The Quarterly
C 2012 10-K

Citigroup Inc (C) SEC Annual Report (10-K) for 2013

C 2014 10-K
C 2012 10-K C 2014 10-K



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

Commission file number 1-9924

Citigroup Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

52-1568099

(I.R.S. Employer Identification No.)

399 Park Avenue, New York, NY

(Address of principal executive offices)

10022

(Zip code)

(212) 559-1000

(Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act: See Exhibit 99.01


Securities registered pursuant to Section 12(g) of the Act: none


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x   No  o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x   No  o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x    No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x

Accelerated filer  o

Non-accelerated filer  o

 (Do not check if a smaller reporting company)

Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o     No  x

The aggregate market value of Citigroup Inc. common stock held by non-affiliates of Citigroup Inc. on June 30, 2013 was approximately $145.7 billion.

Number of shares of Citigroup Inc. common stock outstanding on January 31, 2014: 3,036,458,909

Documents Incorporated by Reference: Portions of the registrant's proxy statement for the annual meeting of stockholders scheduled to be held on April 22, 2014, are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.

Available on the web at www.citigroup.com




FORM 10-K CROSS-REFERENCE INDEX

Item Number

Page

Part I

1.

Business

4–34, 38, 141–145,

148–149, 179,

330–334

1A.

Risk Factors

57–69

1B.

Unresolved Staff Comments

Not Applicable

2.

Properties

332–333

3.

Legal Proceedings

334

4.

Mine Safety Disclosures

Not Applicable

Part II

5.

Market for Registrant's Common

Equity, Related Stockholder Matters,

and Issuer Purchases of Equity

Securities

158–159, 186, 327,

335–336, 338

6.

Selected Financial Data

10–11

7.

Management's Discussion and

Analysis of Financial Condition and

Results of Operations

6–40, 70–140

7A.

Quantitative and Qualitative

Disclosures About Market Risk

70–140, 180–182,

209–244, 252–310

8.

Financial Statements and

Supplementary Data

153–329

9.

Changes in and Disagreements with

Accountants on Accounting and

Financial Disclosure

Not Applicable

9A.

Controls and Procedures

146–147

9B.

Other Information

Not Applicable

Part III

10.

Directors, Executive Officers and

Corporate Governance

337–338, 340*

11.

Executive Compensation

**

12.

Security Ownership of Certain

Beneficial Owners and Management

and Related Stockholder Matters

***

13.

Certain Relationships and Related

Transactions and Director

Independence

****

14.

Principal Accountant Fees and

Services

*****

Part IV

15.

Exhibits and Financial Statement

Schedules

*

For additional information regarding Citigroup's Directors, see "Corporate Governance," "Proposal 1: Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive Proxy Statement for Citigroup's Annual Meeting of Stockholders scheduled to be held on April 22, 2014, to be filed with the SEC (the Proxy Statement), incorporated herein by reference.

**

See "Executive Compensation-The Personnel and Compensation Committee Report," "-Compensation Discussion and Analysis" and "-2013 Summary Compensation Table" in the Proxy Statement, incorporated herein by reference.

***

See "About the Annual Meeting," "Stock Ownership" and "Proposal 4, Approval of Amendment to the Citigroup 2009 Stock Incentive Plan" in the Proxy Statement, incorporated herein by reference.

****

See "Corporate Governance-Director Independence," "-Certain Transactions and Relationships, Compensation Committee Interlocks and Insider Participation," and "-Indebtedness" in the Proxy Statement, incorporated herein by reference.

*****

See "Proposal 2: Ratification of Selection of Independent Registered Public Accounting Firm" in the Proxy Statement, incorporated herein by reference.


2



CITIGROUP'S 2013 ANNUAL REPORT ON FORM 10-K

OVERVIEW

4


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

6


Executive Summary

6


Five-Year Summary of Selected Financial Data

10


SEGMENT AND BUSINESS-INCOME (LOSS) AND REVENUES

12


CITICORP

14


Global Consumer Banking

15


North America Regional Consumer Banking

17


EMEA Regional Consumer Banking

19


Latin America Regional Consumer Banking

21


Asia Regional Consumer Banking

23


Institutional Clients Group

25


Securities and Banking

26


Transaction Services

29


Corporate/Other

31


CITI HOLDINGS

32


BALANCE SHEET REVIEW

35


OFF-BALANCE-SHEET

  ARRANGEMENTS

39


CONTRACTUAL OBLIGATIONS

40


CAPITAL RESOURCES

41


   Current Regulatory Capital Guidelines

   Basel III

   Regulatory Capital Standards Developments

   Tangible Common Equity and Tangible Book

      Value Per Share

RISK FACTORS

57


MANAGING GLOBAL RISK

71


Risk Management-Overview

Risk Management Organization

Risk Aggregation and Stress Testing

Risk Capital

Table of Contents-Credit, Market (Including Funding and Liquidity), Operational, Country and Cross-Border Risk Sections

FAIR VALUE ADJUSTMENTS FOR DERIVATIVES AND FAIR VALUE OPTION LIABILITIES

137


CREDIT DERIVATIVES

139


SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

142


DISCLOSURE CONTROLS AND PROCEDURES

147


MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

148


FORWARD-LOOKING STATEMENTS

149


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM-INTERNAL CONTROL OVER FINANCIAL REPORTING

151


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM-CONSOLIDATED FINANCIAL STATEMENTS

152


FINANCIAL STATEMENTS AND NOTES TABLE OF CONTENTS

153


CONSOLIDATED FINANCIAL STATEMENTS

154


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

163


FINANCIAL DATA SUPPLEMENT

324


SUPERVISION, REGULATION AND OTHER

325


Supervision and Regulation

Disclosure Pursuant to Section 119 of the Iran Threat Reduction and Syria Human Rights Act

Customers

Competition

Properties

LEGAL PROCEEDINGS

329


UNREGISTERED SALES OF EQUITY, PURCHASES OF EQUITY SECURITIES, DIVIDENDS

330


CORPORATE INFORMATION

337


        Citigroup Executive Officers

CITIGROUP BOARD OF DIRECTORS

340



3



OVERVIEW


Citigroup's history dates back to the founding of Citibank in 1812. Citigroup's original corporate predecessor was incorporated in 1988 under the laws of the State of Delaware. Following a series of transactions over a number of years, Citigroup Inc. was formed in 1998 upon the merger of Citicorp and Travelers Group Inc.

Citigroup is a global diversified financial services holding company, whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. Citi has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions.

At December 31, 2013, Citi had approximately 251,000 full-time employees, compared to approximately 259,000 full-time employees at December 31, 2012.

Citigroup currently operates, for management reporting purposes, via two primary business segments: Citicorp, consisting of Citi's Global Consumer Banking businesses and Institutional Clients Group ; and Citi Holdings, consisting of businesses and portfolios of assets that Citigroup has determined are not central to its core Citicorp businesses. For a further description of the business segments and the products and services they provide, see "Citigroup Segments" below, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 3 to the Consolidated Financial Statements.

Throughout this report, "Citigroup," "Citi" and "the Company" refer to Citigroup Inc. and its consolidated subsidiaries.

Additional information about Citigroup is available on Citi's website at www.citigroup.com . Citigroup's recent annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, as well as other filings with the SEC, are available free of charge through Citi's website by clicking on the "Investors" page and selecting "All SEC Filings." The SEC's website also contains current reports, information statements, and other information regarding Citi at www.sec.gov .

Certain reclassifications have been made to the prior periods' financial statements to conform to the current period's presentation. For information on certain recent such reclassifications, see Citi's Forms 8-K furnished to the SEC on May 17, 2013 and August 30, 2013.



Please see "Risk Factors" and "Forward-Looking Statements" below for a discussion of the most significant risks and uncertainties that could impact Citigroup's businesses, financial condition and results of operations.


4



As described above, Citigroup is managed pursuant to the following segments:

* Effective in the first quarter of 2014, certain business activities within Securities and Banking and Transaction Services will be realigned and aggregated as Banking and Markets and Securities Services components within the ICG segment. The change is due to the realignment of the management structure within the ICG segment and will have no impact on any total segment-level information. Citi intends to release a revised Quarterly Financial Data Supplement reflecting this realignment prior to the release of first quarter of 2014 earnings information .

The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results above.


5



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


EXECUTIVE SUMMARY

Overview


2013-Steady Progress on Execution Priorities and Strategy Despite Continued Challenging Operating Environment

2013 represented a continued challenging operating environment for Citigroup in several respects, including:


changing expectations regarding the Federal Reserve Board's tapering of quantitative easing and the impact of this uncertainty on the markets, trading environment and customer activity;

the increasing costs of legal settlements across the financial services industry as Citi continued to work through its legacy legal issues; and

a continued low interest rate environment.



These issues significantly impacted Citi's results of operations, particularly during the second half of 2013. Despite these challenges, however, Citi made progress on its execution priorities as identified in early 2013, including:


Efficient resource allocation, including disciplined expense management-During 2013, Citi completed the significant repositioning actions announced in the fourth quarter of 2012, which resulted in the exit of markets that do not fit Citi's strategy and contributed to the reduction in its operating expenses year-over-year (see discussion below).

Continued focus on the wind down of Citi Holdings and getting Citi Holdings closer to "break even"-Citi Holdings' assets declined by $39 billion, or 25%, during 2013, and the net loss for this segment improved by approximately 49% (see discussion below). Citi also was able to resolve certain of its legacy legal issues during 2013, including entering into agreements with Fannie Mae and Freddie Mac relating to residential mortgage representation and warranty repurchase matters.

Utilization of deferred tax assets (DTAs)-Citi utilized approximately $2.5 billion of its DTAs during 2013, including $700 million in the fourth quarter.


While making good progress on these initiatives in 2013, Citi expects the operating environment in 2014 to remain challenging. Short-term interest rates likely will remain low for some time, and thus spread compression could continue to impact most of Citi's major geographies during the year. (As used throughout this Form 10-K, spread compression refers to the reduction in net interest revenue as a percentage of loans or deposits, as applicable, driven by either lower yields on interest-earning assets or higher costs to fund such assets, or a combination thereof). Given the current litigation and regulatory environment, Citi expects its legal and related expenses will likely remain elevated in 2014. There continues to be uncertainty regarding tapering by the Federal Reserve

Board and its impact on the markets, including the emerging markets, and global trading environment. In addition, despite an improved economic environment in 2013, there continues to be questions about the sustainability and pace of ongoing improvement in various markets. Finally, Citi continues to face significant regulatory changes, uncertainties and costs in the U.S. and non-U.S. jurisdictions in which it operates. For a more detailed discussion of these and other risks that could impact Citi's businesses, results of operations and financial condition during 2014, see "Risk Factors" below.

Despite these ongoing challenges, however, Citi remains highly focused on the continued execution of the priorities discussed above and its strategy, which continues to be to wind down Citi Holdings as soon as practicable in an economically rational manner and leverage its unique global network to:


be a leading provider of financial services to the world's largest multi-national corporations and investors; and

be the preeminent bank for the emerging affluent and affluent consumers in the world's largest urban centers.


2013 Summary Results


Citigroup

Citigroup reported net income of $13.7 billion and diluted earnings per share of $4.35 in 2013, compared to $7.5 billion and $2.44 per share, respectively, in 2012. In 2013, results included a credit valuation adjustment (CVA) on derivatives (counterparty and own-credit), net of hedges, and debt valuation adjustment (DVA) on Citi's fair value option debt of a pretax loss of $342 million ($213 million after-tax) as Citi's credit spreads tightened during the year, compared to a pretax loss of $2.3 billion ($1.4 billion after-tax) in 2012. Results in the third quarter of 2013 also included a $176 million tax benefit, compared to a $582 million tax benefit in the third quarter of 2012, each of which related to the resolution of certain tax audit items and were recorded in Corporate/Other . In addition, 2013 results included a $189 million after-tax benefit related to the divestiture of Credicard, Citi's non-Citibank branded cards and consumer finance business in Brazil (Credicard), recorded in Corporate/Other (see Note 2 to the Consolidated Financial Statements). Citigroup's 2012 results included a pretax loss of $4.6 billion ($2.9 billion after-tax) related to the sale of minority investments (for additional information, see " Corporate/Other " below), as well as approximately $1.0 billion of fourth quarter 2012 pretax repositioning charges ($653 million after-tax).

Excluding the items above, Citi's net income was $13.5 billion, or $4.30 per diluted share in 2013, up 11% compared to $11.9 billion, or $3.86 per share, in the prior year, as higher revenues, lower operating expenses and lower net credit losses were partially offset by a lower net loan loss reserve release and a higher effective tax rate in 2013 (see Note 9 to the Consolidated Financial Statements). (Citi's results of operations excluding the impact of CVA/DVA, the impact of the Credicard divestiture, the impact of minority investments,


6



the repositioning charges in the fourth quarter of 2012 and the impact of the tax benefits, each as discussed above, are non-GAAP financial measures. Citi believes the presentation of its results of operations excluding these impacts provides a more meaningful depiction of the underlying fundamentals of its businesses.)

Citi's revenues, net of interest expense, were $76.4 billion in 2013, up 10% versus the prior year. Excluding CVA/DVA and the impact of minority investments in 2012, revenues were $76.7 billion, up 1%, as revenues in Citi Holdings increased 22% compared to the prior year, while revenues in Citicorp were broadly unchanged. Net interest revenues of $46.8 billion were unchanged versus the prior year, largely driven by continued spread compression in Transaction Services in Citicorp, offset by improvements in Citi Holdings, principally reflecting lower funding costs. Excluding CVA/DVA and the impact of minority investments in 2012, non-interest revenues of $29.9 billion were up 2% from the prior year, principally driven by higher revenues in Securities and Banking, Latin America Regional Consumer Banking (RCB) and Transaction Services in Citicorp, as well as the absence of repurchase reserve builds for representation and warranty claims in Citi Holdings. The increase was partially offset by a decline in mortgage origination revenues, due to significantly lower U.S. mortgage refinancing activity in North America RCB , particularly in the second half of 2013.


Operating Expenses

Citigroup expenses decreased 3% versus the prior year to $48.4 billion. In 2013, Citi incurred legal and related costs of $3.0 billion, compared to $2.8 billion in the prior year. Excluding legal and related costs, the repositioning charges in the fourth quarter of 2012 and the impact of foreign exchange translation into U.S. dollars for reporting purposes (FX translation), which lowered reported expenses by approximately $600 million in 2013 compared to 2012, operating expenses remained relatively unchanged at $45.4 billion compared to $45.5 billion in the prior year. (Citi's results of operations excluding the impact of FX translation are non-GAAP financial measures. Citigroup believes the presentation of its results of operations excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of its businesses impacted by FX translation.)

Citicorp's expenses were $42.5 billion, down 5% from the prior year, primarily reflecting efficiency savings and lower legal and related costs and repositioning charges, partially offset by volume-related expenses and ongoing investments in the businesses. In addition, as disclosed on February 28, 2014, Citicorp's expenses in the fourth quarter of 2013 were impacted as a result of a fraud discovered in Banco Nacional de Mexico (Banamex), a Citi subsidiary in Mexico. The fraud increased fourth quarter of 2013 operating expenses in Transaction Services by an estimated $400 million, with an offset to compensation expense of approximately $40 million associated with the Banamex variable compensation plan. For further information, see " Institutional Clients Group-Transaction Services " below and Note 29 to the Consolidated Financial Statements.

Citi Holdings expenses increased 13% year-over-year to $5.9 billion, primarily due to higher legal and related expenses, partially offset by the continued decline in assets and the resulting decline in operating expenses.


Credit Costs and Allowance for Loan Losses

Citi's total provisions for credit losses and for benefits and claims of $8.5 billion declined 25% from the prior year. Net credit losses of $10.5 billion were down 26% from 2012. Consumer net credit losses declined 27% to $10.3 billion, reflecting improvements in the North America mortgage portfolio within Citi Holdings, as well as North America Citi-branded cards and Citi retail services portfolios in Citicorp. Corporate net credit losses decreased 10% year-over-year to $201 million, driven primarily by continued credit improvement in Securities and Banking in Citicorp.

The net release of allowance for loan losses and unfunded lending commitments was $2.8 billion in 2013, 27% lower than 2012. Citicorp's net reserve release declined 66% to $736 million, primarily due to a lower reserve release in North America Citi-branded cards and Citi retail services and volume-related loan loss reserve builds in international Global Consumer Banking (GCB) . Citi Holdings net reserve release increased 27% to $2.0 billion, substantially all of which related to the North America mortgage portfolio. $2.6 billion of the $2.8 billion net reserve release related to Consumer lending, with the remainder applicable to Corporate.

Citigroup's total allowance for loan losses was $19.6 billion at year-end 2013, or 2.98% of total loans, compared to $25.5 billion, or 3.92%, at the end of the prior year. The decline in the total allowance for loan losses reflected the continued wind down of Citi Holdings and overall continued improvement in the credit quality of the loan portfolios.

The Consumer allowance for loan losses was $17.1 billion, or 4.35% of total Consumer loans, at year-end 2013, compared to $22.7 billion, or 5.57% of total loans, at year-end 2012. Total non-accrual assets fell to $9.4 billion, a 22% reduction compared to year-end 2012. Corporate non-accrual loans declined 18% to $1.9 billion, while Consumer non-accrual loans declined 23% to $7.0 billion, both reflecting continued credit improvement.


Capital

Citigroup's Tier 1 Capital and Tier 1 Common ratios were 13.7% and 12.6% as of December 31, 2013, respectively, compared to 14.1% and 12.7% as of December 31, 2012. Citi's estimated Tier 1 Common ratio under Basel III was 10.6% at year-end 2013, up from an estimated 8.7% at year-end 2012. Citigroup's estimated Basel III Supplementary Leverage ratio for the fourth quarter 2013 was 5.4%. (For additional information on Citi's estimated Basel III Tier 1 Common ratio, Supplementary Leverage ratio and related components, see "Risk Factors-Regulatory Risks" and "Capital Resources" below.)


Citicorp

Citicorp net income increased 11% from the prior year to $15.6 billion. The increase largely reflected a lower impact of CVA/DVA and lower repositioning charges, partially offset by


7



higher provisions for income taxes. CVA/DVA, recorded in Securities and Banking , was a negative $345 million in 2013, compared to negative $2.5 billion in the prior year (for a summary of CVA/DVA by business within Securities and Banking for 2013 and comparable periods, see " Institutional Clients Group " below). Results in the third quarter of 2013 also included the $176 million tax benefit in 2013, compared to the $582 million tax benefit in the third quarter of 2012, and the $189 million after-tax benefit related to the divestiture of Credicard. Citicorp's full year 2012 results included a pretax loss of $53 million ($34 million after-tax) related to the sale of minority investments as well as $951 million of pretax repositioning charges in the fourth quarter of 2012 ($604 million after-tax).

Excluding these items, Citicorp's net income was $15.4 billion, down 1% from the prior year, as lower operating expenses and lower net credit losses were largely offset by a lower net loan loss reserve release and a higher effective tax rate in 2013.

Citicorp revenues, net of interest expense, increased 3% from the prior year to $71.8 billion. Excluding CVA/DVA and the impact of minority investments, Citicorp revenues were $72.2 billion in 2013, relatively unchanged from 2012. GCB revenues of $38.2 billion declined 2% versus the prior year. North America GCB revenues declined 6% to $19.8 billion, and international GCB revenues (consisting of Asia RCB , Latin America RCB and EMEA RCB ) increased 1% year-over-year to $18.4 billion. Excluding the impact of FX translation, international GCB revenues rose 3% year-over-year, driven by 7% revenue growth in Latin America RCB , partially offset by a 1% revenue decline in both EMEA RCB and Asia RCB . Securities and Banking revenues were $23.0 billion in 2013, up 15% from the prior year. Excluding CVA/DVA, Securities and Banking revenues were $23.4 billion, or 4% higher than the prior year. Transaction Services revenues were $10.6 billion, down 1% from the prior year, but relatively unchanged excluding the impact of FX translation (for the impact of FX translation on 2013 results of operations for each of EMEA RCB, Latin America RCB, Asia RCB and Transaction Services , see the table accompanying the discussion of each respective business' results of operations below). Corporate/Other revenues, excluding the impact of minority investments, increased to $77 million from $17 million in the prior year, mainly reflecting hedging gains.

In North America RCB , the revenue decline was driven by lower mortgage origination revenues due to the significant decline in U.S. mortgage refinancing activity, particularly in the second half of the year, partially offset by higher revenues in Citi retail services, mostly driven by the Best Buy portfolio acquisition in the third quarter of 2013. North America RCB average deposits of $166 billion grew 8% year-over-year and average retail loans of $43 billion grew 3%. Average card loans of $107 billion declined 2%, driven by increased payment rates resulting from ongoing consumer deleveraging, while card purchase sales of $240 billion increased 3% versus the prior year. For additional information on the results of operations of North America RCB for 2013, see " Global Consumer Banking - North America Regional Consumer Banking " below.

Year-over-year, international GCB average deposits declined 2%, while average retail loans increased 6%, investment sales increased 15%, average card loans increased 3%, and international card purchase sales increased 7%, all excluding Credicard and the impact of FX translation. The decline in Asia RCB revenues, excluding the impact of FX translation, reflected the continued impact of spread compression, regulatory changes in certain markets and the ongoing repositioning of Citi's franchise in Korea. For additional information on the results of operations of Asia RCB for 2013, see " Global Consumer Banking-Asia Regional Consumer Banking " below.

In Securities and Banking , fixed income markets revenues of $13.1 billion, excluding CVA/DVA, declined 7% from the prior year, primarily reflecting industry-wide weakness in rates and currencies, partially offset by strong performance in credit-related and securitized products and commodities. Equity markets revenues of $3.0 billion in 2013, excluding CVA/DVA, were 22% above the prior year driven primarily by market share gains, continued improvement in cash and derivative trading performance and a more favorable market environment. Investment banking revenues rose 8% from the prior year to $4.0 billion, principally driven by higher revenues in equity underwriting and advisory, partially offset by lower debt underwriting revenues. Lending revenues of $1.2 billion increased 40% from the prior year, driven by lower mark-to-market losses on hedges related to accrual loans due to less significant credit spread tightening versus 2012. Excluding the mark-to-market on hedges related to accrual loans, core lending revenues decreased 4%, primarily due to increased hedge premium costs and moderately lower loan balances, partially offset by higher spreads. Private Bank revenues of $2.5 billion increased 4% from the prior year, excluding CVA/DVA, with growth across all regions and products, particularly in managed investments and capital markets. For additional information on the results of operations of Securities and Banking for 2013, see " Institutional Clients Group-Securities and Banking " below.

In Transaction Services, growth from higher deposit balances, trade loans and fees from increased market volumes was offset by continued spread compression. Excluding the impact of FX translation, Securities and Fund Services revenues increased 4%, as growth in settlement volumes and assets under custody were partially offset by spread compression related to deposits. Treasury and Trade Solutions revenues decreased 1% excluding the impact of FX translation, as the ongoing impact of spread compression globally was partially offset by higher balances and fee growth. For additional information on the results of operations of Transaction Services for 2013, see " Institutional Clients Group - Transaction Services " below.

Citicorp end-of-period loans increased 6% year-over-year to $573 billion, with 2% growth in Consumer loans and 11% growth in Corporate loans.


Citi Holdings

Citi Holdings' net loss was $1.9 billion in 2013 compared to a $6.5 billion net loss in 2012. The decline in the net loss year-over-year was primarily driven by the absence of the 2012


8



pretax loss of $4.7 billion ($2.9 billion after-tax) related to the Morgan Stanley Smith Barney joint venture (MSSB). Excluding the 2012 MSSB loss, $77 million ($49 million after-tax) of repositioning charges in the fourth quarter 2012 and CVA/DVA (positive $3 million in 2013 compared to positive $157 million in 2012), Citi Holdings net loss of $1.9 billion in 2013 improved 49% from a net loss of $3.7 billion in the prior year. The improvement in the net loss was due to significantly lower provisions for credit losses and higher revenue, partially offset by the increase in expenses driven by higher legal and related costs, as discussed above.

Citi Holdings revenues increased to $4.5 billion, compared to a negative $792 million in the prior year. Excluding the 2012 MSSB loss and CVA/DVA, Citi Holdings revenues were $4.5 billion in 2013 compared to $3.7 billion in the prior year. Net interest revenues increased 22% year-over-year to $3.2 billion, largely driven by lower funding costs. Non-interest revenues, excluding the 2012 MSSB loss and CVA/DVA, increased 21% to $1.4 billion, primarily driven by lower asset marks and the lower repurchase reserve builds, partially offset by lower consumer revenues and gains on asset sales.

Citi Holdings assets declined 25% year-over-year to $117 billion as of year-end 2013, and represented approximately 6% of total Citi's GAAP assets and 19% of its estimated risk-weighted assets under Basel III (based on the "Advanced Approaches" for determining risk-weighted assets).




9



RESULTS OF OPERATIONS

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA-PAGE 1

In millions of dollars, except per-share amounts and ratios

2013

2012

2011

2010

2009

Net interest revenue

$

46,793


$

46,686


$

47,649


$

53,539


$

47,973


Non-interest revenue

29,573


22,442


29,682


32,237


31,592


Revenues, net of interest expense

$

76,366


$

69,128


$

77,331


$

85,776


$

79,565


Operating expenses

48,355


49,974


50,250


46,851


47,371


Provisions for credit losses and for benefits and claims

8,514


11,329


12,359


25,809


39,970


Income (loss) from continuing operations before income taxes

$

19,497


$

7,825


$

14,722


$

13,116


$

(7,776

)

Income taxes (benefits)

5,867


7


3,575


2,217


(6,716

)

Income (loss) from continuing operations

$

13,630


$

7,818


$

11,147


$

10,899


$

(1,060

)

Income (loss) from discontinued operations, net of taxes (1)

270


(58

)

68


(16

)

(451

)

Net income (loss) before attribution of noncontrolling interests

$

13,900


$

7,760


$

11,215


$

10,883


$

(1,511

)

Net income (loss) attributable to noncontrolling interests

227


219


148


281


95


Citigroup's net income (loss)

$

13,673


$

7,541


$

11,067


$

10,602


$

(1,606

)

Less:

Preferred dividends-Basic

$

194


$

26


$

26


$

9


$

2,988


Impact of the conversion price reset related to the $12.5 billion convertible preferred stock private issuance-Basic

-


-


-


-


1,285


Preferred stock Series H discount accretion-Basic

-


-


-


-


123


Impact of the public and private preferred stock exchange offers

-


-


-


-


3,242


Dividends and undistributed earnings allocated to employee restricted and deferred shares that contain nonforfeitable rights to dividends, applicable to Basic EPS

263


166


186


90


2


Income (loss) allocated to unrestricted common shareholders for Basic EPS

$

13,216


$

7,349


$

10,855


$

10,503


$

(9,246

)

Less: Convertible preferred stock dividends

-


-


-


-


(540

)

Add: Interest expense, net of tax, on convertible securities and adjustment of undistributed earnings allocated to employee restricted and deferred shares that contain nonforfeitable rights to dividends, applicable to diluted EPS

1


11


17


2


-


Income (loss) allocated to unrestricted common shareholders for diluted EPS (2)

$

13,217


$

7,360


$

10,872


$

10,505


$

(8,706

)

Earnings per share (3)

Basic (3)

Income (loss) from continuing operations

$

4.27


$

2.53


$

3.71


$

3.64


$

(7.60

)

Net income (loss)

4.35


2.51


3.73


3.65


(7.99

)

Diluted (2)(3)

Income (loss) from continuing operations

$

4.26


$

2.46


$

3.60


$

3.53


$

(7.60

)

Net income (loss)

4.35


2.44


3.63


3.54


(7.99

)

Dividends declared per common share (3)

0.04


0.04


0.03


-


0.10



Statement continues on the next page, including notes to the table.



10



FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA-PAGE 2

Citigroup Inc. and Consolidated Subsidiaries

In millions of dollars, except per-share amounts, ratios and direct staff

2013

2012

2011

2010

2009

At December 31:

Total assets

$

1,880,382


$

1,864,660


$

1,873,878


$

1,913,902


$

1,856,646


Total deposits

968,273


930,560


865,936


844,968


835,903


Long-term debt

221,116


239,463


323,505


381,183


364,019


Citigroup common stockholders' equity

197,601


186,487


177,494


163,156


152,388


Total Citigroup stockholders' equity

204,339


189,049


177,806


163,468


152,700


Direct staff (in thousands)

251


259


266


260


265


Ratios

Return on average assets

0.73

%

0.39

%

0.55

%

0.53

%

(0.08

)%

Return on average common stockholders' equity (4)

7.0


4.1


6.3


6.8


(9.4

)

Return on average total stockholders' equity (4)

6.9


4.1


6.3


6.8


(1.1

)

Efficiency ratio

63


72


65


55


60


Tier 1 Common (5)(8)

12.64

%

12.67

%

11.80

%

10.75

%

9.60

 %

Tier 1 Capital  (8)

13.68


14.06


13.55


12.91


11.67


Total Capital  (8)

16.65


17.26


16.99


16.59


15.25


Leverage (6)

8.21


7.48


7.19


6.60


6.87


Citigroup common stockholders' equity to assets

10.51

%

10.00

%

9.47

%

8.52

%

8.21

 %

Total Citigroup stockholders' equity to assets

10.87


10.14


9.49


8.54


8.22


Dividend payout ratio (7)

0.9


1.6


0.8


NM


NM


Book value per common share (3)

$

65.23


$

61.57


$

60.70


$

56.15


$

53.50


Ratio of earnings to fixed charges and preferred stock dividends

2.16x


1.37x


1.60x


1.51x


NM


(1)

Discontinued operations for 2009-2013 include the sale of Credicard. Discontinued operations in 2012 include a carve-out of Citi's liquid strategies business within Citi Capital Advisors. Discontinued operations in 2012 and 2011 reflect the sale of the Egg Banking credit card business. Discontinued operations for 2009 reflect the sale of Nikko Cordial Securities, Citi's German retail banking operations and the sale of CitiCapital's equipment finance unit. Discontinued operations for 2009–2010 also include the sale of Citi's Travelers Life & Annuity, substantially all of Citigroup's international insurance business, and Citi's Argentine pension business. Discontinued operations for the second half of 2010 also reflect the sale of the Student Loan Corporation. See Note 2 to the Consolidated Financial Statements for additional information on Citi's discontinued operations.

(2)

The diluted EPS calculation for 2009 utilizes basic shares and income allocated to unrestricted common stockholders (Basic) due to the negative income allocated to unrestricted common stockholders. Using diluted shares and income allocated to unrestricted common stockholders (Diluted) would result in anti-dilution.

(3)

All per share amounts and Citigroup shares outstanding for all periods reflect Citi's 1-for-10 reverse stock split, which was effective May 6, 2011.

(4)

The return on average common stockholders' equity is calculated using net income less preferred stock dividends divided by average common stockholders' equity. The return on average total Citigroup stockholders' equity is calculated using net income divided by average Citigroup stockholders' equity.

(5)

As currently defined by the U.S. banking regulators, the Tier 1 Common ratio represents Tier 1 Capital less non-common elements, including qualifying perpetual preferred stock, qualifying noncontrolling interests in subsidiaries and qualifying trust preferred securities divided by risk-weighted assets.

(6)

The leverage ratio represents Tier 1 Capital divided by quarterly adjusted average total assets.

(7)

Dividends declared per common share as a percentage of net income per diluted share.

(8) Effective January 1, 2013, computed under Basel I credit risk capital rules and final (revised) market risk capital rules (Basel II.5).





Note: The following accounting changes were adopted by Citi during the respective years:

On January 1, 2010, Citi adopted ASC 810, Consolidation (formerly SFAS 166/167). Prior periods have not been restated as the standards were adopted prospectively.

On January 1, 2009, Citi adopted SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (now ASC 810-10-45-15, Consolidation: Noncontrolling Interest in a Subsidiary ), and FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities" (now ASC 260-10-45-59A, Earnings Per Share: Participating Securities and the Two-Class Method ). All prior periods have been restated to conform to the current period's presentation.


11



SEGMENT AND BUSINESS-INCOME (LOSS) AND REVENUES

The following tables show the income (loss) and revenues for Citigroup on a segment and business view:

CITIGROUP INCOME

In millions of dollars

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

Income (loss) from continuing operations

CITICORP

Global Consumer Banking

North America

$

4,068


$

4,728


$

4,011


(14

)%

18

 %

EMEA

59


(37

)

79


NM


NM


Latin America

1,435


1,468


1,673


(2

)

(12

)

Asia

1,570


1,796


1,903


(13

)

(6

)

Total

$

7,132


$

7,955


$

7,666


(10

)%

4

 %

Securities and Banking







North America

$

2,701


$

1,250


$

1,284


NM


(3

)%

EMEA

1,562


1,360


2,005


15


(32

)

Latin America

1,189


1,249


916


(5

)

36


Asia

1,263


834


904


51


(8

)

Total

$

6,715


$

4,693


$

5,109


43

 %

(8

)%

Transaction Services







North America

$

541


$

466


$

408


16

 %

14

 %

EMEA

926


1,184


1,072


(22

)

10


Latin America

451


642


623


(30

)

3


Asia

998


1,108


1,148


(10

)

(3

)

Total

$

2,916


$

3,400


$

3,251


(14

)%

5

 %

    Institutional Clients Group

$

9,631


$

8,093


$

8,360


19

 %

(3

)%

Corporate/Other

$

(1,259

)

$

(1,702

)

$

(808

)

26

 %

NM


Total Citicorp

$

15,504


$

14,346


$

15,218


8

 %

(6

)%

Citi Holdings

$

(1,874

)

$

(6,528

)

$

(4,071

)

71

 %

(60

)%

Income from continuing operations

$

13,630


$

7,818


$

11,147


74

 %

(30

)%

Discontinued operations

$

270


$

(58

)

$

68


NM


NM


Net income attributable to noncontrolling interests

227


219


148


4

 %

48

 %

Citigroup's net income

$

13,673


$

7,541


$

11,067


81

 %

(32

)%

NM Not meaningful


12




CITIGROUP REVENUES

In millions of dollars

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

CITICORP

Global Consumer Banking

North America

$

19,778


$

20,949


$

20,026


(6

)%

5

 %

EMEA

1,449


1,485


1,529


(2

)

(3

)

Latin America

9,318


8,758


8,547


6


2


Asia

7,624


7,928


8,023


(4

)

(1

)

Total

$

38,169


$

39,120


$

38,125


(2

)%

3

 %

Securities and Banking







North America

$

9,045


$

6,473


$

7,925


40

 %

(18

)%

EMEA

6,462


6,437


7,241


-


(11

)

Latin America

2,840


2,913


2,264


(3

)

29


Asia

4,671


4,199


4,270


11


(2

)

Total

$

23,018


$

20,022


$

21,700


15

 %

(8

)%

Transaction Services







North America

$

2,502


$

2,554


$

2,437


(2

)%

5

 %

EMEA

3,533


3,488


3,397


1


3


Latin America

1,822


1,770


1,684


3


5


Asia

2,703


2,896


2,913


(7

)

(1

)

Total

$

10,560


$

10,708


$

10,431


(1

)%

3

 %

    Institutional Clients Group

$

33,578


$

30,730


$

32,131


9

 %

(4

)%

Corporate/Other

$

77


$

70


$

762


10

 %

(91

)%

Total Citicorp

$

71,824


$

69,920


$

71,018


3

 %

(2

)%

Citi Holdings

$

4,542


$

(792

)

$

6,313


NM


NM


Total Citigroup net revenues

$

76,366


$

69,128


$

77,331


10

 %

(11

)%

NM Not meaningful


13



CITICORP

Citicorp is Citigroup's global bank for consumers and businesses and represents Citi's core franchises. Citicorp is focused on providing best-in-class products and services to customers and leveraging Citigroup's unparalleled global network, including many of the world's emerging economies. Citicorp is physically present in approximately 100 countries, many for over 100 years, and offers services in over 160 countries and jurisdictions. Citi believes this global network provides a strong foundation for servicing the broad financial services needs of its large multinational clients and for meeting the needs of retail, private banking, commercial, public sector and institutional clients around the world.

Citicorp consists of the following operating businesses: Global Consumer Banking (which consists of Regional Consumer Banking in North America, EMEA, Latin America and Asia ) and Institutional Clients Group (which includes Securities and Banking and Transaction Services ). Citicorp also includes Corporate/Other . At December 31, 2013, Citicorp had approximately $1.8 trillion of assets and $932 billion of deposits, representing 94% of Citi's total assets and 96% of Citi's total deposits, respectively.

In millions of dollars except as otherwise noted

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

Net interest revenue

$

43,609


$

44,067


$

43,923


(1

)%

-

 %

Non-interest revenue

28,215


25,853


27,095


9


(5

)

Total revenues, net of interest expense

$

71,824


$

69,920


$

71,018


3

 %

(2

)%

Provisions for credit losses and for benefits and claims







Net credit losses

$

7,393


$

8,389


$

11,111


(12

)%

(24

)%

Credit reserve build (release)

(826

)

(2,222

)

(5,074

)

63


56


Provision for loan losses

$

6,567


$

6,167


$

6,037


6

 %

2

 %

Provision for benefits and claims

212


236


193


(10

)

22


Provision for unfunded lending commitments

90


40


92


NM


(57

)

Total provisions for credit losses and for benefits and claims

$

6,869


$

6,443


$

6,322


7

 %

2

 %

Total operating expenses

$

42,455


$

44,731


$

43,793


(5

)%

2

 %

Income from continuing operations before taxes

$

22,500


$

18,746


$

20,903


20

 %

(10

)%

Provisions for income taxes

6,996


4,400


5,685


59


(23

)

Income from continuing operations

$

15,504


$

14,346


$

15,218


8

 %

(6

)%

Income (loss) from discontinued operations, net of taxes

270


(58

)

68


NM


NM


Noncontrolling interests

211


216


29


(2

)

NM


Net income

$

15,563


$

14,072


$

15,257


11

 %

(8

)%

Balance sheet data (in billions of dollars)







Total end-of-period (EOP) assets

$

1,763


$

1,709


$

1,649


3

 %

4

 %

Average assets

1,748


1,717


1,684


2


2


Return on average assets

0.89

%

0.82

%

0.91

%





Efficiency ratio (Operating expenses/Total revenues)

59


64


62






Total EOP loans

$

573


$

540


$

507


6


7


Total EOP deposits

932


863


804


8


7


NM Not meaningful


14



GLOBAL CONSUMER BANKING

Global Consumer Banking (GCB) consists of Citigroup's four geographical Regional Consumer Banking (RCB) businesses that provide traditional banking services to retail customers through retail banking, commercial banking, Citi-branded cards and Citi retail services. GCB is a globally diversified business with 3,729 branches in 36 countries around the world as of December 31, 2013. For the year ended December 31, 2013, GCB had approximately $395 billion of average assets and $328 billion of average deposits.

GCB 's overall strategy is to leverage Citi's global footprint and seek to be the preeminent bank for the emerging affluent and affluent consumers in large urban centers. As of December 31, 2013, Citi had consumer banking operations in 121, or 81%, of the world's top 150 cities. In credit cards and in certain retail markets, Citi serves customers in a somewhat broader set of segments and geographies. Consistent with its overall strategy, Citi intends to continue to optimize its branch footprint and further concentrate its presence in major metropolitan areas.

In millions of dollars except as otherwise noted

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

Net interest revenue

$

28,668


$

28,686


$

28,930


-

 %

(1

)%

Non-interest revenue

9,501


10,434


9,195


(9

)

13


Total revenues, net of interest expense

$

38,169


$

39,120


$

38,125


(2

)%

3

 %

Total operating expenses

$

20,608


$

21,316


$

20,753


(3

)%

3

 %

Net credit losses

$

7,211


$

8,107


$

10,489


(11

)%

(23

)%

Credit reserve build (release)

(669

)

(2,176

)

(4,515

)

69


52


Provisions for unfunded lending commitments

37


-


3


-


(100

)

Provision for benefits and claims

212


237


192


(11

)

23


Provisions for credit losses and for benefits and claims

$

6,791


$

6,168


$

6,169


10

 %

-

 %

Income from continuing operations before taxes

$

10,770


$

11,636


$

11,203


(7

)%

4

 %

Income taxes

3,638


3,681


3,537


(1

)

4


Income from continuing operations

$

7,132


$

7,955


$

7,666


(10

)%

4

 %

Noncontrolling interests

17


3


-


NM


-


Net income

$

7,115


$

7,952


$

7,666


(11

)%

4

 %

Balance Sheet data (in billions of dollars)







Average assets

$

395


$

388


$

377


2

 %

3

 %

Return on average assets

1.81

%

2.07

%

2.06

%





Efficiency ratio

54


54


54






Total EOP assets

$

405


$

404


$

385


-


5


Average deposits

328


322


314


2


3


Net credit losses as a percentage of average loans

2.50

%

2.87

%

3.85

%





Revenue by business

.






Retail banking

$

16,945


$

18,182


$

16,517


(7

)%

10

 %

Cards (1)

21,224


20,938


21,608


1


(3

)

Total

38,169


39,120


38,125


(2

)%

3

 %

Income from continuing operations by business







Retail banking

$

2,136


$

3,048


$

2,591


(30

)%

18

 %

Cards (1)

4,996


4,907


5,075


2


(3

)

Total

$

7,132


$

7,955


$

7,666


(10

)%

4

 %

(Table continues on following page.)


15




Foreign Currency (FX) Translation Impact

Total revenue-as reported

$

38,169


$

39,120


$

38,125


(2

)%

3

 %

Impact of FX translation (2)

-


(286

)

(896

)

Total revenues-ex-FX

$

38,169


$

38,834


$

37,229


(2

)%

4

 %

Total operating expenses-as reported

$

20,608


$

21,316


$

20,753


(3

)%

3

 %

Impact of FX translation (2)

-


(254

)

(655

)

Total operating expenses-ex-FX

$

20,608


$

21,062


$

20,098


(2

)%

5

 %

Total provisions for LLR & PBC-as reported

$

6,791


$

6,168


$

6,169


10

 %

-

 %

Impact of FX translation (2)

-


(40

)

(146

)

Total provisions for LLR & PBC-ex-FX

$

6,791


$

6,128


$

6,023


11

 %

2

 %

Net income-as reported

$

7,115


$

7,952


$

7,666


(11

)%

4

 %

Impact of FX translation (2)

-


10


(107

)

Net income-ex-FX

$

7,115


$

7,962


$

7,559


(11

)%

5

 %

(1)

Includes both Citi-branded cards and Citi retail services.

(2)

Reflects the impact of foreign exchange (FX) translation into U.S. dollars at 2013 average exchange rates for all periods presented.

NM Not meaningful


16



NORTH AMERICA REGIONAL CONSUMER BANKING

North America Regional Consumer Banking (NA RCB) provides traditional banking and Citi-branded cards and Citi retail services to retail customers and small- to mid-size businesses in the U.S. NA RCB 's 983 retail bank branches as of December 31, 2013 are largely concentrated in the greater metropolitan areas of New York, Los Angeles, San Francisco, Chicago, Miami, Washington, D.C., Boston, Philadelphia, Dallas, Houston, San Antonio and Austin.

At December 31, 2013, NA RCB had approximately 12.0 million customer accounts, $44.1 billion of retail banking loans and $170.2 billion of deposits. In addition, NA RCB had approximately 113.9 million Citi-branded and Citi retail services credit card accounts, with $116.8 billion in outstanding card loan balances, including approximately 13.0 million credit card accounts and $7 billion of loans added in September 2013 as a result of the acquisition of Best Buy's U.S. credit card portfolio.

In millions of dollars, except as otherwise noted

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

Net interest revenue

$

16,659


$

16,461


$

16,785


1

 %

(2

)%

Non-interest revenue

3,119


4,488


3,241


(31

)

38


Total revenues, net of interest expense

$

19,778


$

20,949


$

20,026


(6

)%

5

 %

Total operating expenses

$

9,591


$

9,931


$

9,691


(3

)%

2

 %

Net credit losses

$

4,634


$

5,756


$

8,101


(19

)%

(29

)%

Credit reserve build (release)

(1,036

)

(2,389

)

(4,181

)

57


43


Provisions for benefits and claims

60


70


62


(14

)

13


Provision for unfunded lending commitments

6


1


(1

)

NM


NM


Provisions for credit losses and for benefits and claims

$

3,664


$

3,438


$

3,981


7

 %

(14

)%

Income from continuing operations before taxes

$

6,523


$

7,580


$

6,354


(14

)%

19

 %

Income taxes

2,455


2,852


2,343


(14

)

22


Income from continuing operations

$

4,068


$

4,728


$

4,011


(14

)%

18

 %

Noncontrolling interests

2


1


-


100


-


Net income

$

4,066


$

4,727


$

4,011


(14

)%

18

 %

Balance Sheet data (in billions of dollars)







Average assets

$

175


$

172


$

166


2

 %

4

 %

Return on average assets

2.32

%

2.75

%

2.42

%





Efficiency ratio

48


47


48






Average deposits

$

166


$

154


$

145


8


6


Net credit losses as a percentage of average loans

3.09

%

3.83

%

5.50

%





Revenue by business







Retail banking

$

5,378


$

6,686


$

5,118


(20

)%

31

 %

Citi-branded cards

8,211


8,234


8,641


-


(5

)

Citi retail services

6,189


6,029


6,267


3


(4

)

Total

$

19,778


$

20,949


$

20,026


(6

)%

5

 %

Income from continuing operations by business







Retail banking

$

478


$

1,244


$

470


(62

)%

NM


Citi-branded cards

2,009


2,020


2,092


(1

)

(3

)

Citi retail services

1,581


1,464


1,449


8


1


Total

$

4,068


$

4,728


$

4,011


(14

)%

18

 %



NM Not meaningful



17



2013 vs. 2012

Net income decreased 14%, mainly driven by lower revenues and lower loan loss reserve releases, partially offset by lower net credit losses and expenses.

Revenues decreased 6% primarily due to lower retail banking revenues. Retail banking revenues of $5.4 billion declined 20% due to lower mortgage origination revenues driven by the significantly lower U.S. mortgage refinancing activity, particularly during the second half of 2013 due to higher interest rates. In addition, retail banking continued to experience ongoing spread compression in the deposit portfolios within the consumer and commercial banking businesses. Partially offsetting the spread compression was growth in average deposits (8%), average commercial loans (15%) and average retail loans (3%). While Citi believes mortgage revenues may have broadly stabilized as of year-end 2013, retail banking revenues will likely continue to be negatively impacted in 2014 by the lower mortgage origination revenues and spread compression in the deposit portfolios.

Cards revenues increased 1%. In Citi-branded cards, revenues were unchanged at $8.2 billion as continued improvement in net interest spreads, reflecting higher yields as promotional balances represented a smaller percentage of the portfolio total as well as lower funding costs, were offset by a 5% decline in average loans. Citi-branded cards net interest revenue increased 1%, reflecting the higher yields and lower cost of funds, partially offset by the decline in average loans and a continued increased payment rate from consumer deleveraging. Citi-branded cards non-interest revenue declined 5% due to higher affinity rebates.

Citi retail services revenues increased 3% primarily due to the acquisition of the Best Buy portfolio, partially offset by declining non-interest revenues, driven by improving credit and the resulting impact on contractual partner payments. Citi retail services net interest revenues increased 6% driven by a 4% increase in average loans, primarily due to the Best Buy U.S. portfolio acquisition, although net interest spreads declined as the percentage of promotional balances within the portfolio increased and could continue to increase into 2014. Total card purchase sales of $240 billion increased 3% from the prior year, with 3% growth in Citi-branded cards and 5% growth in retail services. Citi expects cards revenues could continue to be negatively impacted by higher payment rates for consumers, reflecting the relatively slow economic recovery and deleveraging as well as Citi's shift to higher credit quality borrowers.

Expenses decreased 3%, primarily due to lower legal and related costs and repositioning savings, partially offset by higher mortgage origination costs in the first half of 2013 and expenses in cards as a result of the Best Buy portfolio acquisition during the second half of the year.

Provisions increased 7%, as lower net credit losses in the Citi-branded cards and Citi retail services portfolios were offset by continued lower loan loss reserve releases ($1.0 billion in 2013 compared to $2.4 billion in 2012), primarily related to cards, as well as reserve builds for new loans originated in the Best Buy portfolio during the latter part of 2013, which are expected to continue into 2014.

2012 vs. 2011

Net income increased 18%, mainly driven by higher mortgage revenues in retail banking and a decline in net credit losses, partially offset by a reduction in loan loss reserve releases.

Revenues increased 5%, driven by a 38% increase in retail banking mortgage revenues resulting from the high level of U.S. refinancing activity as well as higher margins resulting from the shift to retail as compared to third-party origination channels. Excluding mortgages, revenue from the retail banking business was essentially unchanged, as volume growth and improved mix in the deposit and lending portfolios within the consumer and commercial portfolios were offset by significant spread compression.

Cards revenues declined 4%. In Citi-branded cards, both average loans and net interest revenue declined year-over-year, reflecting continued increased payment rates resulting from consumer deleveraging and the impact of the look-back provisions of The Credit Card Accountability Responsibility and Disclosure Act (CARD Act). In Citi retail services, net interest revenues improved slightly but were offset by declining non-interest revenues, driven by improving credit and the resulting impact on contractual partner payments.

Expenses increased 2%, primarily due to increased mortgage origination costs resulting from the higher retail channel mortgage volumes and $100 million of repositioning charges in the fourth quarter of 2012 as well as higher legal and related costs, partially offset by lower expenses in cards.

Provisions decreased 14%, due to a 29% decline in net credit losses, primarily in the cards portfolios, partly offset by lower loan loss reserve releases ($2.4 billion in 2012 compared to $4.2 billion in 2011).





18



EMEA REGIONAL CONSUMER BANKING


EMEA Regional Consumer Banking (EMEA RCB) provides traditional banking and Citi-branded card services to retail customers and small- to mid-size businesses, primarily in Central and Eastern Europe and the Middle East. The countries in which EMEA RCB has the largest presence are Poland, Russia and the United Arab Emirates.

At December 31, 2013, EMEA RCB had 172 retail bank branches with approximately 3.4 million customer accounts, $5.6 billion in retail banking loans, $13.1 billion in deposits, and 2.1 million Citi-branded card accounts with $2.4 billion in outstanding card loan balances.

In millions of dollars, except as otherwise noted

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

Net interest revenue

$

948


$

1,010


$

915


(6

)%

10

 %

Non-interest revenue

501


475


614


5


(23

)

Total revenues, net of interest expense

$

1,449


$

1,485


$

1,529


(2

)%

(3

)%

Total operating expenses

$

1,323


$

1,433


$

1,337


(8

)%

7

 %

Net credit losses

$

68


$

105


$

172


(35

)%

(39

)%

Credit reserve build (release)

(18

)

(5

)

(118

)

NM


96


Provision for unfunded lending commitments

-


(1

)

4


100


NM


Provisions for credit losses

$

50


$

99


$

58


(49

)%

71

 %

Income (loss) from continuing operations before taxes

$

76


$

(47

)

$

134


NM


NM


Income taxes (benefits)

17


(10

)

55


NM


NM


Income (loss) from continuing operations

$

59


$

(37

)

$

79


NM


NM


Noncontrolling interests

11


4


-


NM


-

 %

Net income (loss)

$

48


$

(41

)

$

79


NM


NM


Balance Sheet data (in billions of dollars)







Average assets

$

10


$

9


$

10


11

 %

(10

)%

Return on average assets

0.48

%

(0.46

)%

0.79

%





Efficiency ratio

91


96


87






Average deposits

$

12.6


$

12.6


$

12.5


-


1


Net credit losses as a percentage of average loans

0.85

%

1.40

 %

2.37

%





Revenue by business







Retail banking

$

868


$

873


$

874


(1

)%

-

 %

Citi-branded cards

581


612


655


(5

)

(7

)

Total

$

1,449


$

1,485


$

1,529


(2

)%

(3

)%

Income (loss) from continuing operations by business







Retail banking

$

(23

)

$

(92

)

$

(45

)

75

 %

NM


Citi-branded cards

82


55


124


49


(56

)

Total

$

59


$

(37

)

$

79


NM


NM


Foreign Currency (FX) Translation Impact







Total revenue (loss)-as reported

$

1,449


$

1,485


$

1,529


(2

)%

(3

)%

Impact of FX translation (1)

-


(15

)

(90

)





Total revenues-ex-FX

$

1,449


$

1,470


$

1,439


(1

)%

2

 %

Total operating expenses-as reported

$

1,323


$

1,433


$

1,337


(8

)%

7

 %

Impact of FX translation (1)

-


(20

)

(89

)





Total operating expenses-ex-FX

$

1,323


$

1,413


$

1,248


(6

)%

13

 %

Provisions for credit losses-as reported

$

50


$

99


$

58


(49

)%

71

 %

Impact of FX translation (1)

-


(1

)

(3

)





Provisions for credit losses-ex-FX

$

50


$

98


$

55


(49

)%

78

 %

Net income (loss)-as reported

$

48


$

(41

)

$

79


NM


NM


Impact of FX translation (1)

-


5


1






Net income (loss)-ex-FX

$

48


$

(36

)

$

80


NM


NM


(1)

Reflects the impact of foreign exchange (FX) translation into U.S. dollars at 2013 average exchange rates for all periods presented.

NM

Not meaningful


19




The discussion of the results of operations for EMEA RCB below excludes the impact of FX translation for all periods presented. Presentation of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of EMEA RCB's results excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these metrics to the reported results, see the table above.


2013 vs. 2012

Net income of $48 million compared to a net loss of $36 million in 2012 as lower expenses and lower net credit losses were partially offset by lower revenues, primarily due to the sales of Citi's consumer operations in Turkey and Romania during 2013.

Revenues decreased 1%, mainly driven by the lower revenues resulting from the sales of the consumer operations referenced above, partially offset by higher volumes in core markets and a gain on sale related to the Turkey sale. Net interest revenue decreased 5%, due to continued spread compression in cards and an 8% decrease in average cards loans, primarily due to the sales in Turkey and Romania, partially offset by growth in average retail loans of 13%. Interest rate caps on credit cards, particularly in Poland, the continued liquidation of a higher yielding non-strategic retail banking portfolio and the continued low interest rate environment were the main contributors to the lower net interest spreads. Citi expects continued regulatory changes, including caps on interchange rates, and spread compression to continue to negatively impact revenues in this business during 2014. Non-interest revenue increased 6%, mainly reflecting higher investment fees and card fees due to increased sales volume and the gain on sale related to Turkey, partially offset by lower revenues due to the sales in Turkey and Romania. Cards purchase sales decreased 4% and investment sales decreased 5% due to the sales in Turkey and Romania. Excluding the impact of these divestitures, cards purchase sales increased 9% and investment sales increased 12%.

Expenses declined 6%, primarily due to repositioning savings as well as lower repositioning charges, partially offset by higher volume-related expenses and continued investment spending on new internal operating platforms.

Provisions declined 49% due to a 35% decrease in net credit losses largely resulting from the sales in Turkey and Romania and a net credit recovery in the second quarter 2013. Net credit losses also continued to reflect stabilizing credit quality and Citi's strategic move toward lower-risk customers.



2012 vs. 2011

The net loss of $36 million compared to net income of $80 million in 2011 and was mainly due to higher expenses and lower loan loss reserve releases, partially offset by higher revenues.

Revenues increased 2%, with growth across the major products, particularly in Russia. Year-over-year, cards purchase sales increased 12%, investment sales increased 15% and retail loan volume increased 17%. Revenue growth year-over-year was partly offset by the absence of Akbank T.A.S. (Akbank), Citi's equity investment in Turkey, which was moved to Corporate/Other in the first quarter of 2012. Net interest revenue increased 18%, driven by the absence of Akbank investment funding costs and growth in average deposits of 5%, average retail loans of 16% and average cards loans of 6%, partially offset by spread compression. Interest rate caps on credit cards, particularly in Turkey and Poland, the continued liquidation of the higher yielding non-strategic retail banking portfolio and the continued low interest rate environment were the main contributors to the lower net interest spreads. Non-interest revenue decreased 20%, mainly reflecting the absence of Akbank.

Expenses increased 13%, primarily due to $57 million of fourth quarter of 2012 repositioning charges in Turkey, Romania and Pakistan and the impact of continued investment spending on new internal operating platforms during 2012.

Provisions increased $43 million due to lower loan loss reserve releases, partially offset by lower net credit losses across most countries. Net credit losses decreased 36% due to the ongoing improvement in credit quality and the move toward lower-risk customers.



20



LATIN AMERICA REGIONAL CONSUMER BANKING

Latin America Regional Consumer Banking (Latin America RCB) provides traditional banking and Citi-branded card services to retail customers and small- to mid-size businesses, with the largest presence in Mexico and Brazil. Latin America RCB includes branch networks throughout Latin America as well as Banco Nacional de Mexico, or Banamex, Mexico's second-largest bank, with nearly 1,700 branches. At December 31, 2013, Latin America RCB had 2,021 retail branches, with approximately 32.2 million customer accounts, $30.6 billion in retail banking loans and $47.7 billion in deposits. In addition, the business had approximately 9.2 million Citi-branded card accounts with $12.1 billion in outstanding loan balances.

In millions of dollars, except as otherwise noted

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

Net interest revenue

$

6,305


$

6,061


$

5,853


4

 %

4

 %

Non-interest revenue

3,013


2,697


2,694


12


-


Total revenues, net of interest expense

$

9,318


$

8,758


$

8,547


6

 %

2

 %

Total operating expenses

$

5,244


$

5,186


$

5,093


1

 %

2

 %

Net credit losses

$

1,727


$

1,405


$

1,333


23

 %

5

 %

Credit reserve build (release)

376


254


(153

)

48


NM


Provision for benefits and claims

152


167


130


(9

)

28


Provisions for loan losses and for benefits and claims (LLR & PBC)

$

2,255


$

1,826


$

1,310


23

 %

39

 %

Income from continuing operations before taxes

$

1,819


$

1,746


$

2,144


4

 %

(19

)%

Income taxes

384


278


471


38


(41

)

Income from continuing operations

$

1,435


$

1,468


$

1,673


(2

)%

(12

)%

Noncontrolling interests

4


(2

)

-


NM


-


Net income

$

1,431


$

1,470


$

1,673


(3

)%

(12

)%

Balance Sheet data (in billions of dollars)

Average assets

$

82


$

80


$

80


3

 %

-

 %

Return on average assets

1.77

%

1.93

%

2.21

%

Efficiency ratio

56


59


60


Average deposits

$

46.2


$

45


$

45.8


3


(2

)

Net credit losses as a percentage of average loans

4.16

%

3.81

%

4.12

%

Revenue by business

Retail banking

$

6,135


$

5,857


$

5,557


5

 %

5

 %

Citi-branded cards

3,183


2,901


2,990


10


(3

)

Total

$

9,318


$

8,758


$

8,547


6

 %

2

 %

Income from continuing operations by business

Retail banking

$

833


$

909


$

952


(8

)%

(5

)%

Citi-branded cards

602


559


721


8


(22

)

Total

$

1,435


$

1,468


$

1,673


(2

)%

(12

)%

Foreign Currency (FX) Translation Impact

Total revenue-as reported

$

9,318


$

8,758


$

8,547


6

 %

2

 %

Impact of FX translation (1)

-


(33

)

(477

)

Total revenues-ex-FX

$

9,318


$

8,725


$

8,070


7

 %

8

 %

Total operating expenses-as reported

$

5,244


$

5,186


$

5,093


1

 %

2

 %

Impact of FX translation (1)

-


(62

)

(326

)

Total operating expenses-ex-FX

$

5,244


$

5,124


$

4,767


2

 %

7

 %

Provisions for LLR & PBC-as reported

$

2,255


$

1,826


$

1,310


23

 %

39

 %

Impact of FX translation (1)

-


(19

)

(104

)

Provisions for LLR & PBC-ex-FX

$

2,255


$

1,807


$

1,206


25

 %

50

 %

Net income-as reported

$

1,431


$

1,470


$

1,673


(3

)%

(12

)%

Impact of FX translation (1)

-


25


(82

)

Net income-ex-FX

$

1,431


$

1,495


$

1,591


(4

)%

(6

)%

(1)

Reflects the impact of foreign exchange (FX) translation into U.S. dollars at 2013 average exchange rates for all periods presented.

NM Not Meaningful


21




The discussion of the results of operations for Latin America RCB below excludes the impact of FX translation for all periods presented. Presentation of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of Latin America RCB's results excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these metrics to the reported results, see the table above.

2013 vs. 2012

Net income decreased 4% as higher credit costs, higher expenses and a higher effective tax rate (see Note 9 to the Consolidated Financial Statements) were partially offset by higher revenues.

Revenues increased 7%, primarily due to volume growth in retail banking and cards, partially offset by continued spread compression. Net interest revenue increased 4% due to increased volumes, partially offset by spread compression. Non-interest revenue increased 12%, primarily due to higher fees from increased business volumes in retail and cards. Retail banking revenues increased 5% as average loans increased 12%, investment sales increased 13% and average deposits increased 3%. Cards revenues increased 11% as average loans increased 10% and purchase sales increased 13%, excluding the impact of Credicard (see Note 2 to the Consolidated Financial Statements). Citi expects revenues in Latin America RCB could continue to be negatively impacted by spread compression during 2014, particularly in Mexico.

Expenses increased 2% due to increased volume-related costs, mandatory salary increases in certain countries and higher regulatory costs, partially offset by lower repositioning charges and higher repositioning savings.

Provisions increased 25%, primarily due to higher net credit losses as well as a higher loan loss reserve build. Net credit losses increased 25%, primarily in the Mexico cards and personal loan portfolios, reflecting both volume growth and portfolio seasoning, which Citi expects to continue into 2014. The loan loss reserve build increased 50%, primarily due to an increase in reserves in Mexico related to the top three Mexican homebuilders, with the remainder due to portfolio growth and seasoning and the impact of potential losses related to hurricanes in the region during September 2013.

During 2013, homebuilders in Mexico began to experience financial difficulties, primarily due to, among other things, decreases in government subsidies, new government policies promoting vertical housing and an overall renewed government emphasis on urban planning. The loan loss reserve build related to the Mexican homebuilders in 2013 was driven by deterioration in the financial and operating conditions of these companies and decreases in the value of Citi's collateral securing its loans. Citi's outstanding loans to the top three homebuilders totaled $251 million at year-end 2013. Citi continues to monitor the performance of its Mexico homebuilder clients, as well as the value of its collateral, to determine whether additional reserves or charge-offs may be required in future periods.

Going into 2014, absent any significant market developments, including further deterioration in Citi's Mexican homebuilders clients or losses from the hurricanes in 2013, Citi expects net credit losses and reserve builds to be in line with portfolio growth and seasoning.

For information on the potential impact to Latin America RCB from foreign exchange controls, see "Managing Global Risk-Country and Cross-Border Risk-Cross-Border Risk" below.


2012 vs. 2011

Net income declined 6% as higher revenues were offset by higher credit costs and expenses.

Revenues increased 8%, primarily due to revenue growth in Mexico and higher volumes, mostly related to personal loans and credit cards. Net interest revenue increased 9% due to increased volumes, partially offset by continued spread compression. Non-interest revenue increased 6%, primarily due to increased business volumes in the private pension fund and insurance businesses.

Expenses increased 7%, primarily due to $131 million of repositioning charges in the fourth quarter of 2012, higher volume-driven expenses and increased legal and related costs.

Provisions increased 50%, primarily due to increased loan loss reserve builds driven by underlying business volume growth, primarily in Mexico and Colombia. In addition, net credit losses increased in the retail portfolios, primarily in Mexico, reflecting volume growth.



22



ASIA REGIONAL CONSUMER BANKING

Asia Regional Consumer Banking (Asia RCB) provides traditional banking and Citi-branded card services to retail customers and small- to mid-size businesses, with the largest Citi presence in Korea, Australia, Singapore, Hong Kong, Taiwan, Japan, India, Malaysia, Indonesia, Thailand and the Philippines.

At December 31, 2013, Asia RCB had 553 retail branches, approximately 16.8 million customer accounts, $71.6 billion in retail banking loans and $101.4 billion in deposits. In addition, the business had approximately 16.6 million Citi-branded card accounts with $19.1 billion in outstanding loan balances.

In millions of dollars, except as otherwise noted

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

Net interest revenue

$

4,756


$

5,154


$

5,377


(8

)%

(4

)%

Non-interest revenue

2,868


2,774


2,646


3


5


Total revenues, net of interest expense

$

7,624


$

7,928


$

8,023


(4

)%

(1

)%

Total operating expenses

$

4,450


$

4,766


$

4,632


(7

)%

3

 %

Net credit losses

$

782


$

841


$

883


(7

)%

(5

)%

Credit reserve build (release)

9


(36

)

(63

)

NM


43


Provision for unfunded lending commitments

31


-


-


-


-


Provisions for loan losses

$

822


$

805


$

820


2

 %

(2

)%

Income from continuing operations before taxes

$

2,352


$

2,357


$

2,571


-

 %

(8

)%

Income taxes

782


561


668


39


(16

)

Income from continuing operations

$

1,570


$

1,796


$

1,903


(13

)%

(6

)%

Noncontrolling interests

-


-


-


-


-


Net income

$

1,570


$

1,796


$

1,903


(13

)%

(6

)%

Balance Sheet data (in billions of dollars)











Average assets

$

129


$

127


$

122


2

 %

4

 %

Return on average assets

1.22

%

1.41

%

1.56

%





Efficiency ratio

58


60


58


Average deposits

$

102.6


$

110.8


$

110.5


(7

)

-


Net credit losses as a percentage of average loans

0.88

%

0.95

%

1.03

%





Revenue by business

Retail banking

$

4,564


$

4,766


$

4,968


(4

)%

(4

)%

Citi-branded cards

3,060


3,162


3,055


(3

)

4


Total

$

7,624


$

7,928


$

8,023


(4

)%

(1

)%

Income from continuing operations by business











Retail banking

$

848


$

987


$

1,214


(14

)%

(19

)%

Citi-branded cards

722


809


689


(11

)

17


Total

$

1,570


$

1,796


$

1,903


(13

)%

(6

)%

Foreign Currency (FX) Translation Impact











Total revenue-as reported

$

7,624


$

7,928


$

8,023


(4

)%

(1

)%

Impact of FX translation (1)

-


(238

)

(329

)





Total revenues-ex-FX

$

7,624


$

7,690


$

7,694


(1

)%

-

 %

Total operating expenses-as reported

$

4,450


$

4,766


$

4,632


(7

)%

3

 %

Impact of FX translation (1)

-


(172

)

(240

)





Total operating expenses-ex-FX

$

4,450


$

4,594


$

4,392


(3

)%

5

 %

Provisions for loan losses-as reported

$

822


$

805


$

820


2

 %

(2

)%

Impact of FX translation (1)

-


(20

)

(39

)





Provisions for loan losses-ex-FX

$

822


$

785


$

781


5

 %

1

 %

Net income-as reported

$

1,570


$

1,796


$

1,903


(13

)%

(6

)%

Impact of FX translation (1)

-


(20

)

(26

)





Net income-ex-FX

$

1,570


$

1,776


$

1,877


(12

)%

(5

)%

(1)

Reflects the impact of foreign exchange (FX) translation into U.S. dollars at 2013 average exchange rates for all periods presented.

NM

Not meaningful


23




The discussion of the results of operations for Asia RCB below excludes the impact of FX translation for all periods presented. Presentation of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of Asia RCB's results excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these metrics to the reported results, see the table above.

2013 vs. 2012

Net income decreased 12%, primarily due to a higher effective tax rate (see Note 9 to the Consolidated Financial Statements) and lower revenues, partially offset by lower expenses.

Revenues decreased 1%, as lower net interest revenue was partially offset by higher non-interest revenue. Net interest revenue declined 5%, primarily driven by continued spread compression and the repositioning of the franchise in Korea (see discussion below). Average retail deposits declined 4% resulting from continued efforts to rebalance the deposit portfolio mix. Average retail loans increased 3% (11% excluding Korea). Non-interest revenue increased 7%, mainly driven by 22% growth in investment sales volume, despite a decrease in volumes in the second half of the year due to investor sentiment, reflecting overall market uncertainty. Cards purchase sales grew 7%, with growth across the region. Despite lower overall revenues in 2013, several key markets within the region experienced revenue growth, including Hong Kong, India, Thailand and China, partially offset by regulatory changes in the region, particularly Korea as well as Indonesia, Australia and Taiwan.

Citi expects regulatory changes and spread compression to continue to have an adverse impact on Asia RCB revenues during 2014. In addition, consistent with its strategy to concentrate its consumer banking operations in major metropolitan areas and focus on high quality consumer segments, Citi is in an ongoing process to reposition its consumer franchise in Korea to improve its operating efficiency and returns. While revenues in Korea could begin to stabilize in early 2014, this market could continue to have a negative impact on year-over-year revenue comparisons for Asia RCB through 2014.

Expenses declined 3%, as lower repositioning charges and efficiency and repositioning savings were partially offset by increased investment spending, particularly investments in China cards.

Provisions increased 5%, reflecting a higher loan loss reserve build due to volume growth in China, Hong Kong, India and Singapore as well as regulatory requirements in Korea, partially offset by lower net credit losses. Despite this increase, overall credit quality in the region remained stable during the year.


2012 vs. 2011

Net income decreased 5% primarily due to higher expenses.

Revenues were unchanged year-over-year. Net interest revenue decreased 3%, as the benefit of higher loan and deposit balances was offset by spread compression, mainly in retail lending. Spread compression continued to reflect improvements in the customer risk profile, stricter underwriting criteria and the regulatory changes in Korea where policy actions, including rate caps and other initiatives, were implemented to slow the growth of consumer credit in that market, thus impacting volume growth, lending rates and fees. Non-interest revenue increased 6%, reflecting growth in cards purchase sales, partially offset by a decrease in revenue from foreign exchange products. Despite the continued spread compression and regulatory changes in the region, the underlying business metrics continued to grow, with average retail loans up 6% and average card loans up 2%.

Expenses increased 5%, primarily due to approximately $78 million of repositioning charges in the fourth quarter of 2012, largely in Korea, and increased investment spending, including China cards and branches, higher volume-driven expenses and increased regulatory costs.

Provisions increased 1%, primarily due to lower loan loss reserve releases, which was partially offset by lower net credit losses. Net credit losses continued to improve, declining 2% due to the ongoing improvement in credit quality.




24



INSTITUTIONAL CLIENTS GROUP

Institutional Clients Group (ICG) includes Securities and Banking and Transaction Services . ICG provides corporate, institutional, public sector and high-net-worth clients around the world with a full range of wholesale banking products and services, including fixed income and equity sales and trading, foreign exchange, prime brokerage, equity and fixed income research, corporate lending, investment banking and advisory services, private banking, cash management, trade finance and securities services. ICG 's international presence is supported by trading floors in 75 countries and jurisdictions and a proprietary network within Transaction Services in over 95 countries and jurisdictions. At December 31, 2013, ICG had approximately $1 trillion of assets, $574 billion of deposits and $14.3 trillion of assets under custody.

Effective in the first quarter of 2014, certain business activities within Securities and Banking and Transaction Services will be realigned and aggregated as Banking and Markets and Securities Services components within the ICG segment. The change is due to the realignment of the management structure within the ICG segment and will have no impact on any total segment-level information. Citi intends to release a revised Quarterly Financial Data Supplement reflecting this realignment prior to the release of first quarter of 2014 earnings information.

In millions of dollars, except as otherwise noted

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

Commissions and fees

$

4,515


$

4,318


$

4,449


5

 %

(3

)%

Administration and other fiduciary fees

2,675


2,790


2,775


(4

)

1


Investment banking

3,862


3,618


3,029


7


19


Principal transactions

6,310


4,130


4,873


53


(15

)

Other

666


(83

)

1,822


NM


NM


Total non-interest revenue

$

18,028


$

14,773


$

16,948


22

 %

(13

)%

Net interest revenue (including dividends)

15,550


15,957


15,183


(3

)

5


Total revenues, net of interest expense

$

33,578


$

30,730


$

32,131


9

 %

(4

)%

Total operating expenses

$

19,897


$

20,199


$

20,747


(1

)%

(3

)%

Net credit losses

$

182


$

282


$

619


(35

)%

(54

)%

Provision for unfunded lending commitments

53


39


89


36


(56

)

Credit reserve (release)

(157

)

(45

)

(556

)

NM


92


Provisions for credit losses

$

78


$

276


$

152


(72

)%

82

 %

Income from continuing operations before taxes

$

13,603


$

10,255


$

11,232


33

 %

(9

)%

Income taxes

3,972


2,162


2,872


84


(25

)

Income from continuing operations

$

9,631


$

8,093


$

8,360


19

 %

(3

)%

Noncontrolling interests

110


128


56


(14

)

NM


Net income

$

9,521


$

7,965


$

8,304


20

 %

(4

)%

Average assets (in billions of dollars)

$

1,067


$

1,044


$

1,027


2

 %

2

 %

Return on average assets

0.89

%

0.76

%

0.81

%





Efficiency ratio

59


66


65






Revenues by region





North America

$

11,547


$

9,027


$

10,362


28

 %

(13

)%

EMEA

9,995


9,925


10,638


1


(7

)

Latin America

4,662


4,683


3,948


-


19


Asia

7,374


7,095


7,183


4


(1

)

Total

$

33,578


$

30,730


$

32,131


9

 %

(4

)%

Income from continuing operations by region





North America

$

3,242


$

1,716


$

1,692


89

 %

1

 %

EMEA

2,488


2,544


3,077


(2

)

(17

)

Latin America

1,640


1,891


1,539


(13

)

23


Asia

2,261


1,942


2,052


16


(5

)

Total

$

9,631


$

8,093


$

8,360


19

 %

(3

)%

Average loans by region (in billions of dollars)





North America

$

98


$

83


$

69


18

 %

20

 %

EMEA

55


53


47


4


13


Latin America

38


35


29


9


21


Asia

65


63


52


3


21


Total

$

256


$

234


$

197


9

 %

19

 %

NM Not meaningful


25



SECURITIES AND BANKING

Securities and Banking (S&B) offers a wide array of investment and commercial banking services and products for corporations, governments, institutional and public sector entities and high-net-worth individuals. S&B transacts with clients in both cash instruments and derivatives, including fixed income, foreign currency, equity and commodity products. S&B includes investment banking and advisory services, corporate lending, fixed income and equity sales and trading, prime brokerage, derivative services, equity and fixed income research and private banking.

S&B revenue is generated primarily from fees and spreads associated with these activities. S&B earns fee income for assisting clients in clearing transactions, providing brokerage and investment banking services and other such activities. Revenue generated from these activities is recorded in Commissions and fees . In addition, as a market maker, S&B facilitates transactions, including holding product inventory to meet client demand, and earns the differential between the price at which it buys and sells the products. These price differentials and the unrealized gains and losses on the inventory are recorded in Principal transactions. S&B interest income earned on inventory and loans held is recorded as a component of Net interest revenue .

In millions of dollars, except as otherwise noted

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

Net interest revenue

$

9,909


$

9,951


$

9,399


-

 %

6

 %

Non-interest revenue

13,109


10,071


12,301


30


(18

)

Revenues, net of interest expense

$

23,018


$

20,022


$

21,700


15

 %

(8

)%

Total operating expenses

13,803


14,416


14,990


(4

)

(4

)

Net credit losses

145


168


602


(14

)

(72

)

Provision (release) for unfunded lending commitments

71


33


86


NM


(62

)

Credit reserve (release)

(209

)

(79

)

(572

)

NM


86


Provisions for credit losses

$

7


$

122


$

116


(94

)%

5

 %

Income before taxes and noncontrolling interests

$

9,208


$

5,484


$

6,594


68

 %

(17

)%

Income taxes

2,493


791


1,485


NM


(47

)

Income from continuing operations

$

6,715


$

4,693


$

5,109


43

 %

(8

)%

Noncontrolling interests

91


111


37


(18

)

NM


Net income

$

6,624


$

4,582


$

5,072


45

 %

(10

)%

Average assets (in billions of dollars)

$

907


$

904


$

896


-

 %

1

 %

Return on average assets

0.73

%

0.51

%

0.57

%

Efficiency ratio

60


72


69


Revenues by region

North America

$

9,045


$

6,473


$

7,925


40

 %

(18

)%

EMEA

6,462


6,437


7,241


-


(11

)

Latin America

2,840


2,913


2,264


(3

)

29


Asia

4,671


4,199


4,270


11


(2

)

Total revenues

$

23,018


$

20,022


$

21,700


15

 %

(8

)%

Income from continuing operations by region

North America

$

2,701


$

1,250


$

1,284


NM


(3

)%

EMEA

1,562


1,360


2,005


15


(32

)

Latin America

1,189


1,249


916


(5

)

36


Asia

1,263


834


904


51


(8

)

Total income from continuing operations

$

6,715


$

4,693


$

5,109


43

 %

(8

)%

Securities and Banking revenue details (excluding CVA/DVA)

Total investment banking

$

3,977


$

3,668


$

3,334


8

 %

10

 %

Fixed income markets

13,107


14,122


11,050


(7

)

28


Equity markets

3,017


2,464


2,451


22


1


Lending

1,217


869


1,682


40


(48

)

Private bank

2,487


2,394


2,217


4


8


Other Securities and Banking

(442

)

(1,008

)

(766

)

56


(32

)

Total Securities and Banking revenues (ex-CVA/DVA)

$

23,363


$

22,509


$

19,968


4

 %

13

 %

CVA/DVA (excluded as applicable in lines above)

(345

)

(2,487

)

1,732


86

 %

NM


Total revenues, net of interest expense

$

23,018


$

20,022


$

21,700


15

 %

(8

)%


NM Not meaningful


26




2013 vs. 2012

Net income increased 45%. Excluding negative $345 million of CVA/DVA (see table below), net income increased 12%, primarily driven by higher revenues and lower expenses, partially offset by a higher effective tax rate (see Note 9 to the Consolidated Financial Statements).

Revenues increased 15%. Excluding CVA/DVA:


Revenues increased 4%, reflecting higher revenues in equity markets, investment banking and the Private Bank, partially offset by lower revenues in fixed income markets. Overall, Citi's wallet share continued to improve in most major products, while maintaining what Citi believes to be a disciplined risk appetite for the changing market environment during 2013.

Fixed income markets revenues decreased 7%, primarily reflecting industry-wide weakness in rates and currencies, partially offset by strong performance in credit-related and securitized products and commodities. Rates and currencies performance was lower compared to a strong 2012 that benefited from increased client revenues and a more liquid market environment, particularly in EMEA . 2013 results also reflected a general slowdown in client activity exacerbated by uncertainty, particularly in the latter part of 2013, around the tapering of quantitative easing as well as geopolitical issues. Credit-related and securitized products results reflected increased client activity driven by improved market conditions and demand for spread products. In addition, while not generally material to overall fixed income markets revenues, lower revenues from Citi Capital Advisors (CCA) during 2013 also contributed to the decline in fixed income markets revenue year-over-year, as Citi continued to wind down this business.

Equity markets revenues increased 22%, primarily due to market share gains, continued improvement in cash and derivative trading performance and a more favorable market environment.

Investment banking revenues increased 8%, reflecting gains in overall investment banking wallet share. Advisory revenues increased 19%, reflecting an improvement in wallet share, despite a contraction in the overall M&A market wallet. Equity underwriting revenues increased 51%, driven by improved wallet share and increased market activity, particularly initial public offerings. Debt underwriting revenues decreased 6%, primarily due to lower bond underwriting fees and a decline in wallet share during the year.

Lending revenues increased 40%, driven by lower mark-to-market losses on hedges related to accrual loans (see table below) due to less significant credit spread tightening versus 2012. Excluding the mark-to-market losses on hedges related to accrual loans, core lending revenues decreased 4%, primarily due to increased hedge premium costs and moderately lower loan balances, partially offset by higher spreads. Citi expects demand for Corporate loans to remain muted in the current market environment.

Private Bank revenues increased 4%, with growth across all regions and products, particularly in managed investments, where growth reflected both higher client assets under management and increased placement fees, as well as in capital markets. Revenue growth in lending and deposits, primarily driven by growth in client volumes, was partially offset by continued spread compression.


Expenses decreased 4%, primarily reflecting repositioning savings, the impact of lower performance-based compensation, lower repositioning charges and the impact of FX translation, partially offset by higher legal and related costs and volume-related expenses.

Provisions decreased $115 million, primarily reflecting higher loan loss reserve releases, partially offset by an increase in the provision for unfunded lending commitments in the Corporate loan portfolio.


2012 vs. 2011

Net income decreased 10%. Excluding negative $2.5 billion CVA/DVA (see table below), net income increased 56%, primarily driven by an increase in revenues and decrease in expenses.

Revenues decreased 8%. Excluding CVA/DVA:


Revenues increased 13%, reflecting higher revenues in most major S&B businesses. Overall, Citi gained wallet share during 2012 in most major products and regions, while maintaining what it believed to be a disciplined risk appetite for the market environment.

Fixed income markets revenues increased 28%, reflecting strong performance in rates and currencies and higher revenues in credit-related and securitized products. These results reflected an improved market environment and more balanced trading flows, particularly in the second half of 2012. Rates and currencies performance reflected strong client and trading results in G-10 FX, G-10 rates and Citi's local markets franchise. Credit products, securitized markets and municipals products experienced improved trading results, particularly in the second half of 2012, compared to the prior-year period. Citi's position serving corporate clients for markets products also contributed to the strength and diversity of client flows.

Equity markets revenues increased 1%, due to improved derivatives performance as well as the absence of proprietary trading losses in 2011, partially offset by lower cash equity volumes that impacted the industry as a whole. Citi's improved performance in derivatives reflected improved trading and continued progress in capturing additional client wallet share.

Investment banking revenues increased 10%, reflecting increases in debt underwriting and advisory revenues, partially offset by lower equity underwriting revenues. Debt underwriting revenues rose 18%, driven by increases in investment grade and high yield bond issuances. Advisory revenues increased 4%, despite the overall reduction in market activity during the year. Equity


27



underwriting revenues declined 7%, driven by lower levels of market and client activity.

Lending revenues decreased 48%, driven by the mark-to-market losses on hedges related to accrual loans (see table below). The loss on lending hedges, compared to a gain in the prior year, resulted from credit spreads narrowing during 2012. Excluding the mark-to-market losses on hedges related to accrual loans, core lending revenues increased 35%, primarily driven by growth in the Corporate loan portfolio and improved spreads in most regions.

Private Bank revenues increased 8%, driven by growth in client assets as a result of client acquisition and development efforts in Citi's targeted client segments. Deposit volumes, investment assets under management and loans all increased, while pricing and product mix optimization initiatives offset underlying spread compression across products.


Expenses decreased 4%. Excluding repositioning charges of $349 million in 2012 (including $237 million in the fourth quarter of 2012) compared to $267 million in 2011, expenses also decreased 4%, driven by efficiency savings from ongoing re-engineering programs and lower compensation costs.

Provisions increased 5% to $122 million, primarily reflecting lower loan loss reserve releases, partially offset by lower net credit losses, both due to portfolio stabilization.


The table below summarizes pretax gains (losses) related to changes in CVA/DVA and hedges on accrual loans for the periods indicated.

In millions of dollars

2013

2012

2011

S&B CVA/DVA

Fixed Income Markets

$

(300

)

$

(2,047

)

$

1,368


Equity Markets

(39

)

(424

)

355


Private Bank

(6

)

(16

)

9


Total S&B CVA/DVA

$

(345

)

$

(2,487

)

$

1,732


S&B Hedges on Accrual Loans gain (loss) (1)

$

(287

)

$

(698

)

$

519


(1)

Hedges on S&B accrual loans reflect the mark-to-market on credit derivatives used to economically hedge the corporate loan accrual portfolio. The fixed premium cost of these hedges is netted against the core lending revenues to reflect the cost of the credit protection.


28



TRANSACTION SERVICES

Transaction Services is composed of Treasury and Trade Solutions and Securities and Fund Services. Treasury and Trade Solutions provides comprehensive cash management and trade finance services for corporations, financial institutions and public sector entities worldwide. Securities and Fund Services provides securities services to investors, such as global asset managers, custody and clearing services to intermediaries, such as broker-dealers, and depository and agency/trust services to multinational corporations and governments globally. Revenue is generated from net interest revenue on the spread between trade loans or intercompany placements and interest paid to customers on deposits as well as fees for transaction processing and fees on assets under custody and administration.

In millions of dollars, except as otherwise noted

2013

2012

2011

% Change

2013 vs. 2012

% Change

2012 vs. 2011

Net interest revenue

$

5,641


$

6,006


$

5,784


(6

)%

4

 %

Non-interest revenue

4,919


4,702


4,647


5


1


Total revenues, net of interest expense

$

10,560


$

10,708


$

10,431


(1

)%

3

 %

Total operating expenses

6,094


5,783


5,757


5


-


Provisions for credit losses and for benefits and claims

71


154


36


(54

)

NM


Income before taxes and noncontrolling interests

$

4,395


$

4,771


$

4,638


(8

)%

3

 %

Income taxes

1,479


1,371


1,387


8


(1

)

Income from continuing operations

2,916


3,400


3,251


(14

)

5


Noncontrolling interests

19


17


19


12


(11

)

Net income

$

2,897


$

3,383


$

3,232


(14

)%

5

 %

Average assets (in billions of dollars)

$

160


$

140


$

131


14

 %

7

 %

Return on average assets

1.81

%

2.42

%

2.47

%





Efficiency ratio

58


54


55






Revenues by region

North America

$

2,502


$

2,554


$

2,437


(2

)%

5

 %

EMEA

3,533


3,488


3,397


1


3


Latin America

1,822


1,770


1,684


3


5


Asia

2,703


2,896


2,913


(7

)

(1

)

Total revenues

$

10,560


$

10,708


$

10,431


(1

)%

3

 %

Income from continuing operations by region

North America

$

541


$

466


$

408


16

 %

14

 %

EMEA

926


1,184


1,072


(22

)

10


Latin America

451


642


623


(30

)

3


Asia

998


1,108


1,148


(10

)

(3

)

Total income from continuing operations

$

2,916


$

3,400


$

3,251


(14

)%

5

 %

Foreign currency (FX) translation impact

Total revenue-as reported

$

10,560


$

10,708


$

10,431


(1

)%

3

 %

Impact of FX translation (1)

-


(159

)

(409

)

Total revenues-ex-FX

$

10,560


$

10,549


$

10,022


-

 %

5

 %

Total operating expenses-as reported

$

6,094


$

5,783


$

5,757


5

 %

-

 %

Impact of FX translation (1)

-


(53

)

(147

)

Total operating expenses-ex-FX

$

6,094


$

5,730


$

5,610


6

 %

2

 %

Net income-as reported

$

2,897


$

3,383


$

3,232


(14

)%

5

 %

Impact of FX translation (1)

-


(106

)

(230

)

Net income-ex-FX

$

2,897


$

3,277


$

3,002


(12

)%

9

 %

Key indicators (in billions of dollars)

Average deposits and other customer liability balances-as reported

$

434


$

404


$

364


7

 %

11

 %

Impact of FX translation (1)

-


(1

)

(9

)

Average deposits and other customer liability balances-ex-FX

$

434


$

403


$

355


8

 %

14

 %

EOP assets under custody (2) (in trillions of dollars)

$

14.3


$

13.2


$

12.0


8

 %

10

 %

(1)

Reflects the impact of foreign exchange (FX) translation into U.S. dollars at 2013 average exchange rates for all periods presented.

(2)

Includes assets under custody, assets under trust and assets under administration.

NM Not meaningful


29




The discussion of the results of operations for Transaction Services below excludes the impact of FX translation for all periods presented. Presentation of the results of operations, excluding the impact of FX translation, are non-GAAP financial measures. Citi believes the presentation of Transaction Services' results excluding the impact of FX translation is a more meaningful depiction of the underlying fundamentals of the business. For a reconciliation of certain of these metrics to the reported results, see the table above.

2013 vs. 2012

Net income decreased 12%, primarily due to higher expenses and a higher effective tax rate (see Note 9 to the Consolidated Financial Statements), partially offset by lower credit costs.

Revenues were unchanged as growth from higher deposit balances, trade loans and fees from higher market volumes was offset by continued spread compression. Treasury and Trade Solutions revenues decreased 1%, as the ongoing impact of spread compression globally was partially offset by higher balances and fee growth. Treasury and Trade Solutions average deposits increased 7% and average trade loans increased 22%, including the impact of the consolidation of approximately $7 billion of trade loans during the second quarter of 2013. Securities and Fund Services revenues increased 4%, as settlement volumes increased 15% and assets under custody increased 10%, partially offset by spread compression related to deposits. Despite the overall underlying volume growth, Citi expects spread compression will continue to negatively impact Transaction Services net interest revenues in the near term.

Expenses increased $311 million. The increase was due to an estimated $360 million charge in the fourth quarter of 2013 related to a fraud discovered in Banamex in February 2014. Specifically, as more fully described in Citi's Form 8-K filed with the Securities and Exchange Commission on February 28, 2014, as of December 31, 2013, Citi, through Banamex, had extended approximately $585 million of short-term credit to Oceanografia S.A. de C.V. (OSA), a Mexican oil services company, through an accounts receivable financing program. OSA had been a key supplier to Petr ó leos Mexicanos (Pemex), the Mexican state-owned oil company, although, in February 2014, OSA was suspended from being awarded new Mexican government contracts. Pursuant to the program, Banamex extended credit to OSA to finance accounts receivables due from Pemex. In February 2014, Citi discovered that credit had been extended to OSA based on fraudulent accounts receivable documentation. The estimated $360 million charge in the fourth quarter of 2013 resulted from the difference between the $585 million Citi had recorded as owed by Pemex to Citi as of December 31, 2013, and an estimated $185 million that Citi currently believes is owed by Pemex, with an offset to compensation expense of approximately $40 million associated with the Banamex variable compensation plan. Excluding the charge related to the fraud in the fourth quarter of 2013, expenses were unchanged as volume-related growth and increased financial transaction taxes in EMEA , which are expected to continue in future periods, were offset by efficiency savings, lower repositioning charges and lower legal and related costs.

Provisions decreased by 54% due to lower credit costs. As discussed above, Citi currently believes it is owed approximately $185 million by Pemex pursuant to the Banamex accounts receivable financing program with OSA.

In addition, as of December 31, 2013, Citi, through Banamex, had approximately $33 million in either direct obligations of OSA or standby letters of credit issued on OSA's behalf. Citi continues to review the events arising from or relating to the fraud and their potential impacts. Based on its continued review, Citi will determine whether all or any portion of the $33 million of direct loans made to OSA and the remaining approximately $185 million of accounts receivable due from Pemex may be impaired. Any such impairment would negatively impact provisions in Transaction Services in future periods.

Average deposits and other customer liabilities increased 8%, primarily as a result of client activity in Latin America , EMEA and North America (for additional information on Citi's deposits, see "Managing Global Risk-Market Risk-Funding and Liquidity" below).


2012 vs. 2011

Net income increased 9%, reflecting growth in revenues, partially offset by higher expenses and credit costs.

Revenues increased 5% as higher trade loan and deposit balances were partially offset by continued spread compression and lower market volumes. Treasury and Trade Solutions revenues were up 8%, driven by growth in trade as end-of-period trade loans grew 24%. Cash management revenues also grew, reflecting growth in deposit balances and fees, partially offset by continued spread compression due to the continued low interest rate environment. Securities and Fund Services revenues decreased 2%, primarily driven by lower market volumes as well as spread compression on deposits.

Expenses increased 2%. Excluding repositioning charges of $134 million in 2012 (including $95 million in the fourth quarter of 2012) compared to $60 million in 2011, expenses were unchanged, primarily driven by incremental investment spending and higher legal and related costs, offset by efficiency savings.

Average deposits and other customer liabilities grew 14%, driven by focused deposit building activities as well as continued market demand for U.S. dollar deposits.




30



CORPORATE/OTHER

Corporate/Other includes unallocated global staff functions (including finance, risk, human resources, legal and compliance), other corporate expenses and unallocated global operations and technology expenses, Corporate Treasury and discontinued operations. At December 31, 2013, Corporate/Other had approximately $313 billion of assets, or 17% of Citigroup's total assets, consisting primarily of Citi's liquidity portfolio (approximately $117 billion of cash and cash equivalents and $143 billion of liquid available-for-sale securities). For additional information, see "Balance Sheet Review" and "Managing Global Risk-Market Risk-Funding and Liquidity" below.

In millions of dollars

2013

2012

2011

Net interest revenue

$

(609

)

$

(576

)

$

(190

)

Non-interest revenue

686


646


952


Total revenues, net of interest expense

$

77


$

70


$

762


Total operating expenses

$

1,950


$

3,216


$

2,293


Provisions for loan losses and for benefits and claims

-


(1

)

1


Loss from continuing operations before taxes

$

(1,873

)

$

(3,145

)

$

(1,532

)

Benefits for income taxes

(614

)

(1,443

)

(724

)

Loss from continuing operations

$

(1,259

)

$

(1,702

)

$

(808

)

Income (loss) from discontinued operations, net of taxes

270


(58

)

68


Net loss before attribution of noncontrolling interests

$

(989

)

$

(1,760

)

$

(740

)

Noncontrolling interests

84


85


(27

)

Net loss

$

(1,073

)

$

(1,845

)

$

(713

)



2013 vs. 2012

The Net loss decreased $772 million to $1.1 billion, primarily due to lower expenses and the $189 million after-tax benefit from the sale of Credicard (see "Executive Summary" above and Note 2 to the Consolidated Financial Statements), partially offset by a lower tax benefit.

Revenues increased $7 million, driven by hedging gains, partially offset by lower revenue from sales of available-for-sale (AFS) securities in 2013.

Expenses decreased 39%, largely driven by lower legal and related costs and repositioning charges.


2012 vs. 2011

The Net loss increased by $1.1 billion, primarily due to a decrease in revenues and an increase in expenses, particularly repositioning charges and legal and related expenses.

Revenues decreased $692 million, driven by a lower gain on the sale of minority investments in 2012 as compared to 2011 (a net pretax gain of $54 million in 2012 compared to $199 million in 2011), as well as lower investment yields on Citi's Treasury portfolio and the negative impact of hedging activities. In 2012, the sale of minority investments included pretax gains of $1.1 billion and $542 million on the sales of Citi's remaining stake in Housing Development Finance Corporation Ltd. (HDFC) and its stake in Shanghai Pudong Development Bank, respectively, offset by a pretax impairment charge relating to Akbank of $1.2 billion and the net pretax loss of $424 million related to the sale of a 10.1% stake in Akbank (for additional information on Citi's remaining interest in Akbank, see Note 14 to the Consolidated Financial Statements). The 2011 pretax gain of $199 million related to the partial sale of Citi's minority interest in HDFC.

Expenses increased by $923 million, largely driven by higher legal and related costs as well as higher repositioning charges, including $253 million in the fourth quarter of 2012.


31



CITI HOLDINGS

Citi Holdings contains businesses and portfolios of assets that Citigroup has determined are not central to its core Citicorp businesses. As of December 31, 2013, Citi Holdings assets were approximately $117 billion, a decrease of 25% year-over-year. The decline in assets of $39 billion from December 31, 2012 was composed of approximately $19 billion of loan and other asset sales and $20 billion of run-off, pay-downs and charge-offs. As of December 31, 2013, Citi Holdings represented approximately 6% of Citi's GAAP assets and 19% of its estimated risk-weighted assets under Basel III (based on the "Advanced Approaches" for determining risk-weighted assets).

As of December 31, 2013, Consumer assets in Citi Holdings were approximately $104 billion, or approximately 89% of Citi Holdings assets. Of the Consumer assets, approximately $73 billion, or 70%, consisted of North America residential mortgages (residential first mortgages and home equity loans), including Consumer mortgages originated by Citi's legacy CitiFinancial North America business (approximately $12 billion, or 16%, of the $73 billion as of December 31, 2013).

% Change

% Change

In millions of dollars, except as otherwise noted

2013

2012

2011

2013 vs. 2012

2012 vs. 2011

Net interest revenue

$

3,184


$

2,619


$

3,726


22

 %

(30

)%

Non-interest revenue

1,358


(3,411

)

2,587


NM


NM


Total revenues, net of interest expense

$

4,542


$

(792

)

$

6,313


NM


NM


Provisions for credit losses and for benefits and claims





Net credit losses

$

3,070


$

5,842


$

8,576


(47

)%

(32

)%

Credit reserve build (release)

(2,033

)

(1,551

)

(3,277

)

(31

)

53


Provision for loan losses

$

1,037


$

4,291


$

5,299


(76

)%

(19

)%

Provision for benefits and claims

618


651


779


(5

)

(16

)

Provision (release) for unfunded lending commitments

(10

)

(56

)

(41

)

82


(37

)

Total provisions for credit losses and for benefits and claims

$

1,645


$

4,886


$

6,037


(66

)%

(19

)%

Total operating expenses

$

5,900


$

5,243


$

6,457


13

 %

(19

)%

Loss from continuing operations before taxes

$

(3,003

)

$

(10,921

)

$

(6,181

)

73

 %

(77

)%

Benefits for income taxes

(1,129

)

(4,393

)

(2,110

)

74


NM


Loss from continuing operations

$

(1,874

)

$

(6,528

)

$

(4,071

)

71

 %

(60

)%

Noncontrolling interests

16


3


119


NM


(97

)

Citi Holdings net loss

$

(1,890

)

$

(6,531

)

$

(4,190

)

71

 %

(56

)%

Balance sheet data (in billions of dollars)

Average assets

$

136


$

194


$

269


(30

)%

(28

)%

Return on average assets

(1.39

)%

(3.37

)%

(1.56

)%

Efficiency ratio

130


(662

)

102


Total EOP assets

$

117


$

156


$

225


(25

)%

(31

)%

Total EOP loans

93


116


141


(20

)

(18

)

Total EOP deposits

36


68


62


(47

)

10


NM Not meaningful


2013 vs. 2012

The Net loss decreased by 71% to $1.9 billion. CVA/DVA was positive $3 million in 2013, compared to positive $157 million in 2012. 2012 also included the pretax loss of $4.7 billion ($2.9 billion after-tax) related to the sale of the Morgan Stanley Smith Barney joint venture (MSSB) to Morgan Stanley. Excluding CVA/DVA in both periods and the 2012 MSSB loss, the net loss decreased to $1.9 billion from a net loss of $3.7 billion in 2012, due to significantly lower provisions for credit losses and higher revenues, partially offset by higher expenses.

Revenues increased to $4.5 billion, primarily due to the absence of the 2012 MSSB loss. Excluding CVA/DVA in both periods and the 2012 MSSB loss, revenues increased 22%,

primarily driven by lower funding costs and lower residential mortgage repurchase reserve builds for representation and warranty claims. The repurchase reserve builds were $470 million in 2013, compared to $700 million in 2012 (for additional information on Citi's repurchase reserve, see "Managing Global Risk-Credit Risk-Citigroup Residential Mortgages-Representations and Warranties Repurchase Reserve" below). Net interest revenues increased 22%, primarily due to the lower funding costs. Excluding the CVA/DVA in both periods and 2012 MSSB loss, non-interest revenues increased 21% to $1.4 billion, primarily driven by lower asset marks and the lower repurchase reserve builds, partially offset by lower consumer revenues and gains on asset sales.


32



Expenses increased 13%, primarily due to higher legal and related costs ($2.6 billion in 2013 compared to $1.2 billion in 2012), driven largely by legacy private-label securitization and other mortgage-related issues, partially offset by lower overall assets. Excluding legal and related costs, expenses declined 19% versus 2012. During 2013, approximately one-third of Citi Holdings' expenses, excluding legal and related costs, consisted of mortgage-related expenses. Citi expects that the sale of mortgage servicing rights (MSRs) announced in January 2014 should benefit mortgage expenses in Citi Holdings during 2014 (see "Managing Global Risk-Credit Risk-Mortgage Servicing Rights" below). While Citi may seek to execute similar sales in the future, such sales often require investor and other approvals and could also be subject to regulatory review.

Provisions decreased 66%, driven by the absence of incremental net credit losses relating to the national mortgage settlement and those required by OCC guidance during 2012 (see discussion below), as well as improved credit in North America mortgages and overall lower asset levels.

Loan loss reserve releases increased 31% to $2 billion, which included a loan loss reserve release of approximately $2.2 billion related to the North America mortgage portfolio, partially offset by losses on asset sales. Loan loss reserves related to the North America mortgage portfolio were utilized to offset a substantial portion of the North America mortgage portfolio net credit losses during 2013.


2012 vs. 2011

The Net loss increased by 56% to $6.5 billion, primarily due to the 2012 MSSB loss. CVA/DVA was positive $157 million, compared to positive $74 million in 2011. Excluding CVA/DVA in both periods and the 2012 MSSB loss, the net loss decreased to $3.7 billion compared to a net loss of $4.2 billion in 2011, as lower revenues were partially offset by lower expenses, lower provisions and a tax benefit on the sale of a business in 2012.

Revenues decreased $7.1 billion to negative $792 million, primarily due to the 2012 MSSB loss. Excluding CVA/DVA in both periods and the 2012 MSSB loss, revenues decreased 40%, primarily due to lower loan balances driven by continued asset sales, divestitures and run-off and higher funding costs related to MSSB assets, the absence of private equity marks and lower gains on sales.

Expenses decreased 19%, driven by lower volumes and divestitures and slightly lower legal and related costs.

Provisions decreased 19%, driven primarily by improved credit in North America mortgages and lower volumes and divestitures, partially offset by lower loan loss reserve releases. Net credit losses decreased by 32% to $5.8 billion, primarily reflecting improvements in North America mortgages and despite being impacted by incremental mortgage charge-offs of approximately $635 million required by OCC guidance regarding the treatment of mortgage loans where the borrower has gone through Chapter 7 bankruptcy and approximately $370 million related to previously deferred principal balances on modified mortgages related to anticipated forgiveness of principal in connection with the national mortgage settlement. In addition, net credit losses in

2012 were negatively impacted by an additional aggregate amount of $146 million related to the national mortgage settlement (see "Managing Global Risk-Credit Risk-National Mortgage Settlement" below).


Japan Consumer Finance

In 2008, Citi decided to exit its Japan Consumer Finance business and has liquidated approximately 92% of the portfolio since that time. While the portfolio has been significantly reduced, Citi continues to monitor various aspects of this legacy business relating to the charging of "gray zone" interest, including customer defaults, refund claims and litigation, as well as financial, legislative, regulatory, judicial and other political developments. Gray zone interest represents interest at rates that are legal but for which claims may not be enforceable.

As of December 31, 2013, Citi's Japan Consumer Finance business had approximately $278 million in outstanding loans that currently charge or have previously charged interest rates in the gray zone, compared to approximately $709 million as of December 31, 2012. However, Citi could also be subject to refund claims on previously outstanding loans that charged gray zone interest and thus could be subject to losses on loans in excess of these amounts.

At December 31, 2013, Citi's reserves related to customer refunds in the Japan Consumer Finance business were $434 million, compared to $736 million at December 31, 2012. The decrease in the reserve year-over-year primarily resulted from the significant liquidation of the portfolio, payments made to customers and a continuing reduction in the population of current and former customers who are eligible to make refund claims.

Citi continues to monitor and evaluate developments relating to the charging of gray zone interest and the potential impact to both currently and previously outstanding loans in this legacy business as well as its reserves related thereto. The potential amount of losses and their impact on Citi is subject to significant uncertainty and continues to be difficult to predict.


Payment Protection Insurance (PPI)

The alleged mis-selling of PPI by financial institutions in the U.K. has been, and continues to be, the subject of intense review and focus by U.K. regulators, particularly the Financial Conduct Authority (FCA) (formerly the Financial Services Authority). The FCA has found certain problems across the industry with how these products were sold, including customers not realizing that the cost of PPI premiums was being added to their loan or PPI being unsuitable for the customer.

PPI is designed to cover a customer's loan repayments if certain events occur, such as long-term illness or unemployment. Prior to 2008, certain of Citi's legacy U.K. consumer finance businesses, primarily CitiFinancial Europe plc and Canada Square Operations Ltd (formerly Egg Banking plc), engaged in the sale of PPI. While Citi has sold a significant portion of these businesses, and the remaining businesses are in the process of wind down, Citi generally remains subject to customer complaints for, and retains the


33



potential liability relating to, the sale of PPI by these businesses.

In 2011, the FCA required all firms engaged in the sale of PPI in the U.K. to review their historical sales processes for PPI. In addition, the FCA is requiring all such firms to contact proactively any customers who may have been mis-sold PPI after January 2005 and invite them to have their individual sale reviewed (Customer Contact Exercise). Citi currently expects to complete the Customer Contact Exercise by the end of the first half of 2014. Additionally, while Citi is not required to contact customers proactively for the sale of PPI prior to January 2005, it is still subject to customer complaints and redress for those sales.

Redress, whether as a result of customer complaints pursuant to the required Customer Contact Exercise, or for the sale of PPI prior to January 2005, generally involves the repayment of premiums and the refund of all applicable contractual interest together with compensatory interest of 8%. Citi estimates that the number of PPI policies sold after January 2005 (across all applicable Citi businesses in the U.K.) was approximately 417,000, for which premiums totaling approximately $490 million were collected. As noted above, however, Citi also remains subject to customer complaints on the sale of PPI prior to January 2005 and, thus, it could be subject to customer complaints substantially higher than this amount.

During 2013, Citi increased its PPI reserves by approximately $123 million ($83 million of which was recorded in Citi Holdings and $40 million of which was recorded in Corporate/Other for discontinued operations), including a $62 million reserve increase in the fourth quarter of 2013 ($30 million of which was recorded in Citi Holdings and $32 million of which was recorded in Corporate/Other for discontinued operations). The increase for the full year 2013 compared to an increase of $266 million during 2012. While the overall level of claims generally decreased during the second half of 2013, the increase in the reserves both during 2013 and in the fourth quarter of 2013 was primarily due to an increase in the rate of response to the Customer Contact Exercise as well as a continued elevated level of customer complaints on the sale of PPI prior to January 2005, which Citi believes is largely as a result of the continued regulatory focus and increased customer awareness of PPI issues across the industry. During 2013, Citi paid $203 million of PPI claims, which were charged against the reserve, resulting in a year-end PPI reserve of $296 million (compared to $376 million as of December 31, 2012).

Citi believes the number of PPI complaints, the amount of refunds and the impact on Citi could remain volatile and are subject to continued significant uncertainty.



34



BALANCE SHEET REVIEW

The following sets forth a general discussion of the changes in certain of the more significant line items of Citi's Consolidated Balance Sheet. For additional information on Citigroup's liquidity resources, including its deposits, short-term and long-term debt and secured financing transactions, see "Managing Global Risk-Market Risk-Funding and Liquidity" below.

In billions of dollars

December 31,
2013

September 30,

2013

December 31,
2012

EOP

4Q13 vs. 3Q13

Increase

(decrease)

%

Change

EOP

4Q13 vs. 4Q12

Increase

(decrease)

%

Change

Assets

Cash and deposits with banks

$

199


$

205


$

139


$

(6

)

(3

)%

$

60


43

 %

Federal funds sold and securities borrowed or purchased under agreements to resell

257


274


261


(17

)

(6

)

(4

)

(2

)

Trading account assets

286


292


321


(6

)

(2

)

(35

)

(11

)

Investments

309


304


312


5


2


(3

)

(1

)

Loans, net of unearned income and allowance for loan losses

646


637


630


9


1


16


3


Other assets

183


188


202


(5

)

(3

)

(19

)

(9

)

Total assets

$

1,880


$

1,900


$

1,865


$

(20

)

(1

)%

$

15


1

 %

Liabilities



Deposits

$

968


$

955


$

931


$

13


1

 %

$

37


4

 %

Federal funds purchased and securities loaned or sold under agreements to repurchase

204


216


211


(12

)

(6

)

(7

)

(3

)

Trading account liabilities

109


122


116


(13

)

(11

)

(7

)

(6

)

Short-term borrowings

59


59


52


-


-


7


13


Long-term debt

221


222


239


(1

)

-


(18

)

(8

)

Other liabilities

113


123


125


(10

)

(8

)

(12

)

(10

)

Total liabilities

$

1,674


$

1,697


$

1,674


$

(23

)

(1

)%

$

-


-

 %

Total equity

206


203


191


3


1


15


8


Total liabilities and equity

$

1,880


$

1,900


$

1,865


$

(20

)

(1

)%

$

15


1

 %


ASSETS


Cash and Deposits with Banks

Cash and deposits with banks is composed of both Cash and due from banks and Deposits with banks. Cash and due from banks includes (i) cash on hand at Citi's domestic and overseas offices, and (ii) non-interest-bearing balances due from banks, including non-interest-bearing demand deposit accounts with correspondent banks, central banks (such as the Federal Reserve Bank), and other banks or depository institutions for normal operating purposes. Deposits with banks includes interest-bearing balances, demand deposits and time deposits held in or due from banks (including correspondent banks, central banks and other banks or depository institutions) maintained for, among other things, normal operating and regulatory reserve requirement purposes.

During 2013, cash and deposits with banks increased 43%, driven by a $67 billion, or 65%, increase in Deposits with banks , reflecting the growth in Citi's deposits during the year (for additional information, see "Managing Global Risk-Market Risk-Funding and Liquidity" below). Sequentially, cash and deposits with banks decreased 3%, primarily driven by net loan growth and higher net trading account assets within Securities and Banking, as trading

account liabilities decreased by more then trading account assets , as discussed below, partially offset by higher deposits in Transaction Services and sales related to the continued reduction of Citi Holdings assets.

Average cash balances were $204 billion in the fourth quarter of 2013, compared to $180 billion in the third quarter of 2013.


Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell (Reverse Repos)

Federal funds sold consist of unsecured advances to third parties of excess balances in reserve accounts held at the Federal Reserve Bank. For the full year and fourth quarter of 2013, Citi's federal funds sold were not significant.

Reverse repos and securities borrowed decreased 6% quarter-over-quarter, primarily due to a reduction in trading in the Markets businesses within Securities and Banking as counterparties became more cautious during the second half of 2013 as they reacted to potential tapering by the Federal Reserve Board and possible U.S. government default.

For further information regarding these balance sheet categories, see Note 11 to the Consolidated Financial Statements.


35



Trading Account Assets

Trading account assets declined during the second half of 2013 due to declines in client activity in Rates and Currencies in the Markets businesses within Securities and Banking , as referenced above. Average trading account assets were $239 billion in the fourth quarter of 2013, compared to $246 billion in the third quarter of 2013.

For further information on Citi's trading account assets, see Note 13 to the Consolidated Financial Statements.


Investments

Investments generally remained stable during 2013, as a slight increase in foreign government securities was offset by declines in mortgage-backed securities to reduce the interest rate risk profile and U.S. Treasury and agency securities.

For further information regarding investments, see Note 14 to the Consolidated Financial Statements.


Loans

Loans represent the largest asset category of Citi's balance sheet. Citi's total loans, net of unearned income, were $665 billion at December 31, 2013, compared to $658 billion at September 30, 2013 and $655 billion at December 31, 2012. The impact of foreign exchange translation reduced loan balances by $8 billion year-over-year and by $1 billion quarter-over-quarter.  Additionally, approximately $3 billion of loans were moved to Discontinued operations during the second quarter of 2013 as a result of the agreement to sell Credicard.  Throughout this section, the discussion of loans excludes the impact of foreign exchange translation, and excludes Credicard loans for the fourth quarter of 2012 and the third quarter of 2013.

Excluding these items, Citi's loans increased 3% from the prior-year period and 1% quarter-over-quarter, as demand from consumer and corporate customers continued to be supported by the economic recovery, partially offset by the continued wind down of Citi Holdings. At year-end 2013, Consumer and Corporate loans represented 59% and 41%, respectively, of Citi's total loans.

Citicorp loans increased 8% year-over-year, with growth in both the Consumer and Corporate loan portfolios. Consumer loans grew 5% from the prior-year period. In North America , Consumer loans grew 4% from the prior-year period, primarily reflecting the addition of the approximately $7 billion of credit card loans as a result of the acquisition of the Best Buy portfolio in the third quarter of 2013. Internationally, Consumer loans increased 7% from the prior-year period, led by growth in Mexico, Hong Kong and India, offset by the ongoing repositioning efforts in Korea.

Corporate loans grew 12% from the prior-year period, with 12% growth in Asia , 7% growth in EMEA and 17% growth in North America , which included the consolidation of a $7 billion trade loan portfolio in Transaction Services during the second quarter of 2013. Private Bank loans increased 14% year-over-year, with the most significant growth in Asia and North America . Transaction Services loans grew 16% compared to the prior-year period, including the trade loan consolidation as well as origination growth in trade finance

throughout the year. Corporate loans, excluding trade loans, grew 10% from the prior-year period.

Citi Holdings loans declined 20% year-over-year, primarily due to continued run-off and asset sales.

During the fourth quarter of 2013, average loans of $659 billion yielded an average rate of 7.0%, compared to $645 billion and 7.0% respectively, in the third quarter of 2013.

For further information on Citi's loan portfolios, see generally "Managing Global Risk-Market Risk-Funding and Liquidity" below and Note 15 to the Consolidated Financial Statements.


Other Assets

Other assets consist of brokerage receivables, goodwill, intangibles and mortgage servicing rights, in addition to other assets (including, among other items, loans held-for-sale, deferred tax assets, equity-method investments, interest and fees receivable, premises and equipment, certain end-user derivatives in a net receivable position, repossessed assets and other receivables).

During the fourth quarter of 2013, other assets decreased 2% primarily due to the sale of Credicard, which was reported in Discontinued operations . Year-over-year, other assets declined 9% primarily due to a reduction in Citi's deferred tax assets and loans held-for-sale as well as FX translation.


LIABILITIES


Deposits

For a discussion of Citi's deposits, see "Managing Global Risk -Market Risk-Funding and Liquidity" below.


Federal Funds Purchased and Securities Loaned or Sold Under Agreements to Repurchase (Repos)

Federal funds purchased consist of unsecured advances of excess balances in reserve accounts held at the Federal Reserve Bank from third parties. For the full year and fourth quarter of 2013, Citi's federal funds purchased were not significant.

For further information on Citi's secured financing transactions, see "Managing Global Risk-Market Risk-Funding and Liquidity" below. See also Note 11 to the Consolidated Financial Statements for additional information on these balance sheet categories.


Trading Account Liabilities

During the fourth quarter of 2013, Trading account liabilities decreased by 11%, due to lower inventory in Securities and Banking businesses, which was aligned with the corresponding decrease in reverse repos and trading account assets discussed above. Average Trading account liabilities were $66 billion, compared to $71 billion in the third quarter of 2013, primarily due to lower average Securities and Banking volumes.

For further information on Citi's Trading account liabilities , see Note 13 to the Consolidated Financial Statements.



36



Debt

For further information on Citi's long-term and short-term debt borrowings, see "Managing Global Risk-Market Risk-Funding and Liquidity" below and Note 18 to the Consolidated Financial Statements.


Other Liabilities

Other liabilities consist of brokerage payables and other liabilities (including, among other items, accrued expenses and other payables, deferred tax liabilities, certain end-user derivatives in a net payable position, and reserves for legal claims, taxes, repositioning, unfunded lending commitments, and other matters).

During 2013, Other liabilities decreased 10%, primarily due to a decrease in brokerage payables and normal business fluctuations.



37



Segment Balance Sheet (1)

In millions of dollars

Global

Consumer

Banking

Institutional

Clients

Group

Corporate/Other

and

Consolidating

Eliminations (2)

Subtotal

Citicorp

Citi

Holdings

Citigroup

Parent

Company-

Issued

Long-Term

Debt and

Stockholders'

Equity (3)

Total

Citigroup

Consolidated

Assets

Cash and deposits with banks

$

17,787


$

63,373


$

116,763


$

197,923


$

967


$

-


$

198,890


Federal funds sold and securities borrowed or purchased under agreements to resell

5,050


251,077


-


256,127


910


-


257,037


Trading account assets

6,279


275,662


242


282,183


3,745


-


285,928


Investments

30,403


114,978


150,873


296,254


12,726


-


308,980


Loans, net of unearned income and


allowance for loan losses

291,531


267,935


-


559,466


86,358


-


645,824


Other assets

53,495


72,472


45,360


171,327


12,396


-


183,723


Total assets

$

404,545


$

1,045,497


$

313,238


$

1,763,280


$

117,102


$

-


$

1,880,382


Liabilities and equity

Total deposits

$

332,422


$

573,782


$

26,099


$

932,303


$

35,970


$

-


$

968,273


Federal funds purchased and securities loaned or sold under agreements to repurchase

7,847


195,664


-


203,511


1


-


203,512


Trading account liabilities

24


107,463


264


107,751


1,011


-


108,762


Short-term borrowings

291


47,117


11,322


58,730


214


-


58,944


Long-term debt

1,934


37,474


18,773


58,181


6,131


156,804


221,116


Other liabilities

18,393


76,136


11,652


106,181


7,461


-


113,642


Net inter-segment funding (lending)

43,634


7,861


243,334


294,829


66,314


(361,143

)

-


Total liabilities

$

404,545


$

1,045,497


$

311,444


$

1,761,486


$

117,102


$

(204,339

)

$

1,674,249


Total equity

-


-


1,794


1,794


-


204,339


206,133


Total liabilities and equity

$

404,545


$

1,045,497


$

313,238


$

1,763,280


$

117,102


$

-


$

1,880,382




(1)

The supplemental information presented in the table above reflects Citigroup's consolidated GAAP balance sheet by reporting segment as of December 31, 2013 . The respective segment information depicts the assets and liabilities managed by each segment as of such date. While this presentation is not defined by GAAP, Citi believes that these non-GAAP financial measures enhance investors' understanding of the balance sheet components managed by the underlying business segments, as well as the beneficial inter-relationships of the asset and liability dynamics of the balance sheet components among Citi's business segments.

(2)

Consolidating eliminations for total Citigroup and Citigroup parent company assets and liabilities are recorded within the Corporate/Other segment.

(3)

The total stockholders' equity and the majority of long-term debt of Citigroup reside in the Citigroup parent company Consolidated Balance Sheet. See Notes 18 and 19 to the Consolidated Financial Statements. Citigroup allocates stockholders' equity and long-term debt to its businesses through inter-segment allocations as shown above.



38



OFF-BALANCE-SHEET ARRANGEMENTS


Citigroup enters into various types of off-balance-sheet arrangements in the ordinary course of business. Citi's involvement in these arrangements can take many different forms, including without limitation:

purchasing or retaining residual and other interests in unconsolidated special purpose entities, such as credit card receivables and mortgage-backed and other asset-backed securitization entities;

holding senior and subordinated debt, interests in limited and general partnerships and equity interests in other unconsolidated special purpose entities;

providing guarantees, indemnifications, loan commitments, letters of credit and representations and warranties; and

entering into operating leases for property and equipment.


Citi enters into these arrangements for a variety of business purposes. The securitization arrangements offer investors access to specific cash flows and risks created through the securitization process. The securitization arrangements also assist Citi and Citi's customers in monetizing their financial assets at more favorable rates than Citi or the customers could otherwise obtain.

The table below shows where a discussion of Citi's various off-balance-sheet arrangements may be found in this Form 10-K. In addition, see "Significant Accounting Policies and Significant Estimates-Securitizations" below as well as Notes 1, 22 and 27 to the Consolidated Financial Statements.

Types of Off-Balance-Sheet Arrangements Disclosures in this Form 10-K

Variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs

See Note 22 to the Consolidated Financial Statements.

Leases, letters of credit, and lending and other commitments

See Note 27 to the Consolidated Financial Statements.

Guarantees

See Note 27 to the Consolidated Financial Statements.


39



CONTRACTUAL OBLIGATIONS


The following table includes information on Citigroup's contractual obligations, as specified and aggregated pursuant to SEC requirements.

Purchase obligations consist of those obligations to purchase goods or services that are enforceable and legally binding on Citi. For presentation purposes, purchase obligations are included in the table below through the termination date of the respective agreements, even if the contract is renewable. Many of the purchase agreements for

goods or services include clauses that would allow Citigroup to cancel the agreement with specified notice; however, that impact is not included in the table below (unless Citigroup has already notified the counterparty of its intention to terminate the agreement).

Other liabilities reflected on Citigroup's Consolidated Balance Sheet include obligations for goods and services that have already been received, uncertain tax positions and other liabilities that have been incurred and will ultimately be paid in cash.


Contractual obligations by year

In millions of dollars

2014


2015


2016


2017


2018


Thereafter


Total


Long-term debt obligations-principal (1)

$

43,424


$

31,692


$

34,580


$

24,336


$

20,930


$

66,154


$

221,116


Long-term debt obligations-interest payments (2)

1,555


1,135


1,238


871


749


2,368


7,916


Operating and capital lease obligations

1,557


1,192


1,018


826


681


5,489


10,763


Purchase obligations

852


645


507


380


162


247


2,793


Other liabilities (3)

32,705


632


313


245


242


5,157


39,294


Total

$

80,093


$

35,296


$

37,656


$

26,658


$

22,764


$

79,415


$

281,882



(1)

For additional information about long-term debt obligations, see "Managing Global Risk-Market Risk-Funding and Liquidity" below and Note 18 to the Consolidated Financial Statements.

(2)

Contractual obligations related to interest payments on long-term debt are calculated by applying the weighted average interest rate on Citi's outstanding long-term debt as of December 31, 2013 to the contractual payment obligations on long-term debt for each of the periods disclosed in the table. At December 31, 2013, Citi's overall weighted average contractual interest rate for long-term debt was 3.58% .

(3)

Includes accounts payable and accrued expenses recorded in Other liabilities on Citi's Consolidated Balance Sheet. Also includes discretionary contributions for 2014 for Citi's non-U.S. pension plans and the non-U.S. postretirement plans, as well as employee benefit obligations accounted for under SFAS 87 (ASC 715), SFAS 106 (ASC 715) and SFAS 112 (ASC 712).



40



CAPITAL RESOURCES



Overview

Capital is used principally to support assets in Citi's businesses and to absorb credit, market and operational losses. Citi primarily generates capital through earnings from its operating businesses. Citi may augment its capital through issuances of common stock, perpetual preferred stock and equity issued through awards under employee benefit plans, among other issuances. During 2013, Citi issued approximately $4.3 billion of noncumulative perpetual preferred stock, resulting in a total of approximately $6.7 billion outstanding as of December 31, 2013.

Citi has also previously augmented its regulatory capital through the issuance of trust preferred securities, although the treatment of such instruments as regulatory capital will largely be phased out under the final U.S. Basel III rules (Final Basel III Rules) (see "Regulatory Capital Standards Developments" below). Accordingly, Citi has continued to redeem certain of its trust preferred securities in contemplation of such future phase out (see "Managing Global Risk-Market Risk-Funding and Liquidity - Long-Term Debt" below).

Further, changes in regulatory and accounting standards as well as the impact of future events on Citi's business results, such as corporate and asset dispositions, may also affect Citi's capital levels.

Citigroup's capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with each entity's respective risk profile and all applicable regulatory standards and guidelines. Citi assesses its capital adequacy against a series of internal quantitative capital goals, designed to evaluate the Company's capital levels in expected and stressed economic environments. Underlying these internal quantitative capital goals are strategic capital considerations, centered on preserving and building financial strength. Senior management, with oversight from the Board of Directors, is responsible for the capital assessment and planning process, which is integrated into Citi's capital plan, as part of the Federal Reserve Board's Comprehensive Capital Analysis and Review (CCAR) process. Implementation of the capital plan is carried out mainly through Citigroup's Asset and Liability Committee, with oversight from the Risk Management and Finance Committee of Citigroup's Board of Directors. Asset and liability committees are also established globally and for each significant legal entity, region, country and/or major line of business.


Current Regulatory Capital Guidelines


Citigroup Capital Resources Under Current Regulatory Guidelines

Citigroup is subject to the risk-based capital guidelines issued by the Federal Reserve Board which currently constitute the Basel I credit risk capital rules and also the final (revised) market risk capital rules (Basel II.5). Commencing with 2014, Citi's regulatory capital ratios will reflect, in part, the implementation of certain aspects of the Final Basel III Rules, such as those related to the transitioning toward qualifying capital components, including the application of regulatory capital adjustments and deductions. In addition, effective with the second quarter of 2014, Citi will begin applying the Basel III Advanced Approaches rules. For additional information regarding the implementation of the Final Basel III Rules, see "Regulatory Capital Standards Developments" below.

Historically, capital adequacy has been measured, in part, based on two risk-based capital ratios, the Tier 1 Capital and Total Capital (Tier 1 Capital + Tier 2 Capital) ratios. Tier 1 Capital consists of the sum of "core capital elements," such as qualifying common stockholders' equity, as adjusted, qualifying perpetual preferred stock, qualifying noncontrolling interests, and qualifying trust preferred securities, principally reduced by goodwill, other disallowed intangible assets, and disallowed deferred tax assets. Total Capital also includes "supplementary" Tier 2 Capital elements, such as qualifying subordinated debt and a limited portion of the allowance for credit losses. Both measures of capital adequacy are stated as a percentage of risk-weighted assets.

In 2009, the U.S. banking regulators developed a supervisory measure of capital termed "Tier 1 Common," which is defined as Tier 1 Capital less non-common elements, including qualifying perpetual preferred stock, qualifying noncontrolling interests, and qualifying trust preferred securities. Until January 1, 2015, the Federal Reserve Board has retained this definition of Tier 1 Common Capital for CCAR purposes, which differs substantially from the more restrictive definition under the Final Basel III Rules. Moreover, the presentation of Tier 1 Common Capital and related ratio in the tables that follow, labeled "Current Regulatory Guidelines", are also consistent in derivation with this supervisory definition.


41



Citigroup's risk-weighted assets are principally derived from application of the risk-based capital guidelines related to the measurement of credit risk. Pursuant to these guidelines, on balance sheet assets and the credit equivalent amount of certain off-balance-sheet exposures (such as financial guarantees, unfunded lending commitments, letters of credit and derivatives) are assigned to one of several prescribed risk-weight categories based upon the perceived credit risk associated with the obligor or, if relevant, the guarantor, the nature of the collateral, or external credit ratings. Risk-weighted assets also incorporate a measure for market risk on covered trading account positions and foreign exchange and commodity positions whether or not carried in the trading account. Excluded from risk-weighted assets are any assets, such as goodwill and deferred tax assets, to the extent required to be deducted from regulatory capital.

Citigroup is also subject to a Leverage ratio requirement, a non-risk-based measure of capital adequacy, which is defined as Tier 1 Capital as a percentage of quarterly adjusted average total assets.

To be "well capitalized" under current federal bank regulatory agency definitions, a bank holding company must have a Tier 1 Capital ratio of at least 6%, a Total Capital ratio of at least 10%, and not be subject to a Federal Reserve Board directive to maintain higher capital levels. In addition, the Federal Reserve Board currently expects bank holding companies to maintain a minimum Leverage ratio of 3% or 4%, depending on factors specified in its regulations.

Citigroup Capital Ratios Under Current Regulatory Guidelines

Dec. 31,

2013 (1)

Dec. 31,

2012 (2)

Tier 1 Common

12.64

%

12.67

%

Tier 1 Capital

13.68


14.06


Total Capital

   (Tier 1 Capital + Tier 2 Capital)

16.65


17.26


Leverage

8.21


7.48


(1)

Risk-weighted assets for purposes of the Tier 1 Common, Tier 1 Capital and Total Capital ratios are calculated based on Basel I credit risk capital rules and final (revised) market risk capital rules (Basel II.5) effective on January 1, 2013.

(2)

Risk-weighted assets for purposes of the Tier 1 Common, Tier 1 Capital and Total Capital ratios are calculated based on Basel I credit risk and market risk capital rules.


As indicated in the table above, Citigroup was "well capitalized" under current federal bank regulatory agency definitions as of December 31, 2013 and December 31, 2012.


42



Components of Citigroup Capital Under Current Regulatory Guidelines

In millions of dollars

December 31,

2013

December 31,

2012

Tier 1 Common Capital

Citigroup common stockholders' equity (1)

$

197,694


$

186,487


Regulatory Capital Adjustments and Deductions:

Less: Net unrealized gains (losses) on securities AFS, net of tax (2)(3)

(1,724

)

597


Less: Accumulated net unrealized losses on cash flow hedges, net of tax (4)

(1,245

)

(2,293

)

Less: Defined benefit plans liability adjustment, net of tax (5)

(3,989

)

(5,270

)

Less: Cumulative effect included in fair value of financial liabilities attributable

    to the change in own creditworthiness, net of tax (6)

(224

)

18


Less: Disallowed deferred tax assets (7)

39,384


41,800


Less: Intangible assets:

Goodwill, net of related deferred tax liability (DTL)

23,362


24,170


Other disallowed intangible assets, net of related DTL

3,625


3,868


Less: Net unrealized losses on AFS equity securities, net of tax (2)

66


-


Other

(369

)

(502

)

Total Tier 1 Common Capital

$

138,070


$

123,095


Tier 1 Capital

Qualifying perpetual preferred stock (1)

$

6,645


$

2,562


Qualifying trust preferred securities

3,858


9,983


Qualifying noncontrolling interests

871


892


Total Tier 1 Capital

$

149,444


$

136,532


Tier 2 Capital

Allowance for credit losses (8)

$

13,756


$

12,330


Qualifying subordinated debt (9)

18,758


18,689


Net unrealized pretax gains on AFS equity securities (2)

-


135


Total Tier 2 Capital

$

32,514


$

31,154


Total Capital (Tier 1 Capital + Tier 2 Capital)

$

181,958


$

167,686


Citigroup Risk-Weighted Assets

In millions of dollars

December 31,

2013 (11)

December 31,

      2012 (12)

Credit Risk-Weighted Assets (10)

$

963,949


$

929,722


Market Risk-Weighted Assets

128,758


41,531


Total Risk-Weighted Assets

$

1,092,707


$

971,253



(1)

Issuance costs of $93 million related to preferred stock outstanding at December 31, 2013 are excluded from common stockholders' equity and netted against preferred stock in accordance with Federal Reserve Board regulatory reporting requirements, which differ from those under U.S. GAAP.

(2)

Tier 1 Capital excludes net unrealized gains (losses) on available-for-sale (AFS) debt securities and net unrealized gains on AFS equity securities with readily determinable fair values, in accordance with current risk-based capital guidelines. Further, in arriving at Tier 1 Capital, banking organizations are required to deduct net unrealized losses on AFS equity securities with readily determinable fair values, net of tax. Banking organizations are permitted to include in Tier 2 Capital up to 45% of net unrealized pretax gains on AFS equity securities with readily determinable fair values.

(3)

In addition, includes the net amount of unamortized loss on held-to-maturity (HTM) securities. This amount relates to securities that were previously transferred from AFS to HTM, and non-credit-related factors such as changes in interest rates and liquidity spreads for HTM securities with other-than-temporary impairment.

(4) Accumulated net unrealized gains (losses) on cash flow hedges recorded in Accumulated other comprehensive income (AOCI) as a result of the adoption and application of ASC 815, Derivatives and Hedging (formerly FAS 133), are excluded from Tier 1 Capital, in accordance with current risk-based capital guidelines.

(5)

The Federal Reserve Board granted interim capital relief, allowing banking organizations to exclude from regulatory capital any amounts recorded in AOCI resulting from the adoption and application of ASC 715-20, Compensation-Retirement Benefits-Defined Benefits Plans (formerly SFAS 158).

(6)

The impact of changes in Citi's own creditworthiness in valuing liabilities for which the fair value option has been elected is excluded from Tier 1 Capital, in accordance with current risk-based capital guidelines.

(7)

Of Citi's approximately $52.8 billion of net deferred tax assets at December 31, 2013, approximately $10.9 billion of such assets were includable in regulatory capital pursuant to current risk-based capital guidelines, while approximately $39.4 billion of such assets exceeded the limitation imposed by these guidelines and were deducted in arriving at Tier 1 Capital. Citi's approximately $2.5 billion of other net deferred tax assets primarily represented deferred tax assets related to the regulatory capital adjustments for defined benefit plans liability, unrealized gains (losses) on AFS securities and cash flow hedges, partially offset by deferred tax liabilities related to the deductions for goodwill and certain other intangible assets, which are permitted to be excluded prior to deriving the amount of net deferred tax assets subject to limitation under the guidelines.

(8)

Includable up to 1.25% of risk-weighted assets. Any excess allowance for credit losses is deducted in arriving at risk-weighted assets.

(9)

Includes qualifying subordinated debt in an amount not exceeding 50% of Tier 1 Capital.

(10)

Includes risk-weighted credit equivalent amounts, net of applicable bilateral netting agreements, of approximately $61 billion for interest rate, commodity, equity, foreign exchange and credit derivative contracts as of December 31, 2013, compared with approximately $62 billion as of December 31, 2012. Credit risk-


43



weighted assets also include those deriving from certain other off-balance-sheet exposures, such as financial guarantees, unfunded lending commitments and letters of credit, and reflect deductions such as for certain intangible assets and any excess allowance for credit losses.

(11) Risk-weighted assets as computed under Basel I credit risk capital rules and final (revised) market risk capital rules (Basel II.5) effective on January 1, 2013.

(12)

Risk-weighted assets as computed under Basel I credit risk and market risk capital rules. Total risk-weighted assets at December 31, 2012, including estimated market risk-weighted assets of approximately $169.3 billion assuming application of the Basel II.5 rules, would have been approximately $1.11 trillion.


44



Citigroup Capital Rollforward Under Current Regulatory Guidelines

In millions of dollars

Three Months Ended

December 31, 2013

Twelve Months Ended

December 31, 2013

Tier 1 Common Capital

Balance, beginning of period

$

135,540


$

123,095


Net income

2,456


13,673


Dividends declared

(100

)

(314

)

Net increase in treasury stock

(186

)

(811

)

Net increase in additional paid-in capital (1)(2)

197


895


Net decrease in foreign currency translation adjustment included in accumulated

    other comprehensive income, net of tax

(391

)

(2,245

)

Net decrease in cumulative effect included in fair value of financial liabilities attributable

    to the change in own creditworthiness, net of tax

86


242


Net decrease in disallowed deferred tax assets

426


2,416


Net decrease in goodwill and other disallowed intangible assets, net of related DTL

65


1,051


Net increase in net unrealized losses on AFS equity securities, net of tax

(66

)

(66

)

Other

43


134


Net increase in Tier 1 Common Capital

$

2,530


$

14,975


Balance, end of period

$

138,070


$

138,070


Tier 1 Capital

Balance, beginning of period

$

145,791


$

136,532


Net increase in Tier 1 Common Capital

2,530


14,975


Net decrease in qualifying trust preferred securities

(363

)

(6,125

)

Net increase in qualifying perpetual preferred stock (2)

1,461


4,083


Net change in qualifying noncontrolling interests

25


(21

)

Net increase in Tier 1 Capital

$

3,653


$

12,912


Balance, end of period

$

149,444


$

149,444


Tier 2 Capital

Balance, beginning of period

$

32,550


$

31,154


Net increase in allowance for credit losses eligible for inclusion in Tier 2 Capital (3)

277


1,426


Net change in qualifying subordinated debt

(312

)

69


Net decrease in net unrealized pretax gains on AFS equity securities

    eligible for inclusion in Tier 2 Capital

(1

)

(135

)

Net change in Tier 2 Capital

$

(36

)

$

1,360


Balance, end of period

$

32,514


$

32,514


Total Capital (Tier 1 Capital + Tier 2 Capital)

$

181,958


$

181,958



(1)

Primarily represents an increase in additional paid-in capital related to employee benefit plans.

(2)

Citi issued approximately $1.5 billion and approximately $4.3 billion of qualifying perpetual preferred stock during the three months and twelve months ended December 31, 2013, respectively. These issuances were partially offset by both redemptions and the netting of issuance costs, which in the aggregate were $34 million and $187 million for the three months and twelve months ended December 31, 2013, respectively. For U.S. GAAP purposes, issuance costs of $34 million and $93 million for the three months and twelve months ended December 31, 2013, respectively, were netted against additional paid-in capital.

(3)

The net increase for the year ended December 31, 2013 reflects, in part, an increase in the portion of the allowance for credit losses eligible for inclusion in Tier 2 Capital resulting from an increase in gross risk-weighted assets due to the adoption of Basel II.5.


45



Citigroup Risk-Weighted Assets Rollforward Under Current Regulatory Guidelines

In millions of dollars

Three Months Ended

December 31, 2013

Twelve Months Ended

December 31, 2013

Risk-Weighted Assets

Balance, beginning of period

$

1,068,991


$

971,253


Changes in Credit Risk-Weighted Assets

Net decrease in cash and due from banks

(1,348

)

(2,722

)

Net decrease in investment securities

(558

)

(3,280

)

Net increase in loans and leases, net

7,663


10,502


Net change in federal funds sold and securities purchased under agreements to resell

(1,601

)

1,095


Net decrease in over-the-counter derivatives

(2,202

)

(1,894

)

Net increase in commitments and guarantees

2,316


12,230


Net increase in securities lent

12,820


15,765


Other

3,397


2,531


Net increase in Credit Risk-Weighted Assets

$

20,487


$

34,227


Changes in Market Risk-Weighted Assets

Impact of adoption of Basel II.5

$

-


$

127,721


Movements in risk levels

(1,252

)

(29,542

)

Model and methodology updates

(1,988

)

(22,261

)

Other

6,469


11,309


Net increase in Market Risk-Weighted Assets

$

3,229


$

87,227


Balance, end of period

$

1,092,707


$

1,092,707



Capital Resources of Citigroup's Subsidiary U.S. Depository Institutions Under Current Regulatory Guidelines

Citigroup's subsidiary U.S. depository institutions are also subject to risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are similar to the guidelines of the Federal Reserve Board. The following table sets forth the capital tiers, risk-weighted assets, quarterly adjusted average total assets and capital ratios under current regulatory guidelines for Citibank, N.A., Citi's primary subsidiary U.S. depository institution, as of December 31, 2013 and December 31, 2012.

In millions of dollars, except ratios

Dec. 31,

2013 (1)

Dec. 31,

2012 (2)

Tier 1 Common Capital

$

121,713


$

116,633


Tier 1 Capital

122,450


117,367


Total Capital

  (Tier 1 Capital + Tier 2 Capital)

141,341


135,513


Risk-Weighted Assets

905,836


825,976


Quarterly Adjusted Average

   Total Assets (3)

1,317,673


1,308,406


Tier 1 Common ratio

13.44

%

14.12

%

Tier 1 Capital ratio

13.52


14.21


Total Capital ratio

15.60


16.41


Leverage ratio

9.29


8.97



(1) Risk-weighted assets for purposes of the Tier 1 Common, Tier 1 Capital and Total Capital ratios are calculated based on Basel I credit risk capital rules and final (revised) market risk capital rules (Basel II.5) effective on January 1, 2013.

(2)

Risk-weighted assets for purposes of the Tier 1 Common, Tier 1 Capital and Total Capital ratios are calculated based on Basel I credit risk and market risk capital rules.

(3)

Represents the Leverage ratio denominator.


46



Impact of Changes on Citigroup and Citibank, N.A. Capital Ratios Under Current Regulatory Guidelines

The following table presents the estimated sensitivity of Citigroup's and Citibank, N.A.'s capital ratios to changes of $100 million in Tier 1 Common Capital, Tier 1 Capital and Total Capital (numerator), and changes of $1 billion in risk-weighted assets or quarterly adjusted average total assets (denominator) as of December 31, 2013. This information is

provided for the purpose of analyzing the impact that a change in Citigroup's or Citibank, N.A.'s financial position or results of operations could have on these ratios. These sensitivities only consider a single change to either a component of capital, risk-weighted assets, or quarterly adjusted average total assets. Accordingly, an event that affects more than one factor may have a larger basis point impact than is reflected in this table.



Tier 1 Common ratio

Tier 1 Capital ratio

Total Capital ratio

Leverage ratio

Impact of

$100 million

change in

Tier 1

Common Capital

Impact of

$1 billion

change in risk-

weighted assets

Impact of

$100 million

change in

Tier 1

Capital

Impact of

$1 billion

change in risk-

weighted assets

Impact of

$100 million

change in

Total

Capital

Impact of

$1 billion

change in risk-

weighted assets

Impact of

$100 million

change in

Tier 1

Capital

Impact of

$1 billion

change in

 quarterly adjusted

average total

assets

Citigroup

0.9 bps

1.2 bps

0.9 bps

1.3 bps

0.9 bps

1.5 bps

0.5 bps

0.5 bps

Citibank, N.A.

1.1 bps

1.5 bps

1.1 bps

1.5 bps

1.1 bps

1.7 bps

0.8 bps

0.7 bps


Citigroup Broker-Dealer Subsidiaries

At December 31, 2013, Citigroup Global Markets Inc., a U.S. broker-dealer registered with the SEC that is an indirect wholly owned subsidiary of Citigroup, had net capital, computed in accordance with the SEC's net capital rule, of $5.4 billion, which exceeded the minimum requirement by $4.5 billion.

In addition, certain of Citi's other broker-dealer subsidiaries are subject to regulation in the countries in which they do business, including requirements to maintain specified levels of net capital or its equivalent. Citigroup's other broker-dealer subsidiaries were in compliance with their capital requirements at December 31, 2013.


Basel III


For additional information on Citi's estimated Basel III ratios, see "Risk Factors - Regulatory Risks" below.


Tier 1 Common Ratio

Citi's estimated Basel III Tier 1 Common ratio was 10.6% at December 31, 2013, compared to 10.5% at September 30, 2013 and 8.7% at December 31, 2012 (all based on the "Advanced Approaches" for determining total risk-weighted assets).

The marginal increase quarter-over-quarter in Citi's estimated Basel III Tier 1 Common ratio reflected continued growth in Tier 1 Common Capital resulting from quarterly net income and further DTA utilization of approximately $700 million (see "Significant Accounting Policies and Significant Estimates - Income Taxes" below), the effect of which was largely offset by higher risk-weighted assets, principally driven by an increase in estimated operational risk-weighted assets. Citi increased its estimate of operational risk-weighted assets during the fourth quarter due to an ongoing review, refinement and enhancement of its Basel III models, as well as in consideration of the evolving regulatory and litigation environment within the banking industry.



The significant year-over-year increase in Citi's estimated Basel III Tier 1 Common ratio was primarily due to net income and other improvements to Tier 1 Common Capital, including a sizable reduction in Citi's minority investments principally resulting from the sale of Citi's remaining interest in the MSSB joint venture as well as approximately $2.5 billion utilization of DTAs, which was partially offset by additional net losses in AOCI and, to a lesser extent, share repurchases and dividends.

On February 21, 2014, the Federal Reserve Board announced that Citi was approved to exit the "parallel run" period regarding the application of the Basel III Advanced Approaches in the calculation of risk-weighted assets, effective for the second quarter of 2014. One of the stipulations for such approval is that Citi further increase its estimated operational risk-weighted assets to $288 billion from $232 billion as of December 31, 2013, reflecting ongoing developments regarding the overall banking industry operating environment. The pro forma impact of the required higher operational risk-weighted assets would have been a decrease of approximately 50 basis points in Citi's estimated Basel III Tier 1 Common ratio at December 31, 2013 to approximately 10.1%. For additional information regarding the parallel run period applicable to the Advanced Approaches under the Final Basel III Rules, see "Regulatory Capital Standards Developments - Risk-Based Capital Ratios" below.


47



Components of Citigroup Capital Under Basel III

In millions of dollars

December 31,

2013 (1)

December 31,

2012 (2)

Tier 1 Common Capital

Citigroup common stockholders' equity (3)

$

197,694


$

186,487


Add: Qualifying noncontrolling interests

182


171


Regulatory Capital Adjustments and Deductions:

Less: Accumulated net unrealized losses on cash flow hedges, net of tax (4)

(1,245

)

(2,293

)

Less: Cumulative change in fair value of financial liabilities attributable to the change in own

   creditworthiness, net of tax (5)

177


587


Less: Intangible assets:

Goodwill net of related DTL (6)

24,518


25,488


Identifiable intangible assets other than mortgage servicing rights (MSRs), net of related DTL

4,950


5,632


Less: Defined benefit pension plan net assets

1,125


732


Less: Deferred tax assets (DTAs) arising from net operating loss, foreign tax credit and general

   business credit carry-forwards (7)

26,439


28,800


Less: Excess over 10%/15% limitations for other DTAs, certain common stock investments,

  and MSRs (7)(8)

16,315


22,316


Total Tier 1 Common Capital

$

125,597


$

105,396


Additional Tier 1 Capital

Qualifying perpetual preferred stock (3)

$

6,645


$

2,562


Qualifying trust preferred securities (9)

1,374


1,377


Qualifying noncontrolling interests

39


37


Regulatory Capital Deduction:

Less: Minimum regulatory capital requirements of insurance underwriting subsidiaries (10)

243


247


Total Tier 1 Capital

$

133,412


$

109,125


Tier 2 Capital

Qualifying subordinated debt

$

14,414


$

13,947


Qualifying trust preferred securities

745


2,582


Qualifying noncontrolling interests

52


49


Regulatory Capital Adjustment and Deduction:

Add: Excess of eligible credit reserves over expected credit losses (11)

1,669


5,115


Less: Minimum regulatory capital requirements of insurance underwriting subsidiaries (10)

243


247


Total Tier 2 Capital

$

16,637


$

21,446


Total Capital (Tier 1 Capital + Tier 2 Capital)  (12)

$

150,049


$

130,571



(1)

Calculated based on the Final Basel III Rules, and with full implementation assumed for all capital components (i.e., an effective date of January 1, 2019), except for qualifying trust preferred securities that fully phase-out of Tier 2 Capital by January 1, 2022.

(2)

Calculated based on the proposed U.S. Basel III rules, and with full implementation assumed for capital components (i.e., an effective date of January 1, 2019), except for qualifying trust preferred securities that fully phase-out of Tier 2 Capital by January 1, 2022.

(3)

Issuance costs of $93 million related to preferred stock outstanding at December 31, 2013 are excluded from common stockholders' equity and netted against preferred stock in accordance with Federal Reserve Board regulatory reporting requirements, which differ from those under U.S. GAAP.

(4)

Tier 1 Common Capital is adjusted for accumulated net unrealized gains (losses) on cash flow hedges included in AOCI that relate to the hedging of items not recognized at fair value on the balance sheet.

(5)

The impact of changes in Citigroup's own creditworthiness in valuing liabilities for which the fair value option has been elected and own-credit valuation adjustments on derivatives is excluded from Tier 1 Common Capital, in accordance with the Final Basel III Rules.

(6)

Includes goodwill "embedded" in the valuation of significant common stock investments in unconsolidated financial institutions.

(7)

Of Citi's approximately $52.8 billion of net deferred tax assets at December 31, 2013, approximately $12.2 billion of such assets were includable in regulatory capital pursuant to the Final Basel III Rules, while approximately $40.6 billion of such assets were excluded in arriving at Tier 1 Common Capital. Comprising the excluded net deferred tax assets was an aggregate of approximately $41.8 billion of net deferred tax assets arising from net operating loss, foreign tax credit and general business credit carry-forwards as well as temporary differences that were deducted from Tier 1 Common Capital. In addition, approximately $1.2 billion of net deferred tax liabilities, primarily consisting of deferred tax liabilities associated with goodwill and certain other intangible assets, partially offset by deferred tax assets related to cash flow hedges, are permitted to be excluded prior to deriving the amount of net deferred tax assets subject to deduction under these rules. Separately, under the Final Basel III Rules, goodwill and these other intangible assets are deducted net of associated deferred tax liabilities in arriving at Tier 1 Common Capital, while Citi's current cash flow hedges and the related deferred tax effects are not required to be reflected in regulatory capital.

(8)

Aside from MSRs, reflects DTAs arising from temporary differences and significant common stock investments in unconsolidated financial institutions.

(9)

Represents Citigroup Capital XIII trust preferred securities, which are permanently grandfathered as Tier 1 Capital under the Final Basel III Rules. Accordingly, the prior period has been conformed to current period presentation for comparative purposes.

(10)

50% of the minimum regulatory capital requirements of insurance underwriting subsidiaries must be deducted from each of Tier 1 Capital and Tier 2 Capital.

(11)

Advanced Approaches banking organizations are permitted to include in Tier 2 Capital eligible credit reserves that exceed expected credit losses to the extent that the excess reserves do not exceed 0.6% of credit risk-weighted assets.


48



(12)

Total Capital as calculated under Advanced Approaches, which differs from the Standardized Approach in the treatment of the amount of eligible credit reserves includable in Tier 2 Capital. In accordance with the Standardized Approach, Total Capital was $161.8 billion and $138.5 billion at December 31, 2013 and December 31, 2012, respectively.



Citigroup Risk-Weighted Assets Under Basel III

In millions of dollars

December 31,

2013 (1)

December 31,

2012 (2)

Advanced Approaches total risk-weighted assets

$

1,186,000


$

1,206,000


Standardized Approach total risk-weighted assets

$

1,177,000


$

1,200,000



(1)

Calculated based on the Final Basel III Rules, and with full implementation assumed.

(2)

Calculated based on the proposed U.S. Basel III rules, and with full implementation assumed.



Citigroup Risk-Weighted Assets Under Basel III at December 31, 2013 (1)

Advanced Approaches

Standardized Approach

In millions of dollars

Citicorp

Citi Holdings

Total

Citicorp

Citi Holdings

Total

Credit Risk

$

693,000


$

149,000


$

842,000


$

963,000


$

102,000


$

1,065,000


Market Risk

107,000


5,000


112,000


107,000


5,000


112,000


Operational Risk (2) (3)

160,000


72,000


232,000


-


-


-


Total

$

960,000


$

226,000


$

1,186,000


$

1,070,000


$

107,000


$

1,177,000



(1) Calculated based on the Final Basel III Rules, and with full implementation assumed.

(2) Given that operational risk is measured based not only upon Citi's historical loss experience but also is reflective of ongoing events in the banking industry, efforts at reducing assets and exposures should result mostly in reductions in credit and market risk-weighted assets.

(3) As noted under "Basel III - Tier 1 Common Ratio" above, Citi will be required to increase its estimated operational risk-weighted assets from $232 billion at December 31, 2013 to $288 billion in connection with Citi's exit from the "parallel run" period regarding the application of the Basel III Advanced Approaches in the calculation of risk-weighted assets.


49



Citigroup Capital Rollforward Under Basel III

In millions of dollars

Three Months Ended

December 31, 2013

Twelve Months Ended

December 31, 2013

Tier 1 Common Capital

Balance, beginning of period

$

121,691


$

105,396


Net income

2,456


13,673


Dividends declared

(100

)

(314

)

Net increase in treasury stock

(186

)

(811

)

Net change in additional paid-in capital (1)(2)

197


895


Net change in accumulated other comprehensive losses, net of tax

(335

)

(2,237

)

Net change in accumulated net unrealized losses on cash flow hedges, net of tax (3)

(96

)

(1,048

)

Net decrease in cumulative change in fair value of financial liabilities attributable to the

    change in own creditworthiness, net of tax

162


410


Net decrease in goodwill, net of related DTL (4)

203


970


Net decrease in other intangible assets other than mortgage servicing rights (MSRs),

    net of related DTL

16


682


Net increase in defined benefit pension plan net assets

(171

)

(393

)

Net decrease in deferred tax assets (DTAs) arising from net operating loss, foreign tax credit and general business credit carryforwards

1,535


2,361


Net change in excess over 10%/15% limitations for other DTAs, certain common stock

    investments and MSRs (5)

215


6,001


Other

10


12


Net increase in Tier 1 Common Capital

$

3,906


$

20,201


Balance, end of period

$

125,597


$

125,597


Tier 1 Capital

Balance, beginning of period

$

128,054


$

109,125


Net increase in Tier 1 Common Capital

3,906


20,201


Net increase in qualifying perpetual preferred stock (2)

1,461


4,083


Net decrease in qualifying trust preferred securities

(2

)

(3

)

Other

(7

)

6


Net increase in Tier 1 Capital

$

5,358


$

24,287


Balance, end of period

$

133,412


$

133,412


Tier 2 Capital

Balance, beginning of period

$

17,990


$

21,446


Net change in qualifying subordinated debt

(349

)

467


Net change in qualifying trust preferred securities

-


(1,837

)

Net change in excess of eligible credit reserves over expected credit losses

(998

)

(3,446

)

Other

(6

)

7


Net decrease in Tier 2 Capital

$

(1,353

)

$

(4,809

)

Balance, end of period

$

16,637


$

16,637


Total Capital (Tier 1 Capital + Tier 2 Capital)

$

150,049


$

150,049



(1)

Primarily represents an increase in additional paid-in capital related to employee benefit plans.

(2)

Citi issued approximately $1.5 billion and approximately $4.3 billion of qualifying perpetual preferred stock during the three months and twelve months ended December 31, 2013, respectively. These issuances were partially offset by both redemptions and the netting of issuance costs, which in the aggregate were $34 million and $187 million for the three months and twelve months ended December 31, 2013, respectively. For U.S. GAAP purposes, issuance costs of $34 million and $93 million for the three months and twelve months ended December 31, 2013, respectively, were netted against additional paid-in capital.

(3)

Tier 1 Common Capital is adjusted for accumulated net unrealized gains (losses) on cash flow hedges included in AOCI that relate to the hedging of items not recognized at fair value on the balance sheet.

(4)

Includes goodwill "embedded" in the valuation of significant common stock investments in unconsolidated financial institutions.

(5)

Aside from MSRs, reflects DTAs arising from temporary differences and significant common stock investments in unconsolidated financial institutions.


50



Supplementary Leverage Ratio

Citigroup's estimated Basel III Supplementary Leverage ratio was 5.4% for the fourth quarter of 2013, compared to an estimated 5.1% for the third quarter. The quarter-over-quarter ratio improvement was primarily due to an increase in Tier 1 Capital arising largely from quarterly net income, as well as a decrease in Total Leverage Exposure substantially resulting from lower on-balance-sheet assets.

The Supplementary Leverage ratio represents the average for the quarter of the three monthly ratios of Tier 1 Capital to Total Leverage Exposure (i.e., the sum of the ratios calculated for October, November and December, divided by three). Total Leverage Exposure is the sum of: (i) the carrying value of all on-balance-sheet assets less applicable Tier 1 Capital deductions; (ii) the potential future exposure on derivative contracts; (iii) 10% of the notional amount of unconditionally cancellable commitments; and (iv) the full notional amount of certain other off-balance sheet exposures (e.g., other commitments and contingencies).

Citi's estimated Basel III Tier 1 Common ratio and estimated Basel III Supplementary Leverage ratio and certain related components are non-GAAP financial measures. Citigroup believes these ratios and their components provide useful information to investors and others by measuring Citigroup's progress against future regulatory capital standards.


Regulatory Capital Standards Developments


Basel II.5

In June 2012, the U.S. banking agencies released final (revised) market risk capital rules (Basel II.5), which became effective on January 1, 2013. Subsequently, in December 2013, the Federal Reserve Board amended Basel II.5 by conforming such rules to certain elements of the Final Basel III Rules, as well as incorporating additional clarifications. These Basel II.5 revisions have not had a material impact on the measurement of Citi's market risk-weighted assets.

Separately, in October 2013, the Basel Committee on Banking Supervision (Basel Committee) issued a new proposal with respect to its ongoing review of regulatory capital standards applicable to the trading book of banking organizations. The proposal, which is more definitive than the initial version published in May 2012, would significantly revise the current market risk capital framework, as well as address previously known shortcomings in the Basel II.5 rules. Among the more significant of the proposed revisions are those related to (i) strengthening and clarifying the boundary between trading book and banking book positions; (ii) incorporating certain modifications to the standardized approach to the calculation of risk-weighted assets; (iii) redesigning internal regulatory capital models; and (iv) expanding the scope and granularity of public disclosures. The Basel Committee has also initiated, in parallel, a quantitative impact study in an effort to assess the implications arising from the proposal. Timing as to finalization of the Basel Committee proposal, and the potential future impact on U.S. banking organizations, such as Citi, are uncertain.

Basel III


Overview

In July 2013, the U.S. banking agencies released the Final Basel III Rules, which comprehensively revise the regulatory capital framework for substantially all U.S. banking organizations and incorporate relevant provisions of the Dodd-Frank Act.

The Final Basel III Rules raise the quantity and quality of regulatory capital by formally introducing not only Tier 1 Common Capital and mandating it be the predominant form of regulatory capital, but also by narrowing the definition of qualifying capital elements at all three regulatory capital tiers (i.e., Tier 1 Common Capital, Additional Tier 1 Capital, and Tier 2 Capital) as well as imposing broader and more constraining regulatory capital adjustments and deductions. Moreover, these rules establish both a fixed and a discretionary capital buffer, which would be available to absorb losses in advance of any potential impairment of regulatory capital below the stated minimum risk-based capital ratio requirements.

For so-called "Advanced Approaches" banking organizations (generally those with consolidated total assets of at least $250 billion or consolidated total on-balance-sheet foreign exposures of at least $10 billion), which includes Citi and Citibank, N.A., the Final Basel III Rules are required to be adopted effective January 1, 2014, with the exception of the "Standardized Approach" for deriving risk-weighted assets, which becomes effective January 1, 2015. However, in order to minimize the effect of adopting these new requirements on U.S. banking organizations and consequently potentially also global economies, the Final Basel III Rules contain several differing, largely multi-year transition provisions (i.e., "phase-ins" and "phase-outs") with respect to the stated minimum Tier 1 Common and Tier 1 Capital ratio requirements, substantially all regulatory adjustments and deductions, non-qualifying Tier 1 and Tier 2 Capital instruments (such as trust preferred securities), and the capital buffers. All of these transition provisions, with the exception of the phase-out of non-qualifying trust preferred securities from Tier 2 Capital, will be fully implemented by January 1, 2019 (i.e., hereinafter "fully phased-in").


Risk-Based Capital Ratios

Under the Final Basel III Rules, when fully phased in by January 1, 2019, Citi will be required to maintain stated minimum Tier 1 Common, Tier 1 Capital and Total Capital ratios of 4.5%, 6% and 8%, respectively, and will be subject to substantially higher effective minimum ratio requirements due to the imposition of an additional 2.5% Capital Conservation Buffer and a surcharge of at least 2% as a global systemically important bank (G-SIB). Accordingly, Citi currently anticipates that its effective minimum Tier 1 Common, Tier 1 Capital and Total Capital ratio requirements as of January 1, 2019 will be at least 9%, 10.5% and 12.5%, respectively.

Further, the Final Basel III Rules implement the "capital floor provision" of the so-called "Collins Amendment" of the Dodd-Frank Act. This provision requires Advanced Approaches banking organizations to calculate each of the


51



three risk-based capital ratios under both the Standardized Approach starting on January 1, 2015 (or, for 2014, prior to the effective date of the Standardized Approach, the existing Basel I and Basel II.5 capital rules) and the Advanced Approaches and publicly report the lower (most conservative) of each of the resulting capital ratios. The Standardized Approach and the Advanced Approaches primarily differ in the composition and calculation of total risk-weighted assets, as well as in the definition of Total Capital.

Advanced Approaches banking organizations such as Citi and Citibank, N.A. are required, however, to participate in, and must receive Federal Reserve Board and OCC approval to exit a parallel run period with respect to the calculation of Advanced Approaches risk-weighted assets prior to being able to comply with the capital floor provision of the Collins Amendment. During such period, the publicly reported ratios of Advanced Approaches banking organizations (and the ratios against which compliance with the regulatory capital framework is to be measured) would consist of only those risk-based capital ratios calculated under the Basel I and Basel II.5 capital rules (or, after January 1, 2015, under the Standardized Approach). During the parallel run period, Advanced Approaches banking organizations are required to report their risk-based capital ratios under the Advanced Approaches only to their primary federal banking regulator, which for Citi is the Federal Reserve Board. Upon exiting parallel run, an Advanced Approaches banking organization would then be required to publicly report (and would be measured for compliance against) the lower of each of the risk-based capital ratios calculated under the capital floor provision of the Collins Amendment, as set forth above.

On February 21, 2014, the Federal Reserve Board and OCC granted permission for Citi and Citibank, N.A., respectively, to exit the parallel run period and to begin applying the Advanced Approaches framework in the calculation and public reporting of risk-based capital ratios, effective with the second quarter of 2014. Such approval is subject to Citi's satisfactory compliance with certain commitments regarding the implementation of the Advanced Approaches rule, as well as general ongoing qualification requirements.

Capital Buffers

The Final Basel III Rules establish a 2.5% Capital Conservation Buffer applicable to substantially all U.S. banking organizations and, for Advanced Approaches banking organizations, a potential additional Countercyclical Capital Buffer of up to 2.5%. An Advanced Approaches banking organization's Countercyclical Capital Buffer would be derived based upon the weighted average of the Countercyclical Capital Buffer requirements, if any, in those national jurisdictions in which the banking organization has private sector credit exposures. Moreover, the Countercyclical Capital Buffer would be invoked upon a determination by the U.S. banking agencies that the market is experiencing excessive aggregate credit growth, and would be an extension of the Capital Conservation Buffer (i.e., an aggregate combined buffer of potentially between 2.5% and 5%). While Advanced Approaches banking organizations may draw on the

Capital Conservation Buffer and, if invoked, the Countercyclical Capital Buffer, to absorb losses during periods of financial or economic stress, restrictions on earnings distributions (e.g., dividends, equity repurchases, and discretionary executive bonuses) would result, with the degree of such restrictions greater based upon the extent to which the buffer is drawn upon.

Under the Final Basel III Rules, the Capital Conservation Buffer for Advanced Approaches banking organizations, as well as the Countercyclical Capital Buffer, if invoked, must be calculated in accordance with the Collins Amendment, and thus be based on a comparison of each of the three reportable risk-based capital ratios as determined under both the Advanced Approaches and the Standardized Approach (or, for 2014, the existing Basel I and Basel II.5 capital rules) and the stated minimum required ratios for each (i.e., 4.5% Tier 1 Common, 6% Tier 1 Capital and 8% Total Capital), with the reportable Capital Conservation Buffer (and, if applicable, also the Countercyclical Capital Buffer) being the smallest of the three differences. Both of these buffers, which are to be comprised entirely of Tier 1 Common Capital, are to be phased in incrementally from January 1, 2016 through January 1, 2019.


G-SIB Surcharge

In July 2013, the Basel Committee issued an update of its G-SIB framework, incorporating a number of revisions relative to the original rules published in November 2011. Among the revisions are selected refinements to the methodology for assessing global systemic importance, clarifications related to the imposition of additional Tier 1 Common Capital surcharges, and certain public disclosure requirements.

Under the Basel Committee rules, the methodology for assessing G-SIBs is based primarily on quantitative measurement indicators underlying five equally weighted broad categories of systemic importance: (i) size; (ii) global (cross-jurisdictional) activity; (iii) interconnectedness; (iv) substitutability/financial institution infrastructure; and (v) complexity. With the exception of size, each of the other categories are comprised of multiple indicators also of equal weight, and amounting to 12 in total. The initial G-SIB surcharge, which is to be comprised entirely of Tier 1 Common Capital, ranges from 1% to 2.5% of risk-weighted assets. Moreover, under the Basel Committee's rules, the G-SIB surcharge will be introduced in parallel with the Basel III Capital Conservation Buffer and, if applicable, any Countercyclical Capital Buffer, commencing phase-in on January 1, 2016 and becoming fully effective on January 1, 2019.

Separately, the Final Basel III Rules do not address G-SIBs. Nonetheless, the Federal Reserve Board is required by the Dodd-Frank Act to issue rules establishing a quantitative risk-based capital surcharge for financial institutions deemed to be systemically important and posing risk to market-wide financial stability, such as Citi, and the Federal Reserve Board has indicated that it intends for these rules to be consistent with the Basel Committee's G-SIB rules. Although no such rules have yet been proposed by the Federal Reserve Board,


52



Citi anticipates that it will likely be subject to at least a 2% initial additional Tier 1 Common Capital surcharge.


Regulatory Capital Adjustments and Deductions

Substantially all of the regulatory capital adjustments and deductions required under the Final Basel III Rules are to be applied in arriving at Tier 1 Common Capital.

Assets required to be fully deducted from Tier 1 Common Capital include, in part, goodwill (both standalone and embedded) and identifiable intangible assets (other than MSRs), net assets of certain defined benefit pension plans, and DTAs arising from tax credit and net operating loss carry-forwards. Additionally, DTAs arising from temporary differences, significant investments in the common stock of unconsolidated financial institutions, and MSRs are subject to potential partial deduction under the so-called "threshold deductions" (i.e., the portions of these assets that individually and, in the aggregate, initially exceed 10% and subsequently collectively exceed 15%, respectively, of adjusted Tier 1 Common Capital). Furthermore, any assets required to be deducted from regulatory capital are also excluded from risk-weighted assets, as well as adjusted average total assets and Total Leverage Exposure for leverage ratio purposes.

The Final Basel III Rules also require that principally all of the components of AOCI be fully reflected in Tier 1 Common Capital, including net unrealized gains and losses on all AFS securities and adjustments to defined benefit plan liabilities. Conversely, the rules permit the exclusion of net gains and losses on cash flow hedges included in AOCI related to the hedging of items not recognized at fair value on a banking organization's balance sheet. Moreover, an Advanced Approaches banking organization must adjust its Tier 1 Common Capital for the cumulative change in the fair value of financial liabilities attributable to the change in the banking organization's own creditworthiness. Apart from Tier 1 Common Capital effects, the minimum regulatory capital requirements of insurance underwriting subsidiaries are required to be deducted equally from both Additional Tier 1 Capital and Tier 2 Capital.

The impact of these regulatory capital adjustments and deductions, with the exception of goodwill, which is required to be deducted in full commencing January 1, 2014, are generally to be phased in incrementally at 20% annually beginning on January 1, 2014, with full implementation by January 1, 2018.


Non-Qualifying Trust Preferred Securities

As for non-qualifying capital instruments, the Final Basel III Rules require that Advanced Approaches banking organizations phase-out from Tier 1 Capital trust preferred securities issued prior to May 19, 2010 by January 1, 2016 (other than certain grandfathered trust preferred securities), with 50% of these non-qualifying capital instruments includable in Tier 1 Capital in 2014 and 25% includable in 2015. The carrying value of trust preferred securities excluded from Tier 1 Capital may be included in full in Tier 2 Capital during those two years (i.e., 50% and 75% in 2014 and 2015, respectively), but must be phased out of Tier 2 Capital by January 1, 2022 (declining in 10% annual increments starting

at 60% in 2016). Moreover, under the Final Basel III Rules, any nonconforming Tier 2 Capital instruments issued prior to May 19, 2010 will also be required to be phased out by January 1, 2016, with issuances after May 19, 2010 required to be excluded entirely from Tier 2 Capital as of January 1, 2014.


Standardized Approach Risk-Weighted Assets

The Standardized Approach for determining risk-weighted assets is applicable to substantially all U.S. banking organizations, including Citi and Citibank, N.A. and, as of January 1, 2015, will replace the existing regulatory capital rules governing the calculation of risk-weighted assets. Although the mechanics of calculating risk-weighted assets remains largely unchanged from Basel I, the Standardized Approach incorporates heightened risk sensitivity for calculating risk-weighted assets for certain on-balance-sheet assets and off-balance-sheet exposures, including those to foreign sovereign governments and banks, corporate and securitization exposures, and counterparty credit risk on derivative contracts. Total risk-weighted assets under the Standardized Approach exclude risk-weighted assets arising from operational risk, require more limited approaches in measuring risk-weighted assets for securitization exposures, and apply the standardized risk weights to arrive at credit risk-weighted assets. As required under the Dodd-Frank Act, the Standardized Approach relies on alternatives to external credit ratings in the treatment of certain exposures.


Advanced Approaches Risk-Weighted Assets

The Advanced Approaches for determining risk-weighted assets amends the U.S. Basel II capital guidelines for calculating risk-weighted assets. Total risk-weighted assets under the Advanced Approaches would include not only Advanced Approaches in calculating credit and operational risk-weighted assets, but also market risk-weighted assets. Primary among the Basel II modifications are those related to the treatment of counterparty credit risk, as well as substantial revisions to the securitization exposure framework. As with the Standardized Approach, and as mandated by the Dodd-Frank Act, all references to, and reliance on, external credit ratings in deriving risk-weighted assets for various types of exposures are removed.


Leverage Ratios

Under the Final Basel III Rules, Advanced Approaches banking organizations are also required to calculate two leverage ratios, a "Tier 1" Leverage ratio and a "Supplementary" Leverage ratio. The Tier 1 Leverage ratio is a modified version of the current U.S. Leverage ratio and reflects the more restrictive Basel III definition of Tier 1 Capital in the numerator, but with the same current denominator consisting of average total assets less amounts deducted from Tier 1 Capital. The Supplementary Leverage ratio significantly differs from the Tier 1 Leverage ratio by also including certain off-balance-sheet exposures within the denominator of the ratio. Citi, as with substantially all U.S. banking organizations, will be required to maintain a minimum Tier 1 Leverage ratio of 4% effective January 1, 2014. Advanced Approaches banking organizations will be


53



required to maintain a stated minimum Supplementary Leverage ratio of 3% commencing on January 1, 2018, but must commence publicly disclosing this ratio on January 1, 2015.

In July 2013, subsequent to the release of the Final Basel III Rules, the U.S. banking agencies also issued a notice of proposed rulemaking which would amend the Final Basel III Rules to impose on the eight largest U.S. bank holding companies (currently identified as G-SIBs by the Financial Stability Board, which includes Citi) a 2% leverage buffer in addition to the stated 3% minimum Supplementary Leverage ratio requirement. The leverage buffer would operate in a manner similar to that of the Capital Conservation Buffer, such that if a banking organization failed to exceed the 2% requirement it would be subject to increasingly onerous restrictions (depending upon the extent of the shortfall) regarding capital distributions and discretionary executive bonus payments. Accordingly, the proposal would effectively raise the Supplementary Leverage ratio requirement to 5%. Additionally, the proposed rules would require that insured depository institution subsidiaries of these bank holding companies, such as Citibank, N.A., maintain a minimum Supplementary Leverage ratio of 6% to be considered "well capitalized" under the revised prompt corrective action framework established by the Final Basel III Rules. If adopted as proposed, Citi and Citibank, N.A. would need to be compliant with these higher effective minimum ratio requirements on January 1, 2018.

Separately, in January 2014, the Basel Committee adopted revisions which substantially modify its original rules in relation to the measurement of exposures for derivatives, securities financing transactions (SFTs), and most off-balance-sheet commitments and contingencies, all of which are included in the denominator of the Basel III Leverage ratio (the equivalent of the U.S. Supplementary Leverage ratio). Under the revised rules, banking organizations will be permitted limited netting of SFTs with the same counterparty and allowed to apply cash variation margin to reduce derivative exposures, both of which are subject to certain specific conditions, as well as cap written credit derivative exposures. Moreover, the credit conversion factors to be applied to certain off-balance-sheet exposures have been reduced from 100% to those applicable under the Basel III Standardized Approach for determining credit risk-weighted assets. The Basel Committee will also continue to monitor banking organizations' Basel III Leverage ratios on a semiannual basis in order to assess whether any further revisions, including the calibration of the ratio, are deemed necessary prior to the incorporation of any final adjustments by January 1, 2017. Accordingly, the U.S. banking agencies may further revise the Supplementary Leverage ratio in the future based upon the current and any further revisions adopted by the Basel Committee.

Prompt Corrective Action Framework

The Final Basel III Rules revise the Prompt Corrective Action (PCA) regulations in certain respects. In general, the PCA regulations direct the U.S. banking agencies to enforce increasingly strict limitations on the activities of insured depository institutions that fail to meet certain regulatory capital thresholds. The revised PCA framework contains five categories of capital adequacy as measured by risk-based capital and leverage ratios: (i) "well capitalized;" (ii) "adequately capitalized;" (iii) "undercapitalized;" (iv) "significantly undercapitalized;" and (v) "critically undercapitalized."

Additionally, the U.S. banking agencies revised the PCA regulations to accommodate a new minimum Tier 1 Common ratio requirement for substantially all categories of capital adequacy (other than critically undercapitalized), increase the minimum Tier 1 Capital ratio requirement at each category, and introduce for Advanced Approaches insured depository institutions the Supplementary Leverage ratio as a metric, but only for the "adequately capitalized" and "undercapitalized" categories. These revisions will become effective on January 1, 2015, with the exception of the Supplementary Leverage ratio for Advanced Approaches insured depository institutions, for which January 1, 2018 is the effective date. Accordingly, beginning January 1, 2015, an insured depository institution, such as Citibank, N.A., would need minimum Tier 1 Common, Tier 1 Capital, Total Capital, and Tier 1 Leverage ratios of 6.5% (a new requirement), 8% (a 2% increase over the current requirement), 10%, and 5%, respectively, to be considered "well capitalized."


Disclosure Requirements

The Final Basel III Rules formally establish extensive qualitative and quantitative public disclosure requirements for substantially all U.S. banking organizations, as well as additional disclosures specifically required of Advanced Approaches banking organizations. The required disclosures are intended to provide transparency with respect to such regulatory capital aspects as capital structure, capital adequacy, capital buffers, credit risk, securitizations, operational risk, equities and interest rate risk. Qualitative disclosures that typically remain unchanged each quarter may be disclosed annually, however, any significant changes must be provided in the interim. Alternatively, quantitative disclosures must be provided quarterly. An Advanced Approaches banking organization is required to comply with the Advanced Approaches disclosures after exiting parallel run, unless it has not exited by the first quarter of 2015, in which case an Advanced Approaches banking organization is required to provide the disclosures set forth under the Standardized Approach until parallel run has been exited.



54



Volcker Rule

In December 2013, the U.S. banking agencies, along with the Securities and Exchange Commission and the Commodity Futures Trading Commission, issued final rules to implement the so-called "Volcker Rule" of the Dodd-Frank Act (Final Volcker Rule). Aside from provisions which prohibit "banking entities" (i.e., insured depository institutions and their affiliates) from engaging in short-term proprietary trading, the Final Volcker Rule also imposes limitations on the extent to which banking entities are permitted to invest in certain "covered funds" (e.g., hedge funds and private equity funds) and requires that such investments be fully deducted from Tier 1 Capital. While the initial period within which banking entities have to become compliant with the covered fund investment provisions extends to July 21, 2015, the timing as to the required Tier 1 Capital deduction, as well as the expected incorporation of this requirement into the Final Basel III Rules, are currently uncertain. For additional information on the Final Volcker Rule, see "Risk Factors-Regulatory Risks" below.


55



Tangible Common Equity, Tangible Book Value Per Share and Book Value Per Share

Tangible common equity (TCE), as currently defined by Citi, represents common equity less goodwill and other intangible assets (other than MSRs). Other companies may calculate TCE in a different manner. TCE, tangible book value per share and book value per share are non-GAAP financial measures. Citi believes these capital metrics provide useful information, as they are used by investors and industry analysts.

In millions of dollars or shares, except per share amounts

December 31,

2013

December 31,

2012

Total Citigroup stockholders' equity

$

204,339


$

189,049


Less:

Preferred stock

6,738


2,562


Common equity

$

197,601


$

186,487


Less:

Goodwill

25,009


25,673


Other intangible assets (other than MSRs)

5,056


5,697


Goodwill and other intangible assets (other than MSRs) related to assets of discontinued operations held for sale

-


32


Net deferred tax assets related to goodwill and other intangible assets

-


32


Tangible common equity (TCE)

$

167,536


$

155,053


Common shares outstanding (CSO)

3,029.2


3,028.9


Book value per share (common equity/CSO)

$

65.23


$

61.57


Tangible book value per share (TCE/CSO)

$

55.31


$

51.19






56



RISK FACTORS


The following discussion sets forth what management currently believes could be the most significant regulatory, market and economic, liquidity, legal and business and operational risks and uncertainties that could impact Citi's businesses, results of operations and financial condition. Other risk and uncertainties, including those not currently known to Citi or its management, could also negatively impact Citi's businesses, results of operations and financial condition. Thus, the following should not be considered a complete discussion of all of the risks and uncertainties Citi may face.


REGULATORY RISKS


Citi Faces Ongoing Significant Regulatory Changes and Uncertainties in the U.S. and Non-U.S. Jurisdictions in Which It Operates That Negatively Impact the Management of Its Businesses, Increase Its Compliance Risks and Costs and Could Adversely Affect Its Results of Operations.

Citi continues to be subject to a significant number of regulatory changes and uncertainties both in the U.S. and the non-U.S. jurisdictions in which it operates. These changes and uncertainties emanate not only from financial crisis related reforms, including continued implementation of The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) in the U.S., but also reform proposals by national financial authorities and international standard setting bodies (such as the Financial Stability Board) as well as individual jurisdictions. The complexities and uncertainties arising from the volume of regulatory changes or proposals, across numerous regulatory bodies and jurisdictions, is further compounded by what appears to be an accelerating urgency to complete reforms and, in some cases, to do so in a manner that is the most advantageous or protectionist to the proposing jurisdiction.

The complete scope and form of a number of regulatory initiatives are still being finalized and, even when finalized, will likely require significant interpretation and guidance. Moreover, the heightened regulatory environment has resulted not only in a tendency toward more regulation, but also in some cases toward the most prescriptive regulation as regulatory agencies have often taken a restrictive approach to rulemaking, interpretive guidance, approvals and their general ongoing supervisory or prudential authority. In addition, even when U.S. and international regulatory initiatives overlap, in many instances they have not been undertaken on a coordinated basis and areas of divergence have developed with respect to the scope, interpretation, timing, structure or approach, leading to additional, inconsistent or even conflicting regulations.

Ongoing regulatory changes and uncertainties make Citi's business planning difficult and could require Citi to change its business models or even its organizational structure, all of which could ultimately negatively impact Citi's strategy and results of operations as well as realization

of its deferred tax assets (DTAs). For example, regulators have proposed applying limits to certain concentrations of risk, such as through single counterparty credit limits, and implementation of such limits could require Citi to restructure client or counterparty relationships and could result in the potential loss of clients. Further, certain regulatory requirements could require Citi to create new subsidiaries in foreign jurisdictions instead of its current branches, create subsidiaries to conduct particular businesses or operations (so-called "subsidiarization"), or impose additional capital or other requirements on branches in certain jurisdictions. This could, among other things, negatively impact Citi's global capital and liquidity management and overall cost structure. Unless and until there is sufficient regulatory certainty, Citi's business planning and/or proposed pricing for affected businesses necessarily include assumptions based on possible or proposed rules, requirements or outcomes, any of which could impede Citi's ability to conduct its businesses effectively or comply with final requirements in a timely manner.

Business planning is further complicated by management's continual need to review and evaluate the impact on Citi's businesses of ongoing rule proposals, final rules and implementation guidance from numerous regulatory bodies worldwide, within compressed timeframes. In some cases, management's implementation of a regulatory requirement and assessment of its impact is occurring simultaneously with legal challenges or legislative action to modify or repeal final rules, thus increasing management uncertainty. Moreover, recent regulatory guidance has focused on the need for financial institutions to perform increased due diligence and ongoing monitoring of third party vendor relationships, thus increasing the scope of management involvement and decreasing the efficiency otherwise resulting from these relationships. Citi must also spend significant time and resources managing the increased compliance risks and costs associated with ongoing global regulatory reforms. Citi has established various financial targets for 2015, including efficiency and returns targets, as well as ongoing expense reduction initiatives. Ongoing regulatory changes and uncertainties require management to continually manage Citi's expenses and potentially reallocate resources, including potentially away from ongoing business investment initiatives.

Given the significant number of regulatory reform initiatives and continued uncertainty, it is not possible to determine the ultimate impact to Citi's overall strategy, competitiveness and results of operations or, in many cases, its individual businesses.


Despite the Issuance of Final U.S. Basel III Rules, There Continues to Be Significant Uncertainty Regarding the Numerous Aspects of the Regulatory Capital Requirements Applicable to Citi and the Ultimate Impact of These Requirements on Citi's Businesses, Products and Results of Operations.


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Although the U.S. banking agencies issued final Basel III rules applicable to Citigroup and its depository institution


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subsidiaries, including Citibank, N.A., during 2013, there continues to be significant uncertainty regarding numerous aspects of these and other regulatory capital requirements applicable to Citi and, as a result, the ultimate impact of these requirements on Citi.

Citi's estimated Basel III ratios and related components are based on its current interpretation, expectations and understanding of the final U.S. Basel III rules and are subject to, among other things, ongoing regulatory review, regulatory approval of Citi's credit, market and operational Basel III risk models (as well as its market risk models under Basel II.5), additional refinements, modifications or enhancements (whether required or otherwise) to Citi's models, and further implementation guidance in the U.S. Any modifications or requirements resulting from these ongoing reviews or the continued implementation of Basel III in the U.S. could result in changes in Citi's risk-weighted assets or other elements involved in the calculation of Citi's Basel III ratios, which could negatively impact Citi's capital ratios and its ability to achieve its capital requirements as it projects or as required. Further, because operational risk is measured based not only upon Citi's historical loss experience but also upon ongoing events in the banking industry generally, Citi's level of operational risk-weighted assets could remain elevated for the foreseeable future, despite Citi's continuing efforts to reduce its risk-weighted assets and exposures.

In addition, subsequent to the issuance of the final U.S. Basel III rules, the U.S. banking agencies proposed to amend the final U.S. Basel III rules to require the largest U.S. bank holding companies and their insured depository institution subsidiaries, including Citi and Citibank, N.A., to effectively maintain minimum Supplementary Leverage ratios (SLRs) of 5% and 6%, respectively, compared to the minimum 3% required under the final U.S. and Basel Committee Basel III rules. If adopted as proposed, the SLR, which was initially intended only to supplement the risk-based capital ratios, may become the binding regulatory capital constraint facing Citi and Citibank, N.A. In addition, when combined with the expected U.S. Tier 1 Common Capital "global systemically important bank" (G-SIB) surcharge and other capital requirements, Citi and Citibank, N.A. could be subject to higher capital requirements than many of their U.S. and non-U.S. competitors, leading to a potential competitive disadvantage and negative impact on Citi's businesses and results of operations.     

Various proposals relating to the future liquidity standards or funding requirements applicable to U.S. financial institutions further contribute to the uncertainty regarding the future capital requirements applicable to Citi. For example, the proposed U.S. Basel III Liquidity Coverage ratio (LCR) rules would require Citi to hold additional high-quality liquid assets; however, this requirement would also serve to increase the denominator of the SLR and, as a result, increase the amount of Tier 1 Capital required to be held by Citi to meet the minimum SLR requirements. The Federal Reserve Board has also indicated it is considering proposals relating to the use of short-term wholesale funding by U.S. financial institutions, particularly securities financing

transactions (SFTs), which could include a capital surcharge based on the institution's reliance on such funding, and/or increased capital requirements applicable to SFT matched books.

As a result of these and other uncertainties arising from the ongoing implementation of Basel III and other current or potential capital requirements on a global basis, Citi's capital planning and management remains challenging. It is also not possible to determine what the overall impact of these extensive regulatory capital changes will be on Citi's competitive position (among both domestic and international peers), businesses, product offerings or results of operations.    

For additional information on the Basel III Rules and other capital and liquidity standards developments and requirements referenced above, see "Liquidity Risks" below and "Capital Resources-Regulatory Capital Standards Developments" above.


The Impact to Citi's Derivatives Businesses and Results of Operations Resulting from the Ongoing Implementation of Derivatives Regulation in the U.S. and Globally Remains Uncertain.

The ongoing implementation of derivatives regulations in the U.S. under the Dodd-Frank Act as well as in non-U.S. jurisdictions has impacted, and will continue to substantially impact, the derivatives markets by, among other things: (i) requiring extensive regulatory and public price reporting of derivatives transactions; (ii) requiring a wide range of over-the-counter derivatives to be cleared through recognized clearing facilities and traded on exchanges or exchange-like facilities; (iii) requiring the collection and segregation of collateral for most uncleared derivatives (margin requirements); and (iv) significantly broadening limits on the size of positions that may be maintained in specified derivatives. These market structure reforms have and will likely continue to make trading in many derivatives products more costly, may significantly reduce the liquidity of certain derivatives markets and could diminish customer demand for covered derivatives. However, given the early stage of implementation of these U.S. and global reforms, including the additional rulemaking that may be or is required to occur and the ongoing significant interpretive issues across jurisdictions, the ultimate impact to Citi's results of operations in its derivatives businesses remains uncertain.

For example, in October 2013, certain CFTC rules relating to trading on a swap execution facility (SEF) became effective. As a result, certain non-U.S. trading platforms that do not want to register with the CFTC as a SEF are prohibiting firms with U.S. contacts, such as Citi, from trading on their non-U.S. platforms. This has resulted in some bifurcated client activity in the swaps marketplace, which could negatively impact Citi by reducing its access to non-U.S. platform client activity. Also in October 2013, the CFTC's mandatory clearing requirements for the overseas branches of Citibank, N.A. became effective, and certain of Citi's non-U.S. clients have ceased to clear their swaps with Citi given the mandatory requirement. More broadly, under the CFTC's cross-border guidance, overseas clients who transact their derivatives business with overseas branches of


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U.S. banks, including Citi, could be subject to additional U.S. registration and derivatives requirements, and these clients have expressed an unwillingness to continue to deal with overseas branches of U.S. banks as a result. These and similar issues could disproportionately impact Citi given its global footprint.

Further, the European Union continues to finalize its European Market Infrastructure Regulation which would require, among other things, information on all European derivatives transactions be reported to trade repositories and certain counterparties to clear "standardized" derivatives contracts through central counterparties. Regulators in Asia also continue to finalize their derivatives reforms which, to date, have taken a different approach as compared to the EU or the U.S. Most of these non-U.S. reforms will take effect after the reforms in the U.S. and, as a result, it is uncertain to what extent the non-U.S. reforms will impose different, additional or even inconsistent requirements on Citi's derivatives activities.

The Dodd-Frank Act also contains a so-called "push-out" provision that, to date, has generally been interpreted to prevent FDIC-insured depository institutions from dealing in certain equity, commodity and credit-related derivatives. The ultimate scope of this provision and its potential consequences are not certain as rulemaking has not yet been completed. While this push-out provision was to be effective July 2013, U.S. regulators were permitted to grant up to an initial two-year transition period to affected depository institutions, and in June 2013, Citi, like other U.S. depository institutions, received approval for an initial two-year transition period for Citibank, N.A., its primary insured depository institution.

Citi currently conducts a substantial portion of its derivatives-dealing activities within and outside the U.S. through Citibank, N.A. The costs of revising customer relationships and modifying the organizational structure of Citi's businesses or the subsidiaries engaged in these businesses, and the reaction of Citi's clients to the potential bifurcation of their derivatives portfolios between Citibank, N.A. and another Citi affiliate for pushed-out derivatives, remain unknown. To the extent that certain of Citi's competitors already conduct these derivatives activities outside of FDIC-insured depository institutions, Citi would be disproportionately impacted by any required restructuring. Moreover, the extent to which Citi's non-U.S. operations will be impacted by the push-out provision remains unclear, and it is possible that Citi could lose market share in its derivatives business or client relationships in jurisdictions where foreign bank competitors can operate without the same constraints.

While the implementation and effectiveness of individual derivatives reforms may not in every case be significant, the cumulative impact of these reforms is uncertain and could be material to Citi's results of operations and competitiveness in these businesses.

In addition, numerous aspects of the new derivatives regime require extensive compliance systems and processes to be put in place and maintained, including electronic recordkeeping, real-time public transaction reporting and

external business conduct requirements (e.g., required swap counterparty disclosures). These requirements have necessitated the installation of extensive technological, operational and compliance infrastructure, and Citi's failure to effectively maintain such systems could subject it to increased compliance costs and regulatory and reputational risks. Moreover, these new derivatives-related systems and infrastructure will likely become the basis on which institutions such as Citi compete for clients. To the extent that Citi's connectivity, product offerings or services for clients in these businesses is deficient, this could negatively impact Citi's competitiveness and results of operations in these businesses.


It Is Uncertain What Impact the Restrictions on Proprietary Trading Activities under the Volcker Rule Will Have on Citi's Global Market-Making Businesses and Results of Operations, and Implementation of the Final Rules Subjects Citi to Compliance Risks and Costs.

The "Volcker Rule" provisions of the Dodd-Frank Act are intended in part to prohibit the proprietary trading activities of institutions such as Citi. On December 10, 2013, the five regulatory agencies required to adopt rules to implement the Volcker Rule adopted a final rule. Although the rules implementing the Volcker Rule have been finalized, and the conformance period has been extended to July 2015, the final rules will require extensive regulatory interpretation and supervisory oversight, including coordination of this interpretive guidance and oversight among the five regulatory agencies implementing the rules.

As a result, the degree to which Citi's market-making activities will be permitted to continue in their current form, and the potential impact to Citi's results of operations from these businesses, remains uncertain. In addition, the final rules and restrictions imposed will affect Citi's trading activities globally and, thus, will impact it disproportionately in comparison to foreign financial institutions that will not be subject to the Volcker Rule with respect to all of their activities outside of the U.S., further increasing the uncertainty of the impact to Citi's results of operations.

While the final rules contain exceptions for market-making, underwriting, risk-mitigating hedging, and certain transactions on behalf of customers and activities in certain asset classes, and require that certain of these activities be designed not to encourage or reward "proprietary risk taking," it remains unclear how these exceptions will be interpreted and administered. Absent further regulatory guidance, Citi is required to make certain assumptions as to the degree to which Citi's activities in these areas will be permitted to continue in their current form. If these assumptions are not accurate, Citi could be subject to increased compliance risks and costs. Moreover, the final rules require an extensive compliance regime for the "permitted" activities under the Volcker Rule, including documentation of historical trading activities with clients, regulatory reporting, recordkeeping and similar requirements, with certain of these requirements effective in July 2014. If Citi's implementation of this compliance


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regime is not consistent with regulatory expectations, this could further increase its compliance risks and costs.

As in other areas of ongoing regulatory reform, alternative proposals for the regulation of proprietary trading are developing in non-U.S. jurisdictions, leading to overlapping or potentially conflicting regimes. For example, in the EU, the "Liikanen Report" on bank structural reform has been reflected in the recent European Commission proposal (the so-called "Barnier Proposal"), which would prohibit proprietary trading by in-scope credit institutions and banking groups, such as certain of Citi's EU branches, and potentially require the mandatory separation of certain trading activities into a trading entity legally, economically and operationally separate from the legal entity holding the banking activities of a firm.

It is likely that, given Citi's worldwide operations, some form of these or other proposals for the regulation of proprietary trading will eventually be applicable to a portion of Citi's operations. While the Volcker Rule and these non-U.S. proposals are intended to address similar concerns- separating the perceived risks of proprietary trading and certain other investment banking activities in order not to affect more traditional banking and retail activities-they would do so under different structures, which could result in inconsistent regulatory regimes and additional compliance risks and costs for Citi in light of its global activities.


Requirements in the U.S. and Non-U.S. Jurisdictions to Facilitate the Future Orderly Resolution of Large Financial Institutions Could Require Citi to Restructure or Reorganize Its Businesses or Change Its Capital or Funding Structure in Ways That Could Negatively Impact Its Operations or Strategy.

Title I of the Dodd-Frank Act requires Citi to prepare and submit annually a plan for the orderly resolution of Citigroup (the bank holding company) and its significant legal entities under the U.S. Bankruptcy Code or other applicable insolvency law in the event of future material financial distress or failure. Citi is also required to prepare and submit an annual resolution plan for its primary insured depository institution subsidiary, Citibank, N.A., and to demonstrate how Citibank is adequately protected from the risks presented by non-bank affiliates. These plans must include information on resolution strategy, major counterparties and interdependencies, among other things, and require substantial effort, time and cost across all of Citi's businesses and geographies. These resolution plans are subject to review by the Federal Reserve Board and the FDIC. Citi submitted its resolution plan for 2013, including the resolution plan for Citibank, N.A., in September 2013.

If the Federal Reserve Board and the FDIC both determine that Citi's resolution plan is not "credible" (which, although not defined, is generally believed to mean the regulators do not believe the plan is feasible or would otherwise allow the regulators to resolve Citi in a way that protects systemically important functions without severe systemic disruption), and Citi does not remedy the identified deficiencies in the plan within the required time period, Citi could be required to restructure or reorganize businesses,

legal entities, operational systems and/or intracompany transactions in ways that could negatively impact its operations and strategy, or be subject to restrictions on growth. Citi could also eventually be subjected to more stringent capital, leverage or liquidity requirements, or be required to divest certain assets or operations.

In addition, other jurisdictions, such as the U.K., have requested or are expected to request resolution plans from financial institutions, including Citi, and the requirements and timing relating to these plans are or are expected to be different from the U.S. requirements and from each other. Responding to these additional requests will require additional effort, time and cost, and regulatory review and requirements in these jurisdictions could be in addition to, or conflict with, changes required by Citi's regulators in the U.S.

Title II of the Dodd-Frank Act grants the FDIC the authority, under certain circumstances, to resolve systemically important financial institutions, including Citi. In connection with this authority, in December 2013, the FDIC released a notice describing its preferred single point of entry strategy for resolving systemically important financial institutions. In furtherance of this strategy, the Federal Reserve Board has indicated that it expects to propose minimum levels of unsecured long-term debt required for bank holding companies, as well as guidelines defining the terms or composition of qualifying debt instruments, to ensure that adequate resources are available at the holding company to resolve a systemically important financial institution if necessary. To the extent that these future requirements differ from Citi's current funding profile, Citi may need to increase its aggregate long-term debt levels and/or alter the composition and terms of its debt, which could lead to increased costs of funds and have a negative impact on its net interest revenue, among other potential impacts. Additionally, if any final rules require compliance on an accelerated timeline, the resulting increased issuance volume may further increase Citi's cost of funds. Furthermore, Citi could be at a competitive disadvantage versus financial institutions that are not subject to such minimum debt requirements, such as non-regulated financial intermediaries, smaller financial institutions and entities in jurisdictions with less onerous or no such requirements.


Additional Regulations with Respect to Securitizations Will Impose Additional Costs and May Prevent Citi from Performing Certain Roles in Securitizations.

Citi plays a variety of roles in asset securitization transactions, including acting as underwriter of asset-backed securities, depositor of the underlying assets into securitization vehicles, trustee to securitization vehicles and counterparty to securitization vehicles under derivative contracts. The Dodd-Frank Act contains a number of provisions that affect securitizations. These provisions, which in some cases will require multi-regulatory agency implementation and will largely be applicable across asset classes, include a prohibition on securitization participants engaging in transactions that would involve a material


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conflict of interest with investors in the securitization and, in certain transactions, a retention requirement by securitizers of an unhedged exposure to at least 5% of the economic risk of the securitized assets. Regulations implementing these provisions have been proposed but in many cases have not yet been adopted. The SEC also has proposed additional extensive regulation of both publicly and privately offered securitization transactions through revisions to the registration, disclosure and reporting requirements for asset-backed securities and other structured finance products. Moreover, the final U.S. Basel III capital rules will increase the capital required to be held by Citi against various exposures to securitizations.

The cumulative effect of these extensive regulatory changes, as well as other potential future regulatory changes, cannot currently be assessed. It is likely, however, that these various measures will increase the costs or decrease the attractiveness of executing certain securitization transactions, and could effectively limit Citi's overall volume of, and the role Citi may play in, securitizations and make it impractical for Citi to execute certain types of securitization transactions it previously executed. As a result, these effects could impair Citi's ability to continue to earn income from these transactions or could hinder Citi's ability to use such transactions to hedge risks, reduce exposures or reduce assets with adverse risk-weighting in its businesses, and those consequences could affect the conduct of these businesses. In addition, certain sectors of the securitization markets, particularly residential mortgage-backed securitizations, have been inactive or experienced dramatically diminished transaction volumes since the financial crisis. The impact of various regulatory reform measures could adversely impact any future recovery of these sectors of the securitization markets and, thus, the opportunities for Citi to participate in securitization transactions in such sectors.


MARKET AND ECONOMIC RISKS


The Continued Uncertainty Relating to the Sustainability and Pace of Economic Recovery in the U.S. and Globally, Including in the Emerging Markets, Could Have a Negative Impact on Citi's Businesses and Results of Operations. Moreover, Any Significant Global Economic Downturn or Disruption, Including a Significant Decline in Global Trade Volumes, Could Materially and Adversely Impact Citi's Businesses, Results of Operations and Financial Condition.

Citi's businesses have been, and could continue to be, negatively impacted by the uncertainty surrounding the sustainability and pace of economic recovery in the U.S., as well as globally. Fiscal and monetary actions taken by U.S. and non-U.S. government and regulatory authorities to spur economic growth or otherwise, including by maintaining or increasing interest rates, can also impact Citi's businesses and results of operations. For example, changing expectations regarding the Federal Reserve Board's tapering of quantitative easing has impacted market and customer activity as well as trading volumes which has negatively

impacted the results of operations for Securities and Banking , and could continue to do so in the future.

Additionally, given its global focus, Citi could be disproportionately impacted as compared to its competitors by any impact of government or regulatory policies or economic conditions in the international and/or emerging markets (which Citi generally defines as the markets in Asia (other than Japan, Australia and New Zealand), the Middle East, Africa and central and eastern European countries in EMEA and the markets in Latin America ). Countries such as India, Singapore, Hong Kong, Brazil and China, each of which are part of Citi's emerging markets strategy, have recently experienced uncertainty over the potential impact of further tapering by the Federal Reserve Board and/or the extent of future economic growth. Actual or perceived impacts or a slowdown in growth in these and other emerging markets could negatively impact Citi's businesses and results of operations. Further, if a particular country's economic situation were to deteriorate below a certain level, U.S. regulators could impose mandatory loan loss and other reserve requirements on Citi, which could negatively impact its earnings, perhaps significantly.

Moreover, if a severe global economic downturn or other major economic disruption were to occur, including a significant decline in global trade volumes, Citi would likely experience substantial loan and other losses and be required to significantly increase its loan loss reserves, among other impacts. A global trade disruption that results in a permanently reduced level of trade volumes and increased costs of global trade, whether as a result of a prolonged "trade war" or some other reason, could significantly impact trade financing activities, certain trade dependent economies (such as the emerging markets in Asia), and certain industries heavily dependent on trade, among other things. Given Citi's global strategy and focus on the emerging markets, such a downturn and decrease in global trade volumes could materially and adversely impact Citi's businesses, results of operation and financial condition, particularly as compared to its competitors. This could include, among other things, the potential that a portion of any such losses would not be tax benefitted, given the current environment.


Concerns About the Level of U.S. Government Debt and a Downgrade (or a Further Downgrade) of the U.S. Government Credit Rating Could Negatively Impact Citi's Businesses, Results of Operations, Capital, Funding and Liquidity.

Concerns about the overall level of U.S. government debt and/or a U.S. government default, as well as uncertainty relating to actions that may or may not be taken to address these and related issues, have adversely affected, and could continue to adversely affect, U.S. and global financial markets, economic conditions and Citi's businesses and results of operations.

The credit rating agencies have also expressed concerns about these issues and have taken actions to downgrade and/or place the long-term sovereign credit rating of the U.S. government on negative outlook. A future downgrade (or


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further downgrade) of U.S. debt obligations or U.S. government-related obligations, or concerns that such a downgrade might occur, could negatively impact Citi's ability to obtain funding collateralized by such obligations and the pricing of such funding, as well as the pricing or availability of Citi's funding as a U.S. financial institution, among other impacts. Any further downgrade could also have a negative impact on U.S. and global financial markets and economic conditions generally and, as a result, could have a negative impact on Citi's businesses, results of operations, capital, funding and liquidity.


Citi's Extensive Global Network Subjects It to Various International and Emerging Markets Risks as well as Increased Compliance and Regulatory Risks and Costs.

During 2013, international revenues accounted for approximately 59% of Citi's total revenues. In addition, revenues from the emerging markets accounted for approximately 41% of Citi's total revenues in 2013.

Citi's extensive global network subjects it to a number of risks associated with international and emerging markets, including, among others, sovereign volatility, political events, foreign exchange controls, limitations on foreign investment, sociopolitical instability, fraud, nationalization, closure of branches or subsidiaries and confiscation of assets. For example, Citi operates in several countries, such as Argentina and Venezuela, with strict foreign exchange controls that limit its ability to convert local currency into U.S. dollars and/or transfer funds outside the country. In such cases, Citi could be exposed to a risk of loss in the event that the local currency devalues as compared to the U.S. dollar (see "Managing Global Risk-Cross-Border Risk" below). There have also been instances of political turmoil and other instability in some of the countries in which Citi operates, including in certain countries in the Middle East and Africa, to which Citi has responded by transferring assets and relocating staff members to more stable jurisdictions. Similar incidents in the future could place Citi's staff and operations in danger and may result in financial losses, some significant, including nationalization of Citi's assets.

Citi's extensive global operations also increase its compliance and regulatory risks and costs. For example, Citi's operations in emerging markets, including facilitating cross-border transactions on behalf of its clients, subject it to higher compliance risks under U.S. regulations primarily focused on various aspects of global corporate activities, such as anti-money-laundering regulations and the Foreign Corrupt Practices Act. These risks can be more acute in less developed markets and thus require substantial investment in compliance infrastructure or could result in a reduction in certain of Citi's business activities. In addition, any failure by Citi to comply with applicable U.S. regulations, as well as the regulations in the countries and markets in which it operates as a result of its global footprint, could result in fines, penalties, injunctions or other similar restrictions, any of which could negatively impact Citi's earnings and its reputation. Citi also provides a wide range of financial products and services to the U.S. and other governments, to

multi-national corporations and other businesses, and to prominent individuals and families around the world. The actions of these clients involving the use of Citi products or services could result in an adverse impact on Citi, including adverse regulatory and reputational impact.


There Continues to Be Uncertainty Relating to Ongoing Economic and Fiscal Issues in the Eurozone, Including the Potential Outcomes That Could Occur and the Impact Those Outcomes Could Have on Citi's Businesses, Results of Operations or Financial Condition.

Several European countries, including Greece, Ireland, Italy, Portugal and Spain (GIIPS), have been the subject of credit deterioration due to weaknesses in their economic and fiscal situations. Concerns have been raised, both within the European Monetary Union (EMU) as well as internationally, as to the financial, political and legal effectiveness of measures taken to date, the ability of these countries to adhere to any required austerity, reform or similar measures and the potential impact of these measures on economic growth or recession, as well as deflation, in the region.

There have also been concerns that these issues could lead to a partial or complete break-up of the EMU. The exit of one or more member countries from the EMU could result in certain obligations relating to the exiting country being redenominated from the Euro to a new country currency. Redenomination could be accompanied by immediate revaluation of the new currency as compared to the Euro and the U.S. dollar, the extent of which would depend on the particular facts and circumstances. Any such redenomination/revaluation could cause significant legal and other uncertainty with respect to outstanding obligations of counterparties and debtors in any exiting country, whether sovereign or otherwise, and could lead to complex, lengthy litigation. Redenomination/revaluation could also be accompanied by the imposition of exchange and/or capital controls, required functional currency changes and "deposit flight."

These ongoing uncertainties have caused, and could in the future cause, disruptions in the global financial markets and concerns regarding potential impacts to the global economy generally, particularly if sovereign debt defaults, significant bank failures or defaults and/or a partial or complete break-up of the EMU were to occur. These ongoing issues, or a worsening of these issues, could negatively impact Citi's businesses, results of operations and financial condition, particularly given its global footprint and strategy, both directly through its own exposures as well as indirectly. For example, Citi has previously experienced widening of its credit spreads and thus increased costs of funding due to concerns about its Eurozone exposure. In addition, U.S. regulators could impose mandatory loan loss and other reserve requirements on U.S. financial institutions, including Citi, if a particular country's economic situation deteriorates below a certain level, which could negatively impact Citi's earnings, perhaps significantly.



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LIQUIDITY RISKS


There Continues to Be Significant Uncertainty Regarding the Future Quantitative Liquidity Requirements Applicable to Citi and the Ultimate Impact of These Requirements on Citi's Liquidity Planning, Management and Funding.

In 2010, the Basel Committee introduced an international framework for new Basel III quantitative liquidity requirements, including a Liquidity Coverage Ratio (LCR) and a Net Stable Funding Ratio (NSFR) and, in January 2013, the Basel Committee adopted final Basel III LCR rules (for additional information on Citi's estimated LCR as of December 31, 2013, as calculated under the final Basel III LCR rules, as well as the Basel Committee's NSFR framework, see "Managing Global Risk-Market Risk-Funding and Liquidity" below).

In October 2013, the U.S. banking agencies proposed rules with respect to the U.S. Basel III LCR. The proposed U.S. Basel III LCR is more stringent than the final Basel III LCR in several areas, including a (i) narrower definition of "high-quality liquid assets" (HQLA), particularly with respect to investment grade credit, (ii) potentially more severe standard for calculating net cash outflows under the LCR and (iii) shorter timeline for implementation (full compliance with the U.S. Basel III LCR by January 2017, versus January 2019 for the Basel III LCR). With respect to the computation of net cash outflows, the U.S. Basel III LCR proposal prescribes more conservative outflow assumptions for certain types of funding sources (in particular, for deposits) as compared to the final Basel III LCR rules. The U.S. Basel III LCR proposal would also require covered firms, including Citi and Citibank, N.A., to adopt a daily net cash flow calculation (the dollar amount on the day within a 30-day stress period that has the highest amount of net cumulative cash outflows) as opposed to the Basel Committee cumulative calculation at the end of the 30-day period. Covered firms would also be required to use the most conservative assumptions regarding when an inflow or outflow would occur (i.e., for instruments or transactions with no or variable maturity dates, the earliest possible date for outflows (e.g., day one) and the latest possible date for inflows (e.g., day 30)).

There continues to be significant uncertainty across the industry regarding the interpretation and implementation of the net cash outflows provisions of the U.S. Basel III LCR proposal. Depending on how these interpretive and other issues are resolved, Citi's Basel III LCR under the proposed U.S. rules could decrease, perhaps significantly, as compared to Citi's estimated Basel III LCR under the final Basel III rules. The implementation of the proposed U.S. Basel III LCR could also impact the way Citi manages its liquidity position, including the composition of its liquid assets and its liabilities, as well as require it to implement and maintain extensive compliance policies, procedures and systems to determine the composition and amount of HQLA on a daily basis.

Regarding the Basel III NSFR, in January 2014, the Basel Committee issued a revised framework for the calculation of a financial institution's NSFR. This

framework remains subject to comment and is expected to be followed by a proposal by the U.S. banking agencies to implement the Basel III NSFR in the U.S. In addition to the LCR and NSFR, the Federal Reserve Board has indicated it is considering various initiatives to limit short-term funding risks, including further increases in the liquidity requirements applicable to securities financing transactions (SFTs), such as requiring larger liquidity buffers for firms with large amounts of SFTs, and/or mandatory margin or haircut requirements on SFTs.     

As a result, there is significant uncertainty regarding the calculation, scope, implementation and timing of Citi's future liquidity standards and requirements, and the ultimate impact of these requirements on Citi, its liquidity planning, management and funding. While uncertain, Citi could be required to increase the level of its deposits and debt funding, which could increase its Consolidated Balance Sheet and negatively impact its net interest revenue. Moreover, similar to the U.S. Basel III LCR proposal, to the extent other jurisdictions propose or adopt quantitative liquidity requirements that differ from the Basel Committee's or the U.S. requirements, Citi could be at a competitive disadvantage because of its global footprint or could be required to meet different minimum liquidity standards in some or all of the jurisdictions in which it operates.

For a discussion of the potential negative impacts to Citi's ability to meet its regulatory capital requirements as a result of certain of these liquidity proposals, see "Regulatory Risks" above.


The Maintenance of Adequate Liquidity and Funding Depends on Numerous Factors, Including Those Outside of Citi's Control, Such as Market Disruptions and Increases in Citi's Credit Spreads.

As a global financial institution, adequate liquidity and sources of funding are essential to Citi's businesses. Citi's liquidity and sources of funding can be significantly and negatively impacted by factors it cannot control, such as general disruptions in the financial markets, governmental fiscal and monetary policies, or negative investor perceptions of Citi's creditworthiness. Market perception of sovereign default risks can also lead to inefficient money markets and capital markets, which could further impact Citi's availability and cost of funding.

In addition, Citi's cost and ability to obtain deposits, secured funding and long-term unsecured funding from the credit and capital markets are directly related to its credit spreads. Changes in credit spreads constantly occur and are market-driven, including both external market factors and factors specific to Citi, and can be highly volatile. Citi's credit spreads may also be influenced by movements in the costs to purchasers of credit default swaps referenced to Citi's long-term debt, which are also impacted by these external and Citi-specific factors. Moreover, Citi's ability to obtain funding may be impaired if other market participants are seeking to access the markets at the same time, or if market appetite is reduced, as is likely to occur in a liquidity or other market crisis. In addition, clearing organizations,


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regulators, clients and financial institutions with which Citi interacts may exercise the right to require additional collateral based on these market perceptions or market conditions, which could further impair Citi's access to and cost of funding.

As a holding company, Citi relies on dividends, distributions and other payments from its subsidiaries to fund dividends as well as to satisfy its debt and other obligations. Several of Citi's subsidiaries are subject to capital adequacy or other regulatory or contractual restrictions on their ability to provide such payments. Limitations on the payments that Citi receives from its subsidiaries could also impact its liquidity.

The Credit Rating Agencies Continuously Review the Ratings of Citi and Certain of Its Subsidiaries, and Reductions in Citi's or Its More Significant Subsidiaries' Credit Ratings Could Have a Negative Impact on Citi's Funding and Liquidity Due to Reduced Funding Capacity and Increased Funding Costs, Including Derivatives Triggers That Could Require Cash Obligations or Collateral Requirements.

The credit rating agencies, such as Fitch, Moody's and S&P, continuously evaluate Citi and certain of its subsidiaries, and their ratings of Citi's and its more significant subsidiaries' long-term/senior debt and short-term/ commercial paper, as applicable, are based on a number of factors, including standalone financial strength, as well as factors not entirely within the control of Citi and its subsidiaries, such as the agencies' proprietary rating agency methodologies and assumptions, the rating agencies' "government support uplift" assumptions, and conditions affecting the financial services industry and markets generally.

Citi and its subsidiaries may not be able to maintain their current respective ratings. A ratings downgrade by Fitch, Moody's or S&P could negatively impact Citi's ability to access the capital markets and other sources of funds as well as the costs of those funds, and its ability to maintain certain deposits. A ratings downgrade could also have a negative impact on Citi's funding and liquidity due to reduced funding capacity, including derivative triggers, which could take the form of cash obligations and collateral requirements. In addition, a ratings downgrade could also have a negative impact on other funding sources, such as secured financing and other margined transactions for which there are no explicit triggers, as well as on contractual provisions which contain minimum ratings thresholds in order for Citi to hold third-party funds.

Moreover, credit ratings downgrades can have impacts which may not be currently known to Citi or which are not possible to quantify. For example, some entities may have ratings limitations as to their permissible counterparties, of which Citi may or may not be aware. In addition, certain of Citi's corporate customers and trading counterparties, among other clients, could re-evaluate their business relationships with Citi and limit the trading of certain contracts or market instruments with Citi in response to ratings downgrades. Changes in customer and counterparty behavior could impact not only Citi's funding and liquidity but also the

results of operations of certain Citi businesses. For additional information on the potential impact of a reduction in Citi's or Citibank, N.A.'s credit ratings, see "Managing Global Risk-Market Risk-Funding and Liquidity-Credit Ratings" below.


LEGAL RISKS


Citi Is Subject to Extensive Legal and Regulatory Proceedings, Investigations, and Inquiries That Could Result in Substantial Losses. These Matters Are Often Highly Complex and Slow to Develop, and Results Are Difficult to Predict or Estimate.

At any given time, Citi is defending a significant number of legal and regulatory proceedings and is subject to numerous governmental and regulatory examinations, investigations and other inquiries. These proceedings, examinations, investigations and inquiries could result, individually or collectively, in substantial losses.

In the wake of the financial crisis of 2007-2009, the frequency with which such proceedings, investigations and inquiries are initiated, and the severity of the remedies sought (and in some cases obtained), have increased substantially, and the global judicial, regulatory and political environment has generally become more hostile to large financial institutions such as Citi. Many of the proceedings, investigations and inquiries involving Citi relating to events before or during the financial crisis have not yet been resolved, and additional proceedings, investigations and inquiries relating to such events may still be commenced. In addition, heightened expectations of the financial services industry by regulators and other enforcement authorities have led to renewed scrutiny of long-standing industry practices, and this heightened scrutiny could lead to more regulatory or other enforcement proceedings. The complexity of the federal and state regulatory and enforcement regimes in the U.S., coupled with the global scope of Citi's operations and the increasing aggressiveness of the regulatory environment worldwide, also means that a single event may give rise to a large number of overlapping investigations and regulatory proceedings, either by multiple federal and state agencies in the U.S. or by multiple regulators and other governmental entities in different jurisdictions.

For example, Citi is currently subject to extensive legal and regulatory inquiries, actions and investigations relating to its historical mortgage-related activities, including claims regarding the accuracy of offering documents for residential mortgage-backed securities and alleged breaches of representation and warranties relating to the sale of mortgage loans or the placement of mortgage loans into securitization trusts. Citi is also subject to extensive legal and regulatory inquiries, actions and investigations relating to, among other things, Citi's contribution to, or trading in products linked to, rates or benchmarks. These rates and benchmarks may relate to interest rates (such as the London Inter-Bank Offered Rate (LIBOR) or ISDAFIX), foreign exchange rates (such as the WM/Reuters fix), or other prices. Like other banks with operations in the U.S., Citi is also subject to


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continuing oversight by the OCC and other bank regulators, and inquiries and investigations by other governmental and regulatory authorities, with respect to its anti-money laundering program. Other institutions subject to similar or the same inquiries, actions or investigations as those above have incurred substantial liability in relation to their activities in these areas, including in a few cases criminal convictions or deferred prosecution agreements respecting corporate entities as well as substantial fines and penalties.

Moreover, regulatory changes resulting from the Dodd-Frank Act and other recent regulatory changes - such as the limitations on federal preemption in the consumer arena, the creation of the Consumer Financial Protection Bureau with its own examination and enforcement authority and enhanced consumer protections globally, as well as the "whistle-blower" provisions of the Dodd-Frank Act - could further increase the number of legal and regulatory proceedings against Citi. In addition, while Citi takes numerous steps to prevent and detect employee misconduct, such as fraud, employee misconduct cannot always be deterred or prevented and could subject Citi to additional liability or losses.

These matters have resulted in, and will likely continue to result in, significant time, expense and diversion of management's attention. In addition, they may result in adverse judgments, settlements, fines, penalties, restitution, disgorgement, injunctions, business improvement orders or other results adverse to it, which could materially and negatively affect Citi's businesses, business practices, financial condition or results of operations, require material changes in Citi's operations, or cause Citi reputational harm. Moreover, many large claims asserted against Citi are highly complex and slow to develop, and they may involve novel or untested legal theories. The outcome of such proceedings is difficult to predict or estimate until late in the proceedings, which may last several years. In addition, certain settlements are subject to court approval and may not be approved. Although Citi establishes accruals for its legal and regulatory matters according to accounting requirements, the amount of loss ultimately incurred in relation to those matters may be substantially higher than the amounts accrued.

For additional information relating to Citi's legal and regulatory proceedings, see Note 28 to the Consolidated Financial Statements.


BUSINESS AND OPERATIONAL RISKS


Citi's Results of Operations Could Be Negatively Impacted as Its Revolving Home Equity Lines of Credit Begin to "Reset."

As of December 31, 2013, Citi's home equity loan portfolio of approximately $31.6 billion included approximately $18.9 billion of home equity lines of credit that were still within their revolving period and had not commenced amortization, or "reset" (Revolving HELOCs). Of these Revolving HELOCs, approximately 72% will commence amortization during the period of 2015-2017.

Before commencing amortization, Revolving HELOC borrowers are required to pay only interest on their loans.

Upon amortization, these borrowers will be required to pay both interest, typically at a variable rate, and principal that amortizes over 20 years, rather than the typical 30-year amortization. As a result, Citi's customers with Revolving HELOCs that reset could experience "payment shock" due to the higher required payments on the loans. Increases in interest rates could further increase these payments, given the variable nature of the interest rates on these loans post-reset.

Based on the limited number of Citi's Revolving HELOCs that have reset as of December 31, 2013, Citi has experienced a higher 30+ days past due delinquency rate on its amortizing home equity loans as compared to its total outstanding home equity loan portfolio (amortizing and non-amortizing). These resets have generally occurred during a period of declining interest rates, which Citi believes has likely reduced the overall payment shock to borrowers. While Citi continues to review its options, increasing interest rates, stricter lending criteria and borrower loan-to-value positions could limit Citi's ability to reduce or mitigate this reset risk going forward. Accordingly, as these loans begin to reset, Citi could experience higher delinquency rates and increased loan loss reserves and net credit losses in future periods, which could be significant and would negatively impact its results of operations.

For additional information on Citi's Revolving HELOCs portfolio, see "Managing Global Risk-Credit Risk- North America Consumer Mortgage Lending" below.


Citi's Ability to Return Capital to Shareholders Substantially Depends on the CCAR Process and the Results of Required Regulatory Stress Tests.

In addition to Board of Directors' approval, any decision by Citi to return capital to shareholders, whether through an increase in its common stock dividend or through a share repurchase program, substantially depends on regulatory approval, including through the annual Comprehensive Capital Analysis and Review (CCAR) process required by the Federal Reserve Board and the supervisory stress tests required under the Dodd-Frank Act. Restrictions on Citi's ability to return capital to shareholders as a result of these processes has negatively impacted market perceptions of Citi, and could do so in the future.

Citi's ability to accurately predict or explain to stakeholders the outcome of the CCAR process, and thus address any such market perceptions, may be complicated by the Federal Reserve Board's evolving criteria employed in its overall aggregate assessment of Citi. The Federal Reserve Board's assessment of Citi is conducted not only by using the Board's proprietary stress test models, but also a number of qualitative factors, including a detailed assessment of Citi's "capital adequacy process," as defined by the Federal Reserve Board. The Federal Reserve Board has stated that it expects leading capital adequacy practices will continue to evolve and will likely be determined by the Federal Reserve Board each year as a result of the Board's cross-firm review of capital plan submissions.

Similarly, the Federal Reserve Board has indicated that, as part of its stated goal to continually evolve its annual


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stress testing requirements, several parameters of the annual stress testing process may be altered from time to time, including the severity of the stress test scenario, Federal Reserve Board modeling of Citi's balance sheet and the addition of components deemed important by the Federal Reserve Board (e.g., a counterparty failure). These parameter alterations are difficult to predict and may limit Citi's ability to return capital to shareholders and address perceptions about Citi in the market. Because it is not clear how the Federal Reserve Board's proprietary stress test models and qualitative assessment may differ from the modeling techniques and capital planning practices employed by Citi, it is likely that Citi's stress test results (using its own models, estimation methodologies and processes) may not be consistent with those disclosed by the Federal Reserve Board, thus potentially leading to additional confusion and impacts to Citi's perception in the market.


Citi's Ability to Achieve Its 2015 Financial Targets Will Depend in Part on the Successful Achievement of Its Execution Priorities.

In March 2013, Citi established certain financial targets for 2015. Citi's ability to achieve these targets will depend in part on the successful achievement of its execution priorities, including: efficient resource allocation, including disciplined expense management; a continued focus on the wind-down of Citi Holdings and getting Citi Holdings to "break even"; and utilization of its DTAs (see below). Citi's ability to achieve its targets will also depend on factors it cannot control, such as ongoing regulatory changes and macroeconomic conditions. While Citi continues to take actions to achieve its execution priorities, there is no guarantee that Citi will be successful.

Citi continues to pursue its disciplined expense-management strategy, including re-engineering, restructuring operations and improving efficiency. However, there is no guarantee that Citi will be able to reduce its level of expenses, as a result of announced repositioning actions, efficiency initiatives, or otherwise. Citi's expenses also depend, in part, on factors outside of its control. For example, Citi is subject to extensive legal and regulatory proceedings and inquiries, and its legal and related costs remain elevated. Moreover, investments Citi has made in its businesses, or may make in the future, may not be as productive or effective as Citi expects or at all.

In addition, while Citi has made significant progress in reducing the assets (including risk-weighted assets) in Citi Holdings, the pace of the wind-down of the remaining assets has slowed as Citi has disposed of many of the larger businesses within this segment and the remaining assets largely consist of legacy U.S. mortgages with an estimated weighted average life of six years. While Citi's strategy continues to be to reduce the remaining assets in Citi Holdings as quickly as practicable in an economically rational manner, sales of the remaining larger businesses could largely depend on factors outside of Citi's control, such as market appetite and buyer funding, and the remaining assets will largely continue to be subject to ongoing run-off and opportunistic sales. As a result, Citi

Holdings' remaining assets could continue to have a negative impact on Citi's overall results of operations. Moreover, Citi's ability to utilize the capital supporting the remaining assets within Citi Holdings and thus use such capital for more productive purposes, including return of capital to shareholders, will also depend on the ultimate pace and level of the wind-down of Citi Holdings.


Citi's Ability to Utilize Its DTAs, and Thus Reduce the Negative Impact of the DTAs on Citi's Regulatory Capital, Will Be Driven by Its Ability to Generate U.S. Taxable Income.

At December 31, 2013, Citi's net DTAs were $52.8 billion, of which approximately $41.9 billion and $40.6 billion were not included in Citi's regulatory capital, due to either disallowance (deduction) or permitted exclusion, under current regulatory capital guidelines and the Final Basel III Rules, respectively. In addition, of the net DTAs as of year-end 2013, approximately $19.6 billion related to foreign tax credits (FTCs). The carry-forward utilization period for FTCs is 10 years and represents the most time-sensitive component of Citi's DTAs. Of the FTCs at year-end, approximately $4.7 billion expire in 2017, $5.2 billion expire in 2018 and the remaining $9.7 billion expire over the period of 2019-2023. Citi must utilize any FTCs generated in the then-current year prior to utilizing any carry-forward FTCs. For additional information on Citi's DTAs, including the FTCs, see "Significant Accounting Policies and Significant Estimates-Income Taxes" below and Note 9 to the Consolidated Financial Statements.

The accounting treatment for realization of DTAs, including FTCs, is complex and requires a significant amount of judgment and estimates regarding future taxable earnings in the jurisdictions in which the DTAs arise and available tax planning strategies. Citi's ability to utilize its DTAs, including the FTC components, and thus use the capital supporting the DTAs for more productive purposes, will be dependent upon Citi's ability to generate U.S. taxable income in the relevant tax carry-forward period, including its ability to offset any negative impact of Citi Holdings on Citi's U.S. taxable income. Failure to realize any portion of the DTAs would also have a corresponding negative impact on Citi's net income.


The Value of Citi's DTAs Could Be Significantly Reduced If Corporate Tax Rates in the U.S. or Certain State or Foreign Jurisdictions Decline or as a Result of Other Changes in the U.S. Corporate Tax System.

Congress and the Obama Administration have discussed decreasing the U.S. corporate tax rate. Similar discussions have taken place in certain state and foreign jurisdictions, including recent proposals in the State of New York. While Citi may benefit in some respects from any decrease in corporate tax rates, a reduction in the U.S., state or foreign corporate tax rates could result in a decrease, perhaps significant, in the value of Citi's DTAs, which would result in a reduction to Citi's net income during the period in which the change is enacted. There have also been recent discussions of more sweeping changes to the U.S. tax


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system, including changes to the tax treatment of foreign business income. It is uncertain whether or when any such tax reform proposals will be enacted into law, and whether or how they will affect Citi's DTAs.


Citi's Interpretation or Application of the Extensive Tax Laws to Which It Is Subject Could Differ from Those of the Relevant Governmental Authorities, Which Could Result in the Payment of Additional Taxes and Penalties.

Citi is subject to the various tax laws of the U.S. and its states and municipalities, as well as the numerous foreign jurisdictions in which it operates. These tax laws are inherently complex and Citi must make judgments and interpretations about the application of these laws to its entities, operations and businesses. Citi's interpretations and application of the tax laws, including with respect to withholding tax obligations and stamp and other transactional taxes, could differ from that of the relevant governmental taxing authority, which could result in the potential for the payment of additional taxes, penalties or interest, which could be material.


Citi Maintains Contractual Relationships with Various Retailers and Merchants Within Its U.S. Credit Card Businesses in NA RCB, and the Failure to Maintain Those Relationships Could Have a Material Negative Impact on the Results of Operations or Financial Condition of Those Businesses.

Through its U.S. Citi-branded cards and Citi retail services credit card businesses within North America Regional Consumer Banking (NA RCB) , Citi maintains numerous co-branding relationships with third-party retailers and merchants in the ordinary course of business pursuant to which Citi issues credit cards to customers of the retailers or merchants. These agreements provide for shared economics between the parties and ways to increase customer brand loyalty, and generally have a fixed term that may be extended or renewed by the parties or terminated early in certain circumstances. These agreements could be terminated due to, among other factors, a breach by Citi of its responsibilities under the applicable co-branding agreement, a breach by the retailer or merchant under the agreement, or external factors outside of either party's control, including bankruptcies, liquidations, restructurings or consolidations and other similar events that may occur. While various mitigating factors could be available in the event of the loss of one or more of these co-branding relationships, such as replacing the retailer or merchant or by Citi's offering new card products, the results of operations or financial condition of Citi-branded cards or Citi retail services, as applicable, or NA RCB could be negatively impacted, and the impact could be material.

Citi's Operational Systems and Networks Have Been, and Will Continue to Be, Subject to an Increasing Risk of Continually Evolving Cybersecurity or Other Technological Risks, Which Could Result in the Disclosure of Confidential Client or Customer Information, Damage to Citi's Reputation, Additional Costs to Citi, Regulatory Penalties and Financial Losses.

A significant portion of Citi's operations relies heavily on the secure processing, storage and transmission of confidential and other information as well as the monitoring of a large number of complex transactions on a minute-by-minute basis. For example, through its global consumer banking, credit card and Transaction Services businesses, Citi obtains and stores an extensive amount of personal and client-specific information for its retail, corporate and governmental customers and clients and must accurately record and reflect their extensive account transactions. With the evolving proliferation of new technologies and the increasing use of the Internet and mobile devices to conduct financial transactions, large, global financial institutions such as Citi have been, and will continue to be, subject to an increasing risk of cyber incidents from these activities.

Although Citi devotes significant resources to maintain and regularly upgrade its systems and networks with measures such as intrusion and detection prevention systems and monitoring firewalls to safeguard critical business applications, there is no guarantee that these measures or any other measures can provide absolute security. Citi's computer systems, software and networks are subject to ongoing cyber incidents such as unauthorized access; loss or destruction of data (including confidential client information); account takeovers; unavailability of service; computer viruses or other malicious code; cyber attacks; and other events. These threats may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. Additional challenges are posed by external extremist parties, including foreign state actors, in some circumstances as a means to promote political ends. If one or more of these events occur, it could result in the disclosure of confidential client information, damage to Citi's reputation with its clients and the market, customer dissatisfaction, additional costs to Citi (such as repairing systems, replacing customer debit or credit cards, or adding new personnel or protection technologies), regulatory penalties, exposure to litigation and other financial losses to both Citi and its clients and customers. Such events could also cause interruptions or malfunctions in the operations of Citi (such as the lack of availability of Citi's online banking system or mobile banking platform), as well as the operations of its clients, customers or other third parties. Given Citi's global footprint and the high volume of transactions processed by Citi, certain errors or actions may be repeated or compounded before they are discovered and rectified, which would further increase these costs and consequences.

Citi has been subject to intentional cyber incidents from external sources, including (i) denial of service attacks, which attempted to interrupt service to clients and customers; (ii) data breaches, which aimed to obtain


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unauthorized access to customer account data; and (iii) malicious software attacks on client systems, which attempted to allow unauthorized entrance to Citi's systems under the guise of a client and the extraction of client data. For example, in 2013 Citi and other U.S. financial institutions experienced distributed denial of service attacks which were intended to disrupt consumer online banking services. In addition, various retail stores were the subject of data breaches which led to access to customer account data. While Citi's monitoring and protection services were able to detect and respond to the incidents targeting its systems before they became significant, they still resulted in certain limited losses in some instances as well as increases in expenditures to monitor against the threat of similar future cyber incidents. There can be no assurance that such cyber incidents will not occur again, and they could occur more frequently and on a more significant scale. In addition, because the methods used to cause cyber attacks change frequently or, in some cases, are not recognized until launched, Citi may be unable to implement effective preventive measures or proactively address these methods.

Third parties with which Citi does business may also be sources of cybersecurity or other technological risks. Citi outsources certain functions, such as processing customer credit card transactions, uploading content on customer-facing websites, and developing software for new products and services. These relationships allow for the storage and processing of customer information, by third-party hosting of or access to Citi websites, which could result in service disruptions or website defacements, and the potential to introduce vulnerable code, resulting in security breaches impacting Citi customers. While Citi engages in certain actions to reduce the exposure resulting from outsourcing, such as performing onsite security control assessments, limiting third-party access to the least privileged level necessary to perform job functions, and restricting third-party processing to systems stored within Citi's data centers, ongoing threats may result in unauthorized access, loss or destruction of data or other cyber incidents with increased costs and consequences to Citi such as those discussed above. Furthermore, because financial institutions are becoming increasingly interconnected with central agents, exchanges and clearing houses, including through the derivatives provisions of the Dodd-Frank Act, Citi has increased exposure to operational failure or cyber attacks through third parties.

While Citi maintains insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.


Citi's Performance and the Performance of Its Individual Businesses Could Be Negatively Impacted If Citi Is Not Able to Hire and Retain Qualified Employees for Any Reason.

Citi's performance and the performance of its individual businesses is largely dependent on the talents and efforts of highly skilled employees. Specifically, Citi's continued

ability to compete in its businesses, to manage its businesses effectively and to continue to execute its overall global strategy depends on its ability to attract new employees and to retain and motivate its existing employees. Citi's ability to attract and retain employees depends on numerous factors, including without limitation, its culture, compensation, the management and leadership of the company as well as its individual businesses, Citi's presence in the particular market or region at issue and the professional opportunities it offers. The banking industry has and may continue to experience more stringent regulation of employee compensation, including limitations relating to incentive-based compensation, clawback requirements and special taxation. Moreover, given its continued focus on the emerging markets, Citi is often competing for qualified employees in these markets with entities that have a significantly greater presence in the region or are not subject to significant regulatory restrictions on the structure of incentive compensation. If Citi is unable to continue to attract and retain qualified employees for any reason, Citi's performance, including its competitive position, the successful execution of its overall strategy and its results of operations could be negatively impacted.


Incorrect Assumptions or Estimates in Citi's Financial Statements Could Cause Significant Unexpected Losses in the Future, and Changes to Financial Accounting and Reporting Standards Could Have a Material Impact on How Citi Records and Reports Its Financial Condition and Results of Operations.

Citi is required to use certain assumptions and estimates in preparing its financial statements under U.S. GAAP, including determining credit loss reserves, reserves related to litigation and regulatory exposures, DTAs and the fair values of certain assets and liabilities, among other items. If Citi's assumptions or estimates underlying its financial statements are incorrect, Citi could experience unexpected losses, some of which could be significant.

Moreover, the Financial Accounting Standards Board (FASB) is currently reviewing or proposing changes to several financial accounting and reporting standards that govern key aspects of Citi's financial statements, including those areas where Citi is required to make assumptions or estimates. For example, the FASB's financial instruments project could, among other things, significantly change how Citi determines the accounting classification for financial instruments and could result in certain loans that are currently reported at amortized cost being accounted for at fair value through Other comprehensive income . The FASB has also proposed a new accounting model intended to require earlier recognition of credit losses on financial instruments. The proposed accounting model would require that life-time "expected credit losses" on financial assets not recorded at fair value through net income be recorded at inception of the financial asset, replacing the multiple existing impairment models under U.S. GAAP which generally require that a loss be "incurred" before it is recognized. In addition, the FASB has proposed changes in the accounting for insurance contracts, which would include


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in its scope many instruments currently accounted for as financial instruments and guarantees, including some where credit rather than insurance risk is the primary risk factor. As a result, certain financial contracts deemed to have significant insurance risk could no longer be recorded at fair value, and the timing of income recognition for insurance contracts could also be changed. For additional information on these and other proposed changes, see Note 1 to the Consolidated Financial Statements.

Changes to financial accounting or reporting standards, whether promulgated or required by the FASB or other regulators, could present operational challenges and could require Citi to change certain of the assumptions or estimates it previously used in preparing its financial statements, which could negatively impact how it records and reports its financial condition and results of operations generally and/or with respect to particular businesses. In addition, the FASB continues its convergence project with the International Accounting Standards Board (IASB) pursuant to which U.S. GAAP and International Financial Reporting Standards (IFRS) may be converged. Any transition to IFRS could further have a material impact on how Citi records and reports its financial results. For additional information on the key areas for which assumptions and estimates are used in preparing Citi's financial statements, see "Significant Accounting Policies and Significant Estimates" below and Note 28 to the Consolidated Financial Statements.


It Is Uncertain Whether Any Further Changes in the Administration of LIBOR Could Affect the Value of LIBOR-Linked Debt Securities and Other Financial Obligations Held or Issued by Citi.

As a result of concerns in recent years regarding the accuracy of LIBOR, changes have been made to the administration and process for determining LIBOR, including increasing the number of banks surveyed to set LIBOR, streamlining the number of LIBOR currencies and maturities and generally strengthening the oversight of the process, including by providing for U.K. regulatory oversight of LIBOR. In early 2014, Intercontinental Exchange (ICE) took over the administration of LIBOR from the British Banker's Association (BBA).

It is uncertain whether or to what extent any further changes in the administration or method for determining LIBOR could have on the value of any LIBOR-linked debt securities issued by Citi, or any loans, derivatives and other financial obligations or extensions of credit for which Citi is an obligor. It is also not certain whether or to what extent any such changes would have an adverse impact on the value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to Citi or on Citi's overall financial condition or results of operations.


Citi May Incur Significant Losses If Its Risk Management Processes and Strategies Are Ineffective, and Concentration of Risk Increases the Potential for Such Losses.

Citi's independent risk management organization is structured to facilitate the management of the principal risks Citi assumes in conducting its activities-credit risk, market risk and operational risk-across three dimensions: businesses, regions and critical products. Credit risk is the potential for financial loss resulting from the failure of a borrower or counterparty to honor its financial or contractual obligations. Market risk encompasses funding risk, liquidity risk and price risk. Price risk losses arise from fluctuations in the market value of trading and non-trading positions resulting from changes in interest rates, credit spreads, foreign exchange rates, equity and commodity prices and in their implied volatilities. Operational risk is the risk of loss resulting from inadequate or failed internal processes, systems or human factors, or from external events, and includes reputation and franchise risk associated with business practices or market conduct in which Citi is involved. For additional information on each of these areas of risk as well as risk management at Citi, including management review processes and structure, see "Managing Global Risk" below. Managing these risks is made especially challenging within a global and complex financial institution such as Citi, particularly given the complex and diverse financial markets and rapidly evolving market conditions in which Citi operates.

Citi employs a broad and diversified set of risk management and mitigation processes and strategies, including the use of various risk models, in analyzing and monitoring these and other risk categories. However, these models, processes and strategies are inherently limited because they involve techniques, including the use of historical data in some circumstances, and judgments that cannot anticipate every economic and financial outcome in the markets in which Citi operates nor can they anticipate the specifics and timing of such outcomes. Citi could incur significant losses if its risk management processes, strategies or models are ineffective in properly anticipating or managing these risks.

In addition, concentrations of risk, particularly credit and market risk, can further increase the risk of significant losses. At December 31, 2013, Citi's most significant concentration of credit risk was with the U.S. government and its agencies, which primarily results from trading assets and investments issued by the U.S. government and its agencies (for additional information, see Note 24 to the Consolidated Financial Statements). Citi also routinely executes a high volume of securities, trading, derivative and foreign exchange transactions with counterparties in the financial services sector, including banks, other financial institutions, insurance companies, investment banks and government and central banks. To the extent regulatory or market developments lead to an increased centralization of trading activity through particular clearing houses, central agents or exchanges, this could increase Citi's concentration of risk in this sector. Concentrations of risk can limit, and have limited, the effectiveness of Citi's hedging strategies and have caused Citi to incur significant losses, and they may do so again in the future.



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MANAGING GLOBAL RISK


Risk Management-Overview

Citigroup believes that effective risk management is of primary importance to its overall operations. Accordingly, Citi's risk management process has been designed to monitor, evaluate and manage the principal risks it assumes in conducting its activities. Specifically, the activities that Citi engages in-and the risks those activities generate-must be consistent with Citi's underlying commitment to the principles of "Responsible Finance." For Citi, "Responsible Finance" means conduct that is transparent, prudent and dependable, and that delivers better outcomes for Citi's clients and society.

In order to achieve these principles, Citi establishes and enforces expectations for its risk-taking activities through its risk culture, defined roles and responsibilities (the "Three Lines of Defense"), and through its supporting policies, procedures and processes that enforce these standards.


Citi's Risk Culture. Citi's risk management framework is designed to balance business ownership and accountability for risks with well defined independent risk management oversight and responsibility. Citi's risk management framework is based on the following principles established by Citi's Chief Risk Officer:


a defined risk appetite, aligned with business strategy;

accountability through a common framework to manage risks;

risk decisions based on transparent, accurate and rigorous analytics;

a common risk capital model to evaluate risks;

expertise, stature, authority and independence of risk managers; and

risk managers empowered to make decisions and escalate issues.


Significant focus has been placed on fostering a risk culture based on a policy of "Taking Intelligent Risk with Shared Responsibility, without Forsaking Individual Accountability":


"Taking intelligent risk" means that Citi must identify, measure and aggregate risks, and it must establish risk tolerances based on a full understanding of concentrations and "tail risk."

"Shared responsibility" means that all individuals collectively bear responsibility to seek input and leverage knowledge across and within the "Three Lines of Defense."

"Individual accountability" means that all individuals must actively manage risk, identify issues, and make fully informed decisions that take into account all risks to Citi.


Roles and Responsibilities. While the management of risk is the collective responsibility of all employees, Citi assigns accountability into three lines of defense:


First line of defense: The business owns all of its risks, and is responsible for the management of those risks.

Second line of defense: Citi's control functions (e.g., Risk, Compliance, etc.) establish standards for the management of risks and effectiveness of controls.

Third line of defense: Citi's Internal Audit function independently provides assurance, based on a risk-based audit plan approved by the Board of Directors, that processes are reliable, and governance and controls are effective.


The Chief Risk Officer, with oversight from the Risk Management and Finance Committee of the Board of Directors, as well as the full Board of Directors, is responsible for:


establishing core standards for the management, measurement and reporting of risk;

identifying, assessing, communicating and monitoring risks on a company-wide basis;

engaging with senior management on a frequent basis on material matters with respect to risk-taking activities in the businesses and related risk management processes; and

ensuring that the risk function has adequate independence, authority, expertise, staffing, technology and resources.


Risk Management Organization

As set forth in the chart below, the risk management organization is structured so as to facilitate the management of risk across three dimensions: businesses, regions and critical products.

Each of Citi's major business groups has a Business Chief Risk Officer who is the focal point for risk decisions, such as setting risk limits or approving transactions in the business. The majority of the staff in Citi's independent risk management organization report to these Business Chief Risk Officers. There are also Chief Risk Officers for Citibank, N.A. and Citi Holdings.

Regional Chief Risk Officers, appointed in each of Asia , EMEA and Latin America , are accountable for all the risks in their geographic areas and are the primary risk contacts for the regional business heads and local regulators.

The positions of Product Chief Risk Officers are established for those risk areas of critical importance to Citi, currently fundamental credit, market risk and real estate risk. The Product Chief Risk Officers are accountable for the risks within their specialties across businesses and regions. The Product Chief Risk Officers serve as a resource to the Chief Risk Officer, as well as to the Business and Regional Chief Risk Officers, to better enable the Business and Regional Chief Risk Officers to focus on the day-to-day management of risks and responsiveness to business flow. The Chief Administrative Officer oversees the day-to-day management of the risk management organization as well as


71



Board of Director communication, risk policies and risk governance matters.

Each of the Business, Regional and Product Chief Risk Officers reports to Citi's Chief Risk Officer, who reports to the Head of Franchise Risk and Strategy, a direct report to the Chief Executive Officer.











Policies and Processes

Citi has established a robust process to oversee risk policy creation, ownership and ongoing management. Specifically, the Chief Risk Officer and the Risk Management Executive Committee (as described below), in some cases through established committees:


establish core policies to articulate rules and behaviors for activities where capital is at risk; and

establish policy standards, procedures, guidelines, risk limits and limit adherence processes covering new and current risk exposures across Citi that are in alignment with the risk appetite of the firm.


Key processes, as described below, include Risk Committees, Risk Aggregation and Stress Testing, and Risk Capital.


Key Risk Committees are established across the firm and broadly cover either (a) overall governance or (b) new or complex product governance.


Overall Governance


Risk Management Executive Committee: chaired by Citi's Chief Risk Officer. Membership includes all direct reports of the Chief Risk Officer, as well as certain reports of the Head of Franchise Risk and Strategy. This Committee generally meets bi-weekly to discuss key risk issues across businesses, products and regions.

Citibank, N.A. Risk Committee: chaired by the Citibank, N.A Chief Risk Officer. Membership includes the Citibank, N.A Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,


72



Treasurer, Chief Compliance Officer, Chief Lending Officer and General Counsel. The Citibank, N.A. Risk Committee is responsible for reviewing the risk appetite framework, thresholds and usage against the established thresholds for Citibank, N.A. The Committee is also responsible for reviewing reports designed to monitor market, credit, operational and other risk types within the bank.

Business and Regional Consumer Risk Committees: exist in all regions, with broad engagement from business, risk and other control functions. Among these risk committees is the Global Consumer Banking Risk Committee, which is chaired by the Global Consumer Banking Chief Executive Officer with the Global Consumer Banking Chief Risk Officer as the vice chair. The Committee places an emphasis on key performance trends, significant regulatory and control events and management actions.

ICG Risk Management Committee: reviews the risk profile of the Institutional Clients Group, discusses pertinent risk issues in trading, global transaction services, structuring and lending businesses and reviews strategic risk decisions for consistency with Citi's risk appetite. Membership is comprised of Citi's Chief Risk Officer and Head of Franchise Risk and Strategy, as well as the Global Head of Markets, the Chief Executive Officer and Chief Risk Officer of the Institutional Clients Group

Business Risk, Compliance and Control Committees: exist at both the business and segment levels. These Committees, which generally meet on a quarterly basis, provide a senior management forum to focus on internal control, legal, compliance, regulatory and other risk and control issues.

Business Practices Committee: a Citi-wide governance committee designed to review practices involving potentially significant reputational or franchise issues for the firm. Each business also has its own Business Practices Committee. These Committees review whether Citi's business practices have been designed and implemented in a way that meets the highest standards of professionalism, integrity and ethical behavior.

Risk Policy Coordination Group: established to ensure a consistent approach to risk policy architecture and risk management requirements across Citi. Membership includes independent risk representatives from each business, region and Citibank, N.A.

New or Complex Product Governance

New or complex product review committees have been established to ensure that new product risks are identified, evaluated and determined to be appropriate for Citi and its customers, and that the necessary approvals, controls and accountabilities are in place.

New Product Approval Committee: This Committee's overall purpose is to ensure that significant risks, including reputation and franchise risks, in a new Institutional Clients Group product or service or complex transaction, are identified and evaluated from all relevant perspectives, determined to be appropriate, properly recorded for risk aggregation purposes, effectively controlled, and have accountabilities in place. Functions that participate in this Committee's reviews (as necessary) include Legal, Bank Regulatory, Risk, Compliance, Accounting Policy, Product Control, and the Basel Interpretive Committee. Citibank, N.A. management participates in reviews of this Committee's proposals contemplating the use of bank chain entities.

Consumer Product Approval Committee (CPAC): a senior, multidisciplinary approval committee for new products, services, channels or geographies for Global Consumer Banking . Each region has a regional CPAC, and a global CPAC addresses initiatives with high anti-money-laundering risk or cross-border elements. The composition of these Committees includes senior Risk, Legal, Compliance, Bank Regulatory, Operations and Technology and Operational Risk executives and is supported by other specialists, including fair lending. A member of Citibank, N.A. senior management also participates in the CPAC process.

Investment Products Risk Committee: this Committee chairs two new product approval committees to facilitate analysis and discussion of new retail investment products and services manufactured and/or distributed by Citi.

Manufacturing Product Approval Committee: responsible for reviewing new or meaningfully modified products or transactions manufactured by Citi that are distributed to individual investors as well as third-party retail distributors of Citi manufactured products.

Distribution Product Approval Committee: approves new investment products and services, including those manufactured by third parties as part of Citi's "open architecture" distribution model, before they are offered to individual investors via Citi distribution businesses (e.g., Private Bank, Consumer, etc.) and sets requirements for the periodic review of existing products and services.


There are also many other committees across the firm that play critical roles in the management of risks, such


73



as the Asset and Liability Committee (ALCO) and the Operational Risk Council.


Risk Aggregation and Stress Testing

While Citi's major risk areas are discussed individually on the following pages, these risks are also reviewed and managed in conjunction with one another and across the various businesses via Citi's risk aggregation and stress testing processes. Moreover, in 2013, a formal policy governing Citi's global systemic stress testing was established.

As noted above, independent risk management monitors and controls major risk exposures and concentrations across the organization. This requires the aggregation of risks, within and across businesses, as well as subjecting those risks to various stress scenarios in order to assess the potential economic impact they may have on Citigroup.

Stress tests are in place across Citi's entire portfolio (i.e., trading, available-for-sale and accrual portfolios). These firm-wide stress reports measure the potential impact to Citi and its component businesses of changes in various types of key risk factors (e.g., interest rates, credit spreads, etc.). The reports also measure the potential impact of a number of historical and hypothetical forward-looking systemic stress scenarios, as developed internally by independent risk management. These firm-wide stress tests are produced on a monthly basis, and results are reviewed by senior management and the Board of Directors.

Supplementing the stress testing described above, Citi independent risk management, working with input from the businesses and finance, provides periodic updates to senior management and the Board of Directors on significant potential areas of concern across Citigroup that can arise from risk concentrations, financial market participants and other systemic issues. These areas of focus are intended to be forward-looking assessments of the potential economic impacts to Citi that may arise from these exposures.

The stress-testing and focus-position exercises described above are a supplement to the standard limit-setting and risk-capital exercises described below, as these processes incorporate events in the marketplace and within Citi that impact the firm's outlook on the form, magnitude, correlation and timing of identified risks that may arise. In addition to enhancing awareness and understanding of potential exposures, the results of these processes then serve as the starting point for developing risk management and mitigation strategies.

In addition to Citi's ongoing, internal stress testing described above, Citi is also required to perform stress testing on a periodic basis for a number of regulatory exercises, including the Federal Reserve Board's Comprehensive Capital Analysis and Review (CCAR) and the OCC's Dodd-Frank Act Stress Testing (DFAST). These regulatory exercises typically prescribe certain defined scenarios under which stress testing should be conducted, and they also provide defined forms for the output of the results. For additional information, see "Risk Factors-Business and Operational Risks" above.


Risk Capital

Citi calculates and allocates risk capital across the company in order to consistently measure risk taking across business activities and to assess risk-reward relationships.

Risk capital is defined as the amount of capital required to absorb potential unexpected economic losses resulting from extremely severe events over a one-year time period.


"Economic losses" include losses that are reflected on Citi's Consolidated Income Statement and fair value adjustments to the Consolidated Financial Statements, as well as any further declines in value not captured on the Consolidated Income Statement.

"Unexpected losses" are the difference between potential extremely severe losses and Citi's expected (average) loss over a one-year time period.

"Extremely severe" is defined as potential loss at a 99.9% and a 99.97% confidence level, based on the distribution of observed events and scenario analysis.


The drivers of economic losses are risks which, for Citi, are broadly categorized as credit risk, market risk and operational risk. Citi's risk capital framework is reviewed and enhanced on a regular basis in light of market developments and evolving practices.


74



Managing Global Risk Index

Page

CREDIT RISK

76


   Credit Risk Management

76


   Credit Risk Measurement and Stress Testing

76


   Loans Outstanding

77


   Details of Credit Loss Experience

78


   Allowance for Loan Losses

78


   Non-Accrual Loans and Assets and Renegotiated Loans

81


 North America Consumer Mortgage Lending

85


   Consumer Loan Details

94


   Corporate Credit Details

97


MARKET RISK (1)

100


   Market Risk Management

100


   Funding and Liquidity Risk

100


     Overview

100


     High-Quality Liquid Assets

100


     Deposits

101


     Long-Term Debt

101


     Secured Financing Transactions and Short-Term Borrowings

104


     Liquidity Management, Measurement and Stress Testing

106


     Credit Ratings

108


  PRICE RISK

111


      Price Risk Measurement and Stress Testing

111


      Price Risk-Non-Trading Portfolios (including Interest Rate Exposure)

111


      Price Risk-Trading Portfolios (including VAR)

119


OPERATIONAL RISK

124


   Operational Risk Management

124


  Operational Risk Measurement and Stress Testing

124


COUNTRY AND CROSS-BORDER RISK

125


   Country Risk

125


   Cross-Border Risk

133



(1)

For additional information regarding market risk and related metrics, refer to Citi's Basel II.5 market risk disclosures, as required by the Federal Reserve Board, on Citi's Investor Relations website.



75



CREDIT RISK


Credit risk is the potential for financial loss resulting from the failure of a borrower or counterparty to honor its financial or contractual obligations. Credit risk arises in many of Citigroup's business activities, including:


wholesale and retail lending;

capital markets derivative transactions;

structured finance; and

repurchase agreements and reverse repurchase transactions.


Credit risk also arises from settlement and clearing activities, when Citi transfers an asset in advance of receiving its counter-value or advances funds to settle a transaction on behalf of a client. Concentration risk, within credit risk, is the risk associated with having credit exposure concentrated within a specific client, industry, region or other category.


Credit Risk Management

Credit risk is one of the most significant risks Citi faces as an institution. As a result, Citi has a well established framework in place for managing credit risk across all businesses. This includes a defined risk appetite, credit limits and credit policies, both at the business level as well as at the firm-wide level. Citi's credit risk management also includes processes and policies with respect to problem recognition, including "watch lists," portfolio review, updated risk ratings and classification triggers.

With respect to Citi's settlement and clearing activities, intra-day client usage of lines is closely monitored against limits, as well as against "normal" usage patterns. To the extent a problem develops, Citi typically moves the client to a secured (collateralized) operating model. Generally, Citi's intra-day settlement and clearing lines are uncommitted and cancellable at any time.

To manage concentration of risk within credit risk, Citi has in place a concentration management framework consisting of industry limits, obligor limits and single-name triggers. In addition, as noted under "Managing Global Risk-Risk Aggregation and Stress Testing" above, independent risk management reviews concentration of risk across Citi's regions and businesses to assist in managing this type of risk.


Credit Risk Measurement and Stress Testing

Credit exposures are generally reported in notional terms for accrual loans, reflecting the value at which the loans are carried on the Consolidated Balance Sheet. Credit exposure arising from capital markets activities is generally expressed as the current mark-to-market, net of margin, reflecting the net value owed to Citi by a given counterparty.

The credit risk associated with these credit exposures is a function of the creditworthiness of the obligor, as well as the terms and conditions of the specific obligation. Citi assesses the credit risk associated with its credit exposures on a regular basis through its loan loss reserve process (see "Significant Accounting Policies and Significant Estimates" and Notes 1 and 16 to the Consolidated Financial Statements), as well as through regular stress testing at the company, business, geography and product levels. These stress-testing processes typically estimate potential incremental credit costs that would occur as a result of either downgrades in the credit quality or defaults of the obligors or counterparties.



76



Loans Outstanding

In millions of dollars

2013

2012

2011

2010

2009

Consumer loans






In U.S. offices






Mortgage and real estate (1)

$

108,453


$

125,946


$

139,177


$

151,469


$

183,842


Installment, revolving credit, and other

13,398


14,070


15,616


28,291


58,099


Cards

115,651


111,403


117,908


122,384


28,951


Commercial and industrial

6,592


5,344


4,766


5,021


5,640


Lease financing

-


-


1


2


11



$

244,094


$

256,763


$

277,468


$

307,167


$

276,543


In offices outside the U.S.

Mortgage and real estate (1)

$

55,511


$

54,709


$

52,052


$

52,175


$

47,297


Installment, revolving credit, and other

33,182


33,958


32,673


36,132


39,859


Cards

36,740


40,653


38,926


40,948


41,493


Commercial and industrial

24,107


22,225


21,915


18,028


17,129


Lease financing

769


781


711


665


331



$

150,309


$

152,326


$

146,277


$

147,948


$

146,109


Total Consumer loans

$

394,403


$

409,089


$

423,745


$

455,115


$

422,652


Unearned income

(572

)

(418

)

(405

)

69


808


Consumer loans, net of unearned income

$

393,831


$

408,671


$

423,340


$

455,184


$

423,460


Corporate loans






In U.S. offices






Commercial and industrial

$

32,704


$

26,985


$

20,830


$

13,669


$

15,614


Loans to financial institutions

25,102


18,159


15,113


8,995


6,947


Mortgage and real estate (1)

29,425


24,705


21,516


19,770


22,560


Installment, revolving credit, and other

34,434


32,446


33,182


34,046


17,737


Lease financing

1,647


1,410


1,270


1,413


1,297



$

123,312


$

103,705


$

91,911


$

77,893


$

64,155


In offices outside the U.S.






Commercial and industrial

$

82,663


$

82,939


$

79,764


$

72,166


$

67,344


Loans to financial institutions

38,372


37,739


29,794


22,620


15,113


Mortgage and real estate (1)

6,274


6,485


6,885


5,899


9,779


Installment, revolving credit, and other

18,714


14,958


14,114


11,829


9,683


Lease financing

527


605


568


531


1,295


Governments and official institutions

2,341


1,159


1,576


3,644


2,949



$

148,891


$

143,885


$

132,701


$

116,689


$

106,163


Total Corporate loans

$

272,203


$

247,590


$

224,612


$

194,582


$

170,318


Unearned income

(562

)

(797

)

(710

)

(972

)

(2,274

)

Corporate loans, net of unearned income

$

271,641


$

246,793


$

223,902


$

193,610


$

168,044


Total loans-net of unearned income

$

665,472


$

655,464


$

647,242


$

648,794


$

591,504


Allowance for loan losses-on drawn exposures

(19,648

)

(25,455

)

(30,115

)

(40,655

)

(36,033

)

Total loans-net of unearned income and allowance for credit losses

$

645,824


$

630,009


$

617,127


$

608,139


$

555,471


Allowance for loan losses as a percentage of total loans-net of unearned income (2)

2.97

%

3.92

%

4.69

%

6.31

%

6.09

%

Allowance for Consumer loan losses as a percentage of total Consumer loans-net of unearned income (2)

4.34

%

5.57

%

6.45

%

7.81

%

6.69

%

Allowance for Corporate loan losses as a percentage of total Corporate loans-net of unearned income (2)

0.97

%

1.14

%

1.31

%

2.75

%

4.57

%

(1)

Loans secured primarily by real estate.

(2)

All periods exclude loans that are carried at fair value.


77



Details of Credit Loss Experience

In millions of dollars

2013

2012

2011

2010

2009

Allowance for loan losses at beginning of period

$

25,455


$

30,115


$

40,655


$

36,033


$

29,616


Provision for loan losses

Consumer (1)(2)

$

7,603


$

10,371


$

12,075


$

24,886


$

32,115


Corporate

1


87


(739

)

75


6,353


$

7,604


$

10,458


$

11,336


$

24,961


$

38,468


Gross credit losses

Consumer

In U.S. offices (1)(2)

$

8,402


$

12,226


$

15,767


$

24,183


$

17,637


In offices outside the U.S. 

3,998


4,139


4,932


6,548


8,437


Corporate

Commercial and industrial, and other

In U.S. offices

125


154


392


1,222


3,299


In offices outside the U.S. 

144


305


649


571


1,564


Loans to financial institutions

In U.S. offices

2


33


215


275


274


In offices outside the U.S. 

7


68


391


111


448


Mortgage and real estate

In U.S offices

62


59


182


953


592


In offices outside the U.S.

29


21


171


286


151


$

12,769


$

17,005


$

22,699


$

34,149


$

32,402


Credit recoveries

Consumer

In U.S. offices

$

1,073


$

1,302


$

1,467


$

1,323


$

576


In offices outside the U.S. 

1,065


1,055


1,159


1,209


970


Corporate

Commercial & industrial, and other

In U.S offices

62


243


175


591


276


In offices outside the U.S. 

52


95


93


115


87


Loans to financial institutions

In U.S. offices

1


-


-


-


-


In offices outside the U.S. 

20


43


89


132


11


Mortgage and real estate

In U.S offices

31


17


27


130


3


In offices outside the U.S. 

2


19


2


26


1


$

2,306


$

2,774


$

3,012


$

3,526


$

1,924


Net credit losses

In U.S. offices (1)(2)

$

7,424


$

10,910


$

14,887


$

24,589


$

20,947


In offices outside the U.S. 

3,039


3,321


4,800


6,034


9,531


Total

$

10,463


$

14,231


$

19,687


$

30,623


$

30,478


Other - net (3)(4)(5)(6)(7)(8)

$

(2,948

)

$

(887

)

$

(2,189

)

10,284


$

(1,573

)

Allowance for loan losses at end of period

$

19,648


$

25,455


$

30,115


$

40,655


$

36,033


Allowance for loan losses as a % of total loans (9)

2.97

%

3.92

%

4.69

%

6.31

%

6.09

%

Allowance for unfunded lending commitments (10)

$

1,229


$

1,119


$

1,136


$

1,066


$

1,157


Total allowance for loan losses and unfunded lending commitments

$

20,877


$

26,574


$

31,251


$

41,721


$

37,190


Net Consumer credit losses (1)

$

10,262


$

14,008


$

18,073


$

28,199


$

24,528


As a percentage of average Consumer loans

2.63

%

3.43

%

4.15

%

5.72

%

5.41

%

Net Corporate credit losses

$

201


$

223


$

1,614


$

2,424


$

5,950


As a percentage of average Corporate loans

0.08

%

0.09

%

0.79

%

1.27

%

3.13

%


78



Allowance for loan losses at end of period (11)

Citicorp

$

13,174


$

14,623


$

16,699


$

22,366


$

12,404


Citi Holdings

6,474


10,832


13,416


18,289


23,629


Total Citigroup

$

19,648


$

25,455


$

30,115


$

40,655


$

36,033


Allowance by type

Consumer

$

17,064


$

22,679


$

27,236


$

35,406


$

28,347


Corporate

2,584


2,776


2,879


5,249


7,686


Total Citigroup

$

19,648


$

25,455


$

30,115


$

40,655


$

36,033


(1)

2012 includes approximately $635 million of incremental charge-offs related to the Office of the Comptroller of the Currency (OCC) guidance issued in the third quarter of 2012, which required mortgage loans to borrowers that have gone through Chapter 7 U.S. Bankruptcy Code to be written down to collateral value. There was a corresponding approximately $600 million release in the third quarter of 2012 allowance for loans losses related to these charge-offs. 2012 also includes a benefit to charge-offs of approximately $40 million related to finalizing the impact of the OCC guidance in the fourth quarter of 2012.

(2)

2012 includes approximately $370 million of incremental charge-offs related to previously deferred principal balances on modified loans in the first quarter of 2012. These charge-offs were related to anticipated forgiveness of principal in connection with the national mortgage settlement. There was a corresponding approximately $350 million reserve release in the first quarter of 2012 related to these charge-offs.

(3)

Includes all adjustments to the allowance for credit losses, such as changes in the allowance from acquisitions, securitizations, foreign currency translation, purchase accounting adjustments, etc.

(4)

2013 includes reductions of approximately $2.4 billion related to the sale or transfer to held-for-sale of various loan portfolios, which includes approximately $360 million related to the sale of Credicard and approximately $255 million related to a transfer to held-for-sale of a loan portfolio in Greece, approximately $230 million related to a non-provision transfer of reserves associated with deferred interest to other assets which includes deferred interest and approximately $220 million related to foreign currency translation.

(5)

2012 includes reductions of approximately $875 million related to the sale or transfer to held-for-sale of various U.S. loan portfolios.

(6)

2011 includes reductions of approximately $1.6 billion related to the sale or transfer to held-for-sale of various U.S. loan portfolios, approximately $240 million related to the sale of the Egg Banking PLC credit card business, approximately $72 million related to the transfer of the Citi Belgium business to held-for-sale and approximately $290 million related to FX translation.

(7)

2010 primarily includes an addition of $13.4 billion related to the impact of consolidating entities in connection with Citi's adoption of SFAS 166/167, reductions of approximately $2.7 billion related to the sale or transfer to held-for-sale of various U.S. loan portfolios and approximately $290 million related to the transfer of a U.K. first mortgage portfolio to held-for-sale.

(8)

2009 primarily includes reductions to the loan loss reserve of approximately $543 million related to securitizations, approximately $402 million related to the sale or transfer to held-for-sale of U.S. real estate lending loans, and $562 million related to the transfer of the U.K. cards portfolio to held-for-sale.

(9)

December 31, 2013, December 31, 2012, December 31, 2011 and December 31, 2010 exclude $5.0 billion, $5.3 billion, $5.3 billion and $4.4 billion, respectively, of loans that are carried at fair value.

(10)

Represents additional credit loss reserves for unfunded lending commitments and letters of credit recorded in Other liabilities on the Consolidated Balance Sheet.

(11)

Allowance for loan losses represents management's best estimate of probable losses inherent in the portfolio, as well as probable losses related to large individually evaluated impaired loans and troubled debt restructurings. See "Significant Accounting Policies and Significant Estimates" and Note 1 to the Consolidated Financial Statements. Attribution of the allowance is made for analytical purposes only and the entire allowance is available to absorb probable credit losses inherent in the overall portfolio.


Allowance for Loan Losses

The following table details information on Citi's allowance for loan losses, loans and coverage ratios as of December 31, 2013 and 2012:

December 31, 2013

In billions of dollars

Allowance for

loan losses

Loans, net of

unearned income

Allowance as a

percentage of loans (1)

North America  cards (2)

$

6.2


$

116.8


5.3

%

North America  mortgages (3)(4)

5.1


107.5


4.8


North America  other

1.2


21.9


5.4


International cards

2.3


36.2


6.5


International other (5)

2.2


111.4


2.0


Total Consumer

$

17.0


$

393.8


4.3

%

Total Corporate

2.6


271.7


1.0


Total Citigroup

$

19.6


$

665.5


3.0

%

(1)

Allowance as a percentage of loans excludes loans that are carried at fair value.

(2)

Includes both Citi-branded cards and Citi retail services. The $6.2 billion of loan loss reserves for North America cards as of December 31, 2013 represented approximately 18 months of coincident net credit loss coverage.

(3)

Of the $5.1 billion, approximately $4.9 billion was allocated to North America mortgages in Citi Holdings. The $5.1 billion of loan loss reserves for North America mortgages as of December 31, 2013 represented approximately 26 months of coincident net credit loss coverage (for both total North America mortgages and Citi Holdings North America mortgages).

(4)

Of the $5.1 billion in loan loss reserves, approximately $2.4 billion and $2.7 billion is determined in accordance with ASC 450-20 and ASC 310-10-35 (troubled debt restructurings), respectively. Of the $107.5 billion in loans, approximately $88.6 billion and $18.5 billion of the loans are evaluated in accordance with ASC 450-20 and ASC 310-10-35 (troubled debt restructurings), respectively. For additional information, see Note 16 to the Consolidated Financial Statements.

(5)

Includes mortgages and other retail loans.


79



Allowance for Loan Losses

December 31, 2012

In billions of dollars

Allowance for

loan losses

Loans, net of

unearned income

Allowance as a

percentage of loans (1)

North America  cards (2)

$

7.3


$

112.0


6.5

%

North America  mortgages (3)(4)

8.6


125.4


6.9


North America  other

1.5


22.1


6.8


International cards

2.9


40.7


7.0


International other (5)

2.4


108.5


2.2


Total Consumer

$

22.7


$

408.7


5.6

%

Total Corporate

2.8


246.8


1.1


Total Citigroup

$

25.5


$

655.5


3.9

%

(1)

Allowance as a percentage of loans excludes loans that are carried at fair value.

(2)

Includes both Citi-branded cards and Citi retail services. The $7.3 billion of loan loss reserves for North America cards as of December 31, 2012 represented approximately 18 months of coincident net credit loss coverage.

(3)

Of the $8.6 billion, approximately $8.4 billion was allocated to North America mortgages in Citi Holdings. Excluding the $40 million benefit related to finalizing the impact of the OCC guidance in the fourth quarter of 2012, the $8.6 billion of loan loss reserves for North America mortgages as of December 31, 2012 represented approximately 33 months of coincident net credit loss coverage.

(4)

Of the $8.6 billion in loan loss reserves, approximately $4.5 billion and $4.1 billion is determined in accordance with ASC 450-20 and ASC 310-10-35 (troubled debt restructurings), respectively. Of the $125.4 billion in loans, approximately $102.7 billion and $22.3 billion of the loans are evaluated in accordance with ASC 450-20 and ASC 310-10-35 (troubled debt restructurings), respectively. For additional information, see Note 16 to the Consolidated Financial Statements.

(5)

Includes mortgages and other retail loans.



80



Non-Accrual Loans and Assets and Renegotiated Loans

The following pages include information on Citi's "Non-Accrual Loans and Assets" and "Renegotiated Loans." There is a certain amount of overlap among these categories. The following summary provides a general description of each category:


Non-Accrual Loans and Assets:

Corporate and Consumer (commercial market) non-accrual status is based on the determination that payment of interest or principal is doubtful.

Consumer non-accrual status is generally based on aging, i.e., the borrower has fallen behind in payments.

Mortgage loans discharged through Chapter 7 bankruptcy, other than FHA-insured loans, are classified as non-accrual. In addition, home equity loans in regulated bank entities are classified as non-accrual if the related residential first mortgage loan is 90 days or more past due.

North America Citi-branded cards and Citi retail services are not included because under industry standards, credit card loans accrue interest until such loans are charged off, which typically occurs at 180 days contractual delinquency.

Renegotiated Loans:

Both Corporate and Consumer loans whose terms have been modified in a troubled debt restructuring (TDR).

Includes both accrual and non-accrual TDRs.


Non-Accrual Loans and Assets

The table below summarizes Citigroup's non-accrual loans as of the periods indicated. Non-accrual loans may still be current on interest payments. In situations where Citi reasonably expects that only a portion of the principal owed will ultimately be collected, all payments received are reflected as a reduction of principal and not as interest income. For all other non-accrual loans, cash interest receipts are generally recorded as revenue.


81



Non-Accrual Loans

In millions of dollars

2013

2012

2011

2010

2009

Citicorp

$

3,791


$

4,096


$

4,018


$

4,909


$

5,353


Citi Holdings

5,166


7,433


7,050


14,498


26,387


Total non-accrual loans (NAL)

$

8,957


$

11,529


$

11,068


$

19,407


$

31,740


Corporate non-accrual loans (1)






North America

$

736


$

735


$

1,246


$

2,112


$

5,621


EMEA

766


1,131


1,293


5,337


6,308


Latin America

127


128


362


701


569


Asia

279


339


335


470


981


Total Corporate non-accrual loans

$

1,908


$

2,333


$

3,236


$

8,620


$

13,479


Citicorp

$

1,580


$

1,909


$

2,217


$

3,091


$

3,238


Citi Holdings

328


424


1,019


5,529


10,241


Total Corporate non-accrual loans

$

1,908


$

2,333


$

3,236


$

8,620


$

13,479


Consumer non-accrual loans (1)






North America (2)

$

5,192


$

7,148


$

5,888


$

8,540


$

15,111


EMEA

138


380


387


652


1,159


Latin America

1,426


1,285


1,107


1,019


1,340


Asia

293


383


450


576


651


Total Consumer non-accrual loans (2)

$

7,049


$

9,196


$

7,832


$

10,787


$

18,261


Citicorp

$

2,211


$

2,187


$

1,801


$

1,818


$

2,115


Citi Holdings (2)

4,838


7,009


6,031


8,969


16,146


Total Consumer non-accrual loans (2)

$

7,049


$

9,196


$

7,832


$

10,787


$

18,261


(1)

Excludes purchased distressed loans, as they are generally accreting interest. The carrying value of these loans was $749 million at December 31, 2013, $538 million at December 31, 2012, $511 million at December 31, 2011, $469 million at December 31, 2010, and $920 million at December 31, 2009.

(2)

During 2012, there was an increase in Consumer non-accrual loans in North America of approximately $1.5 billion as a result of OCC guidance issued in the third quarter of 2012 regarding mortgage loans where the borrower has gone through Chapter 7 bankruptcy. Of the $1.5 billion in Chapter 7 non-accrual loans, $1.3 billion were current. Additionally, during the first quarter of 2012 there was an increase in non-accrual Consumer loans in North America, which was attributable to a $0.8 billion reclassification from accrual to non-accrual status of home equity loans where the related residential first mortgage was 90 days or more past due. The vast majority of these loans were current at the time of reclassification. The reclassification reflected regulatory guidance issued on January 31, 2012. The reclassification had no impact on Citi's delinquency statistics or its loan loss reserves.


82



The table below summarizes Citigroup's other real estate owned (OREO) assets as of the periods indicated. This represents the carrying value of all real estate property acquired by foreclosure or other legal proceedings when Citi has taken possession of the collateral.

In millions of dollars

2013

2012

2011

2010

2009

OREO

Citicorp

$

79


$

49


$

86


$

840


$

885


Citi Holdings

338


391


480


863


615


Total OREO

$

417


$

440


$

566


$

1,703


$

1,500


North America

$

305


$

299


$

441


$

1,440


$

1,294


EMEA

59


99


73


161


121


Latin America

47


40


51


47


45


Asia

6


2


1


55


40


Total OREO

$

417


$

440


$

566


$

1,703


$

1,500


Other repossessed assets

$

-


$

1


$

1


$

28


$

73


Non-accrual assets-Total Citigroup






Corporate non-accrual loans

$

1,908


$

2,333


$

3,236


$

8,620


$

13,479


Consumer non-accrual loans (1)

7,049


9,196


7,832


10,787


18,261


Non-accrual loans (NAL)

$

8,957


$

11,529


$

11,068


$

19,407


$

31,740


OREO

417


440


566


1,703


1,500


Other repossessed assets

-


1


1


28


73


Non-accrual assets (NAA)

$

9,374


$

11,970


$

11,635


$

21,138


$

33,313


NAL as a percentage of total loans

1.34

%

1.76

%

1.71

%

2.99

%

5.37

%

NAA as a percentage of total assets

0.50


0.64


0.62


1.10


1.79


Allowance for loan losses as a percentage of NAL (2)

219


221


272


209


114



Non-accrual assets-Total Citicorp

2013

2012

2011

2010

2009

Non-accrual loans (NAL)

$

3,791


$

4,096


$

4,018


$

4,909


$

5,353


OREO

79


49


86


840


885


Other repossessed assets

N/A


N/A


N/A


N/A


N/A


Non-accrual assets (NAA)

$

3,870


$

4,145


$

4,104


$

5,749


$

6,238


NAA as a percentage of total assets

0.22

%

0.23

%

0.23

%

0.25

%

0.24

%

Allowance for loan losses as a percentage of NAL (2)

348


357


416


456


232


Non-accrual assets-Total Citi Holdings






Non-accrual loans (NAL)(1)

$

5,166


$

7,433


$

7,050


$

14,498


$

26,387


OREO

338


391


480


863


615


Other repossessed assets

N/A


N/A


N/A


N/A


N/A


Non-accrual assets (NAA)

$

5,504


$

7,824


$

7,530


$

15,361


$

27,002


NAA as a percentage of total assets

4.70

%

5.02

%

3.35

%

4.91

%

5.90

%

Allowance for loan losses as a percentage of NAL (2)

125


146


190


126


90


(1)

During 2012, there was an increase in Consumer non-accrual loans in North America of approximately $1.5 billion as a result OCC guidance regarding mortgage loans where the borrower has gone through Chapter 7 bankruptcy. Additionally, during 2012, there was an increase in non-accrual Consumer loans in North America of $0.8 billion related to a reclassification from accrual to non-accrual status of home equity loans where the related residential first mortgage was 90 days or more past due. For additional information on each of these items, see footnote 2 to the "Non-Accrual Loans" table above.

(2)

The allowance for loan losses includes the allowance for Citi's credit card portfolios and purchased distressed loans, while the non-accrual loans exclude credit card balances (with the exception of certain international portfolios) and purchased distressed loans as these continue to accrue interest until charge-off.

N/A Not available at the Citicorp or Citi Holdings level.


83



Renegotiated Loans

The following table presents Citi's loans modified in TDRs.

In millions of dollars

Dec. 31,

2013

Dec. 31,

2012

Corporate renegotiated loans (1)

In U.S. offices

Commercial and industrial (2)

$

36


$

180


Mortgage and real estate (3)

143


72


Loans to financial institutions

14


17


Other

364


447


$

557


$

716


In offices outside the U.S.

Commercial and industrial (2)

$

161


$

95


Mortgage and real estate (3)

18


59


Other

58


3


$

237


$

157


Total Corporate renegotiated loans

$

794


$

873


Consumer renegotiated loans (4)(5)(6)(7)

In U.S. offices

Mortgage and real estate (8)

$

18,922


$

22,903


Cards

2,510


3,718


Installment and other (9)

626


1,088


$

22,058


$

27,709


In offices outside the U.S.

Mortgage and real estate

$

641


$

932


Cards (10)

830


866


Installment and other

834


904


$

2,305


$

2,702


Total Consumer renegotiated loans

$

24,363


$

30,411


(1)

Includes $312 million and $267 million of non-accrual loans included in the non-accrual assets table above at December 31, 2013 and December 31, 2012, respectively. The remaining loans are accruing interest.

(2)

In addition to modifications reflected as TDRs at December 31, 2013, Citi also modified $24 million and $91 million of commercial loans risk rated "Substandard Non-Performing" or worse (asset category defined by banking regulators) in offices inside and outside the U.S, respectively. These modifications were not considered TDRs because the modifications did not involve a concession (a required element of a TDR for accounting purposes).

(3)

In addition to modifications reflected as TDRs at December 31, 2013, Citi also modified $10 million of commercial real estate loans risk rated "Substandard Non-Performing" or worse (asset category defined by banking regulators) in offices inside the U.S. These modifications were not considered TDRs because the modifications did not involve a concession (a required element of a TDR for accounting purposes).

(4)

Includes $3,637 million and $4,198 million of non-accrual loans included in the non-accrual assets table above at December 31, 2013 and 2012 , respectively. The remaining loans are accruing interest.

(5)

Includes $29 million and $38 million of commercial real estate loans at December 31, 2013 and 2012 , respectively.

(6)

Includes $295 million and $261 million of other commercial loans at December 31, 2013 and 2012 , respectively.

(7)

Smaller-balance homogeneous loans were derived from Citi's risk management systems.

(8)

Reduction in 2013 includes $4,161 million related to TDRs sold or transferred to held-for-sale.

(9)

Reduction in 2013 includes approximately $345 million related to TDRs sold or transferred to held-for-sale.

(10)

Reduction in 2013 includes $52 million related to the sale of Brazil Credicard.



Forgone Interest Revenue on Loans (1)

In millions of dollars

In U.S.

offices

In non-

U.S.

offices

2013

total

Interest revenue that would have been accrued at original contractual rates  (2)

$

2,390


$

769


$

3,159


Amount recognized as interest revenue (2)

1,140


327


1,467


Forgone interest revenue

$

1,250


$

442


$

1,692



(1)

Relates to Corporate non-accrual loans, renegotiated loans and Consumer loans on which accrual of interest has been suspended.

(2)

Interest revenue in offices outside the U.S. may reflect prevailing local interest rates, including the effects of inflation and monetary correction in certain countries.



84



North America Consumer Mortgage Lending


Overview

Citi's North America Consumer mortgage portfolio consists of both residential first mortgages and home equity loans. At December 31, 2013, Citi's North America Consumer residential first mortgage portfolio was $75.9 billion (compared to $88.2 billion at December 31, 2012), while the home equity loan portfolio was $31.6 billion (compared to $37.2 billion at December 31, 2012). At December 31, 2013, $44.6 billion of first mortgages was recorded in Citi Holdings, with the remaining $31.3 billion recorded in Citicorp. At December 31, 2013, $28.7 billion of home equity loans was recorded in Citi Holdings, with the remaining $2.9 billion recorded in Citicorp.

Citi's residential first mortgage portfolio included $7.7 billion of loans with FHA insurance or VA guarantees at December 31, 2013, compared to $8.5 billion at December 31, 2012. This portfolio consists of loans to low-to-moderate-income borrowers with lower FICO (Fair Isaac Corporation) scores and generally has higher loan-to-value ratios (LTVs). Credit losses on FHA loans are borne by the sponsoring governmental agency, provided that the insurance terms have not been rescinded as a result of an origination defect. With respect to VA loans, the VA establishes a loan-level loss cap, beyond which Citi is liable for loss. While FHA and VA loans have high delinquency rates, given the insurance and guarantees, respectively, Citi has experienced negligible credit losses on these loans.

In addition, Citi's residential first mortgage portfolio included $1.1 billion of loans with origination LTVs above 80% that have insurance through mortgage insurance companies at December 31, 2013, compared to $1.5 billion at December 31, 2012. At December 31, 2013, the residential first mortgage portfolio also had $0.8 billion of loans subject to long-term standby commitments (LTSCs) with U.S. government-sponsored entities (GSEs) for which Citi has limited exposure to credit losses, compared to $1.0 billion at December 31, 2012. Citi's home equity loan portfolio also included $0.3 billion of loans subject to LTSCs with GSEs (compared to $0.4 billion at December 31, 2012) for which Citi also has limited exposure to credit losses. These guarantees and commitments may be rescinded in the event of loan origination defects. Citi's allowance for loan loss calculations takes into consideration the impact of the guarantees and commitments described above.

Citi does not offer option-adjustable rate mortgages/negative-amortizing mortgage products to its customers. As a result, option-adjustable rate mortgages/negative-amortizing mortgages represent an insignificant portion of total balances, since they were acquired only incidentally as part of prior portfolio and business purchases.

As of December 31, 2013, Citi's North America residential first mortgage portfolio contained approximately $5.0 billion of adjustable rate mortgages that are currently required to make a payment only of accrued interest for the payment period, or an interest-only payment, compared to $7.7 billion at December 31, 2012. This decline resulted primarily from repayments of $1.2 billion, conversions to

amortizing loans of $1.0 billion and asset sales of $0.4 billion. Borrowers who are currently required to make an interest-only payment cannot select a lower payment that would negatively amortize the loan. Residential first mortgages with this payment feature are primarily to high-credit-quality borrowers who have on average significantly higher origination and refreshed FICO scores than other loans in the residential first mortgage portfolio, and have exhibited significantly lower 30+ delinquency rates as compared with residential first mortgages without this payment feature. As such, Citi does not believe the residential mortgage loans with this payment feature represent substantially higher risk in the portfolio.


North America Consumer Mortgage Quarterly Credit Trends-Net Credit Losses and Delinquencies-Residential First Mortgages

The following charts detail the quarterly trends in loan balances, net credit losses and delinquencies for Citigroup's residential first mortgage portfolio in North America . As set forth in the tables below, approximately 59% of Citi's residential first mortgage exposure arises from its portfolio in Citi Holdings, which includes residential first mortgages originated by both CitiMortgage as well as Citi's legacy CitiFinancial North America business.


North America Residential First Mortgage - EOP Loans (1)

In billions of dollars


85



North America Residential First Mortgage - Net Credit Losses (1)

In millions of dollars

Note: CMI refers to loans originated by CitiMortgage. CFNA refers to loans originated by CitiFinancial.

(1)

Includes the following charge-offs related to Citi's fulfillment of its obligations under the national mortgage and independent foreclosure review settlements: 4Q'12, $32 million; 1Q'13, $25 million; 2Q'13, $18 million; 3Q'13, $8 million; and 4Q'13, $6 million. Citi expects net credit losses in its residential first mortgage portfolio in Citi Holdings to continue to be impacted by its fulfillment of the terms of the independent foreclosure review settlement. See "Independent Foreclosure Review Settlement" below.

(2)

4Q'12 excludes an approximately $10 million benefit to charge-offs related to finalizing the impact of OCC guidance with respect to the treatment of mortgage loans where the borrower has gone through Chapter 7 bankruptcy.

(3)

4Q'13 excludes approximately $84 million of net credit losses consisting of (i) approximately $69 million of charge-offs related to a change in the charge-off policy for mortgages originated in CitiFinancial to more closely align to policies used in the CitiMortgage business, and (ii) approximately $15 million of charge-offs related to a change in the estimate of net credit losses related to collateral dependent loans to borrowers that have gone through Chapter 7 bankruptcy.

(4)

Year-over-year change in the S&P/Case-Shiller U.S. National Home Price Index.

(5)

Year-over-year change as of November 2013.

North America Residential First Mortgage Delinquencies-Citi Holdings

In billions of dollars

Note: Days past due excludes (i) U.S. mortgage loans that are guaranteed by U.S. government-sponsored agencies because the potential loss predominantly resides with the U.S. agencies, and (ii) loans recorded at fair value. Totals may not sum due to rounding.

As set forth in the tables above, while loan balances and net credit losses have declined in both the CitiMortgage and CitiFinancial portfolios in Citi Holdings, the loans originated in the CitiFinancial business have become a larger proportion of the total North America residential first mortgage portfolio within Citi Holdings. As a result of the CitiFinancial borrower profile, these loans tend to have higher net credit loss rates, at approximately 5.0%, compared to a net credit loss rate of 1.0% for CitiMortgage residential first mortgages in Citi Holdings.

During 2013, continued management actions, including asset sales and, to a lesser extent, loan modifications, were the primary drivers of the overall delinquency improvement for Citi Holdings residential first mortgage portfolio. These management actions, along with a significant improvement in the Home Price Index (HPI) in the U.S. housing market during 2013 (despite a moderation in such improvement during the fourth quarter of 2013), also resulted in the improvement in net credit losses in the portfolio. In addition, Citi continued to observe fewer loans entering the 30-89 days past due delinquency bucket during the year, which it attributes to the continued general improvement in the economic environment.

During 2013, Citi sold approximately $2.3 billion of delinquent residential first mortgages (compared to $2.1 billion in 2012), including $0.2 billion during the fourth quarter of 2013. Citi also sold approximately $3.7 billion of re-performing residential first mortgages during 2013, although, as previously disclosed, sales of re-performing residential first mortgages tend to be yield sensitive. Additionally, Citi sold approximately $0.2 billion of U.S. mortgage loans that were guaranteed by U.S. government sponsored agencies and excluded from the charts above.

In addition, Citi modified approximately $1.4 billion of residential first mortgages during 2013 (compared to $0.9 billion in 2012), including $0.3 billion during the fourth quarter of 2013. Citi's residential first mortgage portfolio continued to show some signs of the impact of re-defaults of previously modified mortgages during the year. For additional information on Citi's residential first mortgage loan modifications, see Note 15 to the Consolidated Financial Statements.

Citi's ability to reduce delinquencies or net credit losses in its residential first mortgage portfolio pursuant to asset sales or modifications could be limited going forward due to, among other things, the lower remaining inventory of delinquent loans to sell or modify, additional increases in interest rates or the lack of market demand for asset sales.


86



North America Residential First Mortgages-State Delinquency Trends

The following tables set forth, for total Citigroup, the six states and/or regions with the highest concentration of Citi's residential first mortgages as of December 31, 2013 and December 31, 2012.

In billions of dollars

December 31, 2013

December 31, 2012

State (1)

ENR (2)

ENR

Distribution

90+DPD

%

%

LTV >

100%

Refreshed

FICO

ENR (2)

ENR

Distribution

90+DPD

%

%

LTV >

100%

Refreshed

FICO

CA

$

19.2


30%

1.0%

4%

738

$

21.1


28%

2.1%

23%

730

NY/NJ/CT (3)

11.7


18

2.6

3

733

11.8


16

4.0

8

723

IN/OH/MI (3)

3.1


5

3.9

21

659

4.0


5

5.5

31

655

FL (3)

3.1


5

4.4

25

688

3.8


5

8.1

43

676

IL (3)

2.7


4

3.8

16

703

3.1


4

5.8

34

694

AZ/NV

1.5


2

2.7

25

710

1.9


3

4.8

50

702

Other

23.1


36

4.1

8

671

29.7


39

5.4

15

667

Total

$

64.4


100%

2.9%

8%

705

$

75.4


100%

4.4%

20%

692


Note: Totals may not sum due to rounding.

(1)

Certain of the states are included as part of a region based on Citi's view of similar HPI within the region.

(2)

Ending net receivables. Excludes loans in Canada and Puerto Rico, loans guaranteed by U.S. government agencies, loans recorded at fair value and loans subject to LTSCs. Excludes balances for which FICO or LTV data are unavailable.

(3)

New York, New Jersey, Connecticut, Indiana, Ohio, Florida and Illinois are judicial states.


Citi's residential first mortgages portfolio is primarily concentrated in California and the New York/New Jersey/Connecticut region (with New York the largest of the three states). The significant improvement in refreshed LTV percentages at December 31, 2013 was primarily the result of HPI improvements across substantially all metropolitan statistical areas, thereby increasing values used in the determination of LTV, although the HPI improvement varies from market to market. Additionally, delinquent and re-performing asset sales of high LTV loans during 2013 further reduced the amount of loans with greater than 100% LTV. To a lesser extent, modification programs involving principal forgiveness further reduced the loans in this category. While 90+ days past due delinquency rates have improved for the states or regions above, the continued lengthening of the foreclosure process (see discussion under "Foreclosures" below) could result in less improvement in these rates in the future, especially in judicial states.


Foreclosures

The substantial majority of Citi's foreclosure inventory consists of residential first mortgages. At December 31, 2013, Citi's foreclosure inventory included approximately $0.8 billion, or 1.2%, of Citi's residential first mortgages, compared to approximately $1.2 billion, or 1.5%, at December 31, 2012 (based on the dollar amount of ending net receivables of loans in foreclosure inventory, excluding loans that are guaranteed by U.S. government agencies and loans subject to LTSCs).

While Citi's foreclosure inventory declined year-over-year, due largely to portfolio delinquency trends, asset sales

and loan modifications, extensive state requirements and other regulatory requirements for the foreclosure process continue to impact foreclosure timelines. Citi's average timeframes to move a loan out of foreclosure are two to three times longer than historical norms. Extended foreclosure timelines continue to be even more pronounced in judicial states (i.e., states that require foreclosures to be processed via court approval), where


Citi has a higher concentration of residential first mortgages in foreclosure. Active foreclosure units in process for over two years as a percentage of Citi's total foreclosure inventory was approximately 29%, unchanged from December 31, 2012.

Citi's servicing agreements for mortgage loans sold to the U.S. government sponsored enterprises (GSEs) generally provide the GSEs with significant mortgage servicing oversight, including, among other things, foreclosures or modification completion timelines. The agreements allow for the GSEs to take action against a servicer for violation of the timelines, including imposing compensatory fees. While the GSEs have not historically exercised their rights to impose compensatory fees, they have begun to regularly impose such fees.

In connection with Citi's sale of mortgage servicing rights (MSRs) announced in January 2014, Citi and Fannie Mae substantially resolved pending and future compensatory fee claims related to Citi's servicing of the loans sold in the transaction (for additional information, see "Mortgage Servicing Rights" below). To date, the GSEs' imposition of compensatory fees, as a result of the extended foreclosure timelines or in connection with the announced sale of MSRs or otherwise, has not been material.


87



North America Consumer Mortgage Quarterly Credit Trends-Net Credit Losses and Delinquencies-Home Equity Loans

Citi's home equity loan portfolio consists of both fixed-rate home equity loans and loans extended under home equity lines of credit. Fixed-rate home equity loans are fully amortizing. Home equity lines of credit allow for amounts to be drawn for a period of time with the payment of interest only and then, at the end of the draw period, the then-outstanding amount is converted to an amortizing loan (the interest-only payment feature during the revolving period is standard for this product across the industry). Prior to June 2010, Citi's originations of home equity lines of credit typically had a 10-year draw period. Beginning in June 2010, Citi's originations of home equity lines of credit typically have a five-year draw period as Citi changed these terms to mitigate risk. After conversion, the home equity loans typically have a 20-year amortization period.

At December 31, 2013, Citi's home equity loan portfolio of $31.6 billion included approximately $18.9 billion of home equity lines of credit (Revolving HELOCs) that are still within their revolving period and have not commenced amortization, or "reset," compared to $22.0 billion at December 31, 2012. The following chart sets forth these Revolving HELOCs (based on certain FICO and combined loan-to-value (CLTV) characteristics of the portfolio) and the year in which they reset:



North America Home Equity Lines of Credit Amortization – Citigroup

Total ENR by Reset Year

In billions of dollars as of December 31, 2013


Note: Totals may not sum due to rounding.


As indicated by the chart above, approximately 6% of Citi's Revolving HELOCs had commenced amortization as of December 31, 2013, compared to approximately 6% and 72% that will commence amortization during 2014 and 2015-2017, respectively. Before commencing amortization, Revolving HELOC borrowers are required to pay only interest on their loans. Upon amortization, these borrowers will be required to pay both interest, typically at a variable rate, and principal that amortizes over 20 years, rather than the typical 30-year amortization. As a result, Citi's customers with Revolving HELOCs that reset could experience "payment shock" due to the higher required payments on the loans. While it is not certain what, if any, impact this payment shock could have on Citi's delinquency rates and net credit losses, Citi currently

estimates the monthly loan payment for its Revolving HELOCs that reset during 2015-2017 could increase on average by approximately $360 or 170%. Increases in interest rates could further increase these payments given the variable nature of the interest rates on these loans post-reset.


88



Based on the limited number of Revolving HELOCs that have begun amortization as of December 31, 2013, approximately 6.0% of the amortizing home equity loans were 30+ days past due compared to 2.8% of the total outstanding home equity loan portfolio (amortizing and non-amortizing). However, these resets have generally occurred during a period of declining interest rates, which Citi believes has likely reduced the overall "payment shock" to the borrower. Citi continues to monitor this reset risk closely, particularly as it approaches 2015, and Citi will continue to consider any potential impact in determining its allowance for loan loss reserves. In addition, management continues to review additional actions to offset potential reset risk, such as extending offers to non-amortizing home equity loan borrowers to convert the non-amortizing home equity loan to a fixed-rate amortizing loan. See also "Risk Factors - Business and Operational Risks" above.    

The following charts detail the quarterly trends in loan balances, net credit losses and delinquencies for Citi's home equity loan portfolio in North America . The vast majority of Citi's home equity loan exposure arises from its portfolio in Citi Holdings.


North America Home Equity - EOP Loans

In billions of dollars


North America Home Equity - Net Credit Losses (1)

In millions of dollars


(1)

Includes the following amounts of charge-offs related to Citi's fulfillment of its obligations under the national mortgage and independent foreclosure review settlements: 4Q'12, $30 million; 1Q'13, $51 million; 2Q'13, $12 million; 3Q'13, $14 million; and 4Q'13, $15 million. Citi expects net credit losses in its home equity loan portfolio in Citi Holdings to continue to be impacted by its fulfillment of the terms of the independent foreclosure review settlement. See "Independent Foreclosure Review Settlement" below.

(2)

4Q'12 excludes an approximately $30 million benefit to charge-offs related to finalizing the impact of the OCC guidance with respect to the treatment of mortgage loans where the borrower has gone through Chapter 7 bankruptcy.

(3)

4Q'13 excludes approximately $100 million of net credit losses consisting of (i) approximately $64 million for the acceleration of accounting losses associated with modified home equity loans determined to be collateral dependent, (ii) approximately $22 million of charge-offs related to a change in the charge-off policy for mortgages originated in CitiFinancial to more closely align to policies used in the CitiMortgage business, and (iii) approximately $14 million of charge-offs related to a change in the estimate of net credit losses related to collateral dependent loans to borrowers that have gone through Chapter 7 bankruptcy.


North America Home Equity Loan Delinquencies - Citi Holdings

In billions of dollars

Note: Days past due excludes (i) U.S. mortgage loans that are guaranteed by U.S. government-sponsored agencies, because the potential loss predominantly resides with the U.S. agencies, and (ii) loans recorded at fair value. Totals may not sum due to rounding.



89



As evidenced by the tables above, home equity loan net credit losses and delinquencies improved during 2013, including fewer loans entering the 30-89 days past due delinquency bucket, primarily due to continued modifications and liquidations. Given the lack of a market in which to sell delinquent home equity loans, as well as the relatively smaller number of home equity loan modifications and modification

programs (see Note 15 to the Consolidated Financial Statements), Citi's ability to reduce delinquencies or net credit losses in its home equity loan portfolio in Citi Holdings, whether pursuant to deterioration of the underlying credit performance of these loans or otherwise, is more limited as compared to residential first mortgages.


North America Home Equity Loans-State Delinquency Trends

The following tables set forth, for total Citigroup, the six states and/or regions with the highest concentration of Citi's home equity loans as of December 31, 2013 and December 31, 2012.

In billions of dollars

December 31, 2013

December 31, 2012

State (1)

ENR (2)

ENR

Distribution

90+DPD

%

%

CLTV >

100% (3)

Refreshed

FICO

ENR (2)

ENR

Distribution

90+DPD

%

%

CLTV >

100% (3)

Refreshed

FICO

CA

$

8.2


28%

1.6%

17%

726

$

9.7


28%

2.0%

40%

723

NY/NJ/CT (4)

7.2


24

2.3

12

718

8.2


23

2.3

20

715

FL (4)

2.1


7

2.9

44

704

2.4


7

3.4

58

698

IL (4)

1.2


4

1.6

42

713

1.4


4

2.1

55

708

IN/OH/MI (4)

1.0


3

1.6

47

686

1.2


3

2.2

55

679

AZ/NV

0.7


2

2.1

53

713

0.8


2

3.1

70

709

Other

9.5


32

1.7

26

699

11.5


33

2.2

37

695

Total

$

29.9


100%

1.9%

23%

712

$

35.2


100%

2.3%

37%

704


Note: Totals may not sum due to rounding.

(1)

Certain of the states are included as part of a region based on Citi's view of similar HPI within the region.

(2)

Ending net receivables. Excludes loans in Canada and Puerto Rico and loans subject to LTSCs. Excludes balances for which FICO or LTV data are unavailable.

(3)

Represents combined loan-to-value (CLTV) for both residential first mortgages and home equity loans.

(4)

New York, New Jersey, Connecticut, Indiana, Ohio, Florida and Illinois are judicial states.    


Citi's home equity portfolio is primarily concentrated in California and the New York/New Jersey/Connecticut region (with New York the largest of the three states). The significant improvement in refreshed CLTV percentages as of December 31, 2013 were primarily the result of improvements in HPI in these states/regions, thereby increasing values used in the determination of CLTV.


National Mortgage Settlement

Under the national mortgage settlement, entered into by Citi and other financial institutions in February 2012, Citi agreed to provide customer relief in the form of loan modifications for delinquent borrowers, including principal reductions, and other loss mitigation activities, and refinancing concessions to enable current borrowers whose properties are worth less than the balance of their loans to reduce their interest rates. Citi believes it has fulfilled its requirement for the loan modification remediation and refinancing concessions under the settlement. The results are pending review and

certification of the monitor required by the settlement, which is not expected to be completed until the first half of 2014.



Independent Foreclosure Review Settlement

As of December 31, 2013, Citi continues to fulfill its mortgage assistance obligations under the independent foreclosure review settlement, entered into by Citi and other major mortgage servicers in January 2013, and estimates it will incur additional net credit losses of approximately $25 million per quarter through the first half of 2014. Citi continues to believe its loan loss reserve as of December 31, 2013 will be sufficient to cover any mortgage assistance under the settlement.


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Citi Holdings Consumer Mortgage FICO and LTV

The following charts detail the quarterly trends for the residential first mortgage and home equity loan portfolios within Citi Holdings by risk segment (FICO and LTV/CLTV).

Residential First Mortgages - Citi Holdings (EOP Loans)

In billions of dollars

Home Equity Loans - Citi Holdings (EOP Loans)

In billions of dollars

Notes: Tables may not sum due to rounding. Data appearing in the tables above have been sourced from Citi's risk systems and, as such, may not reconcile with disclosures elsewhere generally due to differences in methodology or variations in the manner in which information is captured. Citi has noted such variations in instances where it believes they could be material to reconcile to the information presented elsewhere.

(1)

Excludes loans in Canada and Puerto Rico, loans guaranteed by U.S. government agencies (residential first mortgages table only), loans recorded at fair value (residential first mortgages table only) and loans subject to LTSCs.


During 2013, Citi Holdings residential first mortgages with an LTV above 100% declined by 65%, and with an LTV above 100% with FICO scores of less than 620 by 56%. The residential first mortgage portfolio has migrated to a higher FICO and lower LTV distribution primarily due to home price appreciation, asset sales of delinquent first mortgages and principal forgiveness. Loans 90+ days past due in the residential first mortgage portfolio with refreshed FICO scores of less than 620 as well as LTVs above 100% declined 64% year-over-year to $0.4 billion primarily due to home price appreciation, liquidations and asset sales of delinquent first mortgages.

In addition, during 2013, Citi Holdings home equity loans with a CLTV above 100% declined by 47%, and with a CLTV above 100% and FICO scores of less than 620 by 50%, primarily due to home price appreciation, repayments and charge-offs. Loans 90+ days past due in the home equity portfolio with refreshed FICO scores of less than 620 as well as CLTVs above 100% declined 60% year-over-year to $130 million primarily due to charge-offs, home price appreciation and modifications.


Mortgage Servicing Rights

To minimize credit and liquidity risk, Citi sells most of the conforming mortgage loans it originates but retains the servicing rights. These sale transactions create an intangible asset referred to as mortgage servicing rights (MSRs), which are recorded at fair value on Citi's Consolidated Balance Sheet. The fair value of MSRs is primarily affected by changes in prepayments of mortgages that result from shifts in mortgage interest rates. Specifically, higher interest rates tend to lead to declining prepayments which causes the fair value of the MSRs to increase. In managing this risk, Citi economically hedges a significant portion of the value of its MSRs through the use of interest rate derivative contracts, forward purchase and sale commitments of mortgage-backed securities and purchased securities classified as trading account assets.

Citi's MSRs totaled $2.7 billion as of December 31, 2013, compared to $2.6 billion and $1.9 billion at September 30, 2013 and December 31, 2012, respectively. The increase year-over-year primarily reflected the impact of higher interest rates and newly capitalized MSRs, partially offset by amortization. At December 31, 2013, approximately $2.1 billion of MSRs were specific to Citicorp, with the remainder to Citi Holdings. For additional information on Citi's MSRs, see Note 22 to the Consolidated Financial Statements.

As announced in January 2014, Citi signed an agreement for the sale of Citi's MSRs portfolio representing approximately 64,000 loans with outstanding unpaid principal balances of $10.3 billion (approximately 10% of Citi Holdings third-party servicing portfolio). The sale resulted in no adjustment to the value of Citi's MSRs. The MSRs portfolio being sold includes the majority of delinquent loans serviced by CitiMortgage for Fannie Mae and represents almost 20% of the total loans serviced by CitiMortgage that are 60 days or more past due. Citi and Fannie Mae have substantially resolved pending and future compensatory fee claims related to Citi's servicing on those loans. Transfer of the MSRs portfolio is expected to occur in tranches during 2014.



91



Citigroup Residential Mortgages-Representations and Warranties Repurchase Reserve


Overview

In connection with Citi's sales of residential mortgage loans to the U.S. government-sponsored entities (GSEs) and private investors, as well as through private-label residential mortgage securitizations, Citi typically makes representations and warranties that the loans sold meet certain requirements, such as the loan's compliance with any applicable loan criteria established by the buyer and the validity of the lien securing the loan. The specific representations and warranties made by Citi in any particular transaction depend on, among other things, the nature of the transaction and the requirements of the investor (e.g., whole loan sale to the GSEs versus loans sold through securitization transactions), as well as the credit quality of the loan (e.g., prime, Alt-A or subprime).

These sales expose Citi to potential claims for alleged breaches of its representations and warranties. In the event of a breach of its representations and warranties, Citi could be required either to repurchase the mortgage loans with the identified defects (generally at unpaid principal balance plus

accrued interest) or to indemnify ("make whole") the investors for their losses on these loans.    

Citi has recorded a repurchase reserve for its potential repurchase or make-whole liability regarding residential mortgage representation and warranty claims. During the period 2005-2008, Citi sold approximately $91 billion of mortgage loans through private-label securitizations, $66.4 billion of which was sold through its legacy Securities and Banking business and $24.6 billion of which was sold through CitiMortgage. Beginning in the first quarter of 2013, Citi considers private-label residential mortgage securitization representation and warranty claims as part of its litigation accrual analysis and not as part of its repurchase reserve. See Note 28 to the Consolidated Financial Statements for additional information Citi's potential private-label residential mortgage securitization exposure.

Accordingly, Citi's repurchase reserve has been recorded for purposes of its potential representation and warranty repurchase liability resulting from its whole loan sales to the GSEs and, to a lesser extent private investors, which are made through Citi's Consumer business in CitiMortgage.



Representation and Warranty Claims by Claimant

The following table sets forth the original principal balance of representation and warranty claims received, as well as the original principal balance of unresolved claims by claimant, for each of the periods presented

GSEs and others (1)

In millions of dollars

December 31,

2013

September 30,

2013

June 30,

2013

March 31,

2013

December 31, 2012

Claims during the three months ended

$

80


$

152


$

647


$

1,126


$

787


Unresolved claims at

169


153


264


1,252


1,229



(1)

The decreases in claims during the three months ended and unresolved claims at September 30, 2013 and June 30, 2013 primarily reflect the agreements with Fannie Mae and Freddie Mac during the second quarter of 2013 and the third quarter of 2013, respectively. See "Repurchase Reserve" below.


Repurchase Reserve

The repurchase reserve is based on various assumptions which are primarily based on Citi's historical repurchase activity with the GSEs. As of December 31, 2013, the most significant assumptions used to calculate the reserve levels are the: (i) probability of a claim based on correlation between loan characteristics and repurchase claims; (ii) claims appeal success rates; and (iii) estimated loss per repurchase or make-whole payment. In addition, as part of its repurchase reserve analysis, Citi considers reimbursements estimated to be received from third-party sellers, which are generally based on Citi's analysis of its most recent collection trends and the financial viability of the third-party sellers (i.e., to the extent Citi made representation and warranties on loans it purchased from third-party sellers that remain financially viable, Citi may have the right to seek recovery from the third party based on representations and warranties made by the third party to

Citi (a "back-to-back" claim)).


During 2013, Citi recorded an additional reserve of $470 million relating to its loan sale repurchase exposure, all of which was recorded in the first half of 2013. During the second and third quarters of 2013, Citi entered into previously-disclosed agreements with Fannie Mae and Freddie Mac, respectively, to resolve potential future origination-related representation and warranty repurchase claims on a pool of residential first mortgage loans that were, in each case, originated between 2000 and 2012. The change in estimate in the repurchase reserve during 2013 primarily resulted from GSE loan documentation requests received prior to the respective agreements referred to above. As a result of these agreements, and based on currently available information, Citi believes that changes in estimates in the repurchase reserve should generally be consistent with its levels of loan sales going forward.







92



The table below sets forth the activity in the repurchase reserve for each of the quarterly periods presented:

Three Months Ended

In millions of dollars

December 31, 2013

September 30,

2013

June 30,

2013

March 31,

2013

December 31, 2012

Balance, beginning of period

$

345


$

719


$

1,415


$

1,565


$

1,516


Reclassification (1)

-


-


-


(244

)

-


Additions for new sales (2)

4


7


9


7


6


Change in estimate

-


-


245


225


173


Utilizations

(8

)

(10

)

(37

)

(138

)

(130

)

Fannie Mae Agreement (3)

-


-


(913

)

-


-


Freddie Mac Agreement (4)

-


(371

)

-


-


-


Balance, end of period

$

341


$

345


$

719


$

1,415


$

1,565



(1)

First quarter of 2013 reflects reclassification of $244 million of the repurchase reserve relating to private-label securitizations to Citi's litigation accruals.

(2)

Reflects new whole loan sales, primarily to the GSEs.

(3) Reflects $968 million paid pursuant to the Fannie Mae agreement, net of repurchases made in the first quarter of 2013.

(4) Reflects $395 million paid pursuant to the Freddie Mac agreement, net of repurchases made in the second quarter of 2013.



The following table sets forth the unpaid principal balance of loans repurchased due to representation and warranty claims during each of the quarterly periods presented:

Three Months Ended

In millions of dollars

December 31, 2013

September 30, 2013

June 30,

2013

March 31,

2013

December 31,

2012

GSEs and others

$

22


$

46


$

220


$

190


$

157


In addition to the amounts set forth in the table above, Citi recorded make-whole payments of $1 million, $17 million, $59 million, $93 million and $92 million for the quarterly periods ended December 31, 2013, September 30, 2013, June 30, 2013, March 31, 2013, and December 31, 2012, respectively.



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Consumer Loan Details


Consumer Loan Delinquency Amounts and Ratios

Total

loans (1)

90+ days past due (2)

30-89 days past due (2)

December 31,

December 31,

December 31,

In millions of dollars,
except EOP loan amounts in billions

2013

2013

2012

2011

2013

2012

2011

Citicorp (3)(4)

Total

$

302.3


$

2,973


$

3,081


$

3,406


$

3,220


$

3,509


$

4,075


Ratio

0.99

%

1.05

%

1.19

%

1.07

%

1.19

%

1.42

%

Retail banking

Total

$

151.9


$

952


$

879


$

769


$

1,049


$

1,112


$

1,040


Ratio

0.63

%

0.61

%

0.58

%

0.70

%

0.77

%

0.78

%

North America

44.1


257


280


235


205


223


213


Ratio

0.60

%

0.68

%

0.63

%

0.48

%

0.54

%

0.57

%

EMEA

5.6


34


48


59


51


77


94


Ratio

0.61

%

0.94

%

1.40

%

0.91

%

1.51

%

2.24

%

Latin America

30.6


470


323


253


395


353


289


Ratio

1.54

%

1.14

%

1.07

%

1.29

%

1.25

%

1.22

%

Asia

71.6


191


228


222


398


459


444


Ratio

0.27

%

0.33

%

0.33

%

0.56

%

0.66

%

0.66

%

Cards

Total

$

150.4


$

2,021


$

2,202


$

2,637


$

2,171


$

2,397


$

3,035


Ratio

1.34

%

1.47

%

1.72

%

1.44

%

1.60

%

1.98

%

North America-Citi-branded

70.5


681


786


1,016


661


771


1,078


Ratio

0.97

%

1.08

%

1.32

%

0.94

%

1.06

%

1.40

%

North America-Citi retail services

46.3


771


721


951


830


789


1,178


Ratio

1.67

%

1.87

%

2.38

%

1.79

%

2.04

%

2.95

%

EMEA

2.4


32


48


44


42


63


59


Ratio

1.33

%

1.66

%

1.63

%

1.75

%

2.17

%

2.19

%

Latin America

12.1


349


413


412


364


432


399


Ratio

2.88

%

2.79

%

3.01

%

3.01

%

2.92

%

2.91

%

Asia

19.1


188


234


214


274


342


321


Ratio

0.98

%

1.15

%

1.08

%

1.43

%

1.68

%

1.61

%

Citi Holdings (5)(6)

Total

$

91.2


$

2,710


$

4,611


$

5,849


$

2,724


$

4,228


$

5,148


Ratio

3.23

%

4.42

%

4.66

%

3.25

%

4.05

%

4.10

%

International

5.9


162


345


422


200


393


499


Ratio

2.75

%

4.54

%

3.91

%

3.39

%

5.17

%

4.62

%

North America

85.3


2,548


4,266


5,427


2,524


3,835


4,649


Ratio

3.27

%

4.41

%

4.73

%

3.24

%

3.96

%

4.05

%

Other (7)

0.3


Total Citigroup

$

393.8


$

5,683


$

7,692


$

9,255


$

5,944


$

7,737


$

9,223


Ratio

1.48

%

1.93

%

2.25

%

1.54

%

1.94

%

2.24

%

(1)

Total loans include interest and fees on credit cards.

(2)

The ratios of 90+ days past due and 30-89 days past due are calculated based on end-of-period (EOP) loans, net of unearned income.

(3)

The 90+ days past due balances for North America-Citi-branded cards and North America-Citi retail services are generally still accruing interest. Citigroup's policy is generally to accrue interest on credit card loans until 180 days past due, unless notification of bankruptcy filing has been received earlier.

(4)

The 90+ days and 30-89 days past due and related ratios for North America Regional Consumer Banking exclude U.S. mortgage loans that are guaranteed by U.S. government-sponsored entities since the potential loss predominantly resides within the U.S. government agencies. The amounts excluded for loans 90+ days past due and (EOP loans) were $690 million ($1.2 billion), $742 million ($1.4 billion), and $611 million ($1.3 billion) at December 31, 2013, 2012 and 2011, respectively. The amounts excluded for loans 30-89 days past due (EOP loans have the same adjustment as above) were $141 million, $122 million, and $121 million, at December 31, 2013, 2012 and 2011, respectively.

(5)

The 90+ days and 30-89 days past due and related ratios for North America Citi Holdings exclude U.S. mortgage loans that are guaranteed by U.S. government-sponsored entities since the potential loss predominantly resides within the U.S. agencies. The amounts excluded for loans 90+ days past due (and EOP loans) for each period were $3.3 billion ($6.4 billion), $4.0 billion ($7.1 billion), and $4.4 billion ($7.9 billion) at December 31, 2013, 2012 and 2011, respectively. The


94



amounts excluded for loans 30-89 days past due (EOP loans have the same adjustment as above) for each period were $1.1 billion, $1.2 billion, and $1.5 billion, at December 31, 2013, 2012 and 2011, respectively.

(6)

The December 31, 2013, 2012 and 2011 loans 90+ days past due and 30-89 days past due and related ratios for North America exclude $0.9 billion, $1.2 billion and $1.3 billion, respectively, of loans that are carried at fair value.

(7)

Represents loans classified as Consumer loans on the Consolidated Balance Sheet that are not included in the Citi Holdings Consumer credit metrics.


Consumer Loan Net Credit Losses and Ratios

Average

loans (1)

Net credit losses (2)

In millions of dollars, except average loan amounts in billions

2013

2013

2012

2011

Citicorp

Total

$

288.0


$

7,211


$

8,107


$

10,489


Ratio

2.50

%