shows the average consumer loans in the bars and the net credit loss and loan loss reserve ratios in the lines.

As the red line shows, the loan loss reserve ratio grew to 6.4% while at the same time, the net credit loss ratio has declined for the first time since the third quarter of 2007.

In addition, as the blue bars show, we have actively managed down our loan portfolio and it has declined by over $100 billion since the peak levels of early 2008.

Slide 15 shows the trend of our consumer net credit losses for Citicorp and Holdings in the bars with the coincident months of coverage in the blue line.

As the bars show, net credit losses have declined this quarter primarily due to a decline in Citi Holdings losses.

Net credit losses in Citicorp were up 2%, the details of which I will discuss in a minute.

The bar on the right shows total consumer managed net credit losses.

Approximately three-quarters of our managed consumer net credit losses are generated in North America, concentrated largely in the Citi-branded and retail partner cards portfolios and in consumer mortgages.

As the blue line shows, we have continued to add to our loan loss reserves, which now stand at $28.4 billion for the Consumer businesses.

The coincident months of coverage have increased from 12.7 months last quarter to 13.3 months this quarter.

Slide 16 shows the consumer credit trends for the credit card businesses of Citicorp and Citi Holdings on a managed basis.

Citicorp includes the Citi-branded cards business and Citi Holdings has the retail part of the card business.

Let me start by highlighting our repositioning efforts in both businesses and then I will turn to some key differences in each of the two portfolios, which help explain the trends.

In each of the two portfolios, we have been actively de-risking the accounts to mitigate losses.

In fact, end-of-period open accounts are down 16% in branded cards and 13% in retail partner cards versus prior year's level.

A large portion of this account reduction represents our work to remove high-risk customers from the portfolios.

Second, loss mitigation efforts have been underway in both portfolios.

However, the tools used are different as they are tailored to the unique customer traits of each portfolio.

Citi-branded cards tend to have a longer estimated account life with higher credit lines and balances reflecting the greater utility of a multipurpose credit card.

Retail partner cards tend to have a shorter account life with smaller credit lines and balances.

The account portfolio by nature turns faster and the loan balances reflect more recent vintages.

As a result, loss mitigation efforts like stricter underwriting standards for new accounts, decreasing higher-risk credit lines and repricing, tend to affect the retail partner card portfolio faster than the branded portfolio.

As a result of our efforts, we are starting to see encouraging signs in the retail partner cards portfolio.

90 plus day delinquencies have declined in the past two quarters.

In addition, net credit losses declined in the third quarter, the first decline since the third quarter of 2007.

In branded cards, we have seen delinquency data improve in the 90 plus day past-due bucket this quarter.

However, the improvement in delinquencies has not yet translated into declining net credit losses.

In part, this is driven by our increased focus on offering remediation programs in the earlier stages of delinquency.

While we are preventing more accounts from ever becoming 90 plus days past due, once an account reaches that stage, we have fewer options for addressing the borrowers' credit issues.

Slide 17 shows the historical trends for net credit losses and 90 plus state delinquencies in our mortgage business, split by first and second mortgages.

It is important to discuss these categories separately as delinquency and loss experience are beginning to diverge.

First mortgages at the top continue to experience growing delinquencies in the 90 plus days past-due bucket from $10.2 billion to $12.5 billion, although net credit losses declined by $178 million to $1.1 billion.

We will go into these trends in more detail in a minute.

By contrast, second mortgage delinquencies are beginning to moderate and net credit losses flattened this quarter at $1.1 billion.

I will cover first mortgages in further detail, so let me just spend a minute on some of our efforts to reduce our second mortgage exposure where delinquencies and losses had been rising in 2007 and 2008.

Here too we actively manage down the exposure by reducing the riskiest accounts.

In 2008, we took line action on 171,000 accounts, which resulted in a reduced exposure of $6.5 billion.

In 2009 year-to-date, we have taken action on 30,000 accounts, resulting in a reduced exposure of roughly $1.1 billion.

While we continue to manage this portfolio aggressively, we are encouraged by the early signs of stability resulting from our efforts.

Turning to first mortgages on slide 18, we take a closer look at the delinquency data.

Last quarter, we discussed a trend that showed a decline in the 90 to 179 day bucket and an increase in the 180 day plus bucket.

The trend in the 90 to 179 day bucket has reversed this quarter, but can be largely explained by the loan modification program known as Home Affordable Modification or HAMP.

We have approximately $6 billion of on-balance sheet mortgages in this program.

Under HAMP, borrowers make reduced mortgage payments for a trial period, during which they continue to age through our delinquency buckets even if they are current under the new payment terms.

This serves to increase our delinquencies.

Virtually all of the increase in the 90 to 179 bucket and half of the increase in the 180 plus day bucket are loans in HAMP trial modifications.

The rest of the increase in the 180 plus day bucket is attributable to a backlog of foreclosure inventory driven by a slowdown in the foreclosure process in many states.

HAMP also reduces net credit losses as loans in the trial period do not get charged off at 180 days past-due as long as they have made at least one payment.

Nearly half the sequential decline in net credit losses on first mortgages this quarter was attributable to HAMP.

We have provided additional loan loss provisions to offset this impact.

Slide 19 shows consumer trends in our major international markets.

As I mentioned earlier, this quarter, Asia demonstrated the most pronounced economic recovery of any region and this is reflected in the consumer credit data.

Improvement in the 90 plus day past due bucket in the third quarter was matched with declining net credit losses.

In Latin America, consumer net credit losses increased in the third quarter, but we are encouraged by the decline in delinquencies in the region.

We have focused our efforts on repositioning and de-risking this portfolio and reducing our exposure to riskier credits, particularly in the Mexico cards business.

We have begun investing selectively in the region to better position ourselves for growth.

And finally in EMEA, we also saw an increase in consumer net credit losses, but a decline in delinquencies, which could be an early sign of a stabilizing credit trends.

The sustainability of these trends in the region will be a key indicator of recovery.

International consumer exposure and local consumer lending primarily includes our consumer banking operations in Western Europe.

We are working to optimize the value of these franchises as we evaluate the options for these businesses.

Turning to slide 20, you can see that we continued to grow deposits this quarter by 3% to $833 billion.

Since the first quarter of this year, we have grown our deposit base by 9% in order to increase our proportion of low-cost deposit funding.

At the end of the third quarter, our deposit to loan ratio was 134% reflecting both growth in our deposit base, as well as a 3% decline in loan balances, driven primarily by local consumer lending and Securities & Banking.

Slide 21 summarizes our quarterly asset trends.

We ended the quarter at $1.9 trillion in total assets, including $1 trillion in Citicorp, $617 billion in Citi Holdings and $258 billion in corporate other, which primarily represents cash balances.

Total assets grew by $40 billion in the quarter, including an increase of $35 billion in cash and deposits with banks.

Within Citi Holdings, assets declined by 5% or $32 billion to $617 billion.

City Holdings assets will continue to wind down over time through runoff and asset sales.

As mentioned, earlier this month, we closed the sales of Nikko Cordial and Nikko Asset Management, which together accounted for another $25 billion in asset reductions in the fourth quarter.

As you see at the bottom of the slide, total NIM declined 31 basis points to 2.93% in the third quarter.

There were two principal drivers.

First, roughly one-third was driven by higher cost of borrowings.

This was driven by two factors.

First, we continued to issue outside the government programs.

Second, we paid interest on additional trust preferreds on our balance sheet related to the completion of the exchange offers.

The remainder was driven by business spread compression of two types.

First, yield compression in a number of our asset businesses as we continued to derisk and reduce loan portfolios and expand our loss mitigation efforts.

Second, a natural compression of spreads in our deposit businesses in a low interest rate environment while we are growing our deposit base.

Slide 22 shows the trend in our key capital metrics.

We maintained strong Tier 1 and total capital ratios in the third quarter and importantly took significant steps to increase our Tier 1 common and tangible common equity ratios.

Primarily as a result of our exchange offers, we grew our Tier 1 common by $63 billion to a third-quarter level of $90 billion and we grew our tangible common equity by $62 billion to$102 billion.

With Tier 1 common and tangible common equity ratios of 9.1% and 10.3% respectively, we are very well-positioned to weather economic uncertainties, as well as avail ourselves of growth opportunities.

To wrap up, I outlined for you last quarter our progress on many of the goals and targets we have established.

We are continuing down the path of achieving them within the timeframes we established.

I will not repeat them in detail, but to summarize, we successfully completed our exchange offers in the quarter resulting in an unmatched capital base for the Company.

Our client franchise remains strong and customer engagement was encouraging in the quarter.

Expense rationalization continues across the business and this quarter, we started to make very selective investments in some of our Citicorp businesses, including in operations and technology.

Headcount continues to decline and we continue to meet our targets.

Based on a quarterly run rate of the outcomes of the May 7 stress test for pre-provision earnings and losses, we have outperformed on both metrics for the first three quarters of this year.

Finally, our efforts to derisk and delever the Company are continuing as we reposition ourselves for future growth.

While much progress has been made, the environment continues to be challenging.

So let me give you some thoughts for the fourth quarter and beyond.

First, on revenues for Citicorp, revenues of $13 billion were lower than last quarter, largely reflective of a $1.7 billion negative CVA and lower trading results in Securities & Banking.

Over a period of time, however, Citicorp revenues have shown stability, an indication that clients have remained actively engaged with us.

Revenues in businesses outside Securities & Banking were reflective of growth in many key drivers such as loans, deposits and purchase sales.

However, we continue to manage the balance sheet to optimize the asset levels and any reinvestment reflects our focus on selective higher return opportunities.

In summary, we will focus on growing the Citicorp client franchise to optimize asset levels to drive revenues over time.

Conversely, we expect Citi Holding asset levels to continue to decline.

For Citi Holdings, credit losses flowing through the securitization trust, as well as mark-to-market gains and losses and asset dispositions, will continue to affect revenues.

Last year, we moved certain of our assets to accrual accounts based on our belief that the then current levels of pricing made them attractive opportunities.

As a result, we expect to continue to see revenue accretion on the noncredit marks on these assets over time.

Turning to credit costs for the fourth quarter.

Last quarter, we indicated that we expected the increase in consumer net credit losses for the second half of 2009 to be in the range of $1 billion in aggregate.

Given the current trend in net credit losses, partially due to the impact of the HAMP program, we are revising our estimates.

This quarter, consumer net credit losses declined by $179 million.

Next quarter, we currently expect them to come in flat to slightly higher than this quarter's level.

Potential increases in North America real estate and branded cards could be offset by declines in other portfolios driven by many of the factors I have already discussed.

As a result, given our current consumer reserve levels and coincident months of coverage, additions to our loan loss reserves will continue to reflect underlying trends in the consumer portfolio.

Looking to 2010, let me address some factors that will affect credit costs in the three North America consumer businesses, which comprise the majority of our total consumer net credit losses.

In the North America real estate business, I have already discussed a number of trends that affect reported metrics such as loss rates and delinquencies.

The success rate of the HAMP program will be a key factor influencing net credit losses from delinquent loans and the outcome of the program will largely depend on the success rates of our customers completing the trial period and meeting the documentation requirements.

Outside the HAMP program, elevated unemployment levels and home prices continue to be a large factor in determining losses and delinquencies.

In branded cards, we remain watchful of customer behavior trends as net credit losses are up in the quarter.

Loss mitigation efforts are well underway, but until we see some sign of recovery in underlying economic indicators, we are likely to see net credit losses at elevated levels.

In retail partner cards, late bucket delinquencies are starting to show signs of stabilization.

Given the historical correlation that card delinquencies and losses have had with unemployment, this trend is particularly significant given the continued rise in unemployment levels.

While still in early days, we are somewhat encouraged by this leading indicator.

On consumer loan loss reserves in areas where net credit loss growth moderates so should the additions to our loan loss reserves.

Corporate credit is inherently difficult to project.

It would be reasonable to assume that if corporate default rates increase, we will need to add to reserves and likely will see higher net credit losses.

Although both the recognition of the credit losses and the building of reserves will be somewhat episodic.

That concludes the review of the quarter.

Vikram and I will now be happy to take your questions.

(OPERATOR INSTRUCTIONS).

Glenn Schorr, UBS.

Hi, thanks very much.

Could you provide us with the fibro maybe contribution for this quarter and last so we can kind of adjust our expectations on the go-forward?

In both quarters, I think fibro -- basically somewhere between $90 million and $100 million of revenues.

Really?

Okay.

I was expecting a little higher.

I'm sorry.

Net of pretax income.

Okay.

Makes more sense.

I am sure I would know the answer, but in the special asset pool marks, most of that is just unrealized on just improved market conditions, correct?

And all of that is on the assets that are obviously not in held to maturity?

The marks are not in the held to maturity assets.

That is correct.

And they reflect the change in marks on obviously on the assets that we have mark-to-market.

We have laid out the details for you on page 36 in the appendix.

I have gone through -- I just want to make sure that there weren't sales (multiple speakers).

Conditions are good, but they are not that good?

The information that we include here are changes in the marks.

Okay.

And a similar enough question, in the $32 billion decline in assets within Holding, I think there is a natural burndown of call it $15 billion to $20 billion in runoff, but I didn't know if this quarter had a little extra runoff or there were actual sales out of Holdings?

Well, as Vikram mentioned in his opening, we actually sold $19 billion -- I'm sorry -- we reduced the special asset pool assets by $19 billion and most of that was actually accomplished through sales.

The sales were roughly two-thirds of the $19 billion.

So it is a combination both of natural runoff, as you mentioned, Glenn, plus we are selling.

Even on the -- what you will see is that even though we took a mark up in the subprime CDOs, and that is again laid out on page 36, of roughly $2 billion, our exposure to those subprime CDOs stayed flat during the quarter because we also sold certain of the CDO positions.

Okay.

And then you had mentioned in your remarks about how you continue to issue outside the government guarantee and I saw -- it seems like you are terming out that the structure of your debt, which is the right thing to do because I just want to make sure.

There is a big drop in the short-term debt and I am assuming that that is just expanding out the duration of your liability.

That would be a correct assumption.

Okay.

And then -- I appreciate that it is not our God-given right to know what the government is doing at every second with its positions, but is there any comment you can provide in terms of are those talks still in motion and any potential timing because I know it comes up a lot?

Glenn, not at this time.

Okay, I appreciate it.

Okay.

Thanks very much, all.

Guy Moszkowski, Banc of America.

Good morning, gentlemen.

I mean you spent quite a bit of time talking about consumer credit and I appreciate the information you gave us.

I do sense that there is concern among investors today that you may have slowed your reserve build process without really yet seeing significant improvement in the forward credit indicators.

And I was hoping that maybe to counter that you could discuss in some detail the process that you went through and the main metrics that you study in determining what you were going to do with reserve build.

And also talk a little bit about the timing during the quarter when you do this because I know in the past you used to say you would do it quite a bit before the end of the quarter.

Let me try to provide you some color on that.

As far as the process we go through, I am sure it is no different than the process that any other bank goes through.

We make sure that we have adequate reserves to cover losses that are inherent in the portfolio.

We determine those losses based upon a combination of flow rate statistics, the economic environment, where we see losses going into the future and all of that adds into the loan loss reserve process.

It is not a -- it is obviously something that is judgmental.

It is not something that just falls out of a calculator.

I would tell you that what you should look at is -- or what I would ask investors to look at is that we have increased our months of coverage this quarter.

So our loan loss -- our consumer loan loss reserve balances now are sufficient to cover 13.3 months of coincident losses.

And again, that is an increase from last quarter.

And I guess finally, the other thing I would say is the consumer loan loss reserve itself at 6.4% of consumer loans is pretty strong.

We did start reserve -- the building of reserves on our consumer portfolios relatively early.

I recall having significant builds as far back as the first quarter of 2007.

So this is not something where we have just begun to look at this; it just reflects our continuous process.

And of all of the metrics that we see, for example, the 90 day delinquencies and the like, which do you think that we should pay the most attention to in terms of evaluating the choices that you made in terms of building reserves other than the 13 months?

Well, you certainly have to take a look at the combination of the 90 day plus delinquencies.

Let's talk about cards.

I think cards and mortgages are somewhat different.

From a cards point of view, as I mentioned, when we look at things, we are looking at both the early buckets, as well as the later buckets.

And admittedly, we don't give you much information on the early buckets.

But in the retail partner cards portfolio, as we mentioned, we are seeing improvements in the 90 day plus buckets and we are also seeing some stabilization in the early buckets.

And that is what gives us, again, some deal of comfort when looking at that portfolio.

Branded cards, I think I mentioned that we have seen reductions in the 90 plus day delinquencies, but as I noted, the net credit losses continued to grow slightly this quarter and so we are somewhat more cautious in that portfolio.

And finally, when it comes to mortgages, as I mentioned on the call, or just before, the HAMP program right now has got a rather significant impact on our delinquency statistics and really makes it difficult for anyone from the outside to actually have a good view as to the inherent credit profile in our delinquency buckets.

That's an important point.

Thank you for that.

If I can just revisit the TARP question, just in terms of the trust preferred portion of it as opposed to the common stock portion, how would you eventually envision funding a repayment there?

Would that mostly come from runoff of assets say in Holdings and the cash flows that would be generated from that or would you ultimately look to perhaps replace the funding in the debt market?

I think on that point, we have, as you mentioned, we have several options and I think what you might take a look at is that we may do a little bit of each.

I am not quite sure that we would just use one lever there.

I think the nice thing about our balance sheet right now, given our liquid cash position, our capital base and the fact that we have termed out our debt, is we have got tons of options as far as how we might approach that.

So we have given ourselves a great deal of flexibility.

Okay, thanks very much for addressing my questions.

I appreciate it.

James Mitchell, Buckingham Research.

Good morning.

A quick follow-up question on hedges.

I appreciate that you talked about net mark-to-market gains in Holdings, but obviously you do have some fat tail credit hedges in the investment bank and probably in other places.

Is there a way you can kind of quantify?

Is it really just -- is it all in the lending line in the investment bank or are there other places that we should think about you experiencing some hedging losses?

We do have a certain amount of hedging losses sprinkled throughout the various businesses, but the most significant concentration of hedging activities would be in our lending book in Securities & Banking.

That would be the lion's share right there?

Correct.

Okay.

And then maybe just a question on expenses.

We saw -- obviously, you got rid of Smith Barney.

We saw about a $700 million decline in expenses in the brokerage segment; yet expenses for all of Citigroup were generally flat.

It seemed like it was comped; yet capital markets revenues were down.

What is kind of going on there?

I guess how should we think about that expense line going forward?

I would have thought we would have seen a little bit lower expenses.

When it comes to comp expenses, obviously, we review that throughout the year and adjust our accrual percentages accordingly.

I think what I mentioned to you at the end of the second-quarter earnings call was that our expectation would be that, for the full year, our expenses would be in the $48 million to $50 billion range.

And I would say that you can expect that we would come in towards the lower end of that range for the full year.

Okay.

Was there anything this quarter that you saw from comp pressure just generally in the industry given the strong results pretty much everywhere?

As I think we have all said, we are committed to paying competitive compensation and we look at our results and we just adjust our accrual rates accordingly.

Okay, fair enough.

Thanks.

Moshe Orenbuch, Credit Suisse.

Thanks, sorry about that.

I was wondering if you could kind of flesh out your discussion of modifications on card loans and what that does to kind of delinquencies and loss trends?

Just in general?

Well, I mean what sorts of things -- I mean talk a little bit about the things that you are doing in terms of the -- trying to incent borrowers to pay and the implications that has for delinquencies, losses and other characteristics of the portfolio.

Maybe the best way -- we have a variety of forbearance programs that we employ in both of our cards businesses and those forbearance and modification programs vary from the very short term to long-term rewrites of the loans.

And what we do is an active screening process of all of our cardholders and try to work with each of those cardholders that we identify as someone who might benefit from one of these programs.

I would like to go into more specifics, but we could actually -- there is at least a dozen programs in each of the portfolios at play.

Maybe the best thing to do would be you could follow up with our Investor Relations people and they can give you a little bit more color on these programs.

No problem.

But in general, these effects, you are saying, have increased delinquencies, but not charge-offs or did I get that backwards?

No, they don't increase delinquencies.

For the most part, our forbearance programs serve to decrease the delinquencies.

Okay.

And have you been able to size -- would you be able to size for us like by how much?

Yes, you have to go into each individual bucket and it is a general -- obviously, we think that these forbearance programs yield positive results both for us, as well as for our customers and holding down delinquency statistics for us, as well as reducing ultimate net credit losses.

Our view of customers that have entered into, specifically on cards, have entered into forbearance programs is that any customer that successfully completes, especially our short-term forbearance programs, their account performance after that is far better than accounts that don't enter into the forbearance programs.

In other words, just the overall impact on delinquencies is not something that you have sized?

It really is difficult to size it specific to each individual program.

John McDonald, Sanford Bernstein.

Hi, John.

In terms of liquidity, you noted in the press release that your cash liquidity, cash-type holdings up to $244 billion, pretty big increase.

Sorry if you discussed it already, but what was the driver of that and is that something that might continue or would you be looking to kind of reinvest this?

Well, as I think I mentioned at the second quarter, we are deliberately liquid at this point in time and we think that that is a prudent position to take given the economic environment and leaving ourselves some flexibility for next year.

So I wouldn't expect another massive increase in cash, but you can expect that we will remain prudently liquid going into next year.

Okay, that's helpful.

And you mentioned a few factors quickly about the NIM decline.

Was that one of them and can you just remind us of those factors again on the NIM and are those likely to persist going forward?

Yes, I mean with NIM, you can always point to about 17 different things that are going to impact NIM.

Clearly, the cash that we have on the balance sheet is one depressor because most of it -- I mean it is interest-earning, but obviously at rather low rates.

But the factors in NIM that I think I called out earlier was a combination of the higher cost of borrowings.

I mean we had the TruPS issue and so we have increased the long-term debt for the TruPS by a net of about $10 billion.

That added about $200 million of interest cost into the quarter itself and then we did ramp up our borrowings outside of the TLGP program.

So that clearly had an impact on NIM this quarter.

And then the remainder is business spread compression, both the yield compression in the asset businesses, again due to derisking and reducing some loan portfolios, and a compression of spreads in our deposit businesses.

Just the absolute level of rates being low.

Exactly.

Okay.

And this is a looking-out question -- maybe it is early -- but just as you think about excess capital potentially, any early thoughts on what type of ratios might be needed in the future, and again early thoughts on future kind of courses of deploying excess capital for you guys?

I think Vikram said that our two near-term goals are getting to the point where we have sustained profitability and looking to repay TARP.

Obviously, by returning to sustained profitability as I said, we are looking to make selective investments.

So we have begun to deploy some level of additional capital and expense dollars into our Citicorp businesses.

But again, we are doing that in the looking ahead at a rather uncertain economic environment, so we want to be very selective on that, at least in the near term.

And final question just on the deferred tax asset, could you update us on where that stood at quarter-end and how much was included in Tier 1 and what will affect your ability to kind of use all that going forward?

The deferred tax asset at the end of September had shrunk to -- the net deferred tax asset had shrunk into about $38 billion, down about $4 billion in the quarter.

And in terms of how much you get to count towards Tier 1 and what will it drive, whether that amount that is included in Tier 1 change as you are going forward?

Well, the amount in Tier 1, again there is a complex formula that we have to go through as far as how much you are able to include in Tier 1.

And I think as of the end of the third quarter, we have roughly $13 billion of the DTA now included in Tier 1.

Okay.

And again, I know it is complicated, but the terms of whether you get to include more going forward?

Well, as being able to include more going forward is subject again to limitations.

The limitations, it is a test that restricts your ability to include deferred tax assets to the lower of 10% of your Tier 1 capital or your expected utilization of the deferred tax asset over the course of the next 12 months.

So those are the two factors that we look at.

The simple way to think about it from my point of view is that our position right now is from a Tier 1 point of view to the extent that we start generating net income on a consistent basis, basically it is the pretax dollars that serve to drive up our Tier 1 capital.

Got it.

Great.

Thank you.

Ron Mandle, GIC.

Hi, thanks.

I had a follow-up question on expenses.

Given where you are now on expenses for the nine months and we get to the low end of the $48 billion to $50 billion range would imply expenses in the fourth quarter of about $12.5 billion, which is up about 6% from the third quarter.

So I guess I have two questions.

Number one, is that the right way to think about the fourth quarter and then how would you guide us on the expense outlook for next year?

I am not going to provide any guidance right now on next year.

Well, I was hoping that, since you have commented on the credit outlook, you might comment on the expense outlook.

Ron, the only thing I can say is that we are going to vigilantly manage the expense base.

And as far as expense growth into next year that will depend on a couple of independent items.

One is our ability to further dispose of assets and businesses in Citi Holdings, as well as make selective investments in Citicorp.

Okay.

And then the fourth-quarter outlook, the implication from the numbers you have given is that it would be up into the $12 billions.

What would be driving that as you look out at it now?

I think I said you can expect us to be on the low end, towards the lower end of the range.

I don't remember saying $12.5 billion.

Well, you're at $35.5 billion now, so $12.5 billion gets you to $48 billion.

Yes, I am conservative by nature.

And if it is in the $12.5 billion area for the fourth quarter, would that be a good place to start thinking about 2010?

I would think that you would probably take a look at where we actually end up at the end of the fourth quarter as far as where we are coming out in 2010.

And I mean are you saying that you might be below the $48 billion then in the fourth quarter?

Or I mean with a number that would get you to below $48 billion for the full year?

You know, Ron, FX rates, there's a bunch of things that can happen in the fourth quarter.

And just -- I mean you are not going to get a specific number out of me, Ron.

Okay.

Thanks very much.

Betsy Graseck, Morgan Stanley.

Hi, good afternoon.

A couple of questions.

One is on NIM and I know we went through in detail some of the things that impacted NIM this quarter.

I just wanted to understand how you are thinking about the look-forward here.

And I realize that one of the positive drivers could be a reinvestment of assets into slightly more risk I think is what you're saying given the strong liquidity levels that you have.

But could you talk about some of the other moving parts, including how you are thinking the decline in assets, the drawdown -- the rolloff in assets is going to impact it and some of the debt refinancings that you've got on the liability side?

Yes, again, NIM, as I said before and as you just indicated, Betsy, there are several moving parts.

And if you look ahead, and let's not look ahead too far, but obviously we are still derisking elements of the portfolio, specifically Citi Holdings in total, as well as still some portfolios that we have got in Citicorp.

And so that derisking is going to -- certainly going to continue into the fourth quarter and for Citi Holdings will continue clearly all the way through 2010.

We will look to add some earnings assets into Citicorp.

Again, as I mentioned, we have begun to make some very selective investments specifically in Asia and in Latin America where we are looking at growing some card acquisitions and actually investing in new branches.

So that should tend to add some earning assets into next year.

On the other side of the equation, I mentioned that -- you just mentioned I should say that we have got debt coming due next year.

Let me just make a comment on that.

We have got roughly $45 billion of debt maturing in 2010 and our current view, given the way we are running down the Holdings assets and with our current cash position, is that we really have to, from a top of the house point of view, reissue very little of that debt.

Our debt issuances at the top of the house next year will probably be no more than in the range of $15 billion.

So we actually think that we are in pretty good shape from a funding point of view and all of that then will add into the NIM picture as we go into 2010.

Okay, that's great.

And so the $30 billion delta there is coming from asset rolloff primarily?

That is the way I would look at it.

Right.

Okay.

And then within the Citi Holdings, you've got in North America loans roughly 273.

You indicated on the slide $29 billion in footings.

And the mortgage piece is rolling off here obviously as the assets pay down.

How do I think about the other pieces here, student, cards, personal auto, commercial real estate?

Are these all in rolloff mode or are you selectively reinvesting for sale later in the future?

How do I think about that?

Think of them in terms of they are all declining.

Although, again, some of these are actually businesses and if we are looking to sell the businesses, we certainly want to do enough new issuance, new underwritings in the business to still make it an attractive sales opportunity.

So we are weighing all those considerations as we look to add new business into these portfolios.

Okay.

So because I'm kind of modeling assuming a duration -- rolloff based on certain durations and I am just trying to understand how much you are interested in actually keeping these footings where they are today so that you can sell them in the future or you know --?

And Betsy, that is going to vary business by business.

The breakout that we've provided you on page 29 would be by specific loan types, first mortgages, second mortgages.

Maybe what you have got to think about and what we will have to think about putting out to give you a better view is some of the assets by businesses.

From a business point of view, I think we have this in the supplement, student loans is a business, but Citi Financial is a business and Citi Financial has elements of first mortgages and personal loans, etc., etc.

So it is -- again, it is -- you need to look at it on a business point of view, as well as a particular asset portfolio point of view.

And your point on Citi Financial is that you are not -- you are reinvesting in that business, so I would want to keep those assets from rolling off too much or is that what --?

We are trying to be very deliberate in how we look at that business.

As I said, we have got -- we certainly want to drive down the assets in Citi Holdings.

At the same point in time, we do want to maintain the viability of the businesses that we are looking to sell.

And so what we will try to do over time is optimize the level of assets and the type of assets that we have in each of those businesses.

Okay.

So anything out of Citi Financial in North American loans and student loans probably come down at a faster clip?

Is that fair?

Anyway, we can talk off-line about that.

I understand your thought process.

Thank you.

All right, thanks, Betsy.

Meredith Whitney, Meredith Whitney Advisory Group.

Hi, there.

Good afternoon.

Since so much of your numbers today are influenced by the trial mod results, I wanted to ask a couple of questions.

Number one, is the early experience consistent with the report that came out in October with the Congressional oversight result, which talked to the difficulty of finding documentation on the modifications?

Can you provide more color there?

And also a question that I have been asking management is when do you think an appropriate report card will be accessible in terms of the success of these?

Is it fourth quarter, first quarter and then I have a follow-up after that please?

Both questions, Meredith, refer to the HAMP program?

Yes.

Okay.

The earliest modifications that we entered into were in May.

And so we are just finishing up the five-month period right now.

And I would say that the documentation process, both in the way that the request is given to the consumer, as well as the assistance that we are giving consumers, has improved over time.

So the early stages, we are seeing some difficulty in the customers fulfilling the documentation request as either you noted or we noted.

That is one of the reasons behind the extension of the trial period from three months to five months.

So let's kind of wait until we at least get the October and perhaps November results in to see whether or not the documentation collection or submission process has improved.

As far as an overall scorecard on HAMP, my sense, especially given the fact that you have got five months -- five-month trial for all modifications entered into prior to September 1 and then a three-month period is at best it will be towards the end of the fourth quarter, but it is probably more of a first quarter next year type of (multiple speakers).

When you release fourth-quarter results?

Would that be --?

Again, we will know more, but you asked for a final scorecard and I actually think the final scorecard is something that will actually best be judged in the first quarter of next year.

Okay.

And my follow-up is with respect to Citi Holdings asset sales, there has been a little bit of movement and I want to specifically talk about -- talk to the card portfolio.

A little bit of movement, but it has been tiny.

What is your -- what is the timetable?

Can you talk broadly about some of the conversations you have had and what you expect in terms of the movement within that portfolio please?

I am not going to comment on specific conversations that we have had.

I think I just mentioned the fact that, on October 1, we have already closed the sale of Nikko Cordial Securities and Nikko Asset Management.

Those two transactions will generate a $25 billion reduction in Citi Holdings on top of the $32 billion that we had in the third quarter this year.

So we are very much about trying to reduce the Citi Holdings assets as quickly as possible and as quickly as feasible and as quickly as it is prudent.

Okay.

And then lastly, you had some data, historical Case-Shiller data, but I was more curious to see what your view on the US housing market is regionally.

So if you could just comment on specific markets, where you think we are in the cycle, please.

And that is my final question.

Thanks.

Meredith, I really -- I am not prepared today to discuss individual markets for housing.

Maybe I will have the Investor Relations people follow up on something more specific with you.

Okay, thank you.

Mike Mayo, CLSA.

Good afternoon.

In transaction processing GTS, your revenues have held up better than some of your peers and I was wondering what are some of the ins and outs there?

I am not quite sure what you mean by ins and outs.

Obviously, we have got strong customer activity.

I think that that is evident in both the deposit raising, as well as in the assets under custody.

I also think it is actually due to the superior platform that we have.

We spent a lot of years and a lot of money -- we invested in our CitiDirect platform and I think that those investments are holding up over time.

The CitiDirect platform is probably the best way we have as far as capitalizing on our rather unique franchise as being the only truly global bank.

Is there anything in the quarter that is a little bit better?

We increased deposits, increased assets under custody.

Transaction levels with the customers were pretty much stable over the entire quarter, so our customers very much remain engaged with us.

I mentioned some of the wins that we recently had both in Hong Kong, as well as with the IFC.

So it is pretty much spread across the variety of the services that we offer through GTS, whether it be through purchase card or traditional cash management business, trade services and security services.

Okay.

And then a different question.

I know you have gotten many questions on this, but I can't figure out what your core loan loss rate is.

And I think you kind of set from the outside, we are not able to do that, but you can imagine as a user of financial statements, this is quite frustrating between the HAMP program, which you discussed and the forbearance program in cards and I don't know if you have a payment holiday there or other loan modifications.

And so I guess maybe for the future or now -- I mean you said the consumer losses went from 5.88% in the second quarter to 5.73% in the third quarter.

So if you didn't have these programs, that consumer loss rate of 5.73%, where would that number be?

That is really not an analysis that I am prepared to give right now.

There is an awful lot of judgment that goes into something like that.

I think the other thing you have to take into account when you use things like loss rates is the fact that we are in the process of shrinking our asset portfolios.

And therefore, when you look at loss rates, you have got to be very careful about how much of that denominator effect is actually getting reflected in the loss rate.

That is one of the reasons why I tend to focus my conversation with you and my outlook with you on the absolute amount of net credit losses.

A fair point.

I am not sure if Vikram is still there.

I went to see Vikram at the 92nd Street Y at the speech he gave and he said it is just way too early to judge what is going to happen with the consumer and the losses.

And what would you advise to us looking on the outside?

What should we be monitoring since we can't completely rely on the consumer loss rate, we can't completely rely on the delinquencies, what else should we on the outside be paying attention to the most?

Well, first of all, I'm glad you were there.

Thank you, Mike.

I appreciate that.

One of the things that is going on here is there is a decoupling between the traditional measures and unemployment versus things like losses.

And so this, for some reason and you hate to say this, but it seems like a different cycle from the perspective of what is driving losses and you also know that you had the first aspect of it, which was housing prices dropping and all the sort of -- the loans that were made to less credit-worthy individuals and now you're in the second cycle, which is really more related to who has got job losses.

And so ultimately it is going to come down to how many jobs are there in the country.

And that is probably the single best driver of trying to figure out what happens on a macro basis.

Having said that, each of us has a slightly different portfolio and in fact, a slightly different bend on it because we started very early, January 2008, in cutting back our card portfolio as an example or with a number of things in the mortgage business.

So I wish I could give you a statistically precise way of estimating that, but the reality is that different people are in different stages of the cycle.

I think the way though that John Gerspach characterized this is exactly right, which is that we like some of the things we are seeing.

There are certain areas where public policy is a good approach to what we may need to do, but it does cloud up some numbers and you can't run an experiment side-by-side with HAMP or without HAMP and how can you ever talk about what would it be this or that way.

And so it is complicated.

I get it.

But we all ought to be grateful that we are actually seeing some signs of stability here.

And that is a positive.

We actually like some of the things we are seeing in the international market.

There seems to be a lot more decoupling going on there, which is something we thought would happen.

Thank you.

Ed Najarian, ISI Group.

Good afternoon.

Just two questions.

First, obviously, as we look out several years, you are barreling towards a very over capitalized position given where your capital is now and then the idea that with Citi Holdings and the special asset pool shrinking to zero, your balance sheet will decline very massively.

So first question is could you give us some sense of how we should think about the deployment of that excess capital?

Should we think about some giant buyback program three or four years out or two or three years out or some kind of a special dividend?

That is the first question I guess and then I have a follow-up.

One way -- Ed, this is Vikram -- so one way to think about this is we do have a business that is going to grow, which is Citicorp, over time and you know it happens to be in those markets and those businesses, which are pretty fast growth and you ought to expect that business to get its share of capital over time in line with the growth rates in those markets and success we may have even a little bit beyond what those markets are growing.

That is a good assumption in my view.

Now it is not going to be linear, it may not be this quarter, next quarter.

I don't know when it is, but it is going to be a good long-term assumption as you pointed out.

Now the second issue is that we all yet don't know what the right level of capital is to run financial institutions.

They haven't decided that yet and there are a lot of conversations that are happening and certainly there are enough disparate schools of thought and so you need to have that debate land somewhere to then say, okay, what is really the right level of capital for different kind of institutions.

So that is the second point.

And the third point is don't forget that we do have to deal with some of the TARP issues and all that.

We need to get through that, but clearly we are running the Company to have more capital than that over time and if that does happen, that can open up a lot of different possibilities for us and it is really too soon to comment on it.

So it is reasonable to think about maybe using some of that excess capital to repurchase some of the government shares?

What I would say -- sorry.

I was going say -- I think as Vikram pointed out, it is a question of defining what excess capital is and until we get a clearer guidance from -- and by us I mean everybody in financial services -- until we get clearer guidance as to what appropriate capital ratios are, it is a little premature to judge exactly how much excess capital we or anybody else truly has.

Okay.

Let me move on.

In terms of thinking about the rundown of Citi Holdings over time, obviously, you have got a very large portion of the loan loss reserve allocated to Citi Holdings.

As you think about that rundown, and I know this is a difficult question to answer because it requires looking out pretty far, would you anticipate that most of that allocated reserve gets burned up as Citi Holdings runs down or would it be potentially more appropriate to think about having a lot of reserve left over say three years from now when Citi Holdings is mostly run down that can be run through the income statement, accrete the capital used for other things, what have you?

Ed, I am glad you led in by saying this is a very difficult question to answer because it truly is.

Obviously, we have the level of reserves we do because we believe that that is the amount of losses that are actually inherent in the portfolio.

So your question -- it also has to take into account when does the economy actually improve and when would we actually dispose of the assets.

And the timing of each is not -- I can't comment on either at this point in time.

So again, it is a little bit premature.

I love the scenario you are painting.

I would love to wake up in 2012 and find that I have got $20 billion of excess reserves to give to Vikram, but it is a little premature for that.

One more thing I would add on that, Ed, is that a lot of the assets in there are cards and mortgages.

They're the US consumer assets and frankly, they are the businesses that we don't want to be in going forward or want to be in in a much smaller way.

But they are not any different than anybody else's assets they own and you ought to think about what you are thinking for them as the same metric that you would apply to these assets.

Right, okay, but I guess you answered the question as best you could by saying right now, that level of reserve is your best guess for the inherent losses in the portfolio.

That's right, Ed.

That's probably true for most reserves anywhere.

Okay, all right, thanks a lot.

Chris Kotowski, Oppenheimer.

Hi, most of my questions have been asked, but just wanted to make sure on the page 11 of the slide presentation under brokerage and asset management, you are just picking up the joint venture pretax net income as opposed to revenues, right?

That is exactly right.

So if you had -- I think you said it was $675 million of gross revenues there, minus the $320 million of gains, so that means pretax net was roughly $355 million.

Well, there are other businesses that actually report into this line as well.

We have got, as I think we've laid out in the past, we have got some Latin America asset management businesses in here.

So it is something more than just the equity pickup from the Morgan Stanley/Smith Barney joint venture.

Okay.

All right, that's it.

Thanks.

There are no further questions at this time.

I would like to turn the conference back over to Mr.

John Andrews.

Thank you, everybody, for taking the time and having the patience today.

Obviously, it is a complicated story and we will be available for any further questions if you call the Investor Relations group and this call will be on rebroadcast on the website later today.

Thank you.

This concludes today's conference call.

You may now disconnect.