SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _______
COMMISSION FILE NUMBER 1-9924
CITIGROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1568099
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
399 PARK AVENUE, NEW YORK, NEW YORK 10043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 559-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 / /
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE:
COMMON STOCK OUTSTANDING AS OF OCTOBER 31, 2002: 5,056,767,896
AVAILABLE ON THE WEB AT www.citigroup.com
CITIGROUP INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page No.
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Item 1. Financial Statements:
Consolidated Statement of Income (Unaudited) -
Three and Nine Months Ended September 30, 2002 and 2001 47
Consolidated Statement of Financial Position -
September 30, 2002 (Unaudited) and December 31, 2001 48
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Nine Months Ended September 30, 2002 and 2001 49
Consolidated Statement of Cash Flows (Unaudited) -
Nine Months Ended September 30, 2002 and 2001 50
Notes to Consolidated Financial Statements (Unaudited) 51
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 4 - 46
Item 3. Quantitative and Qualitative Disclosures About Market Risk 34 - 37
60
Item 4. Controls and Procedures 46
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 68
Item 2. Changes in Securities and Use of Proceeds 69
Item 6. Exhibits and Reports on Form 8-K 70
Signatures 72
Certifications 73
Exhibit Index 75
THE COMPANY
Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company) is a
diversified global financial services holding company whose businesses provide a
broad range of financial services to consumer and corporate customers with some
200 million customer accounts in over 100 countries and territories.
The Company's activities are conducted through the Global Consumer, Global
Corporate and Investment Bank, Global Investment Management, Proprietary
Investment Activities and Corporate/Other segments.
The Company is a bank holding company within the meaning of the U.S. Bank
Holding Company Act of 1956 registered with, and subject to examination by, the
Federal Reserve Board. Certain of the Company's subsidiaries are subject to
supervision and examination by their respective federal and state authorities.
Additional information on the Company's regulation and supervision can be found
within Citigroup's 2001 Annual Report and Form 10-K. Additional information is
available on the Company's web site at (http://www.Citigroup.com).
BUSINESS SEGMENT PRESENTATION AND OPERATING UNIT FORMAT
During the 2002 second quarter Citigroup's internal management reporting was
realigned to follow its organizational changes. Citigroup modified the Company's
financial reporting format to be consistent with this internal reporting. These
modifications are intended to simplify disclosure by emphasizing global
products, while providing a regional breakdown of the segments. All prior
periods have been reclassified to conform to the current period's presentation.
PRODUCT DISCLOSURE
Financial disclosure is organized by segments along product lines:
GLOBAL CONSUMER -- CARDS, CONSUMER FINANCE, and RETAIL BANKING.
GLOBAL CORPORATE AND INVESTMENT BANK -- CAPITAL MARKETS AND BANKING, PRIVATE
CLIENT, and TRANSACTION SERVICES.
GLOBAL INVESTMENT MANAGEMENT -- LIFE INSURANCE AND ANNUITIES, PRIVATE BANK, and
ASSET MANAGEMENT.
PROPRIETARY INVESTMENT ACTIVITIES
CORPORATE/OTHER
REGIONAL DISCLOSURE
Supporting this product structure is disclosure of Citigroup's net income by
region, including:
NORTH AMERICA (EXCLUDING MEXICO)
MEXICO
WESTERN EUROPE
JAPAN
LATIN AMERICA
ASIA (EXCLUDING JAPAN)
CENTRAL AND EASTERN EUROPE, MIDDLE EAST AND AFRICA (CEEMEA)
Net income for each region is disclosed by Global Consumer, Global Corporate and
Investment Bank, and Global Investment Management. Net income for
Corporate/Other is primarily derived from North America (excluding Mexico).
Proprietary Investment Activities is centrally managed and is not allocated to
any region. Net income by region is fully reflected in the product disclosures
described above.
The following changes to the format have impacted individual lines of business
as follows:
- Mexico, formerly reported in its entirety within the Global Consumer
segment, has been apportioned to each of Citigroup's product groups.
- Emerging Markets Retirement Services, previously included in Emerging
Markets Consumer Banking, is now reported as part of ASSET MANAGEMENT within
Global Investment Management.
- Emerging Markets Corporate Banking is now reported as part of CAPITAL
MARKETS AND BANKING within the Global Corporate and Investment Bank.
- International Insurance Manufacturing, previously reported in Global
Consumer, is now reported as part of LIFE INSURANCE AND ANNUITIES within
Global Investment Management.
1
The following provides details on the lines of business included within each
global segment.
GLOBAL CONSUMER
Global Consumer delivers a wide array of banking, lending, insurance and
investment services through a network of local branches, offices and electronic
delivery systems, including ATMs, ALMs (Automated Lending Machines) and the
World Wide Web. The Global Consumer businesses serve individual consumers as
well as small proprietorships. Global Consumer includes CARDS, CONSUMER FINANCE
and RETAIL BANKING.
CARDS provides MasterCard, VISA and private label credit and charge cards issued
to customers in 47 countries around the world. North America Cards includes the
operations of Citi Cards, the company's primary brand in North America, as well
as Diners Club N.A. and Mexico Cards. International Cards provides credit and
charge cards to customers in Western Europe, Japan, Asia, CEEMEA, and Latin
America.
CONSUMER FINANCE provides community-based lending services through branch
networks, regional sales offices and cross-selling initiatives with other
Citigroup businesses. The business of CitiFinancial is included in North America
Consumer Finance. As of September 30, 2002, North America Consumer Finance
maintained 2,420 offices, including 2,207 CitiFinancial offices in the U.S. and
Canada, while International Consumer Finance maintained 1,182 offices, including
940 in Japan. CONSUMER FINANCE offers real estate-secured loans, unsecured and
partially secured personal loans, auto loans and loans to finance consumer goods
purchases. In addition, CitiFinancial, through certain subsidiaries and third
parties, makes available various credit-related and other insurance products to
its U.S. CONSUMER FINANCE customers.
RETAIL BANKING provides banking, lending, investment and insurance services to
customers through retail branches and electronic delivery systems. In North
America, RETAIL BANKING includes the operations of Citibanking North America,
Consumer Assets, Primerica Financial Services (Primerica) and Mexico Retail
Banking. Citibanking North America delivers banking, lending, investment and
insurance services through 458 branches in the U.S. and Puerto Rico and through
Citibank Online, an Internet banking site on the World Wide Web. The Consumer
Assets business originates and services mortgages and student loans for
customers across the U.S. The business operations of Primerica involve the sale,
mainly in North America, of life insurance and other products manufactured by
its affiliates, including Smith Barney mutual funds, CitiFinancial mortgages and
personal loans and the products of LIFE INSURANCE AND ANNUITIES. The Primerica
sales force is composed of over 100,000 independent representatives. Mexico
Retail Banking consists of the branch banking operations of Banamex.
International Retail Banking provides full-service banking and investment
services in Western Europe, Japan, Asia, CEEMEA and Latin America.
GLOBAL CORPORATE AND INVESTMENT BANK
The Global Corporate and Investment Bank provides corporations, governments,
institutions and investors in over 100 countries and territories with a broad
range of financial products and services, including investment advice, financial
planning and retail brokerage services, as well as banking and financial
services. The Global Corporate and Investment Bank includes CAPITAL MARKETS AND
BANKING, PRIVATE CLIENT and TRANSACTION SERVICES.
CAPITAL MARKETS AND BANKING offers a wide array of investment banking and
commercial banking services and products, including the underwriting and
distribution of fixed income and equity securities for U.S. and multinational
corporations and for state, local and other governmental and
government-sponsored authorities. In addition, CAPITAL MARKETS AND BANKING also
provides capital raising, advisory, research and other brokerage services to its
customers, acts as a market-maker and executes securities and commodities
futures brokerage transactions on all major U.S. and international exchanges on
behalf of customers and for its own account. CAPITAL MARKETS AND BANKING is a
major participant in foreign exchange and in the over-the-counter (OTC) market
for derivative instruments involving a wide range of products, including
interest rate, equity and currency swaps, caps and floors, options, warrants and
other derivative products. It also creates and sells various types of structured
securities. CAPITAL MARKETS AND BANKING also provides loans, leasing and
equipment finance. The primary businesses in CAPITAL MARKETS AND BANKING include
Fixed Income, Equities, Investment Banking, Sales & Trading (which mainly
operates in Asia, Latin America, CEEMEA and Mexico), CitiCapital and Lending.
PRIVATE CLIENT provides investment advice, financial planning and brokerage
services to affluent individuals, small and mid-size companies, non-profits and
large corporations by leveraging a network of more than 12,800 Smith Barney
Financial Consultants in more than 500 offices worldwide. A significant portion
of PRIVATE CLIENT'S revenue is generated from the commissions earned as a broker
for its clients in the purchase and sale of securities. PRIVATE CLIENT generates
additional revenue by financing customers' securities transactions through
secured margin lending. PRIVATE CLIENT also receives commissions and other sales
and service revenues through the sale of proprietary mutual funds and
third-party mutual funds.
2
TRANSACTION SERVICES is composed of e-Business and Global Securities Services
(GSS). e-Business provides comprehensive cash management, trade finance and
e-commerce services for corporations and financial institutions worldwide. GSS
provides custody services to investors such as insurance companies and pension
funds, clearing services to intermediaries such as broker/dealers and depository
and agency and trust services to multinational corporations and governments
globally.
GLOBAL INVESTMENT MANAGEMENT
GLOBAL INVESTMENT MANAGEMENT offers a broad range of life insurance, annuity,
asset management and personalized wealth management products and services
distributed to institutional, high net worth and retail clients. Global
Investment Management includes LIFE INSURANCE AND ANNUITIES, PRIVATE BANK, and
ASSET MANAGEMENT.
LIFE INSURANCE AND ANNUITIES includes Travelers Life and Annuity and
International Insurance Manufacturing. These businesses offer individual
annuity, group annuity, individual life insurance and corporate owned life
insurance (COLI) products. The individual products include fixed and variable
deferred annuities, payout annuities, and term and universal life insurance.
These products are primarily distributed through Citigroup businesses, a
nationwide network of independent agents and unaffiliated broker dealers. The
COLI product is a variable universal life product distributed through
independent specialty brokers. The group annuity products offered include
institutional pension products, including guaranteed investment contracts,
payout annuities, structured finance, and group annuities to U.S.
employer-sponsored retirement and savings plans through direct sales and various
intermediaries. The International Insurance Manufacturing business primarily has
operations in Mexico, Western Europe, Asia, and Latin America.
PRIVATE BANK provides personalized wealth management services for high net worth
clients through 90 offices in 29 countries and territories, generating fee and
interest income from investment funds management and customer trading activity,
trust and fiduciary services, custody services, and traditional banking and
lending activities. Through its Private Bankers and Product Specialists, PRIVATE
BANK leverages its extensive experience with clients' needs and its access to
Citigroup to provide clients with comprehensive investment and banking services.
ASSET MANAGEMENT includes the businesses of Citigroup Asset Management,
Citigroup Alternative Investments, Banamex asset management and retirement
services and Citigroup's other retirement services businesses in North America
and Latin America. Clients include private and public retirement plans,
endowments, foundations, banks, central banks, insurance companies, other
corporations, government agencies and high net worth and other individuals.
Client relationships may be introduced through the cross marketing and
distribution channels within Citigroup, through ASSET MANAGEMENT'S own sales
force or through independent sources.
PROPRIETARY INVESTMENT ACTIVITIES
PROPRIETARY INVESTMENT ACTIVITIES comprises Citigroup's venture capital
activities, realized investment gains (losses) from sales or write-downs of
certain insurance-related investments, results from certain proprietary
investments, the results of certain investments in countries that refinanced
debt under the 1989 Brady Plan or plans of a similar nature, and, since August
2001, the Banamex investment portfolio.
CORPORATE/OTHER
CORPORATE/OTHER includes net corporate treasury results, corporate expenses,
certain intersegment eliminations, Internet-related development activities, and
taxes not allocated to the individual businesses.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EVENTS IN 2002
DISCONTINUED OPERATIONS
Travelers Property Casualty Corp. (TPC) (an indirect wholly-owned subsidiary of
Citigroup on December 31, 2001) sold 231 million shares of its class A common
stock representing approximately 23.1% of its outstanding equity securities in
an initial public offering (the IPO) on March 27, 2002. Citigroup recognized an
after-tax gain of $1.061 billion in the 2002 first quarter as a result of the
IPO. The after-tax gain was increased by $97 million in the 2002 third quarter
due to the receipt of a private letter ruling from the Internal Revenue Service
and the resolution of certain tax matters related to the IPO. In connection with
the IPO, Citigroup entered into an agreement with TPC that provides that, in any
fiscal year in which TPC records asbestos-related income statement charges in
excess of $150 million, net of any reinsurance, Citigroup will pay to TPC the
amount of any such excess up to a cumulative aggregate of $800 million, reduced
by the tax effect of the highest applicable federal income tax rate. A portion
of the IPO gain was deferred to offset any payments arising in connection with
this agreement. On October 16, 2002 notice was given that $159 million will be
payable in the 2002 fourth quarter, pursuant to this agreement.
On August 20, 2002, Citigroup completed the distribution to its stockholders of
a majority portion of its remaining ownership interest in TPC (the
distribution). This non-cash distribution was tax-free to Citigroup, its
stockholders and TPC. The distribution was treated as a dividend to stockholders
for accounting purposes that reduced Citigroup's Additional Paid-In Capital by
approximately $6.9 billion. Following the distribution, Citigroup remains a
holder of approximately 9.9% of TPC's outstanding equity securities which are
carried at fair value in the Proprietary Investment Activities segment and are
classified as available-for-sale within Investments on the Unaudited
Consolidated Statement of Financial Position at September 30, 2002.
Following the August 20, 2002 distribution, the results of TPC are reported in
the Company's Unaudited Statements of Income and Cash Flows separately as
discontinued operations for all periods presented. In accordance with generally
accepted accounting principles (GAAP) the Unaudited Statement of Consolidated
Financial Position and related notes have not been restated. TPC represented the
primary vehicle by which Citigroup engaged in the property and casualty
insurance business. Minority interest was recognized on the IPO portion
beginning on April 1, 2002 through the date of the distribution and is reflected
in discontinued operations in the Unaudited Consolidated Statement of Income.
TPC primarily includes the results of its Personal Lines and Commercial Lines
businesses. The Personal Lines business of TPC primarily provides coverage on
personal automobile and homeowners insurance sold to individuals, which are
distributed through approximately 7,600 independent agencies located throughout
the United States. TPC's Commercial Lines business offers a broad array of
property and casualty insurance and insurance-related services, which it
distributes through approximately 6,300 brokers and independent agencies located
throughout the United States. TPC is the third largest writer of commercial
lines insurance in the U.S. based on 2001 direct written premiums published by
A.M. Best Company.
ACQUISITION OF GOLDEN STATE BANCORP
On November 6, 2002, Citigroup completed its acquisition of Golden State Bancorp
(Golden State) in a transaction in which Citigroup paid approximately $2.3
billion in cash and issued 79.5 million Citigroup common shares for all of the
outstanding shares of Golden State. The total transaction value of approximately
$5.8 billion was based on the average prices of Citigroup shares, as adjusted
for the effect of the TPC distribution, for the two trading days before and
after May 21, 2002, the date the terms of the acquisition were agreed to and
announced.
Golden State was the parent company of California Federal Bank, the second
largest thrift in the U.S. and, through its First Nationwide Mortgage business,
the eighth largest mortgage servicer. As of September 30, 2002, it had $25
billion in deposits, $51 billion in assets and 354 branches in California and
Nevada.
SALE OF 399 PARK AVENUE
During the 2002 third quarter, the Company sold its 399 Park Avenue, New York
City Headquarters building. The sale for $1.06 billion resulted in a pretax gain
of $830 million, with $527 million ($323 million after-tax) recognized in the
2002 third quarter and the remainder to be recognized over the term of
Citigroup's lease agreements. The Company is currently the lessee of
approximately 40% of the building with terms averaging 15 years.
4
CHANGES IN CREDIT CARD RECEIVABLES AND SECURITIZATIONS
During the 2002 third quarter, the Company increased the loan loss reserve by
$206 million related to past due interest and late fees on its on-balance sheet
credit card receivables in accordance with recent guidance from the Federal
Financial Institutions Examination Council (FFIEC).
Cards revenues in the 2002 third quarter also included net gains of $239 million
as a result of changes in estimates in the timing of revenue recognition on
securitizations. See Note 13 to Unaudited Consolidated Financial Statements.
IMPACT FROM ARGENTINA'S ECONOMIC CHANGES
Throughout 2002 Argentina continues to experience significant political and
economic changes including severe recessionary conditions, high inflation and
political uncertainty. The government of Argentina implemented substantial
economic changes, including abandoning the country's fixed U.S.
dollar-to-peso exchange rate, and redenominated substantially all of the
banking industry's loans, deposits and certain other assets and liabilities
previously denominated in U.S. dollars into pesos at different rates. As a
result of the impact of these government actions on operations, the Company
changed its functional currency in Argentina from the U.S. dollar to the
Argentine peso. Additionally, the government issued certain compensation
instruments to financial institutions to compensate them in part for losses
incurred as a result of the redenomination events. The government also
announced a 180 day moratorium against creditors filing foreclosures or
bankruptcy proceedings against borrowers. Later in the year, the government
modified the terms of certain of its obligations making them less valuable.
The government actions, combined with the severe recessionary economic
situation and the devaluation of the peso, adversely impacted Citigroup's
consumer and commercial borrowers in Argentina.
FIRST QUARTER 2002
During the 2002 first quarter, Citigroup recorded a total of $858 million in net
pretax charges, as follows: a $475 million addition to the allowance for credit
losses, $269 million in loan and investment write-downs, a $72 million net
charge for currency redenomination and other foreign currency items, and a $42
million restructuring charge. The $72 million net charge includes a benefit from
compensation instruments of the Argentine government subsequently issued in the
2002 third quarter. In addition, the impact of the devaluation of the peso
during the first quarter produced foreign currency translation losses that
reduced Citigroup's equity by $512 million, net of tax.
SECOND QUARTER 2002
During the 2002 second quarter, Citigroup recorded a total of $84 million in net
pretax charges, as follows: a $76 million loss relating to Amparos (representing
judicial orders requiring previously dollar denominated deposits to be repaid at
market exchange rates); a net loss of $5 million relating to CER adjustments
(representing inflation-indexed interest accruals to be paid to depositors and
received on certain loans); Proprietary Investment Activities' impairment
charges of $53 million; and reductions in the Company's consumer loan loss
reserve of $50 million resulting from the declining size of the consumer loan
portfolio due to the devaluation of the Argentine peso. In addition, the impact
of the devaluation of the peso in the second quarter resulted in foreign
currency translation losses that reduced Citigroup's equity by $77 million, net
of tax.
THIRD QUARTER 2002
During the 2002 third quarter, as a result of the impact of the continuing
economic recession and government actions on certain of Citigroup's corporate
loans and sovereign investments, Citigroup recorded a total of $531 million
in net pretax charges as follows: a $281 million provision for credit losses
and $98 million of writedowns of Patriotic Bonds; Proprietary Investment
Activities' impairment charges of $111 million; and a $41 million loss
relating to Amparos. These charges were necessary to reflect government
action and a further deterioration in the Argentine economy.
As the economic situation, financial regulations and implementation issues in
Argentina remain fluid, we continue to work with the government and our
customers and continue to monitor conditions closely. Additional losses may be
incurred. In particular, we continue to monitor the potential additional impact
that the continued economic crisis may have on our commercial borrowers. This
paragraph contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 34.
5
ACCOUNTING CHANGES
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Effective July 1, 2001, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" (SFAS No.
141) and certain provisions of SFAS No. 142, "Goodwill and Other Intangible
Assets" (SFAS No. 142), as required for goodwill and indefinite-lived intangible
assets resulting from business combinations consummated after June 30, 2001.
These new rules require that all business combinations consummated after June
30, 2001 be accounted for under the purchase method. The nonamortization
provisions of the new rules affecting goodwill and intangible assets deemed to
have indefinite lives are effective for all purchase business combinations
completed after June 30, 2001.
On January 1, 2002, when the rules became effective for calendar year companies,
Citigroup adopted the remaining provisions of SFAS No. 142. Under the new rules,
effective January 1, 2002, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized, but are subject to annual impairment
tests. Other intangible assets will continue to be amortized over their useful
lives. During the three and nine months ended September 30, 2001, the after-tax
amortization expense related to goodwill and indefinite-lived intangible assets
which are no longer amortized was as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
IN MILLIONS OF DOLLARS SEPTEMBER 30, 2001 SEPTEMBER 30, 2001
------------------------------------------------------------------------------------------------------------
GLOBAL CONSUMER
CARDS $ 6 $ 18
CONSUMER FINANCE 23 87
RETAIL BANKING 11 33
Other 4 11
---------------------------------------
TOTAL GLOBAL CONSUMER 44 149
---------------------------------------
GLOBAL CORPORATE AND INVESTMENT BANK
CAPITAL MARKETS AND BANKING 15 35
PRIVATE CLIENT - -
TRANSACTION SERVICES 3 9
Other 16 47
---------------------------------------
TOTAL GLOBAL CORPORATE AND INVESTMENT BANK 34 91
---------------------------------------
GLOBAL INVESTMENT MANAGEMENT
LIFE INSURANCE AND ANNUITIES(1) (8) (8)
PRIVATE BANK - -
ASSET MANAGEMENT 19 49
---------------------------------------
TOTAL GLOBAL INVESTMENT MANAGEMENT 11 41
---------------------------------------
PROPRIETARY INVESTMENT ACTIVITIES - -
CORPORATE/OTHER 5 15
DISCONTINUED OPERATIONS 20 60
---------------------------------------
TOTAL AFTER-TAX AMORTIZATION EXPENSE $ 114 $ 356
============================================================================================================
(1) During the third quarter of 2001, the Company reversed $8 million of
negative goodwill associated with LIFE INSURANCE AND ANNUITIES.
The Company has performed the required impairment tests of goodwill and
indefinite-lived intangible assets. There was no impairment of goodwill upon
adoption of SFAS No. 142. The initial adoption resulted in a cumulative
adjustment of $47 million after-tax recorded as a charge to earnings related to
the impairment of certain intangible assets. See Note 2 to Unaudited
Consolidated Financial Statements for additional information about this
accounting change.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Citigroup currently applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans, under which there is
generally no charge to earnings for employee stock option awards. Alternatively,
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), allows
companies to recognize compensation expense over the related service period
based on the grant-date fair value of the stock award.
Beginning in 2003, the Company intends to account for stock-based compensation
issued in 2003 and thereafter in accordance with the fair-value method
prescribed by SFAS No. 123. Assuming the current five-year vesting provision for
options, the estimated impact of this change will be approximately $0.03 diluted
per share in 2003 and, when fully phased in over the next five years,
approximately $0.06 diluted per share annually. This statement is a
forward-looking statement within the meaning of the Private
6
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 34.
EVENTS IN 2001
ACQUISITION OF BANAMEX
In August 2001, Citicorp, an indirect wholly-owned subsidiary of Citigroup Inc.,
completed its acquisition of Grupo Financiero Banamex-Accival (Banamex), a
leading Mexican financial institution, for approximately $12.5 billion in cash
and Citigroup stock. Citicorp completed the acquisition by settling transactions
that were conducted on the Mexican Stock Exchange. Those transactions comprised
both the acquisition of Banamex shares tendered in response to Citicorp's offer
to acquire all of Banamex's outstanding shares and the simultaneous sale of
126,705,281 Citigroup shares to the tendering Banamex shareholders. On September
24, 2001, Citicorp became the holder of 100% of the issued and outstanding
ordinary shares of Banamex following a share redemption by Banamex. The results
of Banamex are included from August 2001 forward.
SEPTEMBER 11TH EVENTS
The September 11, 2001 terrorist attack financially impacted the Company in
several areas. Revenues were reduced due to the disruption to Citigroup's
businesses and additional expenses incurred as a result of the attack resulted
in after-tax losses of approximately $200 million. The Company also experienced
significant property loss, for which it is insured. The Company has recorded
insurance recoveries up to the net book value of the assets written off.
Additional insurance recoveries have been recorded when realized. Reductions in
equity values during the 2001 third quarter were further impacted by the
September 11th attack, which reduced Citigroup's Investment Activities results
in the 2001 third quarter. Additionally, after-tax losses related to insurance
claims (net of reinsurance impact) totaled $502 million, the bulk of which
related to the property and casualty insurance operations of TPC and are
currently reflected as discontinued operations.
ACCOUNTING CHANGES IN 2001
ADOPTION OF EITF 99-20
During the 2001 second quarter, the Company adopted Emerging Issues Task Force
(EITF) Issue No. 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial Assets"
(EITF 99-20). EITF 99-20 provides new guidance regarding income recognition and
identification and determination of impairment on certain asset-backed
securities. The initial adoption resulted in a cumulative adjustment of $116
million after-tax, recorded as a charge to earnings, and an increase of $93
million included in stockholders' equity from non-owner sources.
DERIVATIVES AND HEDGE ACCOUNTING
On January 1, 2001, Citigroup adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 changed the
accounting treatment of derivative contracts (including foreign exchange
contracts) that are employed to manage risk outside of Citigroup's trading
activities, as well as certain derivative instruments embedded in other
contracts. SFAS No. 133 requires that all derivatives be recorded on the balance
sheet at their fair value. The treatment of changes in the fair value of
derivatives depends on the character of the transaction, including whether it
has been designated and qualifies as part of a hedging relationship. The
majority of Citigroup's derivatives are entered into for trading purposes and
were not impacted by the adoption of SFAS No. 133. The cumulative effect of
adopting SFAS No. 133 at January 1, 2001 was an after-tax charge of $42 million
included in net income and an increase of $25 million included in other changes
in stockholders' equity from nonowner sources.
7
BUSINESS FOCUS
The following tables show the net income (loss) for Citigroup's businesses both
on a Product View and on a Regional View:
CITIGROUP NET INCOME -- PRODUCT VIEW
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(1) 2002 2001(1)
---------------------------------------------------------------------------------------------
GLOBAL CONSUMER
CARDS $ 852 $ 679 $ 2,186 $ 1,801
CONSUMER FINANCE 555 547 1,653 1,412
RETAIL BANKING 879 682 2,342 1,789
Other (49) (19) (113) (67)
--------------------------------------------
TOTAL GLOBAL CONSUMER 2,237 1,889 6,068 4,935
--------------------------------------------
GLOBAL CORPORATE AND INVESTMENT BANK
CAPITAL MARKETS AND BANKING 935 1,002 3,031 3,121
PRIVATE CLIENT 168 182 569 578
TRANSACTION SERVICES 121 100 406 294
Other (10) 5 (65) 28
--------------------------------------------
TOTAL GLOBAL CORPORATE AND INVESTMENT BANK 1,214 1,289 3,941 4,021
--------------------------------------------
GLOBAL INVESTMENT MANAGEMENT
LIFE INSURANCE AND ANNUITIES 183 185 642 636
PRIVATE BANK 115 91 338 274
ASSET MANAGEMENT 138 96 393 268
--------------------------------------------
TOTAL GLOBAL INVESTMENT MANAGEMENT 436 372 1,373 1,178
--------------------------------------------
PROPRIETARY INVESTMENT ACTIVITIES(2) (237) (185) (376) 29
CORPORATE/OTHER 56 (130) 13 (505)
--------------------------------------------
INCOME FROM CONTINUING OPERATIONS 3,706 3,235 11,019 9,658
INCOME (LOSS) FROM DISCONTINUED OPERATIONS(3) 214 (58) 1,875 751
CUMULATIVE EFFECT OF ACCOUNTING CHANGES(4) - - (47) (158)
--------------------------------------------
TOTAL NET INCOME $ 3,920 $ 3,177 $ 12,847 $ 10,251
=============================================================================================
(1) Reclassified to conform to the current period's presentation.
(2) Includes Realized Insurance Investment Portfolio Gains (Losses) primarily
from the LIFE INSURANCE AND ANNUITIES and Primerica businesses.
(3) TPC sold 231 million shares of its class A common stock in the IPO on March
27, 2002. Citigroup made a tax-free distribution to its stockholders of a
portion of its ownership interest in TPC on August 20, 2002. Income (loss)
from Discontinued Operations includes the operations of TPC, the $1.270
billion ($1.158 billion after-tax) gain on the IPO and income taxes on both
the operations and the IPO gain. See Note 4 to Unaudited Consolidated
Financial Statements.
(4) See Note 2 to Unaudited Consolidated Financial Statements.
8
BUSINESS FOCUS
CITIGROUP NET INCOME -- REGIONAL VIEW(1)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(2) 2002 2001(2)
--------------------------------------------------------------------------------------------------------
NORTH AMERICA (EXCLUDING MEXICO)
Consumer $ 1,408 $ 1,236 $ 3,931 $ 3,267
Corporate 878 794 2,564 2,204
Investment Management 319 306 1,028 985
--------------------------------------------
TOTAL NORTH AMERICA (EXCLUDING MEXICO) 2,605 2,336 7,523 6,456
--------------------------------------------
MEXICO(3)
Consumer 217 41 538 14
Corporate 26 (1) 169 40
Investment Management 54 11 172 28
--------------------------------------------
TOTAL MEXICO 297 51 879 82
--------------------------------------------
WESTERN EUROPE
Consumer 158 115 433 315
Corporate 32 85 191 364
Investment Management 1 - (3) -
--------------------------------------------
TOTAL WESTERN EUROPE 191 200 621 679
--------------------------------------------
JAPAN
Consumer 265 259 763 700
Corporate 88 19 108 118
Investment Management 12 9 44 23
--------------------------------------------
TOTAL JAPAN 365 287 915 841
--------------------------------------------
ASIA (EXCLUDING JAPAN)
Consumer 177 157 468 440
Corporate 154 101 514 442
Investment Management 26 18 81 59
--------------------------------------------
TOTAL ASIA 357 276 1,063 941
--------------------------------------------
LATIN AMERICA
Consumer (23) 57 (151) 142
Corporate (100) 174 (13) 485
Investment Management 19 22 37 61
--------------------------------------------
TOTAL LATIN AMERICA (104) 253 (127) 688
--------------------------------------------
CENTRAL & EASTERN EUROPE, MIDDLE EAST & AFRICA
Consumer 35 24 86 57
Corporate 136 117 408 368
Investment Management 5 6 14 22
--------------------------------------------
TOTAL CENTRAL & EASTERN EUROPE, MIDDLE EAST & AFRICA 176 147 508 447
--------------------------------------------
PROPRIETARY INVESTMENT ACTIVITIES (237) (185) (376) 29
CORPORATE/OTHER 56 (130) 13 (505)
--------------------------------------------
INCOME FROM CONTINUING OPERATIONS 3,706 3,235 11,019 9,658
INCOME (LOSS) FROM DISCONTINUED OPERATIONS(4) 214 (58) 1,875 751
CUMULATIVE EFFECT OF ACCOUNTING CHANGES(5) - - (47) (158)
--------------------------------------------
TOTAL NET INCOME $ 3,920 $ 3,177 $ 12,847 $ 10,251
========================================================================================================
(1) Proprietary Investment Activities is centrally managed and not allocated to
any region.
(2) Reclassified to conform to the current period's presentation.
(3) Mexico's results include the operations of Banamex from August 2001
forward.
(4) TPC sold 231 million shares of its class A common stock in the IPO on March
27, 2002. Citigroup made a tax-free distribution to its stockholders of a
portion of its ownership interest in TPC on August 20, 2002. Income (loss)
from Discontinued Operations includes the operations of TPC, the $1.270
billion ($1.158 billion after-tax) gain on the IPO and income taxes on both
the operations and the IPO gain. See Note 4 to Unaudited Consolidated
Financial Statements.
(5) See Note 2 to Unaudited Consolidated Financial Statements.
9
RESULTS OF OPERATIONS
FINANCIAL SUMMARY
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA 2002 2001 2002 2001
--------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE(1) $ 17,644 $ 16,198 $ 53,435 $ 49,500
Operating expenses 8,440 8,766 26,643 27,321
Benefits, claims, and credit losses(1) 3,576 2,400 9,920 7,065
--------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES,
MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 5,628 5,032 16,872 15,114
Income taxes 1,898 1,771 5,794 5,406
Minority interest, net of income taxes 24 26 59 50
--------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 3,706 3,235 11,019 9,658
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 214 (58) 1,875 751
CUMULATIVE EFFECT OF ACCOUNTING CHANGES - - (47) (158)
--------------------------------------------------
NET INCOME $ 3,920 $ 3,177 $ 12,847 $ 10,251
====================================================================================================================
EARNINGS PER SHARE:
BASIC:
Income from continuing operations $ 0.73 $ 0.63 $ 2.16 $ 1.91
Net Income $ 0.77 $ 0.62 $ 2.52 $ 2.03
DILUTED:
Income from continuing operations $ 0.72 $ 0.62 $ 2.12 $ 1.87
Net Income $ 0.76 $ 0.61 $ 2.47 $ 1.98
Return on Common Equity 19.1% 17.1% 20.9% 19.8%
Total Assets (IN BILLIONS) $ 1,031.6 $ 1,068.2
Total Equity (IN BILLIONS) $ 80.8 $ 78.4
Tier 1 Capital 9.20% 8.20%
Total Capital Ratio 12.02% 10.77%
====================================================================================================================
(1) Revenues, Net of Interest Expense, and Benefits, Claims, and Credit Losses
in the table above are disclosed on an owned basis (under Generally
Accepted Accounting Principles). If this table were prepared on a managed
basis, which includes certain effects of securitization activities
including receivables held for securitization and receivables sold with
servicing retained, there would be no impact to net income, but revenues
and benefits, claims, and credit losses would have been increased by $960
million and $907 million in the 2002 and 2001 third quarters, respectively,
and increased $3.062 billion and $2.603 billion in the nine-month periods.
Although a managed basis presentation is not in conformity with GAAP, it
provides a representation of the volumes in the credit card business.
INCOME AND EARNINGS PER SHARE
Citigroup reported net income of $3.920 billion or $0.76 per diluted share in
the 2002 third quarter, up 23% and 25% from $3.177 billion or $0.61 per diluted
share in the 2001 third quarter. Net income in the 2002 third quarter included
an after-tax benefit of $27 million for restructuring-related items. Net income
in the 2001 third quarter included an after-tax charge of $84 million (or $0.02
per diluted share) for restructuring-related items (as described in Note 9 to
Unaudited Consolidated Financial Statements). Return on common equity was 19.1%
in the 2002 third quarter compared to 17.1% a year ago.
Income from continuing operations for the 2002 third quarter of $3.706 billion
or $0.72 per diluted share was up 15% and 16% from $3.235 billion or $0.62 per
diluted share in the 2001 third quarter.
Net income for the 2002 nine months of $12.847 billion or $2.47 per diluted
share were both up 25% from $10.251 billion or $1.98 per diluted share in the
2001 nine months. Net income in the 2002 nine months included an after-tax gain
of $1.158 billion (or $0.22 per diluted share) on the sale of TPC's stock
offering and an after-tax charge of $47 million (or $0.01 per diluted share),
reflecting the cumulative effect of adopting the remaining provisions of SFAS
No. 142 (as described in Notes 2 and 4 to Unaudited Consolidated Financial
Statements).
Income from continuing operations for the 2002 nine months of $11.019 billion or
$2.12 per diluted share was up 14% and 13% from $9.658 billion or $1.87 per
diluted share in the 2001 nine months.
Net income in the 2001 nine months included an after-tax charge of $295 million
(or $0.06 per diluted share) for restructuring-related items and an after-tax
charge of $158 million (or $0.03 per diluted share), reflecting the cumulative
effect of adopting SFAS No. 133
10
and EITF 99-20 (as described in Notes 2 and 9 to Unaudited Consolidated
Financial Statements). Return on common equity was 20.9% and 19.8% in the nine
months of 2002 and 2001, respectively.
Global Consumer net income increased $348 million or 18% and $1.133 million or
23% in the 2002 third quarter and nine months compared to the 2001 periods.
Global Corporate and Investment Bank (GCIB) decreased $75 million or 6% and $80
million or 2% in the 2002 third quarter and nine months compared to the 2001
periods. Global Investment Management grew $64 million or 17% and $195 million
or 17% from the respective 2001 periods, while Proprietary Investment Activities
decreased $52 million and $405 million from the 2001 third quarter and
nine-month periods. See individual segment and product discussions on pages 13 -
34 for additional discussion and analysis of the Company's results and
operations.
REVENUES, NET OF INTEREST EXPENSE
Total revenues, net of interest expense, of $17.6 billion and $53.4 billion in
the 2002 third quarter and nine months were up $1.4 billion or 9% and $3.9
billion or 8%, respectively, from the 2001 periods. Global Consumer revenues
were up $981 million or 11% in the 2002 third quarter to $9.5 billion, and were
up $3.6 billion or 15% in the 2002 nine months to $27.3 billion. Increases in
RETAIL BANKING revenues of $275 million or 9% and $1.8 billion or 22% from the
2001 third quarter and nine months, respectively, were due to the impact of
acquisitions, combined with growth in all regions except Latin America. Compared
to the 2001 periods, CARDS was up $579 million or 18% in the 2002 third quarter
and $1.3 billion or 15% in the 2002 nine months, while CONSUMER FINANCE
experienced growth of $144 million or 6% in the 2002 third quarter and $538
million or 8% in the 2002 nine months. Both businesses experienced improved
spreads, strong growth in receivables and the benefit of acquisitions, with
CARDS benefiting from the changes in estimates in the timing of revenue
recognition on securitizations.
Compared to the 2001 periods, GCIB revenues were up $131 million or 2% in the
2002 third quarter and were down $250 million or 1% in the 2002 nine months,
driven by CAPITAL MARKETS AND BANKING, up $145 million or 4% in the 2002 third
quarter but down $40 million in the 2002 nine-month period. CAPITAL MARKETS AND
BANKING growth in the 2002 third quarter reflected increases in Fixed Income and
Sales & Trading while the declines in the nine months were due to strong results
in the 2001 first quarter and write-downs in Argentina during 2002.
Global Investment Management revenues of $2.0 billion in the 2002 third quarter
and $6.1 billion in the 2002 nine months were up $119 million or 6% and $269
million or 5% from the comparable 2001 periods, primarily due to growth in
asset-based fee revenues and the impact of acquisitions in the nine-month
comparison. Revenues in Proprietary Investment Activities decreased $9 million
and $498 million from the 2001 third quarter and nine months, respectively,
primarily reflecting lower venture capital results, and higher impairment
write-downs, partially offset by the 399 Park Avenue building sale.
Citigroup securitizes credit card receivables as part of the management of its
funding and liquidity needs. After securitization of the receivables, the
Company continues to maintain credit card customer account relationships and
provides servicing for receivables transferred to the special purpose entity
trusts set up to facilitate securitization activities. See Note 13 to Unaudited
Consolidated Financial Statements. On a managed basis, including securitized
receivables, the Company would have increased both revenues and provisions for
benefits, claims, and credit losses by $960 million and $3.1 billion in the 2002
third quarter and nine months and would have increased by $907 million and $2.6
billion in the comparable 2001 periods.
SELECTED REVENUE ITEMS
Net interest revenue rose $909 million or 11% from the 2001 third quarter to
$9.2 billion and increased $4.6 billion or 20% from the 2001 nine months to
$27.9 billion, reflecting increases in fixed income trading and investment
positions, acquisitions, the impact of a changing rate environment and business
volume growth. Total commissions, asset management and administration fees of
$4.9 billion were down $242 million or 5% from the 2001 third quarter, primarily
as a result of decreases in volumes. Insurance premiums of $855 billion and $2.6
billion in the 2002 third quarter and nine months were up $66 million or 8%, and
$112 million or 5%, respectively, from the 2001 periods.
Principal transactions revenues of $970 million and $3.7 billion for the 2002
third quarter and nine months were down $49 million or 5% from the 2001 third
quarter and $1.06 billion or 22% from the 2001 nine-month period, reflecting
declines in Global Equities which were partially offset by growth in net
interest revenue. Realized gains (losses) from sales of investments were down
$273 million from the 2001 third quarter and $687 million from the 2001
nine-months, resulting primarily from the Company's insurance investment
portfolio. Other income as shown in the Consolidated Statement of Income of $1.9
billion in the 2002 third quarter and $4.0 billion for the 2002 nine months
increased $1.0 billion from the year-ago quarter and was up $920 million from
the 2001 nine months, primarily reflecting the gain on the sale of 399 Park
Avenue, higher securitization gains and activity, partially offset by lower
venture capital activity and increased credit losses on securitized credit card
receivables.
11
OPERATING EXPENSES
Operating expenses of $8.4 billion and $26.6 billion in the 2002 third quarter
and nine months, respectively, were down $326 million or 4% in the 2002 third
quarter and down $678 million or 2% in the 2002 nine months, compared to
year-ago levels. The change in expenses reflects an increase due to the impact
of acquisitions which was offset by expense control initiatives, lower incentive
compensation, and the absence of goodwill and indefinite-lived intangible asset
amortization. The adoption of SFAS No. 141 and SFAS No. 142, which reduced
operating expenses by $127 million in the 2002 third quarter and $394 million in
the nine-month period. The absence of this goodwill amortization increased the
Company's net income by $94 million in the 2002 third quarter and $296 million
in the nine-month period.
Global Consumer expenses in the 2002 third quarter were flat and increased 3% in
the 2002 nine months. GCIB expenses were down 8% in the quarter and down 9% in
the nine months while Global Investment Management expenses were down 4% and 2%
from the year-ago periods.
Operating expenses included net restructuring-related releases of $41 million
($27 million after-tax) in the 2002 third quarter and $35 million ($24 million
after-tax) in the 2002 nine months related principally to a reduction in the
reserve due to changes in estimates in the 2002 third quarter and to severance
and other costs associated with the reduction of staff within the Latin American
consumer and corporate businesses in the nine-month period.
Restructuring-related items of $133 million ($84 million after-tax) in the 2001
third quarter and $475 million ($295 million after-tax) in the 2001 nine months
related principally to severance and reduction of staff primarily in the Global
Consumer and GCIB businesses.
BENEFITS, CLAIMS, AND CREDIT LOSSES
Benefits, claims, and credit losses were $3.6 billion and $9.9 billion in the
2002 third quarter and nine months, up $1.2 billion and $2.9 billion from the
2001 third quarter and nine months, respectively. Policyholder benefits and
claims in the 2002 third quarter increased 8% from the 2001 third quarter to
$887 million, and were up 4% to $2.6 billion in the 2002 nine months, primarily
as a result of increases in LIFE INSURANCE AND ANNUITIES. The provision for
credit losses increased 70% from the 2001 third quarter to $2.7 billion in the
2002 third quarter and increased 61% from the 2001 nine months to $7.3 billion
in the 2002 nine months.
Global Consumer provisions for benefits, claims, and credit losses of $2.1
billion in the 2002 third quarter were up 32% from the 2001 third quarter,
reflecting increases in CARDS and CONSUMER FINANCE. Total net credit losses were
$1.761 billion and the related loss ratio was 2.65% in the 2002 third quarter,
as compared to $1.682 billion and 2.65% in the preceding quarter and $1.379
billion and 2.28% in the year-ago quarter. The consumer loan delinquency ratio
(90 days or more past due) increased to 2.70% at September 30, 2002 from 2.62%
at June 30, 2002 and 2.57% a year ago.
The GCIB provision for credit losses of $798 million and $1.9 billion in the
2002 third quarter and nine months increased $581 million and $1.2 billion from
year-ago levels, primarily due to provisions for Argentina and exposures in the
telecommunications industry.
Commercial cash-basis loans at September 30, 2002 and 2001 were $4.825 billion
and $3.103 billion, respectively, while the commercial Other Real Estate Owned
(OREO) portfolio totaled $171 million and $301 million, respectively. The
increase in cash-basis loans from the 2001 third quarter was primarily related
to the Banamex acquisition and increases attributable to borrowers in the
telecommunications industry and in Argentina. Commercial cash-basis loans at
September 30, 2002 increased $252 million from June 30, 2002 primarily due to
exposures in the telecommunications industry, and increases in CitiCapital and
Argentina. The decrease in OREO was primarily related to the distribution of TPC
and to Latin America.
CAPITAL
Total capital (Tier 1 and Tier 2) was $75.5 billion or 12.02% of net
risk-adjusted assets, and Tier 1 capital was $57.8 billion or 9.20% at September
30, 2002, compared to $80.8 billion or 11.75% and $63.3 billion or 9.20% of net
risk-adjusted assets at June 30, 2002. The August 20, 2002 TPC distribution
decreased Total capital and Tier 1 capital by $8.1 billion or 0.30%, and $7.6
billion or 0.40%, respectively, from June 30, 2002.
12
The Net Income line in the following business segments and operating unit
discussions excludes the cumulative effect of accounting changes. The
cumulative effect of accounting changes and income (loss) from discontinued
operations is disclosed within the Corporate/Other business segment. See
Notes 2 and 4 to Unaudited Consolidated Financial Statements.
GLOBAL CONSUMER
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % --------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
-----------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 9,530 $ 8,549 11 $ 27,269 $ 23,685 15
Operating expenses 3,996 4,015 - 11,969 11,567 3
Provisions for benefits, claims,
and credit losses 2,070 1,568 32 5,935 4,344 37
------------------ ---------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 3,464 2,966 17 9,365 7,774 20
Income taxes 1,219 1,071 14 3,270 2,821 16
Minority interest, after-tax 8 6 33 27 18 50
------------------ ---------------------
NET INCOME $ 2,237 $ 1,889 18 $ 6,068 $ 4,935 23
===============================================================================================
(1) Reclassified to conform to the current period's presentation.
GLOBAL CONSUMER -- which provides banking, lending, including credit and charge
cards, and investment and personal insurance products and services to customers
around the world -- reported net income of $2.237 billion and $6.068 billion in
the 2002 third quarter and nine months, up $348 million or 18% and $1.133
billion or 23% from the comparable 2001 periods, driven by double digit growth
in CARDS and RETAIL BANKING. CARDS net income increased $173 million or 25% in
the 2002 third quarter and $385 million or 21% in the 2002 nine months from the
prior-year periods, reflecting strong growth in Citi Cards and the acquisition
of Banamex. RETAIL BANKING net income increased $197 million or 29% in the 2002
third quarter and $553 million or 31% in the 2002 nine months from the
prior-year periods, as the impact of the Banamex and European American Bank
(EAB) acquisitions, including prior-year restructuring charges, combined with
strong growth in North America and the international markets were partially
offset by losses in Argentina. CONSUMER FINANCE net income increased 1% in the
2002 third quarter and 17% in the 2002 nine months compared to the prior-year
periods, as continued revenue growth and expense savings in North America were
partially offset by higher net credit losses in the U.S. and Japan.
Global Consumer net income in the 2002 third quarter included a net
restructuring reserve release of $15 million ($24 million pretax) resulting from
changes in estimates in Mexico. Net income in the 2002 nine months also included
a net restructuring reserve release of $21 million ($32 million pretax) in the
2002 second quarter due to changes in estimates in Citi Cards and Citibanking
North America and $11 million ($18 million pretax) of restructuring-related
charges in the 2002 first quarter, including $8 million related to severance and
other costs associated with the reduction of staff in Argentina. Net income in
the 2001 third quarter included restructuring-related charges of $73 million
($113 million pretax) mainly related to the acquisition of Banamex. Net income
in the 2001 nine months also included restructuring-related charges of $58
million ($92 million pretax) in the 2001 second quarter, mainly associated with
the downsizing of various functions across all products and geographies and $12
million ($19 million pretax) in the 2001 first quarter consisting of accelerated
depreciation in North America.
GLOBAL CONSUMER NET INCOME --
REGIONAL VIEW
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % --------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
-----------------------------------------------------------------------------------------------
North America (excluding Mexico) $ 1,408 $ 1,236 14 $ 3,931 $ 3,267 20
Mexico 217 41 NM 538 14 NM
Western Europe 158 115 37 433 315 37
Japan 265 259 2 763 700 9
Asia (excluding Japan) 177 157 13 468 440 6
Latin America (23) 57 NM (151) 142 NM
Central & Eastern Europe,
Middle East & Africa 35 24 46 86 57 51
------------------ ---------------------
TOTAL NET INCOME $ 2,237 $ 1,889 18 $ 6,068 $ 4,935 23
===============================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful
13
Growth in Global Consumer in the 2002 third quarter and nine months was led by
North America (excluding Mexico), Mexico, and Western Europe, partially offset
by a decline in Latin America. North America (excluding Mexico) grew 14% and 20%
in the 2002 third quarter and nine months, respectively, with increases in all
product lines. Mexico contributed growth of $176 million and $524 million in the
2002 third quarter and nine months, mainly due to the Banamex acquisition in
August 2001. Western Europe experienced growth of 37% in both the 2002 third
quarter and nine months, mainly reflecting the strengthening of the Euro
combined with higher loan volumes in RETAIL BANKING and CONSUMER FINANCE. Growth
in Japan of 2% and 9% in the 2002 third quarter and nine months, respectively,
primarily reflected the CONSUMER FINANCE acquisitions of Taihei Co., Ltd.
(Taihei) and Marufuku Co., Ltd, (Marufuku) and a gain from the sale of a
mortgage portfolio in RETAIL BANKING, partially offset by higher credit costs in
CONSUMER FINANCE. The decline in Latin America of $80 million and $293 million
in the 2002 third quarter and nine months, respectively, was mainly due to
economic conditions in Argentina, including charges taken in the first quarter
of 2002, the negative impact of government decrees and judicial orders and
continued devaluation of the Argentine peso.
CARDS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % --------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
-----------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 3,729 $ 3,150 18 $ 10,125 $ 8,798 15
Operating expenses 1,426 1,410 1 4,148 4,108 1
Provision for credit losses 981 670 46 2,616 1,841 42
------------------ ---------------------
INCOME BEFORE TAXES 1,322 1,070 24 3,361 2,849 18
Income taxes 470 391 20 1,175 1,048 12
------------------ ---------------------
NET INCOME 852 679 25 2,186 1,801 21
------------------ ---------------------
Average assets (IN BILLIONS OF DOLLARS) 66 62 6 61 60 2
Return on assets 5.12% 4.34% 4.79% 4.01%
=====================================================================================================
(1) Reclassified to conform to the current period's presentation.
CARDS - which includes bankcards, private-label cards and charge cards in 47
countries around the world - reported net income of $852 million and $2.186
billion in the 2002 third quarter and nine months, respectively, up $173 million
or 25% and $385 million or 21% from the 2001 periods, led by North America,
which benefited from revenue growth and expense management as well as the
acquisition of Banamex in August 2001.
As shown in the following table, average managed loans grew 5% in the 2002 third
quarter and nine months, reflecting growth in North America of 5% in both
periods, and growth in International Cards of 5% and 7%, respectively. Growth in
North America was led by Citi Cards, which benefited from increased marketing
and advertising expenditures. Growth in International Cards reflected
broad-based increases in Asia and growth in Western Europe, led by the U.K.,
Greece and Spain, all of which benefited from strengthening currencies in the
2002 third quarter. The growth in International Cards was partially offset by a
decline in Latin America which reflected the negative impact of foreign currency
translation and lower loan volumes in Argentina. Sales increased 11% in the 2002
third quarter, reflecting the benefit of marketing and expansion efforts in Citi
Cards, Western Europe and Asia combined with the impact of the events of
September 11th on prior-year sales levels.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % --------------------- %
IN BILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
-----------------------------------------------------------------------------------------------
SALES
North America $ 62.5 $ 58.5 7 $ 179.4 $ 172.3 4
International 11.3 8.2 38 29.4 24.1 22
------------------ ---------------------
TOTAL SALES $ 73.8 $ 66.7 11 $ 208.8 $ 196.4 6
AVERAGE MANAGED LOANS
North America $ 111.1 $ 105.9 5 $ 108.9 $ 103.5 5
International 10.9 10.4 5 10.6 9.9 7
------------------ ---------------------
TOTAL AVERAGE MANAGED LOANS $ 122.0 $ 116.3 5 $ 119.5 $ 113.4 5
===============================================================================================
(1) Reclassified to conform to the current period's presentation.
Revenues, net of interest expense, of $3.729 billion and $10.125 billion in the
2002 third quarter and nine months, respectively, rose $579 million or 18% and
$1.327 billion or 15% from the 2001 periods, primarily reflecting growth in
North America, Western Europe and Asia, partially offset by a decline in Latin
America. Revenue growth in North America was primarily due to spread
improvements, resulting from lower cost of funds partially offset by lower
yields, combined with the benefit of receivable growth,
14
which included the acquisition of Banamex. Citi Cards revenues in the 2002 third
quarter also included net gains of $239 million as a result of changes in
estimates in the timing of revenue recognition on securitizations. This change
is expected to benefit the next three quarters. This statement is a
forward-looking statement within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 34. In addition,
revenues in the 2002 nine-month period included $128 million from an increase in
the amortization period for certain direct loan origination costs. Growth in
Western Europe was led by the U.K. and Spain and included the benefit of foreign
currency translation while growth in Asia was led by the Philippines and Korea.
The decline in Latin America reflected continued weakness in Argentina due to
reduced business activity and the negative impact of foreign currency
translation.
Operating expenses in the 2002 third quarter increased $16 million or 1% from
the 2001 third quarter, reflecting growth of 2% in North America and a decline
of 1% in International Cards. Operating expenses in the third quarter periods
included a net restructuring reserve release of $5 million ($3 million
after-tax) in 2002 and restructuring-related charges of $35 million ($22 million
after-tax) in 2001. Restructuring-related items in both periods were due to
actions in Mexico. Excluding restructuring-related items, growth in North
America was driven by increased advertising and marketing costs in Citi Cards.
Operating expenses of $4.148 billion in the 2002 nine months increased $40
million or 1% from the prior-year period, as the acquisition of Banamex and
increased advertising and marketing costs in Citi Cards, Western Europe and Asia
were partially offset by the benefit of foreign currency translation in Latin
America and Japan. Expenses in the nine-month periods included a net
restructuring reserve release of $23 million ($14 million after-tax) in 2002
compared to restructuring-related charges of $39 million ($25 million after-tax)
in the prior-year period.
The provision for credit losses in the 2002 third quarter and nine months was
$981 million and $2.616 billion, respectively, compared to $670 million and
$1.841 billion in the 2001 periods, primarily reflecting a $206 million addition
to the loan loss reserve established in accordance with recent FFIEC guidance
related to past due interest and late fees on the on-balance sheet credit card
receivables in Citi Cards. The increase in the provision also reflects the
impact of higher credit losses in Citi Cards and Asia, mainly Hong Kong, and in
the nine-month comparison, an addition to the loan loss reserve resulting from
deteriorating credit in Argentina. Net credit losses in the 2002 third quarter
were $807 million and the related loss ratio was 6.29%, compared to $761 million
and 6.51% in the 2002 second quarter and $666 million and 5.65% in the 2001
third quarter. The improvement in the net credit loss ratio from the 2002 second
quarter reflected improvement in Citi Cards, partially offset by deterioration
in Latin America and Asia. Loans delinquent 90 days or more were $1.097 billion
or 2.07% of loans at September 30, 2002, compared to $944 million or 1.91% at
June 30, 2002 and $1.072 billion or 2.28% at September 30, 2001. The increase
compared to the prior quarter primarily reflected increases in Citi Cards, due
in part to seasonality.
The securitization of credit card receivables is limited to the Citi Cards
business within North America. At September 30, 2002, securitized credit card
receivables were $64.6 billion, compared with $65.2 billion at September 30,
2001. Credit card receivables held-for-sale were $6.5 billion, unchanged from a
year ago. Because securitization changes Citigroup's role from that of a lender
to that of a loan servicer, it removes the receivables from Citigroup's balance
sheet and affects the amount of revenue and the manner in which revenue and the
provision for credit losses are classified in the income statement. For
securitized receivables and receivables held-for-sale, gains are recognized upon
sale and amounts that would otherwise be reported as net interest revenue, fee
and commission revenue, and credit losses on loans are instead reported as fee
and commission revenue (for servicing fees) and other revenue (for the remaining
revenue, net of credit losses and the amortization of previously recognized
securitization gains). Because credit losses are a component of these cash
flows, revenues over the terms of these transactions may vary depending upon the
credit performance of the securitized receivables. However, Citigroup's exposure
to credit losses on the securitized receivables is contractually limited to the
cash flows from the receivables. Including securitized receivables and
receivables held-for-sale, gains are recognized upon sale and net credit losses
would have been $1.767 billion for the 2002 third quarter with a related loss
ratio of 5.75%, compared to $1.842 billion and 6.23% for the 2002 second quarter
and $1.548 billion and 5.28% for the 2001 third quarter. Adjusting for
securitization activity, loans delinquent 90 days or more would have been $2.305
billion or 1.86% at September 30, 2002, compared to $2.248 billion or 1.85% at
June 30, 2002 and $2.119 billion or 1.79% at September 30, 2001.
15
CONSUMER FINANCE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % --------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 2,439 $ 2,295 6 $ 7,143 $ 6,605 8
Operating expenses 744 815 (9) 2,240 2,588 (13)
Provisions for benefits, claims,
and credit losses 829 618 34 2,329 1,794 30
------------------ ---------------------
INCOME BEFORE TAXES 866 862 - 2,574 2,223 16
Income taxes 311 315 (1) 921 811 14
------------------ ---------------------
NET INCOME $ 555 $ 547 1 $ 1,653 $ 1,412 17
======================================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 91 $ 85 7 $ 89 $ 83 7
Return on assets 2.42% 2.55% 2.48% 2.27%
======================================================================================================
(1) Reclassified to conform to the current period's presentation.
CONSUMER FINANCE - which provides community-based lending services through
branch networks, regional sales offices and cross-selling initiatives with other
Citigroup businesses - reported net income of $555 million and $1.653 billion in
the 2002 third quarter and nine months, respectively, up $8 million or 1% and
$241 million or 17% from the 2001 periods, principally reflecting revenue growth
and lower expenses in North America, partially offset by higher net credit
losses in the U.S. and Japan. Net income growth in the 2002 third quarter and
nine months included after-tax benefits of $23 million and $87 million,
respectively, due to the absence of goodwill and other indefinite-lived
intangible asset amortization.
As shown in the following table, average loans grew 9% compared to the 2001
third quarter resulting from the cross-selling of products through Primerica, an
increase in auto loans in the U.S., the acquisitions of Taihei and Marufuku in
Japan and growth in real estate-secured loans in Western Europe. Average auto
loans for the 2002 third quarter increased $1.6 billion or 33% from 2001,
reflecting a shift in strategy to fund business volumes internally rather than
externally through the securitization of receivables. In Japan, average loans of
$13.1 billion in the 2002 third quarter grew $2.2 billion or 20% from the
prior-year quarter, reflecting, in part, the acquisitions of Taihei and Marufuku
which added $1.2 billion to average loans, primarily personal loans.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % --------------------- %
IN BILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
-----------------------------------------------------------------------------------------------
AVERAGE LOANS
Real estate-secured loans $ 47.0 $ 44.5 6 $ 46.3 $ 43.6 6
Personal 21.4 19.4 10 20.4 19.0 7
Auto 6.5 4.9 33 6.1 4.4 39
Sales finance and other 4.2 3.5 20 3.6 3.5 3
------------------ ---------------------
TOTAL AVERAGE LOANS $ 79.1 $ 72.3 9 $ 76.4 $ 70.5 8
===============================================================================================
(1) Reclassified to conform to the current period's presentation.
As shown in the following table, the average net interest margin of 11.09% in
the 2002 third quarter increased 16 basis points from the 2001 third quarter,
mainly due to lower cost of funds, partially offset by lower yields. In North
America, the average net interest margin was 8.17% in the 2002 third quarter,
decreasing 14 basis points from the prior-year quarter as the benefit of lower
cost of funds was more than offset by lower yields, both reflecting a lower
interest rate environment. The average net interest margin for International
Consumer Finance was 21.92% in the 2002 third quarter, up 14 basis points from
the prior year, reflecting a decline in cost of funds, partially offset by lower
yields including the impact of growth in lower-yielding real estate-secured
loans.
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
IN MILLIONS OF DOLLARS 2002 2001 Change
-----------------------------------------------------------------------------------------
AVERAGE NET INTEREST MARGIN
North America 8.17% 8.31% (14 bps)
International 21.92% 21.78% 14 bps
Total 11.09% 10.93% 16 bps
=========================================================================================
Revenues, net of interest expense, of $2.439 billion and $7.143 billion in the
2002 third quarter and nine months, respectively, increased $144 million or 6%
and $538 million or 8% from the 2001 periods, as growth in the U.S., Japan and
Western Europe was partially offset by a decline in Latin America. Revenue
growth in the U.S. was primarily driven by growth in receivables and, in the
nine-month comparison, improved net interest margins. The increases in Japan and
Western Europe were driven by growth in receivables and lower cost of funds,
partially offset by lower foreign currency gains in Japan. The decline in Latin
America was due to continued weakness in Argentina.
16
Operating expenses of $744 million and $2.240 billion in the 2002 third quarter
and nine months, respectively, decreased $71 million or 9% and $348 million or
13% from the prior-year periods, primarily reflecting lower volume-related
expenses in the U.S. and the absence of goodwill and other indefinite-lived
intangible asset amortization. The decline in expenses in the nine-month
comparison also included the benefit of efficiencies resulting from the
integration of Associates in the U.S. and prior-year restructuring-related
charges of $41 million ($25 million after-tax).
The provisions for benefits, claims, and credit losses in the 2002 third quarter
and nine months were $829 million and $2.329 billion, respectively, compared to
$618 million and $1.794 billion in the 2001 periods, primarily reflecting
increases in the provision for credit losses in the U.S. and Japan, including
the impact of acquisitions. Net credit losses and the related loss ratio were
$764 million and 3.83% in the 2002 third quarter, up from $709 million and 3.71%
in the 2002 second quarter and $536 million and 2.94% in the 2001 third quarter.
In North America, the net credit loss ratio of 2.79% in the 2002 third quarter
was down from 3.10% in the 2002 second quarter and up from 2.48% in the 2001
third quarter. The decline in the net credit loss ratio from the prior quarter
was mainly due to improvements in the real estate-secured and personal loan
portfolios. The net credit loss ratio for International Consumer Finance was
7.68% in the 2002 third quarter, up from 6.12% in the 2002 second quarter and
4.86% in the 2001 third quarter due to increased bankruptcy losses and
deteriorating credit quality in Japan. Net credit losses in the 2002 third
quarter included $25 million for changes in loss recognition criteria in Japan
that accelerated the timing of contractual write-offs in the personal loan
portfolio.
Loans delinquent 90 days or more were $2.101 billion or 2.64% of loans at
September 30, 2002, compared to $2.131 billion or 2.72% at June 30, 2002 and
$2.134 billion or 2.89% a year ago. The decrease in the delinquency ratio versus
the prior year and prior quarter was mainly due to improvements in the U.S. In
Japan, net credit losses and the related loss ratio are expected to increase
from the 2002 third quarter as a result of economic conditions and credit
performance of the portfolios, including increased bankruptcy filings. This
statement is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 34.
RETAIL BANKING
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % --------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 3,317 $ 3,042 9 $ 9,868 $ 8,118 22
Operating expenses 1,701 1,687 1 5,265 4,553 16
Provisions for benefits, claims,
and credit losses 260 291 (11) 990 758 31
------------------ ---------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 1,356 1,064 27 3,613 2,807 29
Income taxes 469 376 25 1,244 1,000 24
Minority interest, after-tax 8 6 33 27 18 50
------------------ ---------------------
NET INCOME $ 879 $ 682 29 $ 2,342 $ 1,789 31
======================================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 166 $ 152 9 $ 170 $ 130 31
Return on assets 2.10% 1.78% 1.84% 1.84%
======================================================================================================
(1) Reclassified to conform to the current period's presentation.
RETAIL BANKING -- which delivers banking, lending, investment and insurance
services to customers through retail branches, electronic delivery systems and
the network of Primerica independent agents -- reported net income of $879
million and $2.342 billion in the 2002 third quarter and nine months,
respectively, up $197 million or 29% and $553 million or 31% from the 2001
periods. The increases in RETAIL BANKING were driven by growth in North America
of $176 million or 43% and $562 million or 53% in the 2002 third quarter and
nine months, respectively. The growth in North America was primarily due to the
acquisition of Banamex in August 2001, revenue growth in Citibanking North
America and Consumer Assets as well as restructuring charges in the prior year.
Net income in International Retail Banking increased $21 million or 8% in the
2002 third quarter and declined $9 million or 1% in the 2002 nine months,
reflecting double-digit growth across all regions with the exception of Latin
America which continued to be impacted by economic weakness in Argentina.
17
As shown in the following table, RETAIL BANKING grew average loans and customer
deposits compared to 2001. The growth in North America primarily reflected the
acquisition of Banamex along with customer deposit growth in Citibanking North
America and average loan growth in Consumer Assets, primarily due to increased
mortgages and student loans. In the international markets, growth in average
customer deposits in Japan and CEEMEA and growth in average loans in Western
Europe, mainly in Germany, were essentially offset by declines in Argentina.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % ----------------- %
IN BILLIONS OF DOLLARS 2002 2001 Change 2002 2001 Change
------------------------------------------------------------------------------------------
AVERAGE CUSTOMER DEPOSITS
North America $ 86.5 $ 80.7 7 $ 87.7 $ 62.5 40
International 79.3 79.3 - 78.9 78.8 -
------------------ -----------------
TOTAL AVERAGE CUSTOMER DEPOSITS $ 165.8 $ 160.0 4 $ 166.6 $ 141.3 18
AVERAGE LOANS
North America $ 69.8 $ 63.8 9 $ 69.2 $ 57.4 21
International 38.3 37.8 1 37.7 37.6 -
------------------ -----------------
TOTAL AVERAGE LOANS(1) $ 108.1 $ 101.6 6 $ 106.9 $ 95.0 13
=========================================================================================
(1) Includes loans held-for-sale.
Revenues, net of interest expense, of $3.317 billion and $9.868 billion in the
2002 third quarter and nine months, respectively, increased $275 million or 9%
and $1.750 billion or 22% from the 2001 periods. The increase in revenues
reflected growth in all regions, partially offset by a decline in Argentina.
Revenue in North America increased 12% and 36% in the 2002 third quarter and
nine months, respectively, driven by the acquisition of Banamex and the benefit
of increased customer volumes in Citibanking North America and Consumer Assets
(where mortgage originations in the 2002 nine months increased 47% from 2001 to
$33.1 billion). North America Retail Banking also benefited from revenue growth
in Primerica, which experienced volume-related growth in insurance premiums.
International Retail Banking revenues increased 4% in the 2002 third quarter and
were unchanged in the nine-month comparison as increases across the regions were
partially offset by a decline in Latin America. The decline in Latin America was
due to events in Argentina, which included losses on Amparos, reduced business
activity due to the economic situation, the negative impact of foreign currency
translation and losses resulting from government-mandated inflation indexed
interest accruals. Increased loan volumes and improved spreads, mainly in
Germany, combined with the impact of foreign currency translation across the
region, drove growth in Western Europe. The increase in revenue in Japan was due
to a $55 million gain on sale of a $2.0 billion mortgage portfolio at the end of
the 2002 third quarter, while growth in Asia and CEEMEA primarily reflected
increased business volumes.
Operating expenses in the 2002 third quarter and nine months increased $14
million or 1% and $712 million or 16% from the comparable 2001 periods.
Operating expenses in the 2002 third quarter included a net restructuring
reserve release of $19 million ($12 million after-tax) compared to
restructuring-related charges of $75 million ($49 million after-tax) in the 2001
third quarter. Restructuring-related items in both periods were mainly due to
actions in Mexico. Operating expenses in the 2002 nine months included a net
restructuring reserve release of $15 million ($11 million after-tax) compared to
restructuring-related charges of $125 million ($81 million after-tax) in the
2001 nine months. Excluding restructuring-related items, the growth in expenses
was primarily due to the acquisition of Banamex and increases in Western Europe
and CEEMEA, partially offset by a decline in Latin America. The growth in
Western Europe and CEEMEA was mainly due to volume-related increases, higher
advertising and marketing costs in Western Europe and the impact of foreign
currency translation. The decline in Latin America was primarily due to the
benefit of foreign currency translation and expense reduction initiatives across
the region.
The provisions for benefits, claims, and credit losses were $260 million and
$990 million in the 2002 third quarter and nine months, respectively, down from
$291 million in the prior-year quarter and up from $758 million in the 2001 nine
months. The decrease in the provisions for benefits, claims, and credit losses
in the 2002 third quarter was mainly due to a lower provision for credit losses
in Latin America and Citibanking North America. The increase in the nine-month
comparison mainly reflected the impact of acquisitions and an addition to the
loan loss reserve in the first quarter of 2002 resulting from deteriorating
credit in Argentina. Net credit losses were $186 million and the related loss
ratio was 0.68% in the 2002 third quarter, compared to $212 million and 0.80% in
the 2002 second quarter and $184 million and 0.72% in the prior-year quarter.
Net credit losses in the 2002 third quarter included $28 million for changes in
loss recognition criteria in Germany that accelerated the timing of bankruptcy
loss recognition. The decrease in the net credit loss ratio from the prior
quarter was primarily due to higher recoveries in Mexico while the decline from
the prior year reflected improvements in Citibanking North America.
Loans delinquent 90 days or more were $3.490 billion or 3.24% of loans at
September 30, 2002, compared to $3.561 billion or 3.31% at June 30, 2002, and
$3.316 billion or 3.19% a year ago. The decrease from the prior quarter mainly
reflected improvement in Mexico. Compared to a year ago, an increase in
delinquent loans in Western Europe and Consumer Assets was partially offset by a
18
decline in Mexico. The increase in Western Europe was primarily in Germany and
reflected the impact of statutory changes and foreign currency translation. The
increase in Consumer Assets was mainly due to a higher level of buy backs from
GNMA pools where credit risk is maintained by government agencies.
Average assets of $166 billion and $170 billion in the 2002 third quarter and
nine months increased $14 billion and $40 billion from the comparable 2001
periods. The increase in average assets primarily reflected the acquisition of
Banamex and growth in mortgages and student loans in Consumer Assets.
OTHER CONSUMER
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % ------------------ %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 45 $ 62 (27) $ 133 $ 164 (19)
Operating expenses 125 103 21 316 318 (1)
Provisions for benefits, claims,
and credit losses - (11) 100 - (49) 100
------------------ -----------------
INCOME BEFORE TAX BENEFITS (80) (30) NM (183) (105) (74)
Income tax benefits (31) (11) NM (70) (38) (84)
------------------ -----------------
NET LOSS $ (49) $ (19) NM $ (113) $ (67) (69)
==========================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful
OTHER CONSUMER -- which includes certain treasury and other unallocated staff
functions, global marketing and other programs -- reported losses of $49 million
and $113 million for the 2002 third quarter and nine months compared to losses
of $19 million and $67 million in the 2001 third quarter and nine months. The
increase in losses from 2001 was primarily due to a pension curtailment gain in
the prior-year period related to the acquisition of Associates combined with an
increase in legal reserves in 2002 in connection with settlements reached during
the quarter. Revenues, expenses and the provisions for benefits, claims, and
credit losses reflect offsets to certain line-item reclassifications reported in
other Global Consumer businesses.
CONSUMER PORTFOLIO REVIEW
In the consumer portfolio, credit loss experience is often expressed in terms of
annualized net credit losses as a percentage of average loans. Pricing and
credit policies reflect the loss experience of each particular product. Consumer
loans are generally written off no later than a predetermined number of days
past due on a contractual basis, or earlier in the event of bankruptcy. The
number of days is set according to loan product and country.
The following table summarizes delinquency and net credit loss experience in
both the managed and on-balance sheet loan portfolios in terms of loans 90 days
or more past due, net credit losses, and as a percentage of related loans. The
managed loan portfolio includes loans held-for-sale and certain securitized
loans. See Note 13 to Unaudited Consolidated Financial Statements.
19
CONSUMER LOAN DELINQUENCY AMOUNTS, NET CREDIT LOSSES, AND RATIOS
TOTAL AVERAGE
PRODUCT VIEW LOANS 90 DAYS OR MORE PAST DUE(1) LOANS NET CREDIT LOSSES(1)
--------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS, SEPT 30, SEPT 30, June 30, Sept 30, 3RD QTR. 3RD QTR. 2nd Qtr. 3rd Qtr.
EXCEPT LOAN AMOUNTS IN BILLIONS 2002 2002 2002(2) 2001(2) 2002 2002 2002(2) 2001(2)
-------------------------------------------------------------------------------------------------------------------------
CARDS $ 123.9 $ 2,305 $ 2,248 $ 2,119 $ 122.0 $ 1,767 $ 1,842 $ 1,548
RATIO 1.86% 1.85% 1.79% 5.75% 6.23% 5.28%
North America Cards 112.9 2,108 2,025 1,960 111.1 1,616 1,719 1448
RATIO 1.87% 1.83% 1.81% 5.77% 6.38% 5.42%
International Cards 11.0 197 223 159 10.9 151 123 100
RATIO 1.79% 2.04% 1.53% 5.46% 4.67% 3.83%
CONSUMER FINANCE 79.6 2,101 2,131 2,134 79.1 764 709 536
RATIO 2.64% 2.72% 2.89% 3.83% 3.71% 2.94%
N. America Consumer Finance 63.1 1,776 1,828 1,908 62.3 438 470 364
RATIO 2.82% 2.97% 3.24% 2.79% 3.10% 2.48%
International Consumer Finance 16.5 325 303 226 16.8 326 239 172
RATIO 1.97% 1.82% 1.51% 7.68% 6.12% 4.86%
RETAIL BANKING 107.8 3,490 3,561 3,316 108.1 186 212 184
RATIO 3.24% 3.31% 3.19% 0.68% 0.80% 0.72%
North America Retail Banking 72.0 2,243 2,333 2,160 69.8 65 120 74
RATIO 3.11% 3.39% 3.26% 0.37% 0.70% 0.46%
International Retail Banking 35.8 1,247 1,228 1,156 38.3 121 92 110
RATIO 3.48% 3.16% 3.07% 1.26% 0.97% 1.16%
PRIVATE BANK 28.8 201 193 78 28.6 5 - 2
RATIO 0.70% 0.67% 0.31% 0.08% 0.00% 0.03%
Other(3) 1.2 251 - - 1.3 (1) - 17
--------------------------------------------------------------------------------------
TOTAL MANAGED $ 341.3 $ 8,348 $ 8,133 $ 7,647 $ 339.1 $ 2,721 $ 2,763 $ 2,287
RATIO 2.45% 2.41% 2.36% 3.18% 3.34% 2.85%
=========================================================================================================================
Securitized receivables (64.6) (1,104) (1,203) (1,203) (64.7) (874) (989) (812)
Loans held-for-sale (12.2) (103) (102) (106) (10.4) (86) (92) (96)
-------------------------------------------------------------------------------------------------------------------------
CONSUMER LOANS(4) $ 264.5 $ 7,141 $ 6,828 $ 6,338 $ 264.0 $ 1,761 $ 1,682 $ 1,379
RATIO 2.70% 2.62% 2.57% 2.65% 2.65% 2.28%
=========================================================================================================================
TOTAL AVERAGE
REGIONAL VIEW LOANS 90 DAYS OR MORE PAST DUE(1) LOANS NET CREDIT LOSSES(1)
--------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS, SEPT 30, SEPT 30, June 30, Sept 30, 3RD QTR. 3RD QTR. 2nd Qtr. 3rd Qtr.
EXCEPT LOAN AMOUNTS IN BILLIONS 2002 2002 2002(2) 2001(2) 2002 2002 2002(2) 2001(2)
-------------------------------------------------------------------------------------------------------------------------
North America
(excluding Mexico) $ 256.0 $ 5,581 $ 5,511 $ 5,233 $ 250.9 $ 2,076 $ 2,220 $ 1,869
RATIO 2.18% 2.22% 2.20% 3.28% 3.65% 3.13%
Mexico 9.4 659 762 824 9.6 46 90 36
RATIO 7.04% 7.69% 7.64% 1.90% 3.43% 1.81%
Western Europe 23.6 1,090 1,015 828 23.4 129 94 86
RATIO 4.62% 4.41% 4.08% 2.19% 1.72% 1.72%
Japan 17.2 260 264 191 19.8 309 226 149
RATIO 1.51% 1.32% 1.07% 6.21% 4.79% 3.47%
Asia (excluding Japan) 26.7 340 387 355 27.0 108 91 68
RATIO 1.27% 1.42% 1.34% 1.58% 1.34% 1.01%
Latin America(3) 3.5 352 115 163 3.5 39 30 67
RATIO 10.13% 2.99% 2.95% 4.40% 3.03% 4.66%
CEEMEA 4.9 66 79 53 4.9 14 12 12
RATIO 1.34% 1.59% 1.12% 1.14% 1.03% 0.99%
--------------------------------------------------------------------------------------
TOTAL MANAGED $ 341.3 $ 8,348 $ 8,133 $ 7,647 $ 339.1 $ 2,721 $ 2,763 $ 2,287
RATIO 2.45% 2.41% 2.36% 3.18% 3.34% 2.85%
=========================================================================================================================
Securitized receivables (64.6) (1,104) (1,203) (1,203) (64.7) (874) (989) (812)
Loans held-for-sale (12.2) (103) (102) (106) (10.4) (86) (92) (96)
-------------------------------------------------------------------------------------------------------------------------
CONSUMER LOANS(4) $ 264.5 $ 7,141 $ 6,828 $ 6,338 $ 264.0 $ 1,761 $ 1,682 $ 1,379
RATIO 2.70% 2.62% 2.57% 2.65% 2.65% 2.28%
=========================================================================================================================
(1) The ratios of 90 days or more past due and net credit losses are calculated
based on end-of-period and average loans, respectively, both net of
unearned income.
(2) Reclassified to conform to current period's presentation.
(3) Includes $251 million of loans received from the Argentine government in
exchange for government bonds in the 2001 fourth quarter. These loans are
included within the LIFE INSURANCE AND ANNUITIES business.
(4) Total loans and total average loans exclude certain interest and fees on
credit cards of $1.3 billion which are included in Consumer Loans in the
Unaudited Consolidated Statement of Financial Position.
20
CONSUMER LOAN BALANCES, NET OF UNEARNED INCOME
END OF PERIOD AVERAGE
-------------------------------- ----------------------------
SEPT. 30, June 30, Sept. 30, 3RD QTR. 2nd Qtr. 3rd Qtr.
IN BILLIONS OF DOLLARS 2002(1) 2002 2001 2002(1) 2002 2001
--------------------------------------------------------------------------------------------
TOTAL MANAGED $ 341.3 $ 337.7 $ 323.5 $ 339.1 $ 331.5 $ 318.5
Securitized receivables (64.6) (65.8) (65.4) (64.7) (65.3) (63.0)
Loans held-for-sale (12.2) (11.4) (11.3) (10.4) (11.6) (15.3)
-------------------------------- ----------------------------
CONSUMER LOANS $ 264.5 $ 260.5 $ 246.8 $ 264.0 $ 254.6 $ 240.2
============================================================================================
(1) Total loans and total average loans exclude certain interest and fees
on credit cards of $1.3 billion which are included in Consumer Loans in the
Unaudited Consolidated Statement of Financial Position.
Total delinquencies 90 days or more past due in the managed portfolio were
$8.348 billion or 2.45% of loans at September 30, 2002, compared to $8.133
billion or 2.41% at June 30, 2002 and $7.647 billion or 2.36% at September 30,
2001. Total managed net credit losses in the 2002 third quarter were $2.721
billion and the related loss ratio was 3.18%, compared to $2.763 billion and
3.34% in the 2002 second quarter and $2.287 billion and 2.85% in the 2001 third
quarter. For a discussion of trends by business, see business discussions on
pages 13 - 19 and pages 28 - 30.
Citigroup's allowance for credit losses of $10.720 billion is available to
absorb probable credit losses inherent in the entire on-balance sheet portfolio.
For analytical purposes only, the portion of Citigroup's allowance for credit
losses attributed to the consumer portfolio was $5.849 billion at September 30,
2002, $5.756 billion at June 30, 2002 and $5.454 billion at September 30, 2001.
The allowance for credit losses attributed to the consumer portfolio increased
$93 million from the prior quarter and $395 million from a year ago. The
increase from the prior quarter was mainly due to a $206 million addition
established in accordance with recent FFIEC guidance related to past due
interest and late fees on the on-balance sheet credit card receivables in Citi
Cards as well as increases attributed to the CONSUMER FINANCE portfolio in
Japan. Offsetting these additions were reductions due to accelerated write-offs
resulting from changes in loss recognition policies in Germany, Japan and Hong
Kong as well as a reduction in Consumer Assets that was attributable to improved
credit in the mortgage portfolio. The increase in the allowance from a year ago
also includes an addition related to Argentina in the first quarter of 2002. The
allowance as a percentage of loans on the balance sheet was 2.20% at September
30, 2002 compared to 2.21% at both June 30, 2002 and September 30, 2001.
Net credit losses, delinquencies, and the related ratios are affected by the
credit performance of the portfolios, including bankruptcies, global economic
conditions, portfolio growth and seasonal factors, as well as macro-economic and
regulatory policies, including pending U.S. bankruptcy legislation. In Japan,
net credit losses and the related loss ratio are expected to increase from the
2002 third quarter reflecting current economic conditions in that country,
including rising unemployment rates and bankruptcy filings. This paragraph
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 34.
GLOBAL CORPORATE AND INVESTMENT BANK
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % ----------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 6,245 $ 6,114 2 $ 19,956 $ 20,206 (1)
Operating expenses 3,577 3,876 (8) 11,966 13,144 (9)
Provision for credit losses 798 217 NM 1,938 782 NM
------------------ ----------- ------
INCOME BEFORE TAXES
AND MINORITY INTEREST 1,870 2,021 (7) 6,052 6,280 (4)
Income taxes 652 726 (10) 2,099 2,241 (6)
Minority interest, after-tax 4 6 (33) 12 18 (33)
------------------ ------------------
NET INCOME $ 1,214 $ 1,289 (6) $ 3,941 $ 4,021 (2)
==========================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful
THE GLOBAL CORPORATE AND INVESTMENT BANK (GCIB) serves corporations, financial
institutions, governments, investors and other participants in capital markets
throughout the world and consists of CAPITAL MARKETS AND BANKING, PRIVATE
CLIENT, and TRANSACTION SERVICES. The primary businesses in CAPITAL MARKETS AND
BANKING include Fixed Income, Equities, Investment Banking, Sales & Trading
(which mainly operates in Asia, Latin America, CEEMEA and Mexico), CitiCapital
and Lending.
GCIB net income of $1.214 billion and $3.941 billion in the 2002 third quarter
and nine months, respectively, was down $75 million or 6% and $80 million or 2%
from the 2001 periods. The 2002 third quarter reflects a decline in net income
of $67 million or 7% in
21
CAPITAL MARKETS AND BANKING and $14 million or 8% in PRIVATE CLIENT, partially
offset by an increase of $21 million or 21% in TRANSACTION SERVICES. The 2002
nine months reflect a decline in net income of $90 million or 3% in CAPITAL
MARKETS AND BANKING and $9 million or 2% in PRIVATE CLIENT, partially offset by
an increase of $112 million or 38% in TRANSACTION SERVICES. Other Corporate
reported net losses of $10 million and $65 million in the 2002 third quarter and
nine months, respectively, compared with net income of $5 million and $28
million in the 2001 periods. The 2001 third quarter was negatively impacted by
the events of September 11th.
The decrease in CAPITAL MARKETS AND BANKING net income in the 2002 third quarter
primarily reflects a higher provision for credit losses, prior-year gains on
asset sales in CitiCapital and the write-down of Argentine sovereign securities,
partially offset by lower compensation and benefits and increases in Fixed
Income and Sales & Trading. The decrease in the 2002 nine months primarily
reflects a higher provision for credit losses, partially offset by lower
compensation and benefits, increases in Sales & Trading and Fixed Income, the
acquisition of Banamex and 2001 restructuring charges of $119 million
(after-tax). The decrease in PRIVATE CLIENT net income in the 2002 third quarter
and nine months primarily reflects lower asset-based fees and a decline in
revenue from margin lending, partially offset by expense reductions and higher
earnings on the bank deposit program. The increase in TRANSACTION SERVICES net
income in the 2002 third quarter primarily reflects higher volumes and fees
across most regions and the impact of expense control initiatives, partially
offset by trade finance write-offs in Argentina. The increase in the 2002 nine
months is primarily due to higher volumes, including the benefit of the Banamex
acquisition, the impact of expense control initiatives and an investment gain in
the 2002 second quarter, partially offset by trade finance write-offs in
Argentina. Other Corporate income declined in the 2002 third quarter primarily
due to the release of a rent reserve that was no longer required in the 2001
third quarter. Other Corporate income declined in the 2002 nine months mainly
due to 2001 tax benefits and a gain on the sale of a building in Asia in the
prior year.
The businesses of the GCIB are significantly affected by the levels of activity
in the global capital markets which, in turn, are influenced by macro-economic
and government policies, among other factors, in over 100 countries in which the
businesses operate. Global economic and market events can have both positive and
negative effects on the revenue performance of the businesses and can affect
credit performance. Losses on corporate lending activities and the level of
cash-basis loans can vary widely with respect to timing and amount, particularly
within any narrowly-defined business or loan type. It is expected that the
businesses of the GCIB will continue to be impacted by weak global economic
conditions, stress in the telecommunications and energy industries, uncertainty
in Brazil, sovereign or regulatory actions, litigation expenses, settlements,
the crisis in Argentina, and other related factors. This paragraph contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 34.
GCIB NET INCOME -- REGIONAL VIEW
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % ----------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
------------------------------------------------------------------------------------------
North America (excluding Mexico) $ 878 $ 794 11 $ 2,564 $ 2,204 16
Mexico 26 (1) NM 169 40 NM
Western Europe 32 85 (62) 191 364 (48)
Japan 88 19 NM 108 118 (8)
Asia (excluding Japan) 154 101 52 514 442 16
Latin America (100) 174 NM (13) 485 NM
Central & Eastern Europe,
Middle East & Africa 136 117 16 408 368 11
------------------ -----------------
TOTAL NET INCOME $ 1,214 $ 1,289 (6) $ 3,941 $ 4,021 (2)
==========================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful
GCIB net income declined in the 2002 third quarter and nine months primarily due
to Latin America and Western Europe, partially offset by increases in North
America (excluding Mexico), Japan, Asia and Mexico. North America (excluding
Mexico) increased $84 million and $360 million in the 2002 third quarter and
nine months, respectively, due to lower compensation and benefits and higher
Fixed Income, partially offset by weakness in Equities, a higher provision for
credit losses and gains on asset sales in the 2001 third quarter. Mexico net
income increased $27 million and $129 million in the 2002 third quarter and nine
months, respectively, primarily due to losses in Sales & Trading in the prior
year as well as the acquisition of Banamex. Western Europe net income declined
$53 million and $173 million in the 2002 third quarter and nine months,
respectively, primarily due to a higher provision for credit losses in the
telecommunications industry, partially offset by an increase in Transaction
Services due to continued expense rationalization initiatives and an investment
gain in the 2002 second quarter. Japan net income increased $69 million in the
2002 third quarter primarily driven by strong trading results in Equities. Japan
net income declined $10 million in the 2002 nine months primarily due to strong
Investment Banking and trading results in the 2001 first quarter. Asia
(excluding Japan) net income increased $53 million in the 2002 third quarter
primarily due to higher income in Equities and Investment Banking and weakness
in the prior
22
year. Asia (excluding Japan) net income increased $72 million in the 2002 nine
months primarily due to higher income in Equities, Sales & Trading and
Investment Banking, partially offset by a building sale in the 2001 second
quarter. Latin America net income declined $274 million and $498 million in the
2002 third quarter and nine months, respectively, primarily reflecting losses in
Argentina. CEEMEA net income increased $19 million and $40 million in the 2002
third quarter and nine months, respectively, primarily due to increases in Sales
& Trading and TRANSACTION SERVICES, partially offset by a higher provision for
credit losses.
CAPITAL MARKETS AND BANKING
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % ----------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 4,013 $ 3,868 4 $ 13,153 $13,193 -
Operating expenses 1,858 2,095 (11) 6,698 7,498 (11)
Provision for credit losses 710 212 NM 1,776 768 NM
------------------ -----------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 1,445 1,561 (7) 4,679 4,927 (5)
Income taxes 505 555 (9) 1,638 1,793 (9)
Minority interest, after-tax 5 4 25 10 13 (23)
------------------ -----------------
NET INCOME $ 935 $ 1,002 (7) $ 3,031 $ 3,121 (3)
====================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful
CAPITAL MARKETS AND BANKING delivers a full range of global financial services
and products including investment banking, institutional brokerage, research and
advisory services, foreign exchange, structured products, derivatives, loans,
leasing and equipment finance.
CAPITAL MARKETS AND BANKING net income of $935 million and $3.031 billion in the
2002 third quarter and nine months, respectively, was down $67 million or 7% and
$90 million or 3% from the 2001 periods. The decrease in the 2002 third quarter
primarily reflects a higher provision for credit losses, prior-year gains on
asset sales in CitiCapital and the write-down of Argentine sovereign securities,
partially offset by lower compensation and benefits and increases in Fixed
Income and Sales & Trading. The decrease in the 2002 nine months primarily
reflects a higher provision for credit losses, partially offset by lower
compensation and benefits, increases in Sales & Trading and Fixed Income, the
acquisition of Banamex and 2001 restructuring charges of $119 million
(after-tax).
Revenues, net of interest expense, of $4.013 billion and $13.153 billion in the
2002 third quarter and nine months, respectively, increased $145 million or 4%
from the 2001 third quarter, but decreased $40 million from the 2001 nine
months. The increase in the 2002 third quarter was primarily due to increases in
Fixed Income, and gains on credit derivatives associated with the loan
portfolio, partially offset by prior-year gains on asset sales in CitiCapital
and the write-down of Argentine sovereign securities. The decrease in the 2002
nine months primarily reflects declines in Investment Banking and Equities
relative to strong levels in the 2001 first quarter and decreases in Latin
America mainly due to the 2002 first quarter redenomination losses and 2002
third quarter write-down of sovereign securities in Argentina, partially offset
by growth in Fixed Income, Sales & Trading and the acquisition of Banamex. In
2002, Fixed Income and Sales & Trading benefited from low interest rates.
Operating expenses of $1.858 billion in the 2002 third quarter were down $237
million or 11% from the prior-year quarter primarily due to decreases in
compensation and benefits and a benefit from the absence of goodwill and other
indefinite-lived intangible asset amortization of $20 million (pretax).
Operating expenses were down $800 million or 11% to $6.698 billion for the 2002
nine months primarily due to lower compensation and benefits, expense
rationalization initiatives, a benefit from the absence of goodwill and other
indefinite-lived intangible asset amortization of $50 million (pretax) and 2001
restructuring charges of $198 million (pretax), partially offset by the
acquisition of Banamex. Compensation and benefits, mainly incentive
compensation, decreased primarily reflecting lower revenues and higher provision
for credit losses and savings from restructuring actions initiated in 2001.
The provision for credit losses was $710 million in the 2002 third quarter and
$1.776 billion in the 2002 nine months, up $498 million and $1.008 billion,
respectively, from the 2001 periods, primarily due to provisions for Argentina
and exposures in the telecommunications industry.
Cash-basis loans were $4.180 billion at September 30, 2002, $3.845 billion at
June 30, 2002, and $2.767 billion at September 30, 2001. Cash-basis loans were
up $1.413 billion from September 30, 2001 primarily due to borrowers in the
telecommunications and energy industries combined with increases in CitiCapital,
Argentina and Mexico. The increase in CitiCapital primarily reflects increases
in the transportation portfolio. The increase in Mexico primarily reflects a
review of the Banamex credit portfolio in the
23
2001 fourth quarter as well as exposures in the construction industry.
Cash-basis loans increased $335 million from June 30, 2002 primarily due to
borrowers in the telecommunications industry, CitiCapital and Mexico. The
increase in CitiCapital primarily reflects an increase in equipment finance. The
increase in Mexico primarily reflects exposures in the construction industry.
PRIVATE CLIENT
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % ----------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 1,399 $ 1,450 (4) $ 4,399 $ 4,507 (2)
Operating expenses 1,133 1,157 (2) 3,496 3,580 (2)
Provision for credit losses - 3 (100) 2 2 -
------------------ -----------------
INCOME BEFORE TAXES 266 290 (8) 901 925 (3)
Income taxes 98 108 (9) 332 347 (4)
------------------ -----------------
NET INCOME $ 168 $ 182 (8) $ 569 $ 578 (2)
==========================================================================================
(1) Reclassified to conform to the current period's presentation.
PRIVATE CLIENT provides investment advice and financial planning and brokerage
services, primarily through the network of Smith Barney Financial Consultants.
PRIVATE CLIENT net income was $168 million in the 2002 third quarter, down $14
million or 8% from the prior year, primarily reflecting lower asset-based fees
and a decline in revenue from margin lending, partially offset by expense
reductions and higher earnings on the bank deposit program. Net income was $569
million in the 2002 nine months, down $9 million or 2% from the prior year,
primarily due to lower revenue from margin lending, lower asset-based fees and a
decline in customer transaction volumes, partially offset by higher revenue from
the bank deposit program and a prior-year restructuring charge of $6 million
(after-tax).
Revenues, net of interest expense, of $1.399 billion in the 2002 third quarter
decreased $51 million or 4% from the prior-year period, primarily reflecting
lower asset-based fees and a decline in revenue from margin lending resulting
from sharp equity market declines, partially offset by higher transaction
revenue and higher earnings on the bank deposit program. Revenues, net of
interest expense, of $4.399 billion in the 2002 nine months declined $108
million or 2%, mainly due to a decline in revenue from margin lending, lower
asset-based fees and lower customer transactional activity, partially offset by
higher revenue from the bank deposit program.
Total assets under fee-based management were $162.5 billion as of September 30,
2002, down $21.8 billion or 12% from the prior-year period, primarily reflecting
declining market values. Total client assets, including assets under fee-based
management, of $860 billion in the 2002 third quarter decreased $45 billion or
5% compared to the prior year principally due to market depreciation. Net
inflows were $7.2 billion in the 2002 third quarter and $31.7 billion in the
2002 nine months compared to $9.1 billion and $30.2 billion in the 2001 periods,
respectively. PRIVATE CLIENT had 12,744 financial consultants as of September
30, 2002, compared with 12,963 as of September 30, 2001. Annualized revenue per
financial consultant of $435,000 declined 3% from the prior-year quarter.
%
IN BILLIONS OF DOLLARS SEPT. 30, 2002 Sept. 30, 2001(1) Change
-----------------------------------------------------------------------------------------------
Consulting Group and Internally Managed Accounts $ 118.2 $ 134.9 (12)
Financial Consultant Managed Accounts 44.3 49.4 (10)
---------------------------------
TOTAL ASSETS UNDER FEE-BASED MANAGEMENT $ 162.5 $ 184.3 (12)
Total Client Assets 860 905 (5)
Annualized Revenue per FC (IN THOUSANDS OF DOLLARS) $ 435 $ 450 (3)
===============================================================================================
(1) Reclassified to conform to the current period's presentation.
Operating expenses of $1.133 billion and $3.496 billion in the 2002 third
quarter and nine months, respectively, decreased $24 million or 2% and $84
million or 2% from the 2001 periods, primarily reflecting lower variable
compensation resulting from a decline in revenue combined with the impact of
expense control initiatives. The decrease for the 2002 nine months also reflects
a prior-year restructuring charge of $9 million (pretax).
24
TRANSACTION SERVICES
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ % ----------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 891 $ 856 4 $ 2,665 $ 2,649 1
Operating expenses 625 697 (10) 1,895 2,161 (12)
Provision for credit losses 88 2 NM 160 12 NM
------------------ -----------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 178 157 13 610 476 28
Income taxes 58 55 5 202 177 14
Minority interest, after-tax (1) 2 NM 2 5 (60)
------------------ -----------------
NET INCOME $ 121 $ 100 21 $ 406 $ 294 38
==========================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful.
TRANSACTION SERVICES - which provides cash management, trade finance, custody,
clearing and depository services globally - reported net income of $121 million
in the 2002 third quarter and $406 million for the 2002 nine months, up $21
million or 21% and $112 million or 38%, respectively, from the 2001 periods. The
increase in the 2002 third quarter primarily reflects higher volumes and fees
across most regions and the impact of expense control initiatives, partially
offset by trade finance write-offs in Argentina of $55 million (after-tax). The
increase in the 2002 nine months is primarily due to higher volumes, including
the benefit of the Banamex acquisition, the impact of expense control
initiatives, an investment gain in the 2002 second quarter, and prior-year
restructuring-related charges of $13 million (after-tax), partially offset by
trade finance write-offs in Argentina.
As shown in the following table, average liability balances and assets under
custody experienced growth versus the prior year. Average liability balances
grew 8% primarily due to increases in the U.S. and Asia. Assets under custody of
$5.3 trillion increased 15% from a year ago primarily reflecting improvements in
North America and Europe.
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------- %
2002 2001 Change
------------------------------------------------------------------------------------------
Liability balances (AVERAGE IN BILLIONS) $ 85 $ 79 8
Assets under custody (EOP IN TRILLIONS) 5.3 4.6 15
==========================================================================================
Revenues, net of interest expense, of $891 million in the 2002 third quarter
increased $35 million or 4% from the 2001 period, primarily reflecting higher
volumes and fees across most regions, partially offset by declining spreads.
Total revenues, net of interest expense, of $2.665 billion in the nine months
ending September 30, 2002 increased $16 million or 1% from the comparable 2001
period, primarily reflecting an investment gain in the 2002 second quarter and
higher volumes including the benefit of the Banamex acquisition, partially
offset by declining spreads.
Operating expenses of $625 million and $1.895 billion in the 2002 third quarter
and nine months, respectively, decreased $72 million or 10% and $266 million or
12% from the 2001 periods, primarily reflecting expense control initiatives
across all regions and operational efficiency improvements resulting from
prior-year investments in Internet initiatives. The decrease for the 2002 nine
months also reflects a prior-year restructuring-related charge of $17 million
(pretax).
The provision for credit losses of $88 million and $160 million in the 2002
third quarter and nine months increased $86 million and $148 million from the
respective 2001 periods, primarily reflecting 2002 trade finance write-offs in
Argentina.
Cash-basis loans, which in the TRANSACTION SERVICES business are primarily trade
finance receivables, were $509 million at September 30, 2002, $639 million at
June 30, 2002 and $295 million at September 30, 2001. Cash-basis loans at
September 30, 2002 were up $214 million from September 30, 2001 principally due
to trade finance receivables in Argentina. Cash-basis loans decreased $130
million from June 30, 2002 primarily due to trade finance write-offs in
Argentina.
25
OTHER CORPORATE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(1) 2002 2001(1)
----------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ (58) $ (60) $ (261) $ (143)
Operating expenses (39) (73) (123) (95)
--------------------------------------------------------
INCOME (LOSS) BEFORE TAXES (19) 13 (138) (48)
Income taxes (benefits) (9) 8 (73) (76)
--------------------------------------------------------
NET INCOME (LOSS) $ (10) $ 5 $ (65) $ 28
================================================================================================================
(1) Reclassified to conform to the current period's presentation.
OTHER CORPORATE - which includes intra-GCIB segment eliminations, certain
one-time non-recurring items and tax amounts not allocated to GCIB products -
reported a net loss of $10 million and $65 million for the 2002 third quarter
and nine months, respectively, compared to net income of $5 million and $28
million in the 2001 periods. Net income declined in the 2002 third quarter
primarily due to the release of a rent reserve that was no longer required in
the 2001 third quarter. Net income declined in the 2002 nine months mainly due
to 2001 tax benefits and a gain on the sale of a building in Asia in 2001.
CORPORATE PORTFOLIO REVIEW
Corporate loans are identified as impaired and placed on a nonaccrual basis when
it is determined that the payment of interest or principal is doubtful of
collection or when interest or principal is past due for 90 days or more, except
when the loan is well-secured and in the process of collection. Impaired
corporate loans are written down to the extent that principal is judged to be
uncollectible. Impaired collateral-dependent loans are carried at the lower of
cost or collateral value. The following table summarizes corporate cash-basis
loans at period-end and net credit losses for the corresponding three-month
period.
SEPT. 30, June 30, Sept. 30,
IN MILLIONS OF DOLLARS 2002 2002 2001(1)
----------------------------------------------------------------------------------------------------------
CORPORATE CASH-BASIS LOANS
Capital Markets and Banking $ 4,180 $ 3,845 $ 2,767
Transaction Services 509 639 295
Insurance Subsidiaries 43 38 26
Investment Activities 93 51 6
Corporate Other - - 9
--------------------------------------
TOTAL CORPORATE CASH-BASIS LOANS $ 4,825 $ 4,573 $ 3,103
==========================================================================================================
NET CREDIT LOSSES
Capital Markets and Banking $ 504 $ 481 $ 280
Transaction Services 88 3 1
Private Client - 1 -
Investment Activities 9 - -
--------------------------------------
TOTAL NET CREDIT LOSSES $ 601 $ 485 $ 281
==========================================================================================================
CORPORATE ALLOWANCE FOR CREDIT LOSSES $ 4,871 $ 4,681 $ 4,464
As a percentage of total corporate loans 3.53% 3.28% 2.92%
==========================================================================================================
(1) Reclassified to conform to the current period's presentation.
Corporate cash-basis loans were $4.825 billion, $4.573 billion, and $3.103
billion at September 30, 2002, June 30, 2002, and September 30, 2001,
respectively. Cash-basis loans increased $1.722 billion from September 30, 2001
primarily due to increases in CAPITAL MARKETS AND BANKING, TRANSACTION SERVICES,
and INVESTMENT ACTIVITIES. CAPITAL MARKETS AND BANKING increased primarily due
to borrowers in the telecommunications and energy industries combined with
increases in CitiCapital, Argentina and Mexico. The increase in CitiCapital
primarily reflects increases in the transportation portfolio. The increase in
Mexico primarily reflects a review of the Banamex credit portfolio in the 2001
fourth quarter as well as exposures in the construction industry. TRANSACTION
SERVICES increased primarily due to trade finance receivables in Argentina.
INVESTMENT ACTIVITIES increased primarily due to increases in Mexico and
Argentina. Cash-basis loans increased $252 million from June 30, 2002 primarily
due to increases in CAPITAL MARKETS AND BANKING, partially offset by decreases
in TRANSACTION SERVICES. CAPITAL MARKETS AND BANKING increased primarily due to
borrowers in the telecommunications industry, CitiCapital and Mexico. The
increase in CitiCapital primarily reflects an increase in equipment finance. The
increase in Mexico primarily reflects exposures in the construction industry.
TRANSACTION SERVICES decreased primarily due to trade finance write-offs in
Argentina.
Total corporate net credit losses of $601 million in the 2002 third quarter
increased $320 million from the 2001 third quarter
26
primarily due to an increase of $224 million in CAPITAL MARKETS AND BANKING and
an increase of $87 million in TRANSACTION SERVICES. CAPITAL MARKETS AND BANKING
primarily reflects higher net credit losses in the telecommunications industry
and in Argentina. TRANSACTION SERVICES primarily reflects 2002 trade finance
write-offs in Argentina.
Citigroup continues to monitor the economic impact from market uncertainties in
Brazil and the potential impact on our commercial portfolio. For further details
on Citigroup's cross-border exposure to Brazil, please see "Management of
Cross-Border Risk" on page 37.
Citigroup's allowance for credit losses of $10.720 billion is available to
absorb probable credit losses inherent in the entire portfolio. For analytical
purposes only, the portion of Citigroup's allowance for credit losses attributed
to the corporate portfolio was $4.871 billion at September 30, 2002, compared to
$4.681 billion at June 30, 2002 and $4.464 billion at September 30, 2001. The
allowance attributed to the corporate portfolio as a percentage of loans was
3.53% at September 30, 2002, as compared to 3.28% at June 30, 2002 and 2.92% at
September 30, 2001. The $190 million or 25 basis point increase in the allowance
from the 2002 second quarter primarily reflects reserves established as a result
of the continuing deterioration in the Argentine economy and the
telecommunications industry. The $407 million or 61 basis point increase from
the 2001 third quarter primarily reflects additional reserves for Argentina and
the telecommunications industry as well as additional reserves related to a
review of the Banamex credit portfolio in the 2001 fourth quarter. Losses on
corporate lending activities and the level of cash-basis loans can vary widely
with respect to timing and amount, particularly within any narrowly-defined
business or loan type. Corporate net credit losses and cash-basis loans may
continue at the 2002 levels due to weak global economic conditions, stress in
the telecommunications and energy industries, uncertainty in Brazil, sovereign
or regulatory actions, the economic crisis in Argentina, and other factors. This
statement is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements " on page 34.
GLOBAL INVESTMENT MANAGEMENT
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % -------------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
---------------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 2,003 $ 1,884 6 $ 6,112 $ 5,843 5
Operating expenses 671 701 (4) 2,047 2,082 (2)
Provisions for benefits, claims
and credit losses 703 613 15 2,060 1,939 6
------------------------------- --------------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 629 570 10 2,005 1,822 10
Income taxes 193 189 2 631 634 -
Minority interest, after-tax - 9 (100) 1 10 (90)
------------------------------- --------------------------------
NET INCOME $ 436 $ 372 17 $ 1,373 $ 1,178 17
=================================================================================================================================
(1) Reclassified to conform to the current period's presentation.
GLOBAL INVESTMENT MANAGEMENT comprises LIFE INSURANCE AND ANNUITIES, PRIVATE
BANK and ASSET MANAGEMENT. These businesses offer a broad range of life
insurance, annuity, asset management and personalized wealth management products
and services distributed to institutional, high net worth and retail clients.
Global Investment Management net income of $436 million in the 2002 third
quarter and $1.373 billion in the 2002 nine months was up $64 million or 17% and
$195 million or 17% from the comparable 2001 periods. LIFE INSURANCE AND
ANNUITIES net income was $183 million in the 2002 third quarter and $642 million
in the 2002 nine months, down $2 million or 1% and up $6 million or 1% from the
comparable 2001 periods. The $2 million decrease in net income from the 2001
third quarter primarily reflects lower net investment income, partially offset
by higher business volumes and the impact of continued expense management in
Travelers Life and Annuity, as well as increases in International Insurance
Manufacturing, primarily in Mexico. The $6 million increase in net income from
the 2001 nine months reflects an increase of $47 million at International
Insurance Manufacturing, partially offset by a decrease of $41 million in
Travelers Life and Annuity primarily due to lower net investment income. The $47
million increase in International Insurance Manufacturing relates to increases
in Mexico due to the Banamex acquisition, as well as increases in Latin America
and Asia. PRIVATE BANK net income was $115 million in the 2002 third quarter and
$338 million in the 2002 nine months, up $24 million or 26% and $64 million or
23% from the comparable 2001 periods. The increase in net income at PRIVATE BANK
from the 2001 periods primarily reflects increases in lending and client trading
customer revenue, and the impact of lower interest rates, partially offset by
increased expenses. ASSET MANAGEMENT net income was $138 million in the 2002
third quarter and $393 million in the 2002 nine months, up $42 million or 44%
and $125 million or 47% from the comparable 2001 periods. The increase in net
income at ASSET MANAGEMENT from the 2001 periods primarily reflects the Banamex
acquisition, decreased expenses and the cumulative impact of positive flows.
These increases were partially offset by the impact of negative market action,
the cumulative impact of outflows of U.S. Retail Money Market funds to the bank
deposit program and a decline in Latin America retirement
27
services businesses due to the continuing economic crisis in Argentina. The
nine-month period was additionally impacted by the absence of prior-year
one-time fees.
GLOBAL INVESTMENT MANAGEMENT
NET INCOME -- REGIONAL VIEW
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % -------------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
---------------------------------------------------------------------------------------------------------------------------------
North America (excluding Mexico) $ 319 $ 306 4 $ 1,028 $ 985 4
Mexico 54 11 NM 172 28 NM
Western Europe 1 - - (3) - -
Japan 12 9 33 44 23 91
Asia (excluding Japan) 26 18 44 81 59 37
Latin America 19 22 (14) 37 61 (39)
Central & Eastern Europe,
Middle East & Africa 5 6 (17) 14 22 (36)
------------------------------- --------------------------------
TOTAL NET INCOME $ 436 $ 372 17 $ 1,373 $ 1,178 17
=================================================================================================================================
(1) Reclassified to conform to the current period's presentation.
NM Not meaningful
GLOBAL INVESTMENT MANAGEMENT net income increased $64 million in the 2002 third
quarter and $195 million in the 2002 nine months from the comparable 2001
periods primarily driven by Mexico, North America, Asia and Japan, partially
offset by declines in Latin America and CEEMEA.
Mexico net income increased $43 million and $144 million in the 2002 third
quarter and nine months from the comparable 2001 periods, primarily reflecting
the Banamex acquisition in August 2001, which impacted the LIFE INSURANCE AND
ANNUITIES and the ASSET MANAGEMENT businesses. North America net income
increased $13 million and $43 million in the 2002 third quarter and nine months,
respectively, over the comparable 2001 periods. The increase primarily reflects
continued customer revenue momentum in PRIVATE BANK and increased net flows and
lower expenses in ASSET MANAGEMENT, partially offset by lower net investment
income in LIFE INSURANCE AND ANNUITIES. Asia net income increased $8 million and
$22 million in the 2002 third quarter and nine months, respectively, over the
comparable 2001 periods, primarily relating to PRIVATE BANK in the quarter
comparison and both PRIVATE BANK and LIFE INSURANCE AND ANNUITIES in the
nine-month comparison. The increase in PRIVATE BANK related to continued
customer revenue momentum and the increase in LIFE INSURANCE AND ANNUITIES
primarily related to increased investment income. Japan net income increased $3
million and $21 million in the 2002 third quarter and nine months, respectively,
over the comparable 2001 periods. The increase in the nine-month period
primarily resulted from increased client trading and lending activity in PRIVATE
BANK. Latin America net income decreased $3 million and $24 million in the 2002
third quarter and nine-month periods, respectively, over the comparable 2001
periods. The nine-month comparison includes a decline in ASSET MANAGEMENT and
PRIVATE BANK relating to the continuing economic crisis in Argentina, partially
offset by the benefit of lower benefits and claims expense due to changes in
Argentine regulations and the impact of the peso devaluation in LIFE INSURANCE
AND ANNUITIES. CEEMEA net income decreased $1 million and $8 million in the 2002
third quarter and nine-month periods, respectively, over the comparable 2001
periods, primarily due to weakness in PRIVATE BANK.
LIFE INSURANCE AND ANNUITIES
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % -------------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
---------------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 1,073 $ 972 10 $ 3,291 $ 3,156 4
Provision for benefits and claims 698 609 15 2,049 1,932 6
Operating expenses 124 91 36 328 282 16
------------------------------- --------------------------------
INCOME BEFORE TAXES 251 272 (8) 914 942 (3)
Income taxes 68 84 (19) 272 303 (10)
Minority interest, after-tax - 3 (100) - 3 (100)
------------------------------- --------------------------------
NET INCOME(2) $ 183 $ 185 (1) $ 642 $ 636 1
=================================================================================================================================
(1) Reclassified to conform to the current period's presentation.
(2) Excludes investment gains/losses included in Proprietary Investment
Activities segment.
LIFE INSURANCE AND ANNUITIES comprises Travelers Life and Annuity and
International Insurance Manufacturing. These businesses offer a broad range of
life insurance and annuity products and services including individual life
insurance and COLI products, and individual annuity and group annuity products,
including fixed and variable annuities. The International Insurance
Manufacturing business primarily has operations in Mexico, Western Europe, Asia
and Latin America.
28
LIFE INSURANCE AND ANNUITIES net income was $183 million and $642 million in the
2002 third quarter and nine months, respectively, down $2 million or 1% and up
$6 million or 1% from the comparable periods of 2001. The $2 million decrease in
net income from the 2001 third quarter reflects a decrease of $8 million in
Travelers Life and Annuity, partially offset by an increase of $6 million for
International Insurance Manufacturing. The $6 million increase in net income
from the 2001 nine months reflects an increase of $47 million at International
Insurance Manufacturing, partially offset by a decrease in net income of $41
million in Travelers Life and Annuity.
Net income for Travelers Life and Annuity of $170 million and $576 million in
the 2002 third quarter and nine months declined $8 million or 4% and $41 million
or 7% from the comparable periods of 2001. The $8 million decline in the 2002
third quarter primarily relates to lower net investment income, including lower
yields on fixed income investments and losses in private equities, partially
offset by business volume growth and continued expense management. The $41
million decline in the 2002 nine months primarily relates to lower net
investment income, including the impact of lower yields on fixed income
investments, losses in private equities and the absence of prior-year real
estate transactions, partially offset by expense management. Expenses in 2002
included a decrease in the amortization of deferred policy acquisition costs of
$22 million in the individual annuity business due to changes in underlying
lapse and interest rate assumptions in the 2002 first quarter. Business volumes
were strong during the 2002 third quarter with double-digit growth in group
annuity account balances and in individual life net written premiums versus the
prior-year third quarter. These increases reflected growth in retirement savings
and estate planning products, primarily in Guaranteed Investment Contracts
(GICs), and were partially offset by a decline in individual annuity net written
premiums due to negative equity market conditions.
Net income for International Insurance Manufacturing of $13 million and $66
million in the 2002 third quarter and nine months increased $6 million and $47
million, respectively, from the comparable periods of 2001. The $6 million
increase in net income from the 2001 third quarter primarily reflected a $5
million increase in Mexico, a $2 million increase in Asia and a $1 million
increase in Latin America. The $47 million increase from the 2001 nine months
primarily reflected a $23 million increase in Mexico due to the Banamex
acquisition, a $17 million increase in Latin America and a $9 million increase
in Asia. The increases in Latin America were due to the benefit of lower
benefits and claims expense due to changes in Argentine regulations and the
impact of the Argentine peso devaluation.
Loans 90 days or more past due were $251 million at September 30, 2002,
representing loans received from the Argentine government in the 2001 fourth
quarter. A portion of future credit losses on these loans, if any, are expected
to be offset by a corresponding decrease in a reserve for related customer
liabilities. Investment income in future periods may be impacted by weak global
economic conditions. These statements are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 34.
TRAVELERS LIFE AND ANNUITY
The majority of the annuity business and a substantial portion of the life
business written by Travelers Life and Annuity are accounted for as
investment contracts, such that the premiums are considered deposits and are
not included in revenues. TLA's business is significantly affected by
movements in the U.S. equity and fixed income credit markets. U.S. equity and
credit market events can have both positive and negative effects on the
deposit and revenue performance of the business. A sustained weakness in the
equity markets will decrease revenues and earnings in variable products.
Declines in credit quality of issuers will have a negative effect on
earnings. This statement is a forward-looking statement within the meaning of
the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 34.
The following table shows net written premiums and deposits by product line:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % -------------------------------- %
IN MILLIONS OF DOLLARS 2002 2001 Change 2002 2001 Change
---------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL ANNUITIES
Fixed $ 592 $ 464 28 $ 1,809 $ 1,463 24
Variable 695 952 (27) 2,509 3,119 (20)
Individual payout 15 14 7 41 48 (15)
GICS AND OTHER GROUP ANNUITIES 1,397 1,717 (19) 5,272 5,616 (6)
INDIVIDUAL LIFE INSURANCE
Direct periodic premiums and deposits 143 126 13 553 455 22
Single premium deposits 64 36 78 212 131 62
Reinsurance (29) (25) (16) (83) (71) (17)
------------------------------- --------------------------------
$ 2,877 $ 3,284 (12) $ 10,313 $ 10,761 (4)
=================================================================================================================================
29
Individual annuities account balances were $27.3 billion at September 30, 2002,
down from $30.0 billion at December 31, 2001 and $27.5 billion at September 30,
2001, primarily reflecting declines in market values of variable annuity
investments, partially offset by good in force retention. Net written premiums
and deposits for individual annuities in the 2002 third quarter and nine months
were $1.302 billion and $4.359 billion, respectively, down from $1.430 billion
and $4.630 billion in the comparable periods of 2001. The decrease in individual
annuity net written premiums and deposits was driven by a decline in variable
annuity sales due to current market conditions, but was partially offset by
fixed annuity sales increases over the prior-year periods. Continued penetration
into outside broker-dealer channels reflect the ongoing effort to build market
share during declining market conditions.
Group annuity account balances and benefit reserves reached $22.7 billion at
September 30, 2002, up from $21.0 billion at December 31, 2001 and $20.2 billion
at September 30, 2001. The group annuity business experienced continued strong
retention in all products and continued sales momentum in structured settlement
products. Net written premiums and deposits (excluding Citigroup's employee
pension plan deposits) were $1.397 billion and $5.272 billion in the 2002 third
quarter and nine months, respectively, compared to $1.717 billion and $5.616
billion in the comparable periods of 2001, primarily reflecting decreases in GIC
sales.
Total premiums and deposits for individual life insurance of $178 million and
$682 million in the 2002 third quarter and nine months, respectively, were 30%
and 32% ahead of the $137 million and $515 million for the comparable periods of
2001, driven by independent agents, high end, and retirement and estate
planning. Life insurance in force was $80.7 billion at September 30, 2002, up
from $75.0 billion at year-end 2001 and $72.5 billion at September 30, 2001.
PRIVATE BANK
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % -------------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
---------------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 412 $ 366 13 $ 1,262 $ 1,134 11
Operating expenses 237 225 5 755 701 8
Provision for credit losses 5 4 25 11 7 57
------------------------------- --------------------------------
INCOME BEFORE TAXES 170 137 24 496 426 16
Income taxes 55 46 20 158 152 4
------------------------------- --------------------------------
NET INCOME $ 115 $ 91 26 $ 338 $ 274 23
=================================================================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 29 $ 26 12 $ 29 $ 26 12
Return on assets 1.57% 1.39% 1.56% 1.41%
---------------------------------------------------------------------------------------------------------------------------------
Client business volumes under
management (IN BILLIONS OF DOLLARS) $ 157 $ 150 5 $ 157 $ 150 5
=================================================================================================================================
(1) Reclassified to conform to the current period's presentation.
PRIVATE BANK provides personalized wealth management services for high net worth
clients around the world. PRIVATE BANK net income was $115 million in the 2002
third quarter and $338 million in the 2002 nine months, up $24 million or 26%
and $64 million or 23% from the 2001 periods, primarily reflecting increases in
lending and client trading customer revenue, and the impact of lower interest
rates, partially offset by increased expenses.
Client business volumes under management, which include custody accounts, client
assets under fee-based management, deposits, and loans, were $157 billion at the
end of the 2002 third quarter, up $7 billion or 5% from $150 billion at the end
of the 2001 third quarter primarily reflecting increases in loans of $4 billion
and banking deposits of $3 billion. Regionally, the increase reflects continued
growth primarily in Asia, North America and Japan, partially offset by declines
in CEEMEA and Latin America.
Revenues, net of interest expense, were $412 million in the 2002 third quarter
and $1.262 billion in the nine months, up $46 million or 13% and $128 million or
11% from the respective 2001 periods. Revenue growth was primarily driven by
continued customer revenue increases in lending and client trading activity, and
the benefit of lower interest rates, partially offset by lower fee revenues. In
the 2002 third quarter and nine months, the increase in revenues reflects
continued favorable trends in North America (including Mexico), up $35 million
or 23% and $99 million or 22%, respectively, from the comparable 2001 periods.
International revenues increased $11 million or 5% from the 2001 third quarter
and $29 million or 4% from the 2001 nine months, primarily due to growth in
Japan and Asia, partially offset by declines in Latin America and CEEMEA.
Operating expenses of $237 million and $755 million in the 2002 third quarter
and nine months were up $12 million or 5% and $54 million or 8% from the
respective 2001 periods, primarily reflecting higher levels of employee-related
expenses, partially due to increased front-end sales and servicing capabilities
and investment spending in technology. The 2002 nine-month period also included
$8 million (primarily European) severance costs incurred in the 2002 first
quarter. Operating expenses include restructuring charges of $3 million pretax
($2 million after-tax) in the 2002 first quarter and $7 million pretax ($4
million after-tax) in the 2001
30
second quarter, primarily relating to North America and Latin America.
The provision for credit losses was $5 million and $11 million in the 2002 third
quarter and nine months, up $1 million and $4 million from the year-ago periods.
The increase in the nine-month period primarily related to North America. Loans
90 days or more past due at the 2002 quarter-end were $201 million or 0.70% of
total loans outstanding, compared with $78 million or 0.31% at the end of the
2001 third quarter, and reflects increases in North America, Western Europe,
CEEMEA and Asia.
Average assets of $29 billion in the 2002 third quarter increased $3 billion or
12% from $26 billion in the 2001 third quarter, primarily due to higher mortgage
financing, and margin and tailored lending.
ASSET MANAGEMENT
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- % -------------------------------- %
IN MILLIONS OF DOLLARS 2002 2001(1) Change 2002 2001(1) Change
---------------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 518 $ 546 (5) $ 1,559 $ 1,553 -
Operating expenses 310 385 (19) 964 1,099 (12)
------------------------------- --------------------------------
INCOME BEFORE TAXES
AND MINORITY INTEREST 208 161 29 595 454 31
Income taxes 70 59 19 201 179 12
Minority interest, after-tax - 6 (100) 1 7 (86)
------------------------------- --------------------------------
NET INCOME $ 138 $ 96 44 $ 393 $ 268 47
=================================================================================================================================
Assets under management
(IN BILLIONS OF DOLLARS)(2) $ 452 $ 422 7 $ 452 $ 422 7
=================================================================================================================================
(1) Reclassified to conform to the current period's presentation.
(2) Includes $28 billion and $29 billion in 2002 and 2001, respectively, for
PRIVATE BANK clients.
ASSET MANAGEMENT includes the businesses of Citigroup Asset Management (CAM),
Citigroup Alternative Investments (CAI), Banamex asset management and retirement
services businesses and Citigroup's other retirement services businesses in
North America and Latin America. These businesses offer institutional, high net
worth, and retail clients a broad range of investment alternatives from
investment centers located around the world. Products and services offered
include mutual funds, closed-end funds, separately managed accounts, unit
investment trusts, alternative investments, variable annuities (through
affiliated and third-party insurance companies), and pension administration
services.
Net income of $138 million and $393 million in the 2002 third quarter and nine
months was up $42 million or 44% and $125 million or 47% from the comparable
2001 periods. The $42 million increase in the 2002 third quarter primarily
related to the Banamex acquisition, an increase in CAI due to the transfer of
the managed futures business from the GCIB, the impact of positive flows, and
lower expenses. These increases were partially offset by the impact of negative
market action, the cumulative impact of outflows of U.S. Retail Money Market
funds to the bank deposit program and a decline in the Latin America retirement
services businesses due to the continuing economic crisis in Argentina. The $125
million increase in the nine-month period primarily related to the Banamex
acquisition, lower expenses and increased asset based fees, partially offset by
the impacts of negative market action, the bank deposit program, and declines in
the Latin America retirement services businesses. The nine-month period was
additionally impacted by the absence of prior-year one-time performance fees.
Assets under management for the 2002 third quarter rose 7% from the 2001 third
quarter to $452 billion, primarily reflecting an increase in CAI of $41 billion
and strong net flows of $35 billion, partially offset by negative market action
of $32 billion and the cumulative impact of the transfers of U.S. Retail Money
Market assets to the bank deposit program of $14 billion. Institutional client
assets were $150 billion at September 30, 2002, up $12 billion or 8% compared to
the 2001 third quarter reflecting the cumulative impact of institutional
liquidity flows and long-term product flows, partially offset by negative market
action. Retail and Private Bank client assets were $201 billion, down $22
billion or 10% compared to a year ago, primarily reflecting the impact of
negative market action and the cumulative impact of the bank deposit program,
partially offset by net flows of $17 billion. CAI assets were $90 billion at
September 30, 2002, up $41 billion or 85% from the prior-year period primarily
reflecting TPC assets of $34 billion which CAI manages on a third party basis
following the distribution, which occurred on August 20, 2002. Retirement
services assets were $11 billion at September 30, 2002, down $1 billion or 6%
from the prior-year period, primarily due to a decline in the Latin America
retirement services businesses due to the continuing economic crisis in
Argentina.
Sales of proprietary mutual funds and managed account products at Salomon Smith
Barney Inc. (SSB) were $3.6 billion in the 2002 third quarter, down 42% from the
2001 third quarter, and represented 37% of SSB's retail channel sales. Sales of
mutual and money funds through Global Consumer's banking network decreased 33%
to $1.8 billion in the 2002 third quarter compared to the prior-
31
year quarter, representing 40% of total sales, including $1.0 billion in
International and $0.8 billion in North America, of which Primerica sold $0.5
billion of proprietary U.S. mutual and money funds, representing 72% of
Primerica's total U.S. mutual and money funds sales in the 2002 third quarter
compared to 71% in the 2001 third quarter.
Revenues, net of interest expense, of $518 million and $1.559 billion in the
2002 third quarter and nine months decreased $28 million or 5% and increased $6
million from the 2001 third quarter and nine months, respectively. The $28
million decrease in the three- month period was primarily due to a decline in
the Latin America retirement services businesses due to the continuing economic
crisis in Argentina, the impact of negative market action and the cumulative
impact of outflows of U.S. Retail Money Market funds to the bank deposit
program, partially offset by the Banamex acquisition and the increases in CAI.
The increase in the nine-month period was primarily due to the Banamex
acquisition, the increases in CAI, and positive net flows in CAM, partially
offset by a decline in the Latin America retirement services businesses due to
the economic conditions, the impact of negative market action and the impact of
outflows to the bank deposit program. The nine-month period was additionally
impacted by the absence of prior-year one-time performance fees.
Operating expenses of $310 million and $964 million in the 2002 third quarter
and nine months declined $75 million or 19% and $135 million or 12% from the
comparable 2001 periods, primarily reflecting a decline in the Latin America
retirement services businesses due to economic conditions, the absence of
goodwill and indefinite-lived intangible asset amortization in 2002 and reduced
incentive compensation, occupancy expenses, and advertising and marketing
expenses, partially offset by the impact of the Banamex acquisition and
increases in CAI. Operating expenses include a restructuring release of $1
million pretax in the 2002 third quarter relating to Mexico, and restructuring
charges of $12 million pretax ($8 million after-tax) in the 2001 third quarter
relating to Mexico. The nine-month periods also included restructuring charges
of $12 million pretax ($8 million after-tax) in the 2002 first quarter relating
to Latin America and $6 million pretax ($3 million after-tax) in the 2001 second
quarter, primarily relating to Western Europe.
PROPRIETARY INVESTMENT ACTIVITIES
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(1) 2002 2001(1)
--------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ (271) $ (262) $ (408) $ 90
Operating expenses 47 26 109 76
Provision for credit losses 9 - 9 -
--------------------------------------------------
INCOME (LOSS) BEFORE TAXES AND MINORITY INTEREST (327) (288) (526) 14
Income tax benefits (104) (103) (172) (13)
Minority interest, after-tax 14 - 22 (2)
--------------------------------------------------
NET INCOME (LOSS) $ (237) $ (185) $ (376) $ 29
========================================================================================================
(1) Reclassified to conform to the current period's presentation.
PROPRIETARY INVESTMENT ACTIVITIES comprises Citigroup's venture capital
activities, realized investment gains (losses) from sales or write-downs of
certain insurance-related investments, results from certain proprietary
investments, the results of certain investments in countries that refinanced
debt under the 1989 Brady Plan or plans of a similar nature, and, since August
2001, the Banamex investment portfolio.
Revenues, net of interest expense, are comprised of ($101) million and ($360)
million from proprietary investments and ($170) million and $98 million from net
realized gains (losses) from insurance-related investments for the 2002 third
quarter and 2001 third quarter, respectively. In the nine-month periods,
revenues, net of interest expense, are comprised of ($78) million and ($124)
million from proprietary investments and ($330) million and $214 million from
net realized gains (losses) from insurance-related investments for 2002 and
2001, respectively.
Revenues, net of interest expense, of ($271) million for the 2002 third
quarter decreased $9 million from the 2001 third quarter, primarily
reflecting the absence of a prior-year mark-to-market gain on a Latin
American fund and higher impairment write-downs in insurance-related and
other proprietary investments. This was partially offset by a $527 million
gain on the sale of 399 Park Avenue related to the portion of the building
that the Company does not occupy. The 2002 third quarter included impairment
write-downs of $111 million on certain investments in Argentina.
For the 2002 nine months, revenues, net of interest expense, of ($408)
million decreased $498 million from the 2001 nine-month period, primarily
reflecting higher impairment write-downs in insurance-related and other
proprietary investments, including $210 million on WorldCom and $264 million
on certain investments in Argentina, lower venture capital results and the
absence of a prior-year gain on a Latin American fund, partially offset by
the recognized gain on the sale of 399 Park Avenue and realized gains from
sales in the venture capital portfolio.
32
Operating expenses of $47 million and $109 million in the 2002 third quarter and
nine months increased $21 million and $33 million, respectively, from the
comparable 2001 periods, primarily due to increased venture capital and other
proprietary investment costs, partially related to majority-owned funds
established in late 2001.
The increase in the provision for credit losses for both the 2002 third quarter
and nine-month periods relate to the write-off of a loan in U.S. Venture
Capital.
Minority interest, net of tax, increased in both the 2002 third quarter and
nine-month periods from the comparable 2001 periods, primarily due to the net
impact of majority-owned investment funds established in late 2001.
Proprietary Investment Activities results may fluctuate in the future as a
result of market and asset-specific factors. This statement is a forward-looking
statement within the meaning of the Private Securities Litigation Reform Act.
See "Forward-Looking Statements" on page 34.
CORPORATE/OTHER
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(1) 2002 2001(1)
-----------------------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 137 $ (87) $ 506 $ (324)
Operating expenses 149 148 552 452
Provisions for benefits, claims, and credit losses (4) 2 (22) -
-------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES,
MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES (8) (237) (24) (776)
Income tax benefits (62) (112) (34) (277)
Minority interest, after-tax (2) 5 (3) 6
-------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 56 (130) 13 (505)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 214 (58) 1,875 751
CUMULATIVE EFFECT OF ACCOUNTING CHANGES - - (47) (158)
-------------------------------------------------
NET INCOME (LOSS) $ 270 $ (188) $ 1,841 $ 88
=============================================================================================================================
(1) Reclassified to conform to the current period's presentation.
CORPORATE/OTHER includes net corporate treasury results, corporate expenses,
certain intersegment eliminations; the Internet-related development activities,
cumulative effect of accounting changes and taxes not allocated to the
individual businesses; and results related to the discontinued operations of
TPC.
Revenues, net of interest expense, of $137 million and $506 million in the 2002
third quarter and nine months increased $224 million and $830 million,
respectively, from the 2001 periods, primarily reflecting lower net treasury
costs and the impact of higher intersegment eliminations. The lower net treasury
costs primarily relate to favorable interest rate positioning and lower funding
costs, including the impacts of lower interest rates, and earnings related to
realized gains on fixed income investments, partially offset by the impact of
increased borrowing levels. Operating expenses of $149 million and $552 million
in the 2002 third quarter and nine months increased $1 million and $100 million
from the respective prior-year periods. The expense increase in the nine-month
period primarily relates to higher intersegment eliminations and
employee-related costs, partially offset by a decrease in certain net
unallocated corporate costs. The provisions for benefits, claims, and credit
losses in the 2002 nine-month period are primarily the result of higher
intersegment eliminations. Income tax benefits of $62 million and $34 million in
the 2002 third quarter and nine months, respectively, includes the tax benefit
resulting from the loss incurred on the sale of the Associates property and
casualty operations to TPC, which was spun-off in the 2002 third quarter.
Discontinued operations (see Note 4 to the Unaudited Consolidated Financial
Statements) includes the operations of TPC through August 20, 2002 and includes
gains on the sale of stock by a subsidiary of $1.270 billion ($1.158 billion
after-tax) through the 2002 nine-month period. Citigroup recognized an after-tax
gain of $1.061 billion in the 2002 first quarter as a result of the TPC IPO of
231 million shares of its class A common stock. The after-tax gain was increased
by $97 million in the 2002 third quarter due to the receipt of a private letter
ruling from the Internal Revenue Service and the resolution of certain tax
matters related to the IPO. The income (loss) from discontinued operations in
both the 2001 third quarter and nine-month periods reflect catastrophe losses
from the property and casualty business associated with the events of September
11th.
The cumulative effect of accounting changes of $47 million in the 2002
nine-month period reflects the 2002 first quarter impact of adopting SFAS No.
142 relating to goodwill and indefinite-lived intangible assets. The cumulative
effect of accounting changes of $158 million in the 2001 nine-month period
includes a 2001 first quarter charge of $42 million related to the adoption of
SFAS No. 133 and a 2001 second quarter charge of $116 million reflecting the
impact of adopting EITF 99-20. See Note 2 to Unaudited Consolidated Financial
Statements for further details of the cumulative effect of accounting changes.
33
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by words or phrases such as "believe," "expect,"
"anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar
expressions or future or conditional verbs such as "will," "should," "would,"
and "could." These forward-looking statements involve risks and uncertainties
including, but not limited to, weak global economic conditions; the continued
economic crisis in Argentina including financial regulations and implementation
issues and the impact that the crisis may have on our commercial borrowers;
uncertainty in Brazil; rising unemployment rates and an increase in bankruptcy
filings in Japan; sovereign or regulatory actions, and political conditions and
developments; credit performance of the portfolios, including bankruptcies,
portfolio growth, and seasonal factors; stress in the telecommunications and
energy industries; subsidiaries' dividending capability; changes in estimates in
the timing of revenue recognition on securitizations; the impact of changes in
accounting related to stock-based compensation; the effect of banking and
financial services reforms and of rules regarding the regulatory capital
treatment of recourse, direct credit substitutes and residual interest in asset
securitizations; possible amendments to, and interpretations of, risk-based
capital guidelines and reporting instructions; macro-economic and regulatory
policies, including the effect proposed U.S. bankruptcy legislation would have
if enacted; levels of activity in the global capital markets; the resolution of
legal proceedings and related matters; and the Company's success in managing the
costs associated with the expansion of existing distribution channels and
developing new ones, and in realizing increased revenues from such distribution
channels, including cross-selling initiatives and electronic commerce-based
efforts.
MANAGING GLOBAL RISK
The Citigroup Risk Management framework recognizes the wide range and diversity
of global business activities by balancing strong corporate oversight with
defined independent risk management functions at the business level. The
Citigroup Risk Management Framework is described in detail in Citigroup's 2001
Annual Report and Form 10-K.
THE CREDIT RISK MANAGEMENT PROCESS
The credit risk management process at Citigroup relies on corporate-wide
standards to ensure consistency and integrity, with business-specific policies
and practices to ensure applicability and ownership. Citigroup's credit risk
management process is described in detail in Citigroup's 2001 Annual Report and
Form 10-K.
THE MARKET RISK MANAGEMENT PROCESS
Market risk at Citigroup - like credit risk - is managed through corporate-wide
standards and business policies and procedures.
- Market risks are measured in accordance with established standards to
ensure consistency across businesses and the ability to aggregate like
risks at the Citigroup-level.
- Each business is required to establish, and have approved by independent
Market Risk Management, a market risk limit framework, including risk
measures, limits and controls, that clearly defines approved risk profiles
and is within the parameters of Citigroup's overall risk appetite.
- Businesses, working in conjunction with independent Market Risk Management,
must ensure that market risks are independently measured, monitored and
reported, to ensure transparency in risk-taking activities and integrity in
risk reports.
In all cases, the businesses are ultimately responsible for the market risks
that they take, and for remaining within their defined limits. Market risk
encompasses liquidity risk and price risk, both of which arise in the normal
course of business of a global financial intermediary. Liquidity risk is the
risk that some entity, in some location and in some currency, may be unable to
meet a financial commitment to a customer, creditor, or investor when due.
Liquidity risk is discussed in the Liquidity and Capital Resources section.
Price risk is the risk to earnings that arises from changes in interest rates,
foreign exchange rates, equity and commodity prices, and in their implied
volatilities. Price risk arises in Non-Trading Portfolios, as well as in Trading
Portfolios.
34
NON-TRADING PORTFOLIOS
Price risk in non-trading portfolios is measured predominantly through
Earnings-at-Risk and Factor Sensitivity techniques. These measurement techniques
are supplemented with additional tools, including stress testing and
cost-to-close analysis.
Business units manage the potential earnings effect of interest rate
movements by managing the asset and liability mix, either directly or through
the use of derivative financial products. These include interest rate swaps
and other derivative instruments that are designated and effective as hedges.
The utilization of derivatives is managed in response to changing market
conditions as well as to changes in the characteristics and mix of the
related assets and liabilities.
Earnings-at-Risk is the primary method for measuring price risk in Citigroup's
non-trading portfolios (excluding the insurance companies). Earnings-at-Risk
measures the pretax earnings impact of a specified upward and downward
instantaneous parallel shift in the yield curve for the appropriate currency
assuming a static portfolio. Citigroup generally measures this impact over a
one-year and five-year time horizon under business-as-usual conditions. The
Earnings-at-Risk is calculated separately for each currency and reflects the
repricing gaps in the position as well as option positions, both explicit and
embedded. U.S. dollar exposures are calculated by multiplying the gap between
interest sensitive items, including assets, liabilities, derivative instruments
and other off-balance sheet instruments, by 100 basis points. Non-U.S. dollar
exposures are calculated utilizing the statistical equivalent of a 100 basis
point change in interest rates and assuming no correlation between exposures in
different currencies.
Citigroup's primary non-trading price risk exposure is to movements in the U.S.
dollar and Mexican peso interest rates. Citigroup also closely monitors its
Earnings-at-Risk in other currencies, as detailed below.
The following illustrates the impact to Citigroup's pretax earnings from a 100
basis point increase or decrease in the U.S. dollar yield curve. As of September
30, 2002, the potential impact on pretax earnings over the next twelve months is
a decrease of $239 million from an interest rate increase and an increase of
$422 million from an interest rate decrease. The potential impact on pretax
earnings for periods beyond the first twelve months is an increase of $1,475
million from an increase in interest rates and a decrease of $1,597 million from
an interest rate decrease. The change in Earnings-at-Risk from the prior year
and prior year-end primarily reflects the change in the mix of assets and
liabilities to reflect Citigroup's view of interest rates.
The statistical equivalent of a 100 basis point increase in Mexican peso
interest rates would have a potential positive impact on Citigroup's pretax
earnings of approximately $223 million over the next twelve months and a
potential positive impact of $85 million for the years thereafter. The
statistical equivalent of a 100 basis points decrease in Mexican peso interest
rates would have a potential negative impact on Citigroup's pretax earnings of
approximately $223 million for the next twelve months and potential negative
impact of $85 million for the years thereafter. The change in Earnings-at-Risk
from the prior year primarily represents the changes in the repricing
characteristics of the portfolio while the change in Earnings-at-Risk from the
prior year-end reflects small changes in the composition of the balance sheet.
Excluding the impact of changes in Mexican peso interest rates, the statistical
equivalent of a 100 basis point increase in other non-U.S. dollar interest rates
would have a potential negative impact on Citigroup's pretax earnings of $198
million over the next twelve months and potential positive impact of $335
million for the years thereafter. The statistical equivalent of a 100 basis
point decrease in other non-U.S. dollar interest rates would have a potential
positive impact on Citigroup's pretax earnings of $202 million over the next
twelve months and a potential negative impact of $319 million for the years
thereafter. The change in Earnings-at-Risk from the prior year and the prior
year-end primarily represents changes in the asset and liability mix across a
range of currencies to reflect Citigroup's current view of interest rates as
well as changes in the repricing profile of the balance sheet.
35
CITIGROUP EARNINGS-AT-RISK (IMPACT ON PRETAX EARNINGS)(1)
SEPTEMBER 30, 2002
OTHER
IN MILLIONS OF DOLLARS U.S. DOLLAR MEXICAN PESO NON-U.S. DOLLAR(2)
-----------------------------------------------------------------------------------------
INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE
-----------------------------------------------------------------
Twelve months and less $ (239) $ 422 $ 223 $ (223) $ (198) $ 202
Thereafter(3) 1,475 (1,597) 85 (85) 335 (319)
-----------------------------------------------------------------------------------------
Total $ 1,236 $ (1,175) $ 308 $ (308) $ 137 $ (117)
=========================================================================================
DECEMBER 31, 2001
OTHER
IN MILLIONS OF DOLLARS U.S. DOLLAR MEXICAN PESO NON-U.S. DOLLAR
-----------------------------------------------------------------------------------------
INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE
-----------------------------------------------------------------
Twelve months and less $ (241) $ 244 $ 208 $ (208) $ (275) $ 278
Thereafter(3) 898 (1,082) 207 (207) (236) 250
-----------------------------------------------------------------------------------------
Total $ 657 $ (838) $ 415 $ (415) $ (511) $ 528
=========================================================================================
SEPTEMBER 30, 2001(4)
OTHER
IN MILLIONS OF DOLLARS U.S. DOLLAR MEXICAN PESO NON-U.S. DOLLAR
-----------------------------------------------------------------------------------------
INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE
-----------------------------------------------------------------
Twelve months and less $ (337) $ 352 $ 518 ($518) $ (426) $ 429
Thereafter(3) 941 (1,175) (250) 250 (765) 781
-----------------------------------------------------------------------------------------
Total $ 604 $ (823) $ 268 $ (268) $ (1,191) $ 1,210
=========================================================================================
(1) Excludes the insurance companies (see below).
(2) Excludes exposure to the Argentine peso beyond twelve months which reflects
Citigroup's current risk management strategy given the volatile and
uncertain economic conditions in Argentina.
(3) Represents discounted Earnings-at-Risk beyond twelve months and up to and
including five years.
(4) Reclassified to conform with the current period's presentation.
INSURANCE COMPANIES
The table below reflects the estimated decrease in the fair value of financial
instruments held in the insurance companies, as a result of a 100 basis point
increase in interest rates.
SEPTEMBER 30, December 31, September 30,
IN MILLIONS OF DOLLARS 2002 2001 2001
--------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments(1) $ 1,842 $ 3,404 $ 3,116
--------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Long-term debt $ 14 $ 18 $ 28
Contractholder funds 905 775 741
Redeemable securities of subsidiary trusts - 1 63
================================================================================================================================
(1) The decline from December 31, 2001 to September 30, 2002 is primarily
attributable to the exclusion of discontinued operations. See Note 4 to
Unaudited Consolidated Financial Statements.
TRADING PORTFOLIOS
Price risk in trading portfolios is measured through a complementary set of
tools, including Factor Sensitivities, Value-at-Risk, and Stress Testing. Each
trading portfolio has its own market risk limit framework, encompassing these
measures and other controls, including permitted product lists and a new,
complex product approval process, established by the business, and approved by
independent market risk management.
Factor Sensitivities are defined as the change in the value of a position for a
defined change in a market risk factor (e.g., the change in the value of a
Treasury bill for a 1 basis point change in interest rates). It is the
responsibility of independent market risk management to ensure that factor
sensitivities are calculated, monitored, and, in some cases, limited for all
relevant risks taken in a trading portfolio. Value-at-Risk estimates the
potential decline in the value of a position or a portfolio, under normal market
conditions, over a one-day holding period, at a 99% confidence level. The
Value-at-Risk method incorporates the Factor Sensitivities of the trading
portfolio with the volatilities and correlations of those factors.
Stress Testing is performed on trading portfolios on a regular basis, to
estimate the impact of extreme market movements. Stress Testing is performed on
individual trading portfolios, as well as on aggregations of portfolios and
businesses, as appropriate. It is the responsibility of independent market risk
management, in conjunction with the businesses, to develop stress scenarios,
review the output of periodic stress testing exercises, and utilize the
information to make judgments as to the ongoing appropriateness of exposure
levels and limits.
New and/or complex products in trading portfolios are required to be reviewed
and approved by the Capital Markets Approval Committee (CMAC). The CMAC is
responsible for ensuring that all relevant risks are identified and understood,
and can be measured, managed, and reported in accordance with applicable
business policies and practices. The CMAC is made up of senior
36
representatives from market and credit risk management, legal, accounting,
operations, and other support areas, as required.
The level of price risk exposure at any given point in time depends on the
market environment and expectations of future price and market movements, and
will vary from period to period.
For Citigroup's major trading centers, the aggregate pretax Value-at-Risk in the
trading portfolios was $54 million at September 30, 2002. Daily exposures
averaged $65 million during the third quarter of 2002 and ranged from $54
million to $77 million.
The following table summarizes Value-at-Risk in the trading portfolios as of
September 30, 2002 and December 31, 2001, along with the averages.
2002 Full
THIRD Year
SEPTEMBER 30, QUARTER December 31 2001
IN MILLIONS OF DOLLARS 2002 AVERAGE 2001 Average
---------------------------------------------------------------------------------------------------------------------------
Interest rate $ 51 $ 56 $ 44 $ 55
Foreign exchange 15 14 9 12
Equity 11 24 10 15
All other (primarily commodity) 9 9 21 18
Covariance adjustment (32) (38) (30) (37)
-----------------------------------------------------------
Total $ 54 $ 65 $ 54 $ 63
===========================================================================================================================
The table below provides the range of Value-at-Risk in the trading portfolios
that was experienced during the third quarter of 2002 and all of 2001.
THIRD QUARTER Full-Year
2002 2001
-----------------------------------------------
IN MILLIONS OF DOLLARS LOW HIGH Low High
---------------------------------------------------------------------------------------------------------------
Interest rate $ 49 $ 64 $ 33 $ 90
Foreign exchange 10 24 6 22
Equity 10 44 9 53
All other (primarily commodity) 4 14 8 52
===============================================================================================================
MANAGEMENT OF CROSS-BORDER RISK
Cross-border risk is the risk that Citigroup will be unable to obtain payment
from customers on their contractual obligations as a result of actions taken by
foreign governments such as exchange controls, debt moratoria, and restrictions
on the remittance of funds. Citigroup manages cross-border risk as part of the
risk management framework described in the 2001 Annual Report and Form 10-K.
Except as described below for cross-border resale agreements and the netting of
certain long and short securities positions, the following table presents total
cross-border outstandings and commitments on a regulatory basis in accordance
with FFIEC guidelines. In regulatory reports under FFIEC guidelines,
cross-border resale agreements are presented based on the domicile of the issuer
of the securities that are held as collateral. However, for purposes of the
following table, cross-border resale agreements are presented based on the
domicile of the counterparty because the counterparty has the legal obligation
for repayment. Similarly, under FFIEC guidelines, long securities positions are
required to be reported on a gross basis. However, for purposes of the following
table, certain long and short securities positions are presented on a net basis
consistent with internal cross-border risk management policies, reflecting a
reduction of risk from offsetting positions.
37
Total cross-border outstandings include cross-border claims on third parties as
well as investments in and funding of local franchises. Countries with FFIEC
outstandings greater than 0.75% of Citigroup assets at September 30, 2002 and
December 31, 2001 include:
SEPTEMBER 30, 2002 December 31, 2001
----------------------------------------------------------------------------------------------------- --------------------------
CROSS-BORDER CLAIMS ON THIRD PARTIES
----------------------------------------------- INVESTMENTS
IN AND
TRADING AND CROSS- FUNDING OF TOTAL CROSS- Total Cross-
IN BILLIONS OF SHORT-TERM BORDER RESALE LOCAL BORDER COMMIT- Border COMMIT-
DOLLARS CLAIMS(1) AGREEMENTS ALL OTHER TOTAL FRANCHISES OUTSTANDINGS MENTS(2) Outstandings MENTS(2)
----------------------------------------------------------------------------------------------------- --------------------------
Germany $ 12.6 $ 3.8 $ 1.2 $ 17.6 $ 4.6 $ 22.2 $ 8.6 $ 13.5 $ 7.3
United Kingdom 5.8 7.7 2.4 15.9 - 15.9 20.6 11.2 16.8
France 4.8 5.9 1.2 11.9 0.3 12.2 7.6 10.9 8.7
Japan 3.5 5.9 1.5 10.9 - 10.9 0.5 7.9 3.3
Italy 7.0 0.7 0.3 8.0 2.0 10.0 0.9 9.7 2.4
Mexico 3.3 - 4.8 8.1 1.4 9.5 0.7 12.3 0.6
Canada 2.2 1.5 1.8 5.5 3.1 8.6 3.3 7.9 3.4
Brazil 2.0 - 2.5 4.5 3.6 8.1 0.1 10.7 0.3
Netherlands 5.0 1.3 1.1 7.4 - 7.4 3.3 7.2 3.0
==================================================================================================================================
(1) Trading and short-term claims include cross-border debt and equity
securities held in the trading account, trade finance receivables, net
revaluation gains on foreign exchange and derivative contracts, and other
claims with a maturity of less than one year.
(2) Commitments (not included in total cross-border outstandings) include
legally binding cross-border letters of credit and other commitments and
contingencies as defined by the FFIEC.
Total cross-border outstandings for September 30, 2002 under FFIEC guidelines,
including cross-border resale agreements based on the domicile of the issuer of
the securities that are held as collateral and long securities positions
reported on a gross basis, amounted to $27.9 billion for Germany, $9.0 billion
for the United Kingdom, $11.9 billion for France, $12.9 billion for Japan, $17.5
billion for Italy, $11.2 billion for Mexico, $7.9 billion for Canada, $10.4
billion for Brazil, and $8.3 billion for the Netherlands.
Total cross-border outstandings for December 31, 2001 under FFIEC guidelines,
including cross-border resale agreements based on the domicile of the issuer of
the securities that are held as collateral and long securities positions
reported on a gross basis, amounted to $19.5 billion for Germany, $9.3 billion
for the United Kingdom, $13.5 billion for France, $6.5 billion for Japan, $12.8
billion for Italy, $13.2 billion for Mexico, $8.9 billion for Canada, $11.9
billion for Brazil, and $6.9 billion for the Netherlands.
LIQUIDITY AND CAPITAL RESOURCES
Citigroup's primary source of capital resources is its net earnings. Other
sources include proceeds from the issuance of trust preferred securities, senior
debt, subordinated debt and commercial paper. Citigroup can also generate funds
by securitizing various financial assets including credit card receivables and
other receivables generally secured by collateral such as automobiles and real
estate.
Citigroup uses these capital resources to pay dividends to its stockholders, to
repurchase its shares in the market pursuant to Board-of-Directors approved
plans, to support organic growth, to make acquisitions and to service its debt
obligations. As a financial holding company, substantially all of Citigroup's
net earnings are generated within its operating subsidiaries including Citibank,
Salomon Smith Barney Inc., and The Travelers Insurance Company (TIC). Each of
these subsidiaries makes these funds available to Citigroup in the form of
dividends. The subsidiaries' dividend paying abilities are limited by certain
covenant restrictions in credit agreements and/or by regulatory requirements.
Certain of these subsidiaries are also subject to rating agency considerations
that also impact their capitalization levels.
During 2002, it is not anticipated that any restrictions on the subsidiaries'
dividending capability will restrict Citigroup's ability to meet its obligations
as and when they become due. It is also anticipated that Citigroup will maintain
its share repurchase program. This paragraph contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 34.
On March 27, 2002, TPC completed its initial public offering of 231 million
shares of its class A common stock, representing approximately 23.1% of its
outstanding equity securities, for net proceeds after underwriting discount of
$4.1 billion. Citigroup recognized an after-tax gain of $1.158 billion ($1.270
billion pretax) as a result of the TPC offering. On August 20, 2002, Citigroup
completed the distribution to its stockholders of a portion of its remaining
ownership interest in TPC. This non-cash distribution was tax-free to Citigroup,
its stockholders and TPC. The distribution was treated as a dividend to
stockholders for accounting purposes that reduced Citigroup stockholders' equity
by approximately $6.9 billion. Following the distribution, Citigroup remains a
holder of approximately 9.9% of TPC's outstanding equity securities which are
carried at fair value and are included in Investments on the
38
Unaudited Consolidated Statement of Financial Position at September 30, 2002.
Minority interest was recognized on the initial public offering portion
beginning on April 1, 2002 through the date of the distribution and is
reflected in the Income (loss) from discontinued operations on the Unaudited
Consolidated Statement of Income.
Citigroup, Citicorp and certain other subsidiaries issue commercial paper
directly to investors. Citigroup and Citicorp, both of which are bank holding
companies, maintain combined liquidity reserves of cash, securities and unused
bank lines of credit to support their combined outstanding commercial paper.
Citigroup has unutilized bilateral committed revolving credit facilities in the
amount of $1.5 billion, all of which expire in 2003. Under these facilities,
Citigroup is required to maintain a certain level of consolidated stockholders'
equity (as defined in the agreements). Citigroup exceeded this requirement by
approximately $55.8 billion at September 30, 2002.
Associates, a subsidiary of Citicorp, has a combination of unutilized credit
facilities with unaffiliated banks of $5.4 billion as of September 30, 2002
which have maturities ranging from 2002 to 2005. All of these facilities are
guaranteed by Citicorp. In connection with the facilities, Citicorp is required
to maintain a certain level of consolidated stockholder's equity (as defined in
the agreements). At September 30, 2002, this requirement was exceeded by
approximately $52.7 billion. Citicorp has also guaranteed various debt
obligations of Associates and CitiFinancial Credit Company, an indirect
subsidiary of Citicorp.
Borrowings under bank lines of credit may be at interest rates based on LIBOR,
CD rates, the prime rate, or bids submitted by the banks. Each company pays its
banks facility fees for its lines of credit.
Citicorp, Salomon Smith Barney, and some of their nonbank subsidiaries have
credit facilities with Citicorp's subsidiary banks, including Citibank, N.A.
Borrowings under these facilities must be secured in accordance with Section 23A
of the Federal Reserve Act.
MANAGEMENT OF LIQUIDITY
Management of liquidity at Citigroup is the responsibility of the Corporate
Treasurer. A uniform liquidity risk management policy exists for Citigroup and
its major operating subsidiaries. Under this policy, there is a single set of
standards for the measurement of liquidity risk in order to ensure consistency
across businesses, stability in methodologies and transparency of risk.
Management of liquidity at each operating subsidiary and/or country is performed
on a daily basis and is monitored by Corporate Treasury. Each major operating
subsidiary and/or country must prepare an annual liquidity and funding plan for
approval by the Corporate Treasurer.
Under the annual liquidity and funding plan, liquidity limits, triggers and
ratios are established. Contingency Funding Plans are prepared on a periodic
basis for Citigroup and each major operating subsidiary and country. These plans
include stress testing of assumptions about significant changes in key funding
sources, credit ratings, contingent uses of funding, and political and economic
conditions in certain countries.
Citigroup's funding sources are well-diversified across funding types and
geography, a benefit of the strength of the global franchise. Funding for the
Parent and its major operating subsidiaries includes a large geographically
diverse retail and corporate deposit base, a significant portion of which is
considered core. Other sources of funding include collateralized borrowings,
securitizations (primarily credit card and mortgages), long-term debt, and
purchased/wholesale funds. This funding is significantly enhanced by Citigroup's
strong capital position. Each of Citigroup's major operating subsidiaries
finances its operations on a basis consistent with its capitalization,
regulatory structure and the operating environment in which it operates.
Other liquidity and capital resource considerations for Citigroup and its major
operating facilities follow.
CITICORP
The in-country forum for liquidity issues is the Asset/Liability Management
Committee (ALCO), which includes senior executives within each country. The ALCO
reviews the current and prospective funding requirements for all businesses and
legal entities within the country, as well as the capital position and balance
sheet. The businesses within the country are represented on the committee with
the focal point being the Country Treasurer. The Country Corporate Officer and
the Country Treasurer ensure that all funding obligations in each country are
met when due. The Citigroup Corporate Treasurer, in concert with the Country
Corporate Officer and the Regional Market Risk Manager, appoints the Country
Treasurer.
Each Country Treasurer must prepare a liquidity plan at least annually that is
approved by the Country Corporate Officer, the Regional Treasurer, and the
Citigroup Corporate Treasurer. The liquidity profile is monitored on an on-going
basis and reported monthly. Limits are established on the extent to which
businesses in a country can take liquidity risk. The size of the limit depends
on the depth of the market, experience level of local management, the stability
of the liabilities, and liquidity of the assets. Finally,
39
the limits are subject to the evaluation of the entities' stress test
results. Generally, limits are established such that in stress scenarios,
entities need to be self-funded or providers of liquidity to Citicorp.
Regional Treasurers generally have responsibility for monitoring liquidity risk
across a number of countries within a defined geography. They are also available
for consultation and special approvals, especially in unusual or volatile market
conditions. Citicorp's assets and liabilities are diversified across many
currencies, geographic areas, and businesses. Particular attention is paid to
those businesses which for tax, sovereign risk, or regulatory reasons cannot be
freely and readily funded in the international markets.
A diversity of funding sources, currencies, and maturities is used to gain a
broad access to the investor base. Citicorp's deposits, which represent 60% of
total funding at September 30, 2002 and 59% of funding at December 31, 2001, are
broadly diversified by both geography and customer segments.
Stockholders' equity, which grew $3.2 billion during the first nine months of
2002 to $66.6 billion at September 30, 2002, continues to be an important
component of the overall funding structure. In addition, long-term debt is
issued by Citicorp and its subsidiaries. Total Citicorp long-term debt
outstanding at the end of the 2002 third quarter was $66.1 billion, compared
with $81.1 billion at year-end 2001.
Asset securitization programs remain an important source of liquidity. Loans
securitized during the first nine months of 2002 included $6.9 billion of U.S.
credit cards and $21.0 billion of U.S. consumer mortgages. As credit card
securitization transactions amortize, newly originated receivables are recorded
on Citicorp's balance sheet and become available for asset securitization.
During the first nine months of 2002, the scheduled amortization of certain
credit card securitization transactions made available $5.9 billion of new
receivables. In addition, at least $2.1 billion of credit card securitization
transactions are scheduled to amortize during the rest of 2002.
Citicorp is a legal entity separate and distinct from Citibank, N.A. and its
other subsidiaries and affiliates. There are various legal limitations on the
extent to which Citicorp's banking subsidiaries may extend credit, pay dividends
or otherwise supply funds to Citicorp. The approval of the Office of the
Comptroller of the Currency is required if total dividends declared by a
national bank in any calendar year exceed net profits (as defined) for that year
combined with its retained net profits for the preceding two years. In addition,
dividends for such a bank may not be paid in excess of the bank's undivided
profits. State-chartered bank subsidiaries are subject to dividend limitations
imposed by applicable state law.
Citicorp's national and state-chartered bank subsidiaries can declare dividends
to their respective parent companies in 2002, without regulatory approval, of
approximately $8.4 billion, adjusted by the effect of their net income (loss)
for 2002 up to the date of any such dividend declaration. In determining whether
and to what extent to pay dividends, each bank subsidiary must also consider the
effect of dividend payments on applicable risk-based capital and leverage ratio
requirements as well as policy statements of the federal regulatory agencies
that indicate that banking organizations should generally pay dividends out of
current operating earnings. Consistent with these considerations, Citicorp
estimates that its bank subsidiaries could have distributed dividends to
Citicorp, directly or through their parent holding company, of approximately
$8.0 billion of the available $8.4 billion, adjusted by the effect of their net
income (loss) up to the date of any such dividend declaration.
Citicorp also receives dividends from its nonbank subsidiaries. These nonbank
subsidiaries are generally not subject to regulatory restrictions on their
payment of dividends except that the approval of the Office of Thrift
Supervision may be required if total dividends declared by a savings association
in any calendar year exceed amounts specified by that agency's regulations.
SALOMON SMITH BARNEY HOLDINGS INC. (SALOMON SMITH BARNEY)
Salomon Smith Barney manages liquidity and monitors and evaluates capital
adequacy through a well-defined process described in Citigroup's 2001 Annual
Report and Form 10-K. Total assets were $312 billion at September 30, 2002,
compared to $301 billion at year-end 2001. Due to the nature of Salomon Smith
Barney's trading activities, it is not uncommon for asset levels to fluctuate
from period to period.
Salomon Smith Barney has a $5.0 billion 364-day committed uncollateralized
revolving line of credit with unaffiliated banks that extends through May 2003,
with any borrowings under this facility maturing in May 2005. Salomon Smith
Barney also has a $100 million 364-day committed uncollateralized revolving line
of credit with an unaffiliated bank that extends through June 2003, with any
borrowings under this facility maturing in June 2004. Salomon Smith Barney may
borrow under these revolving credit facilities at various interest rate options
(LIBOR or base rate) and compensates the banks for these facilities through
facility fees. At September 30, 2002, there were no borrowings outstanding under
these facilities. Salomon Smith Barney also has committed long-term financing
facilities with unaffiliated banks. At September 30, 2002, Salomon Smith Barney
had drawn down the full $1.7 billion then available under these facilities. A
bank can terminate its facility by giving Salomon Smith Barney one year's
notice.
40
Salomon Smith Barney compensates the banks for the facilities through facility
fees. Under all of these facilities, Salomon Smith Barney is required to
maintain a certain level of consolidated adjusted net worth (as defined in the
respective agreements). At September 30, 2002, these requirements were exceeded
by approximately $4.9 billion. Salomon Smith Barney also has substantial
borrowing arrangements consisting of facilities that it has been advised are
available, but where no contractual lending obligation exists. These
arrangements are reviewed on an ongoing basis to ensure flexibility in meeting
short-term requirements.
Unsecured term debt is a significant component of Salomon Smith Barney's
long-term capital. Long-term debt totaled $26.1 billion at September 30, 2002
and $26.8 billion at December 31, 2001. Salomon Smith Barney utilizes interest
rate swaps to convert the majority of its fixed-rate long-term debt used to fund
inventory-related working capital requirements into variable rate obligations.
Long-term debt issuances denominated in currencies other than the U.S. dollar
that are not used to finance assets in the same currency are effectively
converted to U.S. dollar obligations through the use of cross-currency swaps and
forward currency contracts.
THE TRAVELERS INSURANCE COMPANY (TIC)
At September 30, 2002, TIC had $38.3 billion of life and annuity product deposit
funds and reserves. Of that total, $21.5 billion is not subject to discretionary
withdrawal based on contract terms. The remaining $16.8 billion is for life and
annuity products that are subject to discretionary withdrawal by the
contractholder. Included in the amount that is subject to discretionary
withdrawal is $5.5 billion of liabilities that is surrenderable with market
value adjustments. Also included is an additional $5.3 billion of the life
insurance and individual annuity liabilities which is subject to discretionary
withdrawals and an average surrender charge of 4.76%. In the payout phase, these
funds are credited at significantly reduced interest rates. The remaining $6.0
billion of liabilities is surrenderable without charge. More than 9.5% of this
relates to individual life products. These risks would have to be underwritten
again if transferred to another carrier, which is considered a significant
deterrent against withdrawal by long-term policyholders. Insurance liabilities
that are surrendered or withdrawn are reduced by outstanding policy loans, and
related accrued interest prior to payout.
TIC is subject to various regulatory restrictions that limit the maximum amount
of dividends available to its parent without prior approval of the Connecticut
Insurance Department. A maximum of $586 million of statutory surplus is
available by the end of the year 2002 for such dividends without the prior
approval of the Connecticut Insurance Department, all of which was paid during
the first nine months of 2002.
OFF-BALANCE SHEET ARRANGEMENTS
Citigroup and its subsidiaries are involved with several types of off-balance
sheet arrangements, including special purpose entities (SPEs), lines and letters
of credit, and loan commitments. The principal uses of SPEs are to obtain
sources of liquidity by securitizing certain of Citigroup's financial assets, to
assist our clients in securitizing their financial assets, and to create other
investment products for our clients.
SPEs may be organized as trusts, partnerships, or corporations. In a
securitization, the company transferring assets to an SPE converts those assets
into cash before they would have been realized in the normal course of business.
The SPE obtains the cash needed to pay the transferor for the assets received by
issuing securities to investors in the form of debt instruments, certificates,
commercial paper, and other notes of indebtedness. Investors usually have
recourse to the assets in the SPE and often benefit from other credit
enhancements, such as a cash collateral account, overcollateralization in the
form of excess assets in the SPE, or a liquidity facility, such as a line of
credit or asset purchase agreement. Accordingly, the SPE can typically obtain a
more favorable credit rating from rating agencies, such as Standard and Poor's
and Moody's Investors Service, than the transferor could obtain for its own debt
issuances, resulting in less expensive financing costs. The transferor can use
the cash proceeds from the sale to extend credit to additional customers or for
other business purposes. The SPE may also enter into a derivative contract in
order to convert the yield or currency of the underlying assets to match the
needs of the SPE's investors or to limit the credit risk of the SPE. The Company
may be the counterparty to any such derivative. The securitization process
enhances the liquidity of the financial markets, may spread credit risk among
several market participants, and makes new funds available to extend credit to
consumers and commercial entities.
SECURITIZATION OF CITIGROUP'S ASSETS
In certain of these off-balance sheet arrangements (credit card receivable and
mortgage loan securitizations), Citigroup is securitizing assets that were
previously recorded in its statement of financial position. In other
arrangements, Citigroup acts as intermediary or agent for its corporate clients,
assisting them in obtaining sources of liquidity by selling the clients' trade
receivables or other financial assets to an SPE. The Company also securitizes
clients' debt obligations in transactions involving SPEs that issue
collateralized debt obligations. In yet other arrangements, the Company packages
and securitizes assets purchased in the financial markets in order to create new
security offerings for institutional and private bank clients as well as retail
customers. In connection with such arrangements, Citigroup may purchase, and
temporarily hold assets designated for subsequent securitization.
41
In the 2002 third quarter, Citigroup securitized $1.3 billion of credit card
receivables, $10.9 billion of mortgage loans and $2.0 billion of other assets,
thereby reducing the Company's assets and the related funding by approximately
$14.2 billion in the quarter. Under generally accepted accounting principles,
the assets and liabilities of these SPEs do not appear in Citigroup's
Consolidated Statement of Financial Position. At September 30, 2002, the total
amount of loans securitized and outstanding was $151 billion. See Note 13 to
Unaudited Consolidated Financial Statements for additional information about
off-balance sheet arrangements.
The following table summarizes certain cash flows received from and paid to
securitization trusts during the quarter ended September 30, 2002:
IN BILLIONS OF DOLLARS CREDIT CARDS MORTGAGES OTHER(1)
-----------------------------------------------------------------------------------------------------------
Proceeds from new securitizations $ 1.3 $ 10.9 $ 2.0
Proceeds from collections reinvested in new receivables 32.7 - -
Servicing fees received 0.3 0.2 -
Cash flows received on retained interest
and other net cash flows 1.0 0.1 -
===========================================================================================================
(1) Other includes corporate debt securities, auto loans, student loans and
other assets.
CREDIT CARD RECEIVABLES
Credit card receivables are securitized through a trust, which is established to
purchase the receivables. Citigroup sells receivables into the trust on a
non-recourse basis.
After securitization of credit card receivables, the Company continues to
maintain credit card customer account relationships and provides servicing
for receivables transferred to the SPE trusts. As a result, the Company
considers both the securitized and unsecuritized credit card receivables to
be part of the business it manages. The documents establishing the trusts
generally require the Company to maintain an ownership interest in the
trusts. The Company also arranges for third parties to provide credit
enhancement to the trusts, including cash collateral accounts, subordinated
securities, and letters of credit. As specified in certain of the sale
agreements, the net revenue with respect to the investors' interest collected
by the trusts each month is accumulated up to apredetermined maximum amount,
and is available over the remaining term of that transaction to make payments
of interest to trust investors, fees, and transaction costs in the event that
net cash flows from the receivables are not sufficient. If the net cash flows
are insufficient, Citigroup's loss is limited to its retained interest,
consisting of seller's interest and an interest-only strip that arises from
the calculation of gain or loss at the time receivables are sold to the SPE.
When the predetermined amount is reached, net revenue with respect to the
investors' interest is passed directly to the Citigroup subsidiary that sold
the receivables. Credit card securitizations are revolving securitizations;
that is, as customers pay their credit card balances, the cash proceeds are
used to replenish the receivables in the trust. Salomon Smith Barney is one
of several underwriters that distribute securities issued by the trusts to
investors. The Company relies on securitizations to fund approximately 60% of
its Citi Cards business.
At September 30, 2002, total assets in the credit card trusts were $76 billion.
Of that amount, $64 billion has been sold to investors via trust-issued
securities and has been removed from Citigroup's Consolidated Statement of
Financial Position. The remaining seller's interest of $12 billion is recorded
in Citigroup's Consolidated Statement of Financial Position as Consumer Loans.
Citigroup retains credit risk on its seller's interest. Amounts receivable from
the trusts were $1.066 billion and amounts due to the trusts were $794 million
at September 30, 2002. During the quarter ended September 30, 2002, finance
charges and interchange fees of $2.5 billion were collected by the trusts. Also
for the quarter ended September 30, 2002, the trusts recorded $1.5 billion in
coupon interest paid to third-party investors, servicing fees, and other costs.
MORTGAGES, HOME EQUITY AND AUTO LOANS
The Company provides a wide range of mortgage, home equity and auto loan
products to a diverse customer base. In addition to providing a source of
liquidity and less expensive funding, securitizing these assets also reduces the
Company's credit exposure to the borrowers. In connection with the
securitization of these loans, servicing rights entitle the Company to a future
stream of cash flows based on the outstanding principal balances of the loans
and the contractual servicing fee. Failure to service the loans in accordance
with contractual servicing obligations may lead to a termination of the
servicing rights and the loss of future servicing fees. In non-recourse
servicing, the principal credit risk to the servicer arises from temporary
advances of funds. In recourse servicing, the servicer agrees to share credit
risk with the owner of the mortgage loans, such as FNMA, FHLMC, GNMA, or with a
private investor, insurer or guarantor. Our mortgage loan securitizations are
primarily non-recourse, thereby effectively transferring the risk of future
credit losses to the purchasers of the securities issued by the trust. Home
equity loans may be revolving lines of credit under which borrowers have the
right to draw on the line of credit up to their maximum amount for a specified
number of years. In addition to servicing rights, the Company also retains a
residual interest in its home equity, manufactured housing and auto loan
securitizations, consisting of seller's interest and interest-only strips that
arise from the calculation of gain or loss at the time
42
assets are sold to the SPE.
SECURITIZATIONS OF CLIENT ASSETS
The Company acts as intermediary or agent for its corporate clients, assisting
them in obtaining sources of liquidity, by selling the clients' trade
receivables or other financial assets to an SPE.
The Company administers several third-party owned, special purpose, multi-seller
finance companies that purchase pools of trade receivables, credit cards, and
other financial assets from third-party clients of the Company. As
administrator, the Company provides accounting, funding, and operations services
to these conduits. The Company has no ownership interest in the conduits. The
clients continue to service the transferred assets. The conduits' asset
purchases are funded by issuing commercial paper and medium-term notes. Clients
absorb the first losses of the conduit by providing collateral in the form of
excess assets. The Company along with other financial institutions provides
liquidity facilities, such as commercial paper back-stop lines of credit to the
conduits. The Company also provides third loss enhancement in the form of
letters of credit and other guarantees. All fees are charged on a market basis.
At September 30, 2002, total assets in the conduits were $49 billion.
The Company also securitizes clients' debt obligations in transactions involving
SPEs that issue collateralized debt obligations (CDOs). A majority of the
transactions are on behalf of clients where the Company first purchases the
assets at the request of the clients and warehouses them until the
securitization transaction is executed. Other CDOs are structured where the
underlying debt obligations are purchased directly in the open market or from
issuers. Some CDOs have static unmanaged portfolios of assets, while others have
a more actively managed portfolio of financial assets. The Company receives fees
for structuring and distributing the CDO securities to investors.
CREATION OF OTHER INVESTMENT PRODUCTS
The Company packages and securitizes assets purchased in the financial markets
in order to create new security offerings, including hedge funds, mutual funds,
and other investment funds, for institutional and private bank clients as well
as retail customers, that match the clients' investment needs and preferences.
The SPEs may be credit-enhanced by excess assets in the investment pool or by
third party insurers assuming the risks of the underlying assets, thus reducing
the credit risk assumed by the investors and diversifying investors' risk to a
pool of assets as compared with investments in individual assets. The Company
typically manages the SPE for market-rate fees. In addition, the Company may be
one of several liquidity providers to the SPE and may place the securities with
investors. The Company has no ownership interest in these entities.
CREDIT COMMITMENTS AND LINES OF CREDIT
The table below summarizes Citigroup's credit commitments as of September 30,
2002 and December 31, 2001.
IN MILLIONS OF DOLLARS SEPTEMBER 30, 2002 December 31, 2001
--------------------------------------------------------------------------------------------------------------------
Financial standby letters of credit and foreign office guarantees $ 30,672 $ 29,541
Performance standby letters of credit and foreign office guarantees 7,639 7,749
Commercial and similar letters of credit 5,315 5,681
One-to-four family residential mortgages 5,165 5,470
Revolving open-end loans secured by 1-4 family residential properties 7,646 7,107
Commercial real estate, construction and land development 1,927 1,882
Credit card lines(1) 404,340 387,396
Commercial and other consumer loan commitments(2) 212,399 210,909
-----------------------------------------
TOTAL $ 675,103 $ 655,735
====================================================================================================================
(1) Credit card lines are unconditionally cancelable by the issuer.
(2) Includes $137 billion and $138 billion with original maturity less than one
year at September 30, 2002 and December 31, 2001, respectively.
CAPITAL
43
CITIGROUP INC. (CITIGROUP)
Citigroup is subject to risk-based capital guidelines issued by the Board of
Governors of the Federal Reserve System (FRB). These guidelines are used to
evaluate capital adequacy based primarily on the perceived credit risk
associated with balance sheet assets, as well as certain off-balance sheet
exposures such as unused loan commitments, letters of credit, and derivative and
foreign exchange contracts. The risk-based capital guidelines are supplemented
by a leverage ratio requirement.
CITIGROUP RATIOS
SEPT. 30, June 30, Dec. 31,
2002 2002 2001
--------------------------------------------------------------------------------------------------------------------------
Tier 1 capital 9.20% 9.20% 8.42%
Total capital (Tier 1 and Tier 2) 12.02 11.75 10.92
Leverage(1) 5.41 5.93 5.64
Common stockholders' equity 7.69 7.78 7.58
==========================================================================================================================
(1) Tier 1 capital divided by adjusted average assets.
Citigroup maintained a strong capital position during the third quarter of 2002.
Total capital (Tier 1 and Tier 2) amounted to $75.5 billion at September 30,
2002, representing 12.02% of net risk-adjusted assets. This compares with $80.8
billion and 11.75% at June 30, 2002 and $75.8 billion and 10.92% at December 31,
2001. Tier 1 capital of $57.8 billion at September 30, 2002 represented 9.20% of
net risk-adjusted assets, compared to $63.3 billion and 9.20% at June 30, 2002
and $58.4 billion and 8.42% at December 31, 2001. Citigroup's leverage ratio was
5.41% at September 30, 2002 compared to 5.93% at June 30, 2002 and 5.64% at
December 31, 2001.
COMPONENTS OF CAPITAL UNDER REGULATORY GUIDELINES
SEPT. 30, June 30, Dec. 31,
IN MILLIONS OF DOLLARS 2002 2002 2001
------------------------------------------------------------------------------------------------------------------------
Tier 1 Capital
Common stockholders' equity $ 79,366 $ 84,315 $ 79,722
Qualifying perpetual preferred stock 1,400 1,400 1,400
Qualifying mandatorily redeemable securities of subsidiary trusts 6,088 6,768 6,725
Minority interest(1) 738 3,164 803
Less: Net unrealized gains on securities available-for-sale(2) (1,324) (741) (852)
Accumulated net losses on cash flow hedges, after-tax (1,089) (648) (168)
Intangible assets:
Goodwill (22,559) (25,604) (23,861)
Other intangible assets (4,198) (4,750) (4,944)
50% investment in certain subsidiaries(3) (43) (62) (72)
Other (563) (580) (305)
-------------------------------------
Total Tier 1 capital $ 57,816 $ 63,262 $ 58,448
------------------------------------------------------------------------------------------------------------------------
Tier 2 Capital
Allowance for credit losses(4) 7,911 8,616 8,694
Qualifying debt(5) 9,757 8,939 8,648
Unrealized marketable equity securities gains(2) 88 9 79
Less: 50% investment in certain subsidiaries(3) (43) (62) (72)
-------------------------------------
Total Tier 2 capital 17,713 17,502 17,349
-------------------------------------
Total capital (Tier 1 and Tier 2) $ 75,529 $ 80,764 $ 75,797
========================================================================================================================
RISK-ADJUSTED ASSETS (6) $ 628,265 $ 687,325 $ 694,035
========================================================================================================================
(1) The variance from December 31, 2001 primarily reflects the minority
interest related to the TPC IPO, and the subsequent distribution during the
2002 third quarter.
(2) Tier 1 capital excludes unrealized gains and losses on debt securities
available-for-sale in accordance with regulatory risk-based capital
guidelines. The federal bank regulatory agencies permit institutions to
include in Tier 2 capital up to 45% of pretax net unrealized holding gains
on available-for-sale equity securities with readily determinable fair
values. Institutions are required to deduct from Tier 1 capital net
unrealized holding losses on available-for-sale equity securities with
readily determinable fair values net of tax.
(3) Represents investment in certain overseas insurance activities and
unconsolidated banking and finance subsidiaries.
(4) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is
deducted from risk-adjusted assets.
(5) Includes qualifying senior and subordinated debt in an amount not exceeding
50% of Tier 1 capital, and subordinated capital notes subject to certain
limitations.
(6) Includes risk-weighted credit equivalent amounts, net of applicable
bilateral netting agreements, of $29.1 billion for interest rate,
commodity, and equity derivative contracts and foreign exchange contracts
as of September 30, 2002, compared to $29.6 billion as of June 30, 2002 and
$26.2 billion as of December 31, 2001. Market risk-equivalent assets
included in net risk-adjusted assets amounted to $26.3 billion at September
30, 2002, $32.4 billion at June 30, 2002, and $31.4 billion at December 31,
2001. Net risk-adjusted assets also includes the effect of other
off-balance sheet exposures such as unused loan commitments and letters of
credit and reflects deductions for intangible assets and any excess
allowance for credit losses. The decrease from June 30, 2002 reflects the
impact of the TPC distribution.
Common stockholders' equity decreased a net $0.4 billion during the first nine
months of 2002 to $79.4 billion at September 30, 2002, representing 7.7% of
assets, compared to $79.7 billion and 7.6% at year-end 2001. The net decrease in
common stockholders' equity during the first nine months of 2002 principally
reflected net income of $12.8 billion and the issuance of shares pursuant to
employee benefit plans and other activity of $2.1 billion, which was more than
offset by the tax-free distribution to Citigroup's shareholders of TPC of $6.9
billion; treasury stock acquired of $4.9 billion; dividends declared on common
and preferred stock of
44
$2.7 billion; $0.3 billion related to the net change in foreign currency
translation adjustment, change in hedging activities, and unrealized gains and
losses on investment securities; and the net issuance of restricted stock of
$0.5 billion. The increase in the common stockholders' equity ratio during the
first nine months of 2002 reflected the above items and the corresponding
decline in total assets resulting from the tax-free distribution of TPC during
the third quarter.
During July 2002, the Board of Directors of Citigroup granted approval for the
repurchase of an additional $5 billion of Citigroup common stock, continuing the
Company's long-standing repurchase program of buying back shares in the market
from time to time.
The total mandatorily redeemable securities of subsidiary trusts (trust
securities) which qualify as Tier 1 capital at September 30, 2002 were $6.088
billion, which includes $4.605 billion of parent-obligated securities and $1.483
billion of subsidiary-obligated securities.
The final rules governing the regulatory capital treatment of nonfinancial
equity investments, which became effective April 1, 2002, were adopted for the
quarter ended June 30, 2002. The impact of the new rule was neutral to
Citigroup's capital ratios both at September 30, 2002 and June 30, 2002. For the
quarter ended September 30, 2002, the capital ratio impact of the $256 million
capital charge was offset by the $3.2 billion net reduction in risk-adjusted
assets for the nonfinancial equity investments. For the quarter ended June 30,
2002, the capital ratio impact of the $275 million capital charge was offset by
the $3.4 billion net reduction in risk-adjusted assets for the nonfinancial
equity investments.
Citigroup's subsidiary depository institutions are subject to the risk-based
capital guidelines issued by their respective primary federal bank regulatory
agencies, which are generally similar to the FRB's guidelines. At September 30,
2002, all of Citigroup's subsidiary depository institutions were "well
capitalized" under the federal bank regulatory agencies' definitions.
In December 2001, the Basel Committee on Banking Supervision (Committee)
announced that a new consultative package on the new Basel Capital Accord (new
Accord) would not be issued in early 2002, as previously indicated. Instead, the
Committee will first seek to complete a comprehensive impact assessment of the
draft proposal, after which a new consultative package will be issued. The
Committee launched a Quantitative Impact Study on October 1, 2002 which allows
banks to perform a concrete and comprehensive assessment of how the Committee's
proposals will affect their organization. Banks are asked to submit their
findings by December 20, 2002. The new Accord, which will apply to all
"significant" banks, as well as to holding companies that are parents of banking
groups, is intended to be finalized in the fourth quarter of 2003, with
implementation of the new framework by year-end 2006. The Company is monitoring
the status and progress of the proposed rule.
On November 29, 2001, the FRB issued final rules regarding the regulatory
capital treatment of recourse, direct credit substitutes and residual interest
in asset securitizations. The rules require a deduction from Tier 1 capital for
the amount of credit-enhancing interest-only strips (a type of residual
interest) that exceeds 25% of Tier 1 capital, as well as requiring
dollar-for-dollar capital for residual interests not deducted for Tier 1
capital. On May 17, 2002, the FRB issued guidance that requires institutions to
treat accrued interest receivables related to credit card securitizations as
residual interest, which will also require dollar-for-dollar capital. These
rules, which require full implementation in the fourth quarter of 2002, are not
expected to have a significant impact on Citigroup.
Additionally, from time to time, the FRB and the FFIEC propose amendments to,
and issue interpretations of, risk-based capital guidelines and reporting
instructions. Such proposals or interpretations could, if implemented in the
future, affect reported capital ratios and net risk-adjusted assets. This
paragraph and the preceding paragraph contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 34.
Citicorp is subject to risk-based capital and leverage guidelines issued by the
FRB.
CITICORP RATIOS
SEPTEMBER 30, 2002 June 30, 2002 December 31, 2001
------------------------------------------------------------------------------------------------------------------------
Tier 1 capital 8.55% 8.40% 8.33%
Total capital (Tier 1 and Tier 2) 12.73 12.53 12.41
Leverage(1) 6.90 6.92 6.85
Common stockholders' equity 10.17 9.93 9.81
========================================================================================================================
(1) Tier 1 capital divided by adjusted average assets.
Citicorp maintained a strong capital position during the 2002 third quarter.
Total capital (Tier 1 and Tier 2) amounted to $63.8 billion at September 30,
2002, representing 12.73% of net risk-adjusted assets. This compares with $63.4
billion and 12.53% at June 30, 2002 and $62.9 billion and 12.41% at December 31,
2001. Tier 1 capital of $42.9 billion at September 30, 2002 represented 8.55% of
net risk-adjusted assets, compared with $42.5 billion and 8.40% at June 30, 2002
and $42.2 billion and 8.33% at December
45
31, 2001. Citicorp's Tier 1 capital ratio at September 30, 2002 was above
Citicorp's target range of 8.00% to 8.30%.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have evaluated
the effectiveness of the Company's disclosure controls and procedures (as such
term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation Date"). Based on
such evaluation, such officers have concluded that, as of the Evaluation Date,
the Company's disclosure controls and procedures are effective in alerting them
on a timely basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's reports
filed or submitted under the Exchange Act.
CHANGES IN INTERNAL CONTROLS
Since the Evaluation Date, there have not been any significant changes in the
Company's internal controls or in other factors that could significantly affect
such controls.
46
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 2002 2001(1) 2002 2001(1)
--------------------------------------------------------------------------------------------------------------
REVENUES
Loan interest, including fees $ 9,686 $ 10,282 $ 28,362 $ 30,025
Other interest and dividends 5,398 6,316 15,825 19,453
Insurance premiums 855 789 2,566 2,454
Commissions and fees 3,612 3,746 11,645 11,468
Principal transactions 970 1,019 3,735 4,761
Asset management and administration fees 1,263 1,371 3,960 4,091
Realized gains (losses) from sales of investments (165) 108 (325) 362
Other income 1,886 851 3,992 3,072
-----------------------------------------------------
TOTAL REVENUES 23,505 24,482 69,760 75,686
Interest expense 5,861 8,284 16,325 26,186
-----------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE 17,644 16,198 53,435 49,500
-----------------------------------------------------
BENEFITS, CLAIMS AND CREDIT LOSSES
Policyholder benefits and claims 887 820 2,615 2,526
Provision for credit losses 2,689 1,580 7,305 4,539
-----------------------------------------------------
TOTAL BENEFITS, CLAIMS AND CREDIT LOSSES 3,576 2,400 9,920 7,065
-----------------------------------------------------
OPERATING EXPENSES
Non-insurance compensation and benefits 4,387 4,525 14,456 14,616
Insurance underwriting, acquisition, and operating 230 243 732 877
Restructuring-related items (41) 133 (35) 475
Other operating 3,864 3,865 11,490 11,353
-----------------------------------------------------
TOTAL OPERATING EXPENSES 8,440 8,766 26,643 27,321
-----------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES, MINORITY INTEREST AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 5,628 5,032 16,872 15,114
Provision for income taxes 1,898 1,771 5,794 5,406
Minority interest, net of income taxes 24 26 59 50
-----------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 3,706 3,235 11,019 9,658
-----------------------------------------------------
DISCONTINUED OPERATIONS
Income (loss) from discontinued operations 151 (151) 965 973
Gain on sale of stock by subsidiary - - 1,270 -
Provision (benefit) for income taxes (63) (93) 360 222
-----------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET 214 (58) 1,875 751
CUMULATIVE EFFECT OF ACCOUNTING CHANGES - - (47) (158)
-----------------------------------------------------
NET INCOME $ 3,920 $ 3,177 $ 12,847 $ 10,251
==============================================================================================================
BASIC EARNINGS PER SHARE
Income from continuing operations $ 0.73 $ 0.63 $ 2.16 $ 1.91
Income (loss) from discontinued operations, net 0.04 (0.01) 0.37 0.15
Cumulative effect of accounting changes - - (0.01) (0.03)
-----------------------------------------------------
NET INCOME $ 0.77 $ 0.62 $ 2.52 $ 2.03
=====================================================
Weighted average common shares outstanding 5,036.6 5,060.8 5,081.3 5,008.4
==============================================================================================================
DILUTED EARNINGS PER SHARE
Income from continuing operations $ 0.72 $ 0.62 $ 2.12 $ 1.87
Income (loss) from discontinued operations, net 0.04 (0.01) 0.36 0.14
Cumulative effect of accounting changes - - (0.01) (0.03)
-----------------------------------------------------
NET INCOME $ 0.76 $ 0.61 $ 2.47 $ 1.98
=====================================================
Adjusted weighted average common shares outstanding 5,110.5 5,169.0 5,168.7 5,126.3
==============================================================================================================
(1) Restated to reflect TPC as a discontinued operation. See Note 4 to
Unaudited Consolidated Financial Statements.
See Notes to Unaudited Consolidated Financial Statements.
47
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
SEPTEMBER 30,
2002 December 31,
IN MILLIONS OF DOLLARS (UNAUDITED) 2001(1)
---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (including segregated cash and other deposits) $ 15,886 $ 18,515
Deposits at interest with banks 15,183 19,216
Federal funds sold and securities borrowed or purchased under agreements to resell 157,482 134,809
Brokerage receivables 21,208 35,155
Trading account assets (including $22,152 and $36,351 pledged to creditors at September 30, 2002
and December 31, 2001, respectively) 161,803 144,904
Investments (including $9,049 and $15,475 pledged to creditors at September 30, 2002
and December 31, 2001, respectively) 142,059 160,837
Loans, net of unearned income
Consumer 265,869 248,201
Corporate 138,016 143,732
-----------------------------
Loans, net of unearned income 403,885 391,933
Allowance for credit losses (10,720) (10,088)
-----------------------------
Total loans, net 393,165 381,845
Goodwill 22,559 23,861
Intangible assets 7,776 9,003
Reinsurance recoverables 4,328 12,373
Separate and variable accounts 21,522 25,569
Other assets 68,597 85,363
-----------------------------
TOTAL ASSETS $ 1,031,568 $ 1,051,450
=================================================================================================================================
LIABILITIES
Non-interest-bearing deposits in U.S. offices $ 22,469 $ 23,054
Interest-bearing deposits in U.S. offices 118,101 110,388
Non-interest-bearing deposits in offices outside the U.S. 19,343 18,779
Interest-bearing deposits in offices outside the U.S. 230,914 222,304
-----------------------------
Total deposits 390,827 374,525
Federal funds purchased and securities loaned or sold under agreements to repurchase 164,946 153,511
Brokerage payables 19,766 32,891
Trading account liabilities 95,699 80,543
Contractholder funds and separate and variable accounts 48,347 48,932
Insurance policy and claims reserves 16,304 49,294
Investment banking and brokerage borrowings 19,951 16,480
Short-term borrowings 27,991 24,461
Long-term debt 109,672 121,631
Other liabilities 51,211 60,810
-----------------------------
Citigroup or subsidiary obligated mandatorily redeemable securities of subsidiary
trusts holding solely junior subordinated debt securities of -- Parent 4,605 4,850
-- Subsidiary 1,483 2,275
-----------------------------
TOTAL LIABILITIES 950,802 970,203
=================================================================================================================================
STOCKHOLDERS' EQUITY
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value 1,400 1,525
Common stock ($.01 par value; authorized shares: 15 billion), issued shares --
5,477,416,254 AT SEPTEMBER 30, 2002 and at December 31, 2001 55 55
Additional paid-in capital 16,795 23,196
Retained earnings 79,911 69,803
Treasury stock, at cost: SEPTEMBER 30, 2002 -- 415,393,536 shares
and December 31, 2001 -- 328,727,790 shares (14,363) (11,099)
Accumulated other changes in equity from nonowner sources (1,095) (844)
Unearned compensation (1,937) (1,389)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 80,766 81,247
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,031,568 $ 1,051,450
=================================================================================================================================
(1) In accordance with GAAP, prior period information has not been restated to
reflect TPC as a discontinued operation. See Note 4 to Unaudited
Consolidated Financial Statements.
See Notes to Unaudited Consolidated Financial Statements.
48
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
IN MILLIONS OF DOLLARS, EXCEPT SHARES IN THOUSANDS 2002 2001
---------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK AT AGGREGATE LIQUIDATION VALUE
Balance, beginning of period $ 1,525 $ 1,745
Redemption of preferred stock (125) -
Other - 29
---------------------------------
Balance, end of period 1,400 1,774
---------------------------------------------------------------------------------------------------------------------------
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 23,251 16,558
Employee benefit plans 599 350
Contribution to Citigroup Pension Fund (83) -
Other(1) (6,917) 6,297
---------------------------------
Balance, end of period 16,850 23,205
---------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of period 69,803 58,862
Net income 12,847 10,251
Common dividends(2) (2,676) (2,248)
Preferred dividends (63) (84)
---------------------------------
Balance, end of period 79,911 66,781
---------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK, AT COST
Balance, beginning of period (11,099) (10,213)
Issuance of shares pursuant to employee benefit plans 1,025 1,555
Treasury stock acquired (4,878) (2,688)
Contribution to Citigroup Pension Fund 583 -
Other 6 176
---------------------------------
Balance, end of period (14,363) (11,170)
---------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES
Balance, beginning of period (844) 123
Cumulative effect of accounting changes, after-tax (3) - 118
Net change in unrealized gains and losses on investment securities, after-tax 472 (154)
Net change for cash flow hedges, after-tax 921 41
Net change in foreign currency translation adjustment, after-tax (1,644) (687)
---------------------------------
Balance, end of period (1,095) (559)
---------------------------------------------------------------------------------------------------------------------------
UNEARNED COMPENSATION
Balance, beginning of period (1,389) (869)
Net issuance of restricted stock (548) (763)
---------------------------------
Balance, end of period (1,937) (1,632)
---------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY (SHARES OUTSTANDING: 5,062,023 IN 2002
and 5,144,224 in 2001) 79,366 76,625
---------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 80,766 $ 78,399
===========================================================================================================================
SUMMARY OF CHANGES IN EQUITY FROM NONOWNER SOURCES
Net income $ 12,847 $ 10,251
Other changes in equity from nonowner sources, after-tax (251) (682)
---------------------------------
TOTAL CHANGES IN EQUITY FROM NONOWNER SOURCES $ 12,596 $ 9,569
===========================================================================================================================
(1) In 2002, primarily represents the $6.9 billion tax-free distribution to
Citigroup's shareholders of TPC in August 2002. See Note 4 to Unaudited
Consolidated Financial Statements. In 2001, primarily includes $6.3 billion
for the issuance of shares to effect the Banamex acquisition.
(2) Common dividends declared were 16 cents per share in the first quarter and
18 cents per share in the second and third quarters of 2002. In 2001,
common dividends declared were 14 cents per share in both the first and
second quarters and 16 cents per share in the third quarter.
(3) Refers to the adoption of SFAS No. 133 in the first quarter of 2001 and the
adoption of EITF 99-20 in the second quarter of 2001, resulting in
increases to equity from nonowner sources of $25 million and $93 million,
respectively.
See Notes to Unaudited Consolidated Financial Statements.
49
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
IN MILLIONS OF DOLLARS 2002 2001
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
NET INCOME $ 12,847 $ 10,251
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX 717 751
GAIN ON SALE OF STOCK BY SUBSIDIARY, NET OF TAX 1,158 -
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (47) (158)
---------------------------------
INCOME FROM CONTINUING OPERATIONS 11,019 9,658
Adjustments to reconcile net income to net cash provided by operating activities
of continuing operations
Amortization of deferred policy acquisition costs and value of insurance in force 281 297
Additions to deferred policy acquisition costs (653) (629)
Depreciation and amortization 990 1,938
Provision for credit losses 7,305 4,539
Change in trading account assets (17,220) (22,446)
Change in trading account liabilities 15,156 (10,480)
Change in federal funds sold and securities borrowed or purchased under agreements
to resell (22,673) (32,705)
Change in federal funds purchased and securities loaned or sold under agreements
to repurchase 11,435 44,499
Change in brokerage receivables net of brokerage payables 822 5,453
Change in insurance policy and claims reserves 3,226 882
Net losses (gains) from sales of investments 325 (362)
Venture capital activity 767 752
Restructuring-related items (35) 475
Other, net 1,332 11,606
---------------------------------
TOTAL ADJUSTMENTS 1,058 3,819
---------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS 12,077 13,477
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Change in deposits at interest with banks 4,033 (1,324)
Change in loans (28,030) (31,259)
Proceeds from sales of loans 12,920 18,516
Purchases of investments (313,596) (248,817)
Proceeds from sales of investments 246,515 221,248
Proceeds from maturities of investments 51,341 20,752
Other investments, primarily short-term, net 1,986 (250)
Capital expenditures on premises and equipment (948) (1,257)
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and
repossessed assets 1,778 1,608
Business acquisitions (2,682) (7,067)
---------------------------------
NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS (26,683) (27,850)
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Dividends paid (2,738) (2,332)
Issuance of common stock 333 666
Redemption of preferred stock (125) -
Issuance of mandatorily redeemable securities of parent trusts - 2,550
Redemption of mandatorily redeemable securities of parent trusts (400) (345)
Treasury stock acquired (4,878) (2,688)
Stock tendered for payment of withholding taxes (423) (429)
Issuance of long-term debt 30,627 37,473
Payments and redemptions of long-term debt (42,574) (22,989)
Change in deposits 16,302 22,834
Change in short-term borrowings and investment banking and brokerage borrowings 9,327 (15,055)
Contractholder fund deposits 6,998 6,521
Contractholder fund withdrawals (4,306) (4,289)
---------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS 8,143 21,917
---------------------------------
Effect of exchange rate changes on cash and cash equivalents (22) (282)
---------------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
NET CASH USED IN DISCONTINUED OPERATIONS (237) (6)
PROCEEDS FROM SALE OF STOCK BY SUBSIDIARY 4,093 -
===========================================================================================================================
CHANGE IN CASH AND DUE FROM BANKS (2,629) 7,256
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 18,515 14,621
---------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 15,886 $ 21,877
===========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for income taxes $ 4,951 $ 4,478
Cash paid during the period for interest $ 16,719 $ 27,112
NON-CASH INVESTING ACTIVITIES
Transfers to repossessed assets $ 837 $ 458
===========================================================================================================================
See Notes to Unaudited Consolidated Financial Statements.
50
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements as of September 30,
2002 and for the three and nine month periods ended September 30, 2002 and 2001
include the accounts of Citigroup Inc. (Citigroup) and its subsidiaries
(collectively, the Company). In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
have been reflected. The accompanying unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in Citigroup's 2001 Annual Report and Form
10-K.
Certain financial information that is normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America, but is not required for interim reporting
purposes, has been condensed or omitted.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
2. ACCOUNTING CHANGES
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Effective July 1, 2001, the Company adopted the provisions of SFAS No. 141 and
certain provisions of SFAS No. 142 as required for goodwill and intangible
assets resulting from business combinations consummated after June 30, 2001. The
new rules require that all business combinations consummated after June 30, 2001
be accounted for under the purchase method. The nonamortization provisions of
the new rules affecting goodwill and intangible assets deemed to have indefinite
lives are effective for all purchase business combinations completed after June
30, 2001.
On January 1, 2002, Citigroup adopted the remaining provisions of SFAS No. 142,
when the rules became effective for calendar year companies. Under the new
rules, effective January 1, 2002, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized, but are subject to annual impairment
tests. Other intangible assets will continue to be amortized over their useful
lives.
The Company has performed the required impairment tests of goodwill and
indefinite-lived intangible assets. There was no impairment of goodwill upon
adoption of SFAS No. 142. The initial adoption resulted in a cumulative
adjustment of $47 million after-tax recorded as a charge to earnings related to
the impairment of certain intangible assets.
51
Net income and earnings per share for the third quarter and first nine months of
2002 and 2001 and the full years 2001, 2000 and 1999 adjusted to exclude
amortization expense (net of taxes) related to goodwill and indefinite-lived
intangible assets which are no longer amortized are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, FULL YEAR FULL YEAR FULL YEAR
--------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 2002 2001 2002 2001 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
NET INCOME:
Reported net income $ 3,920 $ 3,177 $ 12,847 $ 10,251 $ 14,126 $ 13,519 $ 11,243
Goodwill amortization(1) - 103 - 323 433 366 266
Indefinite-lived intangible assets
amortization - 11 - 33 46 46 43
-----------------------------------------------------------------------------------------------------------------------------------
Adjusted net income $ 3,920 $ 3,291 $ 12,847 $ 10,607 $ 14,605 $ 13,931 $ 11,552
-----------------------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE:
Reported basic earnings per share $ 0.77 $ 0.62 $ 2.52 $ 2.03 $ 2.79 $ 2.69 $ 2.23
Goodwill amortization(1) - 0.02 - 0.06 0.08 0.08 0.05
Indefinite-lived intangible assets
amortization - - - 0.01 0.01 0.01 0.01
-----------------------------------------------------------------------------------------------------------------------------------
Adjusted basic earnings per share $ 0.77 $ 0.64 $ 2.52 $ 2.10 $ 2.88 $ 2.78 $ 2.29
-----------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Reported diluted earnings per share $ 0.76 $ 0.61 $ 2.47 $ 1.98 $ 2.72 $ 2.62 $ 2.17
Goodwill amortization(1) - 0.02 - 0.06 0.08 0.07 0.05
Indefinite-lived intangible assets
amortization - - - 0.01 0.02 0.01 0.01
-----------------------------------------------------------------------------------------------------------------------------------
Adjusted diluted earnings per share $ 0.76 $ 0.63 $ 2.47 $ 2.05 $ 2.82 $ 2.70 $ 2.23
-----------------------------------------------------------------------------------------------------------------------------------
(1) Includes goodwill amortization related to discontinued operations of
approximately $20 million, $60 million, $80 million, $80 million, and $45
million in the third quarter and first nine months of 2001 and the full
years 2001, 2000 and 1999, respectively. The goodwill amortization related
to discontinued operations represents less than $0.01 per share for the
third quarter of 2001 and $0.01, $0.02, $0.02 and $0.01 per share for the
first nine months of 2001 and the full years 2001, 2000 and 1999,
respectively, on a basic and diluted basis.
During the first nine months of 2002, no goodwill was impaired or written off.
The Company recorded goodwill of $41 million during the 2002 second quarter and
$74 million during the 2002 first quarter in connection with the consumer
finance acquisitions of Marufuku Co., Ltd. and Taihei Co., Ltd., respectively,
in Japan. Additionally, in February 2002, Banamex completed the purchase of the
remaining 48% interest in Seguros Banamex, a life insurance business, and AFORE
Banamex, a pension fund management business, from AEGON for $1.24 billion which
resulted in additional goodwill of $1.07 billion in the Global Investment
Management segment.
The changes in goodwill during the first nine months of 2002 were as follows:
GLOBAL
CORPORATE AND GLOBAL
GLOBAL INVESTMENT INVESTMENT DISCONTINUED
IN MILLIONS OF DOLLARS CONSUMER BANK MANAGEMENT OPERATIONS(1) TOTAL
--------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 2002 $ 13,267 $ 5,737 $ 2,283 $ 2,574 $ 23,861
Goodwill acquired during the period 115 - 1,070 - 1,185
Other(2) 406 129 (51) 74 558
--------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 $ 13,788 $ 5,866 $ 3,302 $ 2,648 $ 25,604
--------------------------------------------------------------------------------------------------------------------------------
Discontinued operations(1) - - - (2,648) (2,648)
Other(2) (225) (95) (77) - (397)
--------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2002 $ 13,563 $ 5,771 $ 3,225 $ - $ 22,559
================================================================================================================================
(1) Discontinued operations represents the Company's property and casualty
insurance business. See Note 4 to Unaudited Consolidated Financial
Statements.
(2) Other changes in goodwill include foreign exchange effects on non-dollar
denominated goodwill, purchase accounting adjustments and certain other
reclassifications.
At September 30, 2002, $1.230 billion of the Company's acquired intangible
assets, including $760 million of asset management and administration contracts,
$425 million of trade names and $45 million of other intangible assets, were
considered to be indefinite-lived and not subject to amortization. All other
acquired intangible assets are subject to amortization.
52
The components of intangible assets were as follows:
SEPTEMBER 30, 2002 December 31, 2001
---------------------------------------------------------------------------------------------
GROSS CARRYING ACCUMULATED NET CARRYING Gross Carrying Accumulated Net Carrying
IN MILLIONS OF DOLLARS AMOUNT AMORTIZATION AMOUNT Amount Amortization Amount
-----------------------------------------------------------------------------------------------------------------------------------
Purchased credit card relationships $ 4,053 $ 1,370 $ 2,683 $ 4,084 $ 1,136 $ 2,948
Mortgage servicing rights 1,819 903 916 2,248 1,075 1,173
Core deposit intangibles 931 98 833 975 38 937
Other customer relationships 980 279 701 1,176 249 927
Present value of future profits 614 429 185 587 410 177
Other(1) 1,422 194 1,228 3,782 941 2,841
---------------------------------------------------------------------------------------------
TOTAL AMORTIZING INTANGIBLE ASSETS $ 9,819 $ 3,273 $ 6,546 $ 12,852 $ 3,849 $ 9,003
Indefinite-lived intangible assets 1,230 -
---------------------------------------------------------------------------------------------
TOTAL INTANGIBLE ASSETS $ 7,776 $ 9,003
===================================================================================================================================
(1) Primarily contract-related intangible assets.
The intangible assets recorded during the first nine months of 2002 and their
respective amortization periods were as follows:
NINE MONTHS ENDED WEIGHTED-AVERAGE
IN MILLIONS OF DOLLARS SEPTEMBER 30, 2002 AMORTIZATION PERIOD IN YEARS
------------------------------------------------------------------------------------------------------------------------------
Mortgage servicing rights $ 520 15
Present value of future profits(1) 35 22
Other customer relationships 210 9
------------------
Total intangible assets recorded during the period(2) $ 765
==============================================================================================================================
(1) Present value of future profits acquired during the nine months of 2002
will be amortized on an accelerated basis over 22 years.
(2) There was no significant residual value estimated for the intangible assets
recorded during the first nine months of 2002.
Intangible assets amortization expense was $210 million and $227 million for the
three months ended September 30, 2002 and 2001, respectively, and $620 million
and $652 million for the nine months ended September 30, 2002 and 2001,
respectively. Intangible assets amortization expense is estimated to be $200
million for the remainder of 2002, $780 million in 2003, $730 million in 2004,
$690 million in 2005, $630 million in 2006, and $590 million in 2007.
ADOPTION OF EITF 99-20
During the second quarter of 2001, the Company adopted Emerging Issues Task
Force (EITF) Issue No. 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial Asset"
(EITF 99-20). EITF 99-20 provides new guidance regarding income recognition and
identification and determination of impairment on certain asset-backed
securities. The initial adoption resulted in a cumulative adjustment of $116
million after-tax, recorded as a charge to earnings, and an increase of $93
million included in other changes in stockholders' equity from nonowner sources.
DERIVATIVES AND HEDGE ACCOUNTING
On January 1, 2001, Citigroup adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 changed the
accounting treatment of derivative contracts (including foreign exchange
contracts) that are employed to manage risk outside of Citigroup's trading
activities, as well as certain derivative instruments embedded in other
contracts. SFAS No. 133 requires that all derivatives be recorded on the balance
sheet at their fair value. The treatment of changes in the fair value of
derivatives depends on the character of the transaction, including whether it
has been designated and qualifies as part of a hedging relationship. The
majority of Citigroup's derivatives are entered into for trading purposes and
were not impacted by the adoption of SFAS No. 133. The cumulative effect of
adopting SFAS No. 133 at January 1, 2001 was an after-tax charge of $42 million
included in net income and an increase of $25 million included in other changes
in stockholders' equity from nonowner sources.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
In September 2000, the Financial Accounting Standards Board (FASB) issued SFAS
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, a replacement of FASB Statement No. 125" (SFAS
No. 140). In July 2001, FASB issued Technical Bulletin No. 01-1, "Effective Date
for Certain Financial Institutions of Certain Provisions of Statement 140
Related to the Isolation of Transferred Assets."
Certain provisions of SFAS No. 140 require that the structure for transfers of
financial assets to certain securitization vehicles be modified to comply with
revised isolation guidance for institutions subject to receivership by the
Federal Deposit Insurance
53
Corporation. These provisions were effective for transfers taking place after
December 31, 2001, with an additional transition period ending no later than
June 30, 2006 for transfers to certain master trusts. It is not expected that
these provisions will materially affect the financial statements. SFAS No. 140
also provides revised guidance for an entity to be considered a qualifying
special purpose entity.
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
On January 1, 2002, Citigroup adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS No. 144), when the rule
became effective for calendar year companies. SFAS No. 144 established
additional criteria for determining when a long-lived asset is held-for-sale. It
also broadens the definition of "discontinued operations," but does not allow
for the accrual of future operating losses, as was previously permitted. The
provisions of the new standard are generally to be applied prospectively.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" (SFAS No. 146). SFAS No. 146 requires that a
liability for costs associated with exit or disposal activities be recognized
when the liability is incurred. Existing generally accepted accounting
principles provide for the recognition of such costs at the date of management's
commitment to an exit plan. In addition, SFAS No. 146 requires that the
liability be measured at fair value and be adjusted for changes in estimated
cash flows. The provisions of the new standard are effective for exit or
disposal activities initiated after December 31, 2002. It is not expected that
SFAS No. 146 will materially affect the financial statements.
3. BUSINESS DEVELOPMENTS
ACQUISITION OF GOLDEN STATE BANCORP
On November 6, 2002, Citigroup completed its acquisition of Golden State Bancorp
(Golden State) in a transaction in which Citigroup paid approximately $2.3
billion in cash and issued 79.5 million Citigroup common shares for all of the
outstanding shares of Golden State. The total transaction value of approximately
$5.8 billion was based on the average prices of Citigroup shares, as adjusted
for the effect of the TPC distribution, for the two trading days before and
after May 21, 2002, the date of the terms of the acquisition were agreed to and
announced.
Golden State was the parent company of California Federal Bank, the second
largest thrift in the U.S. and, through its First Nationwide Mortgage business,
the eighth largest mortgage servicer. As of September 30, 2002, it had $25
billion in deposits, $51 billion in assets and 354 branches in California and
Nevada.
4. DISCONTINUED OPERATIONS
Travelers Property Casualty Corp. (TPC) (an indirect wholly-owned subsidiary of
Citigroup on December 31, 2001) sold 231 million shares of its class A common
stock representing approximately 23.1% of its outstanding equity securities in
an initial public offering (IPO) on March 27, 2002. Citigroup recognized an
after-tax gain of $1.061 billion in the 2002 first quarter as a result of the
IPO. The after-tax gain was increased by $97 million in the 2002 third quarter
due to the receipt of a private letter ruling from the Internal Revenue Service
and the resolution of certain tax matters related to the IPO. In connection with
the IPO, Citigroup entered into an agreement with TPC that provides that, in any
fiscal year in which TPC records asbestos-related income statement charges in
excess of $150 million, net of any reinsurance, Citigroup will pay to TPC the
amount of any such excess up to a cumulative aggregate of $800 million, reduced
by the tax effect of the highest applicable federal income tax rate. A portion
of the IPO gain was deferred to offset any payments arising in connection with
this agreement. On October 16, 2002 notice was given that $159 million will be
payable in the 2002 fourth quarter, pursuant to this agreement. Prior to the
IPO, TPC paid dividends to Citigroup in the form of notes in the aggregate
amount of $5.095 billion.
On August 20, 2002, Citigroup completed the distribution to its stockholders of
a majority portion of its remaining ownership interest in TPC (the
distribution). This non-cash distribution was tax-free to Citigroup, its
stockholders and TPC. The distribution was treated as a dividend to stockholders
for accounting purposes that reduced Citigroup's Additional Paid-In Capital by
approximately $6.9 billion. Following the distribution, Citigroup remains a
holder of approximately 9.9% of TPC's outstanding equity securities which are
carried at fair value in the Proprietary Investment Activities segment and are
classified as available-for-sale within Investments on the Unaudited
Consolidated Statement of Financial Position at September 30, 2002.
Following the August 20, 2002 distribution, the results of TPC are reported in
the Company's Unaudited Consolidated Statements of Income and Cash Flows
separately as discontinued operations for all periods presented. In accordance
with GAAP, the Unaudited
54
Statement of Consolidated Financial Position and related notes have not been
restated. TPC represented the primary vehicle by which Citigroup engaged in the
property and casualty insurance business. Minority interest was recognized on
the IPO portion beginning on April 1, 2002 through the date of the distribution
and is reflected in income (loss) from discontinued operations in the Unaudited
Consolidated Statement of Income.
Summarized financial information for discontinued operations is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 2002 2001
-------------------------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $ 1,756 $ 3,189 $ 8,233 $ 9,553
----------------------------------------
Income (loss) from discontinued operations 151 (151) 965 973
Gain on sale of stock by subsidiary - - 1,270 -
Provision (benefit) for income taxes (63) (93) 360 222
----------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET $ 214 $ (58) $ 1,875 $ 751
===========================================================================================
DECEMBER 31,
IN MILLIONS OF DOLLARS 2001
----------------------------------------------------------------------------------------------
Total assets $ 55,954
Total liabilities 45,268
-------------
NET ASSETS OF DISCONTINUED OPERATIONS $ 10,686
==============================================================================================
The following is a summary of the assets and liabilities of discontinued
operations as of August 20, 2002, the date of the distribution:
AUGUST 20,
IN MILLIONS OF DOLLARS 2002
----------------------------------------------------------------------------------------------
Cash $ 252
Investments 33,984
Trading account assets 321
Loans 261
Reinsurance recoverables 10,940
Other assets 14,242
-----------
TOTAL ASSETS $ 60,000
===========
Long-term debt $ 2,797
Insurance policy and claim reserves 36,216
Other liabilities 11,831
Mandatorily redeemable securities of subsidiary trusts 900
-----------
TOTAL LIABILITIES $ 51,744
==============================================================================================
55
5. BUSINESS SEGMENT INFORMATION
The following table presents certain information regarding the Company's
continuing operations by industry segments:
INCOME (LOSS)
FROM CONTINUING
OPERATIONS BEFORE
CUMULATIVE EFFECT
TOTAL REVENUES, NET PROVISION (BENEFIT) OF ACCOUNTING
OF INTEREST EXPENSE FOR INCOME TAXES CHANGES(1)(2)
--------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------
IN MILLIONS OF DOLLARS, EXCEPT IDENTIFIABLE ASSETS IN BILLIONS 2002 2001(3) 2002 2001(3) 2002 2001(3)
-----------------------------------------------------------------------------------------------------------------------------
Global Consumer $ 9,530 $ 8,549 $ 1,219 $ 1,071 $ 2,237 $ 1,889
Global Corporate and Investment Bank 6,245 6,114 652 726 1,214 1,289
Global Investment Management 2,003 1,884 193 189 436 372
Proprietary Investment Activities (271) (262) (104) (103) (237) (185)
Corporate/Other 137 (87) (62) (112) 56 (130)
--------------------------------------------------------------
TOTAL $ 17,644 $ 16,198 $ 1,898 $ 1,771 $ 3,706 $ 3,235
=============================================================================================================================
IDENTIFIABLE ASSETS
---------------------
SEPT. 30, Dec. 31,
IN MILLIONS OF DOLLARS, EXCEPT IDENTIFIABLE ASSETS IN BILLIONS 2002 2001(3)(4)
------------------------------------------------------------------------------------
Global Consumer $ 331 $ 329
Global Corporate and Investment Bank 570 542
Global Investment Management 106 103
Proprietary Investment Activities 9 9
Corporate/Other 16 12
---------------------
TOTAL $ 1,032 $ 995
====================================================================================
INCOME (LOSS)
FROM CONTINUING
OPERATIONS BEFORE
CUMULATIVE EFFECT
TOTAL REVENUES, NET PROVISION (BENEFIT) OF ACCOUNTING
OF INTEREST EXPENSE FOR INCOME TAXES CHANGES(1)(2)
-------------------------------------------------=-----------
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001(3) 2002 2001(3) 2002 2001(3)
---------------------------------------------------------------------------------------------------------
Global Consumer $ 27,269 $ 23,685 $ 3,270 $ 2,821 $ 6,068 $ 4,935
Global Corporate and Investment Bank 19,956 20,206 2,099 2,241 3,941 4,021
Global Investment Management 6,112 5,843 631 634 1,373 1,178
Proprietary Investment Activities (408) 90 (172) (13) (376) 29
Corporate/Other 506 (324) (34) (277) 13 (505)
-------------------------------------------------------------
TOTAL $ 53,435 $ 49,500 $ 5,794 $ 5,406 $ 11,019 $ 9,658
=========================================================================================================
(1) Results in the 2002 third quarter and nine-month periods reflect after-tax
restructuring-related credits (charges) in Global Consumer of $15 million
and $25 million, in Global Corporate and Investment Bank of $11 million and
$7 million, in Global Investment Management of $1 million and ($9) million,
respectively, and in Corporate/Other $1 million in the nine-month period.
The 2001 third quarter and nine-month results reflect after-tax
restructuring-related credits (charges) in Global Consumer of ($73) million
and ($143) million, in Global Corporate and Investment Bank of ($6) million
and ($140) million, in Global Investment Management of ($8) million and
($15) million, and in Corporate/Other of $3 million and $3 million,
respectively.
(2) Results in the 2002 third quarter and nine-month periods include pretax
provisions (credits) for benefits, claims, and credit losses in Global
Consumer of $2.1 billion and $5.9 billion, in Global Corporate and
Investment Bank of $798 million and $1.9 billion, in Global Investment
Management of $703 million and $2.1 billion, in Proprietary Investment
Activities of $9 million and $9 million, and in Corporate/Other of $4
million and ($22) million, respectively. The 2001 third quarter and
nine-month period results reflect pretax provisions (credits) for benefits,
claims, and credit losses in Global Consumer of $1.6 billion and $4.3
billion, in Global Corporate and Investment Bank of $217 million and $782
million, in Global Investment Management of $613 million and $1.9 billion,
respectively, and in Corporate/Other of $2 million in the third quarter.
(3) Reclassified to conform to the current period's presentation.
(4) Identifiable assets related to discontinued operations totaled $56 billion
at December 31, 2001. See Note 4 to Unaudited Consolidated Financial
Statements.
6. INVESTMENTS
SEPTEMBER 30, December 31,
IN MILLIONS OF DOLLARS 2002 2001
-----------------------------------------------------------------------------------------------
Fixed maturities, primarily available-for-sale at fair value $ 127,747 $ 139,344
Equity securities, primarily at fair value 6,915 7,577
Venture capital, at fair value(1) 3,549 4,316
Short-term and other 3,848 9,600
--------------------------------
$ 142,059 $ 160,837
===============================================================================================
(1) For the nine months ended September 30, 2002, net losses on investments
held by venture capital subsidiaries totaled $201 million, of which $408
million and $801 million represented gross unrealized gains and losses,
respectively. For the nine months ended September 30, 2001, net losses on
investments held by venture capital subsidiaries totaled $226 million, of
which $538 million and $847 million represented gross unrealized gains and
losses, respectively.
56
The amortized cost and fair value of investments in fixed maturities and equity
securities at September 30, 2002 and December 31, 2001 were as follows:
SEPTEMBER 30, 2002 December 31, 2001(1)
--------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR Amortized Fair
IN MILLIONS OF DOLLARS COST GAINS LOSSES VALUE Cost Value
----------------------------------------------------------------------------------------------------------------------------------
FIXED MATURITY SECURITIES HELD TO MATURITY(2) $ 80 $ - $ - $ 80 $ 26 $ 26
---------------------------------------------------------------------------------
FIXED MATURITY SECURITIES AVAILABLE-FOR-SALE
Mortgage-backed securities, principally
obligations of U.S. Federal agencies $ 25,900 $ 909 $ 10 $ 26,799 $ 28,614 $ 28,802
U.S. Treasury and Federal agencies 13,304 366 7 13,663 6,136 6,113
State and municipal 6,534 606 2 7,138 16,712 17,001
Foreign government 41,468 188 339 41,317 44,942 45,129
U.S. corporate 26,590 1,036 1,145 26,481 30,097 30,349
Other debt securities 11,912 564 207 12,269 11,516 11,924
---------------------------------------------------------------------------------
125,708 3,669 1,710 127,667 138,017 139,318
---------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $ 125,788 $ 3,669 $ 1,710 $ 127,747 $ 138,043 $ 139,344
==================================================================================================================================
EQUITY SECURITIES(3) $ 6,720 $ 445 $ 250 $ 6,915 $ 7,401 $ 7,577
==================================================================================================================================
(1) At December 31, 2001, gross pretax unrealized gains and losses on fixed
maturities and equity securities totaled $3.004 billion and $1.527 billion,
respectively.
(2) Recorded at amortized cost.
(3) Includes non-marketable equity securities carried at cost, which are
reported in both the amortized cost and fair value columns.
7. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities at market value consisted of the
following:
SEPTEMBER 30, December 31,
IN MILLIONS OF DOLLARS 2002 2001
--------------------------------------------------------------------------------------
TRADING ACCOUNT ASSETS
U.S. Treasury and Federal agency securities $ 38,726 $ 46,218
State and municipal securities 5,018 4,517
Foreign government securities 21,682 12,450
Corporate and other debt securities 29,250 21,318
Derivative and other contractual commitments(1) 36,116 29,762
Equity securities 14,051 15,619
Mortgage loans and collateralized mortgage securities 7,737 6,869
Other 9,223 8,151
-----------------------------
$ 161,803 $ 144,904
======================================================================================
TRADING ACCOUNT LIABILITIES
Securities sold, not yet purchased $ 56,383 $ 51,815
Derivative and other contractual commitments(1) 39,316 28,728
-----------------------------
$ 95,699 $ 80,543
======================================================================================
(1) Net of master netting agreements and securitization.
8. DEBT
Investment banking and brokerage borrowings consisted of the following:
SEPTEMBER 30, December 31,
IN MILLIONS OF DOLLARS 2002 2001(1)
------------------------------------------------------------------------------------
Commercial paper $ 16,473 $ 13,858
Bank borrowings 818 565
Other 2,660 2,057
--------------------------------
$ 19,951 $ 16,480
====================================================================================
(1) Reclassified to conform to the current period's presentation.
57
Short-term borrowings consisted of commercial paper and other short-term
borrowings as follows:
SEPTEMBER 30, December 31,
IN MILLIONS OF DOLLARS 2002 2001
-----------------------------------------------------------------------------------
COMMERCIAL PAPER
Citigroup Inc. $ 231 $ 481
Citicorp 16,397 12,215
--------------------------------
16,628 12,696
OTHER SHORT-TERM BORROWINGS 11,363 11,765
--------------------------------
$ 27,991 $ 24,461
===================================================================================
Long-term debt, including its current portion, consisted of the following:
SEPTEMBER 30, December 31,
IN MILLIONS OF DOLLARS 2002 2001
------------------------------------------------------------------------------------
Citigroup Inc. $ 40,560 $ 34,794
Citicorp 43,034 59,628
Salomon Smith Barney Holdings Inc. 26,064 26,813
Travelers Insurance Group Holdings Inc. - 380
Travelers Property Casualty Corp. - 16
Travelers Insurance Company 14 -
-------------------------------
$ 109,672 $ 121,631
====================================================================================
9. RESTRUCTURING-RELATED ITEMS
RESTRUCTURING INITIATIVES
------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 2000 Total
--------------------------------------------------------------------------
Restructuring Charges $ 42 $ 448 $ 579 $ 1,069
Acquisitions(1) - 112 23 135
Utilization(2) (20) (456) (549) (1,025)
Changes in estimates - (45) (53) (98)
--------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 $ 22 $ 59 $ - $ 81
==========================================================================
(1) Represents additions to restructuring liabilities arising from
acquisitions.
(2) Utilization amounts include translation effects on the restructuring
reserve.
During the first quarter of 2002, Citigroup recorded restructuring charges of
$42 million, primarily consisting of the downsizing of Global Consumer and
Global Corporate and Investment Bank operations in Argentina. Through September
30, 2002, utilization of this reserve included $20 million of severance and
other costs which were paid in cash. Utilization of this reserve in the 2002
third quarter and nine months was $16 million and $20 million, respectively.
During 2001, Citigroup recorded restructuring charges of $448 million. Of the
$448 million, $319 million related to the downsizing of certain functions in the
Global Corporate and Investment Bank and Global Consumer businesses in order to
align their cost structures with current market conditions and $129 million
related to the acquisition of Banamex and the integration of its operations. In
addition, a restructuring reserve of $112 million was recorded in connection
with the acquisition of Banamex and recognized as a liability in the purchase
price allocation of Banamex. The total Banamex reserves of $241 million include
costs related to downsizings, the reconfiguration of branch operations in
Mexico, and the integration of operations and operating platforms. These
restructuring initiatives are expected to be substantially implemented this
year. The reserves included $423 million related to employee severance, $72
million related to exiting leasehold and other contractual obligations, and $65
million of asset impairment charges.
The $423 million related to employee severance reflects the cost of eliminating
approximately 12,500 positions, including 4,200 in Citigroup's Global Consumer
business and 3,600 in Banamex related to the acquisition, and 1,300 in the
Global Consumer business and 3,400 in the Global Corporate and Investment Bank
business related to other restructuring initiatives. Approximately 3,200 of
these positions are in the United States.
Through September 30, 2002, the 2001 restructuring reserve utilization included
$65 million of asset impairment charges as well as $391 million of severance and
other costs (of which $316 million of employee severance and $28 million of
leasehold and other exit costs have been paid in cash and $47 million is legally
obligated), together with translation effects. Utilization of the 2001
restructuring reserve in the 2002 third quarter and first nine months was $53
million and $104 million, respectively. Through September 30, 2002,
approximately 12,650 gross staff positions have been eliminated under these
programs, including approximately
58
1,750 in the 2002 third quarter and 4,050 in the first nine months of 2002.
During 2000, Citigroup recorded restructuring charges of $579 million, primarily
consisting of exit costs related to the acquisition of Associates. The charges
included $241 million related to employee severance, $154 million related to
exiting leasehold and other contractual obligations, and $184 million of asset
impairment charges.
Of the $579 million charge, $474 million related to the acquisition of
Associates and included the reconfiguration of certain branch operations, the
exit from non-strategic businesses and from activities as mandated by federal
bank regulations, and the consolidation and integration of corporate, middle and
back office functions. In the Global Consumer business, $51 million includes the
reconfiguration of certain branch operations outside the Unites States and the
downsizing and consolidation of certain back office functions in the United
States. Approximately $440 million of the $579 million charge related to
operations in the United States.
The $241 million portion of the charge related to employee severance reflects
the costs of eliminating approximately 5,800 positions, including approximately
4,600 in Associates and 700 in the Global Consumer business. Approximately 5,000
of these positions relate to the United States. In 2000, a reserve of $23
million was recorded, $20 million of which related to the elimination of 1,600
non-U.S. positions of an acquired entity.
The 2000 restructuring reserve was fully utilized at September 30, 2002,
including $184 million of asset impairment charges and $365 million of severance
and other exit costs (of which $189 million of employee severance and $130
million of leasehold and other exit costs have been paid in cash and $46 million
is legally obligated), together with translation effects. Utilization of the
2000 restructuring reserve in the 2002 third quarter and first nine months was
$10 million and $63 million, respectively. Through September 30, 2002,
approximately 6,550 staff positions have been eliminated under these programs
including approximately 150 in the 2002 third quarter and 1,100 in the first
nine months of 2002.
The implementation of these restructuring initiatives also caused certain
related premises and equipment assets to become redundant. The remaining
depreciable lives of these assets were shortened, and accelerated depreciation
charges (in addition to normal scheduled depreciation on those assets) of $9
million were recognized in the first nine months of 2002, and $5 million and $49
million were recognized in the third quarter and the first nine months of 2001,
respectively.
Changes in estimates are attributable to facts and circumstances arising
subsequent to an original restructuring charge. Changes in estimates
attributable to lower than anticipated costs of implementing certain projects
and a reduction in the scope of certain initiatives during the third quarter of
2002 resulted in a reduction of the reserve for 2001 restructuring initiatives
of $21 million and a reduction of reserves for prior restructuring initiatives
of $20 million. Changes in estimates during the second quarter of 2002 resulted
in a reduction of the reserve for 2001 restructuring initiatives of $6 million,
a reduction of the reserve for 2000 restructuring initiatives of $24 million and
a reduction of reserves for prior restructuring initiatives of $13 million.
Changes in estimates during 2001 resulted in a reduction of the reserve for 2001
restructuring initiatives of $18 million during the third quarter of 2001 and a
reduction of $29 million for 2000 restructuring initiatives during the fourth
quarter of 2001.
Restructuring-related charges of $2 million recorded during the first nine
months of 2002 and $1 million and $4 million recorded during the third quarter
and first nine months of 2001, respectively, related to discontinued operations.
See Note 4 to Notes to Unaudited Consolidated Financial Statements.
Additional information about restructuring-related items, including the business
segments affected, may be found in Citigroup's 2001 Annual Report and Form 10-K.
59
10. CHANGES IN EQUITY FROM NONOWNER SOURCES
Changes in each component of "Accumulated Other Changes in Equity from Nonowner
Sources" for the nine-month period ended September 30, 2002 are as follows:
ACCUMULATED
NET UNREALIZED FOREIGN OTHER CHANGES
GAINS ON CURRENCY IN EQUITY FROM
INVESTMENT TRANSLATION CASH FLOW NONOWNER
IN MILLIONS OF DOLLARS SECURITIES ADJUSTMENT HEDGES SOURCES
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $ 852 $ (1,864) $ 168 $ (844)
Unrealized losses on investment securities, after-tax(1) (588) - - (588)
Foreign currency translation adjustment, after-tax(2) - (403) - (403)
Cash flow hedges, after-tax - - 65 65
-------------------------------------------------------------------------------------------------------------------------------
Change (588) (403) 65 (926)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2002 264 (2,267) 233 (1,770)
Unrealized gains on investment securities, after-tax (3) 477 - - 477
Foreign currency translation adjustment, after-tax (4) - (848) - (848)
Cash flow hedges, after-tax - - 415 415
-------------------------------------------------------------------------------------------------------------------------------
Change 477 (848) 415 44
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2002 741 (3,115) 648 (1,726)
Unrealized gains on investment securities, after-tax (5) 583 - - 583
Foreign currency translation adjustment, after-tax (6) - (393) - (393)
Cash flow hedges, after-tax - - 441 441
-------------------------------------------------------------------------------------------------------------------------------
Current period change 583 (393) 441 631
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2002 $ 1,324 $ (3,508) $ 1,089 $ (1,095)
===============================================================================================================================
(1) Primarily reflects the impact of a rising interest rate yield curve on
fixed-income securities.
(2) Includes the $512 million after-tax impact of translating Argentina's net
assets into the U.S. dollar equivalent. As a result of government actions
in Argentina, which began in the fourth quarter of 2001 and continue, the
functional currency of the Argentine branch and subsidiaries was changed in
the 2002 first quarter from the U.S. dollar to the Argentine peso.
(3) Primarily reflects the impact of a declining interest rate yield curve on
fixed-income securities.
(4) Primarily reflects the decline in the Mexican peso against the U.S. dollar,
and includes the $77 million after-tax impact of translating Argentina's
operations into the U.S. dollar equivalent.
(5) Primarily reflects the impact of the distribution of TPC, realized losses
resulting from the sale of securities and a declining interest-rate yield
curve on fixed-income securities.
(6) Primarily reflects the decline in the Mexican peso against the U.S. dollar.
11. DERIVATIVES AND OTHER ACTIVITIES
The following table summarizes certain information related to the Company's
hedging activities for the three and nine months ended September 30, 2002 and
2001:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
FAIR VALUE HEDGES:
Hedge ineffectiveness recognized in earnings $ 17 $ (12) $ 111 $ 125
Net gain (loss) excluded from assessment of effectiveness 90 (4) 89 67
CASH FLOW HEDGES:
Hedge ineffectiveness recognized in earnings (1) 10 20 16
Amount excluded from assessment of effectiveness - - - -
NET INVESTMENT HEDGES:
Net gain (loss) included in foreign currency
translation adjustment within accumulated other
changes in equity from nonowner sources 245 50 (906) 284
---------------------------------------------------------------------------------------------------------------------
60
The accumulated other changes in equity from nonowner sources from cash flow
hedges for the nine months ended September 30, 2002 and 2001 can be summarized
as follows (after-tax):
IN MILLIONS OF DOLLARS 2002 2001
--------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1,(1) $ 168 $ (3)
Net gain (loss) from cash flow hedges 164 (22)
Net amounts reclassified to earnings (99) (27)
-----------------------
BALANCE AT MARCH 31, $ 233 $ (52)
Net gain (loss) from cash flow hedges 555 36
Net amounts reclassified to earnings (140) (26)
-----------------------
BALANCE AT JUNE 30, $ 648 $ (42)
Net gain from cash flow hedges 605 104
Net amounts reclassified to earnings (164) (24)
-----------------------
BALANCE AT SEPTEMBER 30, $ 1,089 $ 38
--------------------------------------------------------------------------------------------------------------------
(1) Balance at January 1, 2001 results from the cumulative effect of the
accounting change for cash-flow hedges.
12. EARNINGS PER SHARE
The following reflects the income and share data used in the basic and diluted
earnings per share computations for the three and nine months ended September
30, 2002 and 2001:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE AMOUNTS 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGES $ 3,706 $ 3,235 $ 11,019 $ 9,658
Discontinued operations 214 (58) 1,875 751
Cumulative effect of accounting changes - - (47) (158)
Preferred dividends (21) (28) (63) (84)
-------------------------------------------------
INCOME AVAILABLE TO COMMON STOCKHOLDERS FOR BASIC EPS 3,899 3,149 12,784 10,167
Effect of dilutive securities - - - -
-------------------------------------------------
INCOME AVAILABLE TO COMMON STOCKHOLDERS FOR DILUTED EPS $ 3,899 $ 3,149 $ 12,784 $ 10,167
=====================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
APPLICABLE TO BASIC EPS 5,036.6 5,060.8 5,081.3 5,008.4
Effect of dilutive securities:
Options 32.5 74.4 50.1 85.6
Restricted stock 40.2 32.7 36.2 31.2
Convertible securities 1.2 1.1 1.1 1.1
-------------------------------------------------
ADJUSTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
APPLICABLE TO DILUTED EPS 5,110.5 5,169.0 5,168.7 5,126.3
=====================================================================================================================
BASIC EARNINGS PER SHARE
Income from continuing operations before
cumulative effect of accounting changes $ 0.73 $ 0.63 $ 2.16 $ 1.91
Discontinued operations 0.04 (0.01) 0.37 0.15
Cumulative effect of accounting changes - - (0.01) (0.03)
-------------------------------------------------
NET INCOME $ 0.77 $ 0.62 $ 2.52 $ 2.03
=====================================================================================================================
DILUTED EARNINGS PER SHARE
Income from continuing operations before
cumulative effect of accounting changes $ 0.72 $ 0.62 $ 2.12 $ 1.87
Discontinued operations 0.04 (0.01) 0.36 0.14
Cumulative effect of accounting changes - - (0.01) (0.03)
-------------------------------------------------
NET INCOME $ 0.76 $ 0.61 $ 2.47 $ 1.98
=====================================================================================================================
61
13. SECURITIZATIONS
ACCOUNTING POLICIES
Citigroup securitizes, sells and services various consumer and commercial loans.
Interest in the securitized and sold loans may be retained in the form of
subordinated interest-only strips, subordinated tranches, spread accounts and
servicing rights. The Company retains a seller's interest in the credit card
receivables transferred to the trusts, which is not in securitized form.
Accordingly, the seller's interest is carried on a historical cost basis and
classified as consumer loans. Other retained interests are primarily recorded as
investments. Gains or losses on securitization and sale depend in part on the
previous carrying amount of the loans involved in the transfer and are allocated
between the loans sold and the retained interests based on their relative fair
values at the date of sale. The Company values its securitized retained
interests at fair value using either financial models, quoted market prices or
sales of similar assets. Where quoted market prices are generally not available,
the Company estimates the fair value of these retained interests by determining
the present value of future expected cash flows using modeling techniques that
incorporate management's best estimates of key assumptions, including payment
speeds, credit losses and discount rates. Gains are recognized at the time of
securitization and are reported in other income.
For each securitization entity with which the Company is involved, the Company
makes a determination of whether the entity should be considered a subsidiary of
the Company and be consolidated into the Company's financial statements or
whether the entity is sufficiently independent that it does not need to be
consolidated. If the securitization entity's activities are sufficiently
restricted to meet certain accounting requirements to be a qualifying special
purpose entity, the securitization entity is not consolidated by Citigroup as
seller of the transferred assets. For all other securitizations in which
Citigroup participates, an evaluation is made of whether the Company controls
the entity by considering several factors, including how much of the entity's
ownership is in the hands of third-party investors, who controls the
securitization entity, and who reaps the rewards and bears the risks of the
entity. Only securitization entities controlled by Citigroup are consolidated.
For a transfer of financial assets to be considered a sale: financial assets
transferred by the Company must have been isolated from the seller, even in
bankruptcy or other receivership; the purchaser must have the right to sell the
assets transferred, or the purchaser must be a qualifying special purpose entity
meeting certain significant restrictions on its activities, whose investors have
the right to sell their ownership interests in the entity; and the seller does
not continue to control the assets transferred through an agreement to
repurchase them or have a right to cause the assets to be returned (known as a
call option). A transfer of financial assets that meets the sale requirements is
removed from the Company's consolidated statement of financial position. If the
conditions for sale are not met, the transfer is considered to be a secured
borrowing, the asset remains on the Company's consolidated statement of
financial position and the proceeds are recognized as the Company's liability.
In determining whether financial assets transferred have, in fact, been isolated
from the Company, an opinion of legal counsel is obtained for complex
transactions or where the Company has continuing involvement with the assets
transferred or with the securitization entity. For sale treatment to be
appropriate, those opinions must state that the asset transfer would be
considered a sale and that the assets transferred would not be consolidated with
the Company's other assets in the event of the Company's insolvency.
In the case of asset transfers to certain master trust securitization entities,
the Company has until no later than June 30, 2006 to make the changes needed in
the master trusts' organizational structure and governing documents that are
necessary to meet these isolation requirements.
SECURITIZATION ACTIVITIES
Citigroup and its subsidiaries securitize primarily credit card receivables and
mortgages. Other types of assets securitized include corporate debt securities,
home equity loans, auto loans and student loans.
After securitizations of credit card receivables, the Company continues to
maintain credit card customer account relationships and provides servicing for
receivables transferred to the trusts. The Company also arranges for third
parties to provide credit enhancement to the trusts, including cash collateral
accounts, subordinated securities and letters of credit. As specified in certain
of the sale agreements, the net revenue collected each month is accumulated up
to a predetermined maximum amount, and is available over the remaining term of
that transaction to make payments of yield, fees, and transaction costs in the
event that net cash flows from the receivables are not sufficient. When the
predetermined amount is reached net revenue is passed directly to the Citigroup
subsidiary that sold the receivables.
The Company provides a wide range of mortgage and home equity products to a
diverse customer base. In connection with these loans, the servicing rights
entitle the Company to a future stream of cash flows based on the outstanding
principal balances of the loans and the contractual servicing fee. Failure to
service the loans in accordance with contractual requirements may lead to a
62
termination of the servicing rights and the loss of future servicing fees. In
non-recourse servicing, the principal credit risk to the servicer is the cost of
temporary advances of funds. In recourse servicing, the servicer agrees to share
credit risk with the owner of the mortgage loans such as FNMA or FHLMC or with a
private investor, insurer or guarantor. Losses on recourse servicing occur
primarily when foreclosure sale proceeds of the property underlying a defaulted
mortgage or home equity loan are less than the outstanding principal balance and
accrued interest of such mortgage loan and the cost of holding and disposing of
the underlying property.
The Company also originates and sells first mortgage loans in the ordinary
course of its mortgage banking activities. The Company sells certain of these
loans to the Government National Mortgage Association (GNMA) with the servicing
rights retained. GNMA has the primary recourse obligation on the individual
loans; however, GNMA's recourse obligation is capped at a fixed amount per loan.
Any losses above that fixed amount are borne by Citigroup as the
seller/servicer.
The following table summarizes certain cash flows received from and paid to
securitization trusts during the three and nine months ended September 30, 2002
and 2001:
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
-----------------------------------------------------------------------------------------------------------------
IN BILLIONS OF DOLLARS CREDIT CARDS MORTGAGES OTHER(1) CREDIT CARDS MORTGAGES OTHER(1)
-----------------------------------------------------------------------------------------------------------------
Proceeds from new securitizations $ 1.3 $ 10.9 $ 2.0 $ 5.8 $ 7.0 $ 1.8
Proceeds from collections reinvested
in new receivables 32.7 - - 32.6 - -
Servicing fees received 0.3 0.2 - 0.3 0.1 -
Cash flows received on retained
Interests and other net cash flows 1.0 0.1 - 0.9 - -
=================================================================================================================
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
-----------------------------------------------------------------------------------------------------------------
IN BILLIONS OF DOLLARS CREDIT CARDS MORTGAGES OTHER(1) CREDIT CARDS MORTGAGES OTHER(1)
-----------------------------------------------------------------------------------------------------------------
Proceeds from new securitizations $ 6.9 $ 24.8 $ 7.9 $ 17.6 $ 18.9 $ 5.6
Proceeds from collections reinvested
in new receivables 99.7 - - 96.5 - -
Servicing fees received 0.9 0.4 - 0.9 0.2 -
Cash flows received on retained
Interests and other net cash flows 2.9 0.2 0.1 2.7 0.1 0.1
=================================================================================================================
(1) Other includes corporate debt securities, auto loans, student loans and
other assets.
The Company recognized gains on securitizations of mortgages of $80 million and
$60 million for the three-month periods ended September 30, 2002 and 2001,
respectively, and $143 million and $155 million for the nine-month periods ended
September 30, 2002 and 2001, respectively. In the third quarter of 2002 the
Company recorded gains of $239 million related to the securitization of credit
card receivables as a result of changes in estimates in the timing of revenue
recognition on securitizations. Gains recognized on the securitization of other
assets during the first six months of 2002 were $40 million.
Key assumptions used for credit cards, mortgages and other assets during the
nine months ended September 30, 2002 in measuring the fair value of retained
interests at the date of sale or securitization follow:
CREDIT CARDS MORTGAGES AND OTHER(1)
-------------------------------------------------------------------------------------------------------------
Discount rate 10.0% 5.0% TO 25.0%
Constant prepayment rate 17.5% 3.0% TO 40.0%
Anticipated net credit losses 5.6% 0.03% TO 75.0%
=============================================================================================================
(1) Other includes student loans.
As required by SFAS No. 140, the effect of two negative changes in each of the
key assumptions used to determine the fair value of retained interests must be
disclosed. The negative effect of each change in each assumption must be
calculated independently, holding all other assumptions constant. Because the
key assumptions may not in fact be independent, the net effect of simultaneous
adverse changes in the key assumptions may be less than the sum of the
individual effects shown below.
63
At September 30, 2002, the key assumptions used to value retained interests and
the sensitivity of the fair value to two adverse changes in each of the key
assumptions were as follows:
CONSTANT ANTICIPATED NET
KEY ASSUMPTIONS AT SEPTEMBER 30, 2002: DISCOUNT RATE PREPAYMENT RATE CREDIT LOSSES
-------------------------------------------------------------------------------------------------------------------
Mortgages 5.0% to 25.0% 14.0% to 40% 0.04% to 75.0%
Credit cards 10.0% 17.5% 5.6%
Auto loans 11.0% 16.0% to 20.6% 8.4% to 15.8%
Manufactured housing loans 12.8% 10.5% 13.9%
-------------------------------------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS
September 30, 2002
----------------------------------------------------------------------------------------------------------------------------
Carrying value of retained interests $ 3,783
----------------------------------------------------------------------------------------------------------------------------
Discount rate
+10% $ (96)
+20% $ (182)
----------------------------------------------------------------------------------------------------------------------------
Constant prepayment rate
+10% $ (203)
+20% $ (368)
----------------------------------------------------------------------------------------------------------------------------
Anticipated net credit losses
+10% $ (121)
+20% $ (237)
============================================================================================================================
MANAGED LOANS
For the loan portfolios where the Company continues to manage loans after they
have been securitized, the following table presents the total loan amounts
managed, the portion of those portfolios securitized, and delinquencies (loans
which are 90 days or more past due) at September 30, 2002 and December 31, 2001,
and credit losses, net of recoveries, for the three and nine-month periods ended
September 30, 2002 and 2001.
SEPTEMBER 30, 2002 DECEMBER 31, 2001
---------------------------------------------------------------------------------------------------------------------
CREDIT CARD CREDIT CARD
MANAGED LOANS RECEIVABLES OTHER(1) RECEIVABLES OTHER(1)
---------------------------------------------------------------------------------------------------------------------
IN BILLIONS OF DOLLARS
Principal amounts, at period end:
Total managed $ 110.8 $ 31.2 $ 108.7 $ 20.9
Securitized amounts (64.6) - (67.0) -
---------------------------------------------------------------------------------------------------------------------
On-balance sheet(2) $ 46.2 $ 31.2 $ 41.7 $ 20.9
---------------------------------------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS
---------------------------------------------------------------------------------------------------------------------
Delinquencies, at period end:
Total managed $ 2,066 $ 1,091 $ 2,141 $ 1,112
Securitized amounts (1,104) - (1,268) (4)
---------------------------------------------------------------------------------------------------------------------
On-balance sheet(2) $ 962 $ 1,091 $ 873 $ 1,108
---------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------------------
CREDIT CARD CREDIT CARD CREDIT CARD CREDIT CARD
RECEIVABLES OTHER(1) RECEIVABLES OTHER(1) RECEIVABLES OTHER(1) RECEIVABLES OTHER(1)
-----------------------------------------------------------------------------------------------------------------------------
Credit losses,
net of recoveries:
Total managed $ 1,601 $ 104 $ 1,433 $ 159 $ 4,965 $ 328 $ 4,034 $ 458
Securitized amounts (874) - (790) (22) (2,798) - (2,270) (70)
-----------------------------------------------------------------------------------------------------------------------------
On-balance sheet(1) $ 727 $ 104 $ 643 $ 137 $ 2,167 $ 328 $ 1,764 $ 388
=============================================================================================================================
(1) Includes home equity loans and auto loans.
(2) Includes loans held-for-sale.
64
SERVICING RIGHTS
The fair value of capitalized mortgage loan servicing rights was $916 million,
$1.173 billion and $991 million at September 30, 2002, December 31, 2001 and
September 30, 2001, respectively. The following table summarizes the changes in
capitalized mortgage servicing rights (MSR):
THREE MONTHS ENDED NINE MONTHS ENDED
IN MILLIONS OF DOLLARS SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
----------------------------------------------
BALANCE, BEGINNING OF PERIOD $ 1,381 $ 1,092 $ 1,173 $ 1,069
Originations 95 126 330 293
Purchases - - 190 -
Amortization (45) (55) (130) (137)
Gain (loss) on change in MSR value 2 (158) 26 (83)
Provision for impairment (518) (19) (681) (132)
Other 1 5 8 (19)
----------------------------------------------
BALANCE, END OF PERIOD $ 916 $ 991 $ 916 $ 991
==================================================================================================================
The following table summarizes the changes in the valuation allowance for
capitalized mortgage servicing rights:
THREE MONTHS ENDED NINE MONTHS ENDED
IN MILLIONS OF DOLLARS SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
---------------------------------------------
BALANCE, BEGINNING OF PERIOD $ 316 $ 132 $ 153 $ 19
Provision for impairment(1) 518 19 681 132
---------------------------------------------
BALANCE, END OF PERIOD $ 834 $ 151 $ 834 $ 151
=================================================================================================================
(1) The Company utilizes various financial instruments including swaps, option
contracts, futures, principal only securities and forward rate agreements
to manage and reduce its exposure to changes in the value of MSRs. The
provision for impairment does not include the impact of these instruments
which serve to protect the overall economic value of the MSRs.
14. CONTINGENCIES
For a discussion of certain legal proceedings, see Part II, Item 1 of this Form
10-Q. In addition, in the ordinary course of business, Citigroup and its
subsidiaries are defendants or co-defendants or parties in various litigation
and regulatory matters incidental to and typical of the businesses in which they
are engaged. In the opinion of the Company's management, the ultimate resolution
of these legal and regulatory proceedings would not be likely to have a material
adverse effect on the consolidated financial condition of the Company but, if
involving monetary liability, may be material to the Company's operating results
for any particular period.
65
FINANCIAL DATA SUPPLEMENT
CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS
SEPT. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
IN MILLIONS OF DOLLARS 2002 2002(1) 2002(1) 2001(1) 2001(1)
--------------------------------------------------------------------------------------------------------------
CORPORATE CASH-BASIS LOANS
Collateral dependent (at lower of cost
or collateral value)(2) $ 473 $ 485 $ 493 $ 699 $ 699
Other 4,352 4,088 3,502 2,834 2,404
-------------------------------------------------------------
TOTAL $ 4,825 $ 4,573 $ 3,995 $ 3,533 $ 3,103
==============================================================================================================
CORPORATE CASH-BASIS LOANS
In U.S. offices $ 1,640 $ 1,465 $ 1,468 $ 1,315 $ 1,089
In offices outside the U.S. 3,185 3,108 2,527 2,218 2,014
-------------------------------------------------------------
TOTAL $ 4,825 $ 4,573 $ 3,995 $ 3,533 $ 3,103
==============================================================================================================
CORPORATE RENEGOTIATED LOANS
In U.S. offices $ 202 $ 248 $ 219 $ 206 $ 226
In offices outside the U.S. 65 69 116 130 143
-------------------------------------------------------------
TOTAL $ 267 $ 317 $ 335 $ 336 $ 369
==============================================================================================================
CONSUMER LOANS ON WHICH
ACCRUAL OF INTEREST HAD BEEN SUSPENDED
In U.S. offices $ 2,268 $ 2,396 $ 2,428 $ 2,501 $ 2,630
In offices outside the U.S. 2,787 2,596 2,619 2,241 2,118
-------------------------------------------------------------
TOTAL $ 5,055 $ 4,992 $ 5,047 $ 4,742 $ 4,748
==============================================================================================================
ACCRUING LOANS 90 OR MORE DAYS DELINQUENT(3)
In U.S. offices $ 2,299 $ 2,084 $ 2,101 $ 1,822 $ 1,761
In offices outside the U.S. 562 718 716 776 832
-------------------------------------------------------------
TOTAL $ 2,861 $ 2,802 $ 2,817 $ 2,598 $ 2,593
==============================================================================================================
(1) Reclassified to conform to the current period's presentation.
(2) A cash-basis loan is defined as collateral dependent when repayment is
expected to be provided solely by the underlying collateral and there are
no other available and reliable sources of repayment, in which case the
loans are written down to the lower of cost or collateral value.
(3) Substantially all consumer loans, of which $1,250 million, $1,257 million,
$1,106 million, $920 million, and $980 million are government-guaranteed
student loans and mortgages at September 30, 2002, June 30, 2002, March 31,
2002, December 31, 2001, and September 30, 2001, respectively.
OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
SEPT. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
IN MILLIONS OF DOLLARS 2002 2002(1) 2002(1) 2001(1) 2001(1)
-------------------------------------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED
Consumer(2) $ 473 $ 458 $ 384 $ 393 $ 407
Corporate(2) 171 259 270 265 301
Other - - - 8 9
--------------------------------------------------------------
TOTAL OTHER REAL ESTATE OWNED $ 644 $ 717 $ 654 $ 666 $ 717
=============================================================================================================
OTHER REPOSSESSED ASSETS(3) $ 227 $ 320 $ 381 $ 439 $ 479
=============================================================================================================
(1) Reclassified to conform to the current period's presentation.
(2) Represents repossessed real estate, carried at lower of cost or fair value,
less costs to sell.
(3) Primarily commercial transportation equipment and manufactured housing,
carried at lower of cost or fair value, less costs to sell.
66
DETAILS OF CREDIT LOSS EXPERIENCE
3RD QTR. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
IN MILLIONS OF DOLLARS 2002 2002 2002 2001 2001
-------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
AT BEGINNING OF PERIOD $ 10,437 $ 10,520 $ 10,088 $ 9,918 $ 8,917
-------------------------------------------------------------
PROVISION FOR CREDIT LOSSES
Consumer 1,885 1,599 1,878 1,573 1,362
Corporate 804 458 681 688 218
-------------------------------------------------------------
2,689 2,057 2,559 2,261 1,580
-------------------------------------------------------------
GROSS CREDIT LOSSES
CONSUMER
In U.S. offices 1,255 1,281 1,281 1,284 1,041
In offices outside the U.S. 784 660 617 600 549
CORPORATE
In U.S. offices 323 429 316 572 303
In offices outside the U.S. 382 197 241 371 97
-------------------------------------------------------------
2,744 2,567 2,455 2,827 1,990
-------------------------------------------------------------
CREDIT RECOVERIES
CONSUMER
In U.S. offices 149 155 148 144 109
In offices outside the U.S. 129 104 107 116 102
CORPORATE(1)
In U.S. offices 50 114 30 94 78
In offices outside the U.S. 54 27 42 58 41
-------------------------------------------------------------
382 400 327 412 330
-------------------------------------------------------------
NET CREDIT LOSSES
In U.S. offices 1,379 1,441 1,419 1,618 1,157
In offices outside the U.S. 983 726 709 797 503
-------------------------------------------------------------
2,362 2,167 2,128 2,415 1,660
-------------------------------------------------------------
Other -- net(2) (44) 27 1 324 1,081
-------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
AT END OF PERIOD $ 10,720 $ 10,437 $ 10,520 $ 10,088 $ 9,918
=============================================================================================================
Net consumer credit losses $ 1,761 $ 1,682 $ 1,643 $ 1,624 $ 1,379
As a percentage of average consumer loans 2.65% 2.65% 2.71% 2.62% 2.28%
=============================================================================================================
Net corporate credit losses $ 601 $ 485 $ 485 $ 791 $ 281
As a percentage of average commercial loans 1.76% 1.40% 1.42% 2.18% 0.76%
=============================================================================================================
(1) Includes amounts recognized under credit default swaps purchased from third
parties.
(2) Primarily includes foreign currency translation effects and the addition of
allowance for credit losses related to acquisitions.
67
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
ENRON CORP.
In April 2002, Citigroup and, in one case, Salomon Smith Barney Inc. (SSB) were
named as defendants along with, among others, commercial and/or investment
banks, certain current and former Enron officers and directors, lawyers and
accountants in two putative consolidated class action complaints that were filed
in the United States District Court for the Southern District of Texas seeking
unspecified damages. One action, brought on behalf of individuals who purchased
Enron securities (NEWBY, ET AL. V. ENRON CORP., ET AL.), alleges violations of
Sections 11 and 15 of the Securities Act of 1933, as amended, and Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended, and the other
action, brought on behalf of current and former Enron employees (TITTLE, ET AL.
V. ENRON CORP., ET AL.), alleges violations of the Employment Retirement Income
Security Act of 1974, as amended (ERISA), and the Racketeer Influenced and
Corrupt Organizations Act (RICO), as well as claims for negligence and civil
conspiracy. On May 8, 2002, Citigroup and SSB filed motions to dismiss the
complaints, which are pending.
In July 2002, Citigroup, SSB and various of its affiliates and certain of their
officers and other employees were named as defendants, along with, among others,
commercial and/or investment banks, certain current and former Enron officers
and directors, lawyers and accountants in a putative class action filed in the
United States District Court for the Southern District of New York on behalf of
purchasers of the Yosemite Notes and Enron Credit-Linked Notes, among other
securities (HUDSON SOFT CO., LTD. V. CREDIT SUISSE FIRST BOSTON CORPORATION, ET
AL.). The amended complaint alleges violations of RICO and of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, and seeks unspecified
damages.
Additional actions have been filed against Citigroup and certain of its
affiliates, along with other parties, including (i) two actions brought in
different state courts by state pension plans alleging violations of state
securities law and claims for common law fraud and unjust enrichment; (ii) an
action by banks that participated in two Enron revolving credit facilities,
alleging fraud, gross negligence, and breach of implied duties in connection
with defendants' administration of a credit facility with Enron; (iii) an action
brought by several funds in connection with secondary market purchases of Enron
Corp. debt securities alleging violations of the federal securities law,
including Section 11 of the Securities Act of 1933, as amended, and claims for
fraud and misrepresentation; (iv) a series of putative class actions by
purchasers of NewPower Holdings common stock alleging violations of the federal
securities law, including Section 11 of the Securities Act of 1933, as amended,
and Section 10(b) of the Securities Exchange Act of 1934, as amended; (v) an
action brought by two investment funds in connection with purchases of
Enron-related securities for alleged violations of state securities and unfair
competition statutes; (vi) an action brought by several investment funds and
fund owners in connection with purchases of notes of the Osprey I and Osprey II
Trusts for alleged violation of state and federal securities laws and claims for
common law fraud, misrepresentation and conspiracy; (vii) an action brought by
several investment funds and fund owners in connection with purchases of notes
of the Osprey I and Osprey II Trusts for alleged violation of state and federal
securities laws and state unfair competition laws and claims for common law
fraud and misrepresentation; and (viii) an action brought by the Attorney
General of Connecticut in connection with various commercial and investment
banking services provided to Enron. Several of these cases have been
consolidated with the NEWBY action and stayed pending the Court's decision on
the pending motions to dismiss NEWBY.
Additionally, Citigroup and certain of its affiliates have received inquiries
and requests for information from various regulatory and governmental agencies
and Congressional committees as well as from the Special Examiner in the Enron
bankruptcy, regarding certain transactions and business relationships with Enron
and its affiliates. Citigroup is cooperating fully with all such requests.
RESEARCH
Since May 2002, SSB and Jack Grubman have been named as defendants in
approximately 62 putative class action complaints by purchasers of various
securities alleging they violated federal securities law, including Sections 10
and 20 of the Securities Exchange Act of 1934, as amended, for allegedly issuing
research reports without a reasonable basis in fact and for allegedly failing to
disclose conflicts of interest with companies in connection with published
investment research, including Global Crossing, WorldCom, Inc., AT&T, Winstar,
Rhythm Net Connections, Level 3 Communications, MetroMedia Fiber Network, XO
Communications and Williams Communications Group Inc. Similar claims with
respect to research have also been included in approximately 100 cases pending
against SSB and other broker dealers in the IPO Allocation Securities Litigation
and the IPO Allocation Antitrust Litigation, previously disclosed by SSB. Nearly
all of these actions are pending in the United States District Court for the
Southern District of New York.
Since April 2002, SSB and several other broker dealers have received subpoenas
and/or requests for information from various governmental and self-regulatory
agencies and Congressional committees. These agencies have been engaged in
discussions with a
68
number of broker dealers, including SSB, about resolving potential enforcement
proceedings relating to research. SSB is cooperating fully with all such
requests.
WORLDCOM, INC.
Citigroup and SSB are involved in a number of lawsuits arising out of the
underwriting of debt securities of WorldCom, Inc. These lawsuits include
putative class actions filed in July 2002 by alleged purchasers of WorldCom debt
securities in the United States District Court for the Southern District of New
York (ABOVE PARADISE INVESTMENTS LTD. V. WORLDCOM, INC., ET AL.; MUNICIPAL
POLICE EMPLOYEES RETIREMENT SYSTEM OF LOUISIANA V. WORLDCOM, INC., ET AL.), and
in the United States District Court for the Southern District of Mississippi
(LONGACRE MASTER FUND V. WORLDCOM, INC., ET AL.). These putative class action
complaints assert violations of federal securities law, including Sections 11
and 12 of the Securities Act of 1933, as amended, and seek unspecified damages
from the underwriters.
On October 11, 2002, the ABOVE PARADISE and MUNICIPAL POLICE EMPLOYEES lawsuits
filed in the United States District Court for the Southern District of New York
were superseded by the filing of a consolidated putative class action complaint
in the United States District Court for the Southern District of New York (IN RE
WORLDCOM, INC. SECURITIES LITIGATION). In the consolidated complaint, in
addition to the claims of violations by the underwriters of the federal
securities law, including Sections 11 and 12 of the Securities Act of 1933, as
amended, the plaintiffs allege violations of Section 10(b) of the Securities
Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, by SSB
arising out of alleged conflicts of interest of SSB and Jack Grubman. The
plaintiffs continue to seek unspecified compensatory damages. In addition to the
consolidated class action complaint, the Southern District of Mississippi class
action has been transferred by the Judicial Panel on MultiDistrict Litigation to
the Southern District of New York for centralized pre-trial proceedings with
other WorldCom-related actions.
In addition to the several putative class actions that have been commenced,
certain individual actions have been filed in various federal and state courts
against Citigroup and SSB, along with other parties, concerning WorldCom debt
securities including individual state court actions brought by various pension
funds in connection with the underwriting of debt securities of WorldCom
alleging violations of Section 11 of the Securities Act of 1933, as amended,
and, in one case, violations of various state securities laws and common law
fraud. Most of these actions have been removed to federal court and an
application has been made to have them transferred to the Southern District of
New York for centralized pre-trial proceedings with other WorldCom-related
actions.
A putative class action on behalf of participants in WorldCom's 401(k) salary
savings plan and those WorldCom benefit plans covered by ERISA alleging
violations of ERISA and common law fraud (EMANUELE v. WORLDCOM, INC., ET AL.),
which was commenced in the United States District Court for the District of
Columbia, also has been transferred by the Judicial Panel on MultiDistrict
Litigation to the Southern District of New York for centralized pre-trial
proceedings with other WorldCom-related actions.
OTHER
Beginning in July 2002, Citigroup and members of its Board of Directors were
named as defendants in shareholder derivative complaints filed in New York
Supreme Court, New York County, and the Court of Chancery of the State of
Delaware alleging claims for breach of fiduciary duty, negligent breach of
fiduciary duty, gross mismanagement, waste of corporate assets and
indemnification. In September 2002, the Delaware actions were consolidated under
the caption IN RE: CITIGROUP INC. SHAREHOLDERS LITIGATION and a motion to
dismiss the action was filed in November 2002. In October 2002, the actions
filed in New York Supreme Court were either dismissed without prejudice or
withdrawn. Beginning in July 2002, Citigroup and certain officers were also
named as defendants in putative class actions filed in the United States
District Court for the Southern District of New York brought on behalf of
purchasers of Citigroup common stock alleging violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, and, in approximately
half of the actions, claims for common law fraud.
Additional lawsuits containing similar claims to those described above may be
filed in the future.
Item 2. Changes in Securities and Use of Proceeds.
(c) On September 18, 2002, the Company contributed 16,767,260 shares of
common stock of Citigroup Inc. to the Citigroup Pension Plan. The
shares of common stock were contributed in reliance upon an exemption
from the registration requirements of the Securities Act of 1933
provided by Section 4(2) thereof.
69
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
On July 11, 2002, the Company filed a Current Report on Form 8-K, dated July 10,
2002, (a) reporting under Item 5 thereof that Citigroup had revised its
financial reporting format in order to align Citigroup's public disclosure with
its recently-announced organizational changes, and (b) filing as an exhibit
under Item 7 thereof the 2002 First Quarter Financial Data Supplement.
On July 18, 2002, the Company filed a Current Report on Form 8-K, dated July 17,
2002, reporting under Item 5 thereof the results of its operations for the
quarter ended June 30, 2002, and certain other selected financial data.
On July 25, 2002, the Company filed a Current Report on Form 8-K, dated July 25,
2002, reporting under Item 5 thereof that it had accelerated its stock buyback
program in July.
On July 26, 2002, the Company filed a Current Report on Form 8-K, dated July 18,
2002, filing as exhibits under Item 7 thereof the Terms Agreement, dated July
18, 2002, and the Form of Note relating to the offer and sale of the Company's
Floating Rate Notes due July 26, 2004.
On August 1, 2002, the Company filed a Current Report on Form 8-K, dated August
1, 2002, (a) reporting under Item 5 thereof that Citigroup declared a
distribution of shares of Travelers Property Casualty Corp. class A common stock
and class B common stock and set the record date and distribution date, and (b)
filing as an exhibit under Item 7 thereof a copy of the related press release
dated August 1, 2002.
On August 7, 2002, the Company filed a Current Report on Form 8-K, dated August
7, 2002, reporting under Item 9 thereof that, in a communication to employees,
Sanford I. Weill had announced that he and Todd S. Thomson had each signed a
sworn statement as required under Securities and Exchange Commission Order No.
4-460.
On August 8, 2002, the Company filed a Current Report on Form 8-K, dated August
8, 2002, (a) reporting under Item 9 thereof that each of Sanford I. Weill and
Todd S. Thomson had submitted to the Securities and Exchange Commission sworn
statements pursuant to Securities and Exchange Commission Order No. 4-460, and
(b) filing as exhibits under Item 7 thereof copies of such statements.
On August 14, 2002, the Company filed a Current Report on Form 8-K, dated August
12, 2002, (a) reporting under Item 5 thereof (i) that Citigroup had issued an
Information Statement describing its proposed distribution to the stockholders
of Citigroup of shares of capital stock of Travelers Property Casualty Corp. and
(ii) that Citigroup had announced the final number of shares of Travelers
Property Casualty Corp. class A common stock and class B common stock to be
distributed per share of Citigroup common stock, and (b) filing as exhibits
under Item 7 thereof a copy of the Information Statement dated August 14, 2002
and a copy of the press release dated August 12, 2002.
On August 16, 2002, the Company filed a Current Report on Form 8-K, dated August
16, 2002, (a) reporting under Item 5 thereof that Citigroup had revised the
final distribution ratio relating to its distribution of shares of class A
common stock and class B common stock of Travelers Property Casualty Corp. to
holders of Citigroup common stock, and (b) filing as an exhibit under Item 7
thereof a copy of the related press release dated August 16, 2002.
On August 21, 2002, the Company filed a Current Report on Form 8-K, dated August
20, 2002, (a) reporting under Item 5 thereof that Citigroup had completed its
spin-off of Travelers Property Casualty Corp., and (b) filing as an exhibit
under Item 7 thereof a copy of the related press release dated August 20, 2002.
On August 26, 2002, the Company filed a Current Report on Form 8-K, dated August
19, 2002, filing as exhibits under Item 7 thereof the Terms Agreement, dated
August 19, 2002, and the Form of Note relating to the offer and sale of the
Company's 5.625% Subordinated Notes due August 27, 2012.
On September 9, 2002, the Company filed a Current Report on Form 8-K, dated
September 8, 2002, (a) reporting under Item 5 thereof that Citigroup (i) had
named Charles Prince as Chairman and Chief Executive Officer of the Global
Corporate and Investment Bank and (ii) had formed a new Business Practices
Committee, and (b) filing as an exhibit under Item 7 thereof a copy of the
related press release dated September 8, 2002.
70
No other reports on Form 8-K were filed during the third quarter of 2002;
however,
On October 16, 2002, the Company filed a Current Report on Form 8-K, dated
October 15, 2002, reporting under Item 5 thereof the results of its operations
for the quarter ended September 30, 2002, and certain other selected financial
data.
On October 22, 2002, the Company filed a Current Report on Form 8-K, dated
October 16, 2002, filing as exhibits under Item 7 thereof the Terms Agreement,
dated October 16, 2002, and the Form of Note relating to the offer and sale of
the Company's Floating Rate Notes due October 22, 2004.
On October 31, 2002, the Company filed a Current Report on Form 8-K, dated
October 24, 2002, filing as exhibits under Item 7 thereof the Terms Agreement,
dated October 24, 2002, and the Form of Note relating to the offer and sale of
the Company's 5.625% Subordinated Notes due August 27, 2012.
On November 7, 2002, the Company filed a Current Report on Form 8-K, dated
November 7, 2002, (a) reporting under Item 5 thereof that Citigroup had
completed its acquisition of Golden State Bancorp Inc., and (b) filing as an
exhibit under Item 7 thereof a copy of the related press release dated November
7, 2002.
71
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 13th of November, 2002.
CITIGROUP INC.
(Registrant)
By /s/ Todd S. Thomson
-------------------
Todd S. Thomson
Chief Financial Officer
Principal Financial Officer
By /s/ William P. Hannon
-------------------
William P. Hannon
Controller
Principal Accounting Officer
72
CERTIFICATIONS
I, Sanford I. Weill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Citigroup Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002
By: /s/ Sanford I. Weill, Chief Executive Officer
--------------------------------------------------------------
73
I, Todd S. Thomson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Citigroup Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were any significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002
By: /s/ Todd S. Thomson, Chief Financial Officer
--------------------------------------------------------
74
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
3.01.1 Restated Certificate of Incorporation of Citigroup Inc. (the
Company), incorporated by reference to Exhibit 4.01 to the
Company's Registration Statement on Form S-3 filed December 15,
1998 (No. 333-68949).
3.01.2 Certificate of Designation of 5.321% Cumulative Preferred Stock,
Series YY, of the Company, incorporated by reference to Exhibit
4.45 to Amendment No. 1 to the Company's Registration Statement on
Form S-3 filed January 22, 1999 (No. 333-68949).
3.01.3 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company dated April 18, 2000, incorporated by
reference to Exhibit 3.01.3 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 2000 (File No.
1-9924).
3.01.4 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company dated April 17, 2001, incorporated by
reference to Exhibit 3.01.4 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 2001 (File No.
1-9924).
3.01.5 Certificate of Designation of 6.767% Cumulative Preferred Stock,
Series YYY, of the Company, incorporated by reference to Exhibit
3.01.5 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001 (File 1-9924).
3.02 By-Laws of the Company, as amended, effective October 26, 1999,
incorporated by reference to Exhibit 3.02 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1999 (File No. 1-9924).
10.01+ Amendment to the Citigroup Inc. Amended and Restated
Compensation Plan for Non-Employee Directors (effective as
of September 17, 2002).
12.01+ Calculation of Ratio of Income to Fixed Charges.
12.02+ Calculation of Ratio of Income to Fixed Charges (including
preferred stock dividends).
99.01+ Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the Securities and Exchange Commission
upon request.
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+ Filed herewith
75