St Petersburg Graduate School of Management June 6, 2008 Michael Klein Chairman of the Institutional Clients Group Vice Chairman, Citi.

St Petersburg Graduate School of Management

June 6, 2008

Michael Klein

Chairman of the Institutional Clients Group

Vice Chairman, Citi

The Headlines Tell The Story…

“The Collapse of Major Investment House: Symbol of Wall St. Era Is Dismantling”

“Facing Unfortunate Facts; It’s Time to Separate the Recession from the Euphemisms”

“Middle East Investor Buys Major Stake in U.S. Bank”

“Leveraged Buy-Out Funds Are High-Fliers No Longer”

“Anti-LBO Bill Introduced in Congress”

The Agency was Starting to Detect Problems in Bank Lending to Highly Leveraged Companies”

“The Market for Bank Debt is in Complete Disarray”

– New York Times, 1990

1990

– Washington Post, 1991

– The Associated Press, 1991

– Wall Street Journal, 1990

– Reuters, 1990

– OCC, 1989

– ML, 1990

1

The Markets Have Been Declared Dead

Total GDP Growth

Equity Market (DJIA)

M&A Activity

But some companies, firms and business models did not survive.

2000-2007

41%

319%

905%

3,194%

1990-2000

69%

240%

662%

1,383%

.. And Reborn Many Times

Leveraged Finance Issuance

2

How The Markets Have Changed

2H 07: Markets Seized

H1 08…? Drought

Credit Contraction RecessionIlliquidity

… Through Summer ’07:Liquidity Wave

3

A Decade of Financial Wealth

Per Capita Income Equities Real Estate

Commodities Derivatives Art

8000

9000

10000

11000

12000

2003 2004 2005 2006 2007

700

1000

1300

1600

2003 2004 2005 2006 2007

900

1300

1700

2100

2500

2900

2003 2004 2005 2006 2007

1500

2000

2500

3000

3500

4000

2003 2004 2005 2006 2007

100

270

450

516

0

100

200

300

400

500

600

2001 2005 2006 2007

Source: Factset, EIU, Reuters, Citi Research, ArtnetNote: Per Capita Income Global, Equities: S&P 500, Real Estate: FTSE EPRA/NAREIT Global, Commodities: Moody’s Commodity IndexDerivatives: Citi Wedge 2007 dollar amount in trillions.

50

60

70

80

90

2003 2004 2005 2006 2007

4

Globalization And Liquidity

The Three Waves Of Globalization

• Investment Grade Emerging Market Sovereigns

• Local / Global Bonds

• Local / Global Banks

• EM Equity Markets

Regulatory Technology Capital

• Personal Computers / Networks

• Internet

• Mobile Phones

• Wireless

• WTO

• NAFTA

• EU

• CAFTA

5

The Liquidity Cycle

Liquidity Cycle

Global Economic Transition

Robust Growth

New Capital Flows

Excess Liquidity

Reach for Yield

6

$81

$583

$3,935

$6,995

$0

$2,000

$4,000

$6,000

$8,000

1980 1990 2000 2007

Unprecedented Liquidity

Source: Dealogic & BIS.

$34

$95

$516

$0

$100

$200

$300

$400

$500

$600

1980 1990 2000 2007

US$ in Billions US$ in Trillions

Equity & Debt Issuance Value of Outstanding Derivatives

7

Three Main Drivers of Global Liquidity

GlobalLiquidity

Economic Industrial New Engines

Commodities-Driven Sovereign Reserves

Financial Entrants

8

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Starts

Sales

Source: US Census Bureau.

(Units in 000s)

U.S. Housing

Mortgage market at $11T equals GDP.

Liquidity Evaporates Triggered by Housing and Leverage

Subprime Lower Grade Securities Pricing

Subprime is less than 10%.

3%

13%

23%

33%

43%

53%

63%

73%

83%

93%

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08

ABX BBB 07-1

9

-30%

-35%

-69%

-81%

Equity

M&A Ann.

Lev Loans

Corp HY5

10

15

20

25

30

35

40

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08

Vix

Contagion Spread Through The Financial Markets

Source: Citi, Bloomberg, SDC

Asset-Backed Commercial PaperFixed Income Markets

Significant Market Volumes Decline Y-o-YEquity Volatility

400

500

600

700

800

900

1,000

1,100

$1,200

2005 2006 2007 2008

ABCP ($b, O/S)

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08

LIBOR - 3 Month

10

Impacted Many New Markets

Sub-Prime Mortgages

Leveraged/ Liquidity Loans

Commercial Paper

Bank Balance Sheets

Equities Decline

TBD…

SIVs

Subprime CDOs

Monoline Insurers

Auction Rate MarketConduits

Derivatives

11

Pre-Tax % of 2006Firm Total Losses TBV

IKB Deutsche $8.9 492.1%UBS 38.2 134.7%Merrill Lynch 31.7 94.8%Citigroup 40.9 58.9%CIBC 4.1 52.4%Washington Mutual 8.3 49.2%Morgan Stanley 12.6 40.9%Credit Suisse 9.6 36.5%Royal Bank of Scotland 15.2 29.2%Credit Agricole 6.4 27.6%Bank of America 14.9 27.4%Bear Stearns 3.2 27.2%Deutsche Bank 7.6 23.9%Wachovia 7.0 23.6%Lehman Brothers 3.3 22.4%ABN Amro 2.4 20.3%HSBC 12.4 17.5%JPMorgan Chase 9.7 17.4%HBOS 5.9 16.8%Fortis 3.7 15.3%Mizuho Financial Group 5.5 13.9%Societe Generale 4.0 13.2%Barclays 3.2 13.1%Goldman Sachs 3.0 11.1%Natixis 1.9 9.8%Dresdner 3.4 7.0%Others 56.3

Total $323.3

Enormous Capital has been Drained out of the System…

Source: Bloomberg (May 9, 2008).

Virtually all caused by mortgage exposure.

Cumulate Losses Since Beginning of 2007 to Date

12

Enormous Capital has been Drained out of the System

Banks & Brokers

U.S Commercial Paper Market

Structured Finance / ARS Market

Other

(~$1,000 Billion)

?

Source: Bloomberg, Federal Reserve, Dealogic, Citi estimates.

Post-TaxLosses Leverage Loss of Liqudity

Banks ($137) 15x ($2,048)

Brokers ($74) 30x ($2,209)

Total ($4,257)

July '07 Current Decrease

$2,187 $1,822 ($365)

~$5.6 trillion

13

Broker-Dealers and Banks’ Financing Costs Exploded5 Year CDS Spreads

January ’06 to December ‘06

5

105

205

305

405

505

605

705

805

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08

GS BSC JPM MER C LEH MS

0

50

100

150

200

250

300

350

400

450

500

Jan-06 Apr-06 Jul-06 Oct-06

January ’07 to July ‘07

0

50

100

150

200

250

300

350

400

450

500

Jan-07 Apr-07 Jul-07

August ’07 to Current

0

50

100

150

200

250

300

350

400

450

500

Aug-07 Nov-07 Feb-08

14

Financing Markets are a Balance of Power

Central Banks

Universal Banks

Brokerage Firms

CapitalMarkets

Investors

In Times of Stress, the Power Moves to the Central Bank

•Substantial liquidity from Central Banks•3.25% cut to discount rate•Unique use of Fed discount window•Bear bailout•Mortgage commitments approaching $500B

15

Company Capital Raise

$17.0 Billion

$13.1 Billion

$10.5 Billion

$10.0 Billion

$9.7 Billion

Investors Have Essentially Replenished the Near Term Gap

Company Capital Raise

$44.1 Billion

$43.7 Billion

$23.3 Billion

$17.4 Billion

$17.9 Billion

Total Capital Raised of over $275 Billion /

Total Funding of $700 BillionSource: Bloomberg (May 9, 2008).16

$3.0

$12.0

2007 2015

Sovereign Wealth Funds: Competitors or Partners?

SWFs Are Projected to Grow Significantly(in Trillions)

SWFs are Big and Getting Bigger ($ T)

$48.1

$23.6

$5.4

$3.0

$1.9

$1.3

$7.5 - $12.0

Asset ManagementIndustry AUM

Retirement FundsAUM

ProjectedSovereign Wealth

Funds

Foreign ExchangeReserves

Sovereign WealthFunds

Hedge Funds AUM

Private Equity AUM

17

SWF Capital Can Reshape Global Economic Landscape

Source: Warnock and Warnock: “International Capital Flows and US Interest Rates,” NBER 12560, Oct 2006. McKinsey Global Institute: “The New Power Brokers: How Oil, Asia, Hedge Funds and Private Equity are Shaping Global Capital Markets,” Oct. 2007. Estimates of SWF capital inflow effects based on historical relationship between GDP growth and FDI, as estimated by Carkovic and Levine

(2005), “Does Foreign Direct Investment Accelerate Economic Growth?”.

Purchasing Power Reduces Cost of Treasuries by 130 bps

If SWFs Primarily Invest in US, Growth Increases by 1/3

At Oil Prices of $100/barrel, Incremental $2.5 bn Investment into World Markets per Day

18

MSCI EM

0

250

500

750

1,000

1,250

$1,500

2003 2004 2005 2006 2007 2008

The Four Dichotomies Since the Dislocation BeganUS vs. InternationalFinancial vs. Real Economy

Debt vs. Equity The Great Emerging Markets

US GDP Growth

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2003 2004 2005 2006 2007

Source: Factset, Dealogic, IMFReports

All are Converging.

S&P 500

0

250

500

750

1,000

1,250

1,500

$1,750

2003 2004 2005 2006 2007 2008

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2006 2007 2008E 2009E

US Euro Area Emerging Market

19

Trends that Matter

New Capital Flows

New Capital Flows &

Disintermediation

Regulatory Change

Energy/ Commodities

Emerging Markets

20

© 2008 Citigroup Global Markets Inc. Member SIPC. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.

IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby ("Transaction"). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor.

Any term s set forth herein are intended for d iscussion purposes only and are subject to the final term s as set forth in separate definitive w ritten agreem ents. Th is presentation is not a com m itm ent to lend, syndicate a financing, underwrite or purchase securities, or com m it capita l nor does it ob ligate us to enter into such a com m itm ent. N or are we acting in any other capacity as a fiduciary to you. By accepting th is presentation, subject to applicable law or regulation, you agree to keep con fidentia l the existence of and proposed term s for any Transaction.

Prior to entering into any Transaction, you should determ ine, w ithout re liance upon us or our affilia tes, the econom ic risks and m erits (and independently determ ine that you are able to assum e these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In th is regard, by accepting th is presentation, you acknow ledge that (a) we are not in the business of providing (and you are not re lying on us for) legal, tax or accounting advice, (b) there m ay be legal, tax or accounting risks associated w ith any Transaction, (c) you should receive (and re ly on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior m anagem ent in your organization as to such legal, tax and accounting advice (and any risks associated w ith any Transaction) and our d iscla im er as to these m atters. By acceptance of these m ateria ls, you and w e hereby agree that from the com m encem ent of discussions w ith respect to any Transaction, and notw ithstanding any other provision in th is presentation, we hereby confirm that no participant in any Transaction shall be lim ited from d isclosing the U .S . tax treatm ent or U .S . tax structure of such Transaction.

W e are required to obta in, verify and record certa in inform ation that identifies each entity that enters in to a form al business re lationship w ith us. W e w ill ask for your com plete nam e, street address, and taxpayer ID num ber. W e m ay also request corporate form ation docum ents, or other form s of identification, to verify in form ation provided.

Any prices or levels contained herein are pre lim inary and indicative only and do not represent b ids or o ffers. These indications are provided solely for your in form ation and consideration, are subject to change at any tim e w ithout notice and are not in tended as a solic ita tion w ith respect to the purchase or sale of any instrum ent. The inform ation conta ined in th is presen tation m ay include results o f analyses from a quantitative m odel which represent potentia l fu ture events that m ay or m ay not be realized, and is not a com plete analysis of every m ateria l fact representing any product. Any estim ates included herein constitute our judgm ent as of the date hereof and are subject to change w ithout any notice. W e and/or our a ffilia tes m ay m ake a m arket in these instrum ents for our custom ers and for our own account. Accordingly, we m ay have a position in any such in strum ent a t any tim e.

A lthough th is m ateria l m ay contain publicly available inform ation about C iti corporate bond research, fixed incom e stra tegy or econom ic and m arket analysis, C iti policy (i) prohibits em ployees from offering, d irectly or indirectly, a favorable or negative research opin ion or offering to change an opinion as consideration or inducem ent for the receipt of business or for com pensation and (ii) prohib its analysts from being com pensated for specific recom m endations or v iews conta ined in research reports. So as to reduce the potentia l for conflicts of in terest, as well as to reduce any appearance of conflicts o f interest, C iti has enacted polic ies and procedures designed to lim it com m unications between its investm ent banking and research personnel to specifica lly prescribed circum stances.

efficiency, renewable energy & mitigation

In January 2007, Citi released a Climate Change Position Statement, the first US financial institution to do so. As a sustainability leader in the financial sector, Citi has taken concrete steps to address this important issue of climate change by: (a) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of alternative energy, clean technology, and other carbon-emission reduction activities; (b) committing to reduce GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (c) purchasing more than 52,000 MWh of green (carbon neutral) power for our operations in 2006; (d) creating Sustainable Development Investments (SDI) that makes private equity investments in renewable energy and clean technologies; (e) providing lending and investing services to clients for renewable energy development and projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with a broad range of stakeholders on the issue of climate change to help advance understanding and solutions.

Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.