Hello, and welcome to Citi’s first quarter 2014 earnings review with Chief Executive Officer Mike Corbat and Chief Financial Officer John Gerspach. Today’s call will be hosted by Susan Kendall, head of Citi Investor Relations. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Ms. Kendall, you may begin.

Thank you, operator. Good morning, and thank you all for joining us. On our call today, our CEO, Mike Corbat, will speak first. Then John Gerspach, our CFO, will take you through the earnings presentation, which is available for download on our website, citigroup.com. Afterwards, we’ll be happy to take questions. Before we get started, I would like to remind you that today’s presentation may contain forward-looking statements, which are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results in capital and other financial condition 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 2013 Form 10-K. With that said, let me turn it over to Mike.

Thank you, Susan. Good morning everyone. Earlier today, we reported earnings of $3.9 billion for the first quarter and excluding CVA, DVA, and a tax item, net income was $4.1 billion, a 4% increase over last year, translating to $1.30 per share. I’ll discuss these results and then turn to two other significant items in the quarter, the Fed’s objection to our capital plan, and the discovery of the fraud in Mexico. During the first quarter, our institutional business performed well across our products and geographies. While lower on a year on year basis, market revenues rebounded from the fourth quarter and our equities business grew its revenues and continued to make progress. Higher volumes in treasury and trade solutions led to revenue growth despite the ongoing low rate environment. Our consumer bank again posted growth internationally, generating positive operating leverage year on year. Revenues in Asia grew, and while we continue to execute our repositioning plans in Korea, we believe revenues in that market have now largely stabilized. In the U.S., lower mortgage refinancing activity continued to impact our retail banking business while retail services revenues strengthened year over year, showing the positive impact of the Best Buy portfolio acquisition. In a challenging revenue environment, we made progress toward several key priorities during the quarter. Overall, we grew both loans and deposits while focusing on improving our efficiency. We continue to optimize our branch network, reduce our real estate footprint, and simplify our product offerings. We reduced our headcount by about 3,000 people, to 248,000, which helped lower our expenses by over $250 million year on year. While assets in Citi Holdings declined at a slower pace in the first quarter as expected, we did bring the portfolio closer to breakeven. We’ll continue to take advantage of more opportunistic…

Thank you, Mike, and good morning everyone. To start, I’d like to highlight two items which affect the comparability of this quarter’s results to last year. First, CVA and DVA had a small impact this quarter at $7 million, compared to a negative $319 million in pretax or $0.06 per share after tax in the first quarter of last year. And second, this quarter we took a $210 million tax charge related to corporate tax reforms enacted in two states. These reforms lowered marginal tax rates, resulting in a reduction in our state deferred tax asset for a negative impact on EPS of $0.07 per share. Adjusting for CVA/DVA and the tax item, we earned $1.30 per share in the recent quarter compared to $1.29 per share in the first quarter of last year. This quarter’s results also included roughly $165 million of incremental credit costs related to the Pemex supplier program in Mexico, including direct exposure to two suppliers. The vast majority of these credit costs were associated with our direct exposure to OSA and uncertainty around Pemex’s obligation to pay us for a portion of the accounts receivable we’ve validated with them as of year-end. The remainder was associated with one other supplier to Pemex that was found to have similar issues. We have not adjusted our results for these additional credit costs. On slide four, we show total Citigroup results. We earned $4.1 billion in the first quarter, up 4% from last year, as lower operating expenses and lower credit costs were partially offset by a decline in revenue. Our return on assets improved year over year as well, to 89 basis points. Citigroup end of period loans grew 3% year over year to $664 billion, as 7% growth in Citicorp was partially offset by the continued…

[Operator instructions.] Your first question comes from the line of Jim Mitchell with Buckingham Research.

Quick question on expenses. Just to get to the high end of your efficiency ratio targets, it seems to me, if I kind of do the math, assuming flat revenues, you’d have to get somewhere between $1.5 billion to $2 billion more in expenses out. Is that the right way to think about it or are you assuming the restructuring and legal charges go away as part of that, or is that independent of that or is there some revenue assumption in those targets?

I think the right way to think about this is, when we put those targets out, we were talking about low single digit revenue growth back in the 2012 level. And we do think that there will be, as I mentioned, some sequential revenue growth clearly in the consumer businesses, and we actually think about sequential revenue growth towards the back end of the year in our transaction services business as well, TTS. But overall, we are committed to hit those efficiency targets, as we established for Citicorp, in the mid-50s. You referenced the legal expenses, and as we set that target, I think another good way to think about this is when we set the target of the mid-50s, embedded in that target, we would have had about 200 basis points of the efficiency ratio set aside for BAU, legal, and repositioning.

And just maybe trying to think through the fraud loss, it was helpful that you mentioned that you’ve looked across other receivable programs, is there any reason to think that we should have concerns about beyond that, those types of programs for just general corporate lending? Have you done sort of a review there? And how do we get comfort, I guess, on that front?

As I said, we, in this instance, did what we declared a rapid review not only obviously in Mexico, but across the franchise. And I we think took a great deal of comfort from the results of looking across as many geographies and as many programs as we did. And as the normal course of business and audit and risk, we’re constantly looking at and reviewing those, and I think feel comfortable with, on the lending side, the way we’re coming to work documenting and doing things. So again, it’s something, as an institution, we’re always focused on and always kind of going after and always looking to learn from things that occur, but nothing I think that leads us to have a broader fear either in Mexico or across the rest of the franchise.

On emerging markets, it seems like the markets have rallied there. Has there been any kind of improvement, I guess, on the market side in March as emerging markets have seemingly done a little bit better?

We’ve seen a few things. We’ve kind of transitioned out a bit of the year-end malaise, which was largely focused around Fed policy or Fed stance. And I think we’ve seen volumes pick up, and I think confidence result as part of that. But at the same time, I don’t think you can ignore what’s going on in the Ukraine or in Russia. Those things clearly continue to have an overhang on the market. So I think the overall sentiment is better, but I think there’s still some things out there which I think cause people to pause.

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

John, just to clarify one piece of the outlook. The net interest margin you indicated that might be down a few basis points in the second quarter. Is that for NII dollars as well? Just kind of wondering what’s driving that outlook, as it would seem that day count and seasonality in cards would get better from the first quarter as we move forward in terms of net interest income dollars.

If you take a look at our NIM performance for the last several years, there’s a little bit of seasonality built into the second quarter where we normally just drop by a couple of basis points. You saw, I think, a little bit of an exaggerated drop two years ago. Last year we were down about 3 basis points, and there’s some preferred stock dividend trading programs that we enter into traditionally in the second quarter as do others in the industry, and they just have a tendency to depress the NIM in the quarter.

Is that on dollars as well, John, if we think about net interest income dollars, and is there a benefit from day count in cards that will overwhelm that or setting that out?

There’s one more day in the second quarter, so we will certainly benefit from that, but there normally is, as I said, a slight decline in it, but I don’t think that you’re looking at anything dramatic, and we certainly, as I said, expect NIM to bounce back up in the second half of the year.

And then as we think about that roadmap to the ROA target for next year, the comments that you just made to Jim were helpful. I think we struggle a lot with how much legal and repositioning need to come down in your model to kind of get to that ROA target. Can you clarify the 200 basis point that you mentioned, the BAU legal, you just mentioned in the prior question?

Yeah, as I said, when we first established the target a little over a year ago now, built into that target, we talked about having repositioning just be more of a BAU effort, and certainly we’ve had higher levels than we would anticipate of repositioning in the last couple of quarters. As we continue to work through this simplification of the business and trying to improve the productivity. But on a BAU basis, again I don’t want to parse it into how much is legal and how much is repositioning, but in general, we would look at legal and the repositioning charges to be roughly 200 basis points of the efficiency ratio.

And then on the CCAR, understanding there’s a limited amount that you can say, are you able to give us any feel for the type of CCAR processes that you need to improve? Any examples you could provide there?

I think I called out the things that we’re probably going to be most focused on around some process driven things, some model driven things, some people driven things that we’re going to be focused on. And again, I think from our perspective, from the conversations or what I’ve heard, not business model, not strategy, and again, I think things that will take a fair bit of hard work, but things that we feel very strongly that we can get done.

Some of the items the Fed mentioned were previously identified. How do you work to ensure against those types of expectation gaps forming again?

We haven’t received our written communication yet, but what we didn’t want to do is to wait. We wanted to be engaged from day one on all of these things, and so I think it’s important that we get the written communication and that we make sure that there’s good communication, good transparency around the things that we’re going to do, the timeframe in which we’re going to do them in, and what we think the results of that work will be. And so, we’re going to be committed to doing that.

Your next question comes from the line of Glenn Schorr with ISI.

Just a quick follow up on that last one. I just want to make sure, you said you believe the right decision is to focus the full attention on the ’15 process?

Correct.

Is that just a function of, like, wow, there’s a lot to do, what’s the big deal? It’s a difference of a quarter? Just because I know that some of us were hoping, like, it’s a cumulative process, you want to get off this zero and get moving forward this year.

Well, again, I think as we’ve described, there’s no one big glaring issue to fix. We’ve got a series of things that we need to address across the workstream. Several of these things - and if it’s model related, as an example of one - would require validation. Those things take time. And what I don’t want to do is find ourselves in a position of needing to rush to get a capital submission in sometime late third quarter, early fourth quarter, to not get the work done properly and not be in a position shortly thereafter, sometime mid-November, to start the official process or the go-forward process of our January submission. And again, it’s not a question of resources, it’s not a question of people, it’s not a question of dedicating those things. It’s wanting to make sure we’re in the right place, and I think that right now, committing to going down that path is not the right thing for the institution or the shareholders, and so I want to be focused on getting to the right place to take on the fourth quarter exercise of our first quarter 2015 submission.

So it’s a management decision, not [unintelligible].

Management decision.

Good. Back about a year ago, when you put out your slides, you had one that had that four box matrix that showed 21 markets you called underperforming and had ROAs of less than 40 basis points. I definitely remember a couple, like Turkey, like Uruguay, like Paraguay. But recently, we saw stories on Spain, you just mentioned a partial downsizing in Korea. Can you just give a quick update on where you’re at in terms of that process of culling the underperformers?

When we look at that bucket, I think there’s a couple of things you think about. It’s not actually our ambition to cull that bucket. It’s our ambition to actually take those businesses or those geographies and to get them to a place where they’re worthy of investment from our franchise and they’re creating adequate shareholder return. There’s several levers we pull as we look at those, and some of the things you just described go at that, ranging from a Turkey, where when we looked from a consumer perspective - certainly not an institutional perspective, but from a consumer perspective - we couldn’t see a pathway to investment that made sense over the intermediate or longer term. So we chose to sell that franchise. You look at a place like Korea consumer, we do see the pathway to actually getting that upscale franchise to the appropriate levels of profitability and return, but it’s taking some time and some restructuring to get there. You know, again, you saw us, in that bucket, we’ve closed five, we announced six, which was Honduras, where we just felt, after working with the business teams on the ground and in the product, we couldn’t get there. And then you’ve seen others. One you mentioned in terms of Korea, where restructuring has been required, and there are others. And those are work in progress, and against that bucket, I’m happy to say we think we’ve made good progress. More to do, and again those buckets aren’t static, and so we’ve had some of those businesses and some of those geographies move out of that bucket and move up, and to stay the course, which is where you’d like to get them or invest to grow. But work in progress, but making progress.

I’m not sure if I saw it anywhere. Did you state your return on tangible common for corp and Holdings separately? And if not, could you?

The closest that we can give you to that would be slide 25 in the earnings presentation. It’s the first slide of the appendix. And we have not yet formally done the allocation of the TCE for you, between corp and Holdings. We will be doing that later this year.

Your next question comes from the line of Matt O’Connor with Deutsche Bank. Matt O’Connor - Deutsche Bank : One more CCAR question. Based on what you know now, is your thought process to ask for buyback in the next submission, or do you need to kind of get through one clean before you ask for capital deployment above what you’ve been doing?

I think at this point clearly we’re focused on the process, and what goes into that is environment, earnings, and all those things. But I think as I’ve consistently said, if the stock is trading below, and trading meaningfully below, the math would strongly push you towards buyback versus dividend. But as we’ve always said, we understand there has to be a balance. And I think if you looked at the quantitative submission we made this year, it was a balance between dividend increase by largely skewed toward buyback. Matt O’Connor - Deutsche Bank : And even in terms of working through some of the changes the Fed wants you to make, at this point, do you think you’ll be confident enough to ask for any sort of capital deployment for next year in the ’15 process, or do you think some of these things we’re seeing at other banks, and just take some time in terms of model validation and things like that?

I think right now we’re focused on getting the process right. I think what we saw, one of the takeaways from the Fed process this year is there continues to be more and more delineation between the qualitative and the quantitative side. But I think we’ve got several months of work to do here. We’ve got a year to deliver in terms of earnings and quality of earnings in the things we’re doing, and then we’ll make that assessment. Matt O’Connor - Deutsche Bank : And I realize next year, asking about expenses, you’ve given us the official targets that were unchanged, you gave us expense guidance this year, but as we think about the investments that you’re making for things like CCAR and regulation, it will obviously be kind of a full run rate for next year, assuming you’re spending throughout this year. I guess the question is, how should we think about cost all-in for next year, and are you still counting on low single digit revenue growth for those efficiency targets?

We’ve given you the expense guidance for this year, we’ve given you the reaffirmation of achieving the efficiency target for next year. And we’ll get more into detail as far as 2015 expenses perhaps later in the year. Matt O’Connor - Deutsche Bank : And just lastly, on capital, the DTA usage was quite a bit ahead of last year’s pace this quarter, above $1 billion. Is that a decrease run rate assuming earnings stay around here? Or was there something unusual from that tax hit that might have increased that?

If you think about the components that led to the $1.1 billion, it’s actually $1.1 billion of the DTA utilization came from Citicorp earnings. The Citi Holdings losses actually added $200 million to the DTA, and then the impact of the state tax law changes reduced DTA by $200 million. So basically, Holdings and the state tax law changes netted themselves out, and what fell to the bottom is the $1.1 billion. So I’d say there’s really three variables that you have to think about. One is what is the level of Citicorp earnings? And clearly, at the level that we’ve produced in the first quarter, that’s going to have a DTA utilization of $1 billion or more. The second would be the impact of DTA from Holdings losses. Generally, as we drive Holdings losses down, that should lessen the upward pressure on DTA. And then the third aspect would be OCI. And in this quarter, OCI actually just had zero impact on the DTA. But depending on what happens with OCI, that could either be a slight positive, meaning a reduction in the DTA, or a slight increase. So I hate to take you through the long walk, but those are the three variables that you really have to establish.

Your next question comes from the line of Gerard Cassidy with RBC.

John, could you share with us some color, you mentioned that there was strength in the equity trading area within the capital markets due to derivatives. What kind of derivatives were you guys seeing that helped that area?

What we’ve talked about in the past, our derivative franchise, and in this case our equities derivatives franchise, is largely client, and in this case largely corporate client related. Again, kind of matching against who our traditional client base is. And so we’ve been building up the sales and trading capabilities there. We’ve called it out in the past as an area of emphasis. And while one quarter does not a true trend make, I think we’re making progress and the investments that we’ve made in that are starting to pay benefit. And so again, I think as you think about it, it’s largely on the client side, and it’s largely in particular on the corporate client list of where we’re getting the penetration.

On the debt gain that you had in Citi Holdings, what was the dollar amount of that?

It was less than $100 million. It was something close to, I think, $80 million.

And I thought I saw you had a sales leaseback gain? Did you guys say in the first quarter? Or did I not read that correctly in the press release?

No, we did. That would be reflected in the North America retail business.

And what was that dollar amount?

That was something in the $70 million range.

What do you think you’ll issue this year in terms of incentive comp for shares to employees?

I don’t have that share count in my head, I’m sorry. But it will be somewhat similar to what we issued last year, I think. Maybe up or down just a little bit. But roughly in line.

And then finally, in the communication that you guys pointed to with the Fed, regarding CCAR, is this with Washington? Or is it with New York? Are you comfortable that you’re reaching out to the right people so that there’s no miscommunication?

It’s in concert with both. Obviously, we’ve got local and we’ve got onsite Fed people here. Those are largely New York Fed. But the CCAR process is run centrally and largely run through that centralized process out of Washington. So I think it’s incumbent upon us to make sure that we’re communicating with both.

Your next question comes from the line of Guy Moszkowski with Autonomous Research.

So you just answered the question about the size of the debt gain in Holdings. The mark-to-market that you referred to, could you roughly size that for us as well?

There were a couple of those things. Rather than try to tease through the whole thing, I think if I was taking a look at the Holdings performance, I would say that, to the extent that we point to some of these outsized gains, I think the best way to visualize that is actually that four-box chart that we give you on slide 17. And you can see that the adjusted operating margin for Citi Holdings, for the last three quarters, was roughly running at that $500 million or so level. And this quarter, it ticked up to $700 million. And I’d say that you wouldn’t be wrong if you assumed that the outsized contribution of those one-time items was the differential between the $500 million that we have been running and the $700 million that we ran this quarter.

In terms of the mark-to-market, was it strictly a mark-to-market? Or was it a mark prior to a sale? In other words, what I’m really trying to do is get a sense for the environment with respect to your ability to continue to sell down assets, or whether at this point we really should assume that that stuff is pretty much buckled down, and it’s just one-offs from here.

Is your question specifically on mark-to-market assets, or is that against the overall Holdings portfolio?

Let’s talk more broadly about the portfolio.

I think the environment is fine to continue to look at opportunistic sale. And so not uncharacteristic from the past, you get a pretty big fourth quarter where you’re trying to kind of get everything closed, and obviously the buyers like to get things done, and we do as well for year end. I think in the first quarter, you begin kind of setting up for the things you want to do. You know, we’ve laid out that it’s the highest priority, to continue to work Holdings to breakeven, but we are going to be very focused on opportunistic sales and continuing to get assets down, risk out of the organization, capital released. And I think the environment is fine. You can see from the way we and others are describing credit, and we’re describing the continued recovery in the U.S., again I think if the prices are there you should expect that we’re going to continue to make some progress.

And while we’re on Citi Holdings, just on the expense side, I’m cognizant of what you’re saying about the outlook going forward, but the expense structure there overall has been surprisingly sticky, given how the assets have come down and the sales that you’ve been able to pursue. And I’m wondering if, at this point, we should start to expect some step function kind of expense cuts in Holdings.

You know, when you take a look at the expense structure in Holdings, obviously the legal expenses in Holdings have been running fairly high, and at some point in time, you should expect a step function down in mode. But from the core operating expenses, we’ve been pretty religious about driving those down in proportion to the asset reductions that we have achieved. Now, there’s some mix issues there. Some assets are a little bit more expense intensive than others. You can imagine that the mortgage business that we have, that is a little bit more expense focused, there’s a little bit more expense associated with maintaining that business, than with mark-to-market assets. So it may be sticky from here, but those core operating expenses still should run down as we reduce the assets.

As we look at the expense structure on the Citicorp side, you’ve got a slide in the back of the appendix that mostly seems to be making some adjustments for how you distributed the corporate and other expenses out to the units. But is there any change in the efficiency ratio target that you’re looking at in terms of a reallocation of expense cuts between the institutional and the consumer sides within Citicorp? Or is it all just exactly as it was, just reallocated for those corporate expenses?

The only change that we’ve made is to reflect the change in allocation of corporate expenses. That’s it. The mid-50s target stays in place for Citicorp, and everything else is just math.

Final question for you on the SLRs. That was, I assume, computed entirely within the Fed’s new NPR, which reflects the January BIS leverage ratio guidance?

The 5-6 reflects everything but what the Fed came out with last week, and as we looked at those changes, that’s where we said, if we were to apply those changes, the daily calculation for off balance sheet items, for instance, and some of the changes in netting, there we would estimate that the 5-6 would either be flat or perhaps increase slightly.

And just as a follow up to that, in terms of the SACCR, as the BIS is now calling it, do you have any estimate as to what that might do?

I’ve got to tell you, Guy, you threw me with the SACCR.

Oh, that’s the new standardized approach counterparty credit risk adjustments that the BIS put out in March, but the Fed hasn’t put out an NPR yet on it.

I can’t answer that directly, I apologize.

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

So just to follow up on that last question, I think in prior conference calls you indicated that the Basel rules would be additive on the SLR, maybe 30 to 40 basis points, if I recall correctly?

I think that what we’ve said is that, at least in the last statement that we gave you, was that our early read on what the U.S. was proposing was that it might increase our reported SLR by about 10 basis points. And so all we’re doing now is changing that to say it should be flat to slightly positive.

And then just separately, you indicate at the beginning of the call that the whole CCAR process doesn’t have any implication for the business model, mix shift, etc. But I just wanted to understand how you’re thinking about some of the smaller geographies that you’re embedded in. You did have an office closure recently in Latin America, and just in the context of the repositioning that you’re expecting to continue doing here over the next year or so, how much of that is skewed U.S. versus non-U.S.?

Most of the things that you’ve seen, and the one that you’re talking about, Honduras, are small consumer franchises. So if you look at what we’ve done, whether it’s Uruguay, Paraguay, etc., those have been subscale consumer franchises where we didn’t see the path to profitability and adequate returns through investment or restructuring. So again, in that optimized bucket, we continue to look at those. We continue to work on it, and I think we’re at this point where we feel like we’ve got a business plan going forward against those that are there, a restructuring plan against those that are there, and we’re going to go execute against that.

So we should expect to see some more of those kind of Uruguay/Paraguay? Or you’re pretty much done?

I think we’re pretty much done against those. We’ll always look under review. And one thing that I’ve said is when we look at CCAR, as an example, and if there are things there from a data or information perspective that we just don’t have a pathway to get a clear handle on and fix, we’ll obviously reassess things based on that as well.

Your next question comes from the line of Steven Chubak of Nomura.

The first question I have is a two-parter, specifically relating to preferred issuance. John, on the most recent fixed income call, you noted that you plan on issuing higher levels of preferreds to approach the 150 basis point tier one capital buffer commanded under Basel. Does the delay in the planned capital actions impact the timing of your preferred issuance plans? And what level of preferreds are contemplated as part of your 2015 profitability targets?

We’re going to have more to say about the preferred issuance and the capital structure in our fixed income call, which is on Thursday.

Okay. And then switching gears to FICC, one of the things you mentioned on the press call is that you speculated that the FICC fee pool is likely shrinking, and you anticipate a 5% to 10% decline in 2014. I didn’t know if that guidance contemplated the expectation for continued market share gains. And presumably, if the regulatory or environmental headwinds continue to weigh on FICC, which we’ve seen over the last few years, heavier gearing to flow oriented or transactional activities in local markets should certainly make you better plays.

The commentary I made as far as FICC being down 5% to 10%, I had intended to mean to overall FICC market as opposed to giving any specific guidance on our FICC revenues. But that would certainly be where we would take a look at the overall FICC market for this year. As I said in the press call, if you just look at the last couple of years with FICC, it certainly appears to be a shrinking pie. To date, we’ve been able to gain share, but there’s a limit to just how much share you’re going to be able to gain. And what we have done, though, is we’re not fighting the trend. We are actively managing our expense base and assessing our capacity. And we’ve reduced the capacity, we’ve reduced expenses, and we’ll continue to operate in that fashion. We had said early on that our FICC business, for the most part, is much more of a flow business. And that remains in effect. That’s not a change for us. We’ve been operating that flow model for several years now.

And just one more from me on the DTA. Based on the 10-K disclosure, it looks like timing-related DTA still represents close to half of the total balance outstanding. So roughly $25 billion, a not insignificant sum. The cumulative loan loss reserve that we’re modeling going forward is supposed to be a pretty meaningful driver of timing related consumption. That appears to be getting closer to exhaustion, and it appears to only make a small dent in the remainder going forward. I was just hoping you could help us identify some of the other levers which will help drive that timing related DTA utilization, just because it’s such a large drag on your excess capital positioning. I think it’s roughly a $13 billion deduction based on current calculations

There are a plethora of items that constitute timing differences when you’re looking at the difference between GAAP income and taxable income, both including revenue recognition differences as well as expense recognition differences and some of the issues that you’re pointing to as far as loan loss reserves. I can’t give you a succinct rundown of all of those things. LLR clearly is a piece of that, and as you look at our LLR, when you say it’s pretty much run its course, you’re probably not that far from being off from a Citicorp point of view, but don’t forget that the LLR then we have in Citi Holdings. We’re certainly not looking to grow Citi Holdings, so that is LLR that still should be run off. So there’s a variety of issues that can add to that DTA timing difference.

Are any of them potential levers that we could actually input in our models?

No.

Your next question comes from the line of Moshe Orenbuch with Credit Suisse.

John, maybe dovetailing on part of your response to that last one, you had 42 months of coverage in holdings, up from 39 three months ago. The reserve coverage has gone up by 3 months, life portfolio has gone down by at least three months. Could you kind of relate the life of that portfolio to it, and how we should think about that 42 months coverage as we go forward?

Just to be specific, the numbers that you’re referring to isn’t for all of Holdings. That’s just the North America mortgage. And there, it’s not so much driven by the life of the portfolio. One of the big drivers there is the percentage of loans that we have in troubled debt restructuring status. Because as you get into TDR loans, in effect the LLR that you have is really almost like a present value of a full lifetime loss. And that’s what’s really driving the overall level of LLR that we have in that book. So you’ve got two things that drive the LLR. One is the amount of TDRs that we have. And I believe that the overall portfolio right now has a total TDR of somewhere between 20% to 25% of the portfolio is made up of TDRs. Importantly, when you take a look at the CFNA component of the portfolio, it’s roughly 35% to 40% of the CFNA portfolio that’s in TDR status. The second key driver of the amount of loan loss reserves that we have would be the reset that we’re looking at in ’15, ’16, and ’17 for the home equity loans. So those are two things that are actually going to continue to keep that, I think, relatively high for some time.

And just to follow up, should we assume that those TDRs, as you’re resolving them, they’re being resolved either kind of inside of the reserves that have been set up, meaning the values that have been getting better over time?

Yeah, you haven’t seen us adding dramatically to the reserve, and I think we’ve been fairly steady, at least the last several quarters, at something around 90% or more reserve utilization against the NCL that the mortgage business has generating. And again, I think the words that we would use would be that we expect the vast majority of the NCLs that we have in mortgages should be covered by loan loss reserves. I don’t want to get tied down to a 90%, but again, it should be fairly high.

You talked a fair amount about the restructuring outside the U.S. When you’re doing that sort of activity in the U.S. retail business, is it that you’re going to be exiting cities, or going to be kind of reducing the density within the cities. Or how should we think about the pace in the U.S. business?

What we’ve tried to do is not just internationally or just in the U.S. make sure we’re approaching the retail strategy in a unified way, and that is really an urban-based approach to consumer banking. In the numbers, in the deck, we speak to a reduction of branch footprint, and that’s not just international, that’s not just domestic. It’s a mix of those. And we’re going to continue to look at branch profitability, branch efficiency, and continue to act against that.

You had mentioned kind of the $20 billion of capital generation last year and $6 billion this quarter, is it fair to think about the way you will be thinking about capital return for 2015 against those numbers, or against reported earnings? How should we be thinking as the base of that?

I think at this point we’re very focused on getting the process, and in particular the qualitative side of the process, right. I don’t think we’re in a position to speak to that approach.

Your next question comes from the line of Ken Usdin of Jefferies. Ken Usdin - Jefferies & Company : I wanted to ask you about your confidence in the ROA targets and efficiency targets for next year. How much leeway do you have if in fact the revenue environment doesn’t pan out? It’s obviously been a tougher start than we all would have liked in the 12 to 15 months since you put the targets out originally. So if in fact we do have a tougher time from here to 2015, how much flexibility do you think you have on the expense side? And then within that flexibility, how far do you have before you actually do start worrying about cutting into muscle?

I think you’re right, when we put these out we spoke to a couple of things. We spoke to the fact that we thought we were in a challenging revenue environment and I think the 13 to 14 months since we made that pronouncement, I think that’s been proven correct. I think the other thing that we talked about was that as part of that environment, we didn’t see, nor were we counting on, a big uplift in terms of interest rates to be able to achieve our targets. And we’re going to achieve these targets through a few things. One is low single digit revenue growth, continued expense discipline, and a continued push across the franchise to continue to wind down Holdings. And obviously the Holdings piece is the ROA piece of things. And again, I think you’ve seen, methodically in the institutional side, the work that Jamie’s done in terms of quarter on question, continuing to bring down expenses. Manuel’s been fighting the headwinds obviously of mortgage in Korea, but again, sequentially, or largely bringing those expenses down on a quarter on quarter basis, and again, continue to that path, and continuing to take actions against it. You saw the announcement that came out last night. You know, small, but again, I think symbolic of the effort in terms of another reduction in terms of ICG staff. Again, I want the businesses to be ongoing in their focus of managing to this ratio. Ken Usdin - Jefferies & Company : So if we didn’t get back to that path where you see the path to a low single digit revenue growth, I guess where within the franchise would you have to look? And I’m just trying to get a sense of how much capacity do you still have to make adjustments on top of these changes you’ve already clearly made and have largely been working through the run rates, to John’s earlier points.

Part of the reason of having an efficiency ratio out there is to have this not just focused on expenses. What we don’t want to do is be making bad decisions around investment or how we’re thinking about our franchise. There’s got to be the balance between revenue and between expense. And I think that we’ve got to keep that balance. So we’re going to keep pushing away on the expense side of things. Obviously we’ve got work to continue to do on the legal side of things, and we’re not counting on big revenue growth to be able to achieve it. Ken Usdin - Jefferies & Company : And my one follow up on the reserve release side, this quarter you saw continued nice releases out of card and also in the institutional group. And John, going forward, I was just wondering if you can help us understand the mix of reserve release that you expect or have we kind of gotten towards the end, as you had been saying in prior quarters, about the magnitude of release we could still be seeing out of a corp side.

I continue to think that the reserve releases will flow in card. Can you still anticipate having some for at least the next quarter or two? Probably. I wouldn’t say they’re done, but they should be reduced. The reserve releases this quarter really came out of both branded cards in the U.S. and retail services. Branded cards, we’re now down to an NCL rate of something in the 3.5%, and retail services, we’re roughly at 4.5%. I don’t see those NCL rates getting better at this point in time. So I don’t anticipate continued reserve releases at the levels that we had out of those businesses in the first quarter. You referenced ICG. ICG is a bit more episodic when it comes to either reserve builds or reserve releases or the recognition of NCL. And a lot of times, what you see there is the release of the reserve when we take an NCL. Because we would have had, for a particular credit, a reserve established, and therefore when you recognize the NCL, you release the reserve against it and it’s a perfect marriage. So that’s a little bit more difficult to predict, but certainly from consumer, it should be declining. Ken Usdin - Jefferies & Company : And ICG, was that exemplary of the Mexico extra losses you mentioned? Was that one that you just went right against the reserve this quarter?

No, that, for the most part, was an NCL.

Your next question comes from the line of Erika Najarian with Bank of America.

I just had two follow up questions. First, on the conversation you had with Guy, can we take away from that, given your guidance for lower core operating expenses in holdings, that the pace at which holdings assets can decline from here could decline greater than the 3% pace we saw this quarter?

I’m trying to make sure I’ve worked through the construct of your question. If the assets decline at more than 3%, then the expenses might decline by more than 3%. That’s going to just depend a little bit, as I said before, on which assets come down. If it’s mortgage related assets, then yes, it should come down probably a little bit more than that. If it’s a mark-to-market asset, it probably won’t have the same impact on the overall expense base. But again, roughly speaking, as we reduce assets, we bring the expenses down in line with those asset reductions.

I thought you had a strong message on core operating expenses coming down in Holdings for the rest of the year, and sort of given the message that this is really tied to the assets, I was just wondering whether it was fair to assume that the pace of asset declines was going to accelerate from here. But I get the message. And Mike, I apologize for re-asking the same question over and over again, but just to follow up in terms of what Matt and Moshe had already asked you, I think it’s very clear - and thank you for the detail in terms of taking the steps to get the qualitative aspects of the CCAR correct - but assuming that you have made that progress a year from now, is the pace at which you ask for capital return from the Fed going to be dictated by the actual excess capital that you have? Or do you feel that your initial request, after you complete the qualitative process to their satisfaction, going to be more conservative?

I think as I said in the statement, we recognize we’ve got to get what we do industrial strength. When Citi operates properly, and you saw in the first quarter, we’ve got the ability to generate large amounts of regulatory capital. Regulatory capital in excess of our earnings. And so we need to get the institution to a position to be able to be returning significant amounts of that capital over time. I can’t tell you, kind of going into this to where we are today, what that capital ask will be next year, but we’ve got to get the institution into a position where, over time, we’ve got the ability to return that capital.

Okay. I tried. Thank you.

Your next question comes from the line of Mike Mayo with CLSA.

Related to CCAR, who at Citigroup is accountable for the failed stress test? And what are the consequences?

I am. Obviously, when you think of something that is as important as this for the institution and our shareholders, it’s at the top of the house. So I’m accountable, and if you read our filings, it is in my scorecard, and it’s something for which I’m sure the board will hold me accountable in 2014 when they reflect upon the year. And I’m accountable for it, and I’m accountable for fixing it.

Who else is accountable, and what are the consequences? Can you be specific? I think I hear you saying you’ll be paid down because you didn’t pass, but that’s one aspect. Another aspect is making sure you have the right team on the field to ensure that you have the appropriate regulatory relations.

What I’ve done is I’ve made changes. I’ve asked Gene McQuade to step back from his retirement and to take responsibility, working directly for me, in terms of our CCAR submission this year. And Gene has access to work across the firm, in terms of the things that need to be done, to make sure that submission is of the caliber and quality that it needs to be. And I’ve got full confidence in Gene, and I have full confidence in the team we have to get to that point, because Gene’s not going to be able to do it alone.

Why is the Fed’s denial, the information related to that, only preliminary? And can you disclose some of the shortcomings without disclosing some of the exam findings? It’s very frustrating for many investors not to have more information.

As the findings and the conversations that we have, not with just the Fed, but with our regulators, are confidential, I think the Fed has actually been fairly forthcoming with the public when they made their announcements in terms of that there wasn’t any one particular thing, there were things across the series of work streams that were submitted. And again, I called out things in terms of some general approaches to some processes, some things that need to be changed, in terms of our modeling, the way we vet certain risks within the organization, and the combination of people, modeling, and validation, as well as some other things go at those. And so in there, there’s not one big thing I can point at and say, “That’s the fix.” We’ve got a number of things that we need to be focused on, and again, I think they’re all fixable, and we’re going to be focused on fixing them and creating the industrial strength process that we need to have.

Perhaps the more general question, is the Fed denial a wakeup call for Citi, or not? And what I think I’ve heard you say on this call is that several areas are doing better - markets, Korea, Holdings, etc. - their optimized bucket is about done, you’re making some of the process changes after the Fed denial, you’re okay with your efficiency and ROA targets. So you’re kind of giving us a little bit of a roadmap for the next seven quarters, but the way I look at it, Citi has failed two of the last three CCARs, it’s been 16 years of a failed merger, and for shareholders, it’s been two lost decades. Two decades ago today, the stock was 10% higher. So again, my main question is, is the Fed denial a wakeup call for you guys?

I’ll speak for myself and the management team, and I’ll let the board speak for themselves. We’re wide awake. This obviously came as a disappointment. And again, I’m responsible for it, but if you look at, over the last 15, 16, 17 months in the job, the things that we’ve done. We’ve taken headcount down 18,000 people, net of adding 16,000 people across audit risk/compliance. We’ve had sequential improvements in expenses across our ICG businesses. We’ve addressed seven underperforming consumer businesses. We’ve set out intermediate - and again, I underline the word “immediate” - targets, the ROA, the ROTCE, and the efficiency ratio targets. And we predicated our ability to hit the ROTC on our ability to return some capital. That’s now proven difficult to do, but committed around the ROA, and committed around the efficiency targets, and we don’t view that as the end state of the company. We talked about DTA consumption and our ability to change that, and there have been those historically who were quite critical of our ability to consume DTA, and I think we’ve proven. We came in and we said, it’s a priority, $2.5 billion of DTA utilization last year, $1.1 billion for the first quarter of this year, and we’re committed to continuing to consume it. And so we’ve got things we’ve got to do. We understand. We are not sitting here without a sense of urgency, and if anybody feels that way, they shouldn’t feel that way. And we’re committed to pushing the firm forward. And again, in there, we’re coming with those actions every day.

One conclusion that I reach from the Fed’s denial is that they’re encouraging Citigroup to simplify. Would you agree that that is a push by the regulators and the Fed?

I think that simpler is always easier in a process like this. Again, in the conversations that I’ve had, the conversations have not been about the business model or the strategy. Again, it’s incumbent upon us, and we completely recognize it. We if don’t have the ability to speak to, to model, and to overlook, govern, and control our organization, then yes, we shouldn’t be in that business, or we shouldn’t be in that geography. But I think we’ve got the ability to do those things, and in the conversations that I’ve had, I don’t believe that’s the statement.

Okay. Well, I hope the Fed gives you any more information that would be helpful for investors before your annual meeting next week, and I look forward to asking questions of the board. Will you webcast the annual meeting next week? Because that would allow the board members to disclose material information.

We are not going to be webcasting.

All right. Well, I hope someone can change their mind there.

Your next question comes from the line of Eric Wasserstrom of SunTrust Robinson Humphrey.

John, the mortgage originations were down, it looks like, about 37%. And [favorable] rate lock is down about 20. So what would that have translated into in terms of mortgage income for the period?

The mortgage revenues for the first quarter were down single digit numbers from where we were in the fourth quarter. So as we’ve said, the mortgage revenues pretty much now have stabilized at around the fourth quarter levels.

So I guess that implies that there was some kind of benefit on the servicing side to offset the decline in origination?

Actually, the spreads have held up fairly well. We changed the mix to be less reliant on purchased mortgages and more reliant on mortgages that we’re now originating out of our branches, which is a better returning business for us. So again, we’ve changed some of the mix of the business, but in general, as I said, the revenues have largely stabilized in that business.

And then just to reconcile that against, you know, adjusting in the North American retail banking business, just excluding the sale leaseback, it looks like you would have been down only 2%. So what would have accounted for the difference?

There’s continued spread compression that we continue to have in that business. Even as we grow deposits, in the low interest rate environment, on a deposit-oriented business, you’re going to run into revenue pressure.

And did I also understand you that credit card volumes in the period across both the proprietary branded and the retail were down more or less in line seasonally? Is that the correct understanding?

From an A&R point of view, or an E&R point of view, the net receivables in those two businesses did exhibit the normal performance that you would have in the first quarter as far as balances being down from where they were in the fourth quarter. However, for the industry, as well as for us, we continue to remain challenged with an overall decline in the A&R and in the E&R. Certainly in our branded cards business, you’ll see a decline year over year. And so that just reflects the continued deleveraging on the part of the U.S. consumer and the resulting high payment rates that we’ve been experiencing.

I was also referring to the charge card volume, if that would have looked different than what the typical seasonal trend would have implied.

I don’t think so.

And then just lastly, on CCAR, understanding that some of the issues are preliminary, I’m just trying to understand the broad scope of all your statements. But perhaps if you could just help me understand, how satisfied are you today that you understand what all of the criticisms are?

I think at this point we’ve had conversations. I won’t be fully satisfied until we get the written response, and then we close the gap or we close any questions or differences that we may have from what’s in that letter. But again, around the conversations, and it’s been, I would say, good, active, fairly constant engagement to date. Again, I want to see the letter. I don’t think I’m going to be surprised by the letter, but I need to see it.

And just sort of rolling that forward to resubmission, putting aside any capital return dynamics, how much progress do you think you’re expected to show on these issues at that point? And is it possible to actually have accomplished that?

I think the way we need to think of things is we run an institution of global importance, and we shouldn’t set the standard to whatever the Fed standard is. We should set the gold standard in terms of what our approach to the process should be. And I’m comfortable with Gene’s leadership and coordination from the rest of the team we’re going to have the ability to do that, but also, recognizing that that’s not going to be static. Our work’s not going to be static. The bar’s not going to be static, and we’re going to have to continue to go at this every year.

Your next question comes from the line of Matt Burnell with Wells Fargo Securities.

First of all, in terms of the SLR guidance versus last quarter, John, as you said, you thought that the new U.S. rules would benefit you by about 10 basis points. You’ve updated that to flat to up modestly. I guess I’m curious, given what JPMorgan said last week, that potential netting of derivatives and some of the new U.S. rules might help them by 30 to 40 basis points, where you might see some differences between the benefit you’re estimating and the benefits that they might be estimating.

I don’t know what they baked into their original estimates, so I have no way of commenting on how my view of the changes would differ from their view of the changes. I can just tell you where we are and where we would expect to be.

And then in terms of the Basel III RWA, on an average basis, those were up about $55 billion in Citigroup, a little bit more than that, $57 million in Citicorp. What drove the increase in the RWA? Was it model rejection or was it something else?

I’d focus you on slide 20. That’s probably the easiest place to see it, because it deals with quarter end balances. And so from a quarter end balance point of view, with both quarter ends reflecting all of the changes, the incremental op risk, what you see there is about a $27 billion increase in our risk-weighted assets from the fourth quarter going through the first quarter. So about a third of that increase is in fact due to the loss of model approvals as we’ve exited from parallels. So that’s exactly the impact that you were looking for. And then that requires us to use alternate approaches, which just adds a little bit to the risk weighted assets. And that would be primarily in market risk. And then the balance is primarily just due to an increase in lending and commitments. You’ve seen how our loan book has grown. We’ve got additional commitments there. And so that’s just a general business driver.

And then lastly, I think you mentioned that you’re starting to believe in some revenue stability in Korea. And maybe this is putting the cart before the horse, but I guess I’m just curious as to, given where you stand today, what the timing might be for potential revenue upside in the Korean franchise, now that you’ve stabilized it.

Well, I would say that there is a good shot that we will have sequential growth coming from Korea, again, certainly in the back half of the year. That’s the way we’re looking at it. Obviously revenues, we think they’ve stabilized now. I think when you’ve seen the announcement - at least the papers have been reporting about - that we’re going to shut 56 branches in Korea, we need to work with our union there in order to then make sure that we’ve got appropriate headcount that matches those branch closures. That’s likely to have some residual impact on the revenues there, so I’m not quite sure that we can look to the second quarter as far as having revenue growth in Korea, but once we get that second quarter repositioning behind us, I think we’ then should be looking towards sequential growth.

Your next question comes from the line of Derek De Vries of UBS.

In your statements, it looked like you pushed a lot of the costs from the corporate other into the divisions, which makes sense, but I guess I was surprised you didn’t push any of the $56 billion of incremental operational RWA into the divisions. Is that just a timing issue, sort of adjusting your models? Or is that corporate center going to have $124 billion of risk-weighted assets going forward?

As we exited from parallel, and you can maybe go back to some of the disclosures that we’ve made on this, with the level of operational risk-weighted assets, the $288 billion of RWA that is an amount that we agreed with the Fed on. We don’t have the models in place today to apportion that last $56 billion out into the business units. So it’s very much model-related more than anything else. I don’t envision that $56 billion staying in corporate forever, but until we get an agreed upon model approach, it’s going to be difficult to apportion it out.

Thank you. We have no further questions in the queue at this time.

Thank you, operator. Thank you all for joining us here this morning. If you have any follow up questions, please reach out to the investor relations team. Thank you.