v. - Amazon S3s3.amazonaws.com/propublica/assets/docs/sec_citigroup...23 Transcript Excerpts ofthe February 23, 2010 Testimony of Kavita Mahtani 24 Transcript Excerpts ofthe May 20,2010

Case 1:10-cv-01277-ESH Document 16-2 Filed 09/08/10 Page 1 of 78

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

SECURITIES AND EXCHANGE COMMISSION,

v.

CITIGROUP INC.,

Plaintiff, Civil Action No. 1:10-cv-01277 (ESH)

Defendant.

APPENDIX OF EXHIBITS TO THE MEMORANDUM OF PLAINTIFF SECURITIES AND EXCHANGE COMMISSION IN RESPONSE TO

THE COURT'S ORDER OF AUGUST 17,2010


INDEX

Exhibit Description

1 Details on "Senior Management" and "IR Personnel" References in Complaint

2 April 2007 Overview of Subprime Exposure in the Global Structured Credit Product Business

3 Excerpts from the July 10, 2007 Second Quarter Earnings Review

4 July 2007 Overview of Subprime Exposure in the Global Structured Credit Product Business

5 Transcript of Citigroup July 20, 2007 Earnings Conference Call

6 Transcript of July 27,2007 Citigroup Fixed Income Investor Review Conference Call

7 August 31, 2007 E-Mail Chain

8 Super-Senior Valuation and Potential P&L Impact

9 September 16, 2007 E-Mail Chain (Attachment Excluded)

10 September 27,2007 E-Mail with Attachment

11 September 27,2007 E-Mail with Attachment Entitled 3Q'07 Pre-Announcement Recorded Call Gary Crittenden Talking Points

12 September 29-30,2007 Email Chain

13 October 1,2007 Citigroup Current Report on Form 8-K

14 Excerpts from the October 4, 2007 Third Quarter Earnings Review

15 3Q'07 Earnings Conference Call Draft - Gary Crittenden Talking Points

16 Transcript of October 15, 2007 Citigroup Earnings Conference Call

17 November 5, 2007 Citigroup Current Report on Form 8-K

18 Transcript Excerpts of November 19,2008 Testimony of Gary Crittenden

19 Transcript Excerpts ofthe January 9, 2009 Testimony of Gary Crittenden

20 Transcript Excerpts of the August 19,2008 Testimony of Arthur Tildesley

21 Transcript Excerpts ofthe September 3,2008 Testimony of Arthur Tildesley

22 Transcript Excerpts of the February 14,2008 Testimony of John Gerspach

23 Transcript Excerpts ofthe February 23, 2010 Testimony of Kavita Mahtani

24 Transcript Excerpts ofthe May 20,2010 Testimony of Patrick Ryan

2


Exhibit Description

25 Transcript Excerpts of the January 21, 2010 Testimony of Clifford Verron

3


EXHIBIT 1

Details on "Senior Management" and "IR Personnel"

References in Complaint

Case 1:10-cv-01277-ESH

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Details on "Senior Management" and "IR Personnel" References in the Complaint

The chart below indicates in brackets the individuals included in the references to "senior management" or "IR personnel" in the Complaint:

Paragraph of the Complaint Reference 13 "Senior management [Gary Crittenden, Chief Financial Officer ("CrittendenJl) and Robert Traficanti, deputy Controller I

& head of Accounting Policy ("TraficantiJl)] and senior personnel inthe company's Investor Relations department I

("IR") [Art Tildesley, head of Investor Relations ("TiidesleyJl)] requested information from the investment bank ... JI

14 "In responding to the request for information on sub-prime exposure described in paragraph 13 of this Complaint, in April 2007, the investment bank provided senior management [Crittenden] and IR personnel [Tildesley and Kavita Mahtani, associate in IR, reporting to Tildesley ("MahtaniJl)] with documents that showed that GSM and GSCP had approximately $10.1 billion of sub-prime exposure and that, excluding certain sub-prime assets related to secondary trading and market making activities ("trading exposureJl ), GSCP had approximately $7 billion of sub-prime exposure.JI

liAs the second quarter of 2007 ended, Citigroup again considered making disclosures about the investment bank's 16 sub-prime exposure. Senior management [Crittenden] and IR personnel [Tildesley and Stephen Schiller, associate in

IR, reporting to Tildesley ("SchillerJl)] again sought and received information about that exposure.JI

17 "On July 10, 2007, senior management [Crittenden; John Gerspach, Controller ("GerspachIJ); David Bushnell, Chief Risk Officer ("BushneIlJl); Bill Gonska, Controller - North America and head of Financial Reporting ("GonskaJl); and Steffan Parratt, head of Financial Planning and Analysis ("ParrattJl)] and IR personnel [Tildesley; Mahtani; Schiller; and Pablo Burbridge, Associate in IR, reporting to Tildesley ("BurbridgeJl)] reviewed the company's results ... in what was known as a Flash CalLJI

"During the Flash Call process in 2007, representatives of each of Citigroup's businesses typically met with senior management [Crittenden, Gerspach, Bushnell, Gonska, and Parratt] .... JI


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Paragra~h of the Com~laint Reference

18 "During the July 10, 2007 Flash Call process, Citigroup senior management [Crittenden, Gerspach, Gonska, and Parratt] and IR personnel [Tildesley, Mahtani, Schiller, and Burbridge] received a Flash Deck from the investment bank."

19 "Also on July 10, 2007, at Citigroup senior management's [Crittenden] request ... /I

21 "During that call, senior management [Crittenden] discussed the investment bank's sub-prime exposure and made the following prepared statement ... /I

21 " . .. representatives of the investment bank had a separate meeting with senior management [Crittenden] and IR personnel [Tildesley, Schiller, and Mahtani (for some, though possibly not all of the meeting)] to discuss GSCP's sub-prime exposure./1

21 "During this meeting, the investment bank representatives provided senior management [Crittenden] and IR personnel [Tildesley, Schiller, and Mahtani] with a document entitled 'Overview of Subprime Exposure in the Global Structured Credit Products Business.1II

22 "In response to a question asked during the July 20 Earnings Call about what the $13 billion figure for sub-prime exposure represented, senior management [Crittenden] responded as follows ... II

24 "Similar to the July 20 Earnings Call, senior management [Crittenden] discussed the investment bank's sub-prime exposure and reiterated that that exposure was $13 billion at the end ofthe second quarter of 2007. In a prepared statement, senior management said the following ... /I

25 "In response to questions asked during the July 27 Fixed Income Call about Citigroup's risk systems and COO business, senior management [Crittenden] made the following additional statements ... /I

28 "Citigroup continued to work on its valuation methods, including through consultation by the investment bank and Risk Management organization with senior management [Crittenden, Gerspach, Bushnell, and Traficanti]./1

28 "By the middle of September 2007, senior management [Crittenden; Charles Prince, Chief Executive Officer ("Prince/l); Robert Rubin, member of the Office of the Chairman ("Rubin/l); Nayan Kisnadwala, head of Financial Planning & Analysis ("Kisnadwala/l); Bushnell; Michael Zuckert, Counsel ("Zuckert"); Michael Helfer, General Counsel ("Helfer/l); Tom Maheras, co-CEO of Citi Markets & Banking; and Michael Klein, co-CEO of Citi Markets & Banking ("Klein/l)] was anticipating that the company would have to record losses in the range of $300 million to $500 million on the super senior tranches of COOs. II

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Paragra~h of the Com~laint Reference 37 liOn October 4,2007, senior management [Crittenden, Gerspach, Traficanti, and Kisnadwala] and IR personnel

[Tildesley, Mahtani, and Burbridge] participated in a Flash Call to review the company's results for the third quarter of 2007./1

43 IISenior management [Crittenden; Prince; Rubin; Lew Kaden, member of the Office of the Chairman; Robert Druskin, Chief Operating Officer; Bushnell; Gerspach; Gonska; Zuckert; Helfer; and Klein] was aware that the super senior tranches were the source of the increased losses./I

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EXHIBIT 2

April 2007 Overview of Subprime Exposure in the Global

Structured Credit Product Business


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April 2007

FOR INTERNAL USE ONLY. CONTAINS INFORMATION WHICH IS HIGHLY PROPRIETARY AND CONFIDENTIAL. DO NOT DISTRIBUTE WITHOUT PERMISSION FROM GSCP MANAGEMENT .

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Table of Contents

I. Summary

II. Background - Exposure Overview

III. Exposure Breakdown

A. Warehou~e·

B. ASS Primary Positions

C. Other Positions

IV. Effect of Mark-to-Market on P&L

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'nfidenfial Treatment Requested by Citi CITI 00203070


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Summary GSCP has exposure to subprime RMBS securities in three primary ways(1) :

• In Warehouses. $5.4. SN

We hold and finance RMBS subprime securities directly and in tranched form (ASS CDOs) as managers ~ggregate a sufficient size portfolio to execute a CDO'transaction.

.. Direct Subprime ABS Exposure $2,7 SN

• Tranched COO Exposure $2,7 BN

- The majority our warehouse exposure is rated "A" or higher.

• 93% of RMBS Subprime are rated "A" or higher

" 70% Of Tranched COOs are rated "Au or higher

• In our Primary Syndicate Book $1,6 BN

- Unsold positions of newly executed ASS COOs and COO-squared are held in tranched form in our Primary Syndicate book, Th~se are actively and aggressively mark,eted to reduce the positions as quickly as possible,

.. 91 % rated "A" or higher

B 67% rated "AAA"

., In our Trading Books $2.7 BN (long only)

2

- Our Secondary COO Trading Desk and our ABS Correlation Desk hold tranched positions in ABS COOs, The Secondary Trading Desk.is one of the largest traders of CDOs on Wall Street, and so we hold positions of ABS COO securities underwritten by Citigroup and by other Wall Street dealers, Our ABS Correlation Book also holds tranched risk on transactions it has executed. Both books have both long and short positions in tranches of ABS COO securities. Therefore, a significant amount of the risk is hedged through short positions on tranched product and on various ABX Indicies,

Total (1) All balances are as of 3/29/07

$9.7 BN ~~{,"" .;t.~~" ~ "- ',~ W: ~t .. ~ ~; ~~1. "%l"fi' if, %~ ,:f,


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Summary COO Equity Positions

G In Warehouses $0,0 MM

COO equity is not held in our warehouses

G In CDO Primary Syndicate Book $14,8 MM

.. In COO Trading Books $26,5 MM

Total $41.3 MM

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Summary ~ 'Hedging The GSCP business employs five basic strategies to hedge the risk in its business:

" Risk Sharing

- Credit risk in. the warehouse is mitigated through the terms of our warehouse. agreement which generally provide for risk sharing with the manager.

The manager typically assumes a first loss position and/or posts collateral.

- In certain circumstances, haircuts are taken against securities financed.

- Securities are approved by Citigroup before acquisition and monitored for credit quality throughout the life of the warehouse,

.. Distribution

- Our best risk mitigation strategy for our warehoused securities is deal execution. While we may end up selling securities into the market at a discount, that is a much safer, and controllable process than trying to liquidate long positions associated with a failed deal,

... Citigroup is a leader in the global distribution of structured product, particularly in the hard.to·place mezzanine and equity tranches.

- In the first quarter, we believe that we placed more ASS COO securities than any other firm on the street. We priced 13 deals totaling $13.5 8N in volume.

• COO Shorts

- Our COO Trading Desk shorts single name ASS COOs to hedge market risk.

.. A8X Index.Trade Shorts

- The business takes short positions on the A8X Index to provide an overall hedge to exposure to ASS subprime risk.

.. Single·Name Shorts

- The business will also hedge its expos Lire through shorting specific names in the ASS market.

• Shorts on Bespoke Portfolios

- The ABS Correlation Desk can also take short positions in the mezzanine tranches of bespoke portfolios, In addition, we are currently marketing bespoke products to build the short position of the business.

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Summary Capital.Charges on Subprime Exposure

5

Warehouse Ex-Warehouse Debt Ex-Warehouse Equity

Total

Position 5.400,0 1,600,0

41,3

7,041.3

Value ($MM)

RAP Capital Charge 1,100,0 88,0

333,1 26.6 20,7 1,7

1,453,8 116,3

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lnfidential Treatment Requested by Citi CIT! 00203075


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Overview Understanding the Form of our Exposure

•. Despite market turbulence, GSCP had a record 1 Otr of $260mm, over double that in 10tr 2006.

o GSCP's exposure to subprime RMBS risk can be in either cash or derivative form.

" Further; some of our expo'sure is in direct holdings of RMBS securities (exclusively in our warehouses) and some in RMBS securities which have been repackaged into "ABS COOs" or in "COO-squareds".

• We generally refer to ABS COOs which hold higher rated tranches of subprime RMBS securitizations as "high grade" transactions. In those deals, the average rating of the underlying collateral is AA

• ABS COOs which hold lower rated tranches of RMBS securitizations (generally BBB / 8BB- average) are known as "mezzanine" transactions.

• ABS COOs may also hold assets other than subprime RM8S securitizations, including prime RMBS, CMBS and tranches of.other ABS COOs. .

e COO-Squared transactions are comprised e'ntirely of tranches (typically BSB) of other COOs. Some COO-squared transactions focus exclusively on repackaging tranches of ASS COOs; others contain a mixture of assets or focus exclusively on other asset types.

e Although we know with certainty our direct exposure to subprime RMSS risk, the actual total exposure to subprime RMSS risk is an 'approximation, due to this "embedding" of exposure through layers of repackaged COOs. Since we aggregate our exposure assuming 100% of the ASS COOs· and ASS COO-squared transactions consist of subprime assets, our totals are overstated.

• It is important to note that our warehouse includes all vintages of subprime RMBS and ASS COOs. As a practical matter, it is primarily collateral originated in 2006 which is suffering market pressure.

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Overview Where Exposure is Found

• The largest component of our RMBS exposure is found in our warehousing activities, wherein managers direct the aggregation of a pool of subprime RMBS and COO securities for issuance of ABS COOs and COO-squared transactions.

• Significantly smaller amounts of exposure are found in our primary and secondary trading books, and in both cases in the form of ASS COOs or COO:-squareds. The primary book holds unsold positions of the debt or equity of newly syndicated COOs and the secondary trading desk will hold COOs for either trading or hold positions.

• Finally, we have exposure to subprime RMBS risk in our ABS correlation trading book. This is in the form of retained tranches of executed transactions.

• Super Senior & Liquidity Put Positions

7

- The COO desk has exposure to subprime collateral in ASS COOs through its purchase of so-called super-senior tranches of transactions.

- The probability of default is deemed by the rating agencies to be extremely small, so this exposure is not aggregated into our total numbers.

- Liquidity Puts are even less likely to expose the firm to credit risk, due to the contingent nature of assuming the super senior exposure. Therefore, this exposure is also excluded from our totals,

- Both securities are more fully described herein.

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Warehouse - Subprime Exposure Summary

Securi!y Type ___ uu Value ($BN) .

RMSS Subprime ASS COO Total

• Warehouse facilities typically open for 6-9 months.

2.7 2.7 5.4

As of 3/29/07

• All positions marked to market through earnings; loss~s reversed upon sale of assets to COO.

• Other ASS Collateral in warehouse includes:

Security Type Valuej$BNj

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RMBS Prime CMBS ASS Non Mortgage Total

1.1 0.3 0.1 1.5

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COO Wareho~se .- Breakdown of Direct. RMBS Exposure by Rating

AAA AA A 8B8+ BBB 888-BB B NR Total

Rating Val,ue

, 290,114 1,333,893

859,291 47,724 58,679 45,311

1,339 o

26,983 2,663,335

.. All Subprime assets e~pected to be sold in transactions closing in Q2.

In '0005; as of 3/29/07

It No new mezzanine warehouses (less than an "A" average rating) are currently being opened.

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ASS COO Primary Positions -By Rating

Tranche

Mezz AAA Jr AAA AA A+ A A-BBB BBB-BB+ Equity Total

1\1 Remaining inventory actively marketed for sale.

.. All positions marked to market.

10

Market Value

455,999 565,348 257,980

43,581 49,937 19,732 83,744 12,911 12,355 14,835

1,516.421

In 'OOOs; as of 3f29f07

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Excluded from Analysis

• Super Senior Book - The COO desk sometimes purchases the most senior tranche of ASS COO transactions.

This so-called super-senior tranche is viewed by the rating agencies to have an extremely low probability of default (less than 0.01 %).

.... The primary risk in the portfolio is mark-to-market movements.

- . We actively seek to hedge this book through buying protection from highly"rated counterparties.

- Our current open position is $14.6 billion.

- Due to the extremely small probability of default, this exposure has been excluded from our totals.

Super Senior Type

High Grade ASS Te'rm Mezz ASS Term CDOA2

Value ($MM)

4,080 10,108

.384' 14,572

As of 3/29/07

• Liquidity Puts

11

- Citigroup devised an innovative program to enable High Grade ASS transactions to finance the super-senior portion of their issuance in the CP market.

- In these programs, we also provided backstop financing in the event of the OCClJrrence of certain events.

- As with our super senior exposure, the risk of default is extremely unlikely. In addition, certain market events must also occur for Lis to be required to fund. Therefore. we view these positions to be even less risky than the Super Senior Book. .

- Total Net Exposure is $23.2 SN.

- The'desk has instituted a novel hedging program where we buy protection against mark-ta-market movements from capital market transactions.

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Mark to Market of the CDO Warehouse

• Marking Procedures .

- All assets are marked to market on a daily basis. Changes in market value flow through earnings.

- The aggregate P&L mark-to-market for a warehouse portfolio is reversed upon the completion of the . COO transacti'ol"l, at which time the assets are sold to the COO vehicle at their original acquisition cost. .

• Effect of Marks on P&L

12

- 13 transactions totaling $13.5 BN in volume closed in Q1 2007, resulting in reversal of$187 MM MTM losses, and recognition of $112 MM of fees.

- Net Mark-to-market loss on the COO warehouse portfolio of $160 MM is expected to reverse for the rest of 2007 as COO transactions are closed.

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. EXHIBIT 3

Excerpts from the July 10, 2007 Second Quarter

Earnings Review


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Credit Risk Management ($ in Millions)

Income Statement 2007 Outlook' ~ Chg

Co~1 of CrRM $ (65) # (238)

- Net Credit Loss (48) (71)

• Reserve Actions (17) (166)

Balance..SheelDala':

- Reserve'Balance $ 4,279 396

- Non Performing Loans $ 630 (156)

- Reserve as a % of N PL 679%

CredU Exposme Cla!a1

Total Classified: $ 27,002 (3,762)

• CI""". IA 20,270 (4,538)

• Class. 11+ 6,732 776

Tot,,1 Outstanding and Unused Commitments: $ 1,104,647 169,769

• Direct 270,447 43,094

• Contingent 116,252 7,857

• Pre Seltlement Exposure 399,224 69,599

• Unused Commitments 318,723 49,219

- Credit Default Swaps' I 88,2291 1 39,8091

Notes:

(1) Excludes Nikko exposure. (2) This data includes Risk Management Outlook figures for June 2007.

(3) 2Q07 • Dat. as of mid·quarter: OSUC based on PSE.

inc. I (decl vs. 2006 %Chg Comments

(138~

(307%) 548mm net recovery (MeXIco. AHMSA S30.3mm) In 2Q07 vs $23mm write·off in 2Q06.

(111%) No General Reserve build in 2Q07 vs $225mm build in 2Q06.

10% General Reserve increases of $125mm in 3006 a $300rrm in 1007.

(20%) Reductions in EMEA. S159mm (Violet Pikco $112mm) and Asia S95mm, offset by increases i NA $137mm (Amertquest Capital $100mm and

Delta $30mm).

(12%)

(18%) 0"_,,. '""".00 _OM~. "=~~ml $258). As,. $1.48 (Gov. of Philippines $253mm and Gov. of India $2t7mm) and LATAM S588mm.

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13% I Increase in NA S18 (AmeriquestCapital $89~ partially offset by decrease in Asia S225mm.

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18%

Iincre.sas in'EMEA $238 (Gov. of Russia $48),

19% Asia $108 (Singapore Group $948mm. Gov. of

India $781mm and Tata Group $673mm) and LAT~.M $58.

Increase in NA 598 (LS . NAGF Sec'zn $8 88), 7% partially offset by decrease in EMEA $28.

21% Increases in NA $368 (US Agency Securities Lending $78 and lel"man Brothers $6 88) and EMEA $298 (Credit Suisse $4.28 and Societe

Generale $2.88).

Increase in NA $468 (Texas Energy $,3.1 B, 18% Schering.Plough $38 and United Health 52.6B).

1 82% 1

inc. I (dec) vs. 1007

~ Chg % Chg Comments

# (328) (125%)

# (28) (142%) I S48mm net recovery (Mexico. AHMSA $30.3mm) in 2Q07 vs S20mm net

I recovery in 1007

# (300) (106%) No General Reserve build in 2007 vs $30Dmm General Reserve build in 1QO .

d # 7 0%

# 130 26% Increase in NA, Ameriquest Capital S100mm and DeHa $30mm.

# 794 3%

# (178) (1%) Decrease in Asia $1 B (Gov. of India $247nm and Chinatrust Financial

Holding Group S t84mm) and EMEA $336mm, partially offset with increase I( NA $1 2B (US Airways Group $1 18)

# 972 17% Increase in NA $18 "(Ameriquest Capital $895mm).

--

81,215 8%

Increases in EMEA $88 (Gov. of Russia

# 15,133 6% $48) and Asia $48 (GOY. of Malays,.

SS93rrm, Tata Group $S22mm and . Kookmin Bank S400mm).

Decrease in EMEA $78 (E ON AG # (3,387) (3%) $9.18), partially offset by increase in

NA $28.

It 30,940 8% Increases In NA $148 (Goldman Sachs $2.98 and Lehman Brothers $2 38) and EMEA $148 (Credit Suisse $2.18 and

Societe Generals $28}.

Increases in NA $288 rrexas Energy # 38,529 14% $3.18 and Schering·Plough $38) and

EMEA S108 (Astrazeneea $3.78).

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Sub-prime MTD losses on the COO Syndication desk have reached $(191 )mm due to markdowns in the $4.9B in ABS inventory being warehoused and $3.8B in unsold ABS COO tranches, most of which is AM-rated. These losses are partly offset by $148mm in gains in Secondary Trading, mostly from its strategic $1.2B long protection position in CDS on COO tranches. In addition, ABS Correlation Trading's MTD P&L is $(37)mm, primarily from its $1 B in unsold mezzanine ABS COO tranches, almost half of which is AM-rated. In the Mortgage desk, Non~Agency Trading, including sub-prime exposure and securitization, is at 116% of the year-to-date budget. During the year, the 07-1 BBB- index declined from $97.47 on January 19th to $54.06 on July 2nd, a record low .

. BSAM Exposure:

- Bear Stearns High Grade Structured Credit Strategies Master Fund Ltd. ("High Grade"): All repo positions have been novated to Bear Stearns. All derivative positions have been terminated, novated, or unwound with the exception of one $15mm fully collateralized TRS on COO Equity.

- Bear Stearns High Grade Structured Credit Strategies Enhanced Leveraged Master Fund ("Enhanced"): All remaining repo positions ($441 mm) have been taken into Citi inventory. We have experienced a $79.9mm credit loss for which we have a claim back to the Bear Stearns Enhanced Fund. All derivatives have been terminated at this time and claim numbers are being calculated. To the extent that there is any excess, we can offset the potential loss on the repo position.

Hedge fund exposure to derivatives: A review was conducted of all hedge funds that have exposure with Citi related to sub-prime and structured credit. The review included finance desk trades where collateral is ABS, COO and Alt-A bonds. Derivative transactions in the review included single name ABS and ABX trades where the client is long the ABX. Reported exposure is as follows:

• There are 82 hedge fund counterparties with positions on ABX (fund long ABX), single-name CDS on ABS, or financing on sub-prime, Alt-A, or COO securities. Of the 82, only 30 have combined notional exposure to these products in excess of $20mm, with the top five ranging from $125mm to $250mm. Each of the top five is over collateralized.

CDO Warehouses

CDO Syndicate book

ABS Correlation

Trading books

Total

Mortgage Trading

Sub-prime loan inventory

Support Bonds and Residuals

Total

Super senior book

Liquidity Puts

Total

Notes:

4.9

3.8

1.0

0.7

10.4

1.5

0.6

2.1

9.5

24.52

34.0

Margining: For structured credit products/sub-prime, margin requests are sent to clients 1. Market value of positions used monthly unless a specific counterparty has been identified as being in trouble in which to measure exposure case margin requests are sent out on a more frequent basis. Risk Analytics will provide a 2. Notional value used to measure risk profile on trades for a 35-day value-at-risk horizon (more conservative) as compared exposure to 5-day previously. ~------~8~4~~~4


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Senior Secured Bank Loan Syndications and High Yield Bridge Loans

As of May 31, 2007, $92.3B in senior secured bank loan 1iyndications have been approved. Of this total. ~62.6B has been committed and $29.7B is in the pipeline. A total of $47.4B (or 51 %) of these loans are "covenant lile' deals .

The forward calendar for significant deals in senior secured bank loan syndications and high yield bridge loans Includes:

Senior Secured Bank Loan Syndications ----------------------------------~----------------------------------

Ch~$4.38 8ell Canada: $17.68 ~ Allison: $3.78 TXU: $4.98 (represent 100% share, actual share T8D)

Alliance 80:~J~$~1·H28 G~E Plastics: $3.0~_Lta: $2.78 Alitel: t4'68~Clear Cel: $3.08 Harrah's: $1.18

1 • I J~ Aug Sep I Nov}?ecj I Mar)

f . I Holcim: $1.38 GE Plastics: $1.38 XU: $2.58 Alitel: $1.98 Clear Channel: $0.58 8ell Canada: $2.98 Allison: $0048 First Data: $1.58 Harrah's: $0.98 Alliance 8oots: $0.58

'---- ~ ~

High Yield Bridge Loans

As of June 29,2007, $21.38 in high yield bridge loans have been committed, of which $16.08 is our net expected position after syndications, with $6:58 (or 30%) in Toggle/PIK (Payment in Kind) loans.

Funded Bridge Loans:

- Holcim I Proj. Omega

- US Food Service

- Dollar General

- Scandic Hotels Mezz

- Thomson Learning

Total

$1,256mm (funded in June, expect to settle in July, no concerns)

295mm (funded, see page 4)

181 mm (funded, see page 4)

126mm (fully traded, not settled, no concerns)

103mm (funded, see page 4)

$1,961mm 85

~

Cit!


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Struggling Deals

Covenant Lite senior bank loans and high yield bridges to PIKItoggle bonds are currently having difficulty attracting sufficient investor demand, As a result, Citi and other underwriters have had to restructure these facilities and in most cases fund any shortfalls resulting in unexpected long underwriting positions.

Below are the four recent deals that have struggled:

• US Food Service: A restructuring is pending following the recent failed bond offering and bank loan syndication. The transaction closed and funded on July 3, 2007. Citi currently holds long positions of $389mm of Term Loan B (TLB) and $295mm of three bond tranches. MTM losses include $13mm on senior secured bank loan syndications and $21 mm on high yield bridge loan positions.

• Dollar General: TLB restructured into 1 st and 2nd priority term loans which were issued at a discount. Senior subordinated toggle could not get placed and Citi has funded its $181 mm share of this facility. MTM losses include $12mm on senior secured bank loan syndications and $16mm on high yield bridge loan positions.

• Service Master: A restructuring is pending following the recent 2nd failed bond offering. MTM losses include $12mm on senior secured bank loan syndications ($826mm) and $6mm on high yield bridge loan positions ($342mm).

• Thomson Learning: The restructured bank loan facility resulted in current long TLB position of $87.5mm marked at 97.5 which iswithin fees. The restructured bond facility resulted in a current long senior note position of $24mm marked at 96.25 and a PIK holding company note position of $79mm repriced to yield 16%. Total MTM losses on the high yield bridge loan positions (net of fees) is $6mm.

The net 1055 on sales and marks for these four deals totals $86mm. The business is realizing this loss through revenues not through cost of credit.

~

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Equity Bridges

• As of June 29,2007, equity bridge commitments outstanding is $2,741 mm .

Top Equity Bridge Exposures:

First Data $700mm

Alltel $450mm

Valentino / Hugo Boss $369mm

Dollar General $300mm

TXU $250mm

Bell Canada $162mm

• No significant concerns regarding equity bridges have surfaced and no deals have

struggled to date.

~

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Leveraged Loan Portfolio

• As of April 30, 2007, the total amount of leveraged loans held in the portfolio was $9.98 with

an average hold of $54mm. Including pipeline transactions, the total would increase to

$13.18 with an average hold of $61mm. Of the $13.18, $28 of the loans are "covenant lite."

Top 10 Portfolio Exposures (including pipeline deals):

1. GMAC $917mm 6. Clear Channel* $350mm

2. TXU* $600mm 7. Skyway $337mm

3. HCA $538mm 8. Alltel* $250mm

4. Aircastle $490mm 9. First Oata* $250mm

5. Chrysler* $400mm 10. 8abcock & 8rown $228mm

* pipeline deals ~

88 c~t~


EXHIBIT 4

July 2007 Overview of Subprime Exposure in the Global

Structured Credit Product Business


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FOR INTERNAL USE ONLY. CONTAINS INFORMATION WHICH IS HIGHLY PROPRIETARY AND CONFIDENTIAL. DO NOT DISTRIBUTE WITHOUT PERMISSION FROM GSCP MANAGEMENT.

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Table of Contents

I. Summary

II .. Background - Exposure OveNiew

III. Exposure Breakdown

A. Warehouse

B. ABS Primary Positions

C. Other Positions

IV. Effect of Mark-to-Market on P&L

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CIT! 01255020


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. GSCP Exposure to Subprime Assets - Second Quarte(Update

• The turbulence in the subprime market continued into the 2nd quarter, with' delinquencies, foreclosures and home price appreciation all trending downward. The ABX 2007-1 BBB- index closed on 6/29/07 at 54.54, compared to 66.62 on 3/30/07.

o The COO market was further destabilized in mid-June, with the disclosure of significant losses in two leveraged mortgage funds managed by Bear Stearns Asset Management ("BSAM").

. . . e Liquidity has greatly diminished in both the primary and secondary COO markets.

• Throughout the quarter, GSCP continued to lighten its exposure to the subprime market - in ABS securities, ASS COOs and ASS CDO-squareds (CDOs collateralized by tranches of AS'S CDOs). Overall exposure is at $7.6 billion, down over 20% from the $9.7 billion held at the end of the first quarter.

o We have done this through:

- Pricing transactions, thereby reducing warehouse exposure

- Aggressively marketing long positions on our primary syndicate desk; and

- Significantly limiting any new assets purchases. No new warehouses have been opened for subprime assets since February of this year.

o Ow trading desks have opportunistically been purchasing significantly un'dervalued securities, including some from the BSAM portfolio. .

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Summary - Exposure GSCP has exposure to subprime RMBS s.ecurities in three primary ways:

o 6/29 3/29

II In Warehouses $2.1 BN $5.4 BN

- We hold and finance RMBS subprime securities directly and in tranched form (ABS COOs) as managers aggregate a sufficient size portfolio to execute a COO transaction. .

• Direct Subprime ABS Exposure

• Tranched COO Exposure - The majority our warehouse exposure is rated "A" or higher.

• 93% of RMBS Subprime are rated "A" or higher • 76% of Tranched COOs are rated "A" or higher

51.3 BN $0.8 BN

$2.7 SN

$2.7 BN

o In our Primary Syndicate Book $2.3 BN $1.6 SN - Unsold positions of newly executed ASS COOs and COO-squareds are held in tranched form in our Primary Syndicate

book. These are actively and aggressively marketed to reduce the positions as quickly as possible. • 95% rated "A" or higher • 78% rated "AAA"

• In our Trading Books $3.2 BN(1l $2.7 BN(1l

3

- Our Secondary COO Trading Desk and our ABS Correlation Desk hold tranched positions in ABS COOs. The Secondary Trading Desk is one of the largest traders of COOs on Wall Street, and so we hold positions of ASS COO securities underwritten by Citigroupand by other Wall Street dealers. Our ABS Correlation Book also holds tranched risk on transactions it has executed. Both books have both long and short positions in tranches of ASS COO securities. Therefore, a Significant amount of the risk is hedged through short positions on tranched product and on various ABX Indicles.

Total $7.6 BN

(1) Long only. Both books hold signfflcant short positions.

$9.7 BN

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Summary COO Equity Positions

• In Warehouses

• COO equity is not held in our warehouses

• In COO Primary Syndicate Book

• In COO Trading Books

TQtal'

4

6/29 . 3/29

. $0.0 MM $0.0 MM

$21.1 MM $14.8 MM

$46.4 Mfv1 $26.5 MM

$67.5 MM $41.3 MM

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Summary - Hedg.ing The GSCP business employs five basic strategies to hedge the risk in its business:'

• Risk Sharing Credit risk in thewarehouse is mitigated through the terms of our warehouse agreement which generally provide for risk sharing with the manC!ger.

- The manager typically assumes a first loss position and/or posts collateral.

- In ce~ain circumstances. haircuts are taken against securities financed. - Securities are approved by Citigroup before acquisition and monitored for credit quality throughout the life of the warehouse.

• Distribution - Our best risk mitigation strategy for our warehoused securities is deal execution. While we may end up selling securities into the

market at.a discount. that is a much safer, and controllable process than trying to liquidate long positions associated with a faUed deal.

- Citigroup is a leader in the global distribution of structured product, particularly in the hard-to-place mezzanine and equity tranches.

- In the second quarter, we priced 5 ASS and COO-squared deals totaling S10.7 SN in volume.

• COO Shorts - Our COO Trading Desk shorts single name ASS COOs to hedge market risk.

• ABX Index Trade Shorts - The business takes short positions on the ABX Index to provide an overall hedge to exposure to ASS subprlme risk.

• Single-Name Shorts - The business will also hedge its exposure through shorting specific names in the ASS market.

• Shorts on Bespoke Portf()lios - The ASS Correlation Desk can also take short positions in the mezzanine tranches of bespoke portfolios. In addition. we are

currentlY marketing bespoke products to build the short pO'sition of the business.

5

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Confidential Treatment Requested by Citi .

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Overview Understanding the Form of our Exposure

o . Despite market turbulence, GSCP earned $202mm in the 2nd Quarter for a YTO total of $456mm, 10% ahead of 2006 results.

o Overa/[ exposure to subprime securities are down significantly from the 1s1 quarter. This is a result of pricing transactions (which reduces warehouse exposure), aggressively marketing u·nsold primary positions and taking on only limited amounts of new exposure. ,.

o GSCP's exposure to subprime RMBS risk can be in either cash or derivative form.

• Further, some of our exposure is in direct holdings of RMBS securities (exclusively in our warehouses) and some in RMBS securities which have been repackaged into "ABS CD Os" or in "COO-squareds".

• We generally refer to ABS COOs which hold higher rated tranches of sub prime RMBS securitizations as "high grade" transactions. In those deals, the average rating of the underlying collateral is M.

• ABS COOs which hold lower rated tranches of RMBS securitizations (generally BBB I BBB- average) are known as "mezzanine" transactions.

• ABS COOs may also hold assets other than subprime RMBS sect,Jritizations, including prime RMBS, CMBS and tranches of other ABS COOs.

• CDO-Squared transactions are comprised entirely of tranches (typically BBB) of other CDOs. Some COO-squared· transactions focus exclusively on repackaging tranches of ABS COOs; others contain a mixture of assets or focus exclusively on other asset types.

o Although we know with certainty our direct exposure to sub prime RMBS risk, the actual total exposure to subprime RMBS risk is an apprOXimation, due to this "embedding" of exposure through layers of repackaged COOs. Since we aggregate our exposure assuming 100% of the ASS CDOs and ABS CDO-squared transactions consist of subprime assets, our totals are overstated.

• It is important to note that our warehouse includes all Vintages of subprime RMBS and ASS COOs. As a practical matter, it is primarily col/ateral originated in 2006 which is suffering market pressure. ~

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Overview Where Exposure is Found

. . • Typically, the largest component of our RMBS exposure is found in our warehousing activities, wherein managers direct

the aggregation of a pool of subprime RMBS and COO securities for issuance of ABS COOs and COO-squared transactions.

• Subprime exposure is also found in our primary and secondary COO trading books, and in both cases in the form of ABS COOs or CDO-squareds. The primary book holds unsold positions of the debt or equity of newly syndicated CDOs and the secondary trading desk will hold COOs for either trading or hold positions. Our long primary positions have increased as we have chosen to price deals, even if not fully sold, to reduce overall exposure and risk from warehouse positions. Nearly 80% of these positIons are rated AAA. Exposure has Increased on our secondary desk as we have been opportunistically buying securities which we feel are significantly undervalued, including some securities sold in auction by BSAM.

• Finally, we have exposure to subprime RMBS risk in our ABS correlation trading book. This is in the form of retained tranches of executed transactions.

• Super Senior & Liqui.dity Put Positions

7

- The COO desk and the ABS Correlation trading desk have exposure to subprime collateral in ABS COO positions in socalled super-senior tranches of transactions.

- The probability of default is deemed by the rating agencies to be extremely small, so this exposure is not aggregated Into our total numbers. .

- Liquidity Puts, held by the COO desk, are even less likely to expose' the firm to credit risk, due to the contingent nature of assuming the super senior exposure. Therefore, this exposure is also excluded from our totals •

. - Both securities are more fully described herein.

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Confidential Treatment Requested by Citi

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Warehouse -,Subprime Exposure Summary

Security Type

RMSS Subprime ASS COO Total

• Warehouse facilities typically open for 6-9 months.

Market Value ($BN) 6129 '3/29,

1.3 0.8 2.1

2.7 2.7 5.4

• All positions marked to market through earnings; losses reversed upon sale of assets to COO.

o Other ABS Collateral in warehouse includes:

8

Market Value ($BN) SecurityType Jl/29 ~ __ ~3/29 .. _

RMSS Prime CMBS ASS Non Mortgage Total

0.6 , 0.6

0.1 1.3

1.1 0.3 0.1 1.5

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COO Warehouse - Breakdown of Direct RMBS Exposure by Rating

Market Value ($ MM) Rating 6129 3129

AAA 191 290 AA 707 1,334 A 358 859 BBB 90 152 SS B NR 27

Total 1,346 2,662

• Most of our transactions with subprime assets have been priced. Four transactions are expected to price in the 3rd quarter and three. with de minimus amounts ramped, may be liquidated.

• No new mezzanine warehouses (less than an "An average rating) have been opened since February.

~

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ABS COO Primary Positions - By Rating

Market Value ($ MM) Tranche 6/29 3/29

AAA 1.765 1,021 AA 244 258 A 148 113 BBB 68 97 BB 13 12 B Eguity 21 15 Total 2,259 1,516

• Remaining inventory actively marketed for sale.

• All positions marked to market daily.

10

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'Excluded from Analysis

o Super Senior Book - The COO desk sometimes purchases the most senior tranche of ABS CDO transactions.

The ABS Correlation trading desk may also be long super senior tranches retained in executed transactions. - This so-called super-senior tranche is viewed by the rating agencies to have an extremely low probability of default

(less than 0.01%). The primary risk in the portfolio is mark-to-market movements.

- We actively seek to hedge this book through buying protection from highly-rated counterparties. - Our current open long position on ABS and COO-squared transactions is $14.7 billion" - Due to the extremely small probability of default, this exposure has been excluded from our totals.

Super Senior Type

High Grade ABS Term Mezz ASS Term Mezz ABS Correlation (1)

CDO"2 Total

Long Market Value ($MM) 6(29 3129

6,285 1,279 6,424

734 14,722

4,080 1,800 8,308

384 ' 14,572

o Liquidity Puts ,

11

- Citigroup devised an Innovative program to enable High Grade ABS transactions to finance the super-senior portion of their issuance in the CP market.

- In these programs, we also provided backstop financing in the event of the occurrence of certain events. - As with our super senior exposure, the risk of default is extremely unlikely. In addition, certain market events must also

occur for us to be required to fund. Therefore, we view these positions to be even less risky than the Super Senior Book.

- Total exposure Is $24.5 BN. - The desk has Instituted a novel hedging program where we buy protection agai~st mark-to-market movements fr~

capital market transactions. , , C ~ t ~ (\) Short positions In super-senior reduce the net exposure in the, correlation book to $1.441 MM.


Confidential Treatment Requested by Citi

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Global Structured Credit Products - P&L Analysis

1st Quarter 2nd Quarter YTD I. COOs

ASS (565.7) ($107.2) ($172.9) Loans $92.1 $42.5 $134.6 Secondary Trading $136.5 $157.6 $294.1

Total COOs S162.9 $92.9 $255.8

II. ASS Correlation ($22.8) ($15.8) ($38.6)

III. Credit Correlation $69.1 . $41.7 $110.8

IV. lIIiquids $44.6 $89.0 $133.6

V. GSCP Management ($5.2) ($5.2)

GSCP Total 5253.8 $202.6 $456.4

• Overall. GSCP earned $202.6mm for the 2nd quarter, and is at $456.4mm YTD, 10% ahead of last year's results.

• The ABS COO business was impacted by the severe market turmoil. Overall. we priced and closed 5 ASS and COO· squared transa'ctions, which brought in S61.6mm in up-front fees. Those fees were offset by pricing discounts given on securities sold and on write-downs on our unsold positions in our primary syndicate book. Mark-to-market gains and losses were both taken in our warehouse portfolio, as mark-to:market losses were reversed on priced transactions, but further mark-downs were taken on subprime ABS and ABS COO securities still In position.

• Similarly, the ABS Correlation incurred losses in its trading book due to mark-downs of long positions. This was offset by opportunistic hedging transactions, particularly in our super senior book.

12

~ 11 1A nC<;::IR ~;>!l l U


EXHIBIT 5

Transcript of Citigroup July 20, 2007 Earnings Conference Call


FINAL TRANSCRIPT

Thomson StreetEvents'" .. [> t>

Conference Call Transcript c ~ Q2 2007 Citigroup Inc. Earnings Conference Call

Event DaielTime: Jul. 20. 2007 J 10:00AM ET

..

Contact Us

@2oo7ThomsonF'mancial. Republished with permission. part of this pubffcalion may be reproduced or IransmiUed in any form· or by any means without the prior writlen consent of Thomson F'llanciaL

~ . EXHIBIT iii -Z ... ~~ O~ ! JI.(

Confidential Treatment Requested I Ho (0140 CITI 00000139


Jut 20. 2007 110:00AM ET, C - Q2 2007 Citigroup Inc. Earnings Conference Call

CORPORATE PARTICIPANTS. AnTild~ley

Citigroup. Inc. - Director IR

Charles Prince Citigroup. Inc. - Chairman. CEO

Guy Crillenden Citigroup. Inc. - CFO

Robert Dru.kin Citigroup. Inc. - COO

CONFERENCE CALL PARTICIPANTS

Glenn&borr UBS - Analyst

Guy Moszkowski Merrill Lynch - Analyst

Mike Mayo Deutsche Bank - Analyst

Jason Goldberg Lehman Brothers - Analyst

Steve Wbarton JPMorgan - Analyst

Ron Mandel [GIC} . Analyst

Dave Hilder Bear Steams - Analyst

James Mitcheb Buckingham Researcl. - Analyst

Meredith Whitney CIBC World Markets - Analyst

John McDonald Bane of America Securities - Analyst

PRESENTATION

Operator

FINAL TRANSCRIPT

Good morning, ladies and gentlemen, and welcome III Citi's secoDll-qual1er 2007 earnings mricw, featuring Citi Chainnan and Chief Executive Officer Charles Prince; Chief Financial Officer, Gary Crittenden; and Chief Operating Office-. Robert Druskio. Taday's call will be hosted by Art Tifdesley, Director of Investor Relations.

We asked lhat you "'old all questions until the completion of the fonnal rem.arl<:s, at which time you will be given instructions for the questionand-answer session. Also, as a reminder, this. conference is being recorded roday. If you have any objections, please disconnect at this time. Mr. Tildesley. yoU may begin.

Art Tildesley - Citigroup, Inc. - Dirt!cior IR

www.srreetevents.com Contact Us

© 2007 Thomson F'mandaI. Republished with permission. No part 01 this pubfication may be reproduced or IJansmilled i1 any fonn Ol by any means without the plior written mnsent oflhomson F'lIl3Ilciai.

Confidential Treatment Requested em 00000140


_______________________________________________ ~F~I~N~A~L~T~RA~N~SC~~~PT;

Jut 20. 2007 110:00AM ET, C • Q2 2007 Ciligroup Inc. Earnings Conference Call

Thank you very much, operator, and thank you all for joining us loday for our second·quaner 2007 earnings presentation. We're going 10 walk

you through a presentation which is available on our website, so if you haven~ downloaded that, please do so now.

The format we will follow will be Chuck will start the caU; Gary and Bob wiu take you through our presentation, Chuck will have a few

concluding remarks, and then we would be happy to answer any questions that you may have.

Before we get started, I would like 10 remind you Ib.t today's presentation may contain forward· looking stalernents. Citigroup's fmanei.l results

may dilTc:r materially from those statements, so please rcfer 10 our SEC filings for a description of the f.ctors that could cause our actual results to

differ from eKpeclations. With thaI said, let me tum it over 10 you, Chuck.

Charles l"rincc - Cit;grollp. Inc.· Chairman, CEO

Thank you and good morning, everybody. Thanks for joining our call. I want to begin by thanking everybody in our leam for delivering a record

quanerly perfOtmance, the best we have everrlone. rro very plcased with the Wlde:rlying health and quality of our business.

I am especially pleased this quarter with a couple of particular ilems. One, the growth in our international franchise. Second. the pe:rfonnance in

our capital markets related businesses generally, especially given the market conditions we all saw in Junc. And thc benefits we are jusl beginning

to see from Bob Druskin's CKpense·led initiatiVes.

Now lale lasl year I Set four clear priorities for Citi in 2007, and weare delivering on all oflJJem. Our fust priority, as you know, was to grow our

US Consumer business. You have seen the progress Qverthe last several Qltarter5 as Steve Freiberg and the team have turned that business. That progress continues this quarter. We had good. strong volume; and revenues we:re reported at 3%, as Gary will take you through. Irs 5% without

Ia.~t year's one-timer. So I continue to see goo~ (tcohnical difficulty) in the revenue growth in that very imponant US Consumer business.

Credil was a drag on our bottom·line results, and Gary will talk about thai in more rletail as he talks about CrediL But I would tell you, I am pleased with the continued nun we see in our US Consumer business.

Our second big priority for '07 was to reweight the Company's revenue mix towards our faster-growing businesses, especially our international

franchises. Again, we see very good results there. We generated record inlernational revenues, grew 34% this quarter; and a record internalional

net income. up 37%. Really a tremendous performance by the leam.

International revenues were 49% of our lolal revenues, up from only 43% a year ago, and I would say growing strongly across atmost all of our

businesses. Now I would like 10 remind you; growth in the inlernational markets is still an enormOUS opportunity in front ofus DI Citi. A large

ponioD of our investment spending has been outside the US, and that will conlinue.

In addition to our organic investment, building all the brancbes, as you know, we bave announced 10 international acquisitions since October of

last year. most recently the transaction wilb Banco de Chile Ibal we discussed yestcroay. I would say that Citi is extremely well positioned 10

grow our inlernational businesses, even with the successes we have had so far. Ithinlc our second-quaner results really are a good measure orlb" momentum we have in these fasl'growing markets.

I would also like 10 call Oul in the reweighting category the growth of our capital markets related businesses, including Markets & Banking. where Michael Klein and Tom Maheras are doing a terrific job; Global Wealth Management. where Sallie is really leading the charge; and

Altemative Investments, where Vi!:ram l"andit has just joined the team to help build that OUL In all of these businesses. we had an outstanding quarter with strong revenue and income g.:owth; and I would again say especially ov=cas,

Our Ibinl goal for this year was effective expense management. My friend and partner Bob Druskin will take you through in a few minules what

we have done in thai regard. rm very pleased with the progress the team is making. We generated positive opecating leverage, I will say, again this quarter, and our rate of bead count ~wth slowed, reflecting what I think is just the start of what will be an ongoing process ofre-engineering to improve efficiency and speed in our business and lower our expenses.

fourth. credit management. Now we are all watching crediL You're walching credit, we are watching crediL We're all watching it very carefully.

Gary is going to take you tbrou~ that in some detaillaler, so I won't do the detail here. But I will leU you I fccl vay good about our processes,

about our risk management systems, and Ibe overall quality of our loan portfolio •.

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JuL 20.2007 110:00AM ET, C - Q2 2007 <;iligroup Inc. Earnings Conference Call

We are·building reserves. But net credit losses and loss reserves as a percentage of loans are steady. So we bave had some significant credit

releases in the past, and an Wlusually low level of net creditlosst:S in the pasL Right now, we are increasing our credit cost as we build reserves,

as we stay ahead of trends in the credit envirorunent. As I said, we are very focused on managing our credit exposures throug/l the cycle.

A few comrnent~ on our recent acquisitions. As you know. we closed the acquisition of Egg in the UK, a tllInsacUon which will bolster our Can!

and online banking businesses around the world. We also closed Grupo Cuscatlan, which enhances-our banking presence in Central America. We have announced the acquisitions of Bank of Overseas Chinese in Taiwan, of Bisys, and of A ro, all businesses that will expand our franchise in, again, higher-groWlh markets. As 1 mentioned, we closed Old lane "",Iy this month, and we expect great things from Vikram Pandit, lohn Havens, and that team.

Most significantly, we now 60% of Nikko Cordial in lap"". I was in Jap"" just a week or so ago, and Japan is a great market. We have also announced plans to list Citigroup's shares on the Tokyo Stock Exch.o.nge. I think the f"maneial services market in Japan is enormouS. I think that

the customers there are hungry for new products. Based on my visit and visits with clientS and with our colleagues at Nikko Cordial, I'm very

excited about the potential for growth in our business in Japan.

So in sum. we are making very good progress. I feci very good about what we arc doing. We have strong volume increases. We have strong

revenue growth. Bob Druskin is leading the ctron to improve our suuclUl3l expense. The international markets arc very, very robust. and that is where our future growth is coming.

Now we still have a lot to do, but that lot to do is really opportunities for us: I'm more and more confident oflbe path we are on. So wilb thai, let me turn it over to Gary and to Bob, who will take you tbroug/lthe results. Then I will come back at the end for questions. Gary?

Cary Crittenden - Cirigroltp, Inc. - CFO

Thank you, very much, Chuck, amI good morning to everyone. 1 am going to S\llIt out with slide I. It shows our consolidated results for the quarter versus the second quarter of 2006. To summarize our second-quarter results, net rev,,",ues grew 20%. Net interest revenue is up double

digits for the f"tTSI time since the third quarter of 2004. Expenses were up 16%. Whether you adjust for the press release disclosed items or look at our results on a reported basis, we had positive operating leverage in the quarter.

The cost of credit was up 50%; and as Chuck said, 1 will come back and describe that. in some detail in a few minutes. Despite the increase in credit cost, pre·tax income was up 19%; net income ITom continuing operations was up 18%; and EPS increased by 18%. OUr return on equity was 20.1% in theqU3Jter.

Included in these results are three items which impact the results for the quarter. First, in the second quarter of2006 we had one item. We booked

a $163 miUion pre-tax gain on the sale orour.upstate New York branches to M&T Bank.

This quarter we had two items. First we released $300 million of pre·tax litigation reserves related to WorIdCom and other research matters, which was a benefit to our expenses in the Market & Banking's business. Second, we had a $96 million APB 23 tax bCllcfit in our Global Wealth Management and Madcet & Banking businesses.

Let me tum nOW 10 slide number 2. This shows a five"luarter trend of some of the key drivers of our businesses. Strong momentum conlinued

across these drivers, wbich were the underpinnings of our 20% growth in revenues.

Momenblm was especially strong in our inJemauonal franchises, whicb drove revenues up 34%. Drivers ornet interest revenues showed strong growth. Consumer loans were up 8% in the US and 25% inlernationaUy. Internationally, organic consUmer loan growth was up 17%. Consumer

loans were up 23 - rm sony, corporate loans were up 23%. Consumer deposits were up 20.% in the US and 15% internationally. Internationally, organic deposit growth was up 8%.

Drivers of noninterest revenues also grew nicely. Credit card purchase sales weze up 6% in the US and 31% internationally. Internationally, organic cardpun:hase sales growth was 23%.

Assets under management weze up 35% in International Coosumer; and ciientS'. assets under management in CAl were up 55%. In our Global

Wealth Management business. 3SSt$ under fee·based management grew 40%,.22% ofthnt organicaUy.

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Jul. 20. 2001110:00AM ET, C - Q2 2001 Citigroup Inc. Earnings Conference Call

In investment bwing, we ranked number one in global debt underwriting; number two in annoWlced M&A; and number three in gJol?al equity

undc:iwriting. We had record r.,venues in equity markets.

Slide number 3 shows the year-over-year revenue growth of each of (lur IJI3jor businesses in the top )Ialf of the chart. The grdph at the bollom of

the page shows a ninc-quarter trend of Ute split between our US. anti international revenue.

US Conswner revenues grew 3% in the qUarter. Filst, the business has sustained a steady growth \(end over the last three quarters. Last qUarter,

adjusting for the gaio from the sale of MastetCaro shares, revenues grew 4%. This quarter, adjusting for the gam from the sale of our upstate

branches in last year's second qUarter, revmucs grew by 5%.

Second, we arc pleased to see the relative growth rates of our businesses. Our capital markets and International Consumer busmesses all grew

revenues at double-digit rates. In lotal, our international revenues grew 34% and our US revenues grew 6%. We are working to reweight Cili to

higher-growth opponunities, and the resuUs of this quarter demonstrate significant progress.

This quarter's revenue growth rate also reflects the impact of acquisitions. Comhined, they contributed 4 percentage points 10 the 20% reported

revenue growth.

The bottom grant shows that our internatiol)31 revenues were 49% of the total Company's revenue base compared to 43% just a year ago. We

expect to continue to reweight the Comp3llY towards the international businesses with a balanced approach of organic as well as acquisition driven growU •.

Slide number 4 shows the US versus international annualized growth rate· of each of our business segments from the second quarter of 2003 to the

second quarter 0[2007. The graph al~ shows the percentage of international versus US revenues in each segment.

The !rend is very clear and reflects Our continued focus on allocating our resoun:es to the fastest-growing international markets. Overall, the

t:;ompany has grown international revenues at strong double-digit annualized rates over the last four years, resulting in those businesses comprising 49% of our t01a1 revenues versus 38% four years ago.

The bar graph on slide 5 shows the nmc-quarter sequential change in our net interest revenue. The table at the bottom shows you the net interest margin for the entire Company for those same nine quarters. .

As I mentioned earlier, we have had strong volume growth in all of our businesses, which has resulted in fairly steady improvement in net interest revenue over the last nine quarters.

At the bottom of the page you see tbe net interest margin declined sequentially by 6 basis points, including and excluding the Gray Zone impact

The benefit from lower cost of funds was offset by growing m lower-yielding assets in our trading businesses.

Now let me turn the presentation over to BOb.to give you an update on our expense performance in the quarter.

Robert Dmskin - Cingroup. Inc. - COO

Good moming. Slide 6 shows the year-over-ycar trend of our expense growth as well as the main drivers of that growth. When we discussed our

structwal expense review back m April. we mentioned that using our public disclosure you would be able to Ir.ocl: our progress in headcouot growth and in expense growth relative to. revenues. On both SlruelW'al expense saves and total hcadcount reductions; we are ahead of our commitments. So we arc pretty pleased sO fur with the initial results. .

GAAP revenue growth as you saw was 20%. GAAP expense growth is 16%. BAU expense growth of 14%; that was rcferencedjust for two items 'which you can sec on the chart. Thc $300 million WoridCom litigation reserve release which had a 2 percentage point benefit; and acquisitions

had a 4 percentage point impact Nikko was the main driver in there, followed by Grupo Uno and CUscatIan.

So BAU revenue growth at 16%~ BAU expense growth at 14%. But a littlc bit mote on BAU expenses. Those.melu!le expenses from the roughly

530 net new bJan<:hes over the last 12 months that we have opened. That was about 800 gross. We closed so~ BUI that added about 1 percentage point to expense growth. .

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More importantly, I think. year-over-year close to 60% of Ihe expense growth was driven by Markets & Bankin~ They have a large degree of

variability in their expenses; and they had a very impressive revenue growth rate that drove that. So expenses generally look okay, SO leI's turn the

page to headcounl.

Slide 7 shows ~e positive trend in our underlying head count groVl.-th rates. Although the graph indicates significanl year-on-year growth, this was driv~ as you can see, preduminantly by acquisitions. Excluding acquisitions, fust-quartcr '06 to ftrSt-quarter '07, just looking back one quarter,

the undetJying growth rate was 9%. Second-{juarter '06 to ~~"COnd-<luarter '07, growth rate of 5%, which is indicative of a decelerating rate of

growth.

Some oflhe factors affecting the year-over-year 15%. as you can see, acquisitions contnouted 10 percentage points or about 31,000 direct staff. Again. the three big ones were Nikko, Grupo Uno. and Cuscallan_ The other 5% includes a couple of percentage points from branch openings. I

mentioned before, we opened about 530 net branches. and so thai added a number of heads.

Sequentially, the story is a little bener and in~icates some of the early effecls of the fust-quarter strategic expense review. If you break down the

quarter-<>n-quarter ",te of 5% and strip out acquisitions which contributed about 6%, the BAU headcount growth was actually down by aboul I percenlnge point In April, we said that we would take headcoUDt down through a number of initiatives by about 17,000. So far. we are tracking

ahead of our expectations to this point.

Last word on the expense review. Just 10 remind everyone, we outlined three major objectives as we went through il_ One was to reduce expense

growth through levers like hc:oiUC!)WlI management, optim.i.tation of IT assets, and expansion of shared services. We are a little bil ahead of our

plans, tnlCking very well. and pleased with that.

We wanted 10 change how we operate io become quicker and more agile_ That is a work in progress, but we're making headway everyday_

Lastly, to sustain and enhance organic investment initiatives. We did nOl wanl to take out revenue-producing capacity_ As you can see by the

growth rates in our revenue, we have been successful in doing that. So, overall, some good progress. more work 10 do. Let me tum it back to

Gary-

Gary Crittenden - Citigroup, Inc. - CFO

Thanks, Bob. fm going 10 tum nOW 10 slide number 8, that shows the year-ovcr-year growth in the various components of our lOin! cost of credit and the key drivers within each of those components.

We anticipated that credit cost would be a difficull comparison for this quarter. While conditions remain generally stable. there are a number of

facto~ that affect the comparisons this year over last year. The combined result of these faclolS was an increase in our total COsl of credit 0($934 million. or InCre than a 50% increase.

As the chart shows, we had a net release ofS210 million in loan-loss reserves last year do 10 the particularly strong credil environment at the time

and iower-than-expected banlcruptcy filings in the US. Net credit losses were up by $259 million. driven primarily by our Global Consumer business_

In Consumer, key drivers are higher balances from organic portfolio growth and acquisitions; continued deterioration in the second mortgage

portfolio; and the impact of the Gray Zone in 'Japan.1n Markets & Banking, We continued to see a stable credit enviromnenl.

The thinl component is a $465 million net increase in the loan-loss reserve. There wete two major drivelS of this increase.

FilSt in the US Cards business, the increase was driven by a change in the estimate ofloan losses that arc inhermt in the portfolio. It is iinportant

to DOle that the Wldcrlying credit metrics have remained largely stable: in our Cards business_ 'lhi5 reserve build re1lects our focus on staying

ahead of the visible credil trends. by considering as many ~CIOIS as possible in establishing our reserves.

Second. in the international Cards business, porlfolio growth and seasoning and the Impact ofreccnt acquisitions resulted in higher· resavc levels.

I wjll give you a sf'JISe of how to think about these overall credit costs in the thUd quarter in just a few minutes. .~

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FINAL TRANSCRIPT

Jul. 20. 2007 I 1 0:00AM ET, C - Q2 2007 Ciligroup i~c. Earnings Conference Call

Slide 9 provides an update on ponfolio trends and quality. The top two graphs show consumer and corporate net credit losses and loan-loss

rescrves as a percentage of loans. The bottom grids are an update on our pollfolio. showing the loan-to-value and FICO compariscns of our first and second mortgage portfolios in the US Consumer business.

I..et me talk about the Consumer business, which is on the top len box on the page. The graph demonsllates thaI loan-loss reserves and NCLs as a

p=c:ntage of tI", Consumer loan ponfolio have held Sleady. Exciuding the impact of Gray Zone, tI.e ratio of NCls 10 average loans bas been

fairly stable until this quarter, where you can see a sequential improvement of 12 basis points.

A comment on this. The second-quarter NCL ralio is affecled by the number of acquisitions thaI Were closed in the quarter. When loans arc

acquired, they're booked on our balance sheet at the estimated net realizable value. which results in lower NeLs in the early months fonowing the

close of a transaction. In our organic poI1fOli". the underlying NCL ratios continue to be stable.

Loan-loss reserves as a percentage oOoans are sequentially higher; but they're in line, as you can see, with our year-ago levels. Looking baclc to

the fust quarter of 2006, this ratio was 1.44% and has consistently declined since then, until last quarter when We started to sec it tick up. Th"

declines were 3 reflection of a particularly favorable credit environment over the last several quarters. The increase nOW is a reflection of the current envirorunent, which warrants the addition to our reserve levelS.

On corporate credil, which is the graph on the top righi-hand box of the page, you can see the NCL ratio has bocn very stable and the loan-loss

reserve has declined. Here, the loan book has grown substantially over the cowse of the last severnl quarters, bul our losses remrun at very low

levels.

On cash basis, corporate loans were $599 million in the quaner on a toul corporate loan portfolio of $192 billion. The credit environment for

corporate loans remains stable.

In both our fust and second mortgage portfolios, as you can s"" from the grids on III .. bottom of the page. the quality of our portfolios continue to

be very good. There arc no meaningful changes from the results that we presented to you in this same [onnat in the last quarter.

Additionally. in our Consumer Lending fust mortgage portfolio, we have seen approximately $3 billion or approximately 4% of our portfolio of

adjustable-rate mortgages reset in the fust half of the year_ 85% of our resets bave been in higher FICO and lower LTV categories. As we look to the remainder of the year. we see similar levels ofresets in the portfolio.

Slide 10 shows a number of key capital ratios 3nd the return on conunon equity for the quarter. The Tier I capital ratio for the second quarter was 7.9%, down from 8.3% in the first qUiIJ'Ier. The TeE to riSk-weighted managed assets is at 6.3%, down slightly from last quarter. As we sDid

before, we target to keep our Tier I capital rnIio ahovethc 7.5% level and theTCE to RWMA ratio above the 6.5% level.

Both the Tier I capital ratio and the TCE to risk-weighted managed assets ratio reflect the impact of acquisitions that we have done over the

"ourse of the lasl few quart=.

The leverage ratio, whiCh is the ratio of Tier I capital to average leveraged assets, stands at 4.4% this quarter. down from 4.8%, driven by

acquisitions and organic asset growth. As we said in last quarter's earnings call, given the pace of acquisitioos recently and the opportUnities that

we saw ahead at the time. we did not anticipate any further buybacks for the remainder of this year. lbat view has not changed.

Ourretum on equity was 20.1%, driven by imprOVed perfonnance and increased leverage.

Now I willl3lce you briefly through the resUlts of each of our major business lines. Slide II shows the results in our US Consumer business.

Revenues were up 3% as we continued to sec good volume growth from our strategic actions.l.ast year's second' quaner included a $163 million

pretax gain frOm the sale of our upstate New York brancbes. Excluding the gain nom last yeats results, revenue growth this quarter is S'JI .. Expenses in the US Consumer remained in check and grew by 3%, in line with the rale of reported revenue growtb and bClow the rnIe of revenue

growth when adjusted fOf the gain on sale orour upstate branches. The feported margin improved 3%.

This is tile third consecutive quarter of positive operating leverage in the US Consumer business, adjusted for press release disclosed irems.

However, earnings were down as credit costs incn::ased by $671 million. including the impact of$274 nullion in reloses in the second quarter of

2006, and the reserve build we booked in US Cards, which J previously di~sed. and a difficult year-over-year comparisoo on our US Consumer Lending business. .

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FINAL TRANsCRlyr

Jut 20. 2007 110:00AM ET, C - Q2 2007 Citigroup Inc. Earnings Conference Call ---_._------------------------------'

On slide 12, which you have sem before, we show a 14-quarter trend of revenue growth in our US Consumer business. The graph shows the emerging momentum over the last foue quartCIS, both ycar--ovcr·ycar and scquCJltiaily. This quarter, while reported revenue growth is 2.7%, if you adjust for last year's second-quaner gain on the sale of our upstate ~ew York branches, the growth rate is 5%. While we have a Jot more work to do, wC're pleased to see the cootinutd positive (rcods in Ihis busiJlcss.

Slide 13 shows our results of the International Consumer business which have been significanlly affected by tbe results in Japan Consumer Finance. So let me start with tbe impact on Gray Zone this quarter. We had a loss in the Japanese Consumer Finance business this quarter of S33 million, which reflccts higher refunds and credit costs_ In January. we bad said that while "there was a significant uncertainty in the consumer finance business in Japan, we expected it to break" even in 2001 and return to profitability thereafter. However, the situation remains unpredictable; and given our recenl experien~e with the level of G",y Zone related refund claims, our best estimate now is that the business will have nctlosses in 2001. We continue 10 analyze the profitability prospects for this business thereafter.

Now let's put Jopanese Consumer Finance aside and look at the remainder of the results. As you can see from Ibe middle section on this slide, excluding Japanese Consumer Finance, International Consumer revenues are up 24% and pretax income is up 5%, net income "down 3% as the change in tax rates due to the absence of prioT-ycar tax bcn~fil< calL<ed a 7-point negative impact on net income growth.

At Cards, average net receivables grew 44%, reflecting both strong organic growth and the impact of acquisitions. Organic "",coue growth in Cards was evident in all regions outside of Japan.

Retail Banking revenues were up 19%, driven by strong loan deposit and investment product .sales growth. However, continued investment spending. higher credit cosIo and the impact of a reservc release in last year's second quarter, and lower tax benefits this quarter drove net income down 6%.

Oulside of Japan. Consumer Finance receivables were ul' 20% and revenue was up 23%.

International Consumer expense growtb reflected the acquisitions that closed during the year and the continued investment in our distribution network. We opened 220 retail bank branches and 3 t 6 consumer lruance linmches in the last 12 months. Credit costs outside of Japan Consumer Finance were $948 million, reflecting the results from acquisitions, organic portfolio growth and seasoning, and the absence of prior-year releases at si 05 million in our International Retail BaRking business. "

Now for the total business, [the net} impact on Gray Zone, the higher credit costs, and the continued investment spending resulted in a decline in net income of 16%.

Slide 14 shows the results of our Markets & Banking business. 11le business bad a record quarter with revenue growth of33%, with outstanding

international results. International revenues grew 50% and comprised two-Ulinls of the lotal Markets & Banking revenues, reflecting the strength of our franchise outside the US. Our emerging markets business wal' panicularly strong in the quarter.

Equity markets had record revenues, up 61%, driven primarily by our derivatives, cash, and equity lmance businesses. Fixed income revenues were up 24% driven by strength in credit products, securitized products, and commodities, despite the recent events in subprime and levenged fmaoce markets, which I will come back to in a minute.

bt our investment banking businesses, we mnaiJ,J nwnber one in combined global equity and debt underwriting fo~ the 23rd consecutive quarter.

We had record revenue results in equity underwriting, up 90%. Ow: advisory business was up 34%. Our traDsac:lion serviees business posted record revenueS and net income with key drivers growing at dOUble-digit rates. Expenses increased J 9%, driven primarily by compensation and benefits costs, which were up by 29%. Expenses also reflected a S300 million benefit &om a release of litigation reserves related to the

WorldCom and olba research mall=. Adjusted for this benefit, expenses were up 26%, stiU well below the ~wth rate in revenue.

Record revenues in many products and regions, and slable expenses and credit conditiollS, drove net income higher by 64% over last year's

second quartet". The investment banking pipeline increased during the quarter to or at near-record levels. The pipeline is higher than at the beginning of the year, even after achieving the two best revenue quarters ever in the lu-st half of this year.

Now, let me spend a minute talking about two topics, the sUbprime secured lending market and our levaaged Icmling activities. Our subprimc

exposure in Marl<:ets & Banking can be divided into two categories, which together account for 2% of the Securities and Ban1cing revenues in 2006. The rust is secured lending and the second is trading,

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FIt'lAL TRANsCRIPT

§. 2001110:00AM ET, C - Q2 2001 Ciligroup Inc. Earnings Conference ~II

Wilh regards 10 secured lending. we have been actively managing down ow- exposure for some time. We had $24 billion in assets here at Ihe end of2006. It was at $20 billion at the end of the flfSt quarter and $13 billion at the end of the second quarter. while adjusting at the same time

collaternl and margin requirements.

As for our !Jading activities. we continue 10 be an active marketmaker. As such. we hedge our risks, using a variety of methods to monitor the heallh of OUf countetparties very carefully. We monitor everY aspect of our .-ubprime bUsiness daily. and we havc a rigorous process in place for marking our book: using fundamental valualion techniques. market references, and liquidity analysis.

Let me now tum to leveraged lending. which accotmletl for roughly 5% of our Securities and Banking revenues in 2006. As of June 30, therc were four commined transactions which required repricing. For those lnII1Sactions. we took maries on our commitments and positions, which flowed through our revenues in Ihe second quarter. Leoking ahead. we ha~e commined to flllllllce other similar covenant-like uansactions which will likely require an adjustment to price and lenns.

Fundamentally, we believe these are high-quality loans which when once repriced will get sold. Were we to relain these loans on our balance sheet, we would be comfortable with the credit quality. In a small subset of these InII1Sactions we have equity bridge commitments, which we take on selective:ly for top tier clients in connection with our leveraged fm:lncing.

The strength of our balance sheet, our capabilities. and our ability to deliver for clients in tough conditions are the primary reasons lhat some of

the largest sponsors with the best track records do business with Citi.

Slide IS shows the results in ow- Global W"1llth Management business. Revenues were up by 28%, driven by strong customer activity and the inclusion of Nikko and Quilter. Assets under fee-based management were up 40%, driven primarily by tllC consolidation of Nikko and an increase in marlcet values. Net interest margin increased over last year, benefiting from the introduction of a bank deposit tiering program which

helped offset yield pressures on loans. Expenses were up ·25%, driven by an increase in compensation costs on higher revcnues and the addition of Nikko and Quilter. .

One point to nOle, we completed the integration of Ciligroup Investment Services, which previously managed and was reponed in Retail Distnoution, into Smith Barney. This resulted in a transfer of 686 FAs and $47 billion in clients' ~ets into Wealth Management during the

quarter. Results also include an APB tax benefit of .1>65 million in our international private bank.

Strong revenue growth, good expense e:onlrol. and the integration of Nikko and Quilter drove an increase in net income of 48%. Net income. for Ihequartc:r was a record. Adjusting for the APB tax benefit, net income grew by 29%.

Slide 16 shows results in the Alternative Investments and Corporate: and Other business. In Alternative Investments Ihe performance was very strong in Ihe quaner. Revenues and net income each increased by 77%, driven by proprietary investment activity revenues, up 87%, and growtl) in client revenues, up 26%. Revenue: growth renccted both realized and mark-to-market gains· across private equity, hedgc fund, and other portfolios. Client capital under management increased by 55%.

Lastly, Corporate and Other income declined, primarily reflecting higher corporate-level costs which were partially offset by improved treasury

results.

Now on slide 17, I looJc ahead to the results in the third quarter. I would like to discuss those in the context of the third quanerof2006.1be third quarter of 2006 poses a number of unique year-{)n-year challenges which will impact our results in the third quaner of 2007. So there are a few items that are important to consider with relationship to revenues.

We expect the pressure on the Japanese Consumer Finance business to continue, resulting in challenging year-over-year compariS(lJls.

Second, while I can't predict revenues in our Markets & Banking business, in four out of the last five years, the third quarter of the year in the MiUkclS & Banking business has shown a 14% sequential decline on avcmge in rcvenu<'S, .-eRecting the impact of slower summer months.

Third, in our Alternatives Investment business, we said last quarter lhal, based on realized gains in the fourth quarter of last year, we expected total gains to be lower than in recent histOly in this business andror the remaining quarters oflhis year. While this.quartcr's RSlJIIS underline the earnings potential of this business, our fundamental outlook remains unchanged for the remainder of the year.

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FlNAI. TitANSCRJYf

Jul. 20.2007 110:00AM ET, C - Q2 2007 Ciligroup Inc. Earnings Conference can L-________________________ .. __ ....

-------------------------------~

Finally, as you likely know, we sold 41 or Dearly 42 million shares as part of the Redecard !PO on July I I, which will result in an after-taX gain

of approximately 5400 million, which will be recorded in our third· quartet 2007 results.

Expenses in Ihe lhird quarter of 2006 were the lowest in the laSI six quaners, primarily reflecling reduclions in advertising and marketing ~-p<:nd in

US Consumer and lower compensation expcitse in Markets & Banking_ As you saw on slide 6, which Bob took you through, expenses in last years thin! quarter were 65% lower than in the second quaner of 2006, and 14.5% lower than in the fourth quarter of 2006. nus quarter's

expenses are up 24% versus last years third quarter.

As we cODtinue to invest in our businesses, we expect Our expenses to grow sequentially and year-over-year, which will make next quarter's

comparisons challenging.

As we had talked about in the last earnings call, the rust Iwo quan= of2006 had over S350 million in combined net credit releaseS which made

our first and second quarter comparisons difficult. In the third and the fowth quarter, we didn', have any meaningful nel builds or releascs, which

- all else equal - wiD make the comparison~ bener. lei me talk about three specific items to keep in mind as you consider credit costs for the third quarter.

Firsl, wbile the credit environment still remains good, we continue 10 expect deterioration in credit as the year progresses, as the industry is coming from extremely low loss levels in Il!e Iasl two years. <

Second, if the market evolves in line will! our expectation of continued deterioralion in the credit environment. and it revertS to a more normal historical level. we would likely make meaningful additions to our loan·loss res~ in the second half of the year, as we did in the rust six

months or this year.

Third, nel credit losses and reserves should continue 10 grow in line with our portfolio growth. To the extenl our portfolio has grown through

acquisitions, we expecl to see higher credit costs in the thinl quarter of 2007 versus last year's comparable quarter, as the number of these

acquisitions will be reflected in Ihe results.

Fmally, we had a $254 million tax benefit in-the third qU3r\er of2006, which resulted in a lower than nonna] effective tax rate of21.40/0.

In SUmmaJ}'. while we are very pleased with our revenue momentum in the second quarter. we expect expenses. credit. and taxes will be a challenging COmpariSOD in the next quarter.

To wrap up, we had a very strong quarter. V'fe had double-digit revenue growth on strong underlying business drivers; good expense leverage;

and exceilcnt perfonnance in our international franchise. lei me now twn it bacle. to Chuck for his closing remarks .

. Charles Prince - CitigroufJ' Inc. - Chairman, CEO

Gary, thank you Vtty much. You have heard Gary focus OD the Ycal"-over-ycar con:;iderations for the third quarter. Let me look just ahead a little bit,

We arc malcing vay, very good progress on the four priorities we set for this year. As 1 said. the tum in our US Consumer business is sustaining.

rm very happy with the rewcighting of our Jpix of revenues 10waul$ our International Consumer, towards our Capital MarJi:ccs. and our Wealth

Managcmc:nt busincsscs. Again, and, rm very happy wid. the 35% growth in internatinnal nel income. rm especially happy with the 68% ownership in NikIco ConliaL

Bob's etron on ClCpensC management and efficiency are beginning to show good progress, and there is a 101 of runway there ahead of us. G3I)' has talked at length about how we are managing credit very carefully.

Our geouaphic and product divCISity distinguishes the opportunilies we bave from those of our competitors. Our ahility 10 execute on OlD'

strategic plans, which should be evident this quarter, distinguishes our results fiom our competitors. We are on the right tractc. and we are

delivering.remlts. We are getting it done. as our new advertising slogan says; and I'm very optimistic about our futu~ growth plans. So with that. Art, I think we are ready for questions.

Art TildesJey - CiJigroup, Inc.. -J)i,ect",./R

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Jut 20_ 20071 1 0:00AM ET. C - Q2 2007 Ciligroup Inc. Earnings Conference Call --------.----------------------------------------------~

Thanks, Chuck; and operator, we are ready to begin the question-and-answer session. Before we do, if I may jusl ask for those of you OD the call

if you could limit your questions to one question and one follow-up, that would be much appreciated. So operator, we are ready to begin.

QUESTION AND ANSWER

----------------------------- .. -... ------.--------~-----------------

Operator

(OPERATOR INSTRUCTIONS) Glenn Schorr with UBS_

GleDD Schorr - UBS - Analyst

Thanks very much. Gary, appreciate the extra color on the hot risk lopics. I wonder if We could drill a little bit more. In, say that on the leveraged

loan side, can you talk a liule bit of about th~ process? last quarter I think there was a $286 million reserves build inside [C&B]. But on page 35

you have provision forunfunded lending commitments at zao for the last three quarters. You have a $1.1 billion 3l10wance.

Can you talk about how big the leveraged loan book is? How yOu think about IIIC hedges, and what you're thinking model-wise as you move

forward on that reserve front? As you mentioned you had four deals repriced by June; but things have gORen worse suice then. That would be helpful.

Gary Crillenden - Citig,oup, Inc. - CFO

Yes, let me -- there's a couple of different fa,:tors I think that are cmbeddedin your question, Glenn_ Let me try and kind of separate them out a little bit in can.

I went through one chart that showed a little bit about what our corporate credit performance had been for the last few quarters. I think it is slide numba 8 in there; it's a slide on page 9 in the deck that we showed.

We have had extraoIdinarily strong loan-loss performance over Ibe last few quaners. AS you know, we added' $300 million to our loan-loss

reserve in the quarter that we JUS! completed. We actually had net recoveries in this quaner, rather than losses. So we feel very, very good about

the strength of our currenl loan·loss reserve in our corporate business for both the on-balance sheet activities as well as for the ID\fundc:d commitments thaI we have. We feel very comfonable wilb that.

The issue wilb'regards 10 the loans Ibal have not yet been syndicated is nOI really a ~redit issue lor the most part. It is really a pricing question. So as 1 mentioned, at the end of the Second quarter we had four transactions that were essentially in-flight. With Ibose four transactions, we toolc reductions; we took marks essentially against those in anticipation of the fees that we would recognize during the course of the thlrd quarter on those four ttan5actions.

We bave other transactions which have been kind of worked on during this time period where the market bas been somewbat in dislocation. As a

result of that. our current expectation for revenues, the revenues that were realiZed there - not the credit losses. but the revenues that were realized there - are lower than it was at the time that those were initially priced. 'That is going to bave: an impact on Olll" revenue' growth rate.

I underline overall that this high-yield and I~"",ged loan business together accounts for about 5% of our Securities and Banking revenues. So

although it is an important business for us, it is not a huge: business for us in the 'overall schaDe of things.

So we arc: comfortable with the underlying credit quality of these credits. We underwrote those as part of the normal process. Bu! we will sec some revenue effect likely from the deals that arc underway.

'. Then the final dement of this is we do bave the ~ctions Which have bappencc! since the envirorunent bas changed. Those are now being done

with a different $ct oftenns, with a different level of pricing than existed before perbaps a month .or so ago. I think this is a retum to the kind of nOrmal activity that you would see in the marlce!.

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I Ju,1. 20. 20071 1 0:00AM ET, C - Q2 2007 Citi~,_r_ou_p_l_n_c._E_a_m_in_g_s_C_o_n_fe_re_n_ce_Ca_I_1 _______________ ---',

So we have seen a change in lIle market. It happens in markets 31111le time. We have seen 3 change in lIle market; and one of the reasons people

do business with US is we have an ability 10 have staying power as we go through 3 market dislocation like this.

Glenn S~borr - vas -Analyst

Just making sure, from your comments, I read in thaI Ibe four Ibal happened la:st quarter you look mark.< on; !hat means eve:ything else on the

books is still marked as a loan. In olber words, they are not marked-Io-market on a day by day basis? As Ihey cOme - pricing, you get more

visibility on a deal by deal, do you take marks Ihrough the ["Venue line?

Gary Crinenden - Citigroup.lnG - CPO

Yes, essentially COlTect. What we do is we anticipalc. We anticipate lIlat - what the pricing is going to be at the time Ihat we kind of make a judgment about what that is. We mark those loans then appropriately. anticipating what Ihe pricing is going 10 be. That may be higher or lower

than the actual fees that we have committed 00 1Il0se loans when they acruaIly go Ihrough syndicalion.

Glenn Scborr - VBS - A""lyst

Okay. and then JUS! one other quiCk random .. On slide 2, all the key revenue growth drivers, arc those organic nwnbers? Or is it a blend, meaning all the acquisitions add in there as well?


II is a blend, Glenn. But to lnaJce it useful for you, on lIle international side. roughly a third of Ihose growlh rates come from acquisitions. That is not exactly accwate, butjusl for simplicity's sake aoout a'third of the growth rale is acquisitions.

Glenn SchOrr - VBS - Anafytt

Good enough, still big growth. Okay, thank you.

Operator

Guy Moszkowski with Merrill L}'llch.

Guy MoSZkowski - Merrill Lynch - Anaf.yst

Good morning. Hate to beat a dead horse, bilt on the loan syndications front. can you give us some idea of the extent to which. despite the very

robust capital markets and banking revenue results. you actually did lake some of the hits thai you were describing?

I look at SOrt of the combination of advisruy fees, debt underwriting fees. debt trading revenues, and lending ""'CIIUes. When you add them all up, they an: down about S500 million fiom the first quarter. Is a good chunk of that some of these reserves thaI you took? Or not reserves; they arc Joan pricing hits.

Gary Crittenden - Citigroup.I"c. - CFO

The marks that you tallced about wa-c nol nearly of that order of magnitude in our reSults overall. So lIley were much smaner than thaI on the

four deals that I tallced about aI the time IhaJ we ended the third quarter - I'm sony. ended the second quarter. ._

~,

Gay Moszkowski - Merrill Lynch -Anal;yst

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FINAL TRANSCRIPT

Jul. 20. 2007 110:00AM ET. C· Q2 2007 Citigroup Inc. Earnings Conference Call

Okay, thank you. On Consumer Lending, US Consumer. there was a big inerease in the loss ratio and about a $0.5 biUion upswing in delinquent

balances. You did add couple hll11dred million dollar.; in specific rcserve build, I guess. in rcserve build in the rust quarter. Bul only about $39 million additionally added this quartcr, even though you did see the swing in delinquencies this quarter. You have about $57 billion, IIhink. of

subprime assets.

Could you giv~ us a lillie bit mOre color on thc process in lhinking aboul whal those n::sc:rve additions shuuld have been'!

Gary CrillendeD - Citigrotlp. Inc. - CPO

As you might guess, we go through this and look at quarter by quarter. and we make our best estimate as we go through each quarter about how

we think the losses that are inherent in our ponfolio will evolve over time.

We did that in the rust quarter. took some charges in the rll'Sl quarter. Wc took additional charges in the second quarter that we just came through that wac primarily. in this particular case, related to the US Card business.

So you won't necessarily see in lockslep additions to reserve in each business that tie directly to the delinquencies as they are evidenced in that

quarter, bocause we may have in a prior quaner anticipaled that and expected thaI thaI would be apparent in futllCC quarters, and have already

taken aclions on that.

So, I don't - you can't draw a one-to-one relationship br:tweOl change in delinquency or improvement in delinquency and changes that we make

in the loan-loss reserve on a particular line item. J think you really have \0 kind of focus on the overall reserving process as we go through and

look at each of the individual lines ofbusiness.

I think the important thing herc is that our expectation continues to be that we're going to see some deterioration as we go through the year. As J said in my earlier comments. if that eKpectalion is true !hen it is very likeJythat we will have the same -- similar [barely] material additions to our

. credit reserves as we go through the remainder of the ye<U'. .

Guy Moszkowski - Merrill Lynch. Analyst

Okay, then if! could just ask a question opernting leverage in the consumer businesses. 11 does seem, if you drill down business by business. it does seem like it is still weak. We saw positive operating leverage in the US and international Cards business, although the US Cards business

hasically better because it has got declining revenue. But in the other consumer businesses globally. it really did seem like the operating leverage

was slill kind of weak.

Should we expect that- those metrics to improve over !he remainder of the year. given Bob's cost management programs?

Rob~ Druskin ~ Citigroup, Inc. - COO

II could be, although 1 would tell you that we're still opening branches al a pretty healthy rate; and branch openings have a negative impact on

operating leverage as you r.amp those up. We-are SliD pending pretty heavily too. especially internationally. as we grow those businesses.

We could ratchet those marketing and advertising numbers up and down. We could slow or quicken the rate of branch growth, which we are

looking at. But as we open branches - and we are doing it in significant numbers - that is going to l!ave a depressing impact on operating

leverage. But again, that is a dial we can ratchet up or down.

Guy Moszkow.ki -Merrill Lynch-Analyst

Are you·stiD operating pn:tty much within the contcxt of the ::10% or so reduction in that investment sPc:n!fing that ~~ had outlined lale last year?

Roben'Druskia - Cidgroup. Inc. - COO

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Jul20_ 2007110:00AM ET. C • Q2 2007 Citigroup Inc_ Earnings Conference Call

Y cs_ The anSwer is yes_

Guy Moszkowski - Merrill Lynch -Analysr

Okay. great_ Thank you very much-

Operator

Mike Mayo with Deul~che Bank

M.ike Mayo - Deutsche Bank - Analyst

Good moming_ Could you provide more color on the expense progr;lll1? You have had two quarters in a row ofposilive op .... ling leverage- How

far along arc you in Ibis program?

Robert Druskin - Citigroup, Inc. - COO

Mike. this is Bob_ We laid out some numbers in the April review, post the flfSt-qwuter strategic expense initiative; and we are tracking pretty much right along the path we thought we would be-

J expect that over thc second half of the year, we will conlinue 10 move forward anti bit Il'e numbas we oullim:d in April- We are a liule bit ahead_ I wouldn't say we arc materially ahead, but we arc allead both on expense initiatives and headcount reduction_

Again, we are tracking Ibis with great specificity. We have a few hundred projects underway. For each one we mow how we are tracking along a

monch-by-month timeJine, which ones are ahCad. which ones haven't st3Jted yet - because some of them have a longer tail to them.

But I would also just say chat wbat we did say we would do is slow the rate of expense growth, which we are comfortable that we will do_ Ocher

!han the kinds of variable expenses chat you see in Smith Barney and in Markets & Banking in particular, which are heavily revenue driven or

pretax pre-comp driven. But in teons of how I feel about where we are, we are right on target so far.

M.ike Mayo - Deutsche Bank - Analyst

What perccot of the savings have you achi"'~?

Robert DruskiD - Citigroup, Inc. - COO

It is less than balf.

Mike Mayo - Deutsche Bank - AIIQIyst

That helped Ibis quarter, though, gel positive operating, the leverage, or not yet?

Robert Druskia - Ciligroup, Inc. - COO

Yes, it did help. Mike.

Mike Mayo -DelUSChe Bank - AlIQlyst

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Jul. 20. 2007 110:00AM ET, C • Q2 2007 Citigroup Inc. Earnings Conference Call

Okay, then a related question as it relateS to revenue growth. International Consumer revenues are growing almost 40% annualized. Even if you

take otI one-third, that is kind of a higlt pace. Is anything seasonal in that? Why such an acceleration?

Gary Criltenden • Cifigroup, Inc. - CFO

We have enonnous success in emerging markets in thc Markets & Banking business. It really is a distinctive competence of the Company and is

really the primary engine behind that revenue growth.

So obviously on the conswner side, we did well. If you adjust for the Japanese Gray Zone impact, that was up 24%. But the number thaI is =lIy powering the number thaI you're seeing is the'enonnous success thaI we have seen in t:lJIcrging markets with the Markets & Banking business.

Mike Mayo - DeutsdJe Bank -Analyst

Is there anything seasonal. though, or something that is temporary?

Gary Crittenden - Ciligroup, Inc. - CFO

Well, (multiple speakas) there always is a seasonal pattern where on aVCl"3ee, four out of the last five years, there has been a reduction of about

14% or so in revenues from the second quarter to the third quarter. That doesn't mean it will happen this year, but historically that has been the case. So th ere is a bit of a seasonal pattern.

Obviously, those are v~ hot marl<ets today with lots of equity underwriting oppoltunities. You saw our equity underwriting was up 90% in the

quarter. You mow, a lot <If thaI is coming from these rna.-kets wbere there is a lot of entrepreneurs coming to market for the fust time.

Mike.Mayo - Deutsche B"tlk - Analyst

AcruaIly. Gary, your ROE is above your IMget this quarter. I thought at American Express YOIl were pretty ROE focllsed. Any thought in changing the ROE target?

Cary Crittenden - Citigroup, Inc. - CFO

The 20.1% came together both because of the performance of the Company and the leverage. As we: talked about in the: material that I prepared.

we anticipate actually bringing our leverage down a little bit We are a little higher than we typically would target. That will bring our R&D -will bring our ROE more in line I think willI where we have been from a target perspective.

Mike Mayo - Deutsche Bank - Analyst

All right, thank you.

Operator

Jason Goldberg with Lehman Brothers.

JaSOJl Goldberg • Lehman Brothers· Analyst

1Wmk you. I was hoping for a bit mOre color in tams of the I guess reserve build or changing methodology in Card, I guess given the fact that just Card losses J guess h.aVIl been kind of running below Ilhink where we would bave thought they would have..[spent) over the last several quaners.

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FINAL TRANSCIUPT

Jut. 20. 2007 110:ooAM ET. C· Q2 2007 CitigrQup Inc. Eamings Conference Call

Gary Crittenden - Citigroup. Inc. - CFO

Again. I think it is vay similar to what I had said a little bit earlier. So, when we established these rcservCS. we obviously have an Wldcrlying

methodology that we rigorously adhere to; ·but we also exercise management judgment to a catain degree. We try and look forward and

anticipate what losses would actually emerge in these portfolios·as we look forward into the coming months.

We have Went throueJt that pr=' in US Cards and do:ided that we were low this quarter and needed to add to that reserve relative to what our

expectations are. So even though you don't necessarily see ;1 show up in the 90 days past due, for example. in the US Card business. it is our expectation that we will see it over time. The result of that is we added to the reserve.

Again. that is the exact process that we continue to do in each business in each quarter. Our overall assumption is that things are going to continue

to deteriorate somewhat during the remainder of the year, and we will take reserves as appropriate as that materializes.

Jason Goldberg - uhman B~oth~rs - Analyst

Okay. Then I guess secondly you had a litigation release, reserve release in the quarter. J Ihink your reserve is slilIlike at around S3 billion or so. Should we kind of expect, I guess. conlioued releases? Or I guess where are we in thaI cycle?

Gary Critleuden - Cit;g~ouP. Inc. - CFO

rro the least qualified person 10 speak on that topic; so we have a very careful process that the General Counsel's group goes through to make

these decisions. They arc usually evenl-driveD. and that was the case in this particular circumstance. They are event-<lrivcn when we have either a

court case decided or some specific event happened. and it results in eitlicr a reserve build or a reserve release. In this particular case we had and event happen that triggered this particular release.

Jason Goldberg - uhman Brothers - Analyst

Okay, thanks.

Operator

Steve Wharton with JPMorgan.

Steve Wharton - JPMorgan - AnDlyst

Hello. GaJy. could you just elaborate a lillie bit? J think you said that you had - you were down about SI3 billion in the investment bank in subprime-related assets. .

Gary Crittenden" -Cirivoup, Inc. - CEO

Yes.

Steve Wharton - JPMorglln - ANlIyst

Can you just maybe characterize a linle bit more? Does this consist of. say. residuals. loans themselves that have yet to be securitized? Just \0

give us a little bit more comfort around that number.

Gary Critteuden - Citigroup.lne. - CFq

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Jut. 20. 2007/10:00AM ET, C - Q2 2007 Gitigroup Inc. Earnings Conference Call

Sure. Yes, this is -- think about this as Ibe COOS, Ibe CLOs, and Ibe secured assets that we hold on our balance sheet. I think our risk team did a

nice job of anticipating Ibat this was going to be a difficult environment, and So set about in a pretty concentrated effort to reduce our exposure

over the last six months.

So it was at $26 billion as we ended the year last year; and we stand at about SI3 billion loday. Embedded in that SI3 billion are our residuals. Tho residuals now are around S800 million, something like that. That number will be in our IO-Q when we publish it; bilt around $800 million.

That would - S800 million. That will be down from about SI billion or so, I think, roughly atlbe end orlbe IU"S! quarter.

So this is something, obviously, that we have our eye on, Ibat we're watching very closely, and that over time we have brought down to a lower level to reduce our exposure Ibere. As I mentioned, Ibis exposure has come down while we at Ibe same time have been worlcing on enswing Ibat we bave Ibe right terms and covenants and conditions associated wilb lbal thai we hold.

S() Ilbink we are on a track that is a p()Sitive track. But I Wlderline Ibat this is a very uncertain environment righl now. II is very difficull, I think. for anyone 10 say exaclly h()w Ibis market evolves over Ihe next rew quarters.

Steve Wharton -JPllforgan -AlUllyst

Okay, d,ank you.

Operator

[Ron Mandel] with [GIC].

Ron Mandel -/GICJ - Analyst

Hi, thanks. JUS! in regard t() bridge loans, you responded about the magnirude was considerably less in the write-doWllS than the drop in revenue in the second quarter. I was just wondering if the third quarter had ended yesterday. what comments you would make in regard to the write·downs that you anticipate for the quarter.

Gary Crillenden - Citigroup, Inc. - CFO

Well, it is really hard to say because it will depend, obviously, on the environment here. You know, the month of Augusl is a slow month, generally, for this lcind of activity. So it is very difficult to say.

I Ibink everybody everyone will have a better idea when Seplember comes around and is just a more normalized level of activity than We know today.

Ron Mandel -/GIC} -Analyst

But if the quarter bad ended yesterday, what would be your expectation?

Gary Crittenden • Citigroup, In~ - CFO

The total size of !be aotivity that we have is larger thail the four that I had mentioned just a few minutes ago. The total size of activity that we have that will get priced in this quarter is larger than that. So.

Ron Mandel • !GIC! - Analyst .. By Itow much is it larger?

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Jul_ 20. 2007/10:00AM ET, C - Q2 2007 Citigroup Inc. Earnings Conference Call

Gary Crittenden· Citigroup. Inc. - CFO

Well, we don't - we didn't quantifY that, but it is larger than what I talked about before. The best way. I think. for me to quantifY this is that we have a -- it is roughly - this type of activity, the leveraged loan business and the high-yield business, r<:presents about 5% of our total revenues.

This would he a revenue-related impact if we have to change the terms on these loans.

So, again as I menlioned before. it was a small part, a relalively small portion of the $500 million reduction that was mentioned earlier on the call, On the four loans that we took at the end of the second quarter.

So what I am really reflecting here is that it is just very difficult right now 10 reflect what that revenue impact will be. Il just would be hard.

Anybody who would be making that kind of a forecast would be trying to rely on things that simply have not yet bappened.

Ron Mandd -{GIC} - Ana(yst

But the related dollar amount is larger, so possibly the dollar amOlUlI orlhe write-dOWDS could be larger.

Gary Crittenden - Ciligrollp. Inc. - CFO

Y !:s. Yes, it eertainly could.

Ron Mandel - {GIC} - Ana(yst

Just in regard to Steve's question, in regard to the reduction in the subprimc exposure, were there losses or wrile-downs taken in those reductions?

Gary Crittenden - CitTgroup, Inc. - CFO

Well, for the most part, those are loans that we obviously try and market appropriately for whatever the market conditions are. So the answer is certainly yes. Yes.

We use third-party benchmarking wberever we possibly can. We look at analogous types of slructtlrcs. We do everything We can to ensure that

those loans are marked at the appropriate market environment rate. So the answer is surely yes.

Ron Mandel -/GIC/- Analyst

And those losses would bave been reflected in fixed-income trading?

GaryCrinenden - Ci/igroup,Inc. - CFO

Yes.

RonMandd -{Glq-Analyst

Can you give any idea as to what the amount of those were?

Gary Criltenden - Citigroup. Inc. _ CFO

'-YOIl know, we bave not broken it out spccificaUy now.

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Jut 20. 2007 , 10:00AM ET, C • Q2 2007 Ciligroup Inc. Earnings Conference Call

Ron Mandel -IGICJ - Analyst

Do you lItink that getting from SIJ billion 10 wherever you are going, you will have losses ofa similar amount? Or might they be lower ahead? Or how should we think about that?

Gary Crittenden - CitigrDup, Inc. - CFO

Impossible again for me to say. As I mentioned, t4is is an uncertain mark'" rigbt now and it is very difficult to forcc3St exactly where the m,,:,"ket

is going to go. If we knew that. we would be making bets on it, obviously. But we don't know exacdy where that is going to go.

What we do is we have exceUenl risk management capabilities, llitink, around this. II is monitored very carefully. We really do trY 10 reflecl the

market value of these things by going through a cardul process 10 ensure thai their canying values are correct. Weare completely confidOlt that

the carrying values were as correct as they poSsibly could have been at the end of the second quarter. Depending on how things evolve in the thin! quarter. we will have a number Ural will change.

Ron Mandel -ICICJ -Analyst

Is 13 going to =7 Or do you have some uther number in mind? Just how should we think about that aspect?

Gary Crittenden • Gtigroup, Inc. • CFO

II is much more complex than thaI. You know,lItere is no specific Dumb ... thai we're targeting. II depends on what the market conditions actunlly are during the time period.

Ron Mandel -ICIC! - Analyst

Okay, thanks very much.

Operator

Dave Hilder with Bear Steams.

Dave Hilder -BearStt!arns-Ana/~

Good morning. Just a question about balance sheet growth. Obviously. earning assets have gone up a lot both organically and from acquisitions.

Given your conunents about leverage, what might we look for over lite next couple of quarters?

Gary Crittenden - Citig'b"P,IIIt:. - CFO .

Well. we arc obviously vay focused on our balaoce shCl:l. We bave done some things that you can sec in some of the line items of the balance

sheel. So if you look in lite supplement itself and look at some of lite balance sheet line items.

For example, our investment line item on lite balance sheet is down by 6'l'.lItis quarter; and down by more than that if you look at it compared to the f"u-st quarter of2007, re1lecting a reduction in !he mortgage securities that we hold on the balance sheet, Reflecting that change.

We are focused broadly on the productivity oethe balance sheet I think on a: - versus the end ofJastquarter. we haclrougllly 199, $200 million

increase in tlte balance sh~ About Sill minion of that was attributable to the acquisitions that we elid. About S2O'-(miUion] of that was related

to an issue that we had in our GIS business on the last day of the quarter.

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FINAL T1uNSCRlPT

Jul. 20. 2DD7/10:DOAM ET, C • Q2 2007 Citigroup Inc. Earnings Conference Call

So the organic growth in the balance sheet was aboul S70 {billionJ on what at the time was a roughty $2 trillion balance sheet,jusllo try and put things inlo context ..

Dave Hilder - Bear Steilrns - AnIlfyst

Okay, greal. I know thaI it is not always useful to look at il this way, but since you do report a net interest margin number, any thoughts on where

thaI might be headed ... ver the next collple of quarters?

Gary Crittenden - Citigroup, Inc.. - CFO

Well, I can Ic)) you thaI I feel pretty good about the performance this quarter. and without being overly confident aboUI where thaI goes, over the

next couple of quarters.

But as you saw, we had this 6% reduction. A big part of U.is was impacted by Nikko, fr.mkly, both on the funding side as well as on the asset

side. So the funding side was helped by the way we did our funding at Nikko and the pricing thaI we got on the funding for doing that transaction.

Al the same time, most of the d<lerioration on the lrnding side came from the blend of assets that we picked up frl>m Nikko.

So if you kind of normalized for aU of that noise that came in from Nikko, then the actual sequential change in the quarter was relatively modest.

The elemClIS that were non.NiJclco-reIaled looked pretty good in terms of what had happCled on the funding side, and obviously the reduction in

Cl<posure on MBS book that we have takCl over the course of the quarter helps that volalility a little bit as well.

So I think there are positive signs here, but we are far from declaring victory on seeing a tum in NIM and fom:asting thaI that is going 10 move the other direction for us. But if you jusltake some of the Wlderlying dynamics that existed in this quarter it felt pretty good.

I feel particularly good about the turnaround in nel interest revenue. In prior quarters, (Ihink we have said thaI there is a lot of volatility in this

number, and that is lrue, then: is a lot of voliuility. But what is undeniable is lhat the underlying deposit and loan growth has been strong. That

has now offset fur the last few quarters in a pretty powerful way the underlying deterioration in NIM.

As I menlioned in my lust comments at the SfM\ of the call, this is the first lime I think since the third quarter of 2004 thaI we have had double

digit growth in net interest revenuc. There has been a bottom hard worlc on the part of the team 10 makc that all come together, and I think it is a good sign.

Dave Hilder • Bear Steams· Analyst

lbanJcs, thaI is very helpful. Just one clarifiCation. You are suggesling that. excluding the impact of Nikko, the sequential margin - net interest

margin compression would have bem less than the 6 b-oISis points sbown OD page JJ?

Gary Crillenden - Citigroup, Ine. • CFO

Yes, it was pretty modest.

Dave Hilder - Ben Steilr1lS- AIUlIyst

Olcay. Even more modest than 6 basis points?

Gary Crittenden - Clligroup, life. • CFO

Even more mOdest than 6 basis points.

Dave Hilder - Belir Stearns - Anlllyst

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FiNAL TRANSCRIPT

Jut 20. 2007 J 10:00AM ET, C - Q2 2007 Ciligroup Inc. Earnings Conference Call

Okay. thanks very much. Gary.

Operator

James Mitchell with BuclcingiJam Research.

James MitcheU - BuckinghaM Research - Analyst

Hey, good morning. Just a quick question on fixed income tr.lding. Could you talk a linle bit ahoulthe progression during the quarter? We have

heard from some others that June was a particularly slIong monm, amI just wanled 10 see if you feel that way as well.

Maybe specifically talkto what products were strongest and weakest sequentially, and lJI3ybe specific comments on MBS. Thanks.

Gary Crittenden - Gtigroup, Inc. - CFO

Well, about the best color I can give is mat we c:nded me quarter wim a very strong pipeline. So you know. we feel good about all the activities that we have across the house; but the pipeline was very strong.

We actually had lItrec very .solid monms, I guess, is the way I would fraOle it. So if I think about June· specifically, June started out a little Weak fOT me Just few days of the month, bul came back near the end of the month very, very SIIOngly. But was consistent, really with the perfonnance

that we had in the months that were prior, the monms prior to mal.

So il would be hard for me 10 kind of say that June was any different than the prior two months.

lame. MitcheU - BllckinghaM Research -An«.r,.Si/ .', .0;:.

Can you talk specifically thuugh·to mieiJ '~~o~e and what products Were stronger or weaker this quarter'! And any comments on the MBS business 00 a sequential basis?

Robert Druskin • Citigrortp, Inc. - COO

This is Bob. What Gary said is somelbing J would echo; that .we had very - we don't nonnally talk about month-by-month·. But we did have very consistent performance in our ("",ed income businesses across the quarter.

Generally, there was SlrC1lgth in almost all of our products. Rates ;s a tough business as il has been for some time. But that is nothing new_ But some of the areas that we have; been investing in, actually, over the last couple of years have been vel)' strong - derivatives, structure products,

those kinds of things, where we have devoted n:sources to building - have been very good_

Additionally, we have had very good results in our emerging markets trading. You know, we have trading deslcs in 65 or 70 countries around the

world. You know, pan of the growth in the international marketplace has been reflecting itseifin our trading results aroWId the wOlJd. So I would

say we bad very good resuhs in emerging marlcets and international, gen""!lly.

James MilcbeB - BlICkingluzm Research - Analyst

Fair enough. Maybe J will try one more tack. On the MBS business, you guys are obviously talking about risk manage:menL There is obviously dynamic credit default swap hedging that you· do against the residuals and me other subprime sndT on the balanee sheet.

It seems to me thai the underlying assd values have declined less than the appreciation and the default swaps. Is there any kind of comment you bave on bow that hedging bas worked. if that is a fair stalemenl or nol?

Robert Druskin - atigroup. Inc. - COO

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Jut 20. 2007 110:0DAM ET, C - Q2 2007 Citigroup Inc. Earnings Conference Call .

Well, it is a complicated queslion. and I am nol sure Ihat we would nOJrnally get into that level of dclaJl. I would just teU you that the strong

results we had in the quarter are indicalive, I think, of a pretty good risk management ~pproach by our trading desks. And generally effective hedging. So we were pleased with their resUlts, but I don't we can go into more detail titan that.

James lI1itchcU - Buckinghllm Resl!arch - Anlllyst

Okay. fair enough.

Operator

Meredith Whitney with crne World Mark~'IS.

Meredith Whitney - elBe World Markets - Analyst

Hi, Gary. I just have a couple of cleanup questions. I understand wbat you said about Japan; and that was consistent with Cbuck's guidance even at the beginning oCthe year in tenns of really no net new revenues - (inaudible) net.new - net income out of the area. BUI can you extend further

into what thaI means into 2008? Orwben would you be able to tell us that? Then I have just it couple offollow,ups'

Cary Crittenden - Ciligroup, Inc. - CFO

Well, you know if you think about the dynamics here a little bil, we look a cbarge in the fourth quarter oflast year that was not inSignificant. You

lenow. it is hani to know exactly how the business will trend over the next few quaners. Because to say that the parameters around that business

arc stable I think would be an overstatement. We really - it is a· fluid situation there, and bolll the judicial process and Ille kind ofregulatmy process continue to be in nux. That kind of cbanges your view of things as things move over time.

so I guess that is a long way of saying that we bave taken obviously one significant charge. We bave been adding to our credit reserve as we have

gone through this quarter; and we did that again in the quarter Illat we have just come through. We have a large charge that we arc up against from a positive perspective in the fourth quarter ofthi. year.

But it would be hard to soy exactly how that business will evolve as we go into 2008. Now, wbat we have done is we have refocused the business

on the so-<:alJcd White Zone pricing part ofllie market. That is a normal evolving business.lfyou could kind of slice off the Gray Zone piece and

look at only the While Zone piece, that is a nonnalJy evolving busincss; but obviously n mucb smaller market than the market that we used to

address. Roughly two-thirds of the addressable market, historically, bas been above a White-Zone type of interest rate pricing.

SO. those needs arc either in some way going to go unmct in Japan or. I don't know, some other structure is going to evolve to service those needs. But much of the priinary market thaI used to be served by Conswncr Finance companies can no longer be served by Consumer Finance companies because of the way the regulations have evolved.

So I think the way I would thinic about it is, assuming that the regulatory environmc:nt stabilizes. it is likely to be a smaller business in the future

than it has bem in the past. We are going to.be worlcing, obviously, to work tIuougb whatever credit exposure that we have there over the nen few ycar.i, and hopefully growing slowly on the White Zone side. But as I mentioned, that is a smalJer marlcd. II is a cOnsiderably smaller marlreI: than the older, higher intereSt IlIte marlc.et used to be. . .

Mereditb Whitney - CIBC Worl4 Markets -Analyst

OJcay. Then two out of the last three questions. On the guidance that you arc giving or caution that you're giving for the \bird quarter, is that vis-a-vis What expectations are out there? Or vis-a-vis just relative to the strong quarter that you bad this quarter? .


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FINAL TRANSCRIPT

JuL 20. 2007 /10:00AM ET, C - Q2 2007 Citigroup Inc. Earnings Conference Call

As you know, we don't provide guidance. What I was trying to do was kind of reflect on third quarter of last year. And there are just a numba of

flIctors about the third quarter of last year that made that quarter a quarter that is difIerent than where we are today. I tried to reflect that as 1 wrot through the various elements.

I think as you just kind of go down through that list, I have got them on the slide at the end of the deck. It will highlight for you the things that (multiple spoakers).

Meredith Whitney - CIBC World Markets - Analyst

No, no. That is understood. I JUSt - the Street wasn't expecting a gangbuster third quarter anyway, so J was jUst curious as you to why eKplicidy point out that slide. "That all my question was.

Gary Crillenden - Ciligroup, Inc. - CFO

I wanted to make s~re everybody was fOCUSed on last year's third quarter.

Meredith Whitney - CIRC World Markets -AIUI[ysI

GOt it, okay. Then the last question is, we gt:l your Master Trust data obviously monthly. There is nothing in that that would lead US to believe

that credit will tum on Cards. So is what you are seeing the on-balance sbeet stuff that gives you concern? The private-label stuff that gives you concern? Could you elaborate on that?

Gary Crillenden - Citigroup, Inc. - CFO

Well. I think, itbonestly is -- what we uy to do is we try to sit back and say, if we think about the losses that are likely to occur in our credit card

business Over the nCOlt X number of months, have we properly reOected wbat those losses arc going to be in Ibe reserve Ibat we have at the

moment that we close OUf books? On June 30, in this particular case.

As we go through that, we go through that process obviously in all of OUf businesses. We do it each quarter. As we did that for our Can) business in this quarter, our belief was that we needed 10 add to the reserve by Ibe $242 million, I think, or so that it was that we added in this quarter.

So it really is that process. It is, obviously reflecting on what losses we have experienced historically. what our current loss rates are, wh~ we anticipate those loss rates to be as we go forward, and ensuring that we're properly reserved al the time we close our books. The net of that was the decision that we made in the quarter to adi:! to the credit card receivable - or the credit card loan-loss reserve.

Meredith Whitney - CIBe World Mark~ts - Analyst

Okay. thankS, Gal}'.

AI11ildeSley • Citigroup, Inc. - Director IR

I think we have time fOf one more question ••

Oper:a1or

Jolm McDonald with Bane of America.

John M~DonaJd - Bane of America Securities - Analyst

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FINAL TRANSCRIPT

Jul. 20. 2007110:00AM ET, C • Q2 2007 Citigroup Inc. Earnings Conference Call __________________ ____________ --J

I promise it will be one question and no follow-up. Just on the cost saves clarification from Bob. You got less than half of what you are targeting

for this year. I think the target forthisycar was $2.3 biUion, $1.7 billion from tlte Druskill plan alUl $400 million in IT savcs..1s that right, Bob?

Robert Drnskin - Citigroup, Inc. - COO

Yes, thaI is exactly right.

John McDonald - Bane of America Sec/lritie~ - Analyst

. So in the flISt quarter, you said you got the $400 million in IT. So that left $1.7 billion for the next three quartos.

Robert Druskln - Odgroup, Inc. - COO

Right.

John McDonald - Bane of America Securities - Analyst

You're not saying how much you got this quarter!

Robert Druskin - Citigrollp, Inc. - COO

No, I would just say that what 1 told to is that it would really start to pick up in the second quarter and then track through the end of the year. We are a little less than halfway through it .


Olcay, so less than half of the $2.3 billion?

Robert Druskln - Citigroup, Inc. - COO

Yes.


Okay, thank you.

Art TIldesley - Otigroup, Inc. - Director IR

Opcmor.1 think that concludes our session. For all of you on the <;all, th3nJcs for joining us today. Any other questions you have, please contact

us in investor relations. Otherwise, that concludes our caU. Thanlc you.

Operator

Ladies and gcndcmen, thank you (or your participation in Citi's second-quarter 2007 earnings review, This does conclude lOday's j:OIlference.. You may DOW disconnect. .

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Jul. 20. 2007 110:00AM El, C - Q2 2007 Ciligroup Inc. Earnings Conference Call I ----------~--------------------------~

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