花旗銀行 (C) 2015 Q2 法說會逐字稿

Hello and welcome to Citi's second-quarter 2015 earnings review with Chief Executive Officer, Mike Corbat; and Chief Financial Officer, John Gerspach.

Today's call will be hosted by Susan Kendall, Head of Citi Investor Relations.

(Operator Instructions)

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

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

Ms. Kendall, you may begin.

Thank you, Regina.

Good morning, and thank you all for joining us.

On our call today our CEO, Mike Corbat, will speak first.

Then John Gerspach, our CFO, will take you through the earnings presentation, which is available for download on our website, Citigroup.com.

Afterwards, we'll be happy to take questions.

Before we get started, I would like to remind you that today's presentation may contain forward-looking statements which are based on management's current expectations and are subject to uncertainty and changes in circumstances.

Actual results in capital and other financial conditions may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our discussion today and those included in our SEC filings, including without limitation, the risk factor section of our 2014 Form 10-K.

With that said, let me turn it over to Mike.

Thank you, Susan.

Good morning, everyone.

Earlier today, we reported earnings of $4.7 billion for the first quarter of 2015, or $1.45 per share excluding the impact of CVA and DVA.

It was a solid quarter overall, and we continue to make good progress towards our strategic and execution priorities.

With half the year behind us we remain on track to hit our financial targets in terms of return on assets and our efficiency ratio.

We again achieved both positive operating leverage and strong loan growth in our core Citicorp businesses.

Citi Holdings was profitable again during the quarter, and we continue to wind down its assets which are down 22% from a year ago.

And holdings assets now comprise only 6% of Citigroup's balance sheet.

We continue to utilize DTA this quarter, bringing the total to $1.5 billion for the first half of 2015.

And we added $3.5 billion to our regulatory capital during the quarter, even as we returned roughly $1.7 billion to shareholders in the form of share buybacks and common dividends.

Our tangible book value increased to $59.18, and our common equity Tier 1 capital ratio increased to 11.4% on a fully implemented Basel III basis.

We submitted our resolution plan to the Fed and the FDIC, which details how we would result Citi without the use of taxpayer funds or harm to the financial system.

Viable resolution planning is critical to our making Citi a simpler, smaller, safer and stronger institution.

In terms of our businesses, we saw balance performance for the quarter across our institutional and consumer segments.

In ICG, we've grown our investment banking wallet share year to date, and our private bank continued to show strong revenue growth.

Treasury and trade solutions saw revenue growth on a constant dollar basis, and our markets and securities services revenue grew from a year ago driven by rates in currencies and security services.

In consumer banking, high quality checking deposit growth, improved spreads and higher mortgage originations drove revenue growth in the US, where we've optimize our branch footprint to focus on seven cities.

And internationally we also grew revenue, despite continued spread headwinds with growth across investment sales, deposits, loans and purchase sales.

We remain focused on our expenses and driving efficiencies throughout the organization.

Despite significant investments in our regulatory and compliance functions, we continue to lower our overall headcount.

And we're reducing both our real estate footprint and our employees in higher cost locations.

These actions helped to keep our expenses lower than they were a year ago, even before the benefit of foreign exchange.

While I'm pleased with our results for the first half of the year, the environment remains challenging and unsettled.

Growth forecast continue to be downwardly revised, and we still don't have clarity on when interest rates will begin to rise.

While some volatility may create trading opportunities, we would much prefer to see growth strength and consistently across the developed and emerging markets.

But whatever the economic conditions are, we will remain focused on our clients and executing our strategy on behalf of our shareholders.

John will now go through the deck, and then we'd be happy to take your questions.

John?

Thank you Mike, and good morning everyone.

Starting on slide 3, I'd like to highlight a couple of items: CVA/DVA and the prior-period mortgage settlement that affects the comparability of our results to last year.

Excluding these items, we earned $1.45 per share in the recent quarter compared to $1.24 in the second quarter of 2014.

On slide 4 we showed total Citigroup results.

In the second quarter we earned $4.7 billion, generating a return on assets of 101 basis points and a return on tangible common equity of 10.1%.

Net income grew by over $700 million year over year, driven by core improvement in Citicorp.

Revenues declined on a reported basis to $19.2 billion, but increased 3% year over year in constant dollars.

Expenses declined 7% year over year, mostly reflecting lower legal and repositioning charges, as well as a benefit from FX translation.

And net credit losses improved, offset by a lower net loan loss reserve release.

The tax rate in the second quarter was 29%, somewhat lower than the 31% outlook we had provided on a full-year basis.

Turning to the first half of 2015, the total efficiency ratio for Citigroup, including Citi Holdings, was 56%.

Net income grew by 17% year over year.

We generated an ROA of 103 basis points.

And our return on tangible common equity was 10.5%.

In constant dollars Citigroup end-of-period loans declined 1% year-over-year to $632 billion, as 4% growth in Citicorp was more than offset by the continued wind-down of Citi Holdings.

Deposits also decreased 1% driven by Citi Holdings, including the reclassification of $21 billion of Japan retail deposits to held-for-sale in the fourth quarter of last year.

On slide 5 we provide more detail on second-quarter revenues in constant dollars.

Citicorp revenues were up 5% year over year, mostly driven by growth in our institutional franchise.

And revenues declined in Citi Holdings, reflecting continued asset reductions as well as the impact of classifying our OneMain business as held-for-sale at the end of last quarter.

As a result of the HFS accounting treatment, OneMain loans are classified as other assets.

As such, approximately $160 million of net credit losses were recorded as a reduction to other revenue during the second quarter.

This lowered both revenues and cost of credit by an equal amount, and therefore had a neutral impact on earnings.

On slide 6 we show more detail in expenses in constant dollars.

Citicorp expenses were down 1% as ongoing efficiency savings and lower legal and repositioning cost were largely offset by higher regulatory and compliance costs.

And Citi Holdings expenses also declined on lower assets.

On slide 7 we show the split between Citicorp and Citi Holdings.

Citicorp net income grew 22% year over year in the second quarter.

And as I just described, we generated positive operating leverage again this quarter in Citicorp with 5% growth in revenues and a 1% decline in expenses in constant dollars.

And for the first half of 2015, we achieved a Citicorp efficiency ratio of 55.1%.

Turning to Citi Holdings, we were profitable again this quarter with over $150 million in net income.

Citi Holdings ended the quarter with $116 billion of assets, or 6% of total Citigroup assets.

On slide 8 we show results for international consumer banking in constant dollars.

Net income grew 25% year over year, driven by higher revenues, lower operating expenses and an improvement in credit costs, partially offset by a higher effective tax rate.

Revenues grew 1% year over year in the second quarter, reflecting volume growth partially offset by spread compression and ongoing regulatory headwinds in certain markets.

In Latin America we grew revenues 3%, driven by modest loan and deposit growth in Mexico, partially offset by the impact of selling our consumerl franchise in Honduras last year.

And in Asia revenues were roughly flat year over year as 3% growth in retail banking revenues, including wealth management, was offset by lower card revenues.

Asia card loans and purchase sales both grew year over year by 4% and 5% respectively, but this growth was offset by lower spreads driven by continued higher payment rates and the impact of regulatory changes in certain markets.

We continue to believe these headwinds will abate somewhat in the second half of 2015.

Asia card revenues grew by 3% sequentially in the second quarter.

In total, average international loans grew 2% from last year, card purchase sales grew 5% and average deposits grew 4%.

Operating expenses declined 5%, as lower repositioning cost were partially offset by the impact of volume growth, higher regulatory and compliance costs and technology investments.

And credit costs declined from last year.

Slide 9 shows the results for North America consumer banking.

Net income of $1.1 billion declined slightly year over year as higher revenues, lower expenses and lower net credit losses were more than offset by a decline in the net loan loss reserve release.

Total revenues grew 1% year over year.

Retail banking revenues of $1.3 billion grew 11% from last year, reflecting continued loan and checking deposit growth, higher mortgage origination activity and improved deposit spreads.

Branded cards revenue of $1.9 billion were down 5% from last year, as 5% growth in purchase sales and improved spreads were more than offset by the impact of lower average loans, mostly driven by the continued runoff of promotional rate balances and higher payment rates.

And retail services revenues were flat to last year with improved spreads being offset by the continued impact of lower fuel prices and higher contractual partner payments.

Total expenses declined 3%, mostly driven by ongoing efficiency savings, as we have continue to rationalize our branch footprint and capture the benefits of our global scale in cards.

Our retail banking results reflect the strong progress we are making in North America.

Over the past year we have reduced our branch count by 15% to 779 branches.

And at the same time we've improved the overall productivity of our network, concentrating our resources in seven key markets and deepening our relationships with our target clients.

Despite the branch reductions, we grew checking account balances by 7% year over year.

Card acquisitions per branch are up 10% year over year on a same-store basis, and we've continued to enhance our retail mortgage origination platform, reducing our reliance on third parties and better integrating our operations.

Over 80% of our growth in origination volumes year over year came through retail channels.

Slide 10 shows our global consumer credit trends in more detail.

Overall, credit remained favorable in the second quarter.

In North America and Asia, trends remained broadly stable.

And in Latin America, the NCL rate improved in line with the lower delinquency rates.

Slide 11 shows the expense transfer global consumer banking.

Over the last 12 months, our consumer efficiency ratio was 54%, including over 150 basis point attributable to legal and repositioning charges.

For the first half of the year, the total efficiency ratio for global consumer banking was 53.3%, down from 56% last year.

We now expect the total consumer efficiency ratio for 2015 to be somewhere in the range of 52% to 53%, consistent with our plans to begin gradually increasing the level of investment spend during the second half of the year, primarily in US branded cards.

Turning now to the institutional clients group on slide 12.

Revenues of $8.6 billion in the second quarter grew 2% from last year and declined 6% from the prior quarter.

Total banking revenues of $4.4 billion were roughly flat to last year and up 4% sequentially.

Treasury and trade solutions revenues of $2 billion were down 1% year over year on a reported basis.

In constant dollars, TTS revenues grew 5% from last year, as growth and deposit balances and spreads more than offset a decline in trade revenues.

This represents the sixth consecutive quarter that we've generated both revenue and operating margin growth in TTS on a year-over-year basis.

And while trade revenues continue to present a headwind this quarter, we see some early positive signs that spreads maybe stabilizing.

Both cash and trade revenues increased sequentially, up 3% in total.

Investment banking revenues of $1.3 billion were down 4% from last year, as higher M&A revenues were more than offset by lower underwriting activity as compared to a very strong second quarter last year, consistent with overall market trends.

Year to date, investment banking revenues are up 4%, driven by strong M&A results and we have gained overall wallet share versus 2014, particularly in North America.

Private bank revenues of $746 million grew 13% year over year, driven by strong growth in investments and capital markets products, as well as higher loan and deposit balances.

And corporate lending revenues of $445 million were down 2% on a reported basis.

In constant dollars, lending revenues grew 4% from last year, as higher volumes were partially offset by lower spreads.

Total markets and securities services revenues of $4.2 billion grew 4% year over year and declined 12% sequentially.

Fixed income revenues of $3.1 billion were down slightly from last year as continued strength in rates and currencies was offset by lower revenues in spread products.

Rates and currencies revenues grew by double digits year over year in the second quarter as investor-client activity and market volatility were improved versus last year.

G10 rates was the key driver of growth in North America in particular, as we saw strong client activity and a favorable trading environment offset by a small decline in G10 foreign exchange.

Local market rates and currencies grew modestly year over year, driven by our franchise in Asia.

In spread products however, activity levels declined versus last year in credit products in particular, resulting in lower revenues.

On a sequential basis, fixed income revenues declined 12%, driven by seasonal factors as well as lower rates and currencies activity as compared to a strong first quarter.

Equities revenues of $653 million were down 1% year over year and down 25% sequentially.

Our equities revenue this quarter included a charge of $175 million for valuation adjustments related to certain financing transactions.

And as of today, we have a remaining exposure with respect to these transactions of less than $100 million.

Excluding the adjustments, equities revenues would have increased by 26% from last year, driven by growth in derivatives, improved trading performance in EMEA and strong client moment in Asia.

In security services revenues were up 7% year over year and 3% sequentially reflecting increased activity and higher client balances.

Total operating expenses of $4.8 billion grew 2% year over year as higher regulatory and compliance costs were partially offset by ongoing efficiency savings and the impact of FX translation.

And credit was a positive in the quarter.

On slide 13 we show expense and efficiency trends for the institutional business.

Over the last 12 months our efficiency ratio was 57% including roughly 140 basis points attributable to legal and repositioning charges.

And our comp ratio was 27%.

We continue to expect to achieve a total ICG efficiency ratio closer to the midpoint of the 53% to 57% target range for the full year 2015.

Slide 14 shows the results for corporate/other.

Revenues were higher year over year and sequentially, driven mainly by gains on debt buybacks as well as real estate sales in the recent quarter, partially offset by hedging activities.

And expenses were down, mainly reflecting lower legal and related costs.

Slide 15 shows Citi Holdings assets which totaled $116 billion at quarter end, down 22% from a year ago.

We have continued to make great progress in winding down these assets.

During the quarter we closed the sales of our consumer businesses in Peru and Nicaragua.

And we have signed agreements to sell an additional $32 billion of assets, including our consumer businesses in Japan, Egypt, Costa Rica and Panama, as well as OneMain Financial.

On slide 16 we shows Citi Holdings financial results for the quarter.

Revenues of $1.7 billion declined by over $300 million from last year, driven by the reduction in assets as well as the impact of classifying our OneMain business as held-for-sale at the end of the quarter.

As I described earlier, as a result of the HFS accounting treatment, approximately $160 million of net credit losses were recorded as a reduction in revenue during the second quarter.

The HFS treatment had no impact on expenses, which declined 13% year over year, primarily due to the asset reductions.

On slide 17 we show Citigroup's net interest revenue and margin trends.

The bars represent net interest revenue per day for each quarter in constant dollars, showing a consistent growth trend year over year, even as the contribution from Citi Holdings has continued to shrink.

Our net interest margin increased sequentially to 295 basis points, driven by a higher than expected contribution from trading them, which can fluctuate quarter to quarter.

Excluding this impact, our net interest margin would've been closer to 291 basis points, and we expect to maintain roughly this level for the third quarter.

Looking to the fourth quarter, our results will depend in part on the timing of divestitures, including OneMain and our Japan retail business.

We estimate that without these businesses on a combined basis, our net interest margin would be lower by roughly seven basis points, before using any part of the associated gains to redeem high-cost debt.

We believe we can ultimately mitigates more than half of this NIM pressure through a combination of the upcoming debt redemption actions as well as the April acquisition of the Costco portfolio.

On slide 18, we show our key capital metrics on a fully implemented Basel III basis.

During the quarter our CET1 capital ratio improved to 11.4%, driven by retained earnings and DTA utilization.

Our supplementary leverage ratio improved to 6.7%, and our tangible book value grew to $59.18 per share.

In summary, we continue to make progress in the second quarter with revenue growth and positive operating leverage in Citicorp, lower legal and repositioning expenses and continued favorable credit trends.

For the first half of 2015 we are tracking well to our financial targets with a Citicorp efficiency ratio of 55%, a Citigroup ROA of 103 basis points and a return on tangible common equity of 10.5%.

Of course, we would expect our results to be stronger in the first half of the year, given the seasonality of our market's business, but for the full year we continue to expect to deliver a Citicorp efficiency ratio in the mid-50% range and a Citigroup ROA of over 90 basis points.

Finally, we ended the quarter with a strong capital position, improving our CET1 ratio to 11.4%, and our supplementary leverage ratio to 6.7%, even as we returned roughly $1.7 billion of capital to shareholders in the form of buybacks and the common dividends this quarter.

Turning to the second half of this year, we continue to expect modest revenue growth in Citicorp.

In consumer, in North America we expect continued underlying revenue growth in our retail banking franchise, although comparisons to the prior year will be impacted by certain one-time items that benefited our mortgage business last year, as previously disclosed.

And in North America cards, revenue will likely remain under pressure in the second half of the year, as it will take some time for our incremental investment spend to drive top-line results.

In international consumer we continue to believe we can generate revenue growth and positive operating leverage year over year in the second half of 2015.

driven by continued modest growth in Mexico as well as continued volume growth and abating spread headwinds in Asia as we begin to lap some of the spread compression and regulatory changes we absorbed last year.

Turning to the institutional franchise, we continue to see good momentum across corporate lending, treasury and trade solutions, security services and the private bank, which together generated 8% year over year revenue growth in the first half of the year in constant dollars.

Investment banking revenues will depend in part on the overall market, but we continue to feel good about the strength of our franchise, generating 4% year-over-year revenue growth in the first half, with overall wallet share gains versus 2014.

And finally, in markets we expect our overall performance to reflect the market environment with the goal of continuing to gain wallet share with our target clients.

In Citi Holdings we remain focused on winding down the portfolio while staying above breakeven.

As I described earlier, we have signed agreements for the sale of $32 billion of assets, virtually all of which we expect to close by year end.

And in particular, we continue to work towards a late third-quarter sale of OneMain Financial.

We expect credit costs to increase somewhat in the second half of the year, driven by loan growth as well as lower loan loss reserve releases.

And we expect to keep balance sheet discipline, staying at or below our current size.

And with that, Mike and I are happy to take any questions.

(Operator Instructions)

Jim Mitchell, Buckingham Research.

Good morning, guys.

Good morning, Jim.

Maybe we can talk a little bit about the expense trajectory from here.

You highlighted high regulatory expenses and some investments in US cards, but maybe you can kind of give us -- but you also haven't seen much of a decline in market expenses in the corporate bank yet.

Seasonally we should expect some decline in revenues, and then maybe layering on top of that, an update on where you are on a single operating platform in the global retail business and what that could mean for expenses longer term?

Thanks.

That's a mouthful, Jim.

That's all right, that's okay.

I'll try to take it one at a time.

As we've said, we're really focused on operating Citicorp towards an efficiency ratio, and so we're committed to operating Citicorp overall in an efficiency ratio in that mid-50% range for the year.

And so that's certainly near term, that's what you should expect us to do.

Regarding some of the items that you mentioned, I do think that as we get further into next year certainly we begin to see some of the regulatory costs growth, those trends begin to abate.

So we think that we're towards the end of that growth cycle.

But that's something really for a 2016 story.

I don't see that for the second half of this year.

As for everything else, we're focused on being the most efficient that we possibly can.

We've given you the efficiency targets for those different businesses.

And certainly in a different rate environment, we would certainly expect our efficiency performance to be even better.

But ex-rates you would say 55% is sort of your steady-state?

Yes we've said mid-50%s for this year.

Could we do something more?

Sure.

But you take a look at the progress that we've made already.

We're operating Citicorp at 55%, we're operating Citigroup overall with an efficiency ratio of 56%.

I'd say that to date we're certainly well ahead of what most of our peer institutions have being able to do.

So I feel pretty good about the work that we've already done.

And while we can continue, and we always will continue to get better, I don't know that we want to get much better.

We do want to make sure we've got enough powder to make important investments in those Citicorp businesses.

That's fair.

Maybe one just accounting question.

On the DTA, you used up $1.2 billion last quarter it seemed like that dropped to using up $300 million this quarter, yet it looked like North America net income was pretty similar to last quarter.

Why the balance?

Why not using more DTAs this quarter?

Well, the answer there is three initials, OCI.

When you take a look at what happened on the available-for-sale portfolio with some of the rate rise that we had, OCI ended up impacting us.

If you take a look at the contribution from earnings, the contribution from earnings on DTA was roughly similar to the first quarter.

Both Citicorp and Citi holdings combined to use roughly $800 million of DTA in both the first and the second quarter.

But the difference in the way the two quarters pan out really has to do with OCI.

Okay that's helpful.

Thanks.

Not a problem.

Glenn Schorr, Evercore ISI.

Thanks very much.

First one is just the timing and the puts and takes.

You mentioned OneMain being a late third-quarter hopeful.

Can the debt repurchase coincided with that?

How long of a delay there?

And then also Costco coming in?

I'm just more of timing the good guidance you've given us on the puts and takes on the NIM in the back half and going into next year.

Yes.

Glenn, what we're working to would be to do the best job we can of matching up the cost of the debt buybacks with the gain recognition on OneMain.

That's very much our focus.

And that's what we are going to try to do.

And then as far as Costco, as we've said, that contract is due to kick in April 1 of next year.

So that will be something towards the second quarter.

Great.

Look for clarification on the equities and the $175-ish million I think you said charge on the valuation side.

What were you financing?

Why does it get revalued?

I'm just curious of the mechanics.

I understand it is not going to repeat, I hope.

No, these are just financing transactions that result from the processing and funding of client trading activity, primarily in our prime brokerage business.

And the charge that I mentioned was related to a very limited number of financing transactions where we just felt it was necessary to adjust the value of collateral to reflect the current estimate of its liquidity characteristics.

Does that mean there's some realized losses related to PV balances?

No, no.

(Multiple speakers).

Actually don't see any.

No, no.

This is nothing to do with realized losses at all.

As a matter of fact, I would say that given what we know today based upon everything that we've got, what we've done is we've just took an appropriate and a pretty charge to revenues.

We continue to work with the parties involved, and so this still very much a work in progress.

As of today, all the promised payments have been made on schedule, and we anticipate that these financing transactions will be resolved, hopefully over the next several weeks.

And to your question, as long as the remaining scheduled payments are received, we will not realize a loss.

And therefore the charge that we've actually taken would actually be reversed back in revenue.

Good.

Here's the last one.

I thought given all the volatility in FIC and your EM heavy franchise, a local markets franchise, I thought the performance was good considering all the disruption late in the quarter.

I'm just curious, was there disruption late in the quarter?

And of the things that happened late in the quarter, have we seen a reversal of any of that so far in July?

I'd say we had a couple of periods of disruption during the quarter that we managed to work our way through.

And I think it's a little bit early right now to make comments on the overall tone of what trading will be for the balance of the third quarter, but we managed to work our way through a series of events.

All right.

Thanks a lot, John.

All right.

Brennan Hawken, UBS.

Good morning, John.

How are you doing today?

Just to clarify, you guys sort of adjusted the GCB target for the full year versus last quarter, but is there any impact to your target that you're shooting for to exit the year or does that still remain in the previous range?

No, what we would say is -- we haven't adjusted the target.

The target remains that we believe that that business should be able to operate in an efficiency ratio of 49% to 52%.

However, given where we are in this year, and given the fact that we do want to begin to put some additional marketing spend against US branded cards in the third and the fourth quarter, which we think is the right thing to do from a future top-line growth point of view, the overall efficiency ratio for the business for this year is likely to be slightly higher than 52%, somewhere in that 52% to 53% range.

We'll give you guidance on next year and where we expect that business to be when we're talking about the third or the fourth quarter.

Okay.

Thanks for that.

And I know that sequential quarter deltas can be somewhat difficult, but is it possible to provide some color on what drove the pick-up in Citicorp expenses quarter over quarter on a constant dollar basis, and maybe the quarter-over-quarter uptake in core efficiency for GCB?

Yes, most of the expense increase that we're seeing really has to do with pressure coming out of regulatory and compliance types of cost.

I think that's something you're probably hear throughout the industry at this point in time.

Okay and those regulatory and compliance costs are captured in the core expense as opposed to be considered legal and repositioning, right?

Absolutely.

Perfect.

They're in our core operating expense and everything is in our efficiency ratio.

Got it, got it.

And so is that why you guys highlighted on the expense front in international GCB that you had the uplift from volumes but you didn't see that translation into revenue?

Is that because of that regulatory headwind?

Well, that's not an expense headwind, but that is a different type of regulatory headwind.

As I think I've mentioned in the past, what happened in Asia, especially last year and it continues somewhat into this year, almost every country has passed some form of what the US did back in 2010 with the Card Act.

And so they've put in a series of debt caps in interest rate caps.

So those are headwinds that are impacting us on a revenue -- from a revenue point of view.

And we now believe -- we do believe that those spread headwinds are beginning to abate, particularly in the second half of the year as we lap the imposition of those new regulations.

But that's what is impacting us on the revenue line.

That's a little different from the other regulatory and compliance headwinds that we face on the expense line.

Okay, terrific.

Last question from me.

Thinking about holdings in the North American mortgage book.

As of last quarter about $24 or so billion of the $54 billion mortgage was second lien, which is my understanding that it is basically not marketable.

So I'm just kind of curious, of the remaining roughly $50 billion of mortgage that is first lien, how much of that do you carry the corresponding second lien on your balance sheet and therefore you probably wouldn't want to sell those mortgages to put yourself, kind of arb yourself negatively in the structure?

I just thinking about sizing, what's left to sell in mortgage?

Brennan, I don't have that particular figure either with me or in my head.

So I can't answer that question for you right now.

We do have, as you can see later in the deck, of the mortgage, the remaining $51 billion of mortgages, about $23 billion of that is home equity.

And as you can see, that's declining at a fairly steady rate of about $1 billion a quarter.

Obviously we're going through the reset period now.

2015, 2016, 2017 are the years where virtually about $13 billion or $12 billion of that portfolio go through rate reset, and the rate resets are performing well now.

What we're hopeful of is that the market begins to get a sense that the rate reset issue is not really a big deterrent.

That perhaps a market for home equity loans will open up, if not later this year then perhaps early or mid-next year.

And then that might give us the opportunity to work down those balances in home equity loans at an even faster rate.

Thanks a lot for all the color, John.

Not a problem.

Matt O'Connor, Deutsche Bank.

Good morning.

The color on the NIM in terms of OneMain and some of the offsets was helpful.

As you try and put it all together and think about the earnings impact and the capital impact of those three things OneMain, Costco, debt restructuring, any color there you can give us?

No, I really haven't put the whole capital impact story of each of those things into my head.

So I apologize for that.

Obviously, we're not doing -- OneMain is something that we've been focused on for some period of time.

So that is all part of the holding story and trying to continue to wind down Holdings.

So we would look at that as something as exiting what is really is a good business but one that just doesn't fit with our strategy.

And Costco, we continue to believe that that is something that will be accretive to next year.

So we feel well about that.

But I can't link the capital story for you of those three separate things.

I'm sorry, Matt.

Okay.

Or the earnings impact?

You said offset at least half the NIM drag, but obviously there is some credit costs and expenses and thinks like that, especially related to OneMain as well?

Yes, but OneMain -- again, OneMain is part of Holdings.

You know what we are trying to do with Holdings.

And our target for Holdings is to remain above breakeven.

OneMain certainly is a contributing, a significant contributor to Holdings' profitability, but it's by no means the only profitable business that exists in that portfolio.

And so we continue to believe that even with the disposition of OneMain, the earnings of the remaining portfolio plus the effect of the ongoing expense reductions as well as the continued retirement of high-cost funding, and we'll have other episodic gains and losses.

So we think that will enable us to maintain Holdings into next year at no worse than breakeven on an annual basis.

Okay.

And then just separately, within North America retail banking you mentioned the deposit spreads were improving and that was a key driver of the revenue.

What's driving the better deposit spreads?

Is that just mix or what?

What is that?

We've been, if you take a look at our overall focus on deposits, deposit quality and cost is something that we've been focused on for the better part of two-plus years at this point in time.

We see a definitive tradeoff as far as what you can do to be able to optimize your deposits.

When it comes to optimizing deposits, we look at both making sure that we are improving the liquidity value of the deposits as well as then optimizing the cost.

But there is a lot of situations where we're actually willing to pay more for high-quality deposits if it gives us the ability then to shed low-quality non-operating deposits.

This whole topic of non-operating deposits is something that, again, we've been focused on now for five, six quarters and we've been steadily driving down our non-operating deposits.

And that's benefited us both from a terms of a liquidity point of view, and I think from -- and our ability, then, to overall fund the franchise.

Okay.

Thank you very much.

Mike Mayo, CLSA.

With regard to your efficiency ratio, you're at 55% for Citicorp.

You mentioned the growth and some of the regulatory costs should abate next year, and you also said it should be better if and when interest rates go up.

So -- and you still have Project Rainbow.

Actually, if you could give an update on that.

So where should the long-term efficiency ratio go, and at what point would you think about being more aggressive with that target?

And again, at update on Project Rainbow?

Mike, I think a lot of, and John touched on it a bit, where we go with our efficiency ratio is going to be a function of the environment.

We would be pushing towards, in a raising rate environment, obviously we've talked about our sensitivity to rates and the impact in terms of revenues and our belief that we can get a lot of those revenues to the bottom line as rates begin to come up.

And so we've tried to be mindful.

We said when we set the mid-50%s, that was predicated on a kind of low to mid-single digit revenue growth environment, which has unfortunately prove to be the case.

As that revenue environment changes we would adjust our efficiency ratios if that -- again, trying to deliver positive operating leverage as a result of that.

And what about your ROA target?

You're at a over 100 basis points, the low end is 90 basis points.

At what point would you consider increasing that target?

I'm not saying to do away with concrete targets over a concrete timeframe, but for next year or long-term normalized, where should the ROA be?

Mike, let me jump in for a second because I think it's going to be hard for us to give long-term guidance as far as return on assets until we get more clarity around some of the regulatory rules that still need to be set, including especially the TLAC.

It's possible that all financial institutions including us might actually, as a result of TLAC, be forced to put on levels of debt that would serve no other purpose -- well not no other purpose, but certainly serve the purpose to end up grossing up our balance sheet, which could therefore inhibit any bank's ability to improve ROA.

So before we give longer-term targets on ROA, we'd like to see the rules under which we'll need to be operating.

And then going back to my earlier question, one factor that's more unique to you guys, Project Rainbow.

As you consolidate your systems, you think you'd have more efficiency gains from that unless you're going to reinvest some of the savings.

Where do you stand with that?

Rainbow continues on its path of implementation.

We continue to go live in countries around the world.

And as we've talked about historically, when we launched Rainbow, we launched it with the premise that it would be an expense saver for us, and in essence have rationalized the target on that.

What we've seen is a combination of not just expense saves, but also some revenue gains as we've got the system in place.

We've talked about from a timeframe perspective, we continue to roll it out and fund it organically.

And so work in progress, but the results so far are quite positive.

All right, thank you.

Thank you, Mike.

John McDonald, Sanford Bernstein.

This is actually [Greg Davino] on for John.

Hey, Greg.

Just had a nit-pick question on revenues.

The revenue in corp/other has jumped up a little the last two quarters, and I know you mentioned some gains.

So just if you talk a little bit about what level that might be a little more sustainable at?

Yes, I think that longer term, you'd probably expect corp/other revenues to be something in the $100 million to maybe $200 million range, somewhere -- maybe even $150 million to $200 million.

This is at somewhat higher levels are now.

And we noted the fact that it included some gains on the sale of real estate and continued debt buybacks.

Debt buybacks, the hedging activities, that's all that we would consider to be normal type of activity that can go into corp/other.

The sale of the real estate gains, and that generated about $140 million of gains this quarter.

So that's what I think you're really seeing as pumping up corp/other.

All right, that's helpful, thanks.

And just one more follow-up.

Looking at international consumer loan growth, it looks like trends are pretty good ex-Korea.

And just wondering sort of what your outlook was there?

For international consumer or for Korea?

I just want to make sure.

For international consumer more broadly.

Yes, okay.

Well again, we think that the drivers that we have in that business continue to reflect pretty well on the strength of the franchise.

So we would continue to expect to see both growth in deposits and average loans, and hopefully investment sales will continue.

Obviously investment sales are somewhat dependent upon the overall state of the markets.

And as I mentioned, we've gotten, in the current environment reasonable growth coming out of the retail banking piece of the franchise.

We had 3% revenue growth this quarter.

We need to get the cards franchise back contributing, and that's really more a matter of just being able to lap those regulatory changes and make sure then that we've really seen the abatement in the spread pressure that we've otherwise been facing.

Which is why we're more confident on the revenue growth of that franchise going into the second half of the year.

All right.

All right.

Thank you.

Not a problem.

Steven Chubak, Nomura.

Good morning.

Hi, Steven.

John, I have one quick question on capital.

I was hoping you could give us some insight or increment color on what contingency plans you might have in place if the Fed were to incorporate G-SIB surcharges in CCAR, just given that it could have a pretty meaningful impact on your return profile as well as your payout capacity?

Let me approach it this way.

One, if that were to happen, it would impact the entire industry, not just us.

So we'd really have to take a look at what the entire industry response is.

Secondly, it will depend upon what G-SIB surcharge they were to add to the CCAR requirements.

I don't know how the G-SIB surcharge will be calculated.

I guess we'll all find that out Monday, and that should be informative.

If they give us the -- if they come up with a G-SIB surcharge that we can actually manage, and therefore take effective actions against, then certainly part of our action plan would be to really focus on managing down our G-SIB surcharge.

Thirdly, if they were to add the G-SIB surcharge into CCAR, I don't know what changes they might also make in the CCAR process itself.

Don't forget, some of the things they build into CCAR, such as the market shock, actually serves the purpose of putting more stress on the larger institutions already.

So you would take that if they were going to put the pressure on the capital, then to be fair they might take some of the pressure off the CCAR calculations themselves.

There's a lot that is unknown about what may happen.

And so contingency plans at this point in time are somewhat dependent upon the scenario in which we're ultimately dealing.

Understood.

I appreciate that color, John.

And maybe just one more nit-picky question on DTA.

I did appreciate the color you've given surrounding the AOCI impacts weighing on the pace of consumption.

But just wanted to get a sense as to what drove the increase in the net operating losses, just given AOCI hits are typically a timing DTA issue, and it did increase by north of $500 million, which is not immaterial?

No, No, no, no, you're absolutely right, Look, that roughly $500 million-plus increase that you see in the back of the investor deck during the second quarter was actually caused by a $900 million increase in state and local net operating losses.

That all resulted from audit settlements that we concluded during the quarter.

So that influx of the state and local NOLs was partially offset by the utilization of roughly $500 million of FTCs in the quarter.

And the difference has to do with general business credits.

But the NOLs that we added in as a result of the audit settlements have got a 20-year life on them.

So we've got every confidence in the world that we're going be able to generate use of that $900 million of NOLs.

And importantly the FTC's that we're utilizing are the FTC's that will actually have near-term expiration dates in 2017 and 2018.

Okay.

Thanks for clarifying that, John.

And thanks for taking my questions.

Not a problem, Steven.

Betsy Graseck, Morgan Stanley.

Hi, good morning.

Hey, Betsy.

Just a follow-up question on the expense ratio, and just a little bit of a different angle on asking about the consumer where you indicated that for the near term the expense ratio would rise as you're reinvesting in the business.

I noticed you didn't change the overall Company expense ratio.

So just wanted to see if what you're saying is you've got other cost saves even further ahead of plan happening elsewhere in the organization that's funding this investment spend in consumer?

Or you're saying, look we see good payback, relatively good timeframe, and as a result we're just going to let this rise up a little bit as we're reinvesting and we'll get it back next year?

Yes, I'd say it's some combination of all of that, Betsy.

When we take a look at trying to manage Citi, overall Citi, to an efficiency ratio it's very much as you say.

We've got several things to look at.

The performance of the ICG, which from an expense point of view and efficiency ratio point of view this year has been quite good.

We've got consumer, which has made great progress on its expenses.

But with the performance of the ICG and the performance of other things that we see in some of the staff functions, we feel that we've got a little room then to let consumer run this year at slightly higher efficiency ratios and still bring the full Firm in at our overall target.

And we think that letting consumer go a little bit higher in this year, especially because of some higher levels of marketing and investment spend, we'll actually then have much better payoffs in the future.

Exactly as you outlined.

And so when you're thinking about where you're putting your [expensal] dollars to work, is US consumer the best place right now?

Well we're very focused on US branded cards.

We think that US branded cards is an excellent business, and consumer overall we think gives us excellent returns.

We obviously have a lot of things going on with Rainbow and what-not.

So you don't want to overload activity into any one area.

But focusing specifically on branded cards, we think that there's good payback to be gotten from branded cards.

As a matter fact, with all the investment that we've made in order to -- I think that Jud and his team have done a great job as far as completely restacking the product offering that we have in US branded cards.

In order to get the maximum out of the work that they've done, we need to put a little bit more marketing dollars at work.

And then just lastly on card, you indicated that you're likely to get back some of the NIM compression from some of -- from the exits in part from portfolios like Costco.

Understanding that there some other portfolios out there that could be of interest to you, could you just give us a sense as to how you're thinking about what kind of financial hurdles and goals you have in mind when you're looking at portfolios for purchase?

Well we look at each portfolio standalone.

We understand the targets that we're working towards.

And it's not just a matter of looking at a portfolio and seeing, does it make economic sense?

It has to be a portfolio that really fits in with the business.

That's one of the reasons why Costco was so attractive to us, just because of the incredible client strength that they bring, and it meshes in very well with the client profile that we're looking at.

So for us, Costco was a natural fit.

Other portfolios may not have that same good client mix.

Okay, thanks.

Erika Najarian, Bank of America.

Hi, good morning.

Good morning.

Morning.

My question is on how your best-in-class capital ratios, particularly on leverage, is impacting your client conversations in markets?

Do get a sense that some of your competitors that have, for example, a much lower SLR, and therefore have less balance sheet to give, are being less aggressive with -- in terms of competing in markets, or not really?

Is competition really as fierce as ever, and the leverage ratio differences aren't really making an impact?

Erika, it's Mike.

I would say that competition is fierce.

I'm not going to dismiss that, but we don't have some of those same constraints.

And I would say we probably see it more pronounced in Europe where the European banks by and large are constrained by their leverage ratios.

And I think we've being able to consistently be in front of our clients and smartly trying to use our balance sheet with them, which obviously drives the ancillary revenue.

So we have seen that and have tried to take advantage of that as an opportunity.

Got it.

And just a follow-up question.

John, the way you sort of answered Steven's G-SIB question on the CCAR, I'm assuming also that until we get final rules on TLAC we won't see you guys legging in on any particular issuance ahead of having the rule finalized in the US?

No, we're continuing to do debt issuance, if that's your question.

Obviously, we've -- matter of fact, when you take a look at the amount of preferred and the amount of debt that we issued last quarter, I'd say it was quite substantial.

We issued roughly, not roughly.

We issued $2 billion of preferred, we did $3 billion of sub-debt, and we did $5.5 billion worth of senior debt.

So we did $10.5 billion worth of issuance last quarter.

Now of course we also bought some debt back.

But overall, we were a net issuer of $8 billion-plus worth of offerings.

And based on your understanding of the proposals, could you give us a range on what your TLAC is at the end of the quarter, the TLAC ratio?

Well, we'll give you more guidance on that next week when we do the fixed income call.

But the numbers that I've seen would suggest that our TLAC ratio now is a -- inched up a little bit over where it was last quarter.

I think we're at 21.3% as of the end of June.

But we'll firm up all those numbers for you when we do the fixed income call next week.

Got it.

Thanks so much.

Not a problem.

Matt Burnell, Wells Fargo Securities.

Good afternoon, gentlemen.

Thanks for taking my calls -- my questions.

John, just a question on the US branch system.

That's down about 15% year over year.

However, you've got sort of expense reductions, at least reported expense reductions down about 3% year over year.

Is there more to go in terms of the US branch count, or are you pretty much done with that?

I'd say we're pretty much done.

There is still probably some slimming that we could do as far as completing the focus of the branches on the seven focus cities.

I think we're a little over 90% now of branches that are in our seven focus cities.

So there could be some additional, but I think also importantly there's probably some case to be made for opening up some additional outlets in some of those cities as well, just to make sure that we've actually got the proper coverage.

Now, I use the term outlet as opposed to branch because I'm not sure that in the future every outlet that we open will look like one of the branches that are out there today.

It is much more likely that the branches of the future will be somewhat smaller in line with the fact that many more of our customers are transacting with us by alternate means, using mobile banking and the Internet.

and then for my follow-up, just a question on your comment in terms of investment banking taking market share.

It sounds like you were taking more market share in North America, perhaps, than -- at least in this quarter than you did outside the US.

Is that also true in the markets business?

Because a number of other banks this quarter have implied that they continue to get market share, at least on the market side of the equation, outside the US to a greater degree than they are getting it in -- within the US.

You take a look at market or wallet share on any individual quarter, we try to look more at market share in longer-term trends.

We are continuing to add market and wallet share, especially against our focus clients in both investment banking as well as with our markets business.

And we see that as a strength of our franchise.

But I can't tell you whether we actually took market share in a particular business during the quarter.

I don't track it quarter to quarter.

I tend to look at more trends on a trailing 12-month basis.

Finally, the 26% increase in equity markets if we exclude the valuation adjustment, how much of that was the results of improved activity in Asia?

A very good piece of it stemmed from Asia.

Asia was one of our -- a primary engines for growth.

I don't have the percentage in my head, but it was the primary driver.

Great.

Thanks very much, John.

Not a problem.

Eric Wasserstrom, Guggenheim Securities.

Thanks very much.

John, just a couple of clarification questions, please.

One, I just wanted to make sure on the efficiency guidance for GCB, was that new guidance than what you'd previously stated?

I believe it was.

Okay.

I'm sorry, could you just repeat that?

(Multiple speakers)

Previously, just to be clear, I believe that when I spoke last quarter we would have said that we thought that GCB would have end the year with -- or have an efficiency ratio for the full year near the top end of the range that we had set out, the 49% to 52%.

But with some of the incremental spend that we're looking to do, particularly in US branded cards, that's going to knock that just slightly above.

So that's why I wanted to make sure that you were aware of the fact that it's likely to end -- have for the full year an efficiency ratio slightly above where I would have said it the last time.

Great, thanks for clarifying that.

And just on the debt repurchases and the debt issuance that you went through with Erika a moment ago, were those consistent with the plan for this year or are they -- is the plan different than the one that we talked about last quarter?

No it's consistent with the plan.

I mean, we may have pulled forward some of the issuance into the second quarter that we otherwise would have planned to do in the third quarter.

But we're still on our plan and we'll have more to say about debt issuances on Tuesday.

Sure.

And the pull forward presumably was because of rate and market opportunity?

We had the opportunity to do some larger amounts than we otherwise would have, given on the heels of certainly the first quarter results that we had.

And I think you've seen kind of continues with the second quarter results.

We found a favorable market for our debt.

And we didn't want to disappoint any investors.

Great.

Thanks very much.

No problem.

Gerard Cassidy, RBC.

Thank you.

Hi, John.

John, can you remind us, putting off to the side for a moment the possibility of G-SIB being included in CCAR, can you remind us with the binding constraint on the capital ratio, which ratio you guys are looking at as that binding constraint?

Right now if the G-SIB surcharge comes in at the 400 basis points that we would currently estimate it to be, it's sort of running neck and neck between the CET1 ratio, including the G-SIB surcharge and what we would look at as far as the CCAR requirements.

And that is somewhat dependent upon the scenario that you might get out of CCAR, et cetera.

But it's pretty much neck and neck CET1 with G-SIB and CCAR.

Okay.

Thank you.

You've talked about growing the card business and you've had success with acquisitions, and now you're putting more muscle into growing that business organically.

If -- as you go on the offense from the defensive position you've been in in the past, are there other areas you guys are looking to grow possibly through acquisition separate from cards?

I would say that when we think of acquisitions, as John spoke earlier, it would need to be very much in strategy.

And it would be probably much more biased towards portfolios rather than business acquisitions.

So again, around our framework fitting in business and having the right accretive attributes, we're wide open to portfolio purchases.

And then my final question.

Overall credit continues to improve for you folks and the industry, but I did notice that in the nonaccrual area or in corporate, North America sequentially had a jump in your nonaccruals whereas Latin America, significant improvement.

Can you give us some color on both of those line items?

Yes.

Let's start with the Latin America line item.

That really reflects an asset sale that we had done.

So we actually exited a nonaccrual loan during the quarter.

So that -- you see that reflected in bringing down the nonaccrual loans in Latin America.

And then as far as the increase in nonaccrual loans in North America, that's largely driven by some additional classifications of nonaccrual loans coming out of our energy portfolio.

And was that as a result of the shared national credit examiner, I assume?

Or no, it was something separate?

It certainly is in connection with the shared national credit.

We had decided to classify a good portion of those loans as nonaccrual.

And then what happens -- let's leave it like that.

But again, so from an overall energy exposure point of view, our energy exposure actually declined during the quarter as far as the exposure that we have to the producer type of client.

Other than that we added to the energy exposure in what we'd consider to be more the high-grade energy processors as far as our multinational clients.

So we saw an overall increase in the energy exposure but a decrease in the exposure that we have to the exploration type of client set.

Great.

Thank you.

Not a problem.

Brian Kleinhanzl, KBW.

Great, thank you.

Yes, most of my questions have been answered.

I just have one follow-up question related to the North America cards and the additional investment spend.

When you think about it from a receivables point of view, when you have the additional investment spend what are the expectations around receivables growth?

Said differently, is that investment spend needed just to stabilize receivables?

Are you expecting growth above and beyond what you have already, because from 1Q to 2Q saw 8% growth annualized.

So are you looking to get even further beyond that with an additional investment spend?

I'm not quite sure about that 8% number that you referenced.

That doesn't quite ring with me.

But we would expect, then, that the incremental market, when you're thinking about cards, it is somewhat of a time sensitive process.

And so when you spend marketing dollars, the first thing you're doing is you are acquiring accounts.

Then you make those accounts active.

Then those accounts get into spending.

And then from that spending, you end up growing receivables.

So marketing dollars spent today are likely to be growing receivables more in the 2017 range than early on in 2016.

So it's not a case of you just add marketing dollars and you suddenly sprout receivables.

Great, thank you.

Not a problem.

David Hilder, Drexel Hamilton.

Thanks very much.

Just a quick question on the Citi Holdings assets.

I think you said that Citi Holdings is in a 6% of total assets, and it looks like from the footnote it's more like 13% of your risk-weighted assets.

So it looks like the risk-weighted assets in Citi Holdings are not coming down as fast as total assets.

Do you think that kind of relationship will continue?

And as it related to any particular type of asset in Citi Holdings?

Well when you take a look at Citi Holdings in particular, as we got out of the riskiest assets in Citi Holdings early on, we were very focused on making sure that we got out of the most risky assets in Citi Holdings.

That rate of relationship between risk-weighted assets and GAAP assets in Citi Holdings has been steadily declining.

So we've got now $116 billion worth of GAAP assets sitting there in Citi Holdings.

The RAP assets, the risk-weighted assets, associated with Citi Holdings earned $169 billion.

So David, we've been de-risking the Holdings portfolio all along, and so there isn't a big multiplier affect anymore associated with that Holdings asset.

Within that $169 billion, $49 billion of the risk-weighted assets are there for operating risk.

So it's really $120 billion worth of credit and market risk RWA associated with $116 billion worth of GAAP assets.

So it's virtually a 1 to 1 relationship at this point in time between credit and risk, market risk weighted assets and GAAP assets.

Great.

Actually the reference or explanation on operating risk is actually quite helpful.

Thanks very much.

Very happy to help you.

Marty Mosby, Vining Sparks.

John, I was very curious in your comment, most of the banks are getting asked about SIFI and the inclusion into CCAR.

The analysis that we have done, there was some talk about countercyclical buffers at the very beginning of this going into SIFI.

If you look at the countercyclical buffer average for the money center banks, 2.5%, the credit losses and CCAR average 2.7%.

If you look at the SIFI buffer average for the money center banks as it looks right now, it's around 3%.

If you look at operational losses, it's actually 3.1%.

So your concept of, well if they throw the overall SIFI buffer into CCAR then they'd had to make some adjustment to operational losses, I think I just was going to ask you to kind of think about that and expand on that concept?

Yes, I wasn't focused so much, Marty, on operational losses, but there are other aspects of CCAR such as the market risk shock that we all go along with.

That market risk shock is really targeted against the major banks.

And because the way that that market risk shock actually impacts the banks, there is a doubling-up affect on PPNR reduction and market risk shock.

It is something that it is known by, I guess, CCAR aficionados.

And so again if there was going to be some add-on to the, I'll call it the denominator, the capital, the, I'm going to say hope or my thought process, would be that we could explore some reduction, then, in some of the add-ons that go into generating the losses.

But I agree with you, it wouldn't be operational risk.

It's really just in the way that the CCAR calculations are done and the scenarios are constructed.

Just I'm saying that it would be coincidental that these buffers are almost equaling the losses in CCAR.

And then when you look at the non-money center banks they have very little operational loss at all, and they don't have any SIFI buffer.

It's just the parallel calculations seem to be more than just trivial.

Maybe.

I don't have any insight into how the Fed has come up with some of their models.

But I am sure they are quite good at it.

The last thing I was going to ask you is, and I appreciate the time.

As you look at your tangible book value, without these extra charges because you've had a lot of that already reserved and who knows what's ahead, but let's assume less is ahead versus what we've seen in the past.

Your ability to repurchase at or below tangible book value and the returns improving growth this quarter are annualized and tangible book value is about 8%, it just seems like that acceleration could continue into the future, and just wanted to see your thoughts on that?

Thanks.

Well, we agree with you that we do think that over time we had the ability to grow tangible book.

Obviously as I mentioned before, one of the items that you are always focused on with tangible book is the impact of rates on your AFS portfolio.

And you've seen that there are times when that can have play a heavy hand in dampening down that growth.

We do believe that if we can continue to perform, and we should, the way we have been, we have the opportunity to continue to grow tangible book.

It's one of the reasons why we think that continuing with stock repurchases is the right thing to do from a capital return point of view.

Thanks again.

Not a problem.

Christopher Wheeler, Atlantic Equities.

Yes, good morning, gentlemen.

David Hilder set my question up very well, given he is an old colleague of mine.

And that's to do with the rundown of Citi Holdings and how that impacts risk-weighted assets, because you mentioned the $34 billion which you have basically got baked in.

And you just touched on the relationship between the GAAP assets and the RWA.

So if we were to be looking at what is going to happen to the $1,279 million -- billion, rather of RWA you had fully phased at the end of the second quarter, obviously I would imagine that a minimum would be $34 billion coming off that pro forma.

And I suppose the question I'm asking is, how much more might come off in respect of the [uplift] between the GAAP assets and RWA?

And also perhaps how much you think you might use in actually growing the business during that period?

Thank you.

Thank you, Christopher.

Let me try to parse through some of those questions.

First just to be clear, the assets that we've got under contract is $32 billion.

I think I heard you say $34 billion.

I think that's just me.

Too many bank results obviously in the last few days.

Sorry, I don't mean to add to your numbers issues.

But I just wanted to make sure that you were focused on the $32 billion.

The second is that as much as I said that overall there's virtually a 1 to 1 relationship between credit and market risk RWA and GAAP RWA, that obviously is not the same with each asset that we have.

And included in that $32 billion worth of assets that I mentioned, of course is the sale of our Japan retail bank.

And our Japan retail bank would be one of those situations where the RWA associated would actually be much less than the GAAP assets.

So I can't guide you to how much RWA is associated with the overall $32 billion, but I wouldn't immediately jump to the conclusion that the $32 billion is 1 for 1 reduction in RWA.

And John, the piece I would add to that is from an expectation perspective, John mentioned the $49 billion of assets associated with operations.

As assets come down, you can't simply release the ops RWA.

It's going to take time to work through that.

So you should expect to see as a percentage of Holdings RWA as we reduce assets, that ops piece continuing to grow.

Or stay the same.

(Technical difficulties) a percentage of growth.

Okay.

Thank you very much.

That's really helpful, thank you.

Not a problem.

And at this time, there are no further questions.

Great.

Thank you all for joining us.

If you have any follow-up questions, please feel free to follow up with Investor Relations.

Thank you.

Ladies and gentlemen, that concludes your conference for today.

Thank you all for joining.

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