Hello, and welcome to Citi's Fourth Quarter 2014 Earnings Review, with Chief Executive Officer, Mike Corbat and 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, Brent. 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 Web site, Citigroup.com. Afterwards, we will 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 expectation and are subject to uncertainty and changes in circumstances. Actual results and capital and other financial conditions 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 factor 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 $350 million for the fourth quarter of 2014, or $0.06 a share. These results include the impact of $3.5 billion in legal reserves and repositioning costs, which we had disclosed in December. While these charges had the biggest impact on our results, we also saw a challenging end to the year, with macro uncertainties and falling oil prices resulting in a more difficult market environment than we had expected, particularly in the last few weeks of December. At the same time, our institutional banking franchise continued to show solid revenue growth. In consumer banking, our U.S. franchise performed well and we showed modest growth in international consumer, even as the global economic growth remained uneven. In Citi Holdings, we were profitable again this quarter and reduced assets to below $100 billion for the first time, driven by ongoing runoff in asset sales. While the overall results for 2014 fell short of our expectations, we did make significant progress towards our priorities, and while some of the steps we took were painful, I believe they allowed us to put our franchise in a position to have a successful 2015. We're doing everything we can to maximize the benefits of our repositioning costs and throughout 2014 we worked hard to improve our efficiency and reduce our cost base. We reduced our head count by almost 10,000 people, closed 95 operation sites, shrunk our branch network by over 10% while increasing digital uptake by consumers, simplified our product offerings, and increased customer satisfaction as measured by net promoter scores. We sold our consumer businesses in Spain and Greece and took important steps towards the exit of One Main. And in October, we announced plans to exit 11 consumer markets and have…

Thank you, Mike, and good morning, everyone. To start, I would like to highlight a few items from the fourth quarter of 2013 that affect the comparability to this quarter's results as shown on Slide 3. On an adjusted basis, we earned $0.06 per share in the recent quarter compared to $0.82 in the fourth quarter of last year. This decline in EPS mostly reflects higher legal and related costs and repositioning charges versus last year. On Slide 4, we show total Citigroup results. In the fourth quarter, we earned $346 million, or $0.06 per share, including the impact of $3.5 billion of legal and repositioning charges. Revenues declined slightly on a reported basis to $17.8 billion, but were up 2% year-over-year in constant dollars, driven by modest growth in Citicorp. Expenses grew 21% year-over-year, primarily reflecting the higher legal and repositioning charges. Core operating expenses were flat, including a benefit from the impact of FX translation. Cost of credit improved from last year. And our tax rate was significantly higher this quarter at 72%, reflecting the non-tax deductible legal accruals. On a full-year basis, revenues and core operating expenses were fairly stable versus last year. Legal and repositioning charges were significantly higher than the prior year, as we work to resize our operations and address legal issues. As we said in December, we believe we have put a significant portion of our outstanding legal matters behind us. Cost of credit was a tail wind, driven by lower net credit losses. In constant dollars, Citigroup end-of-period loans decreased slightly year-over-year to $645 billion, as 3% growth in Citicorp was more than offset by the continued wind down of Citi Holdings. Deposits declined 4%, as we reclassified $21 billion of Japan retail deposits to held-for-sale in Citicorp, given the sale announcement…

[Operator Instructions] Your first question comes from the line of John McDonald with Sanford Bernstein. Please go ahead with your question.

Hi, good morning. John, I was hoping you could try to give us a sense of how much of the one-time items you had in the fourth quarter core expense figure of the 10.9 core operating expense. You mentioned a number of items that were either pulled forward or that you characterized as one-timish. Can you give us a feel for how much that might have been of the 10.9 billion core expense number?

Well, let's focus on the $200 million. Because we basically – the guidance that we mentioned as of the end of the third quarter would have been that we would expected the operating expenses in the fourth quarter to be roughly flat. We saw about a $200 million rise, which I gave you some of the component pieces. I would say that somewhere between 50% and 75% of that 200-plus million dollars would be non-recurring, so call it two-thirds is non-recurring.

That includes the CCAR expense? Some of the CCAR expense?

Some of the CCAR expense in the fourth quarter – overall in the second half of the year, we incurred CCAR expenses of about $180 million. And roughly two-thirds of that should be non-recurring as well. But that's split, John, between the third and the fourth quarter.

Okay. And any sense –

I would say, John, John, back up. Two-thirds of that should be recurring. One third of that is non-recurring of the CCAR expense.

Okay. Those expenses are in the 10.9 that that jumping off point in the fourth quarter expense number, correct?

Yes. John, maybe what's simpler is if I took you through where we stand with delivering the repositioning saves that might get you closer to where you're looking to – to try to get to.

Okay.

If you think about our repositioning expenses, over the last nine quarters, we've taken roughly $3.1 billion of repositioning charges in Citicorp, including the actions that we announced back in December of 2012. We expect that the, all of those actions should produce about $3.4 billion of annual savings. Roughly $2.7 billion of those benefits are already included in our fourth quarter expense run rate. Or maybe said another way, the fourth quarter expenses are lower by about $700 million, resulting from the cumulative impact of those actions. So these savings will continue to accrete each quarter and we expect the vast majority of those remaining benefits to be reflected in our expense base by the fourth quarter of 2015.

Okay. So if we actually tried to talk about it in terms of the 10.9 you're running right now exiting the year just under $44 billion in core operating expense. You hope to have that number lower in absolute dollars in 2015 with the savings building?

John, again, we're committed to delivering that efficiency ratio in the mid-50s for Citicorp.

Okay.

And as we said before, we think it takes, some low to mid single – low single-digit revenue increase. We need to deliver on these expense initiatives. We've got the path to get there. I don't want to get into an absolute level of expenses.

Okay. And John, in terms of the repositioning, unlike the legal costs, the repositioning, as you and Mike have said, are 100% in your control. So do you expect to have any repositioning in 2015? And should it be a lot lower? Could you give us any kind of sizing perspective on any additional repositioning we should expect in 2015?

I would never use a word like we won't have any repositioning, because we're constantly looking at the business. But it certainly shouldn't be at the level you saw in, in 2014 where we had in Citicorp something like $1.5 billion, $1.6 billion worth of repositioning costs. What we said, John, when we set up those efficiency targets, don't forget, is we said we thought that in a normal year, we would have about 200 basis points of our revenue consumed by legal and repositioning. So we certainly aren't looking to run repositioning anywhere near the level in 2015, anywhere near the level that we ran it at in 2014.

Okay. Okay. Got it. Thanks John.

No problem, John.

Your next question comes from the line of Jim Mitchell with Buckingham Research. Please go ahead with your question.

Hi, good morning guys. My question is on the strategic actions. There's a lot of moving parts there. And you mentioned, I guess number one that you expect Citi Holdings to remain at breakeven or better next year or 2015. But we have – you're adding businesses that have been losing money. There's the pretty clear that you guys are looking to sell One Main. Is all of that contemplated in that comment? How do we think about that?

It's all contemplated in that comment.

Okay. Perfect. And then have you – can you guys help us a little? We can all pick our own guess on what maybe what the capital gain could be in One Main or anything else. But with all these actions, is there any kind of a way to think about the RWA reduction potential coming out of One Main, as well as the strategic changes?

No. One Main has about $9 billion worth of GAAP assets in it.

Right.

Obviously, it's higher than that on an RWA basis, but I don't want to get into the capital accretion that might come from a One Main exit. As we get closer to that, again, that's going to be dependent upon which path we go down. We're obviously working a dual path exit strategy for One Main. And so let's think about which path we actually go down and then we'll be able to talk about what the implications are.

Okay. Thanks. And maybe just one last sort of bigger picture question. You guys obviously are a global company that's been I guess a source of some fear in the market. How are you feeling about the international aspect of your business, the economies there, given what we're seeing with the volatility outside the U.S.? Has anything changed? If you look at consumer revenues in international, they are still positive, but she slowed a little bit versus 3Q and maybe that's just seasonality. You're still expecting growth. What do you see as the risk to that expectation of growth outside the U.S. and how are you thinking about it?

Well, I think the balance of where growth is going to come from, with the move in oil, has probably, or most certainly shifted over the last couple of months. So I think what you've seen is revisions in terms of many of the developed economies up and some of the emerging economies, and in particular, those that are most dependent on oil export as a big part of their economy. I think when you take the aggregate of those two and add them together, you can look at the growth rates being projected that we're projecting higher growth rates in the global economy in 2015 than we had in 2014. I think when you think of, or as we think of the potential winners and losers and how that impacts our business, I would probably break the world into – or countries into one of three buckets. Those where there's a clear benefit from the reduction in terms of oil prices, those where there's a clear detriment or headwind that comes as a function of lower oil or energy prices, and then there's a bucket in the middle where it probably becomes a bit more complex. And that is where you've got different combinations of where economies overall benefit, yet you have governments that are quite dependent on oil export for revenue generation against their budgets. And so clearly, when you look across the world today, the big beneficiaries are the U.S. They are Europe. They are China, Japan, India, and you could take that list forward. You look at those that are probably most negatively affected, countries such as probably Saudi Arabia, Russia, Venezuela and Nigeria. The countries that I mentioned in terms of being positive probably account for an excess of 65% of our revenues. And you could measure that in 2013 or 2014. If you look at the companies or the countries that are most negatively affected, those countries probably constitute somewhere 2% or less than 2% of our revenues. But that being said, I think we all have to recognize that it's going to create unevenness. It's going to create some uncertainty. It's certainly going to create volatility. And I think we all need to be mindful of that.

Great. Okay. That's helpful. Thanks a lot.

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

Hi, guys.

Hi, Matt.

If I could follow up on the low to mid single-digit revenue growth, just trying to better understand how you get there. I guess if the NIM's relatively stable and the balance sheet is flat to down, and obviously net interest income is about 60% of revenues how do you call it 2% to 4% of revenue growth, when half of the revenues, or more than half the revenues aren't really growing?

Well, you've got that revenue momentum already in the second half of the year, Matt. So when you're looking – when you're looking at it, you need to focus on the second half of the year and the momentum that we've gotten. So every one of those businesses, has both interest earning revenues and also fee earning revenues. And we are seeing growth in those businesses in both the NIM, both the near, the net interest revenue, as well as the fee components. Some of it, when you take a look at the full year numbers, it's going to be masked a bit. Don't forget when you take a look at non-interest revenues, a lot of that impact year-over-year – come from the mortgage refi boom. When you take a look at mortgage refi, that's fees, those gains that we would have gotten are in 2013 in the first half of the year. They didn't replicate this year. So year-over-year, our fee-related revenue from that is down, I don't know, 700 or so million dollars. So there's a lot of those types of items that are just buried in the results. But we're focused, we certainly are looking through the full year comparisons and looking to what we see in the businesses today as we're operating them.

Okay. And then just separately, can you remind us how the foreign exchange movements impact, I guess you said it doesn't impact regulatory capital. It does impact tangible book. Just remind us if that's the right way to think about it? And then why is there a mark? Why is that something that you can't hedge, because it seems like what happened last year, the dollar strengthening is something that might continue?

Well, Matt, we do hedge. So let's start with P&L. P&L and we have had these discussions over the years. And there's a slide in the back of the earnings presentation. I think its Slide 26, that actually talks to – which is it?

28.

28. Sorry. 28. I was off by two. That actually shows you the impact of FX on the various line items. So the dollar strengthening or weakening or different currencies strengthening and weakening has an impact on our revenue line, our expense line and our cost of credit line. However, as you can see in no individual quarter does it have what I would consider to be an outsized impact on our pretax earnings. And in fact, this quarter even with all the volatility, the net impact was close to zero. So that's, that's P&L. When it comes to capital, we do hedge our capital that's invested in foreign currencies, but we hedge it with a view towards protecting our CET 1 ratio. And that's why, when you look at how foreign exchange movements occur they not only impact your capital invested, they will impact your assets. And they will also impact some of the assets that you have, such as the intangibles that serve, then, as direct deductions against your regulatory capital base. So we factor all of that into a hedging program that, gives us fairly good results. And this quarter, with all the movement we had, the combination of our hedging program and then the natural hedges that we have resulted in a zero impact on our CET 1 ratio. However, because we do not hedge every dollar of capital, you will then have an impact through OCI on tangible book. But, if I'm going to run the company with an eye towards where do I have exposure, I want to protect my CET 1 ratio. I don't want to run an FX position through that ratio. And so in a quarter where the dollar strengthens, we may take a reduction on tangible book. But I've protected the ratio. If I go the other way, if the dollar weakens, and we have had quarters where the dollar is weakened, then I may really enjoy the impact that it has on my tangible book, but it's going to destroy my CET 1 ratio. And as you know, that is one of the key measures of regulatory strength that we have. So we think that it's really important that through our hedging program, we focus on that CET 1 ratio.

Okay. That's very helpful going through all the detail. Appreciate the color. Thanks.

Not a problem at all, Matt.

Your next question comes from the line of Guy Moszkowski with Autonomous Research. Please go ahead with your question.

Thank you. Good morning. My question is very much a CCAR related one. I think to paraphrase, Michael, you have said in the past that you recognize that a qualitative path with a very, very ultra conservative capital return ask would not really be a win in your eyes. And I'm sorry if I've paraphrased you incorrectly, and go ahead and correct it. But I guess the question is, having now been through the process for this year and done the submission, is that still the way that you feel about it?

I think, Guy, we are aiming for, looking for, we worked towards what we would want to be an unqualified path, both qualitatively, as well as quantitatively. I think as we've said all along, capital return is something you work towards over time. But again, we think that our capital ask is the appropriate one. And when all the results come out, we'll obviously let you be the judge of it. But we've felt given everything that it's appropriate and it's right.

Okay. And is there any change in the way that you would sort of answer that question versus what you said, say, at a conference last month?

No.

Okay. I guess the only other question that I have today is in light of the weakening in certain emerging markets and you were very good about giving us a sense for where your revenues come from in terms of markets that are more and less affected by energy prices. But generally, given some of the weakness that we're seeing in more of those markets, what have you done on both the credit side and on the trading risk side, if anything to say increase the level of scrutiny and protection?

I think you saw back beginning with Gipson, I think as different challenges around the globe in the macro economy have presented themselves. I think we've come out and tried to be very transparent with what our exposures look like. I think in this environment, you can imagine, we continue to watch Europe closely. Clearly, Russia, and we can speak to some pretty significant reductions in terms of risk in Russia. John and I had both mentioned Greece earlier. And clearly, with what I described as those economies that come under pressure either from the broad perspective of just big exporters of energy and suffering that impact or those where governments are extremely dependent on the revenues from energy to fund public and social programs, we obviously have a very close eye towards those and we think we're watching from a risk perspective very closely and monitoring that.

Okay. That's helpful. Thank you very much.

Thank you, Guy.

Your next question comes from the line of Betsy Graseck with Morgan Stanley. Please go ahead with your question.

Hi. Wanted to follow up to that, which is –

Hi, Betsy.

Oh, hi, can you hear me?

Yes.

Okay. So one's a follow-up to the question we just had on just the outlook for economies where they are a little bit weakish. I know you mentioned earlier in the call, Europe, EM could be weakened, even though they are beneficiaries of oil pricing. And obviously we saw a presence in those markets. So if the top line is coming in weaker than you think in some of those economies, do you have room to manage expenses down a little bit more? I know you outlined you hit the targets at year end 2015 on the expense ratio. But just wondering where you might be able to pull some resources out if the top line disappoints.

Betsy, as we've said, we're committed to hitting those targets. We think we've got some level of flexibility obviously, to the extent that we see certain countries or certain businesses, underperforming what the expectations are. And if our view towards the targets change at any given point in time during the year, we'll have that discussion with you.

Okay. And then you mentioned at the beginning of the call about the concept of moving away from a confederation of banking organizations to a true global organization. Is the steps to get there what you outlined last quarter, which is just exit the 12 consumer businesses, or is there more to do?

No. I think we said as we did that, as we looked at the exit of the 11 consumer businesses, that the remaining 24 we thought were the right mix of businesses in the right places, with the right client demographics. And so we feel that the consumer portfolio is at a point in time today where it is, it is the right portfolio, the right mix.

Okay. Just want to be clear on that. Then lastly, there's some action taken today by the Swiss Central Bank. Just wondered how you're thinking about that action and how it impacts your business.

Well, I think there's a couple ways we think about it. One is a move of that magnitude and you hear a range of potential standard deviations moves, but it's big. And clearly, those types of one-off moves affect the markets in a couple different ways. One is there's P&L ramifications from the trade. I think there's also longer term ramifications from just people being surprised. There's talk out in the marketplace of – some of the high frequency traders suffering a fair amount of pain on that. We'll see how that plays itself out. And we've seen in these pockets of one-off volatility that it actually causes people to potentially pull back from the market and we see volumes abate as a result of those. We'll see, we'll see what this move does, but I think clearly, based on market reaction, it came as quite a big surprise.

Right. I mean, from a competitive perspective, there might be some opportunities for you, or no?

I think there could. We are, as you know, a big player in foreign exchange. Our business in the fourth quarter actually performed quite well. We think we're well positioned. And if some of that pain is out there and people can't find their way around it or through it, I think we've got the ability to step in and potentially take share or potentially do more business as a result of that.

Okay. Thank you.

Your next question comes from the line of Mike Mayo with CLSA. Please go ahead with your question.

Hi. I think if we take your target of a 90-basis point ROA in 2015 that would imply that Citi would beat consensus expectations for 2015. So I think that's the way of saying the market doesn't believe you if. I could just go down a couple issues, especially after page 1 of your press release that 2014 was disappointing. So first, on efficiency, just to be clear, John, you have $700 million more of restructuring benefits to go. Would that be in 2015 or over a couple of years?

No. A bit low, Mike, not every dollar of that will be in 2015, but the vast, vast, vast majority of it will be in 2015.

And is that why you guys are confident, I mean, these are big moves in global consumer efficiency from 56% down to 49% to 52% in 2015 and ICG from 59% down to 53% to 57% also in 2015. I mean, what – you're reiterating that guidance today. What gives you confidence in addition to those restructuring benefits?

Well, as we said, it will take – there's some revenue lift baked into at least our initial expectation. But again, it's low single-digit revenue growth. So we're not, I don't think, overreaching for that. But, 2014 was such a noisy year. And we did – it was impacted by $11 billion worth of legal and repositioning charges that I think sometimes that masks some of the progress that we actually made. If you look at 2014's results, let's take it on the operating results. And we had pretax earnings of $18.6 billion of pretax earnings. Now again, when you take a look at the Citicorp level of legal and repositioning charges that we had, that – there's over $6 billion of legal and repositioning charges that impacted Citicorp's results. That's about 900 basis points of Citicorp's revenue. So if we had been able to hold legal and repositioning to what we would consider to be the more normal level, say the 200 basis points of revenue that we would have mentioned previously, if you adjust for those two things, take out the 6, substitute in the 200 basis points, the Citicorp efficiency ratio in 2014 would have been 59% and the overall ROA for Citigroup would have been in the mid-80s. So it's not that we are that far away from the targets. Again, if you normalize for the level of legal and repositioning charges that we had this year. And therefore, we think that given those levels, the 59% efficiency ratio in Citicorp and say the mid-80s ROA for Citigroup, the combination of the steps that Mike talked about earlier, the low single-digit revenue growth, the continued delivery on the expense reduction actions, the careful attention to the balance sheet, all of those things should get us, and keeping Holdings at or above breakeven should be enough to get us to the – to both the goals that we laid out.

That partly begs the question. You said you had $3.1 billion of repositioning charges over the last nine quarters. You had another big hit in the fourth quarter. How much more should we expect of these repositioning charges?

We don't expect to be talking to you next year about significant levels of repositioning.

Okay. As it relates to project Rainbow, which does tie into efficiency and also going from a confederation to a global firm, how far away are you guys in having your systems connect and finishing project Rainbow, which really stretches back long time?

Mike, we are – as we've talked on these calls in some of the forums before, Rainbow is, due for delivery in completion. Again, it's not a one-and-done. We've been continuing to bring countries on, but it's a 2016, largely a 2016 completion date.

And then lastly, again, the math works. We can all, work this out on paper, but then it comes down to execution. Mike, especially after what you called a disappointing 2014 or results below expectations, is this the right team on the field? And I ask that because there have not been really major management changes despite some of the shortfalls. And we know what those were. But how do you think about the team you have on the field?

I feel very good about the team on the field. As you and I have spoken, we've spoken before on the CCAR. At the end of the day, that's my responsibility and I look at these other things that we're trying to work and put behind us from legal issues, to continuing to shape and exit businesses and use repositioning to drive costs out of the firm. I think we've got the right team that's focused on delivering on our targets and delivering on behalf of our shareholders.

All right. I guess it's a different story if you were not to pass the fed stress test. Is that fair?

I'll let the Board be the judge of that.

Okay. All right. Thank you.

Your next question comes from the line of Glenn Schorr with Evercore ISI. Please go ahead with your question.

Hi, thanks. I appreciate --

Hi, Glenn.

Hello. I appreciate the earlier answer when you spelled out the different markets and revenues associated with the beneficiaries and the losers in the oil tug of war. Just curious, how different would those percentages look if we talked about it as a percentage of exposures versus revenues? Do they match up or are they pretty different?

It's, it's interesting that I pulled these a while back, but if you look, I talked about the four countries I spoke to, Saudi, Russia, Venezuela, Nigeria, which at the end constitute and again, you can go back and look over a number of years pretty consistently somewhere 2 to – just under 2% of our revenue. They actually, in each of those years as I went back and looked, as a percentage of our end-of-period loans are actually slightly below those percentages on a year end basis, or end-of-period basis. So again, those countries that I just talked about would probably have end-of-period loan balances of less than 1.5% of our outstandings.

Great. Thank you. Just a quickie on CCAR. Did you remediate all the MRAs from last year? I know that was one of the contributing factors from the prior year. So I'm assuming you had a playbook that they said fixed all this stuff. Were you able to address all the MRAs?

We certainly worked to address all the MRAs. The fed will be the ultimate judge as to whether or not the MRAs were in fact remediated.

Got it. In other words, it's not a black and white answer. So I've asked this of the other banks. I do want to get your color. Your disclosure on energy-related exposures is very broad. I think it includes petroleum, energy, chemicals, metals. Can we talk more specifically on what you would deem oil-related and how it breaks down in terms of investment grade, non-investment grade, collateralized, things like that?

Yes, Glenn. We're going to provide more in-depth information on this topic at next week's fixed income investor review. We'll lay things out for you pretty clearly, but just to get the conversation started, we've got roughly $60 billion of combined funded and unfunded ICG exposure to energy companies. That's including those classified as energy in that conglomeration that you mentioned, PECM, as well as energy-related clients in other disclosed segments. And that $60 billion amounts to about 11% of corporate ICG exposures, just to give you a frame of reference. And as with the rest of our book, the exposure is predominantly investment grade. Certainly over 80%, and as we keep on saying, it's reflecting the focus that we have on large multinational corporations, including the global integrated energy companies. From a geographic point of view, about three quarters of the exposure is in developed markets and the largest exposures there would be in North America and the U.K. And roughly 35% of the exposure represents funded loans. So the ICG has just over $20 billion of funded exposure to energy and energy-related companies. It represents funded exposure. I've moved to funded exposure. And that represents roughly 3% of our total funded loans. And again, about 80% of the funded loans are investment grade. So that gives you a fairly good overview, I think, of the portfolio. Again, $60 billion investment grade, predominantly investment grade, 80% investment grade. Three quarters of the book in developed country most of that North America, U.K.

Definitely helpful. I appreciate it. Last one, you commented in FX is pretty good, given the volatility. Rates I think was pretty good in general. And those two businesses are bigger pieces of business for you. And you commented the softness is in credit and munis, as you paraphrase facilitating client flow in times of stress. I know this is a hard one and I know you're not alone here. I thought with your business mix you might have had better or less performance down in FIC given your mix. Is facilitation – were there large losses associated with that in this type of environment? Or is it a volume thing? How much can we attribute to inventories? I was just scratching my head a little bit on how that contributes to weakness.

The biggest impact that we had year-over-year, Glenn, really is in the spread products business. So and that really is a result of taking marks on inventory positions that we've got to support the customers. And again, I don't think, as you just said, I don't think that we're alone there. We do have probably a slightly different mix than, than many of our other competitors, but even within there, we've got a fairly large muni book, probably a little bit larger than with some of the other banks would have. And so that certainly adds then to the results that we're getting out of the spread products.

Okay. I appreciate all the answers. Thanks.

Not a problem.

Your next question comes from the line of Brennan Hawken with UBS. Please go ahead with your question.

Good afternoon.

Hi, Brennan.

Following up on the question there from Glenn on exposures with oil, when we look at the last few years in DCM volumes in the energy business, looks like you guys have a bit more bigger market share there. Is there any reason why that wouldn't be a bit of a headwind for your DCM business here if we assume that there's a slowdown in energy-related issuance?

Some of these things will certainly have impact. I would say that global energy has certainly been a robust area for the last four years and clearly, our investment banking franchise, as with other institutions, has seen significant growth in episodic business as a result from that sector. And you're going to have some impact for lower, lower commodity prices and lower equity valuations. That is certainly going to have an impact on equity offerings and IPOs. But energy, energy is a broad business, and some sectors are going to be impacted more than others. And so we continue to see bust activity in some sectors where we're a leader, and I think you'll see the upstream in the energy services sector certainly see significantly less activity. So we'll just see how the whole mix continues.

Okay. All right, thanks. And then shifting gears to Mexico, there was some noise and speculation, color in the market on Banamex and the fact that there would be a bunch of bidders for it and such. Is that – is the reason for that noise because you all were having dialogue? Or is this just from companies hoping to bid for an asset if it happens to come on the market?

We rarely comment on things. And in that case, we felt compelled to go out and comment and say that we are not a seller of Banamex. And I don't think we can be any more clear about that on these calls and in the forums. I've spoken directly to it and the importance of the franchise and why we're so constructive on our position in Mexico and why we think Banamex is the right way to express that in Mexico. So we have a terrific franchise. We're committed to it. And we think there's very good things ahead coming out of that business.

That's clear. Thanks. And then in equities, right, I know you guys called out the weak cash revenues in EMEA. But was there anything else behind the equities' weakness? Also, more broadly, is there maybe an updated plan for the equities business because it does seem like there's a pretty regular stumble in that business, whether it's derivatives or in this case EMEA or what have you. How do you feel about it currently and where do you want to take it in the next couple years?

We're committed to the equities business. And this has been a business that we have spent a lot of time working on. And I think the – outside of EMEA, this quarter we've actually got performance that shows the progress that we've made. As I mentioned in my prepared remarks, excluding the performance in EMEA, the rest, we had 24% revenue growth year-over-year, in every other region, North America, Latin America, Asia all saw double-digit growth. It's not that there's just one region that's driving the action here. This is a good franchise. We have an issue with our equities franchise in one region. And we have certainly begun to take actions there. We've made management changes, beginning in the late second half of 2014 and we do expect that region to be a much better performer in 2015.

And given the fact that it was so strong in other regions, were there some sort of risk management or facilitation losses there, or was it purely just volume-driven?

No, it's a combination. We had volumes, and we had strong performance in some of our equity derivatives business. Asia had a very good performance in equity derivatives this year for one in the quarter. So did Latin America. So it was pretty broad-based good performance. Again, the one difference would be – the one exception to that would be in EMEA.

Okay. And then last one for me, you gave some helpful color on the fact that ICG expenses, you took down the incentive comp. But there was an offsetting assumption to the deferral, deferred comp piece. Could you maybe give us a little bit more color on those changes? Was that tied to repositioning that you guys are planning? Or is it a change in the timing of the deferral schedule? Are you shifting to more cash oriented comp? What's driving that?

No. It's a combination of factors, as so many other things are. And as you go through the year, you make assumptions both on the absolute, the dollar level of deferred comp that you're going to have. And don't forget, every country has got some slightly different rules. We also need to make assumptions based upon the level of forfeiture that we'll have coming out of deferred comp as people leave. And, we've got – we had slightly less turnover this year, in the non – outside of the actions, of course, that we instigated. So we had to change the view that we had towards the forfeiture percentages and as well as the absolute amount of deferred comp that we were going to have. And so all of that we cleaned up in the fourth quarter.

Got it. Thanks for the color.

Not a problem.

Your next question comes from the line of Gerard Cassidy with RBC Capital Markets. Please go ahead with your question.

Hi, everyone. This is actually Steven Duong in for Gerard. Just starting out on the credit, where do you guys see your net charge-offs going in 2015? And what would be the drivers of that?

I don't want to get into any individual line item forecasts. Obviously, what we said in the prepared remarks is that the cost of credit is likely to increase. That's going to come from a combination of both. We're likely to have slightly higher NCLs. I can't tell you – just as we continue to grow the book, it's not because we see credit quality weakening anywhere. And we continue to benefit this year from loan loss reserve releases and that is certainly likely to lessen next year. So the combination of those two items will largely cause an increase in our actual reported costs of credit. But we don't see any diminution in the credit quality of the portfolio.

Okay, great. Thank you. And just switching over to Volcker Rule on trading. Volcker Rule's been here since July. Are you guys seeing your traders maybe being a little more cautious so that they are not doing any prop trading? And just a follow-up to that, where do you see the Volcker Rule impacting liquidity in the fixed income markets?

I think Steven – it's Mike. We haven't been a proprietary skewed institution for a long time. And so I would say no, that we really haven't seen those impacts, that ours is predominantly a client-facing organization. I think ways that you're going to see – I think we've already seen it manifesting itself probably comes in the form of liquidity, that there's just things we're not in or there's types of trades we're not going to do, and in times of market disruption, I think the buy side finds it quite difficult to find liquidity in certain types of assets or in certain asset classes. And I think that's a reality of some of those changes. And so again, we've talked a bit about that we're probably going to see heightened periods of volatility as a result of that. I think you're going to see more price fluctuations around certain types of asset classes as I think bank and broker balance sheets have become more refined and defined in terms of what they do, and I think that just manifests itself in just less liquidity.

Great, thank you. And just last question, can you remind us in your Citi Holdings, how much of your home equity book goes to full amortization of the principle and interest in 2015 and 2016?

We will update those disclosures when we publish the Q, but it's roughly $4 billion of HELOCs that become fully amortizing in 2015. And then I think there's $5 billion that go fully amortizing in 2016 and again in 2017.

Okay, great. And just looking back at – in 2014, even though that's not that large, but, have you guys seen any – what the early credit metrics have been on home equity book?

You mean as far as the home equity loans that that have gone to full amortization or just in general?

Correct. Yes, just the full amortization portion.

Just the full amortization portion. They have been fairly consistent with the results that we've gotten for that over the last couple of years. Slightly higher levels of delinquencies, slightly higher NCL rate. Everything is either on track with or slightly better than the assumptions that we have built into our loan loss reserve model.

Great. Well, that's all our questions. Thank you again.

Not a problem, Steven. Thank you.

Your next question comes from the line of Eric Wasserstrom with Guggenheim Securities. Please go ahead with your questions.

Thanks. I'll follow up offline. Thanks, John.

Okay, Eric. Thank you.

Your next question comes from the line of Brian Kleinhanzl with KBW. Please go ahead.

I had a quick question on the revenue growth targets that you gave out there for Citicorp. What's the trading revenue growth assumptions that you have built into those targets? I mean if trading revenues decline year-over-year, can you still hit that revenue growth target?

What we've said, at least what I think I said in the prepared remarks was that our trading markets will perform in line with the market. And so, we're not, we're not giving any view towards what trading revenues will or won't do in 2015. So we're expecting – as we said, we had basically flat revenues on those businesses in the second half of this year compared to the second half of last year. We'll see how 2015 goes.

Okay. And then just one thing in the North America cards. You've mentioned for a couple years ago that the runoff of promotional balances has been a headwind. Is there any way you can size what that promotional balance as a percentage of the total or may be say that when you expect to actually what quarter kind of the headwind will be?

No. We haven't talked to that publicly. And I quite frankly, I don't have those numbers right in front of me right now anyway. It's not going to continue forever, but I just don't have it. Sorry.

Okay. Thanks.

Sorry.

Your next question comes from the line of Steven Chubak with Nomura. Please go ahead with your question.

John, I just wanted to clarify something that you had mentioned relating to the efficiency target of 55%. One of the things that --

Hold it, hold it, Steven, Steven, Steven.

Yes.

Mid-50s.

Mid-50s, okay. I suppose after applying all the adjustments that you had talked about relating to the strategic actions on a pro forma basis, contemplating some of the restructuring benefits, the majority of the $700 million that you alluded to, I still get to about a mid single-digit revenue growth number. And I suppose is the growth – the low single digits that you're referring to, is that off of the reported revenue base from this past year, is it a pro forma revenue base, which should include some revenue attrition as you exit some of those non-core businesses?

It would be a low single-digit growth off of where we performed in 2014. You can pro forma – I'm not going to go into every – I can't help you with your model, Steven.

I guess the low single digits seems reasonably conservative, but if you have all the pro forma actions that are taken to drive that improvement in the efficiency target, it feels as though the revenue growth actually needs to be a little bit better than that. I just wanted to confirm whether that was the appropriate way to think about it or not.

No, I don't think so.

Okay. Then just one more for me on a topic that's garnered some attention in the press relating to the growth in your derivatives book, at least through the first nine months of 2014. I actually wanted to just inquire as to whether you're managing that – how – I guess how much more growth you can support or whether one of the important considerations we should have is the potential risk that the growth and derivatives book over the last nine months could potentially move you into a higher adjacent bucket, based on the inputs that have just come out from the fed.

Yes. All very good questions, but first, let's start with the fact that what everyone's been focused on is not the growth in our book, but the growth in notionals. And notionals, as you well know, really are not any sort of measure really of risk or necessarily of counter party engagement, net counter party engagement. It's a reference sum on which then other things are calculated. So we have been working to compress the trades and what you'll see when we publish results at the end of the fourth quarter is a reduction in the reported amount of gross notionals. Those are the notionals that we had at the end of the third quarter I believe were about 65 trillion of notionals. And that's being reduced now to 60.

Okay. Actually, that's really helpful. Thank you for taking my questions.

Not a problem at all.

Your next question comes from the line of Matt Burnell with Wells Fargo Securities. Please go ahead with your question.

Good afternoon. Thanks for taking my question. Just one follow-up and then I'll jump offline. But John, I just wanted to confirm some of the numbers you were saying before in terms of the cost reductions that are currently in the fourth quarter run rate from the repositioning exercise, were 700 million. That's not 700 million of incremental cost benefit. That's what's currently in the run rate right now, with another 150 to come over the next year-plus. Is that how we should be thinking about it?

More or less, yes.

Okay. Thanks very much. I'll jump offline for my other questions.

Not a problem.

Your next question comes from the line of Erika Najarian with Bank of America. Please go ahead with your question.

Yes. Just one quick one for me. As the full CCAR process is now behind you, do you feel that the feedback that you've got – the specific feedback that you got on the steps you have to take in order to remedy what the fed is looking for on the qualitative side, was it more robust and specific this year versus last year's process?

Well, I think first, Erika, I would say that the CCAR process is never behind you, right, that the CCAR process is just part of what we do and how we run the firm. So we in essence put a submission in, but the process continues and obviously us wanting to continue to improve and continue to embed. I would say that we had terrific engagement from the fed at every level, from our onsite team to the horizontal work teams to Washington and so I think that the communication was quite good. And, again, at the end of the day, our submission is our submission, but we feel like the communication is good and we felt that we knew what it was we needed to do and obviously, we felt like that we've accomplished what it was we set out to do, but more to do as we go into the future and I think as I said in my opening remarks, I feel good about our submission.

Great. Thank you.

Your next question is a follow-up from the line of John McDonald with Sanford Bernstein. Please go ahead with your question.

I'm all set. Asked and answered. Thanks.

Hey, great, John. Thanks.

And we have no further questions at this time.

Great. Thank you all for joining us. If you have any follow-up questions, please follow up with Investor Relations and we'll talk to you soon. Thank you.