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 MARCH 31, 2003
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 BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). 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 MARCH 31, 2003: 5,148,041,965
AVAILABLE ON THE WEB AT www.citigroup.com
CITIGROUP INC.
TABLE OF CONTENTS
PAGE NO.
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Part I - Financial Information
Item 1. Financial Statements:
Consolidated Statement of Income (Unaudited) -
Three Months Ended March 31, 2003 and 2002 53
Consolidated Statement of Financial Position -
March 31, 2003 (Unaudited) and December 31, 2002 54
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Three Months Ended March 31, 2003 and 2002 55
Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 2003 and 2002 56
Notes to Consolidated Financial Statements (Unaudited) 57
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 - 52
Item 3. Quantitative and Qualitative Disclosures About Market Risk 38 - 41
64
Item 4. Controls and Procedures 52
Part II - Other Information
Item 1. Legal Proceedings 69
Item 4. Submission of Matters to a Vote of Security Holders 70
Item 6. Exhibits and Reports on Form 8-K 71
Signatures 73
Certifications 74
Exhibit Index 76
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. Citigroup
was incorporated in 1988 under the laws of the State of Delaware.
The Company's activities are conducted through the Global Consumer, Global
Corporate and Investment Bank (GCIB), Private Client Services (PCS), Global
Investment Management (GIM) and Proprietary Investment Activities business
segments.
The Company is a bank holding company within the meaning of the U.S. Bank
Holding Company Act of 1956 (BHC Act) registered with, and subject to
examination by, the Board of Governors of the Federal Reserve System (FRB).
Certain of the Company's subsidiaries are subject to supervision and examination
by their respective federal and state authorities. This quarterly report on Form
10-Q should be read in conjunction with Citigroup's 2002 Annual Report on Form
10-K.
The periodic reports of Citicorp, Citigroup Global Markets Holdings Inc. (CGMHI)
(formerly Salomon Smith Barney Holdings Inc.), The Student Loan Corporation
(STU), The Travelers Insurance Company (TIC) and Travelers Life and Annuity
Company (TLAC), subsidiaries of the Company that make filings pursuant to the
Securities Exchange Act of 1934, as amended (the Exchange Act), provide
additional business and financial information concerning those companies and
their consolidated subsidiaries.
The principal executive offices of the Company are located at 399 Park Avenue,
New York, New York 10043, telephone number 212 559 1000. Additional information
about Citigroup is available on the Company's website at
http://www.citigroup.com.
Citigroup's annual report on Form 10-K, its quarterly reports on Form 10-Q and
its current reports on Form 8-K, and all amendments to these reports, are
available free of charge through the Company's website by clicking on the
"Investor Relations" page and selecting "SEC Filings." The Securities and
Exchange Commission (SEC) website contains reports, proxy and information
statements, and other information regarding the Company at http://www.sec.gov.
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, Automated Lending Machines (ALMs) and the
World Wide Web. The Global Consumer businesses serve individual consumers as
well as small businesses. Global Consumer includes CARDS, CONSUMER FINANCE and
RETAIL BANKING.
CARDS provides MasterCard, VISA and private label credit and charge cards. North
America Cards includes the operations of Citi Cards, the Company's primary brand
in North America, and Mexico Cards. International Cards provides credit and
charge cards to customers in Europe, the Middle East and Africa (EMEA), Japan,
Asia 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 March 31, 2003, North America Consumer Finance
maintained 2,394 offices, including 2,166 CitiFinancial offices in the U.S. and
Canada, while International Consumer Finance maintained 1,103 offices, including
840 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. 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 and
Consumer Assets, Primerica Financial Services (Primerica) and Mexico Retail
Banking. Citibanking North America delivers banking, lending, investment and
insurance services through 781 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 our LIFE INSURANCE AND ANNUITIES business
within the GIM segment. 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 EMEA, Japan, Asia and Latin
America.
2
GLOBAL CORPORATE AND INVESTMENT BANK
GLOBAL CORPORATE AND INVESTMENT BANK (GCIB) provides corporations, governments,
institutions and investors in over 100 countries and territories with a broad
range of financial products and services. Global Corporate and Investment Bank
includes CAPITAL MARKETS AND BANKING and TRANSACTION SERVICES.
CAPITAL MARKETS AND BANKING offers a wide array of investment banking and
commercial banking services and products, including investment banking,
institutional brokerage, advisory services, foreign exchange, structured
products, derivatives, loans, leasing and equipment finance.
TRANSACTION SERVICES is composed of Cash, Trade and Treasury Services (CTTS) and
Global Securities Services (GSS). CTTS 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, and clearing services to intermediaries
such as broker/dealers as well as depository and agency and trust services to
multinational corporations and governments globally.
PRIVATE CLIENT SERVICES
PRIVATE CLIENT SERVICES (PCS) provides investment advice, financial planning and
brokerage services to affluent individuals, small and mid-size companies,
non-profits and large corporations primarily through a network of more than
12,400 Smith Barney Financial Consultants in more than 500 offices worldwide. In
addition, Private Client Services provides independent client-focused research
to individuals and institutions around the world.
A significant portion of Private Client Services revenue is generated from fees
earned by managing client assets as well as commissions earned as a broker for
its clients in the purchase and sale of securities. Additionally, Private Client
Services generates net interest revenue by financing customers' securities
transactions and other borrowing needs through security-based lending. Private
Client Services also receives commissions and other sales and service revenues
through the sale of proprietary and third-party mutual funds. As part of Private
Client Services, Global Equity Research produces equity research to serve both
institutional and individual investor clients. Expenses for Global Equity
Research are allocated primarily to the Global Equities business within GCIB and
Private Client Services' businesses.
GLOBAL INVESTMENT MANAGEMENT
GLOBAL INVESTMENT MANAGEMENT (GIM) 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 comprises Travelers Life and Annuity (TLA) and
International Insurance Manufacturing (IIM). TLA offers 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, universal and variable life insurance.
These products are primarily distributed through Citigroup's 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 products include institutional pension
products, including guaranteed investment contracts, payout annuities, group
annuities to employer-sponsored retirement and savings plans, and structured
finance transactions. The IIM business provides credit, life, health, disability
and other insurance products, as well as annuities internationally, leveraging
the existing distribution channels of the CONSUMER FINANCE, RETAIL BANKING and
ASSET MANAGEMENT (retirement services) businesses. IIM primarily has operations
in Mexico, EMEA, Latin America and Asia. TLA and IIM include the realized
investment gains/(losses) from sales on certain insurance related investments.
PRIVATE BANK provides personalized wealth management services for high-net-worth
clients through 132 offices in 36 countries and territories, generating fee and
interest income from investment funds management, client 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 Citigroup Asset Management, Citigroup Alternative
Investment Institutional business, 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 (including hedge funds, private
equity and credit structures), variable annuities through affiliated and
third-party insurance companies, and pension administration services.
3
PROPRIETARY INVESTMENT ACTIVITIES
PROPRIETARY INVESTMENT ACTIVITIES is comprised of Citigroup's proprietary
Private Equity investments and Other Investment Activities which includes
Citigroup's proprietary investments in hedge funds and real estate investments,
investments in countries that refinanced debt under the 1989 Brady Plan or plans
of a similar nature, ownership of Travelers Property Casualty Corp. shares and
Citigroup's Alternative Investments (CAI) business, for which the net profits on
products distributed through Citigroup's ASSET MANAGEMENT, PRIVATE CLIENT and
PRIVATE BANK businesses are reflected in the respective distributor's income
statement through net revenues.
CORPORATE/OTHER
Corporate/Other includes net corporate treasury results, corporate expenses,
certain intersegment eliminations, the results of discontinued operations, the
cumulative effect of accounting change and taxes not allocated to the individual
businesses.
INTERNATIONAL
Citigroup International (whose operations are fully reflected in the product
disclosures above), in partnership with our global product groups, offers a
broad range of consumer financial services, corporate and investment banking
services and investment management to some 50 million customer accounts in more
than 100 countries throughout Asia, Japan, EMEA and Latin America.
The product mix differs in each region, depending upon local conditions and
opportunities. Citigroup International also offers an array of wealth management
services, with integrated offerings and dedicated service centers.
4
CITIGROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
THREE MONTHS ENDED
MARCH 31,
----------------------------
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA 2003 2002
------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE(1) $ 18,536 $ 17,798
Operating expenses 9,552 9,056
Benefits, claims, and credit losses(1) 2,924 3,362
----------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES,
MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 6,060 5,380
Income taxes 1,919 1,879
Minority interest, after-tax 38 17
----------------------------
INCOME FROM CONTINUING OPERATIONS 4,103 3,484
INCOME FROM DISCONTINUED OPERATIONS(2) - 1,406
CUMULATIVE EFFECT OF ACCOUNTING CHANGE(3) - (47)
----------------------------
NET INCOME $ 4,103 $ 4,843
================================================================================================
EARNINGS PER SHARE:
BASIC:
Income from continuing operations $ 0.80 $ 0.68
Net Income $ 0.80 $ 0.94
DILUTED:
Income from continuing operations $ 0.79 $ 0.66
Net Income $ 0.79 $ 0.93
================================================================================================
Return on Average Common Equity 19.3% 24.0%
Total Assets (IN BILLIONS) $ 1,137.0 $ 1,057.7
Total Equity (IN BILLIONS) $ 87.3 $ 83.6
Tier 1 Capital 8.67% 9.13%
Total Capital Ratio 11.57% 11.59%
================================================================================================
(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 (GAAP)). If this table were prepared on a
managed basis, which includes certain effects of credit card securitization
activities including receivables held for securitization and receivables
sold with servicing retained, there would be no impact to net income, but
Revenues, Net of Interest Expense, and Benefits, Claims, and Credit Losses
would each have been increased by $1.102 billion and $1.013 billion in the
2003 and 2002 first quarters, respectively. Although a managed basis
presentation is not in conformity with GAAP, the Company believes it
provides a representation of performance and key indicators of the credit
card business that is consistent with the way the business is managed. See
the discussion of the CARDS business on page 16.
(2) Travelers Property Casualty Corp. (TPC) (a wholly-owned subsidiary of
Citigroup on December 31, 2001) sold 231,000,000 shares of its class A
common stock in an initial public offering (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. Discontinued Operations
includes the operations of TPC, the $1.270 billion gain on the IPO ($1.061
billion after-tax recognized in the 2002 first quarter and $97 million
after-tax recognized in the 2002 third quarter) and income taxes. Following
the distribution, Citigroup was a holder of approximately 9.9% of TPC's
common equity. See Note 4 to the Consolidated Financial Statements.
(3) Accounting Change refers to the 2002 first quarter adoption of the
remaining provisions of Statement of Financial Accounting Standards (SFAS)
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). See Note 2 to
the Consolidated Financial Statements.
5
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
FIRST QUARTER
------------------------
IN MILLIONS OF DOLLARS 2003 2002(1)
-----------------------------------------------------------------------------
GLOBAL CONSUMER
CARDS $ 735 $ 579
CONSUMER FINANCE 485 530
RETAIL BANKING 942 611
Other (16) (20)
-----------------------------------------------------------------------------
TOTAL GLOBAL CONSUMER 2,146 1,700
-----------------------------------------------------------------------------
GLOBAL CORPORATE AND INVESTMENT BANK
CAPITAL MARKETS AND BANKING 1,226 1,110
TRANSACTION SERVICES 197 89
Other 8 (23)
-----------------------------------------------------------------------------
TOTAL GLOBAL CORPORATE AND INVESTMENT BANK 1,431 1,176
-----------------------------------------------------------------------------
PRIVATE CLIENT SERVICES 157 217
-----------------------------------------------------------------------------
GLOBAL INVESTMENT MANAGEMENT
LIFE INSURANCE AND ANNUITIES(2) 236 214
PRIVATE BANK 125 111
ASSET MANAGEMENT 105 99
-----------------------------------------------------------------------------
TOTAL GLOBAL INVESTMENT MANAGEMENT 466 424
-----------------------------------------------------------------------------
PROPRIETARY INVESTMENT ACTIVITIES - 35
CORPORATE/OTHER (97) (68)
-----------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 4,103 3,484
INCOME FROM DISCONTINUED OPERATIONS(3) - 1,406
CUMULATIVE EFFECT OF ACCOUNTING CHANGE(4) - (47)
-----------------------------------------------------------------------------
NET INCOME $ 4,103 $ 4,843
=============================================================================
(1) Reclassified to conform to the current period's presentation.
(2) Includes after-tax realized insurance investment portfolio gains/(losses)
of ($2) million and $10 million in the 2003 and 2002 first quarters,
respectively.
(3) See Note 4 to the Consolidated Financial Statements.
(4) See Note 2 to the Consolidated Financial Statements.
6
CITIGROUP NET INCOME - REGIONAL VIEW
FIRST QUARTER
------------------------
IN MILLIONS OF DOLLARS 2003 2002(1)
-----------------------------------------------------------------------------
NORTH AMERICA (EXCLUDING MEXICO)(2)
Consumer $ 1,442 $ 1,221
Corporate 676 721
Private Client Services 157 217
Investment Management 351 352
-----------------------------------------------------------------------------
TOTAL NORTH AMERICA 2,626 2,511
-----------------------------------------------------------------------------
MEXICO
Consumer 164 46
Corporate 120 194
Investment Management 65 48
-----------------------------------------------------------------------------
TOTAL MEXICO 349 288
-----------------------------------------------------------------------------
EUROPE, MIDDLE EAST AND AFRICA (EMEA)
Consumer 167 148
Corporate 252 144
Investment Management (3) (4)
-----------------------------------------------------------------------------
TOTAL EMEA 416 288
-----------------------------------------------------------------------------
JAPAN
Consumer 158 227
Corporate 32 23
Investment Management 17 15
-----------------------------------------------------------------------------
TOTAL JAPAN 207 265
-----------------------------------------------------------------------------
ASIA (EXCLUDING JAPAN)
Consumer 193 158
Corporate 179 193
Investment Management 30 27
-----------------------------------------------------------------------------
TOTAL ASIA 402 378
-----------------------------------------------------------------------------
LATIN AMERICA
Consumer 22 (100)
Corporate 172 (99)
Investment Management 6 (14)
-----------------------------------------------------------------------------
TOTAL LATIN AMERICA 200 (213)
-----------------------------------------------------------------------------
PROPRIETARY INVESTMENT ACTIVITIES - 35
CORPORATE/OTHER (97) (68)
-----------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 4,103 3,484
INCOME FROM DISCONTINUED OPERATIONS(3) - 1,406
CUMULATIVE EFFECT OF ACCOUNTING CHANGE(4) - (47)
-----------------------------------------------------------------------------
NET INCOME $ 4,103 $ 4,843
=============================================================================
(1) Reclassified to conform to the current period's presentation.
(2) Excludes Proprietary Investment Activities and Corporate/Other.
(3) See Note 4 to the Consolidated Financial Statements.
(4) See Note 2 to the Consolidated Financial Statements.
7
RESULTS OF OPERATIONS
INCOME AND EARNINGS PER SHARE
Citigroup reported income from continuing operations of $4.103 billion or $0.79
per diluted share in the 2003 first quarter, up 18% and 20% from $3.484 billion
or $0.66 in the 2002 first quarter.
Net income in the 2003 first quarter of $4.103 billion or $0.79 per diluted
share were both down 15% from $4.843 billion or $0.93 in the 2002 first quarter.
Net income in the 2002 first quarter included income from discontinued
operations of $1.406 billion and the cumulative effect of accounting change of
($47) million (see Notes 2 and 4 to the Consolidated Financial Statements).
Return on average common equity was 19.3% compared to 24.0% a year ago.
Global Consumer net income increased $446 million or 26% compared to the 2002
first quarter, Global Corporate and Investment Bank (GCIB) increased $255
million or 22%, and Global Investment Management grew $42 million or 10%, while
Private Client Services decreased $60 million or 28%, and Proprietary Investment
Activities decreased $35 million from the 2002 first quarter.
See individual segment and product discussions on pages 15 - 31 for additional
discussion and analysis of the Company's results of operations.
REVENUES, NET OF INTEREST EXPENSE
Total revenues, net of interest expense, of $18.5 billion in the 2003 first
quarter were up $738 million or 4% from the 2002 first quarter. Global Consumer
revenues were up $913 million or 11% in the 2003 first quarter to $9.6 billion,
led by a $470 million or 15% increase in RETAIL BANKING, reflecting the results
of the acquisition of Golden State Bancorp (GSB) and growth in most regions, an
increase of $212 million or 7% in CARDS, and a $200 million or 9% increase in
CONSUMER FINANCE from the prior-year period.
GCIB revenues of $5.4 billion decreased $85 million or 2% from the 2002 first
quarter, including a $230 million or 5% decrease in CAPITAL MARKETS AND BANKING,
reflecting weak equity capital markets activity. This decrease was partially
offset by a $56 million or 7% increase in TRANSACTION SERVICES from the 2002
first quarter.
Private Client Services revenues of $1.327 billion decreased $180 million or 12%
from the prior-year period, primarily reflecting lower fee revenue and lower
transaction volumes. Global Investment Management revenues of $2.0 billion in
the 2003 first quarter were up $83 million or 4% from the 2002 first quarter,
reflecting increases in LIFE INSURANCE AND ANNUITIES of $115 million or 11% and
PRIVATE BANK of $38 million or 9%, partially offset by a decrease of $70 million
or 15% in ASSET MANAGEMENT. Revenues from Proprietary Investment Activities in
the 2003 first quarter declined $17 million or 15% from year-ago levels.
SELECTED REVENUE ITEMS
Net interest revenue of $9.7 billion increased $435 million or 5% from year-ago
levels reflecting the impact of a changing rate environment, business volume
growth in certain markets and the impact of the GSB acquisition.
Total commissions, asset management and administration fees, and other fee
revenues of $5.0 billion were down $297 million or 6% compared to the 2002 first
quarter, primarily as a result of lower Private Client Services customer
activities and assets under fee-based management. Insurance premiums of $825
million were up $45 million or 6% compared to year-ago levels.
Principal transactions revenues of $1.6 billion were down $11 million from a
year ago, primarily reflecting declines in global equities. Realized gains from
sales of investments were up $132 million to $162 million in the 2003 first
quarter, primarily due to gains on the GCIB investment portfolio in 2003. Other
revenue of $1.3 billion increased $434 million from 2002, primarily reflecting
an increase in revenue from securitized credit card receivables and venture
capital activity.
OPERATING EXPENSES
Total operating expenses were $9.6 billion for the 2003 first quarter, up $496
million or 5% from the comparable 2002 period. The increase primarily reflects
the addition of GSB, as well as $172 million in severance costs, the cost of
expensing options, and higher pension expense, partially offset by expense
control initiatives.
Global Consumer expenses were up 11% from the 2002 first quarter, Global
Investment Management expenses increased 6% and GCIB expenses increased 2%,
while Private Client Services decreased 8% from year-ago levels.
8
BENEFITS, CLAIMS, AND CREDIT LOSSES
Benefits, claims, and credit losses were $2.9 billion in the 2003 first quarter,
down $438 million or 13% from the 2002 first quarter. Global Consumer provisions
for benefits, claims, and credit losses of $2.0 billion were down 4% from the
2002 first quarter, reflecting additions to the loan loss reserve in the prior
year related to Argentina, partially offset by an increase in CONSUMER FINANCE.
GCIB provisions for credit losses of $244 million in the 2003 first quarter
decreased $436 million or 64% from year-ago levels, primarily due to
provisions for Argentina and exposures in telecommunications recorded during
the 2002 first quarter. Corporate cash-basis loans at March 31, 2003 and 2002
were $4.9 billion and $4.0 billion, respectively, while the corporate Other
Real Estate Owned (OREO) portfolio totaled $78 million and $145 million,
respectively.
The increase in cash-basis loans from March 31, 2002 was primarily related to
increases attributable to borrowers in the telecommunications and energy
industries and the transportation leasing and equipment finance portfolios, as
well as corporate borrowers in Brazil, Hong Kong, Argentina, and Thailand.
Corporate cash-basis loans at March 31, 2003 increased $23 million from December
31, 2002. The improvements in OREO were primarily related to the North America
real estate portfolio.
INCOME TAXES
The Company's effective tax rate of 31.7% in the 2003 first quarter declined 320
basis points from 34.9% in the 2002 first quarter. The decline primarily
represented benefits for not providing U.S. income taxes for the earnings of
certain foreign subsidiaries and a $39 million benefit from a Dividend Received
Deduction (DRD) in TLA.
REGULATORY CAPITAL
Total capital (Tier 1 and Tier 2) was $80.1 billion or 11.57% of net
risk-adjusted assets, and Tier 1 capital was $60.1 billion or 8.67% at March 31,
2003, compared to $78.3 billion or 11.25% and $59.0 billion or 8.47%,
respectively, at December 31, 2002.
ACCOUNTING CHANGES IN 2003
STOCK-BASED COMPENSATION
On January 1, 2003, the Company adopted the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
prospectively to all awards granted, modified, or settled after January 1, 2003.
The prospective method is one of the adoption methods provided for under SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure"
issued in December 2002. SFAS 123 requires that compensation cost for all stock
awards be calculated and recognized over the service period (generally equal to
the vesting period). This compensation cost is determined using option pricing
models, intended to estimate the fair value of the awards at the grant date.
Similar to Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," the alternative method of accounting, an offsetting
increase to stockholders' equity under SFAS 123 is recorded equal to the amount
of compensation expense charged. Earnings per share dilution is recognized as
well.
Assuming a three-year vesting provision for options, the estimated impact of
this change will be approximately $0.03 per diluted share in 2003 and, when
fully phased in over the next three years, approximately $0.06 per diluted
share annually. This statement is a forward-looking statement within the
meaning of the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 32.
9
Had the Company applied SFAS 123 in accounting for the Company's stock option
plans for all options granted, net income and net income per share would have
been the pro forma amounts indicated below:
FIRST QUARTER
-----------------------
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 2003(1) 2002
------------------------------------------------------------------------------------------------------------
As reported $ 13 $ -
Compensation expense related to stock option plans, net of tax Pro forma 94 102
As reported $ 4,103 $ 4,843
Net income Pro forma 4,022 4,741
As reported $ 0.80 $ 0.94
Basic earnings per share Pro forma 0.78 0.92
As reported $ 0.79 $ 0.93
Diluted earnings per share Pro forma 0.77 0.91
------------------------------------------------------------------------------------------------------------
(1) The $13 million "As reported" expense recognized in the 2003 first quarter
represents two months of the expense (net of tax) recognized for options
granted in 2003. The "Pro forma" amounts reflect the expense that would
have been recognized had all option grants been expensed.
The Company has made changes to various stock-based compensation plan
provisions for awards granted after 2002. For example, the vesting period and
the term of stock options granted after 2002 have been shortened to three and
six years, respectively. In addition, the sale of underlying shares acquired
through the exercise of options granted after December 31, 2002 is restricted
for a two-year period. The Company continues its existing stock ownership
commitment for senior executives which requires executives to retain at least
75% of the shares they own and acquire from the Company, subject to certain
minimum ownership guidelines, over the term of their employment. Original
option grants in 2003 and thereafter will not have a reload feature; however,
previously granted options retain that feature. Other changes also may be
made that may impact the SFAS 123 adoption estimates disclosed above. This
statement is a forward-looking statement within the meaning of the Private
Securities Litigation Act. See "Forward-Looking Statements" on page 32.
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
On January 1, 2003, Citigroup adopted SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 requires that
a liability for costs associated with exit or disposal activities, other than in
a business combination, be recognized when the liability is incurred. Previous
generally accepted accounting principles provided for the recognition of such
costs at the date of management's commitment to an exit plan. In addition, SFAS
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. The
impact of adopting SFAS 146 was not material.
CONSOLIDATION OF VARIABLE INTEREST ENTITIES
In January 2003, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46).
This interpretation changes the method of determining whether certain entities,
including securitization entities, should be included in the Company's
Consolidated Financial Statements. An entity is subject to FIN 46 and is called
a variable interest entity (VIE) if it has (1) equity that is insufficient to
permit the entity to finance its activities without additional subordinated
financial support from other parties, or (2) equity investors that cannot make
significant decisions about the entity's operations, or that do not absorb the
expected losses or receive the expected returns of the entity. All other
entities are evaluated for consolidation in accordance with SFAS No. 94,
"Consolidation of All Majority-Owned Subsidiaries" (SFAS 94). A VIE is
consolidated by its primary beneficiary, which is the party involved with the
VIE that has a majority of the expected losses or a majority of the expected
residual returns or both.
The provisions of the interpretation are to be applied immediately to VIEs
created after January 31, 2003, and to VIEs in which an enterprise obtains an
interest after that date. For VIEs in which an enterprise holds a variable
interest that it acquired before February 1, 2003, FIN 46 applies in the first
fiscal period beginning after June 15, 2003. For any VIEs that must be
consolidated under FIN 46 that were created before February 1, 2003, the assets,
liabilities and noncontrolling interest of the VIE would be initially measured
at their carrying amounts with any difference between the net amount added to
the balance sheet and any previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46 first applies may be used to
measure the assets, liabilities and noncontrolling interest of the VIE. FIN 46
also mandates new disclosures about VIEs, some of which are required to be
presented in financial statements issued after January 31, 2003.
The Company is evaluating the impact of applying FIN 46 to existing VIEs in
which it has variable interests and has not yet completed this analysis. The
Company is actively pursuing certain restructuring solutions that would enable
certain VIEs to meet the criteria for non-consolidation. At this time, it is
anticipated that the effect on the Company's Consolidated Statement of Financial
10
Position could be an increase of $55 billion to assets and liabilities,
primarily due to several multi-seller finance companies administered by the
Company and certain structured investment vehicles if these non-consolidation
solutions are not successful. If consolidation is required, the future viability
of these businesses will be assessed. As we continue to evaluate the impact of
applying FIN 46, additional entities may be identified that would need to be
consolidated by the Company. This paragraph contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 32.
GUARANTEES AND INDEMNIFICATIONS
On January 1, 2003, the Company adopted the recognition and measurement
provisions of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" (FIN 45), which requires that, for guarantees within the scope of FIN 45
issued or amended after December 31, 2002, a liability for the fair value of the
obligation undertaken in issuing the guarantee be recognized. The impact of
adopting FIN 45 was not material.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS 149). SFAS 149 amends
and clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS 133. In particular, this Statement clarifies under what
circumstances a contract with an initial net investment meets the
characteristic of a derivative and when a derivative contains a financing
component that warrants special reporting in the statement of cash flows.
This Statement is generally effective for contracts entered into or modified
after June 30, 2003 and is not expected to have a material impact on the
Company's financial statements. This statement is a forward-looking statement
within the meaning of the Private Securities Litigation Act. See
"Forward-Looking Statements" on page 32.
11
EVENTS IN 2002 AND 2003
SETTLEMENT OF CERTAIN REGULATORY MATTERS
On April 28, 2003, Salomon Smith Barney Inc. (SSB), now named Citigroup Global
Markets Inc., announced final agreements with the Securities and Exchange
Commission, the National Association of Securities Dealers, the New York Stock
Exchange and the New York Attorney General (as lead state among the 50 states,
the District of Columbia and Puerto Rico) to resolve on a civil basis all of
their outstanding investigations into its research and IPO allocation and
distribution practices.
Consistent with the settlement-in-principle announced in December 2002, SSB will
pay $300 million for retrospective relief, plus $25 million for investor
education, and has committed to spend $75 million to provide independent
third-party research to its clients at no charge. SSB will also adopt new
policies and procedures to further ensure the independence of its research and
address other issues identified in the course of the investigation. SSB reached
these final settlement agreements without admitting or denying any wrongdoing or
liability. The settlements do not establish wrongdoing or liability for purposes
of any other proceeding. The $300 million was accrued during the 2002 fourth
quarter.
IMPACT FROM ARGENTINA'S ECONOMIC CHANGES
Throughout 2002, Argentina experienced 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 asymmetrically redenominating substantially all of the banking
industry's loans, deposits (which were also restricted) and 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, 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 their Patriotic Bonds, making them less valuable. The
government actions, combined with the severe recessionary economic situation and
the devaluation of the peso, adversely impacted Citigroup's business in
Argentina.
To reflect the impact of the economic situation in Argentina, Citigroup recorded
a total of $858 million in pretax charges in the 2002 first quarter, 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 Argentine government compensation
instruments.
IN MILLIONS OF DOLLARS FIRST QUARTER 2002 PRETAX CHARGES
--------------------------------------------------------------------------------
Provision for credit losses $ (475)
Credit and investment write-downs (269)
Redenomination charge - net (72)
Restructuring charge (42)
--------------------------------------------
Total pretax income impact $ (858)
================================================================================
In addition, the impact of the devaluation of the peso produced foreign currency
translation losses that reduced Citigroup's equity by $512 million during the
2002 first quarter.
The Argentina Supreme Court has determined that the 2002 redenomination of
certain bank deposits of the Province of San Luis with Banco de la Nacion
Argentina from dollars to pesos was unconstitutional and has given the parties
to that litigation sixty days (commencing March 5, 2003) in which to determine
the manner and timing of the re-dollarization. Following this decision, on April
1, 2003, the government issued a regulation providing for a voluntary election
on the part of depositors with reprogrammed/restricted balances to receive their
peso deposits, including indexation, from their respective banks, as well as a
ten-year bond issued directly by the government (the April 2003 Plan). The
election period is currently scheduled to expire on May 23, 2003. Through April
23, 2003, Citigroup depositors representing 31% of Citigroup's eligible deposit
liabilities in Argentina elected to redeem their deposits under the terms of the
April 2003 Plan. The redemption of deposits through April 23, 2003 was effected
with no loss to the Company and without a significant impact on the Company's
liquidity. Additional costs to the Company cannot be estimated as they will
depend on the level of depositor participation in the April 2003 Plan and on
future actions or decisions by the Argentine government or judiciary. Further,
any voluntary actions the Company might undertake, such as the settlement of
reprogrammed deposits completed in January 2003, could mitigate such cost.
An insurance subsidiary of the Company does not yet have a restructuring plan
for its voluntary annuity holders that has been approved by the local regulator.
The Company is in the process of evaluating the financial impact this may have
on future results.
The Company believes it has a sound basis to bring a claim, as a result of
various actions of the Argentine government. A recovery on such a claim could
serve to reduce the economic loss of the Company. In the opinion of the
Company's management, the ultimate
12
resolution of the redenomination would not be likely to have a material adverse
effect on the consolidated financial condition of the Company, but may be
material to the Company's operating results for any particular period.
As the economic situation as well as legal and regulatory 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 corporate borrowers, as well as the
impact on consumer deposits and insurance liabilities of potential government
actions, including re-dollarization.
The above paragraphs contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act. See "Forward-Looking Statements"
on page 32.
INITIAL PUBLIC OFFERING AND TAX-FREE DISTRIBUTION OF TRAVELERS PROPERTY CASUALTY
CORP.
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. In 2002, Citigroup
recognized an after-tax gain of $1.158 billion ($1.061 billion after-tax
recognized in the 2002 first quarter and $97 million after-tax recognized in the
2002 third quarter) as a result of the IPO. In connection with the IPO,
Citigroup entered into an agreement with TPC that provided that, in any fiscal
year in which TPC recorded asbestos-related income statement charges in excess
of $150 million, net of any reinsurance, Citigroup would pay to TPC the amount
of any such excess up to a cumulative aggregate of $520 million after-tax. A
portion of the gross IPO gain was deferred to offset all payments arising in
connection with this agreement. In the 2002 fourth quarter, $159 million was
paid pursuant to this agreement, with the remaining $361 million paid in the
2003 first quarter.
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 $7.0 billion. Following the distribution, Citigroup was 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 classified as
available-for-sale within Investments on the Consolidated Statement of Financial
Position.
Following the August 20, 2002 distribution, the results of TPC were reported in
the Company's Statements of Income and Cash Flows separately as discontinued
operations. TPC represented the primary vehicle by which Citigroup engaged in
the property and casualty insurance business.
ACQUISITION OF GOLDEN STATE BANCORP
On November 6, 2002, Citigroup completed its acquisition of 100% of Golden State
Bancorp (GSB) in a transaction in which Citigroup paid approximately $2.3
billion in cash and issued 79.5 million Citigroup common shares. 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.
GSB 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.
ACCOUNTING CHANGES IN 2002
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
Effective July 1, 2001, the Company adopted the provisions of SFAS No. 141,
"Business Combinations" (SFAS 141) and certain provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142), as required for goodwill and
indefinite-lived 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 adoption resulted in a cumulative adjustment of $47 million
(after-tax) reported as a charge to earnings related to the impairment of
certain intangible assets.
13
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 144), when the rule became
effective for calendar year companies. SFAS 144 establishes additional criteria
as compared to existing generally accepted accounting principles to determine
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 impact of adopting SFAS 144
was not material.
SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies are fundamental to understanding management's
discussion and analysis of results of operations and financial condition. The
Company has identified four policies as being significant because they require
management to make subjective and/or complex judgments about matters that are
inherently uncertain. These policies relate to Valuations of Financial
Instruments, Allowance for Credit Losses, Securitizations and Argentina. The
Company, in consultation with the Audit Committee, has reviewed and approved
these significant accounting policies, which are further described in the
Company's 2002 Annual Report on Form 10-K.
The net income line in the following business segments and operating unit
discussions excludes the cumulative effect of accounting change and income from
discontinued operations. The cumulative effect of accounting change and income
from discontinued operations is disclosed within the Corporate/Other business
segment. See Notes 2 and 4 to the Consolidated Financial Statements. Certain
amounts in prior periods have been reclassified to conform to the current
period's presentation.
14
GLOBAL CONSUMER
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 9,588 $ 8,675 11
Operating expenses 4,371 3,944 11
Provisions for benefits, claims, and credit losses 1,995 2,070 (4)
-----------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 3,222 2,661 21
Income taxes 1,057 951 11
Minority interest, after-tax 19 10 90
-----------------------
NET INCOME $ 2,146 $ 1,700 26
==============================================================================================
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 $2.146 billion in the 2003 first
quarter, up $446 million or 26% from the prior-year period, driven by double
digit growth in CARDS and RETAIL BANKING that was partially offset by a decline
in CONSUMER FINANCE. CARDS net income increased $156 million or 27% in the 2003
first quarter, reflecting growth in North America and the absence of prior-year
charges related to Argentina. RETAIL BANKING net income increased $331 million
or 54% in the 2003 first quarter, reflecting the impact of the Golden State
Bancorp (GSB) acquisition, organic revenue growth, improved credit costs and the
absence of prior-year charges related to Argentina. CONSUMER FINANCE net income
of $485 million declined $45 million or 8% from the 2002 first quarter, as the
impact of higher net credit losses in Japan was partially offset by growth in
North America that was driven by the addition of the GSB auto finance business.
In November 2002, Citigroup completed the acquisition of GSB, which added $25
billion in deposits and $33 billion in average loans, including $31 billion in
RETAIL BANKING and $2 billion in CONSUMER FINANCE in the first quarter of 2003.
The integration of GSB continues to be on track, with branch branding and
systems conversions successfully completed during the 2003 first quarter and
more than 30 branches consolidated. Citigroup has increased the number of
salespeople in the branches and is currently selling a full range of Citigroup
products. In Consumer Assets, the conversion of the mortgage origination system
was completed during the 2003 first quarter and the servicing system conversion
is expected to be completed in the 2003 second quarter.
GLOBAL CONSUMER NET INCOME - REGIONAL VIEW
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
North America (excluding Mexico) $ 1,442 $ 1,221 18
Mexico 164 46 NM
EMEA 167 148 13
Japan 158 227 (30)
Asia (excluding Japan) 193 158 22
Latin America 22 (100) NM
-----------------------
TOTAL NET INCOME $ 2,146 $ 1,700 26
==============================================================================================
NM Not meaningful
Growth in Global Consumer in the 2003 first quarter was led by North America
(excluding Mexico), Latin America and Mexico and was partially offset by a
decline in Japan. Net income in North America (excluding Mexico) grew 18% in the
2003 first quarter, driven by the acquisition of GSB and growth in CARDS and
RETAIL BANKING. Mexico contributed growth of $118 million in the 2003 first
quarter, reflecting volume and spread improvements combined with a lower
provision for credit losses. EMEA experienced growth of 13% in the 2003 first
quarter, mainly reflecting the strengthening of the Euro combined with higher
loan volumes in all products. A decline in Japan of 30% in the 2003 first
quarter primarily reflected increased credit losses and a contraction of the
CONSUMER FINANCE loan portfolio. The increase in Latin America in the 2003 first
quarter was mainly due to Argentina and reflected the absence of charges taken
in the first quarter of 2002, partially offset by reduced business activity in
all product lines and the negative impact of foreign currency translation.
15
CARDS
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 3,333 $ 3,121 7
Operating expenses 1,446 1,327 9
Provision for credit losses 774 897 (14)
-----------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 1,113 897 24
Income taxes 377 318 19
Minority interest, after-tax 1 - NM
-----------------------
NET INCOME $ 735 $ 579 27
==============================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 68 $ 57 19
Return on assets 4.38% 4.12%
==============================================================================================
NM Not meaningful
CARDS - which includes bankcards, private-label cards and charge cards in 47
countries around the world - reported net income of $735 million in the first
quarter of 2003, up $156 million or 27% from the 2002 first quarter, due to
increases in North America, which benefited from revenue growth and credit
improvement, and in International Cards, primarily due to an addition to the
loan loss reserve in the first quarter of 2002 related to Argentina.
As shown in the following table, average managed loans grew 8% in the 2003 first
quarter reflecting growth of 7% in North America and 14% in International Cards.
Growth in North America was led by Citi Cards which benefited from increased
advertising and marketing expenditures. Growth in International Cards reflected
broad-based increases in Asia and growth in EMEA, led by the U.K. and Greece,
resulting from organic growth and strengthening currencies in the 2003 first
quarter. The growth in International Cards was partially offset by a decline in
Latin America, which reflected lower loan volumes in Argentina and the negative
impact of foreign currency translation across the region. Sales increased 5% in
the 2003 first quarter, reflecting the benefit of marketing and expansion
efforts in Citi Cards, Asia, EMEA and Japan.
FIRST QUARTER
----------------------- %
IN BILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
SALES
North America $ 57.1 $ 54.9 4
International 8.6 7.4 16
-----------------------
TOTAL SALES $ 65.7 $ 62.3 5
AVERAGE MANAGED LOANS
North America(1) $ 115.2 $ 107.6 7
International 11.6 10.2 14
-----------------------
TOTAL AVERAGE MANAGED LOANS(1) $ 126.8 $ 117.8 8
==============================================================================================
(1) The first quarters of 2003 and 2002 include $67.7 billion and $66.8
billion, respectively, of securitized receivables and $5.1 billion and $6.5
billion, respectively, of loans held for sale. Although a managed basis
presentation is not in conformity with GAAP, the Company believes it
provides a representation of performance and key indicators that is
consistent with the way the business is managed.
Revenues, net of interest expense, of $3.333 billion in the 2003 first quarter
rose $212 million or 7% primarily reflecting growth in North America, EMEA and
Asia. Revenue growth in North America was primarily due to the benefit of
receivable growth and increased cardholder services fees that were partially
offset by lower spreads. Managed net interest revenue as a percent of average
managed loans in North America declined 87 bps from the prior-year period as
lower cost of funds was more than offset by lower yields and the impact of
increased promotional rate balances. Citi Cards revenues in the 2003 first
quarter also included net gains of $146 million as a result of changes in
estimates in the timing of revenue recognition on securitizations. Growth in
EMEA and Asia was driven by spread improvements, increased receivables and the
benefit of foreign currency translation.
Operating expenses in the 2003 first quarter increased $119 million or 9% from
the 2002 first quarter, reflecting growth of 9% in North America and 11% in
International Cards. Growth in North America was mainly driven by increased
advertising and marketing expenditures and on-going business initiatives,
including costs in connection with the anticipated addition of the Home Depot
private label card portfolio. The operating expense increase of $30 million in
International Cards reflected the impact of foreign currency translation and
investments to support business growth, including costs associated with the
consolidation of certain back office operations in Europe.
The provision for credit losses in the 2003 first quarter was $774 million,
compared to $897 million in the 2002 period. The decline from the prior year was
primarily due to a $117 million addition to the loan loss reserve in the first
quarter of 2002 attributed to Argentina. Excluding the prior-year amount related
to Argentina, the provision for credit losses declined $6 million as credit
improvement in North America was partially offset by the impact of higher loss
rates in Hong Kong and the U.K. Net credit losses in
16
the 2003 first quarter were $730 million with a related loss ratio of 5.49%,
compared to $711 million and 5.18% for the 2002 fourth quarter and $779 million
and 7.12% for the 2002 first quarter. Loans delinquent 90 days or more were $932
million or 1.81% at March 31, 2003, compared to $991 million or 1.75% at
December 31, 2002 and $970 million or 2.14% at March 31, 2002.
The securitization of credit card receivables is limited to the Citi Cards
business within North America. At March 31, 2003, securitized credit card
receivables were $71.0 billion, compared to $65.8 billion at March 31, 2002.
Credit card receivables held-for-sale were $3.0 billion at March 31, 2003,
compared to $6.5 billion 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 the effect of securitizations, managed net credit losses in the 2003
first quarter were $1.832 billion with a related loss ratio of 5.86%, compared
to $1.772 billion and 5.61% for the 2002 fourth quarter and $1.792 billion and
6.17% for the 2002 first quarter. The increase in the rate from the fourth
quarter of 2002 was primarily due to seasonality in North America Cards while
the decline from the prior-year quarter reflected improvement in both North
America and the international markets, despite higher bankruptcy losses in Hong
Kong and increased loss rates in the United Kingdom. Loans delinquent 90 days or
more on a managed basis were $2.406 billion or 1.92% at March 31, 2003, compared
to $2.397 billion or 1.84% at December 31, 2002 and $2.492 billion or 2.12% at
March 31, 2002.
Citi Cards has a significant co-branding program with American Airlines, the
Citi AAdvantage Program. As reported in the media, American Airlines' parent
company (AMR), has been exploring various alternatives including reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Most recently, AMR successfully
renegotiated its labor union contracts, thereby avoiding the filing for
bankruptcy protection. If AMR's financial condition were to further deteriorate
and AMR were to file for bankruptcy protection, it is not expected to
significantly impact Citigroup's financial results. This statement is a
forward-looking statement within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 32. We will
continue to monitor this situation to assess its impact on Citigroup.
CONSUMER FINANCE
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 2,532 $ 2,332 9
Operating expenses 865 755 15
Provisions for benefits, claims, and credit losses 930 750 24
-----------------------
INCOME BEFORE TAXES 737 827 (11)
Income taxes 252 297 (15)
-----------------------
NET INCOME $ 485 $ 530 (8)
==============================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 104 $ 91 14
Return on assets 1.89% 2.36%
==============================================================================================
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 $485 million in the 2003 first
quarter, down $45 million or 8% from the 2002 first quarter, reflecting a
decline in International Consumer Finance, principally due to conditions in
Japan, partially offset by growth in North America that was driven by the
acquisition of GSB.
FIRST QUARTER
----------------------- %
IN BILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
AVERAGE LOANS
Real estate-secured loans $ 51.0 $ 46.4 10
Personal 22.5 20.1 12
Auto 10.8 7.4 46
Sales finance and other 4.5 3.3 36
-----------------------
TOTAL AVERAGE LOANS $ 88.8 $ 77.2 15
==============================================================================================
As shown in the preceding table, average loans grew 15% compared to the 2002
first quarter, resulting from acquisitions, growth in real estate-secured loans,
the impact of funding auto loan volumes internally, and strengthening currencies
in the 2003 first quarter. Growth in real estate-secured loans mainly reflected
the continued cross-selling of products through Primerica as well as portfolio
acquisitions in North America combined with growth in the U.K. Average auto
loans for the 2003 first quarter increased $3.4 billion
17
or 46% from 2002, primarily resulting from the addition of $2.0 billion from the
acquisition of GSB, as well as a shift in funding policy to fund business
volumes internally. In Japan, average loans of $12.6 billion in the 2003 first
quarter grew $2.1 billion or 20% from the prior-year quarter, as the
acquisitions of Taihei and Marufuku, which added $1.2 billion to average loans,
and the benefit of foreign currency translation were partially offset by the
impacts of reduced loan demand and tighter underwriting standards.
As shown in the following table, the average net interest margin of 10.55% in
the 2003 first quarter declined 3 basis points from the 2002 first quarter,
reflecting compression in both North America and the international markets
partially offset by growth in higher-yielding International Consumer Finance
loans. In North America, the average net interest margin was 8.56% in the 2003
first quarter, decreasing 8 basis points from the prior-year quarter as the
benefit of lower cost of funds was more than offset by lower yields, reflecting
a lower interest rate environment as well as a shift to higher-quality credits.
The average net interest margin for International Consumer Finance was 16.94% in
the 2003 first quarter, declining 23 basis points from the prior-year quarter,
reflecting a decline in cost of funds that was more than offset by lower yields,
primarily due to growth in lower-risk real estate-secured loans that have lower
yields.
FIRST QUARTER
------------------- %
2003 2002 Change
----------------------------------------------------------------------------------------------
AVERAGE NET INTEREST MARGIN
North America 8.56% 8.64% (8 bps)
International 16.94% 17.17% (23 bps)
TOTAL 10.55% 10.58% (3 bps)
==============================================================================================
Revenues, net of interest expense, of $2.532 billion in the 2003 first quarter
increased $200 million or 9% from the 2002 first quarter, mainly due to
increases in the U.S., Japan and EMEA. Revenue growth in the U.S. was primarily
driven by growth in receivables that included the addition of GSB. Revenue
growth in Japan was primarily driven by the impact of acquisitions and the
benefit of foreign currency translation. Revenue growth in EMEA primarily
reflected higher volumes as well as the benefit of foreign currency translation.
Revenue growth in the U.S., Japan and EMEA was negatively impacted by reduced
net interest margins.
Operating expenses of $865 million in the 2003 first quarter increased $110
million or 15% from the prior-year period, reflecting increases of 9% in North
America and 24% in International Consumer Finance. The increase in North America
was primarily due to the acquisition of GSB, increased credit and collection
costs and lower production related expense deferrals. The increase in
International Consumer Finance included both the impact of the Taihei and
Marufuku acquisitions and the impact of foreign currency translation as well as
costs, in Japan, attributable to actions taken to restructure the business in
response to the continued challenging business environment.
The provisions for benefits, claims, and credit losses in the 2003 first quarter
were $930 million, compared to $750 million in the prior-year quarter, primarily
reflecting increases in the provision for credit losses in Japan, resulting from
deteriorating credit conditions, and in the U.S., resulting from growth in the
portfolio, including the impact of acquisitions. Net credit losses and the
related loss ratio were $855 million and 3.91% in the 2003 first quarter,
compared to $852 million and 3.91% in the 2002 fourth quarter and $671 million
and 3.52% in the 2002 first quarter. In North America, the net credit loss ratio
of 3.06% in the 2003 first quarter was down from 3.10% in the 2002 fourth
quarter and up from 3.00% in the 2002 first quarter. The net credit loss ratio
for International Consumer Finance was 6.69% in the 2003 first quarter, up from
6.48% in the 2002 fourth quarter and 5.32% in the 2002 first quarter, primarily
due to conditions in Japan, including increased bankruptcy filings and
deteriorating credit quality. Loans delinquent 90 days or more were $2.183
billion or 2.45% of loans at March 31, 2003, compared to $2.197 billion or 2.48%
at December 31, 2002 and $2.242 billion or 2.86% 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 2003 first quarter as a result of economic conditions and credit
performance of the unsecured loan portfolio, 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 32.
18
RETAIL BANKING
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 3,642 $ 3,172 15
Operating expenses 1,957 1,779 10
Provisions for benefits, claims, and credit losses 291 423 (31)
-----------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 1,394 970 44
Income taxes 434 349 24
Minority interest, after-tax 18 10 80
-----------------------
NET INCOME $ 942 $ 611 54
==============================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 200 $ 146 37
Return on assets 1.91% 1.70%
==============================================================================================
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 $942
million in the 2003 first quarter, up $331 million or 54% from the 2002 first
quarter. The increase in RETAIL BANKING was driven by growth in North America of
$252 million or 63%, primarily due to the acquisition of GSB, organic revenue
growth and improved credit costs. Net income in International Retail Banking
increased $79 million or 37% in the 2003 first quarter, reflecting double-digit
growth in EMEA and Asia, as well as an increase in Latin America due to charges
taken in the prior-year period related to Argentina.
As shown in the following table, RETAIL BANKING grew average loans and customer
deposits compared to 2002. The growth in North America primarily reflected the
acquisition of GSB, partially offset by the negative impact of foreign currency
translation in Mexico. In addition, North America experienced 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, average customer deposits grew 6% from the prior year driven by the
impact of foreign currency translation and growth in Japan. International Retail
Banking average loans increased 3% from the prior year as the impact of foreign
currency translation and growth in installment loans in Germany were partially
offset by the 2002 third quarter sale of the mortgage portfolio in Japan. Growth
in both loans and customer deposits was negatively impacted by volume declines
in Latin America, primarily in Argentina.
FIRST QUARTER
----------------------- %
IN BILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
AVERAGE CUSTOMER DEPOSITS
North America $ 111.9 $ 89.4 25
International 81.4 77.0 6
-----------------------
TOTAL AVERAGE CUSTOMER DEPOSITS $ 193.3 $ 166.4 16
AVERAGE LOANS
North America $ 99.4 $ 62.9 58
International 33.6 32.6 3
-----------------------
TOTAL AVERAGE LOANS $ 133.0 $ 95.5 39
==============================================================================================
Revenues, net of interest expense, of $3.642 billion in the 2003 first quarter
increased $470 million or 15% from the 2002 period. The increase in revenues
reflected growth in all regions, except Latin America. Revenue in North America
increased $412 million or 20% in the 2003 first quarter, driven by the
acquisition of GSB and growth in Citibanking North America and Consumer Assets
and Mexico. Excluding the acquisition of GSB, growth in Citibanking North
America and Consumer Assets was driven by the benefit of increased loan and
deposit volumes and higher mortgage securitization income, partially offset by
lower net funding and positioning spreads in Citibanking North America and lower
servicing revenue in Consumer Assets. The decline in servicing revenue reflected
the impact of increases in mortgage refinancing and prepayment activity. In
Mexico, improved loan and deposit spreads were partially offset by the negative
impact of foreign currency translation. North America Retail Banking revenue
also benefited from growth in Primerica, which experienced volume-related growth
in insurance premiums. International Retail Banking revenues increased $58
million or 5% in the 2003 first quarter, as strengthening currencies and growth
in EMEA and Asia were partially offset by a decline in Latin America. Excluding
the impact of foreign currency translation, increased loan volumes and spreads,
mainly in Germany, drove growth in EMEA while Asia benefited from strong
investment and insurance products sales as well as higher business volumes from
account growth. The decline in Latin America was due to events in Argentina
including a benefit in the prior year resulting from a reclassification of
re-denomination losses among products based on the pesification decree issued by
the Argentine government in February 2002. The year-over-year comparison in
Latin America was also negatively impacted by reduced business activity in
Argentina and the impact of foreign currency translation across the region.
Operating expenses in the 2003 first quarter increased $178 million or 10% from
the prior-year period. In North America, operating expense growth of $110
million or 9% was primarily due to the addition of GSB, partially offset by the
impact of foreign currency translation in Mexico. Excluding the impact of
acquisitions and foreign currency translation, operating expenses in North
America were down from the prior-year period in all businesses except Consumer
Assets which experienced volume-related increases.
19
International Retail Banking operating expenses increased $68 million or 12%,
mainly reflecting the impact of foreign currency translation, volume-related
increases and costs associated with the consolidation of certain back office
operations in Europe.
The provisions for benefits, claims, and credit losses were $291 million in the
2003 first quarter, down from $423 million in the prior-year quarter. The
decline from the prior year was primarily due to a $101 million addition to the
loan loss reserve in the first quarter of 2002 related to Argentina. Net credit
losses were $152 million and the related loss ratio was 0.46% in the 2003 first
quarter, compared to $140 million and 0.46% in the 2002 fourth quarter and $191
million and 0.81% in the prior-year quarter. The decrease in the net credit loss
ratio from the prior year was primarily due to improvements in Argentina and
higher recoveries in Mexico.
Loans delinquent 90 days or more were $4.070 billion or 3.08% of loans at March
31, 2003, compared to $4.073 billion or 3.08% at December 31, 2002, and $3.448
billion or 3.66% a year ago. Compared to a year ago, the increase in delinquent
loans was primarily due to increases in Consumer Assets and EMEA, partially
offset by a decline in Mexico. The increase in Consumer Assets was mainly due to
the addition of GSB and a higher level of buy backs from GNMA pools where credit
risk is maintained by government agencies. The increase in EMEA was primarily in
Germany and reflected the impact of statutory changes and foreign currency
translation. The decline in Mexico reflected improvements in the mortgage and
middle market loan portfolios as well as the impact of foreign currency
translation.
Average assets of $200 billion in the 2003 first quarter increased $54 billion
from the prior-year period. The increase in average assets primarily reflected
the acquisition of GSB, growth in mortgages and student loans in Consumer
Assets, and the impact of foreign currency translation in EMEA.
OTHER CONSUMER
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
---------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 81 $ 50 62
Operating expenses 103 83 24
-----------------------
INCOME BEFORE TAX BENEFITS (22) (33) 33
Income tax benefits (6) (13) 54
-----------------------
NET LOSS $ (16) $ (20) 20
=============================================================================================
OTHER CONSUMER -- which includes certain treasury and other unallocated staff
functions, global marketing and other programs -- reported a loss of $16 million
for the 2003 first quarter, compared to a loss of $20 million in the prior year.
The change from the prior year was primarily due to improvements in treasury
results and other programs, partially offset by an increase in legal costs in
connection with settlements reached in 2002.
20
GLOBAL CORPORATE AND INVESTMENT BANK
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 5,402 $ 5,487 (2)
Operating expenses 3,095 3,042 2
Provision for credit losses 244 680 (64)
-----------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 2,063 1,765 17
Income taxes 627 586 7
Minority interest, after-tax 5 3 67
-----------------------
NET INCOME $ 1,431 $ 1,176 22
==============================================================================================
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 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, EMEA and Mexico), CitiCapital and Lending.
GCIB reported net income of $1.431 billion in the 2003 first quarter, up $255
million or 22% from the 2002 first quarter. The increase in net income reflects
increases of $116 million or 10% in CAPITAL MARKETS AND BANKING and $108 million
in TRANSACTION SERVICES. Other Corporate reported net income of $8 million in
the 2003 first quarter, compared with a net loss of $23 million in the 2002
first quarter. Net income for the 2002 first quarter was negatively impacted by
economic conditions in Argentina.
The increase in CAPITAL MARKETS AND BANKING net income in the 2003 first quarter
primarily reflects a lower provision for credit losses and strong Fixed Income
underwriting, partially offset by declines in Equities, Sales & Trading and
Investment Banking. The increase in TRANSACTION SERVICES net income in the 2003
first quarter is primarily due to gains on early termination of intracompany
deposits (which were offset in CAPITAL MARKETS AND BANKING) and a lower
provision for credit losses due to prior-year trade finance write-offs in
Argentina, revenue growth reflecting higher volumes and the impact of expense
control initiatives. The increase in Other Corporate net income in the 2003
first quarter is primarily attributable to lower GCIB segment eliminations.
The businesses of GCIB are significantly affected by the levels of activity in
the global capital markets which, in turn, are influenced by macro-economic and
political policies and developments, 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. Credit costs are
expected to slightly improve compared to 2002 levels despite continued weak
global economic conditions, sovereign or regulatory actions and other factors.
This paragraph contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. See "Forward-Looking Statements" on
page 32.
GCIB NET INCOME - REGIONAL VIEW
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
North America (excluding Mexico) $ 676 $ 721 (6)
Mexico 120 194 (38)
EMEA 252 144 75
Japan 32 23 39
Asia (excluding Japan) 179 193 (7)
Latin America 172 (99) NM
-----------------------
TOTAL NET INCOME $ 1,431 $ 1,176 22
==============================================================================================
NM Not meaningful
GCIB net income increased in the 2003 first quarter primarily due to increases
in Latin America and EMEA, partially offset by decreases in Mexico and North
America. The increase in Latin America of $271 million in the 2003 first quarter
was mainly due to weak economic conditions in Argentina in the prior-year
quarter. EMEA net income increased $108 million in the 2003 first quarter
primarily due to improved business volumes, increases in Fixed Income and strong
Foreign Exchange trading. Mexico net income decreased $74 million in the 2003
first quarter primarily due to strong 2002 first quarter trading revenue
reflecting falling interest rates and a steep yield curve. Mexico 2003 first
quarter revenues were impacted by a flattening yield curve. North America
(excluding Mexico) decreased $45 million in the 2003 first quarter, mainly due
to lower deal volume and tighter trading spreads in equity products.
21
CAPITAL MARKETS AND BANKING
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 4,499 $ 4,729 (5)
Operating expenses 2,499 2,438 3
Provision for credit losses 235 611 (62)
-----------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 1,765 1,680 5
Income taxes 534 568 (6)
Minority interest, after-tax 5 2 NM
-----------------------
NET INCOME $ 1,226 $ 1,110 10
==============================================================================================
NM Not meaningful
CAPITAL MARKETS AND BANKING delivers a full range of global financial services
and products including investment banking, institutional brokerage, advisory
services, foreign exchange, structured products, derivatives, loans, leasing and
equipment finance.
CAPITAL MARKETS AND BANKING net income of $1.226 billion in the 2003 first
quarter was up $116 million or 10%, primarily due to a lower provision for
credit losses. The 2002 first quarter was negatively impacted by Latin America,
primarily Argentina.
Revenues, net of interest expense, of $4.499 billion in the 2003 first quarter
decreased $230 million or 5% from the 2002 first quarter primarily due to
declines in OTC trading activity in Equities, strong prior-year quarter trading
in Mexico within Sales & Trading, and weak equities underwriting in Investment
Banking, partially offset by redenomination losses in Argentina in the
prior-year quarter and increases in Fixed Income underwriting over a strong
prior-year quarter.
Operating expenses of $2.499 billion in the 2003 first quarter were up $61
million or 3% from the prior-year period as higher severance and legal expenses
were largely offset by lower compensation and benefits expense. Compensation and
benefits decreased primarily as a result of lower incentive compensation, which
is impacted by the revenue and credit performance of the business, and lower
staffing levels.
The provision for credit losses was $235 million in the 2003 first quarter, down
$376 million from the prior-year quarter, which included provisions for
Argentina and exposures in the telecommunications industry.
Cash-basis loans were $4.324 billion at March 31, 2003, $4.268 billion at
December 31, 2002, and $3.514 billion at March 31, 2002. Cash-basis loans were
up $810 million from March 31, 2002, which primarily reflects increases in the
telecommunications and energy industries and the transportation leasing and
equipment finance portfolios in CitiCapital, as well as corporate borrowers in
Hong Kong, Brazil, and Thailand. Cash-basis loans increased $56 million from
December 31, 2002 primarily due to corporate borrowers in Hong Kong, Brazil,
India and Mexico, partially offset by decreases in Argentina, the
telecommunications industry and the transportation portfolio in CitiCapital.
TRANSACTION SERVICES
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 913 $ 857 7
Operating expenses 625 653 (4)
Provision for credit losses 9 69 (87)
-----------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 279 135 NM
Income taxes 82 45 82
Minority interest, after-tax - 1 NM
-----------------------
NET INCOME $ 197 $ 89 NM
==============================================================================================
NM Not meaningful
TRANSACTION SERVICES - which provides cash management, trade finance, custody,
clearing and depository services globally - reported net income of $197 million
in the 2003 first quarter, up $108 million from the 2002 first quarter. The
increase in the 2003 first quarter primarily reflects a lower provision for
credit losses, strong volume growth and the impact of expense control
initiatives.
22
As shown in the following table, average liability balances of $92 billion grew
14% over the 2002 first quarter primarily due to increases in Europe and Asia.
Assets under custody of $5.2 trillion remained flat to the 2002 first quarter
levels.
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31 MARCH 31
------------------ ------------------ %
2003 2002 Change
-------------------------------------------------------------------------------------------------------
Liability balances (AVERAGE IN BILLIONS) $ 92 $ 81 14
Assets under custody (EOP IN TRILLIONS) 5.2 5.2 -
=======================================================================================================
Revenues, net of interest expense, of $913 million in the 2003 first quarter
increased $56 million or 7% from the 2002 first quarter, primarily due to gains
on early termination of intracompany deposits (which were offset in CAPITAL
MARKETS AND BANKING), strong volume growth and a benefit from foreign exchange
currency translation, partially offset by declining spreads.
Operating expenses of $625 million in the 2003 first quarter decreased $28
million or 4% from the 2002 first quarter, primarily reflecting expense control
initiatives, including staff reductions, reduced technology spending and absence
of asset write-offs, as well as operational efficiency improvements resulting
from prior-year investments in Internet initiatives.
The provision for credit losses of $9 million in the 2003 first quarter
decreased by $60 million from the 2002 first quarter, primarily reflecting
prior-year write-offs in Argentina, partially offset by 2003 first quarter
provisions in Brazil.
Cash-basis loans, which in the TRANSACTION SERVICES business are primarily trade
finance receivables, were $539 million at March 31, 2003, $572 million at
December 31, 2002 and $442 million at March 31, 2002. Cash-basis loans were up
$97 million from March 31, 2002 principally due to trade finance receivables in
Argentina, Brazil, and Mexico. Cash-basis loans decreased $33 million from
December 31, 2002 primarily due to decreases in Argentina, partially offset by
increases in Mexico.
OTHER CORPORATE
FIRST QUARTER
------------------------
IN MILLIONS OF DOLLARS 2003 2002
-------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ (10) $ (99)
Operating expenses (29) (49)
------------------------
INCOME (LOSS) BEFORE TAXES 19 (50)
Income taxes (benefits) 11 (27)
------------------------
NET INCOME (LOSS) $ 8 $ (23)
===================================================================
OTHER CORPORATE - which includes intra-GCIB segment eliminations, certain
one-time non-recurring items and tax amounts not allocated to GCIB products -
reported net income of $8 million for the 2003 first quarter, compared to a net
loss of $23 million in the 2002 first quarter. The increase in Other Corporate
net income in the 2003 first quarter is primarily attributable to lower GCIB
segment eliminations which impacted revenues and operating expenses.
23
PRIVATE CLIENT SERVICES
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 1,327 $ 1,507 (12)
Operating expenses 1,072 1,165 (8)
Provision for credit losses 1 - NM
-----------------------
INCOME BEFORE TAXES 254 342 (26)
Income taxes 97 125 (22)
-----------------------
NET INCOME $ 157 $ 217 (28)
==============================================================================================
NM Not meaningful
PRIVATE CLIENT SERVICES provides investment advice and financial planning and
brokerage services, primarily through the network of Smith Barney Financial
Consultants. In addition, Private Client Services provides independent,
client-focused research to individuals and institutions around the world.
Private Client Services net income was $157 million in the 2003 first quarter,
down $60 million or 28% from the prior year, primarily due to lower asset-based
fee revenue, a decline in net interest revenue from securities-based lending,
and lower transaction volumes, which were partially offset by lower
production-related compensation, and the impact of continued expense control
initiatives.
Revenues, net of interest expense, of $1.327 billion in the 2003 first quarter
decreased $180 million or 12% from the prior-year period, primarily due to
declines in fees from managed accounts, lower net interest revenue on
security-based lending and lower customer transaction volumes.
Total assets under fee-based management were $160 billion as of March 31, 2003,
down $30 billion or 16% from the prior-year period, primarily due to a decline
in market values. Total client assets, including assets under fee-based
management, of $882 billion in the 2003 first quarter decreased $103 billion or
10% compared to the prior year principally due to market depreciation and lower
net inflows. Net inflows were $5 billion in the 2003 first quarter compared to
$15 billion in the prior year. Private Client Services had 12,471 financial
consultants as of March 31, 2003, compared with 12,767 as of March 31, 2002.
Annualized revenue per financial consultant of $428,000 declined 11% from the
prior-year quarter.
Operating expenses of $1.072 billion in the 2003 first quarter, decreased $93
million or 8% from the 2002 period, primarily reflecting lower
production-related compensation resulting from a decline in revenue combined
with the impact of expense control initiatives.
%
IN BILLIONS OF DOLLARS MAR. 31, 2003 Mar. 31, 2002 Change
-----------------------------------------------------------------------------------------------------------------------
Consulting Group and Internally Managed Accounts $ 107 $ 130 (18)
Financial Consultant Managed Accounts 53 60 (12)
-------------------------------
TOTAL ASSETS UNDER FEE-BASED MANAGEMENT $ 160 $ 190 (16)
-------------------------------
Total Client Assets $ 882 $ 985 (10)
Annualized Revenue per Financial Consultant (IN THOUSANDS OF DOLLARS) $ 428 $ 481 (11)
=======================================================================================================================
24
GLOBAL INVESTMENT MANAGEMENT
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 1,994 $ 1,911 4
Operating expenses 708 667 6
Provisions for benefits, claims and credit losses 684 622 10
-----------------------
INCOME BEFORE TAXES 602 622 (3)
Income taxes 136 198 (31)
-----------------------
NET INCOME $ 466 $ 424 10
==============================================================================================
GLOBAL INVESTMENT MANAGEMENT is comprised of 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 $466 million in the 2003 first
quarter increased $42 million or 10% from the 2002 first quarter. LIFE INSURANCE
AND ANNUITIES net income of $236 million in the 2003 first quarter, which
includes realized insurance investment portfolio gains/(losses), increased $22
million or 10% from the prior-year period reflecting an increase of $11 million
in both Travelers Life and Annuity (TLA) and International Insurance
Manufacturing (IIM). The $11 million increase in TLA primarily resulted from a
Dividend Received Deduction (DRD) tax benefit and favorable business volumes and
fees, partially offset by reduced investment yields, higher Deferred Acquisition
Costs (DAC) amortization and lower net realized insurance investment portfolio
gains (losses). The $11 million increase in IIM primarily reflected increases in
Mexico, Asia and Latin America, partially offset by declines in EMEA and Japan.
PRIVATE BANK net income of $125 million in the 2003 first quarter was up $14
million or 13% from the 2002 first quarter primarily reflecting increased client
trading and lending revenues and a lower provision for credit losses, partially
offset by the absence of prior-year placement fee revenues and increased
expenses. ASSET MANAGEMENT net income of $105 million in the 2003 first quarter
was up $6 million or 6% from the 2002 first quarter primarily reflecting the
cumulative impact of positive flows, lower expenses including the absence of
prior-year charges related to Argentina, and business growth and higher
performance fees in the CAI Institutional business. These increases were
partially offset by negative market action and the impact of reduced fee-sharing
revenues with internal Citigroup distributors.
GLOBAL INVESTMENT MANAGEMENT NET INCOME - REGIONAL VIEW
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
----------------------------------------------------------------------------------------------
North America (excluding Mexico) $ 351 $ 352 -
Mexico 65 48 35
EMEA (3) (4) 25
Japan 17 15 13
Asia (excluding Japan) 30 27 11
Latin America 6 (14) NM
-----------------------
TOTAL NET INCOME $ 466 $ 424 10
==============================================================================================
NM Not meaningful
Global Investment Management net income increased $42 million in the 2003 first
quarter from the prior-year period, primarily driven by increases in Latin
America of $20 million and Mexico of $17 million.
Latin America income of $6 million in the 2003 first quarter increased $20
million from a loss of $14 million in the prior-year period, primarily
reflecting an increase of $12 million in ASSET MANAGEMENT, driven by the absence
of prior-year restructuring and other charges in Argentina, an increase of $5
million in PRIVATE BANK due to increased client trading revenues and the absence
of prior-year restructuring costs, and an increase of $3 million in LIFE
INSURANCE AND ANNUITIES primarily due to the absence of prior-year one-time
items. Mexico net income of $65 million in the 2003 first quarter increased $17
million or 35% from the 2002 first quarter primarily reflecting increases in
ASSET MANAGEMENT of $7 million due to lower expenses, PRIVATE BANK of $5 million
driven by higher client trading revenues, and LIFE INSURANCE AND ANNUITIES of $5
million, primarily reflecting higher investment income.
25
LIFE INSURANCE AND ANNUITIES
FIRST QUARTER
----------------------- %
IN MILLIONS OF DOLLARS 2003 2002 Change
---------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 1,133 $ 1,018 11
Provision for benefits and claims 680 616 10
Operating expenses 179 92 95
-----------------------
INCOME BEFORE TAXES 274 310 (12)
Income taxes 38 96 (60)
-----------------------
NET INCOME 236 214 10
Less: realized insurance investment portfolio (gains)/losses, after-tax 2 (10) NM
-----------------------
NET INCOME BEFORE REALIZED INVESTMENT PORTFOLIO (GAINS)/LOSSES $ 238 $ 204 17
===============================================================================================================
NM Not meaningful
LIFE INSURANCE AND ANNUITIES comprises Travelers Life and Annuity (TLA) and
International Insurance Manufacturing (IIM). TLA offers individual annuity,
group annuity, individual life insurance and Corporate Owned Life Insurance
(COLI) products. IIM provides credit, life, health, disability and other
insurance products, as well as annuities internationally, leveraging the
existing distribution channels of the CONSUMER FINANCE, RETAIL BANKING and ASSET
MANAGEMENT (retirement services) businesses. IIM primarily has operations in
Mexico, EMEA, Latin America and Asia.
Net income of $236 million in the 2003 first quarter, which includes realized
insurance investment portfolio gains/(losses), increased $22 million or 10% from
$214 million in the 2002 first quarter. The increase resulted from an $11
million increase in TLA earnings to $221 million in the 2003 first quarter and
an $11 million increase in IIM earnings to $15 million in the 2003 first
quarter. The $11 million increase in TLA primarily resulted from a $39 million
DRD tax benefit, and favorable business volumes and fees, partially offset by
reduced investment yields, higher DAC amortization of $28 million and lower net
realized insurance investment portfolio gains/(losses) of $12 million. The $11
million increase in IIM reflected increases of $5 million in Mexico, $4 million
in Asia and $3 million in Latin America, partially offset by declines in EMEA
and Japan. The increases in Mexico and Asia primarily related to higher
investment results. The $3 million increase in Latin America related to the
absence of 2002 first quarter one-time items, including an Amparos reserve of
$17 million, offset by the impact of a benefits and claims reserve release of $6
million and foreign exchange gains on U.S. dollar-denominated investments of $8
million.
Included in income were net realized gains/(losses) from the insurance
investment portfolio of ($2) million (($3) million pretax) in the 2003 first
quarter and $10 million ($16 million pretax) in the 2002 first quarter. Income
before realized insurance investment portfolio gains/(losses) was $238 million
in the 2003 first quarter and $204 million in the 2002 first quarter, comprised
of $223 million and $200 million in 2003 and 2002, respectively, for TLA, and
$15 million and $4 million in 2003 and 2002, respectively, for IIM. Income
before realized insurance investment portfolio gains/(losses) is a non-GAAP
measure, which the Company believes is an appropriate indicator of insurance
results and is reflective of the underlying trends of the businesses' ongoing
operations. Net realized insurance investment portfolio gains/(losses) are
significantly impacted by both discretionary and other economic factors.
TLA investment income of $661 million in the 2003 first quarter increased $42
million or 7% from $619 million in the prior-year period. Investment margins
continued to deteriorate in 2003 from already depressed 2002 levels, but were
offset by a larger invested asset base from higher business volumes. Fixed
maturities suffered from the lower rate environment and credit issues. Equity
investment returns increased in the quarter compared to the prior-year quarter
as a result of risk arbitrage activity.
During the 2003 first quarter, LIFE INSURANCE AND ANNUITIES operating expenses
of $179 million increased $87 million from the prior-year period due to
increased TLA expenses of $58 million and increased IIM expenses of $29 million.
The TLA increase primarily resulted from a $45 million increase in DAC
amortization in the 2003 first quarter from the prior-year period, which
included a one-time decrease in DAC amortization of $22 million in the 2002
first quarter related to changes in the underlying lapse and interest rate
assumptions in the individual annuity business. The remaining increase in DAC
amortization expense was due to a higher amortization rate implemented in the
2002 fourth quarter resulting from the decrease in market values of individual
annuity account balances. The increase in IIM expenses of $29 million primarily
relates to a change in the presentation of certain fee-sharing arrangements with
various Global Consumer businesses, which increased both revenues and expenses
by $25 million in the current period.
26
TRAVELERS LIFE AND ANNUITY
The majority of the annuity business and a substantial portion of the life
business written by TLA are accounted for as investment contracts, such that the
premiums are considered deposits and are not included in revenues. The following
table shows net written premiums and deposits by product line:
FIRST QUARTER
------------------------ %
IN MILLIONS OF DOLLARS 2003 2002 Change
---------------------------------------------------------------------------------------------------------------
INDIVIDUAL ANNUITIES
Fixed $ 141 $ 376 (63)
Variable 811 1,136 (29)
Individual payout 20 14 43
------------------------
TOTAL INDIVIDUAL ANNUITIES 972 1,526 (36)
GICS AND OTHER GROUP ANNUITIES 2,111 1,525 38
INDIVIDUAL LIFE INSURANCE
Direct periodic premiums and deposits 209 233 (10)
Single premium deposits 49 76 (36)
Reinsurance (30) (26) (15)
------------------------
TOTAL INDIVIDUAL LIFE INSURANCE 228 283 (19)
------------------------
TOTAL $ 3,311 $ 3,334 (1)
===============================================================================================================
Individual annuity net written premiums and deposits decreased 36% in the 2003
first quarter to $972 million from $1.526 billion in the 2002 first quarter. The
decrease was driven by a decline in fixed and variable annuity sales due to
current market conditions and competitive pressures. Individual annuity account
balances and benefit reserves were $28.3 billion at March 31, 2003, down from
$30.7 billion at March 31, 2002. These decreases reflect declines in market
values of variable annuity investments of $3.9 billion subsequent to March 31,
2002, including $345 million in the 2003 first quarter. Offsetting these market
declines was $1.6 billion in net sales over the previous twelve months,
partially due to good in-force retention, including $186 million of net sales in
the 2003 first quarter.
Group annuity net written premiums and deposits (excluding the Company's
employee pension plan deposits) in the 2003 first quarter were $2.1 billion,
versus $1.5 billion in the prior-year period. The increase of $586 million in
2003 from 2002 reflects an $800 million Guaranteed Investment Contract (GIC)
sale to a customer in the 2003 first quarter, partially offset by lower variable
rate GIC sales due to current market conditions. Group annuity account balances
and benefit reserves reached $23.4 billion at March 31, 2003, an increase of
$2.1 billion or 10% from $21.3 billion at March 31, 2002, primarily reflecting
the 2003 first quarter fixed GIC production and continued strong retention in
all products.
Net written premiums and deposits for the life insurance business were $228
million in the 2003 first quarter, down 19% from $283 million in the 2002 first
quarter. This decrease was related to weaker single premium sales of $27
million, lower direct periodic premiums and deposits of $24 million and lower
COLI renewals. Life insurance in force was $83.2 billion at March 31, 2003, up
7% from $77.8 billion at March 31, 2002.
PRIVATE BANK
FIRST QUARTER
------------------------ %
IN MILLIONS OF DOLLARS 2003 2002 Change
---------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 461 $ 423 9
Operating expenses 275 257 7
Provision for credit losses 4 6 (33)
------------------------
INCOME BEFORE TAXES 182 160 14
Income taxes 57 49 16
------------------------
NET INCOME $ 125 $ 111 13
===============================================================================================================
Average assets (IN BILLIONS OF DOLLARS) $ 34 $ 28 21
Return on assets 1.49% 1.61%
===============================================================================================================
Client business volumes under management (IN BILLIONS OF DOLLARS) $ 172 $ 166 4
===============================================================================================================
PRIVATE BANK provides personalized wealth management services for high-net-worth
clients around the world. PRIVATE BANK net income was $125 million in the 2003
first quarter, up $14 million or 13% from the 2002 first quarter, primarily
reflecting increased client trading and lending activity and a lower provision
for credit losses, partially offset by the absence of prior-year placement fees
and increased expenses related to front-end sales and servicing capabilities,
technology and incentive compensation associated with higher revenues.
Client business volumes under management, which include custody accounts, assets
under fee-based management, deposits and loans, were $172 billion as of
March 31, 2003, up 4% from $166 billion in the 2002 first quarter reflecting
increases in loans of $5 billion
27
and banking deposits of $4 billion, partially offset by other net declines of $3
billion (primarily custody). Regionally, the increase reflects the inclusion of
Banamex client business volumes ($7 billion) into Mexico beginning August 2002
and continued growth in Japan, Asia and North America, partially offset by
declines in EMEA and Latin America.
Revenues, net of interest expense, were $461 million in the 2003 first quarter,
up $38 million or 9% from the 2002 first quarter, primarily driven by increases
in client trading and lending activity, partially offset by the absence of
prior-year placement fees. The 2003 increase also reflects continued favorable
trends in North America (including Mexico), up $23 million or 12% from the
prior-year period, primarily in client trading and lending activity.
International revenues increased $15 million or 6% from the prior-year period,
primarily due to growth in Japan of $10 million or 20% (client trading and
lending), Asia of $5 million or 6% (client trading and global wealth
structuring) and Latin America of $2 million or 6% (client trading), offset by
declines in EMEA of $2 million or 4%. The decline in placement fees principally
occurred in Asia, Japan and EMEA.
Operating expenses of $275 million in the 2003 first quarter were up $18 million
or 7% from the 2002 first quarter, primarily reflecting higher levels of
employee-related expenses including increased front-end sales and servicing
capabilities, and incentive compensation associated with higher revenues as well
as investment spending in technology.
The provision for credit losses was $4 million in the 2003 first quarter, down
$2 million or 33% from the 2002 first quarter, primarily reflecting lower
write-offs in EMEA and a lower addition to the loan loss reserve in the 2003
first quarter compared to the 2002 first quarter, partially offset by higher
write-offs in North America (excluding Mexico), Japan and Asia. Net credit
losses in the 2003 first quarter remained at a nominal level of 0.03% of average
loans outstanding, compared with 0.04% in the 2002 first quarter. Loans 90 days
or more past due as of March 31, 2003 were $157 million or 0.49% of total loans
outstanding, compared with $143 million or 0.52% at March 31, 2002.
Average assets of $34 billion in the 2003 first quarter increased $6 billion or
21% from $28 billion in the 2002 first quarter. The increase from the prior-year
period was primarily related to increased lending activity (higher mortgage
financing and re-financing, tailored loans and margin lending) and the
consolidation of a previously unconsolidated entity due to changes in the
contractual relationship with this entity.
ASSET MANAGEMENT
FIRST QUARTER
------------------------ %
IN MILLIONS OF DOLLARS 2003 2002 Change
---------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 400 $ 470 (15)
Operating expenses 254 318 (20)
------------------------
INCOME BEFORE TAXES 146 152 (4)
Income taxes 41 53 (23)
------------------------
NET INCOME $ 105 $ 99 6
===============================================================================================================
Assets under management (IN BILLIONS OF DOLLARS)(1)(2) $ 462 $ 452 2
===============================================================================================================
(1) Includes $30 billion and $29 billion in 2003 and 2002, respectively, for
PRIVATE BANK clients.
(2) Includes $39 billion in 2003 of Travelers Property and Casualty Corp.
assets which ASSET MANAGEMENT manages on a third-party basis following the
spin-off.
ASSET MANAGEMENT includes Citigroup Asset Management (CAM), Citigroup
Alternative Investments (CAI) Institutional business, 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 (including hedge
funds, private equity and credit structures), variable annuities through
affiliated and third-party insurance companies and pension administration
services.
Net income of $105 million in the 2003 first quarter was up $6 million or 6%
compared to the 2002 first quarter, primarily reflecting the cumulative impact
of positive flows, decreased expenses including the absence of prior-year
charges related to Argentina, and business growth and higher performance fees in
the CAI Institutional business. Partially offsetting these increases was the
impact of negative market action and reduced fee revenues due to changes in
product mix and revenue sharing arrangements with internal Citigroup
distributors.
Assets under management for the 2003 first quarter were $462 billion, an
increase of $10 billion or 2% from the 2002 first quarter. The increase
primarily reflects the addition of $39 billion in assets from Travelers Property
and Casualty Corp. (TPC), which ASSET MANAGEMENT manages on a third-party basis
following the August 20, 2002 distribution, and positive net flows (excluding
U.S. Retail Money Market funds) of $12 billion. These increases were partially
offset by negative market action of $31 billion and net outflows of U.S. Retail
Money Market funds of $11 billion, including the transfer of assets to the Smith
Barney Bank Deposit Program. Retail/Private Bank client assets were $201 billion
at March 31, 2003, down 16% compared to the prior-year period, primarily due to
negative market action and net outflows of U.S. Retail Money Market funds,
partially offset by positive net flows. Institutional client assets of $163
billion at March 31, 2003, were up 4% compared to the prior-year period,
reflecting long-term product flows and an
28
increase in institutional liquidity funds, partially offset by negative market
action. Retirement Services assets were $11 billion at March 31, 2003 up $1
billion or 12%, from the year-ago quarter. Other assets under management of $87
billion at March 31, 2003 were up $41 billion from the prior-year period,
reflecting the $39 billion of TPC's assets.
Sales of proprietary mutual funds and managed account products at Private Client
Services declined 49% from the prior-year period to $3.7 billion in the 2003
first quarter, primarily driven by weakness in equity markets and declines in
managed account products, and represented 32% of Smith Barney's retail channel
sales. Sales of mutual and money funds through Global Consumer's banking network
(excluding Mexico) decreased 14% from the prior-year quarter to $1.9 billion in
the 2003 first quarter and represented 36% of total sales, including $1.1
billion in International and $0.8 billion in the U.S. Of the $0.8 billion,
Primerica sold $0.4 billion of proprietary U.S. mutual and money funds,
representing 73% of Primerica's total fund sales in the 2003 first quarter,
compared to 70% in the prior-year period. Institutional long-term product sales
of $5.7 billion decreased 29% from the 2002 first quarter primarily due to
current market conditions, and include $4.1 billion of sales to GCIB clients.
Revenues, net of interest expense, decreased $70 million or 15% from the
prior-year period to $400 million in the 2003 first quarter. The decrease was
primarily due to the impact of negative market action, reduced fee revenues, the
impacts of outflows of U.S. Retail Money Market funds and the peso devaluations
in Mexico and Argentina, partially offset by positive net flows. The reduced fee
revenues primarily resulted from changes in product mix and revenue sharing
arrangements with internal Citigroup distributors and a change in the
presentation of certain fee sharing arrangements which decreased both revenues
and expenses by $11 million in the current period.
Operating expenses of $254 million in the 2003 first quarter were down $64
million or 20% from the 2002 first quarter, primarily reflecting continued
expense management including a decline in incentive compensation, the absence of
2002 first quarter restructuring charges in Argentina of $12 million ($8 million
after-tax), the impact of the peso devaluations in Mexico and Argentina and the
change in presentation of certain fee sharing arrangements.
PROPRIETARY INVESTMENT ACTIVITIES
FIRST QUARTER
------------------------ %
IN MILLIONS OF DOLLARS 2003 2002 Change
---------------------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 94 $ 111 (15)
Operating expenses 78 52 50
------------------------
INCOME BEFORE TAXES AND MINORITY INTEREST 16 59 (73)
Income taxes 8 25 (68)
Minority interest, after-tax 8 (1) NM
------------------------
NET INCOME $ - $ 35 (100)
===============================================================================================================
NM Not meaningful
PROPRIETARY INVESTMENT ACTIVITIES is comprised of Citigroup's proprietary
Private Equity investments, including venture capital activities, and Other
Investment Activities which includes Citigroup's proprietary investments in
hedge funds and real estate investments, investments in countries that
refinanced debt under the 1989 Brady Plan or plans of a similar nature,
ownership of TPC shares and Citigroup's Alternative Investments (CAI) business,
for which the net profits on products distributed through Citigroup's ASSET
MANAGEMENT, PRIVATE CLIENT and PRIVATE BANK businesses are reflected in the
respective distributor's income statement through net revenues.
Revenues, net of interest expense, in the 2003 first quarter of $94 million
decreased $17 million from the 2002 first quarter, reflecting lower Private
Equity results from lower net mark-to-market gains offset by lower impairment
write-downs, partially offset by increased revenues in Other Investment
Activities, primarily related to CAI. Operating expenses of $78 million in the
2003 first quarter increased $26 million from the 2002 first quarter primarily
reflecting increased expenses in CAI resulting from the impact of CAI's contract
with TPC, whereby CAI manages TPC's investments following the August 20, 2002
distribution and CAI's business growth. Minority interest, after-tax of $8
million in the 2003 first quarter, increased $9 million from the prior-year
period primarily due to the net impact of majority-owned funds established in
late 2002.
See Note 6 to the Consolidated Financial Statements for additional information
on investments in fixed maturity and equity securities.
The following sections contain information concerning revenues, net of interest
expense, for the two main investment classifications of Proprietary Investment
Activities:
PRIVATE EQUITY includes equity and mezzanine debt financing on both a direct and
indirect basis to companies primarily located in the United States and Western
Europe, investments in companies located in developing economies with a private
equity focus, the investment portfolio related to the Banamex acquisition in
August 2001 and CVC/Opportunity Equity Partners, LP (Opportunity).
29
Opportunity is a third-party managed fund through which Citigroup co-invests in
companies that were privatized by the government of Brazil in the mid-1990s.
As of March 31, 2003 and March 31, 2002, Private Equity included assets of
$6.053 billion and $8.062 billion, respectively, with the portfolio primarily
invested in industrial, consumer goods, communication and technology companies.
The decline in assets reflects the impacts of lower net mark-to-market
valuations, impairment write-downs and sales.
Revenues for Private Equity, net of interest expense, are composed of the
following:
FIRST QUARTER
------------------------
IN MILLIONS OF DOLLARS 2003 2002(1)
-------------------------------------------------------------------------------------------------
Net realized gains/(losses)(2) $ 41 $ 65
Public mark-to-market 3 213
Net impairment (write-downs)/write-ups(3) (20) (161)
Other(4) (14) (40)
------------------------
Revenues, net of interest expense $ 10 $ 77
=================================================================================================
(1) Reclassified to conform to the 2003 presentation.
(2) Includes the changes in unrealized gains/(losses) related to mark-to-market
reversals for investments sold during the year.
(3) Includes private valuation adjustments.
(4) Includes Opportunity, net investment income and management fees.
Revenues, net of interest expense, of $10 million in the 2003 first quarter
declined $67 million from the 2002 first quarter primarily relating to lower net
public mark-to-market gains of $210 million and lower net realized
gains/(losses) on sales of investments of $24 million, partially offset by lower
impairment write-downs of $141 million and increased other net revenues of $26
million. The 2002 first quarter included a mark-to-market gain of $113 million
on an investment in India and impairment write-downs of $100 million on certain
investments in Argentina.
OTHER INVESTMENT ACTIVITIES includes CAI, various proprietary investments,
including Citigroup's approximate 9.9% remaining ownership interest in TPC's
outstanding equity securities, certain hedge fund investments and the LDC
Debt/Refinancing portfolios. The LDC Debt/Refinancing portfolios include
investments in certain countries that refinanced debt under the 1989 Brady Plan
or plans of a similar nature and earnings are generally derived from interest
and restructuring gains/(losses).
As of March 31, 2003, Other Investment Activities included assets of $3.047
billion, including $1.425 billion in TPC shares, $520 million in the LDC Debt/
Refinancing portfolios, $884 million in hedge funds, the majority of which
represents money managed for TPC, and $218 million in other assets. As of March
31, 2002, total assets of Other Investment Activities were $1.533 billion,
including $743 million in the LDC Debt/Refinancing portfolios, $499 million in
hedge funds and $291 million in other assets.
The major components of Other Investment Activities revenues, net of interest
expense are as follows:
FIRST QUARTER
------------------------
IN MILLIONS OF DOLLARS 2003 2002
-------------------------------------------------------------------------------------------------
LDC Debt/Refinancing portfolios $ 4 $ 4
Hedge fund investments 15 11
Other 65 19
------------------------
Revenues, net of interest expense $ 84 $ 34
=================================================================================================
Revenues, net of interest expense, in the 2003 first quarter of $84 million
increased $50 million from the 2002 first quarter, primarily resulting from a
$27 million increase in CAI, including revenues related to the TPC contract and
business growth, $6 million in revenues from dividends earned on shares of TPC
owned by Citigroup, a $4 million increase from improved hedge fund results, and
a $13 million increase in other revenues.
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 32.
30
CORPORATE/OTHER
FIRST QUARTER
------------------------
IN MILLIONS OF DOLLARS 2003 2002
-------------------------------------------------------------------------------------------------
REVENUES, NET OF INTEREST EXPENSE $ 131 $ 107
Operating expenses 228 186
Provisions for benefits, claims, and credit losses - (10)
------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES, MINORITY INTEREST,
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (97) (69)
Income tax benefits (6) (6)
Minority interest, after-tax 6 5
------------------------
LOSS FROM CONTINUING OPERATIONS (97) (68)
INCOME FROM DISCONTINUED OPERATIONS - 1,406
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - (47)
------------------------
NET INCOME (LOSS) $ (97) $ 1,291
=================================================================================================
CORPORATE/OTHER includes net corporate treasury results, corporate expenses,
certain intersegment eliminations, the results of discontinued operations, the
cumulative effect of accounting change and taxes not allocated to the individual
businesses.
Revenues, net of interest expense, of $131 million in the 2003 first quarter
increased $24 million from the 2002 first quarter, primarily reflecting higher
net treasury results and the impact of lower intersegment eliminations. The
higher net treasury results primarily related to favorable interest rate
positioning and lower funding costs, including the impact of lower interest
rates and earnings on fixed income investments, partially offset by the impact
of increased borrowing levels.
Operating expenses of $228 million in the 2003 first quarter increased $42
million from the 2002 first quarter primarily due to increases in certain net
unallocated corporate costs and higher employee-related costs, partially offset
by lower intersegment eliminations.
Discontinued operations in the 2002 first quarter (see Note 4 to the
Consolidated Financial Statements) includes the operations of TPC and the gain
on the sale of stock of $1.270 billion ($1.061 billion after-tax recognized in
the 2002 first quarter and $97 million after-tax recognized in the 2002 third
quarter) as a result of the TPC IPO of 231 million shares of its class A common
stock. The 2002 cumulative effect of accounting change of $47 million reflects
the first quarter impact of adopting the remaining provisions of SFAS 142
relating to goodwill and indefinite-lived intangible assets.
31
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; sovereign or regulatory actions; levels of activity in
the global capital markets; macro-economic factors and political policies and
developments in the countries in which the Company's businesses operate; the
level of interest rates, bankruptcy filings and unemployment rates around the
world; the continued economic crisis in Argentina; legal and regulatory
matters in Argentina, including the effect of the recent decision by the
Argentina Supreme Court declaring the 2002 redenomination unconstitutional;
possible changes to various stock-based compensation plan provisions for
future awards; the effect of adopting SFAS 146 and SFAS 149 and applying FIN
45 and FIN 46; the impact of the financial condition of AMR; economic
conditions and credit performance of the portfolios, including increased
bankruptcy filings and rising unemployment rates, in Japan; portfolio growth
and seasonal factors; subsidiaries' dividending capabilities; the effect of
banking and financial services reforms; possible amendments to, and
interpretations of, risk-based capital guidelines and reporting instructions;
and the resolution of legal proceedings and related matters.
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 2002
Annual Report on Form 10-K.
The risk management framework is grounded on the following seven principles,
which apply universally across all businesses and all risk types:
- INTEGRATION OF BUSINESS AND RISK MANAGEMENT - Risk management is integrated
within the business plan and strategy.
- RISK OWNERSHIP - All risks and resulting returns are owned and managed by
an accountable business unit.
- INDEPENDENT OVERSIGHT - Risk limits are approved by both business
management and independent risk management.
- POLICIES - All risk management policies are clearly and formally
documented.
- RISK IDENTIFICATION AND MEASUREMENT - All risks are measured using defined
methodologies, including stress testing.
- LIMITS AND METRICS - All risks are managed within a limit framework.
- RISK REPORTING - All risks are comprehensively reported across the
organization.
The following sections summarize the processes for managing credit, market,
operational and country risks within Citigroup's major businesses.
CREDIT RISK MANAGEMENT PROCESS
Credit risk is the potential for financial loss resulting from the failure of a
borrower or counterparty to honor its financial or contractual obligation.
Credit risk arises in many of the Company's business activities including
lending activities, sales and trading activities, derivatives activities, and
securities transactions settlement activities, and when the Company acts as an
intermediary on behalf of its clients and other third parties. 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.
32
DETAILS OF CREDIT LOSS EXPERIENCE
1ST QTR. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
IN MILLIONS OF DOLLARS 2003 2002 2002 2002 2002
-------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
AT BEGINNING OF PERIOD $ 11,501 $ 10,720 $ 10,437 $ 10,520 $ 10,088
--------------------------------------------------------------
PROVISION FOR CREDIT LOSSES
Consumer 1,810 1,792 1,885 1,599 1,878
Corporate 243 898 804 458 681
--------------------------------------------------------------
2,053 2,690 2,689 2,057 2,559
--------------------------------------------------------------
GROSS CREDIT LOSSES:
CONSUMER
In U.S. offices 1,344 1,295 1,255 1,281 1,281
In offices outside the U.S. 714 738 784 660 617
CORPORATE
In U.S. offices 208 489 323 429 316
In offices outside the U.S. 185 277 382 197 241
--------------------------------------------------------------
2,451 2,799 2,744 2,567 2,455
--------------------------------------------------------------
CREDIT RECOVERIES:
CONSUMER
In U.S. offices 175 162 149 155 148
In offices outside the U.S. 144 161 129 104 107
CORPORATE(1)
In U.S. offices 17 73 50 114 30
In offices outside the U.S. 31 58 54 27 42
--------------------------------------------------------------
367 454 382 400 327
--------------------------------------------------------------
NET CREDIT LOSSES
In U.S. offices 1,360 1,549 1,379 1,441 1,419
In offices outside the U.S. 724 796 983 726 709
--------------------------------------------------------------
2,084 2,345 2,362 2,167 2,128
--------------------------------------------------------------
Other -- net(2) (21) 436 (44) 27 1
--------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES AT END OF PERIOD $ 11,449 $ 11,501 $ 10,720 $ 10,437 $ 10,520
--------------------------------------------------------------
ALLOWANCE FOR CREDIT LOSSES
ON LETTERS OF CREDIT(3) 167 167 110 110 50
--------------------------------------------------------------
TOTAL ALLOWANCE FOR LOANS, LEASES, LENDING
COMMITMENTS AND LETTERS OF CREDIT $ 11,616 $ 11,668 $ 10,830 $ 10,547 $ 10,570
===================================================================================================================
Net consumer credit losses $ 1,739 $ 1,710 $ 1,761 $ 1,682 $ 1,643
As a percentage of average consumer loans 2.29% 2.33% 2.65% 2.65% 2.71%
===================================================================================================================
Net corporate credit losses $ 345 $ 635 $ 601 $ 485 $ 485
As a percentage of average corporate loans 1.08% 1.87% 1.76% 1.40% 1.42%
===================================================================================================================
(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 of $452 million related to the acquisition of
Golden State Bancorp in the 2002 fourth quarter.
(3) Represents additional credit reserves included in Other Liabilities on the
Consolidated Statement of Financial Position.
33
CASH-BASIS, RENEGOTIATED, AND PAST DUE LOANS
MAR. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
IN MILLIONS OF DOLLARS 2003 2002 2002 2002 2002
-------------------------------------------------------------------------------------------------------------------
CORPORATE CASH-BASIS LOANS (1)
Collateral dependent (at lower of cost
or collateral value) (2) $ 524 $ 572 $ 430 $ 447 $ 455
Other 4,339 4,268 4,259 4,037 3,501
--------------------------------------------------------------
TOTAL $ 4,863 $ 4,840 $ 4,689 $ 4,484 $ 3,956
===================================================================================================================
CORPORATE CASH-BASIS LOANS (1)
In U.S. offices $ 1,454 $ 1,662 $ 1,504 $ 1,376 $ 1,429
In offices outside the U.S. 3,409 3,178 3,185 3,108 2,527
--------------------------------------------------------------
TOTAL $ 4,863 $ 4,840 $ 4,689 $ 4,484 $ 3,956
===================================================================================================================
CORPORATE RENEGOTIATED LOANS
In U.S. offices $ 105 $ 115 $ 202 $ 248 $ 219
In offices outside the U.S. 52 55 65 69 116
--------------------------------------------------------------
TOTAL $ 157 $ 170 $ 267 $ 317 $ 335
===================================================================================================================
CONSUMER LOANS ON WHICH ACCRUAL
OF INTEREST HAD BEEN SUSPENDED
In U.S. offices $ 2,368 $ 2,338 $ 2,307 $ 2,445 $ 2,205
In offices outside the U.S. 2,811 2,723 2,535 2,356 2,654
--------------------------------------------------------------
TOTAL $ 5,179 $ 5,061 $ 4,842 $ 4,801 $ 4,859
===================================================================================================================
ACCRUING LOANS 90 OR MORE
DAYS DELINQUENT (3)
In U.S. offices $ 2,488 $ 2,639 $ 2,063 $ 2,020 $ 1,952
In offices outside the U.S. 353 447 562 718 716
--------------------------------------------------------------
TOTAL $ 2,841 $ 3,086 $ 2,625 $ 2,738 $ 2,668
===================================================================================================================
(1) Excludes cash-basis loans for the Insurance Subsidiaries and Investment
Activities businesses for the first, second, third and fourth quarters of
2002 which were $39 million, $89 million, $136 million and $62 million,
respectively, and are included in Other Assets on the Consolidated
Statement of Financial Position for the first quarter of 2003.
(2) A cash-basis loan is defined as collateral dependent when repayment is
expected to be provided solely by the liquidation of 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 $1,735 million, $1,764 million,
$1,250 million, $1,257 million, and $1,106 million are
government-guaranteed student loans and Federal Housing Authority mortgages
at March 31, 2003, December 31, 2002, September 30, 2002, June 30, 2002,
and March 31, 2002, respectively.
OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
MAR. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
IN MILLIONS OF DOLLARS 2003 2002 2002 2002 2002
-------------------------------------------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED (1)
Consumer $ 509 $ 495 $ 473 $ 458 $ 384
Corporate (2) 78 75 117 136 145
--------------------------------------------------------------
TOTAL OTHER REAL ESTATE OWNED $ 587 $ 570 $ 590 $ 594 $ 529
===================================================================================================================
OTHER REPOSSESSED ASSETS (3) $ 255 $ 230 $ 227 $ 320 $ 381
===================================================================================================================
(1) Represents repossessed real estate, carried at lower of cost or fair value,
less costs to sell.
(2) Excludes Other Real Estate Owned for the Insurance Subsidiaries businesses
for the first, second, third and fourth quarters of 2002 which were $125
million, $123 million, $54 million and $36 million, respectively, and is
included in Other Assets on the Consolidated Statement of Financial
Position for the first quarter of 2003.
(3) Primarily commercial transportation equipment and manufactured housing,
carried at lower of cost or fair value, less costs to sell.
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 and
country. 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 the Consolidated Financial Statements.
34
CONSUMER LOAN DELINQUENCY AMOUNTS, NET CREDIT LOSSES, AND RATIOS
TOTAL 90 DAYS OR MORE AVERAGE
IN MILLIONS OF DOLLARS, LOANS PAST DUE (1) LOANS
EXCEPT TOTAL AND AVERAGE LOAN AMOUNTS IN BILLIONS -------------------------------------------------------------
-------------------------------------------------- MAR. 31, MAR. 31, Dec. 31, Mar. 31, 1ST QTR.
PRODUCT VIEW 2003 2003 2002 2002 2003
-----------------------------------------------------------------------------------------------------------------
CARDS $ 125.5 $ 2,406 $ 2,397 $ 2,492 $ 126.8
RATIO 1.92% 1.84% 2.12%
North America 114.1 2,180 2,185 2,293 115.2
RATIO 1.91% 1.85% 2.13%
International 11.4 226 212 199 11.6
RATIO 1.97% 1.78% 2.00%
CONSUMER FINANCE 89.2 2,183 2,197 2,242 88.8
RATIO 2.45% 2.48% 2.86%
North America 68.6 1,786 1,786 1,979 68.0
RATIO 2.60% 2.64% 3.28%
International 20.6 397 411 263 20.8
RATIO 1.93% 1.98% 1.46%
RETAIL BANKING 132.3 4,070 4,073 3,448 133.0
RATIO 3.08% 3.08% 3.66%
North America 98.4 2,761 2,818 2,405 99.4
RATIO 2.80% 2.82% 3.86%
International 33.9 1,309 1,255 1,043 33.6
RATIO 3.86% 3.84% 3.26%
PRIVATE BANK (2) 32.1 157 174 143 31.4
RATIO 0.49% 0.56% 0.52%
Other Consumer 1.1 - - 1 0.9
------------------------------------------------------------
TOTAL MANAGED (3) $ 380.2 $ 8,816 $ 8,841 $ 8,326 $ 380.9
RATIO 2.32% 2.31% 2.61%
----------------------------------------------------------------------------------------------------------------
Securitized receivables (71.0) (1,413) (1,285) (1,392) (67.7)
Loans held-for-sale (3.0) (61) (121) (130) (5.1)
----------------------------------------------------------------------------------------------------------------
CONSUMER LOANS (4) $ 306.2 $ 7,342 $ 7,435 $ 6,804 $ 308.1
RATIO 2.40% 2.40% 2.76%
================================================================================================================
IN MILLIONS OF DOLLARS, NET CREDIT LOSSES (1)
EXCEPT TOTAL AND AVERAGE LOAN AMOUNTS IN BILLIONS ----------------------------------
-------------------------------------------------- 1ST QTR. 4th Qtr. 1st Qtr.
PRODUCT VIEW 2003 2002 2002
--------------------------------------------------------------------------------------
CARDS $ 1,832 $ 1772 $ 1,792
RATIO 5.86% 5.61% 6.17%
North America 1,715 1,653 1,681
RATIO 6.04% 5.75% 6.33%
International 117 119 111
RATIO 4.09% 4.21% 4.46%
CONSUMER FINANCE 855 852 671
RATIO 3.91% 3.91% 3.52%
North America 513 515 442
RATIO 3.06% 3.10% 3.00%
International 342 337 229
RATIO 6.69% 6.48% 5.32%
RETAIL BANKING 152 140 191
RATIO 0.46% 0.46% 0.81%
North America 67 43 87
RATIO 0.27% 0.20% 0.56%
International 85 97 104
RATIO 1.02% 1.19% 1.29%
PRIVATE BANK (2) 2 7 2
RATIO 0.03% 0.10% 0.04%
Other Consumer - - 8
----------------------------------
TOTAL MANAGED (3) $ 2,841 $ 2,771 $ 2,664
RATIO 3.02% 3.04% 3.39%
--------------------------------------------------------------------------------------
Securitized receivables (1,024) (962) (935)
Loans held-for-sale (78) (99) (86)
--------------------------------------------------------------------------------------
CONSUMER LOANS (4) $ 1,739 $ 1,710 $ 1,643
RATIO 2.29% 2.33% 2.71%
======================================================================================
TOTAL 90 DAYS OR MORE AVERAGE
LOANS PAST DUE (1) LOANS
------------------------------------------------------------
MAR. 31, MAR. 31, Dec. 31, Mar 31, 1ST QTR.
REGIONAL VIEW 2003 2003 2002 2002 2003
----------------------------------------------------------------------------------------------------------------
North America (excluding Mexico) $ 291.0 $ 6,209 $ 6,251 $ 5,766 $ 292.4
RATIO 2.13% 2.12% 2.44%
Mexico 9.6 602 638 978 9.4
RATIO 6.27% 6.52% 8.70%
EMEA 29.1 1,305 1,254 866 28.8
RATIO 4.49% 4.44% 3.75%
Japan 17.4 284 258 203 17.6
RATIO 1.63% 1.46% 1.19%
Asia (excluding Japan) 29.9 347 361 411 29.6
RATIO 1.16% 1.23% 1.48%
Latin America 3.2 69 79 102 3.1
RATIO 2.18% 2.49% 2.60%
------------------------------------------------------------
TOTAL MANAGED (3) $ 380.2 $ 8,816 $ 8,841 $ 8,326 $ 380.9
RATIO 2.32% 2.31% 2.61%
----------------------------------------------------------------------------------------------------------------
Securitized receivables (71.0) (1,413) (1,285) (1,392) (67.7)
Loans held-for-sale (3.0) (61) (121) (130) (5.1)
----------------------------------------------------------------------------------------------------------------
CONSUMER LOANS (4) $ 306.2 $ 7,342 $ 7,435 $ 6,804 $ 308.1
RATIO 2.40% 2.40% 2.76%
================================================================================================================
NET CREDIT LOSSES (1)
----------------------------------
1ST QTR. 4th Qtr. 1st Qtr.
REGIONAL VIEW 2003 2002 2002
--------------------------------------------------------------------------------------
North America (excluding Mexico) $ 2,271 $ 2,195 $ 2,158
RATIO 3.15% 3.16% 3.72%
Mexico 27 20 61
RATIO 1.17% 0.84% 2.15%
EMEA 114 114 96
RATIO 1.60% 1.65% 1.70%
Japan 315 306 194
RATIO 7.28% 6.97% 4.81%
Asia (excluding Japan) 98 96 85
RATIO 1.35% 1.32% 1.23%
Latin America 16 40 70
RATIO 2.10% 4.97% 6.04%
----------------------------------
TOTAL MANAGED (3) $ 2,841 $ 2,771 $ 2,664
RATIO 3.02% 3.04% 3.39%
--------------------------------------------------------------------------------------
Securitized receivables (1,024) (962) (935)
Loans held-for-sale (78) (99) (86)
--------------------------------------------------------------------------------------
CONSUMER LOANS (4) $ 1,739 $ 1,710 $ 1,643
RATIO 2.29% 2.33% 2.71%
======================================================================================
(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) PRIVATE BANK results are reported as part of the Global Investment
Management segment.
(3) This table presents credit information on a managed basis and shows the
impact of securitizations to reconcile to a held basis. Only North America
Cards from a product view, and North America from a regional view, are
impacted. Although a managed basis presentation is not in conformity with
GAAP, the Company believes it provides a representation of performance and
key indicators of the credit card business that is consistent with the way
the business is managed.
(4) Total loans and total average loans exclude certain interest and fees on
credit cards of approximately $0.8 billion and $1.0 billion, respectively,
for the first quarter of 2003 and approximately $1.0 billion and $1.2
billion, respectively, for the fourth quarter of 2002, which are included
in Consumer Loans on the Consolidated Statement of Financial Position.
35
CONSUMER LOAN BALANCES, NET OF UNEARNED INCOME
END OF PERIOD AVERAGE
--------------------------------- ---------------------------------
MAR. 31, Dec. 31, Mar. 31, 1ST QTR. 4th Qtr. 1st Qtr.
IN BILLIONS OF DOLLARS 2003 2002 2002 2003 2002 2002
-----------------------------------------------------------------------------------------------------
TOTAL MANAGED $ 380.2 $ 383.2 $ 319.0 $ 380.9 $ 362.1 $ 318.9
Securitized receivables (71.0) (67.1) (65.8) (67.7) (64.3) (66.8)
Loans held-for-sale (3.0) (6.5) (6.5) (5.1) (6.5) (6.5)
--------------------------------- ---------------------------------
ON-BALANCE SHEET (1) $ 306.2 $ 309.6 $ 246.7 $ 308.1 $ 291.3 $ 245.6
=====================================================================================================
(1) Total loans and total average loans exclude certain interest and fees on
credit cards of approximately $0.8 billion and $1.0 billion, respectively,
for the first quarter of 2003 and approximately $1.0 billion and $1.2
billion, respectively, for the fourth quarter of 2002, which are included
in Consumer Loans on the Consolidated Statement of Financial Position.
Total delinquencies 90 days or more past due in the managed portfolio were
$8.816 billion or 2.32% of loans at March 31, 2003, compared to $8.841 billion
or 2.31% at December 31, 2002 and $8.326 billion or 2.61% at March 31, 2002.
Total managed net credit losses in the 2003 first quarter were $2.841 billion
and the related loss ratio was 3.02%, compared to $2.771 billion and 3.04% in
the 2002 fourth quarter and $2.664 billion and 3.39% in the 2002 first quarter.
For a discussion of trends by business, see business discussions on pages 15 -
20 and page 27.
Citigroup's allowance for credit losses of $11.449 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 consumer portfolio was $6.476 billion at March 31, 2003, $6.410 billion
at December 31, 2002 and $5.732 billion at March 31, 2002. The increase in the
allowance for credit losses from a year ago was primarily due to a $452 million
addition associated with the acquisition of GSB and a $206 million increase in
Citi Cards established in accordance with 2002 Federal Financial Institutions
Examination Council (FFIEC) guidance related to past due interest and late fees.
The level of the consumer allowance was also impacted by deteriorating credit in
the CONSUMER FINANCE portfolio in Japan. The allowance as a percentage of loans
on the balance sheet was 2.11% at March 31, 2003, compared to 2.06% at December
31, 2002 and 2.33% at March 31, 2002. The decline in the allowance as a
percentage of loans from the prior year primarily reflected the addition of the
GSB loan portfolio, which is predominantly secured by real estate, combined with
growth in consumer loans and the impact of stricter lending standards and
portfolio management in individual businesses. On-balance sheet consumer loans
of $306.2 billion increased $59.5 billion or 24% from March 31, 2002. The
increase from a year ago was primarily driven by the addition of GSB loans,
receivable growth in North America Cards, mortgage and student loan growth in
Consumer Assets and increases in real estate-secured loans in the Private Bank
and CONSUMER FINANCE. In addition, the growth in loans from a year ago reflected
strengthening currencies in EMEA, Japan and Asia.
Net credit losses, delinquencies and the related ratios are affected by the
credit performance of the portfolios, including bankruptcies, unemployment,
global economic conditions, portfolio growth and seasonal factors, as well as
macro-economic and regulatory policies. In Japan, net credit losses and the
related loss ratio are expected to increase from the 2003 first quarter due to
current economic conditions in that country, including rising bankruptcy filings
and unemployment rates. This paragraph contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 32.
36
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. In the case of
CitiCapital, loans and leases are identified as impaired when interest or
principal is past due not later than 120 days but interest ceases to accrue at
90 days. Impaired corporate loans are written down to the extent that principal
is judged to be uncollectible. Impaired collateral-dependent loans are written
down to the lower of cost or collateral value.
The following table summarizes corporate cash-basis loans and net credit losses:
IN MILLIONS OF DOLLARS MAR. 31, 2003 Dec. 31, 2002 Mar. 31, 2002
---------------------------------------------------------------------------------------------------------------------
CORPORATE CASH-BASIS LOANS (1)
CAPITAL MARKETS AND BANKING $ 4,324 $ 4,268 $ 3,514
TRANSACTION SERVICES 539 572 442
---------------------------------------------
TOTAL CORPORATE CASH-BASIS LOANS $ 4,863 $ 4,840 $ 3,956
=====================================================================================================================
NET CREDIT LOSSES
CAPITAL MARKETS AND BANKING $ 336 $ 605 $ 414
TRANSACTION SERVICES 9 5 69
Private Client Services (2) - 3 2
Other - 22 -
---------------------------------------------
TOTAL NET CREDIT LOSSES $ 345 $ 635 $ 485
=============================================
Corporate Allowance for Credit Losses $ 4,973 $ 5,091 $ 4,788
Corporate Allowance for Credit Losses on Letters of Credit (3) 167 167 50
---------------------------------------------
TOTAL CORPORATE ALLOWANCE FOR LOANS, LEASES,
LENDING COMMITMENTS AND LETTERS OF CREDIT $ 5,140 $ 5,258 $ 4,838
=====================================================================================================================
Corporate Allowance As a Percentage of Total Corporate Loans (4) 3.79% 3.71% 3.37%
=====================================================================================================================
(1) Excludes cash-basis loans for the Insurance Subsidiaries and Investment
Activities businesses for the fourth quarter of 2002 and the first quarter
of 2002 which totaled $39 million and $62 million, respectively, and are
included in Other Assets on the Consolidated Statement of Financial
Position for the first quarter of 2003.
(2) Private Client Services is included within the Private Client Services
segment.
(3) Represents additional credit reserves included in Other Liabilities on the
Consolidated Statement of Financial Position.
(4) Does not include the allowance for letters of credit.
Corporate cash-basis loans were $4.863 billion, $4.840 billion and $3.956
billion at March 31, 2003, December 31, 2002, and March 31, 2002, respectively.
Cash-basis loans increased $907 million from March 31, 2002 due to increases in
CAPITAL MARKETS AND BANKING and TRANSACTION SERVICES. CAPITAL MARKETS AND
BANKING primarily reflects increases in the telecommunications and energy
industries and the transportation leasing and equipment finance portfolios in
CitiCapital, as well as corporate borrowers in Hong Kong, Brazil and Thailand.
TRANSACTION SERVICES increased primarily due to increases in trade finance
receivables in Argentina, Brazil and Mexico. Cash-basis loans increased $23
million from December 31, 2002 due to increases in CAPITAL MARKETS AND BANKING.
CAPITAL MARKETS AND BANKING primarily reflects increases in Asia, mainly Hong
Kong and India, as well as Brazil and Mexico, partially offset by decreases in
Argentina, in the telecommunications industry and the transportation portfolio
in CitiCapital.
Total corporate Other Real Estate Owned (OREO) was $78 million, $75 million and
$145 million at March 31, 2003, December 31, 2002 and March 31, 2002,
respectively. The $67 million decrease from March 31, 2002 is primarily due to
continued improvements in the North America real estate portfolio.
Total corporate Other Repossessed Assets were $145 million, $139 million and
$274 million at March 31, 2003, December 31, 2002 and March 31, 2002,
respectively. The $129 million decrease from March 31, 2002 primarily reflects
improvements in the transportation equipment portfolio due to a decline in
portfolio size and improved credit quality.
Total corporate loans outstanding at March 31, 2003 were $131 billion as
compared to $137 billion at December 31, 2002 and $142 billion at March 31,
2002.
Total corporate net credit losses of $345 million in the 2003 first quarter
decreased $140 million compared to the 2002 first quarter, primarily due to
lower net credit losses in the energy and telecommunications industries and
Argentina.
The allowance for credit losses is established by management based upon
estimates of probable losses inherent in the portfolio. This evaluative process
includes the utilization of statistical models to analyze such factors as
default rates, both historic and projected, geographic and industry
concentrations and environmental factors. Larger non-homogeneous credits are
evaluated on an individual loan basis examining such factors as the borrower's
financial strength, payment history, the financial stability of any guarantors
and for secured loans, the realizable value of any collateral. CitiCapital's
allowance is established based upon an estimate of probable losses inherent in
the portfolio for individual loans which are deemed impaired as well as by
applying an annualized weighted average
37
credit loss ratio utilizing both historical and projected losses to the
remaining portfolio. Additional reserves are established to provide for
imprecision caused by the use of historical and projected loss data. Judgmental
assessments are used to determine residual losses on the leasing portfolio.
Citigroup's allowance for credit losses for loans, leases, lending commitments
and letters of credit of $11.616 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 $4.973 billion at March 31, 2003, compared to $5.091 billion at
December 31, 2002 and $4.788 billion at March 31, 2002. The allowance attributed
to corporate loans, leases and lending commitments as a percentage of corporate
loans was 3.79% at March 31, 2003, as compared to 3.71% and 3.37% at December
31, 2002 and March 31, 2002, respectively. The $185 million increase in total
corporate reserves from March 31, 2002 primarily reflects additional reserves
established as a result of the impact of the continuing deterioration in the
Argentine economy and telecommunications and merchant energy industries. The
$118 million decrease in the total corporate allowance from the fourth quarter
2002 primarily reflects the utilization of reserves established for Argentina
and the telecommunications and merchant energy credits. 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 are expected to
slightly improve compared to 2002 levels despite continued weak global economic
conditions, sovereign or regulatory actions, 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 32.
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.
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 in the non-trading portfolios are calculated by
multiplying the gap between interest sensitive items, including assets,
liabilities, derivatives 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 has Earnings-at-Risk in
various other currencies; however, there are no significant risk concentrations
in any other individual non-U.S. dollar currency.
38
The table below 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 March 31,
2003, the potential impact on pretax earnings over the next 12 months is a
decrease of $765 million from an interest rate increase and an increase of $930
million from an interest rate decrease. The potential impact on pretax earnings
for periods beyond the first 12 months is an increase of $625 million from an
increase in interest rates and a decrease of $524 million from an interest rate
decrease. The change in Earnings-at-Risk from the prior year and the prior
year-end primarily reflects the change in the asset/liability mix to reflect
Citigroup's view of interest rates.
As of March 31, 2003, 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 over the next twelve months of approximately $43
million and a potential positive impact of $306 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 over the next twelve months of approximately $43 million and potential
negative impact of $306 million for the years thereafter. The change in
Earnings-at-Risk from the prior year reflects a reduction of interest rate
exposure in the balance sheet, partially offset by an increase in the relative
volatility of Mexican peso interest rates. The change in Earnings-at-Risk from
the prior year-end primarily reflects a change in the asset/liability mix as
well as changes in the repricing profile of the balance sheet.
As of March 31, 2003, 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 over the next twelve months of $190 million and a
potential positive impact of $508 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 over the next twelve months of $193 million and a potential negative
impact of $491 million for the years thereafter. The change in the other
non-U.S. dollar Earnings-at-Risk from the prior year primarily reflects changes
in the asset/liability mix across a range of currencies based on Citigroup's
view of interest rates as well as changes in the repricing profile of the
balance sheet. The change in the other non-U.S. dollar Earnings-at-Risk from the
prior year-end reflects minor offsetting changes across a range of currencies.
CITIGROUP EARNINGS-AT-RISK (IMPACT ON PRETAX EARNINGS) (1)
MARCH 31, 2003
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 $ (765) $ 930 $ 43 $ (43) $ (190) $ 193
Thereafter (3) 625 (524) 306 (306) 508 (491)
-----------------------------------------------------------------------------------------
Total $ (140) $ 406 $ 349 $ (349) $ 318 $ (298)
=========================================================================================
DECEMBER 31, 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 $ (822) $ 969 $ 249 $ (249) $ (188) $ 191
Thereafter (3) 460 (380) (157) 157 500 (484)
-----------------------------------------------------------------------------------------
Total $ (362) $ 589 $ 92 $ (92) $ 312 $ (293)
=========================================================================================
MARCH 31, 2002
OTHER
IN MILLIONS OF DOLLARS U.S. DOLLAR (4) MEXICAN PESO NON-U.S. DOLLAR (2)
-----------------------------------------------------------------------------------------
Increase Decrease Increase Decrease Increase Decrease
--------------------------------------------------------------
Twelve months and less $ (845) $ 734 $ 348 $ (348) $ (176) $ 178
Thereafter (3) (667) 50 34 (34) (26) 39
-----------------------------------------------------------------------------------------
Total $ (1,512) $ 784 $ 382 $ (382) $ (202) $ 217
=========================================================================================
(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) Restated to conform to the current period's presentation.
39
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.
IN MILLIONS OF DOLLARS MARCH 31, 2003 December 31, 2002 March 31, 2002
-----------------------------------------------------------------------------------------------------
Assets
Investments (1) $ 1,988 $ 1,897 $ 3,659
-----------------------------------------------------------------------------------------------------
Liabilities
Long-term debt $ 9 $ 11 $ 47
Contractholder funds 958 932 774
Redeemable securities of subsidiary trusts - - 48
=====================================================================================================
(1) The decline from March 31, 2002 to December 31, 2002 is primarily
attributable to the exclusion of discontinued operations. See Note 4 to the
Consolidated Financial Statements.
A significant portion of the Insurance companies' liabilities (e.g., insurance
policy and claims reserves) are not financial instruments and are excluded from
the above sensitivity analysis. Corresponding changes in fair value of these
accounts, based on the present value of estimated cash flows, would materially
mitigate the impact of the net decrease in values implied above. The analysis
also excludes all financial instruments, including long-term debt, identified
with trading activities. The analysis reflects the estimated gross change in
value resulting from a change in interest rates only and is not comparable to
the Earnings-at-Risk used for the Citigroup non-trading portfolios or the
Value-at-Risk used for the trading portfolios.
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 product
approval process for complex products, 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 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 $69 million at March 31, 2003. Daily exposures averaged
$75 million during the first quarter of 2003 and ranged from $64 million to $128
million.
40
The following table summarizes Value-at-Risk in the trading portfolios as of
March 31, 2003 and December 31, 2002, along with the averages:
MARCH 31, FIRST QUARTER December 31, Full-Year
IN MILLIONS OF DOLLARS 2003 AVERAGE 2002 2002 Average
-----------------------------------------------------------------------------------------------------------------
Interest rate $ 68 $ 66 $ 75 $ 54
Foreign exchange 19 26 25 16
Equity 11 16 12 18
All other (primarily commodity) 7 6 5 13
Covariance adjustment (36) (39) (34) (35)
-------------------------------------------------------------
Total $ 69 $ 75 $ 83 $ 66
=================================================================================================================
The table below provides the range of Value-at-Risk in the trading portfolios
that was experienced during the first quarter of 2003 and all of 2002:
FIRST QUARTER Full-Year
2003 2002
-------------------------------------------------------------
IN MILLIONS OF DOLLARS LOW HIGH Low High
-----------------------------------------------------------------------------------------------------------------
Interest rate $ 55 $ 77 $ 41 $ 75
Foreign exchange 19 31 5 32
Equity 8 87 8 51
All other (primarily commodity) 4 9 4 26
=================================================================================================================
OPERATIONAL RISK MANAGEMENT PROCESS
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people or systems or from external events. It includes
reputation and franchise risks associated with business practices or market
conduct that the Company may undertake with respect to activities as principal,
as well as agent, or through a special purpose vehicle.
The Citigroup Operational Risk Policy codifies the core governing principles for
operational risk management and provides the framework to identify, control,
monitor, measure, and report operational risks in a consistent manner across the
Company.
COUNTRY AND CROSS-BORDER RISK MANAGEMENT PROCESS
COUNTRY RISK
The Citigroup Country Risk Committee is chaired by senior international business
management, and includes as its members business managers and independent risk
managers from around the world. The committee's primary objective is to
strengthen the management of country risk, defined as the total risk to the
Company of an event that impacts a country. The committee regularly reviews all
risk exposures within a country, makes recommendations as to actions, and
follows up to ensure appropriate accountability.
CROSS-BORDER RISK
The Company's cross-border outstandings reflect various economic and political
risks, including those arising from restrictions on the transfer of funds as
well as the inability to obtain payment from customers on their contractual
obligations as a result of actions taken by foreign governments such as exchange
controls, debt moratorium and restrictions on the remittance of funds.
Management oversight of cross-border risk is performed through a formal country
risk review process that includes setting of cross-border limits, at least
annually, in each country in which Citigroup has cross-border exposure,
monitoring of economic conditions globally and within individual countries with
proactive action as warranted, and the establishment of internal risk management
policies. Under FFIEC guidelines, total cross-border outstandings include
cross-border claims on third parties as well as investments in and funding of
local franchises. Cross-border claims on third parties (trade, short-term, and
medium- and long-term claims) include cross-border loans, securities, deposits
with banks, investments in affiliates, and other monetary assets, as well as net
revaluation gains on foreign exchange and derivative products.
The cross-border outstandings are reported by assigning externally guaranteed
outstandings to the country of the guarantor and outstandings for which
tangible, liquid collateral is held outside of the obligor's country to the
country in which the collateral is held. For securities received as collateral,
outstandings are assigned to the domicile of the issuer of the securities.
Investments in and funding of local franchises represents the excess of local
country assets over local country liabilities. Local country assets are claims
on local residents recorded by branches and majority-owned subsidiaries of
Citigroup domiciled in the country, adjusted for externally guaranteed
outstandings and certain collateral. Local country liabilities are obligations
of branches
41
and majority-owned subsidiaries of Citigroup domiciled in the country, for which
no cross-border guarantee is issued by Citigroup offices outside the country.
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 trading 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.
The table below shows all countries where total FFIEC cross-border outstandings
exceed 0.75% of total Citigroup assets:
MARCH 31, 2003 December 31, 2002
------------------------------------------------------------------------------------------------------- -------------------
CROSS-BORDER CLAIMS ON THIRD PARTIES
-----------------------------------------
NET
INVESTMENTS
TRADING IN AND TOTAL Total
AND FUNDING OF CROSS- Cross-
SHORT- RESALE LOCAL BORDER Border
TERM AGREE- ALL FRANCHISES OUT- COMMIT- Out- Commit-
IN BILLIONS OF DOLLARS CLAIMS (1) MENTS OTHER TOTAL (2) STANDINGS MENTS (3) standings ments (3)
-----------------------------------------------------------------------------------------------------------------------------
GERMANY $ 12.6 $ 4.0 $ 1.1 $ 17.7 $ 4.1 $ 21.8 $ 13.8 $ 19.0 $ 10.9
UNITED KINGDOM 5.3 13.6 1.9 20.8 - 20.8 25.4 13.8 26.3
FRANCE 5.7 9.5 0.9 16.1 0.4 16.5 5.6 15.9 5.9
ITALY 9.2 1.0 0.2 10.4 2.3 12.7 1.5 11.3 1.6
MEXICO 3.9 - 4.2 8.1 0.7 8.8 0.5 9.1 0.5
NETHERLANDS 5.7 1.8 1.2 8.7 - 8.7 3.1 9.9 4.1
JAPAN 2.7 3.7 1.5 7.9 - 7.9 0.4 9.4 0.4
CANADA 2.7 0.2 1.1 4.0 3.8 7.8 2.0 7.0 2.1
BRAZIL 1.7 - 2.4 4.1 2.9 7.0 - 7.5 -
=============================================================================================================================
(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) If local country liabilities exceed local country assets, zero is used for
net investments in and funding of local franchises.
(3) 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 March 31, 2003 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 $33.0 billion for Germany, $8.8 billion
for the United Kingdom, $14.3 billion for France, $27.0 billion for Italy, $10.0
billion for Mexico, $8.8 billion for the Netherlands, $9.8 billion for Japan,
$8.7 billion for Canada, and $7.9 billion for Brazil.
Total cross-border outstandings for December 31, 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 $26.5 billion for Germany, $9.9 billion
for the United Kingdom, $11.7 billion for France, $20.3 billion for Italy, $10.4
billion for Mexico, $7.8 billion for the Netherlands, $9.3 billion for Japan,
$7.3 billion for Canada, and $8.8 billion for Brazil.
LIQUIDITY AND CAPITAL RESOURCES
Citigroup's primary source of incremental capital resources is its net earnings.
Other sources include proceeds from the issuance of common and preferred
securities, 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 single-family residences and
automobiles, or monetizing investment securities.
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, Citigroup
Global Markets Inc. (CGMI), CitiFinancial, and 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 requirements that also
impact their capitalization levels.
During 2003, 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. Under its long-standing repurchase program the
Company buys back shares in the market from time to time. At March 31, 2003,
there was $4.0 billion remaining under the authorized program. This paragraph
42
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 32.
The following table summarizes the Company's repurchase program during the 2003
first quarter:
Dollar Value
of Remaining
Authorized
IN MILLIONS OF DOLLARS, TOTAL SHARES Average Price Repurchase
EXCEPT PER SHARE AMOUNTS REPURCHASED (1) Paid per Share Program
---------------------------------------------------------------------------------
First quarter 2003 34.3 $ 34.17 $ 3,957
=================================================================================
(1) All repurchases were transacted through Smith Barney, which is included
within the Private Client Services segment.
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 maintains sufficient liquidity at the Parent Company to meet all
maturing unsecured debt obligations due within a one-year time horizon without
incremental access to the unsecured markets.
Citigroup has unutilized bilateral committed revolving credit facilities in the
amount of $3.5 billion that expire on various dates in 2003 and 2004. 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 $62.3 billion at March 31, 2003.
Associates First Capital Corporation (Associates), a subsidiary of Citicorp, had
a combination of unutilized credit facilities of $3.6 billion as of March 31,
2003 which have maturities ranging from 2003 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 March 31, 2003, this requirement was exceeded by
approximately $61.2 billion. Citicorp has also guaranteed various debt
obligations of Associates and CitiFinancial Credit Company (CCC), 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, CGMHI, 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.
A primary tenet of Citigroup's liquidity management is strong decentralized
liquidity management at each of its principal operating subsidiaries and in each
of its countries, combined with an active corporate oversight function. Along
with the role of the Corporate Treasurer, the Global Asset and Liability
Committee (ALCO) undertakes this oversight responsibility. The Global ALCO
functions as an oversight forum for Citigroup's Chief Financial Officer, Chief
Risk Officer, Corporate Treasurer, independent Senior Treasury Risk Officer, and
the senior corporate and business treasurers and risk managers. One objective of
the Global ALCO is to monitor and review the overall liquidity and balance sheet
position of Citigroup and its principal subsidiaries and to address
corporate-wide policies and make recommendations back to senior management and
the business units. Similarly, ALCOs are also established for each country
and/or major line of business.
Each major operating subsidiary and/or country must prepare an annual funding
and liquidity plan for review by the Corporate Treasurer and approval by the
independent Senior Treasury Risk Officer. The funding and liquidity plan
includes analysis of the balance sheet as well as the economic and business
conditions impacting the liquidity of the major operating subsidiary and/or
country. As part of the funding and liquidity plan, liquidity limits, liquidity
ratios, market triggers, and assumptions for periodic stress tests are
established and approved.
Liquidity limits establish boundaries for potential market access in
business-as-usual conditions and are monitored against the liquidity position on
a daily basis. These limits are established based on the size of the balance
sheet, depth of the market, experience level of local management, the stability
of the liabilities, and liquidity of the assets. Finally, 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
net providers of liquidity.
43
A series of standard corporate-wide liquidity ratios have been established to
monitor the structural elements of Citigroup's liquidity. For bank entities
these include measures of liquid assets against liquidity gaps, core deposits to
loans, long-term assets to long-term liabilities and deposits to loans. In
addition, several measures exist to review potential concentrations of funding
by individual name, product, industry, or geography. For the Parent Company,
Insurance Entities and the Broker/Dealer, there are ratios established for
liquid assets against short-term obligations. Triggers to elicit management
discussion have been established against these ratios. In addition, each
individual major operating subsidiary or country establishes targets against
these ratios and may monitor other ratios as approved in its funding and
liquidity plan.
Market triggers are internal or external market or economic factors that may
imply a change to market liquidity or Citigroup's access to the markets.
Citigroup market triggers are monitored by the Corporate Treasurer and the
independent Senior Treasury Risk Officer and are discussed with the Global ALCO.
Appropriate market triggers are also established and monitored for each major
operating subsidiary and/or country as part of the funding and liquidity plans.
Local triggers are reviewed with the local country or business ALCO and
independent risk management.
Periodic liquidity stress testing is performed for each major operating
subsidiary and/or country. The scenarios include assumptions about significant
changes in key funding sources, credit ratings, contingent uses of funding, and
political and economic conditions in certain countries. The results of stress
tests of individual countries and operating subsidiaries are reviewed to ensure
that each individual major operating subsidiary or country is self-funded or a
net provider of liquidity. In addition, a Contingency Funding Plan is prepared
on a periodic basis for Citigroup. The plan includes detailed policies,
procedures, roles and responsibilities, and the results of corporate stress
tests. The product of these stress tests is a menu of alternatives that can be
utilized by the Corporate Treasurer in a liquidity event.
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
expected to be long-term and stable and 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 follow.
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 and equity 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 or overcollateralization
in the form of excess assets in the SPE, or from 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 or change 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.
Citigroup also 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.
44
SECURITIZATION OF CITIGROUP'S ASSETS
In certain off-balance sheet arrangements, including credit card receivable and
mortgage loan securitizations Citigroup is securitizing assets that were
previously recorded in its Consolidated Statement of Financial Position. Under
generally accepted accounting principles, the assets and liabilities of these
SPEs do not appear in Citigroup's Consolidated Statement of Financial Position.
At March 31, 2003 and December 31, 2002 the total amount of loans securitized
and outstanding was $227 billion and $234 billion, respectively. Servicing
rights and other retained interests amounted to $3.9 billion at March 31, 2003.
The following table summarizes certain cash flows received from and paid to
securitization trusts during the three months ended March 31, 2003 and 2002:
MARCH 31, 2003 March 31, 2002
---------------------------------------------------------------------------
CREDIT Credit
IN BILLIONS OF DOLLARS CARDS MORTGAGES OTHER (1) Cards Mortgages Other (1)
----------------------------------------------------------------------------------------------------------------------
Proceeds from new securitizations $ 7.1 $ 11.9 $ 3.5 $ 3.5 $ 8.7 $ 0.2
Proceeds from collections reinvested
in new receivables 33.7 - - 33.3 - -
Servicing fees received 0.3 - - 0.3 0.1 -
Cash flows received on retained interest
and other net cash flows 1.0 - - 1.0 0.1 -
======================================================================================================================
(1) Other includes corporate debt securities, auto loans and other assets.
CREDIT CARD RECEIVABLES
Credit card receivables are securitized through trusts, which are established to
purchase the receivables. Citigroup sells receivables into the trusts 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 a predetermined 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 purchase new receivables and
replenish the receivables in the trust. CGMI is one of several underwriters that
distribute securities issued by the trusts to investors.
At March 31, 2003 and December 31, 2002, total assets in the credit card trusts
were $83 billion and $84 billion, respectively. Of that amount at March 31, 2003
and December 31, 2002, $71 billion and $67 billion, respectively, has been sold
to investors via trust-issued securities, and the remaining seller's interest of
$12 billion and $17 billion, respectively, is included in Citigroup's
Consolidated Statement of Financial Position as Consumer Loans. Citigroup
retains credit risk on its seller's interests and reserves for credit losses
inherent in the portfolio. Amounts receivable from the trusts were $1.144
billion and $1.112 billion, respectively, and amounts due to the trusts were
$916 million and $889 million, respectively, at March 31, 2003 and December 31,
2002. The Company also holds an interest-only strip of $642 million at March 31,
2003 that arose from the calculation of gain or loss at the time assets were
sold to the trusts. During the first quarter of 2003 the Company recorded gains
of $146 million related to the securitization of credit card receivables as a
result of changes in estimates in the timing of revenue recognition on
securitizations.
MORTGAGES AND OTHER ASSETS
The Company provides a wide range of mortgage and other 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,
the Company may retain servicing rights which 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 contracts 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. The Company's 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
45
of years. In addition to servicing rights, the Company also retains a residual
interest in its auto loan, student loan and other assets securitizations,
consisting of seller's interest and interest-only strips that arise from the
calculation of gain or loss at the time assets are sold to the SPE. The Company
recognized gains related to the securitization of mortgages and other assets of
$86.2 million and $36.8 million during the three months ended March 31, 2003 and
2002, respectively.
SECURITIZATIONS OF CLIENT ASSETS
The Company acts as an 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 backstop lines of credit to the
conduits. The Company also provides second loss enhancement in the form of
letters of credit and other guarantees. All fees are charged on a market basis.
At March 31, 2003 and December 31, 2002, total assets in the conduits were $49
billion and $49 billion, respectively, and liabilities were $49 billion and $49
billion, respectively. In addition, the Company participates in providing
liquidity backstop lines of credit to conduits administered by other financial
institutions.
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
market-rate fees for structuring and distributing the CDO securities to
investors. At March 31, 2003, assets in the CDOs amounted to $18 billion.
In addition to securitizations of mortgage loans originated by the Company, the
Company also securitizes purchased mortgage loans, creating collateralized
mortgage obligations (CMOs) and other mortgage-backed securities (MBSs) and
distributes them to investors. Since January 1, 2000, the Company has organized
mortgage securitizations with assets of $185 billion at March 31, 2003. The
Company may also provide liquidity facilities, provide servicing for the
mortgage loans transferred to the SPE, and be a derivative counterparty to the
SPE.
CREATION OF OTHER INVESTMENT AND FINANCING PRODUCTS
The Company packages and securitizes assets purchased in the financial markets
in order to create new security offerings, including hedge funds, mutual funds,
unit investment trusts, and other investment funds, for institutional and
Private Bank clients as well as retail customers, that match the clients'
investment needs and preferences. The funds 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. For a limited number of mutual funds, the
Company provides a guarantee that investors will recover their principal
investments. In certain instances for newly-established funds, the Company may
provide seed money until such funds are ready to distribute interests widely to
investors. Where the Company has provided a majority of the initial investment,
the fund is consolidated. The Company typically manages the funds for
market-rate fees. In addition, the Company may be one of several liquidity
providers to the funds and may place the securities with investors.
46
CREDIT COMMITMENTS AND LINES OF CREDIT
The table below summarizes Citigroup's credit commitment as of March 31, 2003
and December 31, 2002. Further details are included in the footnotes.
IN MILLIONS OF DOLLARS MARCH 31, 2003 December 31, 2002
------------------------------------------------------------------------------------------------------------------
Financial standby letters of credit and foreign office guarantees $ 33,168 $ 32,220
Performance standby letters of credit and foreign office guarantees 8,708 7,320
Commercial and similar letters of credit 4,477 4,965
One- to four-family residential mortgages 3,475 3,990
Revolving open-end loans secured by one- to four-family residential properties 11,064 10,297
Commercial real estate, construction and land development 2,001 1,781
Credit card lines(1) 424,639 407,822
Commercial and other consumer loan commitments(2) 211,731 214,166
---------------------------------
Total $ 699,263 $ 682,561
==================================================================================================================
(1) Credit card lines are unconditionally cancelable by the issuer.
(2) Includes $125 billion and $132 billion with original maturity of less than
one year at March 31, 2003 and December 31, 2002, respectively.
See Note 14 to the Consolidated Financial Statements for additional information.
CAPITAL
CITIGROUP INC.
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. To be "well capitalized" under Federal bank
regulatory agency definitions, a bank holding company must have a Tier 1 ratio
of at least 6%, a combined Tier 1 and Tier 2 ratio of at least 10%, and a
leverage ratio of at least 3%, and not be subject to a directive, order, or
written agreement to meet and maintain specific capital levels.
CITIGROUP RATIOS
MARCH 31, 2003 December 31, 2002
---------------------------------------------------------------------
Tier 1 capital 8.67% 8.47%
Total capital (Tier 1 and Tier 2) 11.57% 11.25%
Leverage(1) 5.27% 5.49%
Common stockholders' equity 7.58% 7.78%
=====================================================================
(1) Tier 1 capital divided by adjusted average assets.
Citigroup maintained a strong capital position during the first quarter of 2003.
Total capital (Tier 1 and Tier 2) amounted to $80.1 billion at March 31, 2003,
representing 11.57% of risk-adjusted assets. This compares to $78.3 billion and
11.25% at December 31, 2002. Tier 1 capital of $60.1 billion at March 31, 2003
represented 8.67% of risk-adjusted assets, compared to $59.0 billion and 8.47%
at December 31, 2002. Citigroup's leverage ratio was 5.27% at March 31, 2003,
compared to 5.49% at December 31, 2002.
47
COMPONENTS OF CAPITAL UNDER REGULATORY GUIDELINES
IN MILLIONS OF DOLLARS MARCH 31, 2003 December 31, 2002
-----------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
Common stockholders' equity $ 86,215 $ 85,318
Qualifying perpetual preferred stock 1,126 1,400
Qualifying mandatorily redeemable securities of subsidiary trusts 6,658 6,152
Minority interest(1) 735 1,236
Less: Net unrealized gains on securities available-for-sale(2) (2,168) (1,957)
Accumulated net gains on cash flow hedges, net of tax (1,066) (1,242)
Intangible assets:
Goodwill (26,605) (26,961)
Other intangible assets (4,250) (4,322)
50% investment in certain subsidiaries(3) (38) (37)
Other (542) (575)
---------------------------------
TOTAL TIER 1 CAPITAL 60,065 59,012
-----------------------------------------------------------------------------------------------------
TIER 2 CAPITAL
Allowance for credit losses(4) 8,812 8,873
Qualifying debt(5) 11,115 10,288
Unrealized marketable equity securities gains(2) 129 180
Less: 50% investment in certain subsidiaries(3) (38) (36)
---------------------------------
TOTAL TIER 2 CAPITAL 20,018 19,305
---------------------------------
TOTAL CAPITAL (TIER 1 AND TIER 2) $ 80,083 $ 78,317
=====================================================================================================
RISK-ADJUSTED ASSETS(6) $ 692,398 $ 696,339
=====================================================================================================
(1) The decrease in minority interest during the quarter reflects the
redemption of $500 million of REIT preferred stock.
(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 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 $31.4 billion for interest rate, commodity
and equity derivative contracts and foreign exchange contracts, as of March
31, 2003, compared to $31.5 billion as of December 31, 2002. Market
risk-equivalent assets included in risk-adjusted assets amounted to $34.7
billion at March 31, 2003 and $30.6 billion at December 31, 2002.
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.
Common stockholders' equity increased a net $0.9 billion during the first three
months of 2003 to $86.2 billion at March 31, 2003, representing 7.58% of assets,
compared to $85.3 billion and 7.78% at year-end 2002. The increase in common
stockholders' equity during the first three months of 2003 principally reflected
net income of $4.1 billion, and $1.5 billion related to the issuance of shares
pursuant to employee benefit plans and other activity, offset by the net
issuance of restricted and deferred stock of $1.6 billion, treasury stock
acquired of $1.2 billion, dividends declared on common stock of $1.0 billion and
$0.9 billion related to the after-tax net change in equity from nonowner
sources. The decrease in the common stockholders' equity ratio during the first
three months of 2003 reflected the above items, and was offset by the increase
in total assets.
On March 3, 2003, Citigroup and Citigroup Global Markets Holdings Inc. (CGMHI)
redeemed, for cash, all of the Trust Preferred securities of Citigroup Capital
IV and SSBH Capital I, respectively, at the redemption price of $25 per
Preferred security plus any accrued interest and unpaid distributions thereon.
On March 3, 2003, Citigroup redeemed the Series Q and R Preferred Stock.
During July 2002, the Board of Directors granted approval for the repurchase of
an additional $5 billion of Citigroup common stock, continuing the Company's
program of buying back its shares. Under its long-standing repurchase program,
the Company buys 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 March 31, 2003 and December 31,
2002 were $6.658 billion and $6.152 billion, respectively. The amount
outstanding at March 31, 2003 includes $5.563 billion of parent-obligated
securities and $1.095 billion of subsidiary-obligated securities, and at
December 31, 2002 includes $4.657 billion of parent-obligated securities and
$1.495 billion of subsidiary-obligated securities.
Citigroup's subsidiary depository institutions in the United States 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 March 31, 2003, all of Citigroup's subsidiary depository institutions were
"well capitalized" under the Federal bank regulatory agencies' definitions.
The Basel Committee on Banking Supervision, consisting of central banks and bank
supervisors from 13 countries, is developing a new set of risk based capital
standards, on which it has received significant input from Citigroup and other
major banking
48
organizations. The Basel Committee intends to finalize the capital standards by
the fourth quarter of 2003 and implement a new framework by year-end 2006. The
U.S. banking regulators are expected to issue an advance notice of proposed rule
making in July 2003 to address issues in advance of issuing their proposed rules
incorporating the new Basel standards. The final version of these rules will
apply to Citigroup and other large U.S. banks and bank holding companies.
Citigroup is assessing the impact of the proposed new capital standards,
participating in efforts to refine the standards and monitoring the progress of
the Basel initiative.
In January 2003, FASB issued final accounting guidance in FIN 46 which will
require the consolidation of certain types of special purpose vehicles that
previously were recorded as off-balance sheet exposures. During 2003, the
Federal bank regulatory agencies are expected to issue guidance clarifying how
this new requirement will be incorporated into the risk-based capital framework.
The Company is monitoring the status and progress of regulatory adoption of this
new rule.
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
statement is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 32.
CITICORP
The in-country forum for liquidity issues is the 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. All businesses within the
country are represented on the committee with the focal point being the Country
Treasurer. The Citigroup Country 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 Citigroup Country Officer and the
Regional Market Risk Manager, appoints the Country Treasurer.
Each Country Treasurer must prepare a funding and liquidity plan at least
annually, reviewed by the country ALCO and approved by the Regional Market Risk
Manager. It is also reviewed by the Citigroup Corporate Treasurer and approved
by the independent Senior Treasury Risk Officer. The liquidity profile is
monitored on a daily basis by the local Treasurer and independent risk
management. Limits are established on the extent to which businesses in a
country can take liquidity risk. The size of the limit depends on the size of
the balance sheet, depth of the market, experience level of local management,
the stability of the liabilities, and liquidity of the assets. Finally, 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 Market Risk Managers 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 61% of
total funding at March 31, 2003 and 60% of funding at December 31, 2002, are
broadly diversified by both geography and customer segments.
Stockholder's equity, which grew $1.2 billion during the first quarter to $74.8
billion at March 31, 2003, 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 first
quarter was $83.4 billion, compared with $78.4 billion at year-end 2002.
Asset securitization programs remain an important source of liquidity. Loans
securitized during 2002 included $15.4 billion of U.S. credit cards and $29.3
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. In the first quarter of 2003, the
scheduled amortization of certain credit card securitization transactions made
available $2.3 billion of new receivables. In addition, at least $7.9 billion of
credit card securitization transactions are scheduled to amortize during 2003.
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 2003, without regulatory approval, of
approximately $6.1 billion, adjusted by the effect of their net income (loss)
for 2003 up to the date of any such
49
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 can distribute dividends to Citicorp, directly or through their
parent holding company, of approximately $5.0 billion of the available $6.1
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 (OTS) may be required if total dividends declared by a savings
association in any calendar year exceed amounts specified by that agency's
regulations. Citicorp is subject to risk-based capital and leverage guidelines
issued by the FRB.
CITICORP RATIOS
MAR. 31, 2003 Dec. 31, 2002
-------------------------------------------------------------------------------------
Tier 1 capital 8.51% 8.11%
Total capital (Tier 1 and Tier 2) 12.81% 12.31%
Leverage (1) 6.68% 6.82%
Common stockholders' equity 10.08% 10.11%
=====================================================================================
(1) Tier 1 capital divided by adjusted average assets.
Citicorp maintained a strong capital position during the first quarter of 2003.
Total capital (Tier 1 and Tier 2) amounted to $70.3 billion at March 31, 2003,
representing 12.81% of risk-adjusted assets. This compares with $68.7 billion
and 12.31% at December 31, 2002. Tier 1 capital of $46.7 billion at March 31,
2003 represented 8.51% of risk-adjusted assets, compared with $45.3 billion and
8.11% at December 31, 2002. The Tier 1 capital ratio at March 31, 2003 was above
Citicorp's target range of 8.00% to 8.30%.
CITIGROUP GLOBAL MARKETS HOLDINGS INC. (CGMHI)
Citigroup Global Markets Holdings Inc.'s (formerly Salomon Smith Barney Holdings
Inc.) total assets were $319 billion at March 31, 2003, compared to $292 billion
at year-end 2002. Due to the nature of CGMHI's trading activities, it is not
uncommon for asset levels to fluctuate from period to period. CGMHI's assets are
financed through a number of sources including long- and short-term unsecured
borrowings, financing transactions, and payables to brokers, dealers, and
customers. The highly liquid nature of these assets provides CGMHI with
flexibility in financing and managing its business. CGMHI monitors and evaluates
the adequacy of its capital and borrowing base on a daily basis in order to
allow for flexibility in its funding, to maintain liquidity, and to ensure that
its capital base supports the regulatory capital requirements of its
subsidiaries.
CGMHI funds its operations through the use of secured and unsecured short-term
borrowings, long-term borrowings and its equity. Secured short-term financing,
including repurchase agreements and secured loans, is CGMHI's principal funding
source. Unsecured short-term borrowings provide a source of short-term liquidity
and are also utilized as an alternative to secured financing when they represent
a less expensive funding source. Sources of short-term unsecured borrowings
include commercial paper, unsecured bank borrowings and letters of credit,
deposit liabilities, promissory notes, and corporate loans. On March 3, 2003,
CGMHI redeemed, for cash, all of the Trust Preferred securities of SSBH Capital
I at the redemption price of $25 per Preferred security plus any accrued
interest and unpaid distributions thereon.
CGMHI has a $5.0 billion 364-day committed uncollateralized revolving line of
credit with unaffiliated banks. Commitments to lend under this facility
terminate in May 2003. Any borrowings under this facility would mature in May
2005. CGMHI also has a $100 million uncollateralized 364-day facility with an
unaffiliated bank that extends through June 2003, with any borrowings under this
facility maturing in June 2004 and a $100 million collateralized 364-day
facility that extends through December 2003. CGMHI may borrow under these
revolving credit facilities at various interest rate options (LIBOR or base
rate), and compensates the banks for the facilities through facility fees. At
March 31, 2003, there were no outstanding borrowings under these facilities.
CGMHI also has committed long-term uncollateralized financing facilities of $1.7
billion with unaffiliated banks which were fully drawn at March 31, 2003. A bank
can terminate its facility by giving CGMHI prior notice (generally one year).
CGMHI compensates the banks for the facilities through facility fees.
Under all of these facilities, CGMHI is required to maintain a certain level of
consolidated adjusted net worth (as defined in the agreements). At March 31,
2003, this requirement was exceeded by approximately $5.9 billion. In addition,
CGMHI 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 on-going basis to insure
flexibility in meeting CGMHI's short-term requirements.
50
Unsecured term debt is a significant component of CGMHI's long-term capital.
Long-term debt totaled $28.3 billion at March 31, 2003 and $28.9 billion at
December 31, 2002. CGMHI 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.
CGMHI's borrowing relationships are with a broad range of banks, financial
institutions and other firms from which it draws funds. The volume of borrowings
generally fluctuates in response to changes in the level of financial
instruments, commodities and contractual commitments, customer balances, the
amount of reverse repurchase transactions outstanding, and securities borrowed
transactions. As CGMHI's activities increase, borrowings generally increase to
fund the additional activities. Availability of financing can vary depending
upon market conditions, credit ratings, and the overall availability of credit
to the securities industry. CGMHI seeks to expand and diversify its funding mix
as well as its creditor sources. Concentration levels for these sources,
particularly for short-term lenders, are closely monitored both in terms of
single investor limits and daily maturities.
CGMHI monitors liquidity by tracking asset levels, collateral and funding
availability to maintain flexibility to meet its financial commitments. As a
policy, CGMHI attempts to maintain sufficient capital and funding sources in
order to have the capacity to finance itself on a fully collateralized basis in
the event that access to unsecured financing is temporarily impaired. CGMHI's
liquidity management process includes a contingency funding plan designed to
ensure adequate liquidity even if access to unsecured funding sources is
severely restricted or unavailable. This plan is reviewed periodically to keep
the funding options current and in line with market conditions. The management
of this plan includes an analysis that is utilized to determine the ability to
withstand varying levels of stress, which could impact CGMHI's liquidation
horizons and required margins. In addition, CGMHI monitors its leverage and
capital ratios on a daily basis.
THE TRAVELERS INSURANCE COMPANY (TIC)
At March 31, 2003, TIC had $40.3 billion of life and annuity product deposit
funds and reserves. Of that total, $22.4 billion is not subject to discretionary
withdrawal based on contract terms. The remaining $17.9 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 $6.6 billion of liabilities that is surrenderable with market
value adjustments. Also included is an additional $5.6 billion of the life
insurance and individual annuity liabilities which is subject to discretionary
withdrawals and an average surrender charge of 4.71%. In the payout phase, these
funds are credited at significantly reduced interest rates. The remaining $5.7
billion of liabilities is surrenderable without charge. Approximately 10.1% 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 $966 million of statutory surplus is
available by the end of the year 2003 for such dividends without the prior
approval of the Connecticut Insurance Department, of which $64 million was paid
during the first three months of 2003.
INSURANCE INDUSTRY -- RISK-BASED CAPITAL
The National Association of Insurance Commissioners (NAIC) adopted risk-based
capital (RBC) requirements for life insurance companies and for property and
casualty insurance companies. The RBC requirements are to be used as minimum
capital requirements by the NAIC and states to identify companies that merit
further regulatory action. At March 31, 2003 and December 31, 2002, all of the
Company's life and property and casualty companies had adjusted capital in
excess of amounts requiring Company or any regulatory action.
51
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 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 Securities Exchange Act of 1934.
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.
52
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 2003 2002
-------------------------------------------------------------------------------------------
REVENUES
Loan interest, including fees $ 9,470 $ 9,159
Other interest and dividends 4,875 4,944
Insurance premiums 825 780
Commissions and fees 3,700 3,928
Principal transactions 1,602 1,613
Asset management and administration fees 1,251 1,320
Realized gains from sales of investments 162 30
Other revenue 1,314 880
----------------------------
TOTAL REVENUES 23,199 22,654
Interest expense 4,663 4,856
----------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE 18,536 17,798
----------------------------
BENEFITS, CLAIMS, AND CREDIT LOSSES
Policyholder benefits and claims 871 803
Provision for credit losses 2,053 2,559
----------------------------
TOTAL BENEFITS, CLAIMS, AND CREDIT LOSSES 2,924 3,362
----------------------------
OPERATING EXPENSES
Non-insurance compensation and benefits 5,306 5,090
Insurance underwriting, acquisition, and operating 264 269
Restructuring-related items (13) 46
Other operating expenses 3,995 3,651
----------------------------
TOTAL OPERATING EXPENSES 9,552 9,056
----------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES,
MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 6,060 5,380
Provision for income taxes 1,919 1,879
Minority interest, net of income taxes 38 17
----------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 4,103 3,484
----------------------------
DISCONTINUED OPERATIONS
Income from discontinued operations - 455
Gain on sale of stock by subsidiary - 1,270
Provision for income taxes - 319
----------------------------
INCOME FROM DISCONTINUED OPERATIONS, NET - 1,406
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET - (47)
----------------------------
NET INCOME $ 4,103 $ 4,843
===========================================================================================
BASIC EARNINGS PER SHARE
Income from continuing operations $ 0.80 $ 0.68
Income from discontinued operations, net - 0.27
Cumulative effect of accounting change, net - (0.01)
----------------------------
NET INCOME $ 0.80 $ 0.94
============================
Weighted average common shares outstanding 5,094.9 5,110.5
===========================================================================================
DILUTED EARNINGS PER SHARE
Income from continuing operations $ 0.79 $ 0.66
Income from discontinued operations, net - 0.28
Cumulative effect of accounting change, net - (0.01)
----------------------------
NET INCOME $ 0.79 $ 0.93
============================
Adjusted weighted average common shares outstanding 5,168.7 5,209.8
===========================================================================================
See Notes to the Unaudited Consolidated Financial Statements.
53
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
MARCH 31,
2003 December 31,
IN MILLIONS OF DOLLARS (UNAUDITED) 2002
--------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks (including segregated cash and other deposits) $ 19,731 $ 17,326
Deposits at interest with banks 19,173 16,382
Federal funds sold and securities borrowed or purchased under agreements to resell 158,052 139,946
Brokerage receivables 25,606 25,358
Trading account assets (including $39,976 and $36,975 pledged to creditors at March 31, 2003
and December 31, 2002, respectively) 173,099 155,208
Investments (including $11,562 and $11,092 pledged to creditors at March 31, 2003
and December 31, 2002, respectively) 181,750 169,513
Loans, net of unearned income
Consumer 306,957 310,597
Corporate 131,075 137,208
---------------------------
Loans, net of unearned income 438,032 447,805
Allowance for credit losses (11,449) (11,501)
---------------------------
Total loans, net 426,583 436,304
Goodwill 26,605 26,961
Intangible assets 8,233 8,509
Reinsurance recoverables 4,361 4,356
Separate and variable accounts 21,778 22,118
Other assets 72,002 75,209
---------------------------
TOTAL ASSETS $ 1,136,973 $ 1,097,190
==========================================================================================================================
LIABILITIES
Non-interest-bearing deposits in U.S. offices $ 28,977 $ 29,545
Interest-bearing deposits in U.S. offices 145,354 141,787
Non-interest-bearing deposits in offices outside the U.S. 21,099 21,422
Interest-bearing deposits in offices outside the U.S. 248,676 238,141
---------------------------
Total deposits 444,106 430,895
Federal funds purchased and securities loaned or sold under agreements to repurchase 178,459 162,643
Brokerage payables 24,989 22,024
Trading account liabilities 92,659 91,426
Contractholder funds and separate and variable accounts 50,339 49,331
Insurance policy and claims reserves 16,459 16,350
Investment banking and brokerage borrowings 21,932 21,353
Short-term borrowings 28,495 30,629
Long-term debt 133,125 126,927
Other liabilities 52,411 52,742
---------------------------
Citigroup or subsidiary obligated mandatorily redeemable securities of subsidiary
trusts holding solely junior subordinated debt securities of -- Parent 5,563 4,657
-- Subsidiary 1,095 1,495
---------------------------
TOTAL LIABILITIES 1,049,632 1,010,472
--------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation
value 1,126 1,400
Common stock ($.01 par value; authorized shares: 15 billion), issued shares --
5,477,416,254 AT MARCH 31, 2003 and at December 31, 2002 55 55
Additional paid-in capital 17,450 17,381
Retained earnings 84,453 81,403
Treasury stock, at cost: MARCH 31, 2003 -- 329,374,289 shares
and December 31, 2002 -- 336,734,631 shares (11,390) (11,637)
Accumulated other changes in equity from nonowner sources (1,055) (193)
Unearned compensation (3,298) (1,691)
---------------------------
TOTAL STOCKHOLDERS' EQUITY 87,341 86,718
---------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,136,973 $ 1,097,190
==========================================================================================================================
See Notes to the Unaudited Consolidated Financial Statements.
54
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-------------------------------
IN MILLIONS OF DOLLARS, EXCEPT SHARES IN THOUSANDS 2003 2002
------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK AT AGGREGATE LIQUIDATION VALUE
Balance, beginning of period $ 1,400 $ 1,525
Redemption or retirement of preferred stock (274) (125)
-------------------------------
Balance, end of period 1,126 1,400
------------------------------------------------------------------------------------------------------------------
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 17,436 23,251
Employee benefit plans 95 658
Other (26) 6
-------------------------------
Balance, end of period 17,505 23,915
------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of period 81,403 69,803
Net income 4,103 4,843
Common dividends(1) (1,033) (827)
Preferred dividends (20) (21)
-------------------------------
Balance, end of period 84,453 73,798
------------------------------------------------------------------------------------------------------------------
TREASURY STOCK, AT COST
Balance, beginning of period (11,637) (11,099)
Issuance of shares pursuant to employee benefit plans 1,431 733
Treasury stock acquired (1,171) (828)
Other (13) -
-------------------------------
Balance, end of period (11,390) (11,194)
------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES
Balance, beginning of period (193) (844)
Net change in unrealized gains and losses on investment securities, after-tax 211 (588)
Net change for cash flow hedges, after-tax (176) 65
Net change in foreign currency translation adjustment, after-tax (897) (403)
-------------------------------
Balance, end of period (1,055) (1,770)
------------------------------------------------------------------------------------------------------------------
UNEARNED COMPENSATION
Balance, beginning of period (1,691) (1,389)
Net issuance of restricted and deferred stock (1,607) (1,122)
-------------------------------
Balance, end of period (3,298) (2,511)
------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY (SHARES OUTSTANDING: 5,148,042 IN 2003
and 5,165,360 in 2002) 86,215 82,238
------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 87,341 $ 83,638
==================================================================================================================
SUMMARY OF CHANGES IN EQUITY FROM NONOWNER SOURCES
Net income $ 4,103 $ 4,843
Other changes in equity from nonowner sources, after-tax (862) (926)
-------------------------------
TOTAL CHANGES IN EQUITY FROM NONOWNER SOURCES $ 3,241 $ 3,917
==================================================================================================================
(1) Common dividends declared were 20 cents per share in the first quarter of
2003 and 16 cents per share in the first quarter of 2002.
See Notes to the Unaudited Consolidated Financial Statements.
55
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-------------------------------
IN MILLIONS OF DOLLARS 2003 2002
------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
NET INCOME $ 4,103 $ 4,843
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX - 345
GAIN ON SALE OF STOCK BY SUBSIDIARY, NET OF TAX - 1,061
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - (47)
-------------------------------
INCOME FROM CONTINUING OPERATIONS $ 4,103 3,484
Adjustments to reconcile net income to net cash used in operating activities
of continuing operations
Amortization of deferred policy acquisition costs and present value of
future profits 134 79
Additions to deferred policy acquisition costs (204) (219)
Depreciation and amortization 375 362
Provision for credit losses 2,053 2,559
Change in trading account assets (17,891) (157)
Change in trading account liabilities 1,233 1,123
Change in federal funds sold and securities borrowed or purchased under
agreements to resell (18,106) (15,796)
Change in federal funds purchased and securities loaned or sold under
agreements to repurchase 17,316 11,425
Change in brokerage receivables net of brokerage payables 2,717 1,206
Change in insurance policy and claims reserves 109 255
Net realized gains from sales of investments (162) (30)
Venture capital activity 124 (44)
Restructuring-related items (13) 46
Other, net 4,576 (6,598)
-------------------------------
TOTAL ADJUSTMENTS (7,739) (5,789)
-------------------------------
NET CASH USED IN OPERATING ACTIVITIES OF CONTINUING OPERATIONS (3,636) (2,305)
------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Change in deposits at interest with banks (2,791) 2,027
Change in loans (172) (9,218)
Proceeds from sales of loans 5,590 11,548
Purchases of investments (62,359) (181,533)
Proceeds from sales of investments 29,000 159,265
Proceeds from maturities of investments 20,425 8,957
Other investments, primarily short-term, net 492 492
Capital expenditures on premises and equipment (438) (331)
Proceeds from sales of premises and equipment, subsidiaries and affiliates,
and repossessed assets 277 157
Business acquisitions - (2,071)
-------------------------------
NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS (9,976) (10,707)
------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Dividends paid (1,053) (848)
Issuance of common stock 95 205
Issuance of mandatorily redeemable securities of parent trust 1,100 -
Issuance of mandatorily redeemable securities of subsidiary trust - 105
Redemption of mandatorily redeemable securities of parent trust (200) (524)
Redemption of mandatorily redeemable securities of subsidiary trust (400) -
Redemption of preferred stock, net (274) (125)
Treasury stock acquired (1,171) (828)
Stock tendered for payment of withholding taxes (254) (330)
Issuance of long-term debt 11,906 7,975
Payments and redemptions of long-term debt (6,503) (10,726)
Change in deposits 13,211 7,864
Change in short-term borrowings and investment banking and brokerage borrowings (1,555) 3,078
Contractholder fund deposits 2,504 2,088
Contractholder fund withdrawals (1,397) (1,503)
-------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS 16,009 6,431
------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 8 (1)
------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
NET CASH USED IN DISCONTINUED OPERATIONS - (42)
PROCEEDS FROM SALE OF STOCK BY SUBSIDIARY - 4,093
------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND DUE FROM BANKS 2,405 (2,531)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 17,326 18,515
-------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 19,731 $ 15,984
==================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION FOR CONTINUING OPERATIONS
Cash paid during the period for income taxes $ 1,106 $ 3,333
Cash paid during the period for interest $ 4,237 $ 5,195
NON-CASH INVESTING ACTIVITIES
Transfers to repossessed assets $ 282 $ 263
==================================================================================================================
See Notes to the Unaudited Consolidated Financial Statements.
56
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements as of March 31,
2003 and for the three-month period ended March 31, 2003 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 2002 Annual Report on 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 period's financial
statements to conform to the current period's presentation.
2. ACCOUNTING CHANGES
STOCK-BASED COMPENSATION
On January 1, 2003, the Company adopted the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
prospectively to all awards granted, modified, or settled after January 1, 2003.
The prospective method is one of the adoption methods provided for under SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure"
issued in December 2002. SFAS 123 requires that compensation cost for all stock
awards be calculated and recognized over the service period (generally equal to
the vesting period). This compensation cost is determined using option pricing
models, intended to estimate the fair value of the awards at the grant date.
Similar to Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," the alternative method of accounting, an offsetting
increase to stockholders' equity under SFAS 123 is recorded equal to the amount
of compensation expense charged. Earnings per share dilution is recognized as
well.
Had the Company applied SFAS 123 in accounting for the Company's stock option
plans for all options granted, net income and net income per share would have
been the pro forma amounts indicated below:
FIRST QUARTER
-----------------------
IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS 2003 (1) 2002
------------------------------------------------------------------------------------------------------
As reported $ 13 $ -
Compensation expense related to stock option plans, net of tax Pro forma 94 102
As reported $ 4,103 $ 4,843
Net income Pro forma 4,022 4,741
As reported $ 0.80 $ 0.94
Basic earnings per share Pro forma 0.78 0.92
As reported $ 0.79 $ 0.93
Diluted earnings per share Pro forma 0.77 0.91
(1) The $13 million "As reported" expense recognized in the 2003 first quarter
represents two months of the expense (net of tax) recognized for options
granted in 2003. The "Pro forma" amounts reflect the expense that would
have been recognized had all option grants been expensed.
The Company has made changes to various stock-based compensation plan provisions
for awards granted in 2003. For example, the vesting period and the term of
stock options granted after 2002 have been shortened to three and six years,
respectively. In addition, the sale of underlying shares acquired through the
exercise of options granted after December 31, 2002 is restricted for a two-year
period. The Company continues its existing stock ownership commitment for senior
executives, which requires executives to retain at least 75% of the shares they
own and acquire from the Company, subject to certain minimum ownership
guidelines, over the term of their employment. Original option grants in 2003
and thereafter will not have a reload feature; however, previously granted
options will retain that feature. Other changes may also be made that may impact
the expense recognized under SFAS 123.
57
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
On January 1, 2003, Citigroup adopted SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 requires that
a liability for costs associated with exit or disposal activities, other than in
a business combination, be recognized when the liability is incurred. Previous
generally accepted accounting principles provided for the recognition of such
costs at the date of management's commitment to an exit plan. In addition, SFAS
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. The
impact of adopting of SFAS 146 was not material.
CONSOLIDATION OF VARIABLE INTEREST ENTITIES
In January 2003, the FASB released FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). This Interpretation changes the method of
determining whether certain entities, including securitization entities, should
be included in the Company's Consolidated Financial Statements. An entity is
subject to FIN 46 and is called a variable interest entity (VIE) if it has (1)
equity that is insufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties, or (2)
equity investors that cannot make significant decisions about the entity's
operations, or that do not absorb the expected losses or receive the expected
returns of the entity. All other entities are evaluated for consolidation under
SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries." A VIE is
consolidated by its primary beneficiary, which is the party involved with the
VIE that has a majority of the expected losses or a majority of the expected
residual returns or both.
The provisions of FIN 46 are to be applied immediately to VIEs created after
January 31, 2003, and to VIEs in which an enterprise obtains an interest after
that date. For VIEs in which an enterprise holds a variable interest that it
acquired before February 1, 2003, FIN 46 applies in the first fiscal period
beginning after June 15, 2003. For any VIEs that must be consolidated under FIN
46 that were created before February 1, 2003, the assets, liabilities and
noncontrolling interest of the VIE would be initially measured at their carrying
amounts with any difference between the net amount added to the balance sheet
and any previously recognized interest being recognized as the cumulative effect
of an accounting change. If determining the carrying amounts is not practicable,
fair value at the date FIN 46 first applies may be used to measure the assets,
liabilities and noncontrolling interest of the VIE.
The Company is evaluating the impact of applying FIN 46 to existing VIEs in
which it has variable interests and has not yet completed this analysis. The
Company is actively pursuing certain restructuring solutions that would enable
certain VIEs to meet the criteria for non-consolidation. At this time, it is
anticipated that the effect on the Company's Consolidated Statement of Financial
Position could be an increase of $55 billion to assets and liabilities,
primarily due to several multi-seller finance companies administered by the
Company and certain structured investment vehicles if these non-consolidation
solutions are not successful. If consolidation is required, the future viability
of these businesses will be assessed. As we continue to evaluate the impact of
applying FIN 46, additional entities may be identified that would need to be
consolidated by the Company.
GUARANTEES AND INDEMNIFICATIONS
On January 1, 2003, the Company adopted the recognition and measurement
provisions of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" (FIN 45), which requires that, for guarantees within the scope of FIN 45
issued or amended after December 31, 2002, a liability for the fair value of the
obligation undertaken in issuing the guarantee be recognized. The impact of
adopting FIN 45 was not material.
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. 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 adoption resulted in a cumulative adjustment of $47 million
(after-tax) reported as a charge to earnings related to the impairment of
certain intangible assets.
58
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 144), when the rule became
effective for calendar year companies. SFAS 144 establishes additional criteria
as compared to existing generally accepted accounting principles to determine
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 impact of adopting SFAS 144
was not material.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS 149). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. In particular, this Statement clarifies under what circumstances a contract
with an initial net investment meets the characteristic of a derivative and when
a derivative contains a financing component that warrants special reporting in
the statement of cash flows. This Statement is generally effective for contracts
entered into or modified after June 30, 2003 and is not expected to have a
material impact on the Company's financial statements.
3. BUSINESS DEVELOPMENTS AND COMBINATIONS
On November 6, 2002, Citigroup completed its acquisition of 100% of Golden State
Bancorp (GSB) in a transaction in which Citigroup paid approximately $2.3
billion in cash and issued 79.5 million Citigroup common shares. 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. GSB 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.
During the first quarters of 2003 and 2002 no goodwill was impaired or written
off. The Company recorded goodwill of $74 million during the 2002 first quarter
in connection with the consumer finance acquisition of Taihei Co., Ltd. in
Japan. Additionally, in the 2002 first quarter, 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 $1.14 billion in the Global Investment
Management segment. Intangible assets amortization expense was $296 million and
$204 million for the three months ended March 31, 2003 and 2002, respectively.
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. In 2002, Citigroup
recognized an after-tax gain of $1.158 billion ($1.061 billion after-tax
recognized in the 2002 first quarter and $97 million after-tax recognized in the
2002 third quarter) as a result of the IPO. In connection with the IPO,
Citigroup entered into an agreement with TPC that provided 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 $520 million after-tax. A
portion of the gross IPO gain was deferred to offset all payments arising in
connection with this agreement. In the 2002 fourth quarter, $159 million was
paid pursuant to this agreement and in the 2003 first quarter the remaining $361
million was paid.
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. Following the distribution, Citigroup was 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 classified as
available-for-sale within Investments on the Consolidated Statement of Financial
Position. Citigroup has agreed to divest these securities within five years of
the distribution.
Following the August 20, 2002 distribution, the results of TPC were reported in
the Company's Consolidated Statements of Income and Cash Flows separately as
discontinued operations. TPC represented the primary vehicle by which Citigroup
engaged in the property and casualty insurance business.
59
Summarized financial information in the 2002 first quarter for discontinued
operations is as follows:
THREE MONTHS ENDED
IN MILLIONS OF DOLLARS MARCH 31, 2002
-----------------------------------------------------------------------------
TOTAL REVENUES, NET OF INTEREST EXPENSE $ 3,197
----------
Income from discontinued operations 455
Gain on sale of stock by subsidiary 1,270
Provision for income taxes 319
----------
INCOME FROM DISCONTINUED OPERATIONS, NET $ 1,406
=============================================================================
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 CHANGE (1) IDENTIFIABLE ASSETS
------------------------------------------------------------------------------------
FIRST QUARTER
IN MILLIONS OF DOLLARS, EXCEPT IDENTIFIABLE --------------------------------------------------------------- MAR. 31 Dec. 31
ASSETS IN BILLIONS 2003 2002 2003 2002 2003 2002 2003 2002
----------------------------------------------------------------------------------------------------------------------------------
Global Consumer $ 9,588 $ 8,675 $ 1,057 $ 951 $ 2,146 $ 1,700 $ 377 $ 390
Global Corporate and Investment Bank 5,402 5,487 627 586 1,431 1,176 601 558
Private Client Services 1,327 1,507 97 125 157 217 13 13
Global Investment Management 1,994 1,911 136 198 466 424 118 112
Proprietary Investment Activities 94 111 8 25 - 35 9 9
Corporate/Other 131 107 (6) (6) (97) (68) 19 15
-------------------------------------------------------------------------------------
TOTAL $ 18,536 $ 17,798 $ 1,919 $ 1,879 $ 4,103 $ 3,484 $ 1,137 $ 1,097
==================================================================================================================================
(1) Results in the 2003 and 2002 first quarters include pretax provisions
(credits) for benefits, claims, and credit losses in Global Consumer of
$2.0 billion and $2.1 billion, respectively, in Global Corporate and
Investment Bank of $244 million and $680 million, respectively, and in
Global Investment Management of $684 million and $622 million,
respectively. The 2003 first quarter reflects pretax provisions (credits)
for benefits, claims, and credit losses in Private Client Services of $1.0
million and in the 2002 first quarter in Corporate/Other of ($10) million.
6. INVESTMENTS
MARCH 31, December 31,
IN MILLIONS OF DOLLARS 2003 2002
------------------------------------------------------------------------------------------
Fixed maturities, primarily available-for-sale at fair value $ 164,918 $ 151,620
Equity securities, primarily at fair value 7,327 7,791
Venture capital, at fair value 3,615 3,739
Short-term and other 5,890 6,363
---------------------------
$ 181,750 $ 169,513
==========================================================================================
60
The amortized cost and fair value of investments in fixed maturities and equity
securities at March 31, 2003 and December 31, 2002 were as follows:
MARCH 31, 2003 December 31, 2002
---------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR Amortized Fair
IN MILLIONS OF DOLLARS COST GAINS LOSSES VALUE Cost Value
----------------------------------------------------------------------------------------------------------------------------
FIXED MATURITY SECURITIES HELD TO MATURITY (1) $ 76 $ - $ - $ 76 $ 79 $ 79
---------------------------------------------------------------------------
FIXED MATURITY SECURITIES AVAILABLE-FOR-SALE
Mortgage-backed securities, principally
obligations of U.S. Federal agencies $ 37,619 $ 770 $ 13 $ 38,376 $ 32,862 $ 33,774
U.S. Treasury and Federal agencies 29,605 428 83 29,950 26,049 26,449
State and municipal 6,841 519 2 7,358 6,847 7,354
Foreign government 44,255 415 73 44,597 43,942 44,238
U.S. corporate 27,534 1,411 708 28,237 27,000 27,173
Other debt securities 15,943 483 102 16,324 12,221 12,553
---------------------------------------------------------------------------
161,797 4,026 981 164,842 148,921 151,541
---------------------------------------------------------------------------
TOTAL FIXED MATURITIES $ 161,873 $ 4,026 $ 981 $ 164,918 $ 149,000 $ 151,620
============================================================================================================================
EQUITY SECURITIES (2) $ 7,041 $ 485 $ 199 $ 7,327 $ 7,390 $ 7,791
============================================================================================================================
(1) Recorded at amortized cost.
(2) Includes non-marketable equity securities carried at cost, which are
reported in both the amortized cost and fair value columns.
The following table presents venture capital investment gains and losses:
THREE MONTHS ENDED MARCH 31,
-------------------------------
IN MILLIONS OF DOLLARS 2003 2002
-------------------------------------------------------------------
Net realized investment gains $ 36 $ 55
Gross unrealized gains 91 287
Gross unrealized (losses) (87) (99)
-------------------------------
NET REALIZED AND UNREALIZED GAINS $ 40 $ 243
===================================================================
7. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities at market value consisted of the
following:
MARCH 31, December 31,
IN MILLIONS OF DOLLARS 2003 2002
-----------------------------------------------------------------------------------
TRADING ACCOUNT ASSETS
U.S. Treasury and Federal agency securities $ 43,932 $ 35,369
State and municipal securities 5,400 5,195
Foreign government securities 21,226 16,440
Corporate and other debt securities 36,986 33,064
Derivative and other contractual commitments (1) 38,855 37,530
Equity securities 11,660 12,994
Mortgage loans and collateralized mortgage securities 7,193 7,924
Other 7,847 6,692
---------------------------
$ 173,099 $ 155,208
===================================================================================
TRADING ACCOUNT LIABILITIES
Securities sold, not yet purchased $ 54,194 $ 50,476
Derivative and other contractual commitments (1) 38,465 40,950
---------------------------
$ 92,659 $ 91,426
===================================================================================
(1) Net of master netting agreements and securitization.
61
8. DEBT
Investment banking and brokerage borrowings consisted of the following:
MARCH 31, December 31,
IN MILLIONS OF DOLLARS 2003 2002
----------------------------------------------------------------------
Commercial paper $ 17,963 $ 18,293
Bank borrowings 491 620
Other 3,478 2,440
---------------------------
$ 21,932 $ 21,353
======================================================================
Short-term borrowings consisted of commercial paper and other short-term
borrowings as follows:
MARCH 31, December 31,
IN MILLIONS OF DOLLARS 2003 2002
----------------------------------------------------------------------
COMMERCIAL PAPER
Citigroup Inc. $ 356 $ 367
Citicorp and Subsidiaries 12,863 16,487
---------------------------
13,219 16,854
OTHER SHORT-TERM BORROWINGS 15,276 13,775
---------------------------
$ 28,495 $ 30,629
======================================================================
Long-term debt, including its current portion, consisted of the following:
MARCH 31, December 31,
IN MILLIONS OF DOLLARS 2003 2002
----------------------------------------------------------------------
Citigroup Inc. $ 52,947 $ 44,357
Citicorp and Subsidiaries 51,871 53,683
Citigroup Global Markets Holdings Inc. 28,298 28,876
Travelers Insurance Company 9 11
---------------------------
$ 133,125 $ 126,927
======================================================================
9. RESTRUCTURING-RELATED ITEMS
RESTRUCTURING INITIATIVES
------------------------------
IN MILLIONS OF DOLLARS 2002 2001 Total
------------------------------------------------------------------
Original charges (1) $ 65 $ 448 $ 513
------------------------------------------------------------------
Acquisitions during: (2)
2002 186 - 186
2001 - 112 112
------------------------------------------------------------------
186 112 298
------------------------------------------------------------------
Utilization during: (3)
First quarter 2003 (46) (7) (53)
2002 (68) (116) (184)
2001 - (352) (352)
------------------------------------------------------------------
(114) (475) (589)
------------------------------------------------------------------
Other (2) (48) (50)
------------------------------------------------------------------
RESERVE BALANCE AT MARCH 31, 2003 $ 135 $ 37 $ 172
==================================================================
(1) Includes restructuring charges of $2 million related to discontinued
operations in 2001. See Note 4 to the Unaudited Consolidated Financial
Statements.
(2) Represents additions to restructuring liabilities arising from
acquisitions.
(3) Utilization amounts include translation effects on the restructuring
reserve.
During 2002, Citigroup recorded restructuring charges of $65 million. Of the $65
million, $42 million related to the downsizing of Global Consumer and GCIB
operations in Argentina, and $23 million related to the acquisition of GSB and
the integration of its operations within the Global Consumer business. In
addition, a restructuring reserve of $186 million was recognized as a liability
in the purchase price allocation of GSB related to the integration of operations
and operating platforms. These restructuring initiatives are expected to be
implemented this year. The 2002 reserves included $150 million related to
employee severance and $101 million related to exiting leasehold and other
contractual obligations.
62
The 2002 reserves included $108 million of employee severance related to the GSB
acquisition reflecting the cost of eliminating approximately 2,700 positions in
Citigroup's Global Consumer business in the United States. The 2002
restructuring reserve utilization of $114 million related to severance costs
which were paid in cash, including $46 million in the first quarter of 2003.
Through March 31, 2003, approximately 530 gross staff positions have been
eliminated in connection with the GSB acquisition, including approximately 430
in the 2003 first quarter.
During 2001, Citigroup recorded restructuring charges of $448 million, including
$2 million related to discontinued operations. Of the $448 million, $319 million
related to the downsizing of certain functions in the GCIB 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 downsizing, the
reconfiguration of branch operations in Mexico, and the integration of
operations and operating platforms. These restructuring initiatives are in
process. 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 GCIB business related to other
restructuring initiatives. Approximately 3,200 of these positions were in the
United States.
Through March 31, 2003, the 2001 restructuring reserve utilization included $65
million of asset impairment charges as well as $410 million of severance and
other costs (of which $334 million of employee severance and $37 million of
leasehold and other exit costs have been paid in cash and $39 million is legally
obligated), together with translation effects. Utilization of the 2001
restructuring reserve in the 2003 first quarter was $7 million. Through March
31, 2003, approximately 12,800 gross staff positions have been eliminated under
these programs, including approximately 50 in the 2003 first quarter.
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) were
recognized. There were no accelerated depreciation charges recognized in the
first three months of 2003. However, $5 million was recognized in the same
period of 2002.
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 first quarter of
2003 resulted in a reduction of the reserve for 2001 restructuring initiatives
of $3 million and a reduction of reserves for prior restructuring initiatives of
$10 million.
Additional information about restructuring-related items, including the business
segments affected, can be found in Citigroup's 2002 Annual Report on Form 10-K.
10. CHANGES IN EQUITY FROM NONOWNER SOURCES
Changes in each component of "Accumulated Other Changes in Equity from Nonowner
Sources" for the three-month period ended March 31, 2003 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, 2002 $ 1,957 $ (3,392) $ 1,242 $ (193)
Unrealized gains on investment securities, after-tax (1) 316 - - 316
Less: Reclassification adjustment for gains
included in net income, after-tax (1) (105) - - (105)
Foreign currency translation adjustment, after-tax (2) - (897) - (897)
Cash flow hedges, after-tax - - (176) (176)
----------------------------------------------------------------------------------------------------------------------------
Current period change 211 (897) (176) (862)
----------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2003 $ 2,168 $ (4,289) $ 1,066 $ (1,055)
============================================================================================================================
(1) Primarily reflects an increase in the investment portfolio due to
incremental purchases and the impact of spread tightening on fixed income
securities, partially offset by realized gains resulting from the sale of
securities.
(2) Reflects, among other items, the decline in the Mexican peso against the
U.S. dollar and changes in related tax effects.
63
11. DERIVATIVES AND OTHER ACTIVITIES
A derivative must be highly effective in accomplishing the hedge objective of
offsetting either changes in the fair value or cash flows of the hedged item for
the risk being hedged. Any ineffectiveness present in the hedge relationship is
recognized in current earnings. The assessment of effectiveness excludes the
changes in the value of the hedged item which are unrelated to the risks being
hedged. Similarly, the assessment of effectiveness may exclude changes in the
fair value of a derivative related to time value which, if excluded, are
recognized in current earnings.
The following table summarizes certain information related to the Company's
hedging activities for the three months ended March 31, 2003 and 2002:
THREE MONTHS ENDED MARCH 31,
-----------------------------
IN MILLIONS OF DOLLARS 2003 2002
---------------------------------------------------------------------------------------------------
FAIR VALUE HEDGES:
Hedge ineffectiveness recognized in earnings $ 5 $ (28)
Net loss excluded from assessment of effectiveness (34) (5)
CASH FLOW HEDGES:
Hedge ineffectiveness recognized in earnings (2) 5
Amount excluded from assessment of effectiveness 2 -
NET INVESTMENT HEDGES:
Net loss included in foreign currency translation adjustment within
accumulated other changes in equity from nonowner sources (219) (60)
===================================================================================================
The accumulated other changes in equity from nonowner sources from cash flow
hedges for the three months ended March 31, 2003 and 2002 can be summarized as
follows (after-tax):
THREE MONTHS ENDED MARCH 31,
-----------------------------
IN MILLIONS OF DOLLARS 2003 2002
---------------------------------------------------------------------
BEGINNING BALANCE $ 1,242 $ 168
Net gain (loss) from cash flow hedges (12) 164
Net amounts reclassified to earnings (164) (99)
-----------------------------
ENDING BALANCE $ 1,066 $ 233
=====================================================================
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 months ended March 31, 2003 and
2002:
THREE MONTHS ENDED MARCH 31,
-----------------------------
IN MILLIONS, EXCEPT PER SHARE AMOUNTS 2003 2002
---------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 4,103 $ 3,484
Discontinued operations - 1,406
Cumulative effect of accounting change - (47)
Preferred dividends (20) (21)
-----------------------------
INCOME AVAILABLE TO COMMON STOCKHOLDERS FOR BASIC EPS 4,083 4,822
Effect of dilutive securities - -
-----------------------------
INCOME AVAILABLE TO COMMON STOCKHOLDERS FOR DILUTED EPS $ 4,083 $ 4,822
===============================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING APPLICABLE TO BASIC EPS 5,094.9 5,110.5
Effect of dilutive securities:
Options 34.1 65.2
Restricted stock 38.5 33.0
Convertible securities 1.2 1.1
-----------------------------
ADJUSTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING APPLICABLE TO DILUTED EPS 5,168.7 5,209.8
===============================================================================================================
BASIC EARNINGS PER SHARE
Income from continuing operations before cumulative effect of accounting change $ 0.80 $ 0.68
Discontinued operations - 0.27
Cumulative effect of accounting change - (0.01)
-----------------------------
NET INCOME $ 0.80 $ 0.94
===============================================================================================================
DILUTED EARNINGS PER SHARE
Income from continuing operations before cumulative effect of accounting change $ 0.79 $ 0.66
Discontinued operations - 0.28
Cumulative effect of accounting change - (0.01)
-----------------------------
NET INCOME $ 0.79 $ 0.93
===============================================================================================================
64
13. SECURITIZATIONS
SECURITIZATION ACTIVITIES
Citigroup and its subsidiaries securitize primarily credit card receivables and
mortgages. Other types of assets securitized include corporate debt securities,
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 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 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 loan are less than the outstanding principal balance and accrued
interest of the 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 months ended March 31, 2003 and 2002:
THREE MONTHS ENDED MARCH 31, 2003
------------------------------------------
IN BILLIONS OF DOLLARS CREDIT CARDS MORTGAGES OTHER (1)
---------------------------------------------------------------------------------------------------------------
Proceeds from new securitizations $ 7.1 $ 11.9 $ 3.5
Proceeds from collections reinvested in new receivables 33.7 - -
Servicing fees received 0.3 - -
Cash flows received on retained interests and other net cash flows 1.0 - -
===============================================================================================================
THREE MONTHS ENDED MARCH 31, 2002
------------------------------------------
IN BILLIONS OF DOLLARS CREDIT CARDS MORTGAGES OTHER (1)
---------------------------------------------------------------------------------------------------------------
Proceeds from new securitizations $ 3.5 $ 8.7 $ 0.2
Proceeds from collections reinvested in new receivables 33.3 - -
Servicing fees received 0.3 0.1 -
Cash flows received on retained interests and other net cash flows 1.0 0.1 -
===============================================================================================================
(1) Other includes corporate debt securities, auto loans and other assets.
The Company recognized gains on securitizations of mortgages of $80.5 million
and $17.7 million for the three-month periods ended March 31, 2003 and 2002,
respectively. In the first quarter of 2003 the Company recorded gains of $146
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 three
months of 2003 and 2002 were $5.7 million and $19.1 million, respectively.
Key assumptions used for credit cards, mortgages and other assets during the
three months ended March 31, 2003 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% 1.0% to 49.0%
Constant prepayment rate 17.5% 5.0% to 51.0%
Anticipated net credit losses 5.6% 0.04% to 50.0%
========================================================================
(1) Other includes corporate debt securities and other assets.
65
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.
At March 31, 2003, 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 MARCH 31, 2003: DISCOUNT RATE PREPAYMENT RATE CREDIT LOSSES
------------------------------------------------------------------------------------------------
Credit cards 10.0% 14.7% to 17.5% 4.8% to 5.6%
Mortgages 2.0% to 49.0% 5.0% to 51.0% 0.01% to 50.0%
Auto loans 15.0% 13.55% to 23.26% 9.2% to 16.5%
-------------------------------------------------------------------------------------------------
IN MILLIONS OF DOLLARS MARCH 31, 2003
-----------------------------------------------------
Carrying value of retained interests $ 3,943
-----------------------------------------------------
Discount rate
+10% $ (98)
+20% $ (187)
-----------------------------------------------------
Constant prepayment rate
+10% $ (311)
+20% $ (589)
-----------------------------------------------------
Anticipated net credit losses
+10% $ (171)
+20% $ (343)
=====================================================
MANAGED LOANS
After securitization of credit card receivables, the Company continues to
maintain credit card customer account relationships and provides servicing for
receivables transferred to the trusts. As a result, the Company considers both
the securitized and unsecuritized credit card receivables to be part of the
business it manages. The following tables present a reconciliation between the
managed basis and on-balance sheet credit card portfolios and the related
delinquencies (loans which are 90 days or more past due) at March 31, 2003 and
December 31, 2002, and credit losses, net of recoveries, for the three-month
periods ended March 31, 2003 and 2002.
CREDIT CARD RECEIVABLES
IN BILLIONS OF DOLLARS MARCH 31, 2003 DECEMBER 31, 2002
---------------------------------------------------------------------
Principal amounts, at period end:
Total managed $ 125.5 $ 130.2
Securitized amounts (71.0) (67.1)
Loans held-for-sale (3.0) (6.5)
---------------------------------------------------------------------
On-balance sheet $ 51.5 $ 56.6
=====================================================================
IN MILLIONS OF DOLLARS
---------------------------------------------------------------------
Delinquencies, at period end:
Total managed $ 2,406 $ 2,397
Securitized amounts (1,413) (1,285)
Loans held-for-sale (61) (121)
---------------------------------------------------------------------
On-balance sheet $ 932 $ 991
=====================================================================
THREE MONTHS ENDED MARCH 31
-------------------------------
IN MILLIONS OF DOLLARS 2003 2002
-------------------------------------------------------------------
Credit losses, net of recoveries:
Total managed $ 1,832 $ 1,792
Securitized amounts (1,024) (935)
Loans held-for-sale (78) (78)
-------------------------------------------------------------------
On-balance sheet $ 730 $ 779
===================================================================
66
SERVICING RIGHTS
The fair value of capitalized mortgage loan servicing rights was $1.5 billion,
$1.6 billion, $1.3 billion and $1.2 billion at March 31, 2003, December 31,
2002, March 31, 2002, and December 31, 2001, respectively. The following table
summarizes the changes in capitalized mortgage servicing rights (MSR):
THREE MONTHS ENDED MARCH 31,
-------------------------------
IN MILLIONS OF DOLLARS 2003 2002
--------------------------------------------------------------------
BALANCE, BEGINNING OF PERIOD $ 1,632 $ 1,173
Originations 203 108
Purchases - 37
Amortization (125) (41)
Gain (loss) on change in MSR value (18) 77
Provision for impairment (1)(2) (162) (40)
-------------------------------
BALANCE, END OF PERIOD $ 1,530 $ 1,314
====================================================================
(1) The valuation allowance on capitalized MSRs was $1.5 billion and $1.3
billion at March 31, 2003 and December 31, 2002, respectively, and $193
million and $153 million at March 31, 2002 and December 31, 2001,
respectively.
(2) 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. GUARANTEES
The Company provides a variety of guarantees and indemnifications to Citigroup
customers to enhance their credit standing and enable them to complete a wide
variety of business transactions. The table below summarizes at March 31, 2003
all of the Company's guarantees and indemnifications, where we believe the
guarantees and indemnifications are related to an asset, liability, or equity
security of the guaranteed parties at the inception of the contract. The maximum
potential amount of future payments represents the notional amounts that could
be lost under the guarantees and indemnifications if there were a total default
by the guaranteed parties, without consideration of possible recoveries under
recourse provisions or from collateral held or pledged. Such amounts bear no
relationship to the anticipated losses on these guarantees and indemnifications
and greatly exceed anticipated losses.
Maximum potential
Expire within Expire after TOTAL AMOUNT amount of future
IN BILLIONS OF DOLLARS AT MARCH 31, 2003 1 year 1 year OUTSTANDING payments
--------------------------------------------------------------------------------------------------------------------------
Financial standby letters of credit $ 17.0 $ 16.2 $ 33.2 $ 33.2
Market value guarantees 0.2 0.5 0.7 0.7
Derivative instruments 16.3 70.7 87.0 87.0
Guarantees of collection of contractual cash flows - 0.3 0.3 0.3
Performance guarantees 4.9 3.8 8.7 8.7
Securities lending indemnifications 42.1 - 42.1 42.1
Other indemnifications - 14.7 14.7 14.7
Loans sold with recourse 2.0 2.6 4.6 4.6
Residual value guarantees - 0.1 0.1 0.1
--------------------------------------------------------------------
TOTAL $ 82.5 $ 108.9 $ 191.4 $ 191.4
==========================================================================================================================
Financial standby letters of credit include guarantees of payment of insurance
premiums and reinsurance risks that support industrial revenue bond underwriting
and settlement of payment obligations in clearing houses, and that support
options and purchases of securities or in lieu of escrow deposit accounts.
Financial standbys also backstop loans, credit facilities, promissory notes and
trade acceptances. Market value guarantees are issued to guarantee return of
principal invested to fund investors. Guarantees of collection of contractual
cash flows protect investors in credit card receivables securitization trusts
from loss of interest relating to insufficient collections on the underlying
receivables in the trusts. Performance guarantees and letters of credit are
issued to guarantee a customer's tender bid on a construction or systems
installation project or to guarantee completion of such projects in accordance
with contract terms. They are also issued to support a customer's obligation to
supply specified products, commodities, or maintenance or warranty services to a
third party. Securities lending indemnifications are issued to guarantee that a
security lending customer will be made whole in the event that the security
borrower does not return the security subject to the lending agreement and
collateral held is insufficient to cover the market value of the security. Other
indemnifications are issued to guarantee that custody clients will be made whole
in the event that a third-party subcustodian fails to safeguard clients' assets.
Derivative instruments include credit default swaps, total return swaps, written
foreign exchange options, written put options, and written equity warrants.
Residual value guarantees provide that the guarantor will pay the difference
between the fair value of the guaranteed property or equipment and the value
specified in the contract to the guarantor at the termination or renewal date of
an operating lease.
At March 31, 2003, the Company's maximum potential amount of future payments
under these guarantees is approximately $191.4 billion. For this purpose, the
maximum potential amount of future payments is considered to be the notional
amounts of letters of
67
credit, guarantees, written credit default swaps, written total return swaps,
indemnifications, and recourse provisions of loans sold with recourse; and the
fair values of foreign exchange options and other written put options, warrants,
caps and floors.
In the normal course of business, the Company provides standard representations
and warranties to counterparties in contracts in connection with numerous
transactions and also provides indemnifications that protect the counterparties
to the contracts in the event that additional taxes are owed due either to a
change in the tax law or an adverse interpretation of the tax law.
Counterparties to these transactions provide the Company with comparable
indemnifications. In addition, the Company is a member of hundreds of value
transfer networks (VTNs) (payment, clearing and settlement systems as well as
securities exchanges) around the world. As a condition of membership, many of
these VTNs require that members stand ready to backstop the net effect on the
VTNs of a member's default on its obligations. The indemnification clauses are
often standard contractual terms and were entered into in the normal course of
business based on an assessment that the risk of loss would be remote. In many
cases, there are no stated or notional amounts included in the indemnification
clauses and the contingencies triggering the obligation to indemnify have not
occurred and are not expected to occur. There are no amounts reflected on the
Consolidated Statement of Financial Position as of March 31, 2003, related to
these indemnifications. These potential obligations are not included in the
table above.
At March 31, 2003, the carrying amounts of the liabilities related to these
guarantees and indemnifications amounted to $11.4 billion. In addition, other
liabilities includes an allowance for credit losses of $167 million relating to
unfunded letters of credit at March 31, 2003. Cash collateral available to the
Company to reimburse losses realized under these guarantees and indemnifications
amounted to $46.2 billion at March 31, 2003. Securities and other marketable
assets held at collateral amounted to $7.5 billion and letters of credit in
favor of the Company held as collateral amounted to $1.4 billion at March 31,
2003. Other property may also be available to the Company to cover losses under
certain guarantees and indemnifications; however, the value of such property has
not been determined.
15. 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.
68
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The following information supplements and amends our discussion set forth under
Part I, Item 3 "Legal Proceedings" in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2002.
SETTLEMENT OF CERTAIN REGULATORY MATTERS
On April 28, 2003, Salomon Smith Barney Inc. (SSB), now named Citigroup Global
Markets Inc., announced final agreements with the Securities and Exchange
Commission, the National Association of Securities Dealers, the New York Stock
Exchange and the New York Attorney General (as lead state among the 50 states,
the District of Columbia and Puerto Rico) to resolve on a civil basis all of
their outstanding investigations into its research and IPO allocation and
distribution practices. As part of the settlements, SSB has consented to the
entry of (1) an injunction under the federal securities laws to be entered in
the United States District Court for the Southern District of New York, barring
SSB from violating provisions of the federal securities laws and related NASD
and NYSE rules relating to research, certain IPO allocation practices, the
safeguarding of material nonpublic information, and the maintenance of required
books and records and requiring SSB to adopt and enforce new restrictions on the
operation of research; (2) an NASD Acceptance Waiver and Consent requiring SSB
to cease and desist from violations of corresponding NASD rules and requiring
SSB to adopt and enforce the same new restrictions; (3) an NYSE Stipulation and
Consent requiring SSB to cease and desist from violations of corresponding NYSE
rules and requiring SSB to adopt and enforce the same new restrictions; and (4)
an Assurance of Discontinuance with the New York Attorney General containing
substantially the same or similar restrictions. As required by the settlements,
SSB expects to enter into related settlements with each of the other states, the
District of Columbia and Puerto Rico. Consistent with the
settlement-in-principle announced in December 2002, these settlements require
SSB to pay $300 million for retrospective relief, plus $25 million for investor
education, and commit to spend $75 million to provide independent third-party
research to its clients at no charge. SSB reached these final settlement
agreements without admitting or denying any wrongdoing or liability. The
settlements do not establish wrongdoing or liability for purposes of any other
proceeding. The $300 million was accrued during the 2002 fourth quarter.
ENRON:
HUDSON SOFT CO. LTD. V. CREDIT SUISSE FIRST BOSTON CORP., ET AL.
A proposed second amended complaint dropped as defendants Citigroup, SSB, and
affiliate officers and employees.
NEW POWER HOLDINGS ACTIONS
On April 17, 2003 the motion to dismiss the complaints in the putative class
actions relating to the New Power Holdings common stock was denied.
ADDITIONAL ACTIONS
On March 5, 2003 an action was brought on behalf of the purchasers of the
Yosemite Notes and Enron Credit Linked Notes, alleging violations of federal
securities laws.
On April 9, 2003 an action was brought by a group of related mutual funds that
purchased certain Yosemite Notes, alleging violations of state securities law
and common law claims.
REGULATORY MATTERS
As part of Citigroup's discussions with the SEC and bank regulators relating to
certain of its transactions with Enron, Citigroup is also involved in
substantive discussions with the SEC and bank regulators regarding one of its
transactions with Dynegy.
RESEARCH:
IN RE AT&T CORPORATION SECURITIES LITIGATION
By order dated March 27, 2003, the court denied plaintiffs' leave to amend their
complaint to add as defendants Citigroup, SSB, and certain of their executive
officers and current and former employees.
ADDITIONAL ACTIONS
On March 31, 2003 an action was filed in the United States District Court for
the Southern District of New York by twenty institutional investors alleging
individual claims under Section 10(b) and Section 20(a) of the Securities
Exchange Act of 1934 in connection with their purchase of common stock of
Winstar Communications, Inc.
69
OTHER:
The shareholder derivative suit filed in January 2003 in the United States
District Court for the Southern District of New York has been referred to the
judge presiding over the Citigroup Inc. securities litigation captioned IN RE:
CITIGROUP INC. SECURITIES LITIGATION.
A consolidated amended complaint was filed in March 2003 in the United States
District Court for the Southern District of New York alleging violations of the
federal securities laws arising out of work performed for Enron and Dynegy and
out of purported research conflicts of interest, and is included under the
captioned matter IN RE: CITIGROUP INC. SECURITIES LITIGATION.
Item 4. Submission of Matters to a Vote of Security Holders.
Citigroup's Annual Meeting of Stockholders was held on April 15, 2003. At the
meeting:
(1) 14 persons were elected to serve as directors of Citigroup;
(2) the selection of KPMG LLP to serve as the independent auditors of
Citigroup for 2003 was ratified;
(3) a stockholder proposal regarding the number of candidates for each
board position was defeated;
(4) a stockholder proposal regarding executive pay and predatory lending
performance was defeated;
(5) a stockholder proposal regarding severance agreements was defeated;
(6) a stockholder proposal regarding climate change was defeated; and
(7) a stockholder proposal regarding environmental leadership was
defeated.
The number of votes cast for, against or withheld, and the number of abstentions
with respect to each such matter is set forth below, as are the number of broker
non-votes, where applicable.
AGAINST/ BROKER
FOR WITHHELD ABSTAINED NON-VOTES
---------------------------------------------------------------------
(1) Election of Directors:
NOMINEE
C. Michael Armstrong 4,152,775,371 191,019,689
Alain J.P. Belda 4,172,412,380 171,382,680
George David 4,173,164,028 170,631,032
Kenneth T. Derr 4,171,083,256 172,711,804
John M. Deutch 4,169,706,076 174,088,984
Roberto Hernandez Ramirez 4,197,883,027 145,912,033
Ann Dibble Jordan 4,040,692,636 303,102,424
Dudley C. Mecum 4,170,048,647 173,746,413
Richard D. Parsons 4,041,299,073 302,495,987
Andrall E. Pearson 4,045,394,807 298,400,253
Robert E. Rubin 4,194,370,347 149,424,713
Franklin A. Thomas 4,043,099,275 300,695,785
Sanford I. Weill 4,168,924,554 174,870,506
Arthur Zankel 4,042,541,071 301,253,989
(2) Ratification of Auditors 4,131,990,196 99,919,217 111,885,657
(3) Approval of Stockholder 170,243,285 3,212,102,390 142,524,169 818,925,216
Proposal Regarding the Number of
Candidates for each Board Position
(4) Approval of Stockholder 225,066,265 3,106,040,743 163,762,486 818,925,566
Proposal Regarding Executive Pay
and Predatory Lending Performance
70
AGAINST/ BROKER
FOR WITHHELD ABSTAINED NON-VOTES
---------------------------------------------------------------------
(5) Approval of Stockholder 1,061,316,542 2,324,166,247 139,389,044 818,923,277
Proposal Regarding Severance
Agreements
(6) Approval of Stockholder 174,548,213 3,170,506,763 179,820,886 818,919,198
Proposal Regarding Climate
Change
(7) Approval of Stockholder 196,780,487 3,121,327,717 206,765,493 818,921,363
Proposal Regarding
Environmental Leadership
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
On January 22, 2003, the Company filed a Current Report on Form 8-K, dated
January 21, 2003, reporting under Item 5 thereof the results of its operations
for the quarter and year ended December 31, 2002, and certain other selected
financial data.
On January 31, 2003, the Company filed a Current Report on Form 8-K, dated
January 24, 2003, filing as exhibits under Item 7 thereof the Terms Agreement,
dated January 24, 2003, and the Form of Note relating to the offer and sale of
the Company's 3.50% Notes due February 1, 2008.
On February 7, 2003, the Company filed a Current Report on Form 8-K, dated
January 30, 2003, filing as exhibits under Item 7 thereof the Terms Agreement,
dated January 30, 2003, and the Form of Note relating to the offer and sale of
the Company's Floating Rate Notes due February 7, 2005.
On February 13, 2003, the Company filed a Current Report on Form 8-K, dated
February 13, 2003, filing as an exhibit under Item 7 thereof an opinion
regarding certain tax matters.
On February 19, 2003, the Company filed a Current Report on Form 8-K, dated
February 11, 2003, filing as exhibits under Item 7 thereof the Terms Agreement,
dated February 11, 2003, and the Form of Note relating to the offer and sale of
the Company's 5.875% Subordinated Notes due February 22, 2033.
On March 12, 2003, the Company filed a Current Report on Form 8-K, dated March
12, 2003, filing as an exhibit under Item 7 thereof the Distribution Agreement,
dated March 12, 2003, relating to the offer and sale of the Company's
Medium-Term Senior and Subordinated Notes.
On March 20, 2003, the Company filed a Current Report on Form 8-K, dated March
12, 2003, filing as exhibits under Item 7 thereof the Terms Agreement, dated
March 12, 2003, and the Form of Note relating to the offer and sale of the
Company's Floating Rate Notes due March 20, 2006.
On March 21, 2003, the Company filed a Current Report on Form 8-K, dated March
13, 2003, filing as exhibits under Item 7 thereof the Terms Agreement, dated
March 13, 2003, and the Form of Note relating to the offer and sale of the
Company's 3.50% Notes due February 1, 2008.
On March 26, 2003, the Company filed a Current Report on Form 8-K, dated March
25, 2003, filing as an exhibit under Item 7 thereof the Historical Annual
Supplement of Citigroup Inc. and subsidiaries.
No other reports on Form 8-K were filed during the first quarter of 2003;
however,
On April 11, 2003, the Company filed a Current Report on Form 8-K, dated April
11, 2003, filing as an exhibit under Item 7 thereof the Historical Supplement of
Citigroup Inc. and subsidiaries.
71
On April 14, 2003, the Company filed a Current Report on Form 8-K, dated April
14, 2003, (a) furnishing under Item 12 thereof the results of its operations for
the quarter ended March 31, 2003 and (b) filing as exhibits under Item 7 thereof
(i) the related press release and (ii) the Citigroup Inc. Quarterly Financial
Data Supplement for the quarter ended March 31, 2003.
On April 28, 2003, the Company filed a Current Report on Form 8-K, dated April
28, 2003, (a) reporting under Item 5 thereof the settlement by Citigroup Global
Markets Inc. (formerly Salomon Smith Barney Inc.) with the SEC, the NASD, the
NYSE and the New York Attorney General of all outstanding investigations into
research, IPO allocation and distribution practices and (b) filing as an exhibit
under Item 7 thereof a copy of the related press release dated April 28, 2003.
72
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 2nd day of May, 2003.
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 and Chief Accounting Officer
(Principal Accounting Officer)
73
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 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: May 2, 2003
By: /s/ Sanford I. Weill, Chief Executive Officer
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74
CERTIFICATIONS
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 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: May 2, 2003
By: /s/ Todd S. Thomson, Chief Financial Officer
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75
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
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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+ Lease, dated as of September 25, 2002, between BP 399 Park Avenue LLC
(as Landlord) and Citigroup Inc. (as Tenant).
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
76