Citigroup Inc. (C) Q4 2010 Earnings Report, Transcript and Summary

Hello, and welcome to Citi's Fourth Quarter 2010 Earnings Review with Chief Executive Officer, Vikram Pandit; and Chief Financial Officer, John's Gerspach. Today's call will be hosted by John Andrews, Head of Citi Investor Relations. [Operator Instructions] Mr. Andrews, you may begin.

Thank you, operator. Good morning, and thank you everyone this morning for joining us. On the call today, of course, Vikram will take us through the presentation, initially, followed by John Gerspach, our CFO, who will take you through the detailed deck, which available on our website. Afterwards, they will be happy to take your questions. Before we get started, I would like to remind you that today's presentation may concern forward-looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our discussion today and those included in our SEC filings, including without limitation, the Risk Factors section of our 2009 Form 10-K. With that said and out of the way, let me turn it over to Vikram. Vikram?

John, thank you, and good morning, everybody. Thank you for joining us today. 2010 was a very good year for Citi. We made excellent progress in executing our strategy in every major area and, as a matter of fact, if you had said a year ago that we would have accomplished what we have, I'm not so sure too many people would have believed it. Yet, we were profitable in each quarter, earning $10.6 billion for the year. Revenues increased for the quarter and for the year in two of our three core businesses, which are Transaction Services and Consumer Banking, and Securities and Banking had strong full year results. Entering 2010, our primary goal was to become consistently profitable and we achieved it. Another goal was to continue to reduce assets in Citi Holdings and we did so by $128 billion. Remaining assets are now 19% of our balance sheet and that's down from almost 40% of the balance sheet at their peak. We also have been building for the future from opening branches in Asia to making new investments in technology to attracting top-notch talent to our consumer and Institutional businesses. And we're building a position of strength that will allow us to harness the world's growth trends. And of course, the capstone to the year was the sale of the government's remaining shares of common stock. To date, U.S. taxpayers have earned a profit of approximately $12 billion on their investment in Citigroup and we'll always be grateful for the investment they made in our company and for standing by us through this financial crisis. Specifically for the fourth quarter, our client business and flows were solid across the board and we saw a strong growth in our consumer franchise, especially outside the U.S. On the Institutional side, although Transaction Services and Banking performed well, revenues in markets reflected weaker trading performance. And of course, we're happy to see our credit spreads improve as much as they did. That is a good sign. Not only of our progress, but also it'll reduce our cost of borrowing over time. But of course, it means that we had to take $1.1 billion charge due to CVA. For 2011, we will build on the foundation we put in place and accelerate our strategy for Citicorp. We'll make investments to increase our lead in the emerging markets. We will seek to become a leader in digital banking and mobile payments. And we'll continue to recruit top talent, building on the key hires we made last year. And we'll do so despite a challenging economic backdrop. The effects of the financial crisis are still working their way through the system, and I think that macro trends will dominate micro trends, especially for the next few quarters. And although there are positive signs in the U.S. economy, the housing market yet has to recover, job creation has been weak and internationally excessive government leverage is still hampering recovery in the euro zone. We continue to build our capital base, our Tier 1 common ratio now stands at 10.7%, up from 9.6% at the beginning of the year. Through earnings and reductions in Citi Holdings, we have built robust loan loss reserves of $40.7 billion. We have participated in the stress test with the regulators and, subject to their guidance, we still expect to be in a position to return capital to our shareholders in 2012. Summing up, I believe we have the right business model, the right strategy for our company's present and future, and we are executing with discipline. The economic environment remains uncertain but our path for the future is clear. We've steadily built a foundation capable of producing consistent profitability and our focus now is on achieving sustained and responsible growth. With that, I'd like to turn this over to John Gerspach and then we'll come back later and take some of your questions.

Thank you, Vikram, and good morning, everyone. Starting on Slide 2. On a full year basis, Citigroup reported revenues of nearly $87 billion for 2010. Operating expenses totaled $47.4 billion. Credit costs were $26 billion, down 50% from prior year levels on a comparable basis. And for the full year, we earned $10.6 billion in net income or $0.35 per diluted share. We earned nearly $15 billion in our core Citicorp business, with earnings in Asia and Latin America contributing more than half of the total. Citi Holdings generated a loss of $4.2 billion. Now turning to the quarter on Slide 3. Citigroup reported fourth quarter net income of $1.3 billion or $0.04 per diluted share. These results were significantly affected by three factors. First, CVA was a negative $1.1 billion as Citi spreads tightened in the fourth quarter, particularly following the U.S. Treasury sale of its remaining Citi shares in December. Second, revenues in Securities and Banking were lower due to weaker trading performance in the Fixed Income and Equities businesses. And third, expenses were $12.5 billion, up 8% from the last quarter and above our prior guidance. Of the expense increase, more than half was due to the combined impact of foreign exchange and higher legal and related costs, while the remainder was attributable to severance, volume-related growth in certain businesses and continued investments. On the positive side, credit continued to improve in the quarter, with net credit losses declining 11% to $6.9 billion and we recorded a net loan loss reserve release of $2.3 billion. Turning now to Citicorp and Citi Holdings on Slide 4. Our credit costs continued to decline in each segment, driven by improvements in both consumer and corporate credit. Citicorp reported revenues of $14.3 billion and net income of $2.4 billion. The underlying business drivers for Citicorp continued to show momentum in the fourth quarter. As an example, for the second consecutive quarter, we grew both consumer and corporate loans in Citicorp, primarily in the emerging markets. Sequentially, end of period consumer loans were up 3% and corporate loans grew 4%. Citi Holdings reported revenues of $4 billion and a net loss of $1 billion. Citi Holdings ended the year with $359 billion of assets, down $62 billion during the quarter and $128 billion for the year, including the sale of Student Loan Corporation. On Slide 5, we show a nine-quarter trend for Citicorp's results. CVA was negative $1 billion for Citicorp in the fourth quarter compared to a positive $99 million last quarter. Excluding CVA, Citicorp's revenues were $15.3 billion, down 6% versus the prior quarter due to lower revenues in Securities and Banking. Operating expenses of $9.4 billion were up 6% versus the prior quarter, roughly a quarter of the increase was due to the impact of foreign exchange. The remainder was primarily due to higher legal and related costs, volume-related growth and continued investments in our core businesses. Citicorp's net credit losses were $2.7 billion, down 12% from the previous quarter, driven by Citi-Branded Cards in North America and lower corporate net credit losses. We released $741 million in net loan loss reserves, up from $426 million in the third quarter, as higher net releases in Citi-Branded Cards and our corporate portfolio were partially offset by lower releases in our International Consumer businesses. Excluding CVA, earnings before taxes declined 16% to $3.9 billion. Slide 6 highlights our North America Consumer Banking business. Revenues of $3.6 billion were down 5% sequentially. Lower revenue in cards reflects a charge for enhancements to our thank you rewards program, as well as the continued impact of CARD Act. Lower retail revenue was mainly due to lower refinancing gains in the mortgage business. Expenses were up 7% to $1.6 billion, reflecting a one-time benefit in the prior quarter, as well as higher legal and related costs. Credit costs declined 29% to $1.4 billion. Net credit losses were down 10% to $1.8 billion, due to continued improvement in Citi-Branded Cards and we recorded a $348 million net loan loss reserve release. Net credit margin increased 1% to $1.8 billion as the decline in net credit losses more than offset lower revenues. While average loans were flat to slightly down versus the prior quarter, end of period card loans were up 1% sequentially and retail loans were up 4%. In cards, open accounts were stable versus the prior quarter and purchase sales grew 4% sequentially. While overall purchase sales declined versus last year, due to a lower account base, sales per active account grew year-over-year for the fourth consecutive quarter. Turning to Slide 7. Our International Consumer Banking businesses had revenues of $4.6 billion, up 4% sequentially, with growth across all regions. This growth reflects strong momentum in underlying business drivers, as well as the impact of foreign exchange. Underlying revenue drivers were positive again this quarter. However, revenue growth was muted as spreads remained under pressure. We grew our average deposits in every region during the quarter, and average loans grew 5% sequentially in both Asia and Latin America. Card purchase sales were up 14% sequentially and investment sales grew 11%, as strong growth in Asia and EMEA was offset by a decline in Latin America as customers continued to shift to longer-term securities. Expenses were $2.8 billion, up 10% from the prior quarter, reflecting the impact of foreign exchange and continued investments in the business. Credit costs were up 70% to $593 million, driven by a lower net loan loss reserve release during the quarter. NCL dollars were stable. These credit trends reflect these regions being substantially further along in their economic recovery and, hence, much closer to a normalized credit environment than North America. On a rate basis, international net credit losses continued to improve and NCL dollars were flat against the growing loan balance. Net credit margin increased 5% sequentially to $3.8 billion in the fourth quarter, driven by revenue growth. Slide 8 shows nine quarters of business drivers and financial performance for international Consumer Banking. Following a period of repositioning in 2009, we returned to growth across every significant metric in 2010, reflecting both economic recovery in these regions, as well as our renewed investment spending. Year-over-year, average loans and deposits were up 12% and 11%, respectively. Trends in card purchase sales and investment sales were also up, with full year 2010 results above 2008 levels. This growth in underlying business drivers is reflected in our financial results. On a full year basis, net credit margin of $14.3 billion in 2010 was up 21% over the prior year. And net income more than doubled, reflecting the additional benefit of loan loss reserve releases. Slide 9 shows our Securities and Banking business. Excluding CVA, revenues of $4.6 billion were down 17% from the third quarter, driven by weaker revenues in fixed income and Equity Markets, partially offset by growth in Investment Banking and lending revenues. In Investment Banking, revenues grew 25% to $1.2 billion as significantly higher equity underwriting revenues, driven by Asia IPO activity, and stable debt underwriting revenue were partially offset by a decline in M&A fees. x CVA, equity market revenues were $808 million. The $254 million sequential decline primarily reflects weaker trading revenues linked to our derivatives business and principal positions. Fixed Income market revenues x CVA were down 32% to $2.3 billion. The decline was primarily attributable to weaker performance in market-making activities to facilitate client needs. Lending revenues were $185 million compared to a negative $18 million in the prior quarter, driven by smaller hedge losses on continued spread tightening for corporate credits. Private Bank revenues, excluding CVA, were up 3% to $506 million. On a regional basis, revenues excluding CVA grew 8% sequentially in Latin America and 3% in Asia. Total operating expenses were up 2% versus the prior quarter. Credit costs were a benefit in the fourth quarter as net credit losses declined 54% to $132 million, and we released $194 million in net loan loss reserves. Moving to Transaction Services on Slide 10. Revenues of $2.6 billion were up 1% from the third quarter, driven by growth in Asia and Latin America. Treasury and Trade Solutions was down 1%, as higher trade revenues increased deposits and higher fees were more than offset by spread compression. Securities and Fund Services grew 6% sequentially, driven by higher volumes. Overall, transaction volumes and new mandates remain strong across both businesses during the quarter. Asset growth was driven by trade finance, with end of period trade assets up 14% sequentially and nearly double versus last year. Average deposits grew 4% sequentially to $353 billion, and assets under custody were up 2% to $12.6 trillion. Expenses of $1.3 billion were up 7% from last quarter, reflecting both higher volumes and continued investment to support the business. Slide 11 shows Citi Holdings assets. We ended the quarter with $359 billion in Citi Holdings or 19% of total Citigroup assets. The $62 billion reduction in the fourth quarter was comprised of $48 billion of asset sales and business dispositions, including $31 billion from Student Loan Corporation and $10 billion of sales from the Special Asset Pool, approximately $12 billion of net runoff and pay downs and $2 billion of net cost of credit and net asset marks. On Slide 12, we show a nine quarter trend for Citi Holdings results. We narrowed the loss in Citi Holdings to $1 billion in the fourth quarter. Revenues were up 3% to $4 billion as higher revenues in Brokerage and Asset Management and the Special Asset Pool were offset by a decline in Local Consumer Lending. Expenses were up 7% to $2.4 billion and credit costs were down 13% to $2.9 billion. Looking at Citi Holdings in more detail on Slide 13. Revenues in Brokerage and Asset Management were up sequentially to $136 million, reflecting a higher contribution from the Morgan Stanley Smith Barney joint venture. In Local Consumer Lending, revenues were down 4% sequentially to $3.4 billion, as gains on asset sales were more than offset by lower revenues on a declining loan balance, as well as the refund reserve build related to our consumer finance business in Japan. In the Special Asset Pool, revenues were up 36% to $426 million in the fourth quarter, mainly due to higher gains on asset sales during the quarter. Expenses were up 7% sequentially to $2.4 billion, reflecting higher legal and related costs and severance. Credit costs were down 13% sequentially as credit trends continued to improve in both our consumer and corporate portfolios. Total net credit losses were down 10% to $4.2 billion and the net loan loss reserve release was down slightly to $1.5 billion. Local Consumer Lending continues to drive the earnings performance of Citi Holdings, with $1.1 billion net loss for the quarter. Slide 14 shows the results for the Corporate/Other segment. Revenues declined by $450 million sequentially, reflecting lower gains on sales of AFS Securities. Net income also reflects higher operating expenses during the quarter. Expenses were up by $286 million sequentially, mainly due to legal and related costs. Assets of $272 billion include approximately $92 billion of cash and cash equivalents, and $124 billion of liquid available-for-sale Securities. Slide 15 shows total Citigroup net credit losses and loan loss reserves. NCLs continued to improve, down 11% sequentially to $6.9 billion and the net loan loss reserve release grew 14% to $2.3 billion. We ended the year with $40.7 billion of total loan loss reserves and our LLR ratio was 6.3%. Consumer NCLs declined 8% sequentially to $6.2 billion, and we released $1.3 billion in net loan loss reserves. Corporate credit was a benefit of $256 million in the fourth quarter compared to a cost of $347 million last quarter. Corporate net credit losses declined 28% to $664 million and the net loan loss reserve release grew to $920 million. Corporate non-accrual loans of $8.6 billion were down 13% versus the prior quarter. Moving to consumer credit trends on Slide 16. As I mentioned, consumer net credit losses of $6.2 billion were down 8% sequentially, with continued improvement in North America cards and real estate. Our net credit loss ratio declined again this quarter to 5.3% and our loan loss reserve ratio was 7.8%. In North America, net credit losses declined 9% to $5.1 billion, while international net credit losses declined by 6% to $1.1 billion. Slide 17 shows our International Consumer credit trends. In Citicorp, NCL improvement on a dollar basis is slowing down as we grow our international loan portfolios. However, on a rate basis, we continued to see NCL improvement in both Asia and Latin America. In Asia, India continued to show the most significant improvement in both NCLs and delinquencies. For the region, 90-plus day delinquencies were relatively flat on a dollar basis and down as a percentage of loans. In Latin America, NCLs improved on a rate basis, driven by cards in Brazil and Mexico, and 90-plus day delinquencies also improved. Now on Slide 18, we focus on North America cards. Trends for both Citi branded and Retail Partner Cards continued to reflect the improving credit quality of these portfolios. In Citi-Branded Cards, NCLs declined for the third consecutive quarter. NCLs decreased by 11% to $1.7 billion and 90-plus day delinquencies were down 12% to $1.6 billion. In Retail Partner Cards, NCLs were down for the sixth consecutive quarter. NCLs decreased by 10% to $1.4 billion and 90-plus day delinquencies declined by 8% to $1.6 billion. For both portfolios, early-stage delinquencies also continued to show improvement. Turning to the mortgage portfolio in Citi Holdings on Slide 19. NCLs and 90-plus day delinquencies in both first and second mortgages improved again this quarter. We continue to manage down these portfolios. Compared to the fourth quarter of last year, we reduced our first mortgage portfolio by almost 20% to $80 billion and second mortgages were down 14% to $44 billion, through a combination of sales, runoff and net credit losses. Our total loan loss reserve balance for mortgages in Citi Holdings currently represents over two years of NCL coverage. Slide 20 provides more detail on the delinquency trends in first mortgages in Citi Holdings. 30-plus day delinquencies were down for the fifth consecutive quarter. Delinquencies declined by 15% to $9.9 billion, with improvement across all buckets. Similar to last quarter, the sequential decline in delinquencies was due entirely to asset sales and trial mods converting to permanent modifications, absent which delinquencies would be up slightly. During the fourth quarter, we sold $1.5 billion in delinquent mortgages, bringing our total sales of delinquent mortgages for the year to $4.8 billion. Mortgage sales served to reduce our overall delinquency inventory. They also eliminate any future risk of default as compared to modifications. Through the end of the year, we had converted a total of $4.8 billion of trial mods to permanent modifications, more than three quarters of which were HAMP. We continue to believe that redefault rates for HAMP modified loans will be significantly lower versus non-HAMP programs. The first HAMP mods have now been on the books for about 12 months and, to date, are exhibiting redefault rates of less than 15%. On Slide 21, we provide an update on rep and warranty issues. The chart on the left shows claims and repurchase activity on a unit basis. Over the past three years, we have received claims on roughly 20,400 unindemnified loans. At year end, nearly 4,600 of those claims remained pending, which was slightly lower than our pending claim volume at the end of the third quarter. Of the roughly 15,800 claims which have been resolved, approximately 7,600 or nearly 50% were actually repurchased or made whole. Based on our current expectations, we believe claims volumes should peak in the latter part of 2011. The right side of this slide shows a roll forward of the repurchase reserve for our Consumer Mortgage business. We began the fourth quarter with approximately $952 million of repurchase reserves. We added approximately $4 million of reserves, arising from new mortgage sales in the fourth quarter, and another $248 million related to changes in our estimate of average loss per claim. These additions to the reserve were charged to our P&L during the quarter as contra revenue. We realized approximately $235 million of losses during the quarter, which were charged against the reserve. As a result, we ended the year with $969 million in mortgage repurchase reserves. Slide 22 shows the trend in our key capital metrics. We ended the year with a Tier 1 ratio of 12.9% and a Tier 1 Common ratio of 10.7%. Our Tier 1 Common ratio grew approximately 40 basis points during the quarter, reflecting a 1% increase in Tier 1 Common capital to $105 billion and a 2% reduction in risk-weighted assets, due in part to the continued wind down of Citi Holdings. On a year-over-year basis, our GAAP assets grew 3% while we reduced our risk-weighted assets by 10%. In summary, our performance in 2010 creates a strong foundation for sustainable growth. Where 2009 was focused on recapitalizing the firm and putting into place our new strategy, 2010 saw our return to profitability as we earned nearly $15 billion in our core Citicorp business while we cut losses in Citi Holdings by more than half. The strength of our international franchise was particularly apparent in 2010, with Asia and Latin America earning over $8 billion, a 14% increase versus 2009. And that growth and profitability was achieved while continuing to invest in these regions. We made significant progress in reducing Citi Holdings, with assets declining $128 billion or 26% versus 2009. Today, Citi Holdings represents only 19% of total Citigroup assets. Two consistent themes drove our performance in 2010. First, global credit continued to recover, with six consecutive quarters of sustained improvement in credit costs. And second, we began increasing our investment spending in international businesses as the pace of economic recovery accelerated in these regions, resulting in strong growth in our underlying business drivers. Finally, our consistent profitability, combined with the ongoing wind down of Citi Holdings, contributed to our strong balance sheet. We ended 2010 with a Tier 1 Common ratio of 10.7%, up approximately 110 basis points from last year, making us one of the best capitalized large banks in the world. We remain confident, based on what we know today, that we will be well above the Basel III capital requirements and above the 8% to 9% on a Tier 1 Common basis in 2012. Now I'd like to discuss some factors which may affect our results in 2011. In Regional Consumer Banking, we believe results will be driven by different trends in North America versus our international businesses. In North America, if economic recovery is sustained, revenues are expected to grow modestly as loan demand begins to recover, particularly in the second half of the year. However, net credit margin recovery will likely continue to be driven primarily by improvement in net credit losses. As always, loan loss reserve balances will continue to reflect the losses embedded in the portfolio. Internationally, we have seen the improvement in net credit losses slowing as the loan portfolios grow. Given continued economic expansion in these regions, net credit margin is more likely to be driven by revenue growth, particularly in the second half of the year. As our investment spending should continue to generate volume growth to outpace spread compression. International credit costs are likely to increase in 2011, reflecting a growing loan portfolio. In Securities and Banking, our continued investments served to build on an already strong foundation for future growth. The strength of our franchise should be evident in 2011, as it was in our full 2010 results. Overall, Securities and Banking will continue to reflect trends in client activity and global market conditions. In Local Consumer Lending in Citi Holdings, revenue should continue to decline, given a shrinking loan balance resulting from pay downs and continued asset sales. Based on current delinquency trends and ongoing loss mitigation actions, we expect credit costs to continue to improve in Local Consumer Lending. Regarding expenses, we expect 2011 expense levels to be in line with our 2010 guidance at $48 billion to $50 billion for the year, with some variability across quarters as we continue investing in Citicorp while rationalizing Citi Holdings. That concludes our review of the quarter. And Vikram and I will now open up the line for questions.

[Operator Instructions] Your first question comes from the line of Guy Moszkowski with Bank of America Merrill Lynch.

I was hoping that maybe you could quantify how much of the linked quarter's increase in expenses actually was litigation, which was one of the primary factors you noted?

If you think in terms of the way it breaks down, about $150 million of the increase was due to foreign exchange, about $400 million more or less was legal and related matters, $100 million was severance and restructuring and about $150 million each of investment and volume driven growth.

Within Securities and Banking, did the expense increase in comp, which I know you don't break out, did that pretty much reflect -- well, actually, I should phrase it differently. Did the comp reflect the decline in revenue or was it also up sequentially?

Well, as you said, Guy, we don't breakout comp for any of our individual businesses. But, obviously, our comp considerations reflect performance for the full year. Throughout the year, we do our best to estimate what we think we're going to be paying out. So we take all of that into consideration.

I guess what I'm trying to get at is whether there would've been a significant increase in litigation type expenses within S&B.

There was some contribution in S&B of litigation, but I wouldn't say that S&B was the primary driver behind the $400 million that I talked about earlier.

And is it fair to assume that a fair amount of that litigation expense would be reserve building related to things like private label Securities? I know that one of your competitors has talked about not really being able to build for that use through the reserve, but that litigation reserves can be built for that type of thing.

As we said, I think it was last quarter, we believe that the types of claims associated with private label securitizations are going to manifest themselves in the context of litigation. We made that statement last quarter and that kind of holds true. But as we've said last quarter, to date, we have not received a significant number of claims in connection with private label securitizations. Obviously, we continued to monitor all the activities associated with this, but given the relative lack of historical experience, it naturally kind of follows on that it's difficult to estimate future claims here. So as with all such matters, we're continuing to evaluate our litigation reserves and at the end of the quarter, overall, we feel that we are appropriately reserved and that we're going to continue to monitor everything that's going on with private label securitizations. The other thing, Guy, I think you have to put our position of private label securitizations a bit in context. When you think in terms of the issuances that were done in '05 through '08, we had about a 3% market share and as near as we can tell, we probably ranked eighth among issuers during that time period. Some of our peer institutions have market shares that are 5x or 8x higher than that, so while private label securitizations are something that we obviously are continuing to monitor, it, quite frankly, isn't as big an exposure for us as it might be for others.

And then moving to another subject, just to explore a little bit further the revenue side in Securities and Banking during the quarter. We saw a pretty significant falloff in fixed income, and I was wondering if you could give us a little bit more of a sense. First of all, was a lot of that in December, after a more successful first couple of months? Or was it a little bit more spread over the period? And can you give us a sense for whether some of the product related declines that you alluded to, in terms of rates, were because of the shock that happened in long-term interest rates? Or was it just more because of a decline in customer activity levels?

Yes, I'm going to take a pass on going through month-to-month performance. But the decline was not due to a decline in customer volume levels. Customer activity stayed pretty solid during the quarter. And as we tried to indicate, it really did reflect just weaker trading performance, especially in the Fixed Income business. As far as what products may have driven it, I would say that G10 Rates probably contributed 2/3, maybe, of the decline, due to the weaker trading performance.

The final question I have for you is on the net interest margin, which declined pretty much in line with the guidance that you had given us early in the quarter. And I was wondering if you could give us a little bit more of a sense for what you thought might happen with net interest margin based on things that you can see now.

I might comment, Guy, but about half of that decline that we had in the quarter, half of the 12 basis points, was due to the building of the reserve for customer refunds in our Consumer Finance business in Japan. So absent that, the decline in NIM would have been closer to six basis points. And I think that pretty much forms my view as to what might happen going into the first quarter. We could be looking at something in the mid-low digits as far as a decline in NIM. And then maybe it'll stabilize beginning in the second quarter.

Your next question comes from the line of Glenn Shore with Nomura Securities.

Question on deposit trends. U.S. were up, non-U.S. were down and non-interest bearing deposits were up and interest-bearing were down. And it's just kind of counterintuitive, I didn't know if that's a repricing thing in conscious effort on your part or a client trend. I don't know how to read into that.

A conscious effort on our part. One of the things that I think we mentioned last time is, that we are looking at improving the quality of the deposits that we have. So we actually adjusted our pricing to try to capture more of non-interest bearing and less -- we've got such a good demand for non-interest bearing that there's no need to go out and continue to be in the middle of the pack as far as time deposit pricing. So we've pretty much moved our time deposit pricing down in virtually all regions. And there was also, in North America, there was a bit of a one-time shift that we had between NOW, in NOW accounts, that used to be part of interest-bearing and are now classified as far as non-interest bearing. So that contributed in North America to about $9 billion to $10 billion of the growth there. So it's a conscious trend on our part, but the NOW account shift is a significant one-time item in North America.

With the clear credit improvement and, especially on the card side, just curious if you had any thoughts about the private label card business in general on whether or not you wind up hanging onto that or is that in the potential disposal list?

Well, don't forget, when we've set up Citicorp and Citi Holdings, it wasn't set up on a good bank, bad bank strategy. It was actually set up, Citicorp represented those businesses that fit the strategy that we have going forward and the businesses that we placed in Citi Holdings, including Retail Partner Cards, for those businesses that just didn't fit. So I would never say never, but what we'd have to look at is to see whether or not Retail Partner Cards or some elements of Retail Partner Cards are now really fitting in with the Citicorp strategy, based upon the re-underwriting of the book and the way that businesses or portfolios in that business are now being managed.

At the high level, as a general comment, I think people are looking at this and say, "Revenue is a little weaker." Albeit it was a trading thing, but revenue is weaker and expense is still in that same range and you were kind enough to give us expense guidance for 2011. People want to hear if revenues come in a little softer, do you have expense flexibility, considering the legal and the investments and the things like that that are going on. I think that's one of the disappointments in today's results.

Yes, and we will tend to pace our investment spending based upon the way we see the other investments playing out. So the short answer is, yes, we do have flexibility in our expense base.

Your next question comes from the line of Matt O'Connor with Deutsche Bank.

I guess just a bigger picture question on trading. I can appreciate that it's volatile for everyone, it can depend on the mix quarter-to-quarter. But just in general, it seems like you're trading is a little more volatile, very weak quarter here and then all of a sudden, a very strong quarter. And is that just a difference in the product mix or something else that you could point to? And could we see a little less volatility going forward?

I'm not so sure of the underlying thesis in your question, which is why I'm having a difficult time answering it, Matt. I'm not sure that our trading is anymore volatile than anybody else's, especially when you eliminate the impact of CVA from it. I think CVA, certainly throughout 2009 and now in the fourth quarter of 2010, maybe has been a bigger contributor to us than to others. Otherwise, I'm not quite sure that we really fall outside the band necessarily.

Obviously, we're still getting results this quarter, but I guess we can see at the end of the quarter. But it felt like it's been a little more volatile.

Well, one quarter doesn't make a trend. And so I think you need to take a look at the overall trading performance over several quarters, if not several years.

Matt, it's also fair to say that we have a smaller Equity business compared to some of the other firms on the street and we're building that out. And we also have a smaller Commodities business, that also is being built out. So a lot more of our revenues are driven by the Fixed Income business.

And then just a couple of model questions going forward. You had a very modest tax credit this quarter. How should we think about the tax rate next year?

Well, tax rates, on a normal basis, if you look at us over time, our expectation is, that our tax rate should be in the upper 20s. 27%, 28% would be the right range. But as long as we are in periods where more of our income is going to be driven by our performance in lower tax rate jurisdictions. In other words, as we're continuing to rebuild the North America business, particularly the earnings stream in North America consumer, our tax rate will be below the numbers that I just quoted.

And then just lastly, another follow-up on the expenses. As we think about 2011 expenses, you mentioned some of the puts and takes in terms of investment spend, as well as assets freeing up or as you run off assets and free up some expenses, should we think about the first half of expenses being higher or lower than the second half? Or more of a steady throughout the year?

I would look at it more as a steady state type of thing. I'm not going to say that our expenses are going to be back-end loaded or front-end loaded. I think we'll have a little, obviously, we will look to pace investments based upon where we are. So, if anything, the expenses might tend to be a little back-end loaded, but I don't think it's going to be a huge trend.

Your next question comes from the line of James Mitchell with Buckingham Research.

A couple of questions, one on the loan loss reserve in cards. You guys, I think, over the year-to-date have probably released just a little over $300 million in reserves. For some of your peers, I think even though they're slightly larger in the card business, have released multiple billions. You've had two quarters in a row of improvement. When should we start to see a more significant release on the Citi card portfolio?

Well, as we've always said, when we take a look at reserves, we try to make sure that the reserves reflect the losses that are embedded in those individual portfolios. So as we get more confidence that the losses embedded in that portfolio are truly declining, you're likely to see continued reserve releases. I can't tell you that you're suddenly going to see a $1 billion reserve release. We don't tend to build them in big increments like that, and we don't tend to release them in big increments like that.

The reserve ratio is quite high relative to peers obviously, right? And they seem pretty confident releasing, but obviously, that's fine. On the iBank side, maybe getting to the expense question in another way. Year-to-date, I think if you normalize the DVA or CVA, however you want to define it, your revenues are down close to 19% in S&B, but expenses were up, I think, 11%. Obviously, you put a lot of investment into this year. Should we start to see, assuming we have a better rate revenue environment, some operating leverage on the expense base in 2011 and beyond?

Yes, I'm not going to predict operating leverage, especially in a business like Securities and Banking. One thing I'd say is, 2009, I do think we had somewhat outsized performance coming out of the first quarter in 2009. So that clearly is a difficult point of comparison. And, as we've said, our view is that we had weaker trading results in the fourth quarter. We'll see how we performed and our expectation is that we'll pick up that performance during 2011. As far as investments, we've also been, I think, pretty clear that we had made significant investments in building out our Corporate Banking franchise. And earlier in the year, we were still building out equities. We think a lot of equities is now done. The Corporate Banking franchise is still an area where we've got, I think, some work to do, but I think most of the investment work in Securities and Banking now is behind us.

One last question on the Securities investment portfolio. It was down, I think, $21 billion on a period-end basis. Is that sort of positioning for the rate environment? What is your stance vis-à-vis rates at this point?

When you take a look at -- you're talking about the investment Securities, the AFS, right?

Correct.

We are in the midst of repositioning that book, given the rate environment. I'm not going to make a public statement as to where we think rates are going, but it's just that obviously we did take some of the Securities off the table and that's one of the reasons why our cash balances are higher right now. And so you'll see the results of that repositioning as we get further into the first quarter.

Your next question comes from the line of Betsy Graseck with Morgan Stanley.

One was back in the sales and trading commentary, you were giving one of the reasons for the down quarter was market making as well as principal position. I'm wondering how to read that in terms of what might be permanent versus cyclical? Is part of this your positioning for the vulcur [ph] exit versus market making and assuming market or what have you?

Yes, we've always said that proprietary trading or principal positions is a relatively small part of our overall business. We've said publicly that proprietary trading represents less than 2% of our firm revenues. And there is a small prop business that's in equities. During the third quarter, it generated revenues of about $150 million and virtually generated no revenues in the fourth quarter. So that's $150 million out of the $250 million overall decline in our Equity Markets revenues x CVA, quarter-on-quarter.

Separate question on capital. I know that the proposal period is ongoing right now with the regulators and you probably can't talk about you've asked for, but I just wanted to ask if you are thinking about whether or not you can do anything this year. I know that in your opening remarks, you discussed returning capital to shareholders in 2012. Is that the earliest date that you're anticipating a return of capital to shareholders?

Betsy, obviously, all of us still have to go through the process with the regulators and I think that's going to be informative for us, all of us. But as importantly, we want to make sure that we are exactly in the right place on Basel III. And including, by the way, as I've said in the past, we think it's always prudent to carry a little bit of a cushion. You take all that into account, we still think 2012 is the right year for us to return capitals.

I would think you're looking at your business as well to how much capital you think you need to hold to run your business. Can you talk to what you think those numbers are over time?

Well, I think some of that is -- let us start the other way. A lot of that is the decline in Citi Holdings and the risk that goes down through that. And that's a continual process. We're still in the process of selling a couple of businesses there, that should take risk down. We've got assets in SAP that are going to come down, as well. And so when you look at risk weighted assets coming down, that's going to be the biggest contributor. And we've said in the past that some of that would like to reinvest in building out Citicorp, although that depends on how and where the opportunities to help our clients are going to be. So that is part of our thinking in what drives us to say what John Gerspach said earlier, that if 8% to 9% is the kind of range we're on in Basel III, 2012 is the year that we ought to be able to achieve that.

So did you ask for capital action in your proposal to regulators?

Well, we can't tell you what we say with our regulators and what they say to us. But what I can tell you is what I've said, again, 2012 is the year we think we'll have the ability to return capital, of course, based on our discussion with our regulators.

On Retail Partner Card, I noticed that you retained the Zales account. Would you be able to bring Retail Partner Cards from Citi Holdings into Citicorp before those marketing agreements are up? Or would it be a rebidded marketing agreement, you win, you keep them in Citicorp? How should I think about that?

Well, I think the way to -- let's start with the very big picture. The Card business is very different than when we moved the partner cards into the Citi Holdings, and that is a consideration that we are well aware of. Having said that, the biggest consideration for us is to run the partner cards in a very optimal way and Zales is an indication of that because there's a lot of franchise value in that, and there's a lot of value in that particular business and we're building that out. We've done nothing to change our view, that is still in Citi Holdings and that remains a driving concern. But I'll also tell you that as with everything we've done through Citi Holdings, our primary goal still continues to be we won't do anything with assets that's not in our shareholders interest and we have clearly that in mind. And that is not going to be impacted by which portfolio we have or how it turns over or any of that. It really comes down to the kind of value we think that Card business represent to us and we want to recognize it for you.

So if it's positive, you would bid for it? If you think there's going to be an accretion to your...

Again, what I would say on that is we haven't changed our mind, it's still in Holdings and it is still part of the assets that we want to rationalize. But obviously, as we do that, we will look at every other option before we make a decision.

And then last on ROA outlook. Vikram, in the past, you have talked about what your ROA outlook is for Citicorp. Has there been any change to that?

We're still exactly where we said we were before and, if you look at how Citicorp is growing, the International Consumer business has done well. We also think the GTS business with the book of business we're building, especially as interest rates change, will start showing some of that through as well. So when you put all of that together and, really, the change in the business models in our Securities and Banking business, we think all of that still takes us back to 1.25, 1.5 on assets that we ought to be able to recognize on a longer-term basis. And of course, interest rate environments are also important in terms of where and how we get to that.

Higher rates is a function of your $125 million to $150 million?

I think we've said that, that's a kind of business that should be able to earn 1.25 and 1.5 in much more of a normalized environment. And normalized we were talking about is, of course, credit taking account but as credit changes, that's one of the factors and got to say interest rates are another factor, too.

Your next question comes from the line of John McDonald with Sanford Bernstein.

I wanted to try to just ask Betsy's question on the capital just maybe on a slightly different angle. The question comes up a lot on investor conversations. I guess what we struggle with is, you're at the high end of peers on all the capital ratios and most of the other big banks are talking about kind of a medial hopes of capital deployment. So as we look at it, we kind of ask a question to what degree is perhaps Citigroup is being conservative? Or is your implementation of the various Bassels more complicated or less certain to the international aspect of your businesses? Could you help us get a little closer to reconciling that?

Let me take a crack and then, John, will add to that as well. I think the first part, I would say, is that for us or anybody else, some of the definitional issues still have to be worked through. A lot of the measurement issues are still going to have to be worked through and we've said in the past and I'll say again, we think 2011 is a year where a lot of those details get worked out. That's an important part to it. And the second part of that is that we do want to manage our business in a prudent way, which is why we said we want to carry a cushion. And putting all of those things into account, we think its prudent to think about returning capital in 2012.

And is there any international aspect of the business changes the Basel implementation or is that just getting too deep?

No, there are no systematic issues other than those that are generic for everybody.

John, quick question on the tangible book value impacts. Could you just walk through how the AOCI and maybe the DTA, if there are any impact affected the tangible book value this quarter?

You take a look at the other comprehensive income, the AOCI, as you say. Two big drivers there. One would be losses on the AFS Securities. That was about $1.3 billion, $1.4 billion of a negative. And then we had a positive pick up on the currency translation adjustment that was worth about $400 million going the other way.

And then regarding regulatory capital ratios and DTA to recapture, now that you've been profitable for a few quarters, what's needed to allow for the consumption of DTA to where your regulatory capital might grow faster than your net income at some point?

The single largest driver would be net income in our North America operations. When you take a look at the breakdown of the DTA, we ended the quarter with DTA of about $52 billion. $5 billion of that is state and local, $5 billion of that is international, so $42 billion is really U.S. federal tax. And the single largest driver there is generating more profits in North America.

So geographic mix, really. Last thing is on revenue form question. Do you have any initial thoughts on the potential changes in the methodology for calculating FDIC premiums or so-called tester amendment?

I'm sorry, do I have any what?

Have you done any calculations that you could share or any thoughts on how that change in the FDIC methodology might affect you in 2011 or '12?

Well, what we've said is that, at least from the impacts of Dodd-Frank that are measurable right now, the change in FDIC assessment is the single largest impact on us. We don't have much of an impact on debit card interchange or overdraft fees. Those are really small impacts on us. But the way that the FDIC has proposed changing its formula will impact all the large banks dramatically -- have a greater dramatic impact on the large banks than it will on the small banks. So our assessment right now is based upon the rules. We're looking at almost a doubling of the FDIC assessment.

Just from a '10, '11 absolute dollars doubling potentially?

Of course, it depends upon exactly when in '11 it goes into effect. So depending upon if it's a second quarter item than it would be three quarters. You can do the math.

John, can you just tell us where the DTA ended up and how much of that was allowable? I might have just missed it in the disclosure.

We ended with about $52 billion of DTA and $35 billion of that was disallowed in coming up with our Tier 1 Common ratio.

Your next question comes from the line of Jeff Harte with Sandler O'Neill. Jeffrey Harte - Sandler O'Neill & Partners L.P.: Bigger picture question. I mean, we look at all the data we're getting on kind of the emerging markets in the international franchise and it seems loans are growing, revenues are growing, credit seems okay, but there's a lot of things going on in the world from currencies to what's going on in Europe. Can you give us any sense on what you're seeing kind of on the ground with some of the emerging markets as far as the kind of near-term continuation of growth prospects?

Well, first of all, the emerging markets, that is a broad group. We know what's happening in certain areas. You see it in South Africa, you see it in China, which is the growth in inflation there. And especially those countries that don't have a flexible currency are seeing more of that and there is growth adjustment there, as a resultl of these changes. But I would say that the underlying dynamics of the consumers in these markets and the growth models actually finding a real kind of a solid development model has not really changed. And so we expect to see a continued increase in loan demand. We expect to see continued increase in capital markets activities. We expect to see continued growth, not only in the Asian markets, but also in the Latin American and some of the African markets. Some of the Eastern European markets are still linked to Europe and that is a longer process. But we remain constructive on the emerging markets, understanding that monetary tightening and other kind of breaks may have to be put on from time to time to manage the overheating that can occur and the inflation that occurs. I think the real question still keeps coming back to the U.S. economy, in our view, and what kind of growth you're going to see and what's going to happen to housing prices and it is still the largest economy in the world and that is going to be something the markets are going to have to watch over the next two, three quarters. And that's why I think, when I started, I said that the macro still going to dominate the micro here for the next two, three quarters. Jeffrey Harte - Sandler O'Neill & Partners L.P.: Can you just maybe specifically comment a little bit on Mexico? That seems to be your biggest non-U.S. market now.

Sure. I mean, I think first of all, you see our account activity is pretty strong in terms of account opening. Our loan growth continues there. We have seen the linkage between Mexico and the U.S. turnaround the GDP, and we still think that leverage is pretty powerful. And so if the U.S. economy starts doing better, you're going to start to see that in Mexico, as well. Everybody knows the more macro social issues that are occurring there. When you look at our mix of branches, we happen to be in a lot of the major sort of areas. We're everywhere obviously in Mexico but we feel that, given some of the social issues, we're in the right places for capturing the right kind of population there. And so I don't know if there's anything specific you had in mind, but we continue to be very constructive on our business in Mexico, and we're also expecting that business to continue to grow as a result of some of these fundamental turnarounds in the GDP numbers of the country. Jeffrey Harte - Sandler O'Neill & Partners L.P.: And then a little more detail. The equity trading in the quarter, I don't know if the press release cited derivatives activity in principal positions. In an environment where equity markets were up so much in most areas, I'm a little surprised to see principal positions be one of the drivers of the decline. Can you give us any more color on that?

No, I'm not going to go into the individual strategy that, that particular desk had employed. But as I said, it generated about $150 million of revenue in the third quarter and virtually $0 million in the fourth.

Your next question comes from the line of Chris Kotowski with Oppenheimer. Christoph Kotowski - Oppenheimer & Co. Inc.: If I could go back at the trading question a little bit. You said take a longer view of it and fixed income went from $21 billion in full year '09 to $14 billion this year. I'm curious, is that kind of all geographies, all products? Or is it primarily the impact of the European peripheral country credit?

I wouldn't say that the European peripheral countries were a significant contributor to any of our trading results. So you can sort of take that one off the table. Again, when you take a look at the trading performance, first quarter '09, I think we all had the same thing. A very, very strong quarter in the first quarter of '09. And that one kind of -- that's going to be something that's going to be very difficult to replicate. And then each quarter sort of tends to tell its own story. As I mentioned, this quarter, our weaker trading was actually concentrated in the Rates and Currency business, particularly the G10 Rates business in fixed income. But there's no indication that there's anything systemic in those numbers. Christoph Kotowski - Oppenheimer & Co. Inc.: Was there an impact just from long rates rising during the quarter? Was that the primary impact?

It's primarily associated with our market making activities as we were trying to facilitate client needs. And if clients were reacting to rising rates, then we were certainly on the other side of that.

Let me put it the other way. If you're trying to read anything more systematic into it, there isn't. These are strong businesses, we've got very strong franchises in the local currency areas. As you know, we've got a very strong G10 business. We're building out our Equity business. So we actually remain very positive in terms of the amount and the size of our client, flow of client activity continues to be robust. If you put it all together, again, this is a business that we continue to believe it's going to be a big contributor going forward. Christoph Kotowski - Oppenheimer & Co. Inc.: And then on the $255 million net interest income adjustment, is that something that we should think of as a one-time reserve or is that an ongoing item? Or how long does it go on for?

Well, again, the $255 million you are talking about is the adjustment that we made to build additional reserves for potential client refunds in our CFJ business. That's a reserve that we have adjusted periodically for four, five years now at this point in time. So again, as we see changes in the market this particular quarter, the build is really associated with what we thought might be an uptick in refund requests related to the talk of Fuji bankruptcy that occurred. So it was really in response to a specific event. Christoph Kotowski - Oppenheimer & Co. Inc.: And then finally, your expense guidance, I believe, previously was $11.5 billion a quarter, give or take, and now we're at $12 billion to $12.5 billion. Should we assume that, that comes straight out of pre-provision earnings or do we expect revenue increases to offset that to at least some degree?

I've just got to correct you just a little bit, Chris. Going into 2010, our guidance was full year expenses of $48 billion to $50 billion. By the second half of the year, we said we thought individual quarters for the second half of 2010 would be $11.5 billion to $12 billion. So we really weren't at an $11.5 billion guidance. And so as we've look ahead to next year, again, we're just trying to be consistent with where we were, quite frankly at the beginning of last year, which is as we look at the overall year, it's $48 billion to $50 billion of total expense. We ended this year with $47.4 billion. So it's not all that much different.

Your next question comes from the line of Moshe Orenbuch with Credit Suisse. Moshe Orenbuch - Crédit Suisse AG: Could you talk a little bit, maybe, about how you think about once you do get to capital return, how you think about the pace or mix as it relates to things like the shrinkage in the balance sheet from Citi Holdings and the like?

Moshe, that's an important question. The good news is we've got a few quarters to think about it. Because as we said before, this is a 2012 thing and, of course, the usual discussions will apply on stock repurchases versus dividends and all that kind of stuff, and sort of think we should pick up little bit later. Moshe Orenbuch - Crédit Suisse AG: On the proprietary trading commentary before, that wasn't that you changed the focus of the business. That was just the revenue output in the quarter, right, John?

That's correct.

Your next question comes from the line of Ed Najarian with ISI Group.

Maybe just two quick ones. Would you be willing to disclose some approximation of what your Bassel III based Tier 1 Common ratio is today? And then how would you advise us to think about the pace of shrink of Citi Holdings over the next 12 months?

The first one, no, as I said, we're targeting to be at that 8% to 9% range in 2012. As far as the second, look, if you take a look at the assets that are left in Citi Holdings, and we laid them out for you in the deck, we're not likely to maintain the same pace that we had in 2010. Specifically, again, Brokerage and Asset Management which has got roughly $26 billion, $27 billion of assets, that's virtually all tied up in the Morgan Stanley Smith Barney joint venture. And so that's an event as opposed to something that we're going to just wind our way down over the next several quarters. Special Asset Pool is about $80 billion of assets now. We've taken that down dramatically. But now, roughly a third of the remaining Special Asset Pool assets are hold to maturity assets. And so the pace of the reduction in the Special Asset Pool is also going to slow because we just don't have as much inventory, quite frankly, push out. And then you get to the last component and the Local Consumer Lending and more than half of the remaining assets are tied up in U.S. mortgages. And I don't see a big one-time sale of U.S. mortgages. We will continue to sell down assets at a pace, but it's not likely that we're going to find a $20 billion to $30 billion sale on our doorstep at any sort of rational terms in the near-term. So the pace is going to slow from where we've been in 2010 .

And then, obviously, as we get to the end of this quarter, you get some sense from the regulators, we think, in terms of what your discussions with regulators are, what they come back to you with in terms of your capital planning. Do you expect to give us more detail on capital planning and on your Bassel III base Tier 1 Common ratio when you report first quarter earnings and will be enabled at that time?

Ed, that's kind of unlikely. I mean, unless we significantly change our position as to our view towards 2012 being the year that we'd be looking to return capital, it's not likely that we'd be changing anything else.

Your next question comes from the line of Mike Mayo with CLSA. Michael Mayo - Credit Agricole Securities (USA) Inc.: In November, Citi gave a presentation where you guys said you'll increase investment spending for consumer by $3 billion to $4 billion over the next three years. And can you give us more color when we should see that hit? How much a hit this quarter? I know you said $150 million of the linked quarter increase was due to increased investments and volume related matters, so I'm guessing it hasn't really hit yet. And how much of your expense guidance for the year includes some of this additional investment spending?

Yes, the $3 billion to $4 billion still holds. We actually have been, or have begun, that investment spending, and I think we mentioned the fact that as early as the first quarter of this year of 2010, we had some elements of it in place. Although it certainly picked up pace as we got later into the year. When you look at the fourth quarter, Mike, I mentioned $150 million being the linked quarter-on-quarter impact of investment spending, it's safe to say that something on the order of $300 million to $400 million of our expense base in the fourth quarter represented investment spending. Michael Mayo - Credit Agricole Securities (USA) Inc.: That we should see that increase by another $2.6 billion over the next three years?

Well, $3 billion to $4 billion would be the total amount of spending. Michael Mayo - Credit Agricole Securities (USA) Inc.: So you got a run rate now of $1.2 billion?

That's about it. Michael Mayo - Credit Agricole Securities (USA) Inc.: So you have another $2 billion more for this investment spending, is that fair to say?

Well, if you're at a run rate of $1.2 billion for a quarter, for a year, I should say, that would mean that over something like three years then, you would be within that $3 billion to $4 billion range, right? Michael Mayo - Credit Agricole Securities (USA) Inc.: So this is just a one-time step up and you maintain that higher level?

Exactly. Michael Mayo - Credit Agricole Securities (USA) Inc.: And then separately, it came out last week that you have an MOU with the regulators. How big a deal is this in your mind? Is it simply backwards looking for some of the problems from a couple of years ago or is this still something you need to wrestle with? You highlighted some risk management issues that you still had to resolve.

Mike, as you probably well know, we can't comment on any conversations that we have with our regulators. Michael Mayo - Credit Agricole Securities (USA) Inc.: And then a separate question would be, for the DTAs you earned $10 billion last year on GAAP earnings, but the DTA level still went up to $52 billion as you pointed out. In layman's terms, why does the DTA keep going up even while you have positive GAAP earnings? I know you mentioned some of that is geography, but what are some of the other reasons why it still goes up?

Well, the biggest impact for us was the adoption of 166, 167 in the first quarter. That added $4.3 billion, $4.4 billion to the DTA asset. Michael Mayo - Credit Agricole Securities (USA) Inc.: But it's still leaking upward here even in the past couple of quarters.

Don't forget then, also, besides earnings, you've got the impact of the AFS portfolio, we had losses on the AFS portfolio this quarter. I mentioned that in response to another question. When you think about driving down the DTA, the key component for us is actually to reduce the amount of the DTA that's represented by net operating loss carry forwards. And we've actually taken that down during the year. We started the year with, I think just a little bit north of $5 billion of NOL carry forward. And we'll end the year with about $2.3 billion, maybe $2.2 billion of NOL carry forward. And so once we work our way through that and actually in the Q, I believe the third quarter Q, we actually gave you disclosure that our expectation is that we will be through the NOL carry forward during 2011. And once we work our way through that, then it'll become easier to deal with the foreign tax credit carry forwards, which are the largest piece of our DTA. Michael Mayo - Credit Agricole Securities (USA) Inc.: And then last question for Vikram, you lead off the conference call saying macro trends should dominate micro trends the next couple of quarters. I was just curious why you mentioned the next couple quarters in particular?

Well, look, I think we're all, I said the next few quarters, now it could be a couple of quarters, but let me say that, again, we've got to watch what happens in the U.S. and that's still the biggest economy. We see a lot of constructive signs. Credit seems to be getting better, as well. But we want to see employment rise. We want to see GDP grow correctly. And these are all going to be important things. If at some point, though, the economy feels like whatever the rate it is at, it's more stable and recovering and is on a trajectory, that takes down a little bit of the uncertainty in the marketplace. And of course, I'm also hoping the next two, three quarters shed some more light in some of the leverage related issues in Europe, as well. And so it just feels to us that when you look at the world and the growth in the emerging markets, when we look at kind of what's going on in Europe and the U.S. that these next few quarters are going to be really important. Now that's not a prediction, that's just a perspective.

Your next question comes from the line of Carole Berger with Soleil Securities.

My question is really on foreign exchange. You mentioned in a couple of places how expenses were impacted by exchange rates, but you didn't mention anywhere where revenues were similarly impacted. Are there places where you are not matched, in terms of where your revenues and expenses are coming from?

I didn't catch the last question. Are we appropriately matched? The impact on revenues and expenses has got less to do with matching assets and liabilities. I mean, the assets and liabilities. . .

I meant in terms of, you mentioned a couple of places where expenses were up because of the exchange rates. And my question is, why aren't revenues also up because of. . .

And I think in some of the commentary that we gave you, on the international, Regional Consumer Banking franchises, we've mentioned that FX changes drove some of the revenue increase. The revenue was up about 4% and FX probably drove more than half of that. But when you take a look at all of our businesses, we operate in many different currencies around the world. And so FX, overall, has really got a very small impact on our bottom line. And it tends to work its way out as far as revenues expense and NCLs. But when you get into individual lines, FX can be a driver of variance, just in those individual lines.

And my second question was, is there any reason -- you said that 19% of your assets remained in holding. Is there any reason to believe that a greater proportion of those assets are risk weighted? In other words, are more than 19% of your risk-weighted assets in holding?

Yes, and Carole, as a matter of fact, what we've done in the past, we indicated at the end of June that the risk-weighted assets in Citi Holdings represented about 40% of our risk-weighted assets, at that point in time. We then, in September, told you that Citi Holdings risk-weighted assets were down to 37% of our total risk-weighted assets. And by the end of the year, our current estimate is, that the Citi Holdings risk-weighted assets will be about 34% of our total risk-weighted assets. So think in terms of Citi Holdings representing 19% of our GAAP assets and roughly estimated 34% of our risk-weighted assets.

Your next question comes from the line of it Richard Bove with Rochdale Securities.

I'd like to ask you the same question I asked JPMorgan but in the opposite direction. They've got a negative federal funds plus cash position when divided by assets. You now have roughly 12.9% of your balance sheet on the asset side in cash, plus a positive net fed funds position. Why is it so big? I mean, you're only getting about a 79 basis point return on that money, which must be having an impact on your net interest margin. Could you kind of give me your thinking on this?

Well, you're right, we do have a lot of cash on the balance sheet and in response to one of the earlier questions, we touched on the fact that there's actually been a decline in our available-for-sale securities during the quarter as we've begun to reposition that portfolio, given the current rate environment. So a little bit of the incremental cash that we have on the books right now is really being driven just because we're in the midst of repositioning that AFS portfolio debt.

If we go back in time, that percentage should be somewhere around 3% or 4% and it would be because, generally speaking, Citigroup always had a negative federal funds position, it's almost shocking to see it with a $57 billion of a net positive federal funds position. And cash has never been this high as a percentage of assets. So one might argue that on a ratio basis, you're 3x higher as a percentage of assets than you would normally be. So just selling off some securities last quarter had no real impact on what I'm talking about.

As we entered 2010, we comment on the fact that we were deliberately liquid at that point in time and we felt that it was prudent to remain liquid throughout 2010. That gives us a certain amount of flexibility for two things. One, clearly, as our debt now begins to mature and we do have debt sizable amounts of our long-term debt maturing during 2011, we'll have less of a need to roll over that debt. So one of the things that you'll see is our long-term debt begin to go down. That will consume some of that cash. The second is, we are open for business and we're looking to build the loan book in both our Consumer and our Corporate businesses. And so our expectation is that we'll begin to put some of that liquidity to work in 2011.

So it's fair to state that if you start to utilize that excess cash to lend, and if your loan to deposit ratio starts to move up, I'm going to say, again, to more normal levels, that this represents tremendous excess earnings capacity at the moment?

Yes, our deposit to loan ratio, I'd like to say I tend to think that the other way right now is about 139% or 140%. That's higher than we would expect to be in a long-term basis.

Your next question comes from the line of Andrea Jao with Cowen.

First on trading equities and on the fixed income and equities trading businesses, have there been changes in your appetite for taking risk or committing capital as you facilitate customer transactions? Then I have a follow-up regarding the balance sheet.

No, there's been no change in our appetite.

How should I think about the balance sheet by the end of 2011? Just thinking back to the previous question by Dick, excess liquidity will be replaced by higher loans and less borrowings. How about deposits in your securities book?

I think you asked about deposits. We, right now, again, given where we are from a liquidity point of view, we obviously will be there for our customers to accept deposits, but one of the things that we're focused on right now is addressing, I'm going to call it the quality and the pricing of our deposits. So we are deliberately shifting out of pricing to capture time deposits. And I think you've seen some of the beginnings of that in some of the ships in our interest-bearing deposits, both in the U.S. and in our branches outside the U.S. That's reflected on the face of the balance sheet right now. So we'll look to maintain steady deposits, but try to improve the mix.

There are no further questions at this time. I would like to turn the conference back to Mr. John Andrews.

Thank you, everyone, for committing so much time this morning on a rather lengthy call. Obviously, this will be available for replay on the website later this afternoon and if you have follow-up questions, contact to the IR team here at Citi. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.