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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

Commission file number 1-9924

Citigroup Inc.
(Exact name of registrant as specified in its charter)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

        Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

Common stock outstanding as of September 30, 2008: 5,449,539,904

Available on the Web at www.citigroup.com

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Citigroup Inc.

TABLE OF CONTENTS

Part I—Financial Information

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THE COMPANY

        Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company) is a global diversified financial services holding company whose businesses provide a broad range of financial services to consumer and corporate customers. Citigroup has more than 200 million customer accounts and does business in more than 100 countries. Citigroup was incorporated in 1988 under the laws of the State of Delaware.

        The Company is a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956 registered with, and subject to examination by, the Board of Governors of the Federal Reserve System (FRB). Some of the Company's subsidiaries are subject to supervision and examination by their respective federal and state authorities.

        This quarterly report on Form 10-Q should be read in conjunction with Citigroup's 2007 Annual Report on Form 10-K and Citigroup's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008. Additional financial, statistical, and business-related information, as well as business and segment trends, is included in a Financial Supplement that was filed as Exhibit 99.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission (SEC) on October 16, 2008.

        The principal executive offices of the Company are located at 399 Park Avenue, New York, New York 10043, telephone number 212 559 1000. Additional information about Citigroup is available on the Company's Web site at www.citigroup.com. Citigroup's annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to these reports, are available free of charge through the Company's Web site by clicking on the "Investor Relations" page and selecting "All SEC Filings." The SEC Web site contains reports, proxy and information statements, and other information regarding the Company at www.sec.gov.

        Citigroup is managed along the following segment and regional lines:

The following are the four regions in which Citigroup operates. The regional results are fully reflected in the segment results.

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(1)

Asia includes Japan, Latin America includes Mexico, and North America includes U.S., Canada and Puerto Rico.

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CITIGROUP INC. AND SUBSIDIARIES

SUMMARY OF SELECTED FINANCIAL DATA

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(1)

Discontinued operations relate to the pending sale of Citigroup's German Retail Banking operations to Credit Mutuel, and the Company's sale of CitiCapital's equipment finance unit to General Electric. See note 2 to the Consolidated Financial Statement on page 92.

(2)

Due to the net loss in the 2008 periods, basic shares were used to calculate diluted earnings per share. Adding diluted securities to the denominator would result in anti-dilution.

(3)

The return on average common stockholders' equity is calculated using net income (loss) minus preferred stock dividends.

(4)

Tier 1 Capital divided by adjusted average assets.

(5)

Dividends declared per common share as a percentage of net income per diluted share. For the third quarter of 2008, the dividend payout ratio was not calculable due to the net loss.

NM Not meaningful

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        Certain reclassifications have been made to the prior-period's financial statements to conform to the current period's presentation.

        Certain statements in this Form 10-Q, including, but not limited to, statements made in "Management's Discussion and Analysis," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors including, but not limited to, those described in Citigroup's 2007 Annual Report on Form 10-K under "Risk Factors" beginning on page 38.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

THIRD QUARTER OF 2008 MANAGEMENT SUMMARY

        Citigroup reported a $3.4 billion loss from continuing operations ($0.71 per share) for the third quarter of 2008. The third quarter results were impacted by higher consumer credit costs, continued losses related to the disruption in the fixed income markets, and a general economic slowdown. The net loss of $2.8 billion ($0.60 per share) in the third quarter includes the results of our German Retail Banking Operations and CitiCapital (which are now reflected as discontinued operations).

        Revenues were $16.7 billion, down 23% from a year ago. The decline in revenues was driven by $4.4 billion in net write-downs in S&B (after reflection of the gain on Citigroup's liabilities under the fair value option), lower securitization results in North America Cards, and a $612 million write-down related to the auction rates securities (ARS) settlement, partially offset by a $347 million pre-tax gain on the sale of CitiStreet. The prior-year period included a $729 million pre-tax gain on the sale of Redecard shares. Revenues across all businesses reflect the impact of a difficult economic environment and weak capital markets.

        Global Cards revenues declined 40%, mainly due to lower securitization results in North America and the absence of a gain on the sale of Redecard shares. Consumer Banking revenues grew 2%, as increased revenues in North America were partially offset by declines in Latin America and Asia. ICG S&B revenues were ($81) million, due to write-downs of $2.0 billion on SIV assets, write-downs of $1.2 billion (net of hedges) on Alt-A mortgages, downward credit value adjustments of $919 million related to exposure to monoline insurers, write-downs of $792 million (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, write-downs of $518 million on commercial real estate positions, and net write-downs of $394 million on subprime-related direct exposures. S&B revenues also included a $306 million write-down related to the ARS settlement. These write-downs were partially offset by a $1.5 billion gain from the change in Citigroup's own credit spreads for those liabilities to which the Company has elected the fair value option. Transaction Services revenues were up 20% to $2.5 billion, reflecting double-digit revenue growth across all regions. GWM revenues decreased 10%, driven by a decline in capital markets and investment revenues, partially offset by higher banking and lending revenues. GWM revenues also included a $347 million pre-tax gain on the sale of CitiStreet, partially offset by a $306 million write-down related to the ARS settlement.

        Net interest revenue increased 13% from last year, reflecting volume increases across most products. Net interest margin (NIM) in the third quarter of 2008 was 3.13%, up 79 basis points from the third quarter of 2007, reflecting lower cost of funding, partially offset by a decrease in asset yields related to the decrease in the Fed Funds rate. (See discussion of NIM on page 49).

        Operating expenses increased 2% from the third quarter of 2007. Expense growth reflected $459 million in repositioning charges, a $100 million fine related to the ARS settlement, and the impact of acquisitions. Expense growth was partially offset by benefits from re-engineering efforts. Expenses declined for the third consecutive quarter, due to lower incentive compensation accruals and continued benefits from re-engineering efforts. Headcount was down 11,000 from June 30, 2008, and approximately 23,000 year-to-date.

        Total credit costs of $8.8 billion included NCLs of $4.9 billion up from $2.5 billion in the third quarter of 2007 and a net build of $3.9 billion to credit reserves. The build consisted of $3.2 billion in Consumer ($2.3 billion in North America and $855 million in regions outside of North America), $612 million in ICG and $64 million in GWM. The incremental net charge to increase loan loss reserves of $1.7 billion was mainly due to Consumer Banking and Cards in North America, and S&B. The Consumer loans loss rate was 3.35%, a 153 basis-point increase from the third quarter of 2007. Corporate cash-basis loans were $2.7 billion at September 30, 2008, an increase of $1.4 billion from year-ago levels. The allowance for loan losses totaled $24.0 billion at September 30, 2008, a coverage ratio of 3.35% of total loans.

        The effective tax rate of 48% in the third quarter of 2008 primarily resulted from the pretax losses in the Company's S&B business taxed in the U.S. (the U.S. is a higher tax rate jurisdiction). In addition, the tax benefits of permanent differences, including the tax benefit for not providing U.S. income taxes on the earnings of certain foreign subsidiaries that are indefinitely invested, favorably affected the Company's effective tax rate.

        Stockholders' equity and trust preferred securities were $149.7 billion at September 30, 2008. We distributed $2.1 billion in dividends to shareholders during the quarter. On October 20, 2008, as previously announced, the Company decreased the quarterly dividend on its common stock to $0.16 per share. Citigroup maintained its "well-capitalized" position with a Tier 1 Capital Ratio of 8.19% at September 30, 2008.

        On October 28, 2008, Citigroup raised $25 billion through the sale of non-voting perpetual preferred stock and a warrant to purchase common stock to the U.S. Department of the Treasury as part of the Treasury's previously announced TARP Capital Purchase Program. All of the proceeds will be treated as Tier 1 Capital for regulatory purposes. Taking this issuance into account, on a pro forma basis, at September 30, 2008, Citigroup's Tier 1 Capital ratio would have been approximately 10.4%.

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        In addition, the pending sale of our German retail banking operation, which is expected to result in an estimated after-tax gain of approximately $4 billion in the fourth quarter of 2008.

        Our liquidity position also remained very strong during the third quarter of 2008 and will continue to be enhanced through the sale to the U.S. Department of the Treasury of perpetual preferred stock and a warrant to purchase common stock, the sale of the German Retail Banking Operations and continued balance sheet de-leveraging. At September 30, 2008, we had increased our structural liquidity (equity, long-term debt, and deposits), as a percentage of assets, from 55% at September 30, 2007 to approximately 64% at September 30, 2008.

        At September 30, 2008, the maturity profile of Citigroup's senior long-term unsecured borrowings had a weighted average maturity of seven years. We also reduced our commercial paper program from $35 billion at December 31, 2007 to $29 billion at September 30, 2008.

        Our reserves of cash and highly liquid securities stood at approximately $51 billion at September 30, 2008, up from $24 billion at December 31, 2007. Continued de-leveraging and the enhancement of our liquidity position have allowed us to continue to maintain sufficient liquidity to meet all debt obligations maturing within a one-year period without having to access unsecured capital markets. See "Funding" on page 61 for further information on Citigroup's liquidity and funding.

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EVENTS IN 2008

U.S. Department of the Treasury Troubled Asset Relief Program (TARP) and FDIC Guarantee

        Issuance of $25 Billion of Perpetual Preferred Stock and a Warrant to Purchase Common Stock under TARP On October 28, 2008, Citigroup raised $25 billion through the sale of non-voting perpetual preferred stock and a warrant to purchase common stock to the U.S. Department of the Treasury as part of the Treasury's previously announced Troubled Asset Relief Program (TARP) Capital Purchase Program.

        All of the proceeds will be treated as Tier 1 Capital for regulatory purposes. Taking this issuance into account, on a pro forma basis, at September 30, 2008, Citigroup's Tier 1 Capital ratio would have been approximately 10.4%.

        The preferred stock will have an aggregate liquidation preference of $25 billion and an annual dividend rate of 5% for the first five years, and 9% thereafter. Dividends will be cumulative and payable quarterly. The warrant will have an exercise price of $17.85 and will be exercisable for 210,084,034 shares of common stock, which would be reduced by one-half if Citigroup raises an additional $25 billion through the issuance of Tier 1-qualifying perpetual preferred or common stock by December 31, 2009.

        The issuance of the warrant will result in a conversion price reset of the $12.5 billion of 7% convertible preferred stock sold in private offerings in January 2008. See "Capital Resources" beginning on page 57 for a further discussion.

FDIC Guarantee

        The Federal Deposit Insurance Corporation (FDIC) will guarantee until June of 2012 some senior unsecured debt issued by certain Citigroup entities between October 14, 2008 and June 30, 2009, in amounts up to 125% of the qualifying debt for each entity under the terms of the plan. The FDIC will charge a 75bps fee for any new qualifying debt issued with the FDIC guarantee.

Impact on Citigroup's Credit Spreads

        As a result of government actions and for other reasons, credit spreads on Citigroup's debt instruments have substantially narrowed since September 30, 2008. Although this may change before the end of the year, if Citigroup's credit spreads are substantially narrower at December 31, 2008 than at September 30, 2008, it could have a meaningful impact on the value of derivative instruments and those liabilities for which the Company has elected the fair value option. See "Derivatives" on page 40 and Note 17 on Fair Value on page 125 for a discussion on the impact of changes in credit spreads in the third quarter.

Auction Rate Securities (ARS) Settlement

        In the third quarter of 2008, Citigroup announced an agreement in principle with the New York Attorney General, under which it agreed to offer to purchase the failed ARS of its retail clients for par value. This agreement resulted in a $712 million loss being recorded during the third quarter.

        The loss comprises (1) fines of $100 million ($50 million to the State of New York and $50 million to the other state regulatory agencies); (2) an estimated contingent loss of $425 million, recorded at the time of the announcement, reflecting the estimated difference between the fair value and par value of the securities to be purchased; and (3) an incremental loss of $187 million due to the decline in value of these ARS since the time of announcement (mainly due to the widening spreads on municipal obligations).

        The securities Citigroup will be purchasing under this agreement have an estimated notional value of $6.2 billion, consisting of $4.2 billion of Preferred Share ARS, $1.8 billion of Municipal ARS and $0.2 billion of Student Loan ARS. The pretax losses of $712 million have been divided equally between S&B and GWM, both in North America.

Write-Downs on Structured Investment Vehicles (SIVs)

        During the third quarter of 2008, Citigroup wrote down $2.0 billion on SIV assets, bringing the year-to-date write-downs to $2.2 billion. Citigroup increased its mezzanine financing to $4.5 billion, reflecting an increase of $1.0 billion from the original $3.5 billion financing. This additional mezzanine financing was funded subsequent to September 30, 2008. The total SIV assets as of September 30, 2008 and June 30, 2008 were approximately $27.5 billion and $34.8 billion, respectively. See "Structured Investment Vehicles" on page 74 for a further discussion.

Write-downs on Alt-A Mortgage Securities in S&B

        During the third quarter of 2008, Citigroup recorded additional pretax losses of approximately $1.2 billion, net of hedges, on Alt-A mortgage securities held in S&B, bringing the year-to-date net loss to $2.5 billion. For these purposes, Alt-A mortgage securities are non-agency residential mortgage-backed securities (RMBS) where: (1) the underlying collateral has weighted average FICO scores between 680 and 720, or (2) for instances where FICO scores are greater than 720, RMBS have 30% or less of the underlying collateral composed of full documentation loans.

        The Company had $13.6 billion in Alt-A mortgage securities carried at fair value at September 30, 2008, which decreased from $16.4 billion at June 30, 2008. Of the $13.6 billion, $3.4 billion were classified as Trading assets, of which $573 million of fair value write-downs, net of hedging, were recorded in earnings, and $10.2 billion were classified as available-for-sale investments, on which $580 million of write-downs were recorded in earnings due to other-than-temporary impairments. In addition, an incremental $1.5 billion of pretax fair value unrealized losses were recorded in Accumulated Other Comprehensive Income (OCI).

Write-Downs on Monoline Insurers

        During the third quarter of 2008, Citigroup recorded pretax write-downs of credit value adjustments (CVA) of $919 million on its exposure to monoline insurers, bringing the year-to-date write-downs to $4.8 billion. CVA is calculated by applying the counterparty's current credit spread to the expected exposure on the trade. The majority of the exposure relates to hedges on super senior positions that were executed

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with various monoline insurance companies. See "Direct Exposure to Monolines" on page 38 for a further discussion.

Write-Downs on Highly Leveraged Loans and Financing Commitments

        Due to the continued dislocation of the credit markets and the reduced market interest in higher risk/higher yield instruments that began during the second half of 2007, liquidity in the market for highly leveraged financings is very limited. This has resulted in the Company's recording additional pretax write-downs of $792 million on funded and unfunded highly leveraged finance exposures, bringing the total year-to-date write-downs to $4.3 billion.

        Citigroup's exposure to highly leveraged financings totaled $23 billion at September 30, 2008 ($10 billion in funded and $13 billion in unfunded commitments), reflecting a decrease of $1 billion from June 30, 2008. See "Highly Leveraged Financing Commitments" on page 78 for further discussion.

Write-Downs on Commercial Real Estate Exposures

        S&B's commercial real estate exposure can be split into three categories: assets held at fair value, loans and commitments, and equity and other investments. For assets that are held at fair value, Citigroup recorded an additional $518 million of fair value write-downs on these exposures, net of hedges, during the third quarter of 2008 on commercial real estate exposure, bringing the year-to-date fair value write-downs to $1.6 billion. See "Exposure to Commercial Real Estate" on page 37 for a further discussion.

Write-Downs on Subprime-Related Direct Exposures

        During the third quarter of 2008, S&B recorded losses of $394 million pretax, net of hedges, on its subprime-related direct exposures, bringing the total losses year-to-date to $9.7 billion. The Company's remaining $19.6 billion in U.S. subprime net direct exposure in S&B at September 30, 2008 consisted of (a) approximately $16.3 billion of net exposures to the super senior tranches of collateralized debt obligations, which are collateralized by asset-backed securities, derivatives on asset-backed securities or both and (b) approximately $3.3 billion of subprime-related exposures in its lending and structuring business. See "Exposure to U.S. Real Estate" on page 34 for a further discussion of such exposures and the associated losses recorded during the third quarter of 2008.

Losses on Auction Rate Securities (ARS)

        As of September 30, 2008, ARS classified as Trading assets totaled $5.2 billion compared to $5.6 billion as of June 30, 2008. A significant majority are ARS where the underlying assets are student loans, while the remainder are ARS where the underlying assets are U.S. municipal securities as well as various other assets.

        During the third quarter of 2008, S&B recorded $166 million in pretax losses in Principal transactions, primarily due to widening spreads and reduced liquidity in the market. The total year-to-date net losses on ARS positions was $1.4 billion, a significant majority of which relates to ARS where student loans are the underlying assets.

Credit Reserves

        During the third quarter of 2008, the Company recorded a net build of $3.9 billion to its credit reserves. The build consisted of $3.2 billion in Consumer ($2.3 billion in North America and $855 million in regions outside of North America), $612 million in ICG and $64 million in GWM.

        The $2.3 billion build in North America Consumer primarily reflected a weakening of leading credit indicators, including higher delinquencies on first mortgages, unsecured personal loans, credit cards and auto loans. Reserves also increased due to trends in the U.S. macroeconomic environment, including the housing market downturn and rising unemployment rates.

        The $855 million build in regions outside of North America was primarily driven by deterioration in Mexico, Brazil and EMEA cards, and India Consumer Banking.

        The build of $612 million in ICG primarily reflected loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio.

        As the environment for consumer credit continues to deteriorate, the Company has taken many actions to manage risks such as tightening underwriting criteria and reducing credit lines. However, credit card losses may continue to rise well into 2009, and it is possible that the Company's loss rates may exceed their historical peaks.

        The total allowance for loan losses and unfunded lending commitments totaled $25.0 billion at September 30, 2008.

Repositioning Charges

        In the third quarter of 2008, Citigroup recorded repositioning charges of $459 million pretax related to Citigroup's ongoing reengineering plans, which will result in certain branch closings and headcount reductions of approximately 6,300 employees. The year-to-date repositioning charges equal $1.6 billion. Direct staff at September 30, 2008 was approximately 352,000, a decrease of approximately 11,000 from June 30, 2008.

Sale of CitiCapital

        On July 31, 2008, Citigroup sold CitiCapital, the equipment finance unit in North America. A pre-tax loss of $517 million was recorded in the second quarter of 2008 in Discontinued Operations on the Company's Consolidated Statement of Income and was reduced by approximately $9 million in the third quarter for various closing adjustments. Approximately $4 million of net income related to CitiCapital was recorded in the third quarter of 2008. In addition, the income statement results of all CitiCapital businesses have been reported as Discontinued Operations for all periods presented.

Sale of CitiStreet

        In the third quarter of 2008, Citigroup and State Street Corporation completed the sale of CitiStreet, a benefits servicing business, to ING Group in an all-cash transaction valued at $900 million. CitiStreet is a joint venture formed in 2000, which, prior to the sale, was owned 50 percent each by Citigroup and State Street. The transaction closed on July 1, 2008 and generated an after-tax gain of $222 million ($347 million pretax) that was recorded in GWM.

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Sale of Citigroup's German Retail Banking Operation

        On July 11, 2008, Citigroup announced the agreement to sell its German retail banking operations to Credit Mutuel for Euro 4.9 billion in cash plus the German retail banks operating net earnings accrued in 2008 through the closing. The transaction is expected to result in an after-tax gain of approximately $4 billion. The sale does not include the corporate and investment banking business or the Germany-based European data center. The sale is expected to close in the fourth quarter of 2008 pending regulatory approvals.

        The German retail banking operations generated total revenue of $1.7 billion and $1.6 billion, and pretax earnings of $521 million and $398 million for the nine months ended September 30, 2008 and 2007, respectively. These results are reported in Discontinued operations on the Company's Consolidated Statement of Income. In addition to these results, there was a $330 million pre-tax foreign exchange gain realized during the third quarter of 2008 from hedging the sale proceeds, which are denominated in Euros, and a tax benefit of $279 million that arose as a result of this sale. Including these two items, total revenue and after-tax income from discontinued operations for the nine months ended September 30, 2008 was $2.0 billion and $829 million, respectively. Furthermore, the assets and liabilities as of September 30, 2008 of the German retail banking operations to be sold are included within Assets of discontinued operations held for sale, and liabilities of discontinued operations held for sale, respectively, on the Company's Consolidated Balance Sheet.

Sale of Citigroup's Interest in Citigroup Global Services Limited

        On October 8, 2008, Citigroup announced an agreement with Tata Consultancy Services Limited (TCS) to sell all of Citigroup's interest in Citigroup Global Services Limited (CGSL) for all cash consideration of approximately $505 million, subject to closing adjustments. CGSL is the Citigroup captive provider of business process outsourcing services solely within the Banking and Financial Services sector.

        In addition to the sale, Citigroup signed an agreement for TCS to provide, through CGSL, process outsourcing services to Citigroup and its affiliates in an aggregate amount of $2.5 billion over a period of 9.5 years. The agreement builds upon the existing relationship between Citigroup and TCS, whereby TCS provides application development, infrastructure support, help desk and other process outsourcing services to Citigroup. CGSL generated for the full year 2007 approximately $212 million of revenues and pretax earnings of approximately $37 million. CGSL does not qualify as a discontinued operation due to the continued involvement of Citigroup.

        The transaction is expected to close in the fourth quarter of 2008 pending regulatory approvals and required consents.

Lehman Brothers Holding, Inc. Bankruptcy

        On September 15, 2008, Lehman Brothers Holding, Inc. ("LBHI", and, together with its subsidiaries, "Lehman") filed for Chapter 11 bankruptcy in U.S. Federal Court. A number of LBHI subsidiaries have subsequently filed bankruptcy or similar insolvency proceedings in the U.S. and other jurisdictions. Lehman's bankruptcy caused Citigroup to terminate cash management and foreign exchange clearance arrangements, close out approximately 40,000 Lehman foreign exchange, derivative and other transactions and quantify other exposures. Citigroup expects to file claims in the relevant Lehman bankruptcy proceedings, as appropriate. Citigroup's net exposure, after application of available collateral and offsets, is expected to be modest.

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SEGMENT AND REGIONAL—NET INCOME (LOSS) AND REVENUE

        The following tables present net income (loss) and revenues for Citigroup's businesses on a segment view and on a regional view:

Citigroup Net Income (Loss)—Segment View

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(1)

The nine months ending September 30, 2007 include a $1,475 million Restructuring charge related to the Company's Structural Expense Initiatives project announced on April 11, 2007.

NM

Not meaningful

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Citigroup Net Income (Loss)—Regional View

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NM

Not meaningful

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Citigroup Revenues—Segment View

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NM Not meaningful

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Citigroup Revenues—Regional View

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NM Not meaningful

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GLOBAL CARDS

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NM

Not meaningful

3Q08 vs. 3Q07

        Global Cards revenue decreased 40%. Net Interest Revenue was 6% higher than the prior year primarily driven by growth in average loans of 9%. Non-Interest Revenue decreased 75% primarily due to lower securitization results in North America and the absence of a prior-year $729 million pretax gain on sale of Redecard shares.

        In North America, a 60% revenue decline was mainly due to lower securitization revenue which was driven primarily by a write-down of $1.4 billion in the residual interest in securitized balances. The residual interest was primarily affected by deterioration in the projected credit loss assumption used to value the asset.

        Outside of North America, revenue decreased by 15% primarily due to the absence of a prior-year gain on sale of Redecard shares. Excluding this item, revenue increased 14% with 5% growth in EMEA, 14% in Latin America and 24% in Asia. These increases were driven by growth in purchase sales and average loans in all regions. Revenues also increased driven by foreign currency translation gains related to the strengthening of local currencies (generally referred to hereinafter as "fx translation") and the Bank of Overseas Chinese acquisition.

        Operating expenses decreased 1%, primarily due to lower compensation and marketing expenses, partially offset by business volumes, higher credit management costs and repositioning charges, fx translation and acquisitions.

        Provision for credit losses and for benefits and claims increased $1.1 billion, reflecting increases of $543 million in net credit losses and $566 million in loan loss reserve builds. In North America, credit costs increased $620 million, driven by higher net credit losses, up $311 million or 68%, and a higher loan loss reserve build, up $309 million. The net charge to increase loan loss reserves included $243 million related to assets that were brought back on to the balance sheet due to rate and liquidity disruptions in the securitization market. Higher credit costs reflected a weakening of leading credit indicators, trends in the macroeconomic environment, including the housing market downturn, higher fuel costs, rising unemployment trends, and higher bankruptcy filings, as the continued acceleration in the rate at which delinquent customers advanced to write-off, a net charge to increase loan loss reserves related to an increase in reported receivables as maturing securitizations resulted in on-balance sheet funding, and also reflected higher business volumes. The net credit loss ratio increased by 293 basis points to 7.30%.

        Outside of North America, credit costs increased by $79 million, $303 million, and $107 million in EMEA, Latin

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America, and Asia, respectively. These increases were driven by higher net credit losses, which were up $5 million, $185 million, and $42 million in EMEA, Latin America, and Asia, respectively. Higher net credit losses were driven by Mexico, Brazil, and India. Also contributing to the increase were higher loan loss reserve builds, which were up $74 million, $118 million, and $65 million in EMEA, Latin America, and Asia, respectively, as well as higher business volumes.

2008 YTD vs. 2007 YTD

        Global Cards revenue decreased 7%. Net Interest Revenue was 12% higher than the prior year primarily driven by growth in average loans of 16% and purchase sales of 6%. Non-Interest Revenue decreased by 23% primarily due to lower securitization results in North America. Results were also impacted by the following pre-tax gains: sale of Mastercard shares in the first, second and third quarters of 2007 totaling $322 million, sales of Redecard shares $729 million in the third quarter of 2007 and $663 million in the first quarter of 2008, IPO and subsequent sales of Visa shares in the first and third quarter of 2008 totaling $523 million, Upromise Cards portfolio sale in the second quarter of 2008 of $170 million and DCI sale of $111 million in the second quarter of 2008.

        In North America, a 25% revenue decline was driven by lower securitization revenues, which reflected the impact of higher funding costs and higher credit losses in the securitization trusts, the absence of a $257 million prior year gain on sale of Mastercard shares, partially offset by a current period gain from sale of Visa shares, the Upromise Cards portfolio sale, and the DCI sale resulting in pre-tax gains of $349 million, $170 million and $29 million, respectively. Average loans were up 2% while purchase sales remained flat.

        Outside of North America, revenues increased by 29%, 16%, and 26% in EMEA, Latin America, and Asia, respectively. These increases were driven by double-digit growth in purchase sales and average loans in all regions. The pretax gain on sale of DCI in the second quarter of 2008 impacted EMEA, Latin America, and Asia by $34 million, $17 million, and $31 million, respectively. The pretax gain on sale of Visa shares in the first and third quarters of 2008 impacted Latin America and Asia by $37 million and $138 million, respectively. Current-year revenues were unfavorably impacted by a $66 million pretax lower gain on sales of Redecard shares in Latin America and the absence of the prior-year pretax gain on sale of MasterCard shares of $7 million, $37 million and $21 million for EMEA, Latin America and Asia, respectively. Results include the impact of fx translation, as well as the acquisitions of Egg, Grupo Financiero Uno, Grupo Cuscatlán, and Bank of Overseas Chinese.

        Operating expenses increased 5%, primarily due to business volumes, higher credit management costs, the impact of acquisitions, repositioning charges and the impact of fx translation. These increases were partially offset by a $159 million Visa Litigation reserve release and $36 million legal vehicle restructuring in Mexico, both in the first quarter of 2008.

        Provision for credit losses and for benefits and claims increased $2.9 billion reflecting an increase of $1.5 billion in net credit losses and $1.4 billion in loan loss reserve builds. In North America, credit costs increased $1.4 billion, driven by higher net credit losses, up $674 million or 48%, and a higher loan loss reserve build, up $764 million. Higher credit costs reflected a weakening of leading credit indicators, trends in the macro-economic environment, including the housing market downturn, higher fuel costs, rising unemployment trends, higher bankruptcy filings, the continued acceleration in the rate at which delinquent customers advanced to write-off a net charge to increase loan loss reserves related to an increase in reported receivables as maturing securitizations resulted in on-balance sheet funding, and also reflected higher business volumes.

        Outside of North America, credit costs increased by $277 million, $894 million, and $237 million in EMEA, Latin America, and Asia, respectively. These increases were driven by higher net credit losses, which were up $170 million, $542 million, and $105 million in EMEA, Latin America, and Asia, respectively. Higher net credit losses were driven by Mexico, Brazil, and India, as well as the impact of acquisitions. Also contributing to the increase were higher loan loss reserve builds, which were up $107 million, $352 million, and $132 million in EMEA, Latin America, and Asia, respectively, and higher business volumes.

16

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CONSUMER BANKING

---

NM

Not meaningful

3Q08 vs 3Q07

        Consumer Banking revenues grew 2%, as increased revenues in North America were partially offset by declines in Latin America and Asia. Net Interest Revenue was 9% higher than the prior year from spread expansion and growth in average loans and deposits of 1%. Non-Interest Revenue declined 16%, primarily due to a 26% decline in investment sales and a $192 million loss resulting from the mark-to-market on the Mortage Servicing Rights (MSR) asset and related hedge in North America. Current and historical German Retail Banking operations income statement items have been reclassified as discontinued operations within the Corporate/Other Segment.

        In North America, revenues increased 6%. Net Interest Revenue was 13% higher than the prior-year period, primarily driven by volume growth in personal loans, as well as increased deposit revenue. Average loans and deposits were essentially flat with the prior-year period, with a reduction in residential real estate loans offset by growth in personal loans. Non-Interest Revenue declined 14%, mainly due to a $192 million loss from the mark-to-market on the MSR asset and related hedge. Revenues in EMEA remained flat as growth in average loans of 5% was offset by softening investment sales

17

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revenues due to market volatility. Revenues in Latin America were down 5% versus last year driven by spread compression not fully offset by average loan and deposit growth of 15% and 5%, respectively. Asia, excluding CFJ, revenues declined 2%, as growth in average loans and deposits, up 8% and 4%, respectively, was more than offset by a decline in investment sales, down 56%, due to a decline in equity markets across Asia. In CFJ, revenues declined 15%, reflecting an 8% decline in average loans as the portfolio continues to be managed down.

        Consumer Banking Operating Expenses declined 2%, as benefits from re-engineering efforts more than offset the impact of acquisitions and higher credit management costs. Expenses in the third quarter of 2007 included a $152 million write-down of customer intangibles and fixed assets in CFJ expenses in the third quarter of 2008 included a $150 million repositioning charge.

        North America expenses increased 2%, mainly due to an $87 million repositioning charge, higher credit management expenses and acquisitions, partially offset by lower compensation costs. EMEA expenses were essentially even with the prior-year period. Expenses in Latin America increased 5%, primarily driven by a $61 million repositioning charge and higher business volumes. Asia expenses declined 19%, primarily due to a $152 million write-down of customer intangibles and fixed assets recorded in the prior-year period.

        Provisions for credit losses and for benefits and claims increased 77% or $2.3 billion reflecting significantly higher net credit losses up $1.6 billion, primarily in North America and Latin America, as well as a $739 million incremental pretax charge to increase loan loss reserves in North America.

        North America credit costs increased $2.2 billion, due to higher net credit losses, up $1.4 billion, and increased loan loss reserves, up $739 million from the prior-year period. Higher credit costs were mainly driven by residential real estate loans and reflected a weakening of leading credit indicators, as well as trends in the macro-economic environment. The net credit loss ratio increased 194 basis points to 2.95%. Credit costs increased 45% in EMEA, reflecting higher net credit losses, up 55% or $67 million, and an $18 million incremental net charge to increase loan loss reserves. Higher credit costs reflected weakening in the macro-economic environment in certain developed countries, such as Spain and the U.K.. The net credit loss ratio increased 96 basis points to 2.95% with some impact due to lower volumes. Credit costs in Latin America increased 15%, as higher net credit losses, up $94 million, reflected deterioration in Mexico, Brazil and Colombia. The increase in credit costs was partially offset by a $13 million net release to loan loss reserves in the quarter, mainly due to reduced exposures to specific government-related entities. The net credit loss ratio increased 202 basis points to 4.53%. Credit costs in Asia increased 8%, driven by higher net credit losses, up 13% or $54 million. Higher credit costs were mainly driven by continued deterioration in the credit environment in India, where the business is being actively repositioned to reduce costs and mitigate losses. The net credit loss ratio increased 23 basis points to 3.23%.

2008 YTD vs. 2007 YTD

        Consumer Banking revenue increased 4%. Net Interest Revenue was 11% higher than the prior year, as growth of 8% in average loans and 8% in deposits and margin expansion was partially offset by a 35% net interest revenue decline in CFJ. Acquisitions and fx translation also contributed to the increase in revenues. Non-Interest Revenue declined 12%, primarily due to a 20% decline in investment sales and a loss from the mark-to-market on the MSR asset and related hedge in North America.

        In North America, revenues increased 5%. Net Interest Revenue was 14% higher than the prior year, primarily due to increased average loans and deposits, up 6% and 2%, respectively, margin expansion in residential real estate loans, and higher deposit revenue. Non-Interest Revenue declined 19%, mainly due to a loss from the mark-to-market on the MSR asset and related hedge. Excluding the impact from the MSR asset and related hedge, total revenues increased 12%. Revenues in EMEA increased by 17%, driven by strong growth in average loans and deposits, improved net interest margin and the impact of the Egg acquisition. Revenues in Latin America were up 3%, driven by 21% growth in average loans and 11% growth in deposits (including the impact of acquisitions of Grupo Financiero Uno and Grupo Cuscatlan), partially offset by spread compression and lower revenues from the Chile divestiture. Asia revenues were basically flat, as growth in average loans and deposits of 11% and 9%, respectively, was offset by a 34% total revenue decline in CFJ and lower investment sales. Excluding CFJ, revenues increased 6%. Volume growth in EMEA, Latin America and Asia was partially offset by a double-digit decline in investment sales due to a decline in equity markets across the regions.

        Operating expense growth of 7% was primarily driven by higher business volumes, increased credit management costs, a $492 million repositioning charge, and acquisitions, partially offset by a $221 million benefit related to a legal vehicle repositioning in Mexico, lower incentive compensation expenses and the prior year write-down of customer intangibles and fixed assets in CFJ.

        Expenses were up 10% in North America, primarily driven by a $304 million repositioning charge, higher credit management expenses, and acquisitions. Excluding the repositioning charge, expenses increased 5%. EMEA expenses were up 17% primarily due to the impact of repositioning charges in 2008 and the impact of the Egg acquisition, partially offset by a decline in incentive compensation and the benefits from re-engineering efforts and fx translation. Expenses decreased 1% in Latin America primarily driven by a $221 million benefit related to a legal vehicle repositioning in Mexico, offset by acquisitions and volume growth. The 2% growth in Asia was primarily driven by the acquisition of BOOC and higher volumes.

        Provisions for credit losses and for benefits and claims increased $7.5 billion, reflecting significantly higher net credit losses in North America, Mexico and India, as well as a $3.2 billion incremental pretax charge to increase loan loss reserves, primarily in North America. The impact of portfolio growth and acquisitions also contributed to the increase in credit costs.

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        Credit costs in North America increased by $6.5 billion, due to higher net credit losses, up $3.5 billion, and a $3.0 billion incremental pre-tax charge to increase loan loss reserves. Higher credit costs reflected a weakening of leading credit indicators, including higher delinquencies in first and second mortgages, auto and unsecured personal loans, as well as trends in the macro-economic environment, including the housing market downturn. The net credit loss ratio increased 151 basis points to 2.42%. EMEA credit costs increased 53% reflecting deterioration in Western European countries as well as the Egg acquisition. In Latin America, credit costs increased $265 million, primarily due to higher net credit losses, the absence of recoveries in the prior-year period in Mexico and lower loan loss reserve builds. Credit costs in Asia increased 25% primarily driven by a $149 million incremental pretax charge to increase loan loss reserves, increased credit costs, especially in India, acquisitions and portfolio growth.

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INSTITUTIONAL CLIENTS GROUP (ICG)

---

NM

Not meaningful

3Q08 vs. 3Q07

        Revenues, net of interest expense, were negative in S&B due to substantial write-downs and losses related to the fixed income and credit markets. These included write-downs of $2.0 billion on SIV assets, write-downs of $1.2 billion, net of hedges, on Alt-A mortgages, downward credit value adjustments of $919 million related to exposure to monoline insurers, write-downs of $792 million, net of underwriting fees, on funded and unfunded highly leveraged finance commitments, write-downs of $518 million on commercial real estate positions, and net write-downs of $394 million on subprime-related direct exposures. Negative revenues also included a $306 million

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write-down related to the ARS settlement and were partially offset by a $1.5 billion gain related to the inclusion of Citigroup's credit spreads in the determination of the market value of those liabilities for which the fair value option was elected. Transaction Services revenues were up 20% to a record $2.5 billion, reflecting double-digit revenue growth across all regions. Average deposits and other customer liability balances increased 7%, while a decline in global equity markets resulted in a 6% reduction in assets under custody.

        Operating expenses increased in S&B, reflecting a significant downward adjustment to incentive compensation in the prior-year period. Expense growth also includes a $221 million repositioning charge in the current quarter, partially offset by a decline in other operating and administrative costs. Transaction Services expenses grew 5%, primarily driven by higher business volumes and the Bisys acquisition.

        The provision for credit losses in S&B increased significantly, mainly driven by an incremental net charge to increase loan loss reserves of $447 million, reflecting loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio. Credit costs were also driven by a $287 million increase in net credit losses, mainly associated with loan sales.

2008 YTD vs. 2007 YTD

        Revenues, net of interest expense, were negative in S&B due to substantial write-downs and losses related to the fixed income and credit markets. Included in this decrease are $9.7 billion of write-downs on subprime-related direct exposure, $4.8 billion of downward credit market value adjustments related to exposure to monoline insurers, $4.3 billion of write-downs (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, $2.5 billion of write-downs on Alt-A mortgage securities, net of hedges, $2.2 billion of write-downs of SIV assets, $1.6 billion of write-downs on commercial real estate positions and $1.4 billion of write-downs on auction rate securities inventory due to failed auctions, predominately in the first quarter of 2008, and deterioration in the credit markets. Transaction Services revenues grew 30% driven by new business wins and implementations, growth in customer liability balances and the impact of acquisitions.

        Operating expenses increased 17% in Transaction Services due to increased investment spending, business volumes and the acquisition of The Bisys Group. Expenses increased 11% in S&B, reflecting $773 million of repositioning charges and the absence of a litigation reserve release recorded in the prior year, offset partially by a decrease in compensation costs.

        The provision for credit losses in S&B increased, primarily from a $799 million increase in net credit losses mainly associated with loan sales and an incremental net charge to increase loan loss reserves of $542 million, reflecting loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio. Transaction Services credit costs increased, primarily due to a charge to increase loan loss reserves, mainly from the commercial banking portfolio in the emerging markets.

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GLOBAL WEALTH MANAGEMENT

---

NM

Not meaningful

3Q08 vs. 3Q07

        Revenues, net of interest expense, declined 10% primarily due to the impact of challenging market conditions on Investment and Capital Market revenues, particularly in North America and Asia, partially offset by greater Banking revenues in North America, EMEA and Asia and an increase in Lending revenues across regions. The consolidated revenue also includes the gain on sale of CitiStreet and charges related to settlement of auction rate securities (ARS).

        Total client assets, including assets under fee-based management, decreased $288 billion, or 16%, mainly reflecting the impact of market declines over the past year. Net client asset flows decreased compared to the prior year, to $3 billion. GWM had 14,735 financial advisors/bankers as of September 30, 2008, compared with 15,458 as of September 30, 2007, driven by attrition in North America and Asia, as well as planned eliminations.

        Operating expenses decreased 4% driven by lower variable expense and incentive compensation, and the impact of reengineering projects, partially offset by the ARS settlement penalty of $50 million.

        The provision for credit losses increased by $8 million. Provision for the quarter represents builds related to SFAS 114 impaired loans and additional reserves due to loan deterioration.

2008 YTD vs. 2007 YTD

        Revenues, net of interest expense, increased 2% primarily due to the impact of the Nikko Cordial acquisition, an increase in Banking and Lending revenues across most regions and an increase in EMEA and Latin America Capital Markets, partially offset by lower Capital Markets revenue in Asia and North America.

        Operating expenses increased 11% primarily due to the impact of acquisitions, a reserve of $250 million in the first quarter of 2008 related to an offer to facilitate the liquidation of investments in a Citi-managed fund for its clients, repositioning charges, and the ARS settlement penalty.

        The provision for credit losses increased by $40 million, reflecting reserve builds and $9 million of write-downs in

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Asia. The reserve builds in 2008 were mainly for mortgages, FAS114 impairment, additional reserves required due to deterioration in risk rating of a loan facility and for lending to address client liquidity needs related to their auction rate securities holdings in North America.

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CORPORATE/OTHER

3Q08 vs. 3Q07

        Revenues, net of interest expense, increased primarily due to lower funding costs and effective hedging activities, partly offset by funding of higher tax assets and enhancements to our liquidity position.

        Operating expenses decreased primarily due to Incentive Compensation accrual reductions and lower SFAS 123(R)-related expenses, partly offset by repositioning charges.

        Income tax benefits increased due to higher tax benefits held at Corporate.

2008 YTD vs. 2007 YTD

        Revenues, net of interest expense, decreased primarily due to inter-company transaction costs related to current year capital raises and the sale of CitiCapital, funding of higher tax assets and enhancements to our liquidity position as well as the absence of a prior-year gain on the sale of certain corporate-owned assets.

        Operating expenses, excluding the 2007 first quarter repositioning charge of $1,836 million, decreased primarily due to lower Incentive Compensation accrual reductions and SFAS 123(R)-related expenses.

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REGIONAL DISCUSSIONS

        The following are the four regions in which Citigroup operates. The regional results are fully reflected in the previous segment discussions.

NORTH AMERICA

---

NM

Not meaningful

3Q08 vs. 3Q07

        Total revenues decreased 42%. Net Interest Revenue was 20% higher than the prior year primarily driven by lower funding costs which resulted in higher spreads during the quarter. The increase was also driven by growth in average loans of 2% and average deposits of 3%. Non-Interest Revenue decreased $5.5 billion primarily due to S&B's write-downs and losses related to the credit markets. These included write-downs on SIV assets, Alt-A mortgages, funded and unfunded highly leveraged finance commitments and positions, subprime-related direct exposures and a downward credit value adjustments related to exposure to monoline insurers. S&B revenues also included a write-down related to the ARS settlement. These write-downs were partially offset by a $1.5 billion gain from the change in Citigroup's own credit spreads for those liabilities to which the Company has elected the fair value option. In Global Cards, a 60% revenue decline was due to lower securitization revenue which was driven primarily by a write-down of $1.4 billion in the residual interest in securitized balances. The residual interest was primarily affected by deterioration in the projected credit loss assumption used to value the asset. Revenues also included a $347 million gain on the sale of CitiStreet recorded in GWM. In Consumer Banking, revenue was negatively impacted by the loss from the mark-to-market on the MSR asset and related hedge.

        Operating expenses increased 10% primarily due to repositioning charges, a $100 million fine related to the ARS settlement, and the impact of acquisitions. Expense growth was partially offset by benefits from re-engineering efforts.

        Provisions for credit losses and for benefits and claims increased $3.3 billion primarily reflecting a weakening of leading credit indicators, including higher delinquencies on residential real estate loans, unsecured personal loans, credit cards and auto loans. Credit costs also increased due to trends in the U.S. macroeconomic environment, including the housing market downturn and rising unemployment rates. Additionally, the increase reflected loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio.

2008 YTD vs. 2007 YTD

        Total revenues decreased 58%. Net Interest Revenue was 25% higher than the prior year primarily driven by lower funding costs which resulted in higher spreads during the first nine months of 2008. The increase was also driven by growth in average loans of 8% and average deposits of 6%. Non-Interest Revenue decreased $26.4 billion driven by substantial

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write-downs and losses related to the fixed income and credit markets in S&B. The decrease in S&B was partially offset by a $1.5 billion gain from the change in Citigroup's own credit spreads of those liabilities for which the Company has elected the fair value option. In Global Cards, a 25% revenue decline was due to lower securitization revenue which was driven primarily by a write-down in the residual interest in securitized balances. The decrease was also attributable to the absence of a prior-year $257 million gain on sale of MasterCard shares. The decrease was partially offset by a $349 million gain on the IPO of Visa shares in the 2008 first quarter and gains in the 2008 second quarter of $170 million on the Upromise Cards Portfolio sale and $29 million on the sale of DCI. Negative revenues were also partially offset by a $347 million gain on the sale of CitiStreet in 2008 third quarter. In Consumer Banking, revenue was negatively impacted by the loss from the MSR-related mark-to-market.

        Operating expenses increased 9%, reflecting repositioning charges, the impact of acquisitions, a $100 million fine related to the ARS settlement and the absence of a prior year litigation reserve release in S&B. Expense growth was partially offset by benefits from re-engineering efforts and by a partial release of the Visa-related litigation reserve in the first quarter 2008.

        Provisions for credit losses and for benefits and claims increased $9.1 billion primarily reflecting a weakening of leading credit indicators, including higher delinquencies on residential real estate loans, unsecured personal loans, credit cards and auto loans. Credit costs also increased due to trends in the U.S. macroeconomic environment, including the housing market downturn and rising unemployment rates. Additionally, the increase reflected loan loss reserves for specific counterparties, as well as a weakening in credit quality in the corporate loan portfolio.

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EMEA

---

NM

Not meaningful

3Q08 vs. 3Q07

        Total Revenues increased 20% largely driven by S&B and Transaction Services. In Global Cards, revenues increased by 5%, driven by higher purchase sales and average loans, up 7% and 14%, respectively. Consumer Banking revenues remained flat as growth in average loans of 5% was offset by impairment of the U.K. Held for Sale loan portfolio and softening revenues due to market volatility. Current and historical Germany retail banking results and condition have been reclassified as discontinued operations and are included in the Corporate/Other segment.

        In ICG, S&B revenues were up 55% from the 2007 third quarter, mainly because the subprime-related direct exposures are now managed primarily in North America and have been transferred from EMEA to North America (from the second quarter of 2008 forward). The current quarter included write-downs in commercial real estate positions and highly-leveraged finance commitments. Revenues also reflected strong results in local markets sales and trading. Transaction Services revenues increased 20% with continued growth in customer liability balances, up 16%.

        Revenues in GWM grew by 6% with the strength of annuity revenues more than offsetting a decline in capital markets and investment revenue. Average loans grew 12% while client assets under fee-based management decreased 19% primarily due to lower market values.

        Operating Expenses were up 6% from the third quarter of 2007 but declined for the third consecutive quarter. The growth from the prior period was primarily driven by lower compensation accruals in S&B in the third quarter of 2007. Underlying costs continue to trend down reflecting lower headcount and continued benefits from re-engineering efforts.

        Provisions for credit losses and for benefits and claims increased 59%. The increase was primarily driven by losses associated with loan sales in S&B, deterioration in the credit environment in Southern Europe, the U.K. and Pakistan and higher loan loss reserve builds.

2008 YTD vs. 2007 YTD

        Revenues were down 25% due to write-downs in S&B, partially offset by double-digit growth across all other segments.

        Global Cards revenues increased by 29%, driven by double-digit growth in purchase sales and average loans. Revenues in Consumer Banking increased by 17%, driven by strong growth in average loans and deposits and improved net interest margin and the impact of the Egg acquisition.

        In ICG, S&B revenue was down 76% from last year due to write-downs on subprime-related direct exposures in the first quarter of 2008 and write-downs in commercial real estate positions and in funded and unfunded highly-leveraged loan commitments. Revenues in S&B also included a strong performance in local markets sales and trading. Transaction Services revenues increased by 27% driven by increased customer volumes and deposit growth.

        Revenues in GWM grew by 22% primarily driven by an increase in annuity revenues and the impact of the acquisition of Quilter.

        Operating Expenses were up 9% compared to 2007 due to the impact of organizational and repositioning charges in 2008, the impact of acquisitions and fx translation, offset by a decline in incentive compensation and the benefits from reengineering efforts.

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        Provisions for credit losses and for benefits and claims increased 63% primarily due to an increase in net credit losses and an incremental net charge to increase loan loss reserves.

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LATIN AMERICA

---

NM

Not meaningful

3Q08 vs. 3Q07

        Total Revenue was 23% lower than the prior year, due to the absence of of $729 million from the Redecard gain on sale recorded last year in the Global Cards business. Consumer Banking revenues declined 5% largely resulting from the Chile business divestiture in the first quarter of 2008, partially offset by growth in deposits of 5% and in average loans of 15%. S&B revenues decreased 43%, driven by adverse market conditions impacting the FX, interest rates and equities businesses. Transaction Services revenues grew 25%, due to steady growth in the Direct Custody business, as average customer deposits increased 11%, and due to the impact of the Cuscatlan acquisition. GWM revenues were flat due to increased market volatility.

        Operating expense increased slightly over the prior year, up 1%, mainly because of $95 million in repositioning charges. Excluding these charges, expenses declined 4%, with declines in legal costs, advertising and marketing, and incentive compensation, partially offset by an increase in Cards and the impact of fx translation.

        Provisions for credit losses and for benefits and claims increased $328 million or 51% as the credit environment worsened, particularly in Mexico and Brazil. Net credit losses grew 82% primarily due to portfolio growth and deteriorating portfolio quality in Cards and Consumer Banking.

2008 YTD vs. 2007 YTD

        Total Revenue was 5% higher than the prior year, with a growth of 15% in average loans, and 17% in total customer deposits. Transaction Services revenues increased 35%, mainly from the custody business as average deposits grew rapidly in the third quarter of 2007 and have remained at those levels. [Global Cards grew 16% on higher volumes; the first nine months of 2008 include a $663 million Redecard gain on sale, while the first nine months of 2007 included a $729 million Redecard gain on sale.] Revenue gains were partially offset by an 18% decrease in S&B revenues due to write-downs and losses related to fixed income and equities.

        Operating expense growth of 4% was primarily driven by acquisitions and volume growth, higher collection costs, legal costs and reserves, and repositioning charges, partially offset by a $282 million benefit related to a legal vehicle repositioning in Mexico in the first quarter of 2008. Certain poorly performing branches were closed, mainly in Brazil and Mexico, partially offset by openings in Mexico, due to repositioning and realignment in both Retail and Consumer Finance.

        Provisions for credit losses and for benefits and claims increased 94% as the credit environment worsened, primarily reflecting a $953 million increase in net credit losses and an increase in loan loss reserve builds, reflecting a legacy portfolio sale in 2007, asset deterioration, and volume growth.

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ASIA

3Q08 vs. 3Q07

        Net Interest Revenue increased 16%. Global Cards Revenue growth of 11% was driven by 14% growth in purchase sales and 17% growth in average loans. Consumer Banking excluding Consumer Finance Japan (CFJ) grew by 4%, driven by 8% growth in average loans and 4% growth in deposits. Transaction Services exhibited strong Revenue growth across all products resulting in 19% growth. S&B grew $226 million, reflecting improved spreads.

        Non-Interest Revenue decreased 26%, as S&B continued to be impacted by market volatility and declining valuations. Outside of S&B, non-interest revenue increased in Global Cards and Transaction Services, partially offset by lower Investment Sales in Consumer Banking and GWM.

        Operating Expenses decreased 11% reflecting a lower level of incentive compensation, the benefits of reengineering, and the absence of a prior-year restructuring charge, partly offset by the current year repositioning charge.

        Provisions for credit losses and for benefits and claims increased 24% driven by a $372 million pretax charge to increase loan loss reserves and by higher credit costs which were due to a combination of portfolio growth and some deterioration in the macroeconomic environment, including India.

Asia Excluding CFJ

        As disclosed in the table above, NIR excluding CFJ increased 21% and 31% in the 2008 third quarter and year-to-date periods, respectively. Operating Expenses excluding CFJ decreased 6% in the third quarter while it increased 17% in the year-to-date period, and Net income excluding CFJ decreased 23% and 24%, respectively.

2008 YTD vs. 2007 YTD

        Net Interest Revenue increased 20%. Global Cards growth of 19% was driven by 20% growth in purchase sales and 24% growth in average loans. Consumer Banking excluding CFJ grew by 15%, driven by growth of 14% in average loans and 9% growth in deposits. Transaction Services exhibited strong growth across all products resulting in 28% growth. S&B grew $738 million reflecting better spreads in the quarter, and higher dividend revenue. Growth was also impacted by foreign exchange, acquisitions and portfolio purchases.

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        Non-Interest Revenue decreased 14% as S&B continued to be impacted by market volatility and declining valuations. Outside of S&B, non-interest revenue increased 17% with strong growth in Global Cards, Transaction Services and GWM, partially offset by lower Investment Sales in Consumer Banking and GWM. Results included a $31 million gain on the sale of DCI, partially offset by a $21 million gain on the sale of MasterCard shares in the prior-year period.

        Operating Expense increased 13% primarily driven by the impact of acquisitions, strengthening local currencies and repositioning charges, partly offset by benefits of reengineering.

        Provisions for credit losses and for benefits and claims increased 35% primarily driven by a $267 million incremental pretax charge to increase loan loss reserves, increased credit costs in India, acquisitions and portfolio growth.

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MANAGING GLOBAL RISK

        Citigroup's risk management framework balances strong corporate oversight with well-defined independent risk management functions for each business and region, as well as cross-business product expertise. The Citigroup risk management policies and practices are described in Citigroup's 2007 Annual Report on Form 10-K.

DETAILS OF CREDIT LOSS EXPERIENCE

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(1)

Reclassified to conform to the current period's presentation

(2)

Included in the allowance for loan losses are reserves for Trouble Debt Restructurings (TDRs) of $1,443 million, $882 million, and $443 million as of September 30, 2008, June 30, 2008 and March 31, 2008, respectively.

(3)

The third quarter of 2008 primarily includes reductions to the credit loss reserves of $23 million related to securitizations, reductions of $244 million related to the pending sale of Citigroup's German Retail Banking Operation and reductions of approximately $500 million related to foreign currency translation.

(4)

The second quarter of 2008 primarily includes reductions to the credit loss reserves of $21 million related to securitizations, reductions of $156 million related to the sale of CitiCapital and additions of $56 million related to purchase price adjustments for the Grupo Cuscatlan acquisition.

(5)

The first quarter of 2008 primarily includes reductions to the credit loss reserves of $58 million related to securitizations, additions of $50 million related to the BOOC acquisition and additions of $217 million related to fx translation.

(6)

The fourth quarter of 2007 primarily includes reductions to the credit loss reserves of $150 million related to securitizations and $7 million related to transfers to loans held-for-sale, reductions of $151 million related to purchase price adjustments for the Egg Bank acquisition and reductions of $83 million related to the transfer of the U.K. CitiFinancial portfolio to Loans held-for-sale.

(7)

The third quarter of 2007 primarily includes additions related to purchase accounting adjustments related to the acquisition of Grupo Cuscatlan of $181 million, offset by reductions of $73 million related to securitizations.

(8)

Represents additional credit loss reserves for unfunded corporate lending commitments and letters of credit recorded within Other Liabilities on the Consolidated Balance Sheet.

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Consumer Loan Balances, Net of Unearned Income

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(1)

Reclassified to conform to the current period's presentation.

(2)

Total loans and total average loans exclude certain interest and fees on credit cards of approximately $3 billion and $3 billion for the third quarter of 2008, approximately $3 billion and $2 billion for the second quarter of 2008 and approximately $2 billion and $2 billion for the third quarter of 2007, respectively, which are included in Consumer Loans on the Consolidated Balance Sheet.

(3)

Included in Other Assets on the Consolidated Balance Sheet.

(4)

This table presents loan information on a held basis and shows the impact of securitizations to reconcile to a managed basis. Although a managed basis presentation is not in conformity with GAAP, the Company believes managed credit statistics provide a representation of performance and key indicators of the credit card business that are consistent with the way management reviews operating performance and allocates resources. Held-basis reporting is the related GAAP measure.

        Citigroup's total allowance for loans, leases and unfunded lending commitments of $25.0 billion is available to absorb probable credit losses inherent in the entire portfolio. For analytical purposes only, the portion of Citigroup's allowance for loan losses attributed to the Consumer portfolio was $19.1 billion at September 30, 2008, $16.5 billion at June 30, 2008 and $9.2 billion at September 30, 2007. The increase in the allowance for loan losses from September 30, 2007 of $9.9 billion included net builds of $10.9 billion.

        The builds consisted of $10.8 billion in Consumer ($8.8 billion in North America and $2.0 billion in regions outside of North America) and $131 million in GWM.

        The build of $8.8 billion in North America Consumer primarily reflects an increase in the losses embedded in the portfolio as a result of weakening leading credit indicators, including increased delinquencies on first mortgages, unsecured personal loans, credit cards, and auto loans. Also, the build reflected trends in the U.S. macro-economic environment, including the housing market downturn, rising unemployment rates and portfolio growth. The build of $2.0 billion in regions outside of North America Consumer primarily reflects portfolio growth and the impact of recent acquisitions and credit deterioration in certain countries.

        On-balance-sheet consumer loans of $539.0 billion increased $2.0 billion from September 30, 2007, primarily driven by increases in all Global Cards and GWM regions, partially offset by decreases in Consumer Banking. Net credit losses, delinquencies and the related ratios are affected by the credit performance of the portfolios, including bankruptcies, unemployment, global economic conditions, portfolio growth and seasonal factors, as well as macroeconomic and regulatory policies.

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EXPOSURE TO U.S. REAL ESTATE IN SECURITIES AND BANKING

Subprime-Related Direct Exposure in Securities and Banking

        The following table summarizes Citigroup's U.S. subprime-related direct exposures in Securities and Banking (S&B) at September 30, 2008 and June 30, 2008:

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Note: Table may not foot or cross-foot due to roundings.

(1)

Includes net profits associated with liquidations.

(2)

Reflects sales, transfers, repayment of principal and liquidations.

(3)

Consists of older vintage, high grade ABS CDOs.

(4)

Includes $357 million recorded in credit costs.

(5)

A portion of the underlying securities was purchased in liquidations of CDOs and is reported as Trading account assets. As of September 30, 2008, $347 million relating to deals liquidated were held in the trading books.

(6)

Composed of net CDO super senior exposures and gross Lending and Structuring exposures.

(7)

SFAS 157 adjustment related to counterparty credit risk.

Subprime-Related Direct Exposure in Securities and Banking

        The Company had approximately $19.6 billion in net U.S. subprime-related direct exposures in its S&B business at September 30, 2008.

        The exposure consisted of (a) approximately $16.3 billion of net exposures in the super senior tranches (i.e., most senior tranches) of collateralized debt obligations which are collateralized by asset-backed securities, derivatives on asset-backed securities or both (ABS CDOs), and (b) approximately $3.3 billion of exposures in its lending and structuring business.

Direct ABS CDO Super Senior Exposures

        The net $16.3 billion in ABS CDO super senior exposures as of September 30, 2008 is collateralized primarily by subprime residential mortgage-backed securities (RMBS), derivatives on RMBS or both. These exposures include $13.3 billion in commercial paper (ABCP) issued as the super senior tranches of ABS CDOs and approximately $3.0 billion of other super senior tranches of ABS CDOs.

        Citigroup's CDO super senior subprime direct exposures are Level 3 assets and are subject to valuation based on significant unobservable inputs. Fair value of these exposures (other than high grade and mezzanine as described below) is based on estimates of future cash flows from the mortgage loans underlying the assets of the ABS CDOs. To determine the performance of the underlying mortgage loan portfolios, the Company estimates the prepayments, defaults and loss severities based on a number of macroeconomic factors, including housing price changes, unemployment rates, interest rates, and borrower and loan attributes, such as age, credit scores, documentation status, loan-to-value (LTV) ratios, and debt-to-income (DTI) ratios. The model is calibrated using available mortgage loan information including historical loan performance. In addition, the methodology estimates the impact of geographic concentration of mortgages, and the impact of reported fraud in the origination of subprime mortgages. An appropriate discount rate is then applied to the cash flows generated for each ABCP and CDO-squared tranche, in order to estimate its current fair value.

        When necessary, the valuation methodology used by Citigroup is refined and the inputs used for the purposes of estimation are modified, in part, to reflect ongoing market developments. More specifically, the inputs of home price appreciation (HPA) assumptions and delinquency data were updated during the quarter along with discount rates that are based upon a weighted average combination of implied spreads from single name ABS bond prices and ABX indices, as well as CLO spreads.

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        As was the case in the second quarter of 2008, the third quarter housing-price changes were estimated using a forward-looking projection. However, for the third quarter of 2008, this projection incorporates the Loan Performance Index, whereas in the second quarter of 2008, it incorporated the S&P Case Shiller Index. This change was made because the Loan Performance Index provided more comprehensive geographic data. In addition, the Company's mortgage default model has been updated for mortgage performance data from the first half of 2008, a period of sharp home price declines and high levels of mortgage foreclosures.

        The valuation as of September 30, 2008 assumes a cumulative decline in U.S. housing prices from peak to trough of 32%. This rate assumes declines of 16% and 10% in 2008 and 2009, respectively, the remainder of the 32% decline having already occurred before the end of 2007. The valuation methodology as of June 30, 2008 assumed a cumulative decline in U.S. housing prices from peak to trough of 23%, with assumed declines of 12% and 3% in 2008 and 2009, respectively.

        In addition, during the second and third quarters of 2008, the discount rates were based on a weighted average combination of the implied spreads from single name ABS bond prices, ABX indices and CLO spreads, depending on vintage and asset types. To determine the discount margin, the Company applies the mortgage default model to the bonds underlying the ABX indicies and other referenced cash bonds and solves for the discount margin that produces the market prices of those instruments. Using this methodology, the impact of the decrease of the home price appreciation projection from -23% to -32% resulted in a decrease in the discount margins incorporated in the valuation model. Additionally, there were a number of liquidations of high-grade and mezzanine positions during the third quarter. These were at prices close to the value of trader prices. The liquidation proceeds in total were also above the June 30^th carrying amount of the positions liquidated.

        For the third quarter of 2008, the valuation of the high-grade and mezzanine ABS CDO positions was changed from model valuation to trader prices based on the underlying assets of each high-grade and mezzanine ABS CDO. Unlike the ABCP and CDO-squared positions, the high-grade and mezzanine positions are now largely hedged through the ABX and bond short positions, which are, by necessity, trader priced. Thus, this change brings closer symmetry in the way these long and short positions are valued by the Company. Additionally, there were a number of liquidations of high-grade and mezzanine positions during the third quarter. These were at prices close to the value of trader prices. The liquidation proceeds in total were also above the June 30, 2008 carrying amount of the positions liquidated. Citigroup intends to use trader marks to value this portion of the portfolio going forward so long as it remains largely hedged.

        The primary drivers that currently impact the model valuations are the discount rates used to calculate the present value of projected cash flows and projected mortgage loan performance. In valuing its direct ABCP and CDO-squared super senior exposures, the Company has made its best estimate of the key inputs that should be used in its valuation methodology. However, the size and nature of these positions as well as current market conditions are such that changes in inputs such as the discount rates used to calculate the present value of the cash flows can have a significant impact on the reported value of these exposures. For instance, each 10 basis point change in the discount rate used generally results in an approximate $48 million change in the fair value of the Company's direct ABCP and CDO-squared super senior exposures as at September 30, 2008. This applies to both decreases in the discount rate (which would decrease the value of these assets and increase reported write-downs) and increases in the discount rate (which would decrease the value of these assets and increase reported write-downs).

        Estimates of the fair value of the CDO super senior exposures depend on market conditions and are subject to further change over time. In addition, while Citigroup believes that the methodology used to value these exposures is reasonable, the methodology is subject to continuing refinement, including those made as a result of market developments. Further, any observable transactions in respect of some or all of these exposures could be employed in the fair valuation process in accordance with and in the manner called for by SFAS 157.

Lending and Structuring Exposures

        The $3.3 billion of subprime-related exposures includes approximately $0.1 billion of CDO warehouse inventory and unsold tranches of ABS CDOs, approximately $2.1 billion of actively managed subprime loans purchased for resale or securitization, at a discount to par, during 2007, and approximately $1.1 billion of financing transactions with customers secured by subprime collateral. These amounts represent the fair value as determined using observable inputs and other market data. The majority of the change from the June 30, 2008 balances reflects sales, transfers and liquidations.

        S&B also has trading positions, both long and short, in U.S. subprime RMBS and related products, including ABS CDOs, which are not included in the figures above. The exposure from these positions is actively managed and hedged, although the effectiveness of the hedging products used may vary with material changes in market conditions.

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Direct Exposure to Monolines

        In its S&B business, the Company has exposure to various monoline bond insurers (Monolines) listed in the table below from hedges on certain investments and from trading positions. The hedges are composed of credit default swaps and other hedge instruments. The Company recorded an additional $919 million in credit market value adjustments (CVA) during the third quarter of 2008 on the market value exposures to the Monolines. In addition, the Company recorded releases/utitilizations against the credit market value adjustment of $1.2 billion during the quarter.

        The following table summarizes the market value of the Company's direct exposures to and the corresponding notional amounts of transactions with the various Monolines as well as the aggregate credit market value adjustment associated with these exposures as of September 30, 2008 and June 30, 2008 in S&B:

        The market value exposure, net of payable and receivable positions, represents the market value of the contract as of September 30 and June 30, 2008, excluding the credit market value adjustment. The notional amount of the transactions, including both long and short positions, is used as a reference value to calculate payments. The credit market value adjustment is a downward adjustment to the market value exposure to a counterparty to reflect the counterparty's creditworthiness in respect of the obligations in question.

        Credit market value adjustments are based on credit spreads and on estimates of the terms and timing of the payment obligations of the Monolines. Timing in turn depends on estimates of the performance of the transactions to which the Company's exposure relates, estimates of whether and when liquidation of such transactions may occur and other factors, each considered in the context of the terms of the monolines' obligations. For a further discussion of the use of estimates by the Company, see the Company's 2007 Annual Report on Form 10-K.

        As of September 30, 2008 and June 30, 2008, the Company had $9.4 billion notional amount of hedges against its Direct Subprime ABS CDO super senior positions. Of that $9.4 billion, $6.7 billion was purchased from monolines and is included in the notional amount of transactions in the table above. The market value of the hedges provided by the monolines against our direct subprime ABS CDO super senior positions was $5.3 billion as of September 30, 2008 and $5.4 billion as of June 30, 2008.

        In addition, there was $1.3 billion and $2.6 billion of market value exposure to monolines related to our trading assets as of September 30, 2008 and June 30, 2008, respectively. Trading assets include trading positions, both long and short, in U.S. subprime residential mortgage-backed securities (RMBS) and related products, including ABS CDOs. There was $1.2 billion net market value exposure related to subprime trading positions with a notional amount of $1.4 billion as of June 30, 2008, which was settled during the third quarter of 2008. The transaction was settled for a gain relative to the June 30, 2008 net market value exposure, which includes the credit market value adjustment related to this position.

        The notional amount of transactions related to the remaining non-subprime trading assets as of September 30, 2008 was $7.3 billion with a corresponding market value exposure of $1.3 billion. The $7.3 billion notional amount of transactions comprised $2.0 billion primarily in interest rate swaps with a corresponding market value exposure of $15 million. The remaining notional amount of $5.2 billion was in the form of credit default swaps and total return swaps with a market value exposure of $1.2 billion.

        The notional amount of transactions related to the remaining non-subprime trading assets at June 30, 2008 was $10.0 billion with a net market value exposure of $1.4 billion. The $10.1 billion notional amount of transactions comprised $2.8 billion primarily in interest rate swaps with a market value exposure of $14 million. The remaining notional amount of $7.3 billion was in the form of credit default swaps and total return swaps with a market value of $1.4 billion.

        During the third quarter of 2008, the Company recorded an increase in the credit market value adjustment of $919 million. This increase was offset by utilizations/releases of $1.245 billion, resulting in a net decrease to the quarter-end balance of $326 million.

        The Company has purchased mortgage insurance from various monoline mortgage insurers on first mortgage loans. The notional amount of this insurance protection was approximately $500 million as of September 30, 2008 and approximately $400 million as of June 30, 2008 with nominal pending claims against this notional amount.

        In addition, Citigroup has indirect exposure to Monolines in various other parts of its businesses. Indirect exposure includes circumstances in which the Company is not a contractual counterparty to the Monolines, but instead owns securities which may benefit from embedded credit enhancements provided by a Monoline. For example, corporate or municipal bonds in the trading business may be

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insured by the Monolines. The previous table does not capture this type of indirect exposure to the Monolines.

Exposure to Commercial Real Estate

        The Company, through its business activities and as a capital markets participant, incurs exposures that are directly or indirectly tied to the global commercial real estate market. These exposures are represented primarily by the following three categories:

        (1) Assets held at fair value: approximately $11.1 billion of securities, loans and other items linked to commercial real estate that are carried at fair value as Trading account assets, approximately $3.7 billion of commercial real estate loans and loan commitments classified as held-for-sale and measured at the lower of cost or market (LOCOM) and approximately $2.1 billion of securities backed by commercial real estate carried at fair value as available-for-sale Investments. Changes in fair value for these Trading account assets and held-for-sale loans and loan commitments are reported in current earnings, while changes in fair value for these available-for-sale investments are reported in OCI with other-than-temporary impairments reported in current earnings.

        The majority of these exposures are classified as Level 3 in the fair value hierarchy. In recent months, weakening activity in the trading markets for some of these instruments resulted in reduced liquidity, thereby decreasing the observable inputs for such valuations and could have an adverse impact on how these instruments are valued in the future if such conditions persist.

        (2) Loans and commitments: approximately $19.8 billion of commercial real estate loan exposures, all of which are recorded at cost, less loan loss reserves. The impact from changes in credit is reflected in the calculation of the allowance for credit losses and in net credit losses.

        (3) Equity and other investments: Approximately $5.3 billion of equity and other investments such as limited partner fund investments which are accounted for under the equity method.

Exposure to Alt-A Mortgage Securities

        See "Events in 2008" on page 8 for a description of incremental write-downs on Alt-A mortgage securities in S&B.

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EVALUATING INVESTMENTS FOR OTHER THAN TEMPORARY IMPAIRMENTS

Available-for-Sale Unrealized Losses

        The following table presents the amortized cost, the gross unrealized gains and losses, and the fair value for available-for-sale securities at September 30, 2008:

        The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with FASB Staff Position FAS No. 115-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" (FSP FAS 115-1). An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in other comprehensive income (OCI).

        Management has determined that the unrealized losses reflected in the table above are temporary in nature. The Company's process for identifying other-than-temporary impairment is described in more detail in Footnote 10 on page 100.

Mortgage-backed securities

        The increase in gross unrealized losses on mortgage-backed securities during the quarter ended September 30, 2008 was primarily related to ongoing widening of market credit spreads on Alt-A and Non-Agency securities. These increased market spreads reflect increased risk/liquidity premiums that buyers securities are currently demanding. As market liquidity for these types of securities has decreased, the primary buyers of these securities typically demand a return on investments that is significally higher than historically experienced.

        Consistent with prior periods, the Company has assessed each position for credit impairment. However, given the declines in fair values, and general concerns regarding housing prices, and the delinquency and default rates on the mortgage loans underlying these securities, the Company's analysis to identify securities in which it is not probable that all principal and interest contractually due will be recovered has been enhanced. The extent of the Company's analysis and the stress on assumptions used in the analysis are increased for securities where the current fair value or other characteristics of the security warrant heightened scrutiny regarding the credit quality of the investment.

        For U.S. mortgage-backed securities (and in particular for Alt-A and other mortgage-backed securities that have significant unrealized losses as a percentage of amortized cost), credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period, and then projects remaining cash flows using a number of assumptions, including default rates, prepayment rates, and recovery rates (on foreclosed properties).

        Management develops specific assumptions using as much market data as possible, and includes internal estimates as well as estimates published by rating agencies and other third-party sources. If the models predict, given the forward-looking assumptions, that it is not probable that a mortgage-backed security will recover all principal and interest due, the Company records other-than-temporary impairment in the Consolidated Statement of Income equal to the entire decline in fair value of the mortgage-backed security. During the third quarter of 2008, the Company recorded approximately $600 million of pretax losses in the Consolidated Statement of Income for mortgage-backed securities where management determined it was not probable the Company would be able to collect all principal and interest when due.

        Where a mortgage-backed security is not deemed to be credit-impaired, management performs additional analysis to assess whether it has the intent and ability to hold each security for a period of time sufficient for a forecasted recovery of fair value. In most cases, management has asserted

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that it has the intent and ability to hold investments for the forecasted recovery period, which in some cases may be the security's maturity date. Where such an assertion has not been made, the securities decline in fair value is deemed to be other-than-temporary and recorded in earnings. Management has asserted significant holding periods for mortgage-backed securities that in certain cases now approach the maturity of the securities. The weighted-average estimated life of the securities is currently approximately 7 years for U.S. mortgage-backed securities, and approximately 4 years for European mortgage-backed securities. The estimated life of the securities may change depending on future performance of the underlying loans, including prepayment activity and experienced credit losses.

State and Municipal Debt Securities

        The increase in gross unrealized losses on state and municipal debt securities during the quarter ended September 30, 2008 was a result of market disruption late in the quarter causing reduced liquidity and an increase in short-term yields. The Company continues to believe that receipt of all principal and interest on these securities is probable.

        For further disclosures regarding available-for-sale investments, see footnote 10 on 100.

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CITIGROUP DERIVATIVES

Notionals(1)

[Table continues on the following page.]

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Mark-to-Market (MTM) Receivables/Payables

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(1)

Includes the notional amounts for long and short derivative positions.

(2)

Trading derivatives include proprietary positions, as well as certain hedging derivatives instruments that qualify for hedge accounting in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).

(3)

Asset/Liability Management Hedges include only those end-user derivative instruments where the changes in market value are recorded in Other assets or Other liabilities.

(4)

Credit Derivatives are arrangements designed to allow one party (the "protection buyer") to transfer the credit risk of a "reference borrower" or "reference asset" to another party (the "protection seller"). These arrangements allow a protection seller to assume the credit risk associated with a reference borrower or reference asset. The Company has entered into credit derivatives positions for purposes such as risk management, yield enhancement, reduction of credit concentrations, and diversification of overall risk.

        The market value adjustments applied by the Company consist of the following items:

•

Liquidity adjustments are applied to items in Level 2 or Level 3 of the fair-value hierarchy (see note 17 on page 126 for more details) to ensure that the fair value reflects the price at which the entire position could be liquidated. The liquidity reserve is based on the bid/offer spread for an instrument, adjusted to take into account the size of the position.



•

Counterparty credit-risk adjustments are applied to derivatives such as over-the-counter derivatives, where the base valuation uses market parameters based on the LIBOR interest rate curves. Not all counterparties have the same credit risk as that implied by the relevant LIBOR curve, so it is necessary to consider the market view of the credit risk of a counterparty in order to estimate the fair value of such an item.



•

Bilateral or "own" credit-risk adjustments are applied to reflect the Company's own credit risk when valuing derivatives at fair value, in accordance with the requirements of SFAS 157. The methodology is consistent with that applied in determining counterparty credit-risk adjustments, but incorporates the Company's own credit risk as observed in the credit default swap market.

        Counterparty and own credit adjustments consider the estimated future cash flows between Citi and its counterparties under the terms of the derivative instrument, and the effect of credit risk on the valuation of those cash flows, rather than a point-in-time assessment of the current recognized net asset or liability. Furthermore, the credit-risk adjustments take into account the effect of credit-risk mitigants such as pledged collateral and any legal right of offset (to the extent such offset exists) with a counterparty through arrangements such as netting agreements. All or a portion of these credit value adjustments may be reversed or otherwise adjusted in future periods in the event of changes in the credit risk of Citi or its counterparties, changes in the credit mitigants associated with the derivative instruments, or, if such adjustments are not realized, upon settlement of the derivative instruments. A narrowing of Citigroup's credit spreads would generally adversely affect revenues.

        The credit valuation adjustment (CVA) to the fair value of derivative instruments as of September 30, 2008 was as follows (in millions of dollars):

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        The pre-tax gains (losses) related to changes in credit valuation adjustments on derivatives for the specified periods were as follows (in millions of dollars):

        The own-credit amounts shown above relate solely to the derivative portfolio, and do not include:

•

own-credit adjustments for non-derivative liabilities measured at fair value due to fair value election under SFAS 155 or SFAS 159. See footnote 17 on page 126 for further information.



•

The effect of counterparty credit risk embedded in non-derivative instruments. During 2008, general spread widening has negatively affected the market value of a range of financial instruments. Losses on non-derivative instruments, such as bonds and loans, related to counterparty credit risk are not included in the table above.

Credit Derivatives

        The Company makes markets in and trades a range of credit derivatives, both on behalf of clients as well as for its own account. Through these contracts, the Company either purchases or writes protection on either a single-name or a portfolio of credits. The Company uses credit derivatives to help mitigate credit risk in its corporate loan portfolio and other cash positions, to take proprietary trading positions, and to facilitate client transactions.

        Credit derivatives generally require that the seller of credit protection make payments to the buyer upon the occurrence of predefined events (settlement triggers). These settlement triggers are defined by the form of the derivative and the referenced credit and are generally limited to the market standard of failure to pay on indebtedness and bankruptcy of the reference credit and, in a more limited range of transactions, debt restructuring. Credit derivative transactions referring to emerging market reference credits will also typically include additional settlement triggers to cover the acceleration of indebtedness and the risk of repudiation or a payment moratorium. In certain transactions on a portfolio of referenced credits or asset-backed securities, the seller of protection may not be required to make payment until a specified amount of losses has occurred with respect to the portfolio and/or may only be required to pay for losses up to a specified amount.

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        The following tables summarize the key characteristics of the Company's credit derivative portfolio by activity, counterparty and derivative instrument as of September 30, 2008 and December 31, 2007:

September 30, 2008:

December 31, 2007(1):

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(1)

Reclassified to conform to current period's presentation.

        The market values shown are prior to the application of any netting agreements, cash collateral, and market or credit value adjustments.

        The Company actively participates in trading a variety of credit derivatives products to manage its own credit risk in loan and other portfolios ("credit portfolio" activity) and as an active two-way market-maker for clients ("dealer/client" activity). During 2007, Citigroup and the industry experienced a material increase in trading volumes. The volatility and liquidity challenges in the credit markets during the third and fourth quarters drove derivatives trading volumes as credit derivatives became the instrument of choice for managing credit risk. The majority of this activity was transacted with other financial intermediaries, including both banks and broker-dealers. During the full year 2007, the total notional amount of protection purchased and sold increased $906 billion and $824 billion, respectively, and by various market participants. The total market value increase of $69 billion each for protection purchased and sold was primarily due to an increase in volume growth of $63 billion and $62 billion, and market spread changes of $6 billion and $7 billion for protection purchased and sold, respectively.

        During the first nine months of 2008, the total notional amount of protection purchased and sold decreased $194 billion and $189 billion, respectively as volume continued to decline. The corresponding market value increased $83 billion for protection purchased and $65 billion for protection sold. These market value increases were due to changes in market conditions.

        The Company generally has a mismatch between the total notional amounts of protection purchased and sold, and it may hold the reference assets directly rather than entering into offsetting credit derivative contracts as and when desired. The open risk exposures from credit derivative contracts are largely matched after certain cash positions in reference assets are considered and after notional amounts are adjusted, either to a duration-based equivalent basis, or to reflect the level of subordination in tranched structures.

        The Company actively monitors its counterparty credit risk in credit derivative contracts. Approximately 84% and 77% of

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the receivables as of September 30, 2008 and December 31, 2007, respectively, are from counterparties with which the Company maintains collateral agreements. A majority of the Company's top 15 counterparties (by receivable balance owed to the Company) are banks, financial institutions or other dealers. Contracts with these counterparties do not include ratings-based termination events. However, counterparty rating downgrades may have an incremental effect by lowering the threshold at which the Company may call for additional collateral. A number of the remaining significant counterparties are monolines. See page 38 for a discussion of the Company's exposure to monolines. The master agreements with these monolines are generally unsecured. As with all derivative contracts, the Company considers counterparty credit risk in the valuation of its positions and recognizes credit valuation adjustments as appropriate. During the third quarter of 2008, the Company recorded an additional $919 million in credit market value adjustments on market value exposures to the monolines as a result of widening credit spreads and an increase in the expected exposure to the monolines.

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MARKET RISK MANAGEMENT PROCESS

        Market risk encompasses liquidity risk and price risk, both of which arise in the normal course of business of a global financial intermediary. Liquidity risk is the risk that an entity may be unable to meet a financial commitment to a customer, creditor, or investor when due, as a result of the unavailability of funds. Liquidity risk is discussed in the "Capital Resources and Liquidity" section beginning on page 59. Price risk is the earnings risk from changes in interest rates, foreign exchange rates, equity and commodity prices, and in their implied volatilities. Price risk arises in non-trading portfolios, as well as in trading portfolios.

Interest Rate Exposure (IRE)

        The exposures in the following table represent the approximate annualized risk to Net Interest Revenue (NIR) assuming an unanticipated parallel instantaneous 100bp change, as well as a more gradual 100bp (25bps per quarter) parallel change in rates as compared with the market forward interest rates in selected currencies.

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NM Not meaningful. A 100 basis point decrease in interest rates would imply negative rates for the Japanese yen yield curve.

        The changes in the U.S. dollar interest rate exposures from June 30, 2008 primarily reflect movements in customer-related asset and liability mix, the expected impact of market rates on customer behavior, as well as Citigroup's view of prevailing interest rates.

        The following table shows the estimated one year impact to NIR from the change in a combination of two factors, the overnight rate and the 10-year rate, under six different scenarios.

Value at Risk (VAR)

        For Citigroup's major trading centers, the aggregate pretax VAR in the trading portfolios was $237 million, $255 million, and $135 million at September 30, 2008, June 30, 2008, and September 30, 2007, respectively. Daily exposures averaged $240 million during the third quarter of 2008 and ranged from $265 million to $220 million.

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        The following table summarizes VAR to Citigroup in the trading portfolios at September 30, 2008, June 30, 2008, and September 30, 2007, including the Total VAR, the specific risk only component of VAR, and Total—General market factors only, along with the quarterly averages:

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(1)

The Sub-Prime Group (SPG) exposures became fully integrated into VAR during the first quarter of 2008. As a result, September 30, 2008 and third quarter 2008 average VAR increased by approximately $60 million and $73 million, respectively. June 30, 2008 and second quarter 2008 VAR increased by approximately $95 million and $135 million, respectively.

        The specific risk only component represents the level of equity and debt issuer-specific risk embedded in VAR. Citigroup's specific risk model conforms to the 4x-multiplier treatment and is subject to extensive annual hypothetical back-testing.

        The table below provides the range of VAR in each type of trading portfolio that was experienced during the quarters ended:

OPERATIONAL RISK MANAGEMENT PROCESS

        Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. It includes the reputation and franchise risk associated with business practices or market conduct that the Company undertakes. Operational risk is inherent in Citigroup's global business activities and, as with other risk types, is managed through an overall framework with checks and balances that include:

•

Recognized ownership of the risk by the businesses;



•

Oversight by independent risk management; and



•

Independent review by Audit and Risk Review (ARR).

Framework

        Citigroup's approach to operational risk is defined in the Citigroup Risk and Control Self-Assessment (RCSA)/Operational Risk Policy.

        The objective of the Policy is to establish a consistent, value-added framework for assessing and communicating operational risk and the overall effectiveness of the internal control environment across Citigroup. Each major business segment must implement an operational risk process consistent with the requirements of this Policy.

        The RCSA standards establish a formal governance structure to provide direction, oversight, and monitoring of Citigroup's RCSA programs. The RCSA standards for risk and control assessment are applicable to all businesses and staff functions. They establish RCSA as the process whereby important risks inherent in the activities of a business are identified and the effectiveness of the key controls over those risks are evaluated and monitored. RCSA processes facilitate Citigroup's adherence to internal control over financial reporting, regulatory requirements (including Sarbanes-Oxley and FDICIA) the International Convergence of Capital Measurement and Capital Standards (Basel II), and other corporate initiatives, including Operational Risk Management and alignment of capital assessments with risk management objectives. The entire process is subject to audit by Citigroup's ARR, and the results of RCSA are included in periodic management reporting, including reporting to senior management and the Audit and Risk Management Committee.

        The operational risk standards facilitate the effective communication of operational risk both within and across businesses. Information about the businesses' operational risk, historical losses, and the control environment is reported by each major business segment and functional area, and summarized for senior management and the Citigroup Board of Directors.

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Measurement and Basel II

        To support advanced capital modeling and management, the businesses are required to capture relevant operational risk information. The risk capital calculation is designed to qualify as an "Advanced Measurement Approach" (AMA) under Basel II. It uses a combination of internal and external loss data to support statistical modeling of capital requirement estimates, which are then adjusted to reflect qualitative data regarding the operational risk and control environment.

Information Security and Continuity of Business

        Information security and the protection of confidential and sensitive customer data are a priority of Citigroup. The Company has implemented an Information Security Program that complies with the Gramm-Leach-Bliley Act and other regulatory guidance. The Information Security Program is reviewed and enhanced periodically to address emerging threats to customers' information.

        The Corporate Office of Business Continuity, with the support of senior management, continues to coordinate global preparedness and mitigate business continuity risks by reviewing and testing recovery procedures.

COUNTRY AND FFIEC CROSS-BORDER RISK MANAGEMENT PROCESS

Country Risk

        Country risk is the risk that an event in a foreign country will impair the value of Citigroup assets or will adversely affect the ability of obligors within that country to honor their obligations to Citigroup. Country risk events may include sovereign defaults, banking or currency crises, social instability, and changes in governmental policies (for example, expropriation, nationalization, confiscation of assets and other changes in legislation relating to international ownership). Country risk includes local franchise risk, credit risk, market risk, operational risk, and cross-border risk.

        The country risk management framework at Citigroup includes a number of tools and management processes designed to facilitate the ongoing analysis of individual countries and their risks. These include country risk rating models, scenario planning and stress testing, internal watch lists, and the Country Risk Committee process.

        The Citigroup Country Risk Committee is the senior forum to evaluate the Company's total business footprint within a specific country franchise with emphasis on responses to current potential country risk events. The Committee is chaired by the Head of Global Country Risk Management and includes as its members senior risk management officers, senior regional business heads, and senior product heads. The Committee regularly reviews all risk exposures within a country, makes recommendations as to actions, and follows up to ensure appropriate accountability.

Cross-Border Risk

        Cross-border risk is the risk that actions taken by a non-U.S. government may prevent the conversion of local currency into non-local currency and/or the transfer of funds outside the country, thereby impacting the ability of the Company and its customers to transact business across borders.

        Examples of cross-border risk include actions taken by foreign governments such as exchange controls, debt moratoria, or restrictions on the remittance of funds. These actions might restrict the transfer of funds or the ability of the Company to obtain payment from customers on their contractual obligations.

        Management oversight of cross-border risk is performed through a formal review process that includes annual setting of cross-border limits and/or exposures, monitoring of economic conditions globally, and the establishment of internal cross-border risk management policies.

        Under Federal Financial Institutions Examination Council (FFIEC) regulatory guidelines, total reported cross-border outstandings include cross-border claims on third parties, as well as investments in and funding of local franchises. Cross-border claims on third parties (trade and short-, medium- and long-term claims) include cross-border loans, securities, deposits with banks, investments in affiliates, and other monetary assets, as well as net revaluation gains on foreign exchange and derivative products.

        Cross-border outstandings are reported based on the country of the obligor or guarantor. Outstandings backed by cash collateral are assigned to the country in which the collateral is held. For securities received as collateral, cross-border outstandings are reported in the domicile of the issuer of the securities. Cross-border resale agreements are presented based on the domicile of the counterparty in accordance with FFIEC guidelines.

        Investments in and funding of local franchises represent the excess of local country assets over local country liabilities. Local country assets are claims on local residents recorded by branches and majority-owned subsidiaries of Citigroup domiciled in the country, adjusted for externally guaranteed claims and certain collateral. Local country liabilities are obligations of non-U.S. branches and majority-owned subsidiaries of Citigroup for which no cross-border guarantee has been issued by another Citigroup office.

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        The table below shows all countries where total Federal Financial Institutions Examination Council (FFIEC) cross-border outstandings exceed 0.75% of total Citigroup assets:

---

(1)

Included in total cross-border claims on third parties.

(2)

Represents the excess of local country assets over local country liabilities.

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INTEREST REVENUE/EXPENSE AND YIELDS

Average Rates—Interest Revenue, Interest Expense, and Net Interest Margin

---

(1)

Excludes taxable equivalent adjustment (based on the U.S. federal statutory tax rate of 35%) of $51 million, $65 million, and $34 million for the third quarter of 2008, the second quarter of 2008, and the third quarter of 2007, respectively.

(2)

Excludes expenses associated with hybrid financial instruments and beneficial interest in consolidated VIEs. These obligations are classified as Long-term debt and accounted for at fair value with changes recorded in Principal transactions. In addition, the majority of the funding provided by Treasury to CitiCapital operations is excluded from this line.

Reclassified to conform to the current period's presentation and has been reclassified to exclude Discontinued Operations.

        A significant portion of the Company's business activities is based upon gathering deposits and borrowing money and then lending or investing those funds, including market-making activities in tradeable securities. Net interest margin (NIM) is calculated by dividing annualized gross interest revenue less gross interest expense by average interest earning assets.

        During the third quarter of 2008, the significantly lower cost of funding offset the lower asset yields, resulting in relatively flat NIM. Both the average assets and liabilities showed decline in yields resulting from a full quarter of lower Fed Funds target rate.

49

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AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)

---

(1)

Interest revenue excludes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $51 million, $65 million, and $34 million for the third quarter of 2008, the second quarter of 2008, and the third quarter of 2007, respectively.

(2)

Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 16 on page 121.

(3)

Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)

Average rates reflect prevailing local interest rates, including inflationary effects and monetary correction in certain countries.

(5)

Average volumes of securities borrowed or purchased under agreements to resell are reported net pursuant to FIN 41 and Interest revenue excludes the impact of FIN 41.

(6)

The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest-bearing liabilities.

(7)

Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.

(8)

Includes cash-basis loans.

        Reclassified to conform to the current period's presentation.

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AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY,
AND NET INTEREST REVENUE(1)(2)(3)

---

(1)

Interest revenue excludes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $51 million, $65 million, and $34 million for the third quarter of 2008, the second quarter of 2008, and the third quarter of 2007, respectively.

(2)

Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 16 on page 121.

(3)

Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)

Savings deposits consist of Insured Money Market Rate accounts, NOW accounts, and other savings deposits.

(5)

Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(6)

Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 and Interest expense excludes the impact of FIN 41.

(7)

The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest-bearing liabilities.

(8)

Interest expense on Trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.

(9)

Excludes hybrid financial instruments and beneficial interests in consolidated VIEs that are classified as long-term debt as these obligations are accounted for at fair value with changes recorded in Principal Transactions. In addition, the majority of the funding provided by Corporate Treasury to CitiCapital operations is excluded from this line.

(10)

Includes allocations for capital and funding costs based on the location of the asset.

        Reclassified to conform to the current period's presentation.

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AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)

---

(1)

Interest revenue excludes the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $164 million and $94 million for the first nine months of 2008 and 2007, respectively.

(2)

Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 16 on page 121.

(3)

Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)

Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 2 on page 92.

(5)

Average rates reflect prevailing local interest rates, including inflationary effects and monetary correction in certain countries.

(6)

Average volumes of securities borrowed or purchased under agreements to resell are reported net pursuant to FIN 41 and interest revenue excludes the impact of FIN 41.

(7)

The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest bearing liabilities.

(8)

Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue. Interest revenue and interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.

(9)

Includes cash-basis loans.

        Reclassified to conform to the current period's presentation.

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AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY,
AND NET INTEREST REVENUE(1)(2)(3)(4)

---

(1)

Interest revenue the taxable equivalent adjustments (based on the U.S. federal statutory tax rate of 35%) of $164 million and $94 million for the first nine months of 2008 and 2007, respectively.

(2)

Interest rates and amounts include the effects of risk management activities associated with the respective asset and liability categories. See Note 16 on page 121.

(3)

Monthly or quarterly averages have been used by certain subsidiaries where daily averages are unavailable.

(4)

Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 2 on page 92.

(5)

Savings deposits consist of Insured Money Market Rate accounts, NOW accounts, and other savings deposits.

(6)

Average rates reflect prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(7)

Average volumes of securities loaned or sold under agreements to repurchase are reported net pursuant to FIN 41 and interest expense excludes the impact of FIN 41.

(8)

The fair value carrying amounts of derivative and foreign exchange contracts are reported in non-interest-earning assets and other non-interest bearing liabilities.

(9)

Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue. Interest revenue and interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.

(10)

Excludes hybrid financial instruments and beneficial interests in consolidated VIEs that are classified as long-term debt as these obligations are accounted for at fair value with changes recorded in Principal Transactions. In addition, the majority of the funding provided by Corporate Treasury to CitiCapital is excluded from this line.

(11)

Includes equity from discontinued operations.

(12)

Includes allocations for capital and funding costs based on the location of the asset.

        Reclassified to conform to the current period's presentation.

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ANALYSIS OF CHANGES IN INTEREST REVENUE(1)(2)

---

(1)

The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35%, and is excluded from this presentation.

(2)

Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change.

(3)

Changes in average rates reflect changes in prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(4)

Interest expense on trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in trading account assets and Trading account liabilities, respectively.

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ANALYSIS OF CHANGES IN INTEREST EXPENSE AND NET INTEREST REVENUE(1)(2)

---

(1)

The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35%, and is excluded from this presentation.

(2)

Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change.

(3)

Changes in average rates reflect changes in prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(4)

Interest expense on trading account liabilities of ICG is reported as a reduction of Interest revenue. Interest revenue and Interest expense on cash collateral positions are reported in trading account assets and Trading account liabilities, respectively.

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ANALYSIS OF CHANGES IN INTEREST REVENUE, INTEREST EXPENSE, AND NET INTEREST REVENUE(1)(2)(3)

---

(1)

The taxable equivalent adjustment is based on the U.S. federal statutory tax rate of 35% and is excluded from this presentation.

(2)

Rate/volume variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total net change.

(3)

Detailed average volume, interest revenue and interest expense exclude discontinued operations. See Note 2 on page 92.

(4)

Changes in average rates reflect changes in prevailing local interest rates, including inflationary effects and monetary corrections in certain countries.

(5)

Interest expense on Trading account liabilities of ICG is reported as a reduction of interest revenue. Interest revenue and interest expense on cash collateral positions are reported in Trading account assets and Trading account liabilities, respectively.

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CAPITAL RESOURCES AND LIQUIDITY

CAPITAL RESOURCES

        Citigroup is subject to risk-based capital ratio guidelines issued by the FRB. Capital adequacy is measured via two risk-based ratios, Tier 1 and Total Capital (Tier 1 + Tier 2 Capital). Tier 1 Capital is considered core capital while Total Capital also includes other items such as subordinated debt and loan loss reserves. Both measures of capital are stated as a percent of risk-adjusted assets. Risk-adjusted assets are measured primarily on their perceived credit risk and include certain off-balance-sheet exposures, such as unfunded loan commitments and letters of credit and the notional amounts of derivative and foreign exchange contracts. Citigroup is also subject to the Leverage Ratio requirement, a non-risk-based asset ratio, which is defined as Tier 1 Capital as a percentage of adjusted average assets.

        To be "well capitalized" under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 Capital Ratio of at least 6%, a Total Capital Ratio of at least 10%, and a Leverage Ratio of at least 3%, and not be subject to an FRB directive to maintain higher capital levels.

        As noted in the following table, Citigroup maintained a "well capitalized" position at September 30, 2008 and December 31, 2007.

Citigroup Regulatory Capital Ratios

---

(1)

Tier 1 Capital divided by adjusted average assets.

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Components of Capital Under Regulatory Guidelines

---

(1)

Reclassified to conform to the current period's presentation.

(2)

Reflects prior period adjustment to opening retained earnings as presented in the consolidated statement of changes in stockholders' equity on page 84.

(3)

Tier 1 Capital excludes unrealized gains and losses on debt securities available-for-sale in accordance with regulatory risk-based capital guidelines. Institutions are required to deduct from Tier 1 Capital net unrealized holding gains on available-for-sale equity securities with readily determinable fair values, net of tax. The federal bank regulatory agencies permit institutions to include in Tier 2 Capital up to 45% of pretax net unrealized holding gains on available-for-sale equity securities with readily determinable fair values, net of tax.

(4)

The FRB granted industry-wide interim capital relief for the impact of adopting SFAS 158.

(5)

The impact of including Citigroup's own credit rating in valuing liabilities for which the fair value option has been selected is excluded from Tier 1 Capital, in accordance with regulatory risk-based capital guidelines.

(6)

Represents the excess of allowable restricted core capital in Tier 1 Capital. Restricted core capital is limited to 25% of all core capital elements, net of goodwill.

(7)

Represents net deferred tax assets that did not qualify for inclusion in Tier 1 capital based on the capital guidelines at September 30, 2008.

(8)

Can include up to 1.25% of risk-adjusted assets. Any excess allowance is deducted from risk-adjusted assets.

(9)

Includes qualifying subordinated debt in an amount not exceeding 50% of Tier 1 Capital.

(10)

Includes risk-weighted credit equivalent amounts, net of applicable bilateral netting agreements, of $101.2 billion for interest rate, commodity and equity derivative contracts and foreign-exchange contracts as of September 30, 2008, compared with $91.3 billion as of December 31, 2007. Market-risk-equivalent assets included in risk-adjusted assets amounted to $95.9 billion at September 30, 2008 and $109.0 billion at December 31, 2007, respectively. Risk-adjusted assets also include the effect of other off-balance-sheet exposures, such as unused loan commitments and letters of credit, and reflect deductions for certain intangible assets and any excess allowance for credit losses.

        Common stockholders' equity decreased approximately $14.8 billion to $98.6 billion, representing 4.8% of total assets, as of September 30, 2008 from $113.4 billion and 5.2% at December 31, 2007.

        During the first nine months of 2008, the Company completed the following common stock and preferred stock issuances:

•

$12.5 billion of Convertible Preferred Stock in a Private Offering



•

Approximately $3.2 billion of Convertible Preferred Stock in a Public Offering



•

Approximately $11.7 billion of Straight Preferred Stock in Public Offerings



•

Approximately $4.9 billion of Common Stock in a Public Offering

        Subsequent to September 30, 2008, Citigroup raised $25 billion through the sale of non-voting perpetual preferred stock and a warrant to purchase common stock to the U.S. Department of the Treasury as part of the Treasury's previously announced TARP Capital Purchase Program.

        All of the proceeds will be treated as Tier 1 Capital for regulatory purposes. Taking this issuance into account, on a pro forma basis, at September 30, 2008, Citigroup's Tier 1 Capital ratio would have been approximately 10.4%.

        The preferred stock will have an aggregate liquidation preference of $25 billion and an annual dividend rate of 5% for the first five years, and 9% thereafter. Dividends will be cumulative and payable quarterly. The warrant will have an exercise price of $17.85 and will be exercisable for 210,084,034 shares of common stock, which would be reduced by one-half if Citigroup raises an additional $25 billion through the issuance of Tier 1-qualifying perpetual preferred or common stock by December 31, 2009.

        The terms of the $12.5 billion of 7% convertible preferred stock sold in private offerings in January 2008 provide for the purchase of Citigroup common shares at a price per share originally equal to $31.62. This purchase price is subject to reset in the case of certain equity and equity-linked issuances of Citigroup with gross proceeds in excess of $5 billion prior to January 23, 2009. After giving effect to Citigroup's issuance of common stock in April 2008 and the issuance of the warrant in October 2008, if the applicable reset were effected currently, the maximum purchase price per share would be $27.6958. The actual reset will be determined and effected within 90 days after January 23, 2009 and will be subject to further adjustment for additional issues of reset-causing equity or equity-linked securities before January 23, 2009, provided that the reset purchase price cannot be less than $26.3517 per share.

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Common Equity

        The table below summarizes the change in common stockholders' equity:

        As of September 30, 2008, $6.7 billion remained under authorized repurchase programs after the repurchase of $0.7 billion in shares during 2007. In addition, under the TARP Capital Purchase Program the Company is restricted from repurchasing common stock, subject to certain exceptions including in the ordinary course of business as part of employee benefit programs. On October 20, 2008, the Board decreased the quarterly dividend on the Company's common stock to $0.16 per share.

Capital Resources of Citigroup's Depository Institutions

        Citigroup's subsidiary depository institutions in the United States are subject to risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are similar to the FRB's guidelines. To be "well capitalized" under federal bank regulatory agency definitions, Citigroup's depository institutions must have a Tier 1 Capital Ratio of at least 6%, a Total Capital (Tier 1 + Tier 2 Capital) Ratio of at least 10% and a Leverage Ratio of at least 5%, and not be subject to a regulatory directive to meet and maintain higher capital levels.

        At September 30, 2008, all of Citigroup's subsidiary depository institutions were "well capitalized" under the federal regulatory agencies' definitions, including Citigroup's primary depository institution, Citibank, N.A., as noted in the following table:

Citibank, N.A. Components of Capital and Ratios Under Regulatory Guidelines

---

(1)

Tier 1 Capital divided by adjusted average assets.

        Citibank, N.A. had a net loss of $1.5 billion for the first nine months of 2008.

        Citibank, N.A. did not issue any additional subordinated notes during the first nine months of 2008. For the full year 2007, Citibank, N.A. issued an additional $5.2 billion of subordinated notes to Citicorp Holdings Inc. that qualify for inclusion in Citibank, N.A.'s Tier 2 Capital. Total subordinated notes issued to Citicorp Holdings Inc. that were outstanding at September 30, 2008 and December 31, 2007, and included in Citibank, N.A.'s Tier 2 Capital, amounted to $28.2 billion.

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        The following table presents the estimated sensitivity of Citigroup's and Citibank, N.A.'s Capital Ratios to changes of $100 million of Tier 1 or Total Capital (numerator) or changes of $1 billion in risk-adjusted assets or adjusted average assets (denominator) based on financial information as of September 30,2008. This information is provided solely for the purpose of analyzing the impact that a change in the Company's financial position or results of operations has on these ratios. These sensitivities only consider a single change to either a component of Capital, risk-adjusted assets or adjusted average assets. Accordingly, an event that affects more than one factor may have a larger basis point impact than what is reflected in this table.

Broker-Dealer Subsidiaries

        At September 30, 2008, Citigroup Global Markets Inc., an indirect wholly owned subsidiary of Citigroup Global Market Holdings Inc. (CGMHI), had net capital, computed in accordance with the Net Capital Rule, of $4.9 billion, which exceeded the minimum requirement by $3.9 billion.

        In addition, certain of the Company's broker-dealer subsidiaries are subject to regulation in the other countries in which they do business, including requirements to maintain specified levels of net capital or its equivalent. The Company's broker-dealer subsidiaries were in compliance with their capital requirements at September 30, 2008.

Regulatory Capital Standards Developments

        Citigroup supports the move to a new set of risk-based regulatory capital standards, published on June 26, 2004 (and subsequently amended in November 2005) by the Basel Committee on Banking Supervision, consisting of central banks and bank supervisors from 13 countries. The international version of the Basel II framework will allow Citigroup to leverage internal risk models used to measure credit, operational, and market risk exposures to drive regulatory capital calculations.

        On December 7, 2007, the U.S. banking regulators published the rules for large banks to comply with Basel II in the U.S. These rules require Citigroup, as a large and internationally active bank, to comply with the most advanced Basel II approaches for calculating credit and operational risk capital requirements. The U.S. implementation timetable consists of a parallel calculation period under the current regulatory capital regime (Basel I) and Basel II, starting any time between April 1, 2008, and April 1, 2010 followed by a three-year transition period, typically starting 12 months after the beginning of parallel reporting. The U.S. regulators have reserved the right to change how Basel II is applied in the U.S. following a review at the end of the second year of the transitional period, and to retain the existing prompt corrective action and leverage capital requirements applicable to banking organizations in the U.S. The Company is currently reviewing its timetable for adoption.

        The regulators have not determined any regulatory response to proposed changes of accounting treatment regarding Qualifying Special Purpose Entities (QSPEs) or variable interest entities.

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FUNDING

Overview

        As a bank holding company, substantially all of Citigroup's net earnings are generated within its operating subsidiaries. These subsidiaries make funds available to Citigroup, primarily in the form of dividends. Certain subsidiaries' dividend paying abilities may be limited by covenant restrictions in credit agreements, regulatory requirements and/or rating agency requirements that also impact their capitalization levels.

        Our liquidity position remained very strong during the third quarter of 2008 and will continue to be enhanced through the sale of perpetual preferred stock and warrants to the U.S. Department of the Treasury, sale of our German Retail Banking Operations and continued balance sheet de-leveraging.

        During the second half of 2007 and the first nine months of 2008, the Company took a series of actions to reduce potential funding risks related to short-term market dislocations. The amount of commercial paper outstanding was reduced and the weighted-average maturity was extended, the Parent Company liquidity portfolio (a portfolio of cash and highly liquid securities) and broker-dealer "cash box" (unencumbered cash deposits) were increased substantially, and the amount of unsecured overnight bank borrowings was reduced. For each of the past five months in the period ending September 30, 2008, the Company was, on average, a net lender of funds in the interbank market. As of September 30, 2008, the Parent Company liquidity portfolio and broker-dealer "cash box" totaled $50.5 billion as compared with $24.2 billion at December 31, 2007 and $24.0 billion at September 30, 2007.

        These actions served Citigroup well during the unprecedented market conditions at the end of the 2008 third quarter. Continued de-leveraging and the enhancement of our liquidity position have allowed the combined Parent and Broker—Dealer entities to maintain sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing the unsecured markets.

        Citigroup's funding continues to be enhanced by a large retail and corporate deposit base of $780 billion. These deposits are diversified across products and regions, with approximately two-thirds of them outside of the U.S. This diversification, including deep access to international deposits, provides the Company with an important, stable and low-cost source of funding. A significant portion of these deposits has been, and is expected to be, long-term and stable, and are considered core. During the three months ending September 30, 2008, the Company's deposit base remained stable with deposits lower by $23.3 billion, or 1%. The decrease reflected the reclassification of $13.5 billion in deposits held by our German Retail Banking operations to discontinued operations. Deposit balances were also negatively impacted by a stronger U.S. dollar and by the Company's decisions to reduce deposits, considered wholesale funding, consistent with the Company's de-leveraging efforts. On a constant dollar basis, deposit volumes were higher during the third quarter. On a volume basis, significant increases in Transaction Services deposits were driven by higher cash balances maintained by clients and a flight to quality. Overall, consumer deposits outside the U.S. were essentially flat, excluding the impact of foreign exchange translation and the reclassification of the deposits of the German Retail Banking business.

Banking Subsidiaries

        There are various legal limitations on the ability of Citigroup's subsidiary depository institutions to extend credit, pay dividends or otherwise supply funds to Citigroup and its nonbank subsidiaries. The approval of the Office of the Comptroller of the Currency, in the case of national banks, or the Office of Thrift Supervision, in the case of federal savings banks, is required if total dividends declared in any calendar year exceed amounts specified by the applicable agency's regulations. State-chartered depository institutions are subject to dividend limitations imposed by applicable state law.

        In determining the declaration of dividends, each depository institution must also consider its effect on applicable risk-based capital and leverage ratio requirements, as well as policy statements of the federal regulatory agencies that indicate that banking organizations should generally pay dividends out of current operating earnings. Consistent with these rules and other considerations, Citigroup estimates that, as of September 30, 2008, its subsidiary depository institutions could distribute dividends to Citigroup of approximately $7.2 billion.

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        At September 30, 2008, long-term debt and commercial paper outstanding for Citigroup Parent Company, CGMHI, Citigroup Funding Inc. (CFI) and Citigroup's Subsidiaries were as follows:

---

(1)

Citigroup Inc. guarantees all of CFI's debt and CGMHI's publicly issued securities.

(2)

At September 30, 2008, approximately $76.0 billion relates to collateralized advances from the Federal Home Loan Bank and $19.4 billion related to the consolidation of the ICG Structured Investment Vehicles.

        See Note 12 to the Consolidated Financial Statements on page 104 for further detail on long-term debt and commercial paper outstanding.

        Citigroup's ability to access the capital markets and other sources of wholesale funds, as well as the cost of these funds, is highly dependent on its credit ratings. The table below indicates the current ratings for Citigroup.

        On September 29, 2008, Fitch Ratings, Moody's Investors Service, and Standard & Poor's placed the ratings outlook of Citigroup, Inc. and its subsidiaries on "Watch Negative", "Under Review for possible downgrade", and "CreditWatch with negative implication", respectively.

        As a result of the Citigroup guarantee, changes in ratings and ratings outlooks for Citigroup Funding Inc. are the same as those of Citigroup Inc. noted above.

Citigroup's Debt Ratings as of September 30, 2008

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LIQUIDITY

        Citigroup's liquidity management is structured to optimize the free flow of funds through the Company's legal and regulatory structure. Principal constraints relate to legal and regulatory limitations, sovereign risk and tax considerations. Consistent with these constraints, Citigroup's primary objectives for liquidity management are established by entity and in aggregate across three main operating entities as follows:

•

Parent Holding Company



•

Broker-Dealer Entities



•

Bank Entities

        Within this construct, there is a funding framework for the Company's activities. The primary benchmark for the Parent and Broker-Dealer Entities is that on a combined basis, Citigroup maintains sufficient liquidity to meet all maturing unsecured debt obligations due within a one-year time horizon without accessing the unsecured markets. The resulting "short-term ratio" is monitored on a daily basis.

OFF-BALANCE SHEET ARRANGEMENTS

Overview

        Citigroup and its subsidiaries are involved with numerous types of off-balance-sheet arrangements, including special purpose entities (SPEs), lines and letters of credit and loan commitments.

Uses of SPEs

        An SPE is an entity in the form of a trust or other legal vehicle designed to fulfill a specific limited need of the company that organized it.

        The principal uses of SPEs are to obtain liquidity and favorable capital treatment by securitizing certain of Citigroup's financial assets, to assist clients in securitizing their financial assets, and to create investment products for clients. SPEs may be organized as trusts, partnerships, or corporations. In a securitization, the company transferring assets to an SPE converts those assets into cash before they would have been realized in the normal course of business, through the SPE's issuing debt and equity instruments, certificates, commercial paper, and other notes of indebtedness, which are recorded on the balance sheet of the SPE and not reflected on the transferring company's balance sheet, assuming applicable accounting requirements are satisfied. Investors usually have recourse to the assets in the SPE and often benefit from other credit enhancements, such as a collateral account or overcollateralization in the form of excess assets in the SPE, or from a liquidity facility, such as a line of credit, liquidity put option or asset purchase agreement. The SPE can typically obtain a more favorable credit rating from rating agencies than the transferor could obtain for its own debt issuances, resulting in less expensive financing costs. The SPE may also enter into derivative contracts in order to convert the yield or currency of the underlying assets to match the needs of the SPE investors, or to limit or change the credit risk of the SPE. Citigroup may be the provider of certain credit enhancements as well as the counterparty to any related derivative contracts.

        SPEs may be Qualifying SPEs (QSPEs) or Variable Interest Entities (VIEs) or neither.

Qualifying SPEs

        QSPEs are a special class of SPEs defined in FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 140). These SPEs have significant limitations on the types of assets and derivative instruments they may own and the types and extent of activities and decision-making they may engage in. Generally, QSPEs are passive entities designed to purchase assets and pass through the cash flows from those assets to the investors in the QSPE. QSPEs may not actively manage their assets through discretionary sales and are generally limited to making decisions inherent in servicing activities and issuance of liabilities. QSPEs are generally exempt from consolidation by the transferor of assets to the QSPE and any investor or counterparty.

Variable Interest Entities

        VIEs are entities defined in FASB Interpretation No. 46, "Consolidation of Variable Interest Entities (revised December 2003)" (FIN 46-R), and are entities that have either a total equity investment at risk that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights, right to receive the expected residual returns of the entity, and obligation to absorb the expected losses of the entity). Investors that finance the VIE through debt or equity interests, or other counterparties that provide other forms of support, such as guarantees, subordinated fee arrangements, or certain types of derivative contracts, are variable interest holders in the entity. The variable interest holder, if any, that will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both, is deemed to be the primary beneficiary and must consolidate the VIE. Consolidation under FIN 46-R is based on expected losses and residual returns, which consider various scenarios on a probability-weighted basis. Consolidation of a VIE is, therefore, determined based primarily on variability generated in scenarios that are considered most likely to occur, rather than based on scenarios that are considered more remote. Certain variable interests may absorb significant amounts of losses or residual returns contractually, but if those scenarios are considered very unlikely to occur, they may not lead to consolidation of the VIE.

        All of these facts and circumstances are taken into consideration when determining whether the Company has variable interests that would deem it to be the primary beneficiary and, therefore, require consolidation of the related VIE or otherwise rise to the level where disclosure would provide useful information to the users of the Company's financial statements. In some cases, it is qualitatively clear based on the extent of the Company's involvement or the seniority of its investments that the Company is not the primary beneficiary of the VIE. In other cases, a more detailed and quantitative analysis is required to make such a determination.

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        The Company generally considers the following types of involvement to be significant:

•

Assisting in the structuring of a transaction and retaining any amount of debt financing (e.g., loans, notes, bonds, or other debt instruments) or an equity investment (e.g., common shares, partnership interests, or warrants);



•

Writing a "liquidity put" or other liquidity facility to support the issuance of short-term notes;



•

Writing credit protection (e.g., guarantees, letters of credit, credit default swaps or total return swaps where the Company receives the total return or risk on the assets held by the VIE); or



•

Certain transactions where the Company is the investment manager and receives variable fees for services.

        Thus, the Company's definition of "significant" involvement generally includes all variable interests held by the Company, even those where the likelihood of loss or the notional amount of exposure to any single legal entity is small. Involvement with a VIE as described above, regardless of the seniority or perceived risk of the Company's involvement, is included as significant.

        In various other transactions the Company may act as a derivative counterparty (for example, interest rate swap, cross-currency swap, or purchaser of credit protection under a credit default swap or total return swap where the Company pays the total return on certain assets to the SPE); may act as underwriter or placement agent; may provide administrative, trustee, or other services; or may make a market in debt securities or other instruments issued by VIEs. The Company generally considers such involvement, by itself, "not significant" under FIN 46-R.

        Citigroup's total involvement with SPEs, including QSPEs, consolidated VIEs and significant unconsolidated VIEs as of September 30, 2008 and December 31, 2007 is presented below:

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(1)

A significant unconsolidated VIE is an entity where the Company has any variable interest, considered to be significant as discussed above, regardless of the likelihood of loss or the notional amount of exposure.

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(1)

Updated to conform to the current period's presentation.

(2)

A significant unconsolidated VIE is an entity where the Company has any variable interest considered to be significant as discussed above, regardless of the likelihood of loss, or the notional amount of exposure.

        These tables do not include:

•

Certain venture capital investments made by some of the Company's private equity subsidiaries as the Company accounts for these investments in accordance with the Investment Company Audit Guide.



•

Certain limited partnerships where the Company is the general partner and the limited partners have the right to replace the general partner or liquidate the funds.



•

Certain investment funds for which the Company provides investment management services and personal estate trusts for which the Company provides administrative, trustee and/or investment management services.



•

VIEs and QSPEs structured by third parties where the Company holds securities in trading inventory. These investments are made on arm's-length terms, are typically held for relatively short periods of time and are not considered to represent significant involvement in the VIE.



•

VIE structures in which the Company transferred assets to the VIE that did not qualify as a sale, and where the Company did not have any other involvement that is deemed to be a variable interest with the VIE that was deemed significant. These transfers are accounted for as secured borrowings by the Company.

        The significant variances between the balances reported in the September 30, 2008 and December 31, 2007 tables are primarily due to:

•

An increase in Consumer Banking mortgage QSPE assets of $27 billion from new loan securitizations.



•

A decrease of significant unconsolidated CDOs of $34 billion resulting from the consolidation of certain other CDOs as discussed on page 70, liquidations of certain CDOs, and asset sales.



•

An increase of significant unconsolidated asset-based financings of $18 billion due to higher levels of assets supporting the Company's financing positions, increased business activity, and the senior debt securities retained in the Company's April 17, 2008 sale of a corporate loan portfolio. The latter is further discussed on page 78.



•

A decrease in significant unconsolidated TOBs of $5 billion which reflects the liquidations of customer TOB trusts.



•

A decrease in consolidated assets of structured investment vehicles of $31 billion due to the execution of their asset reduction plan as described on page 119.

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•

An increase in consolidated assets of investment funds of $3 billion due to the consolidation of Falcon multi-strategy fixed income funds and the ASTA/MAT municipal funds as further discussed on page 76.

Primary Uses of SPEs by Consumer Banking

Securitization of Credit Card Receivables

        Credit card receivables are sold through securitized trusts, which are established to purchase the receivables. Credit card securitizations are revolving securitizations; that is, as customers pay their credit card balances, the cash proceeds are used to purchase new receivables and replenish the receivables in the trusts. The Company relies on securitizations to fund a significant portion of its managed N.A.Cards business, which includes both on-balance-sheet and securitized receivables.

        The following table reflects amounts related to the Company's securitized credit card receivables at September 30, 2008 and December 31, 2007:

---

(1)

Includes net unbilled interest in sold balances of $0.6 billion and $0.7 billion as of September 30, 2008 and December 31, 2007, respectively.

        In the third quarters of 2008 and 2007, the Company recorded net gains (losses) from securitization of credit card receivables of ($1,443) million and $169 million, and ($1,398) million and $747 million during the first nine months of 2008 and 2007, respectively. Net gains (losses) reflect the following:

•

incremental gains from new securitizations



•

the reversal of the allowance for loan losses associated with receivables sold



•

net gains on replenishments of the trust assets offset by other-than-temporary impairments



•

mark-to-market changes for the portion of the residual interest classified as trading assets

Securitization of Originated Mortgage and Other Consumer Loans

        The Company's Consumer business provides a wide range of mortgage and other consumer loan products to its customers. Once originated, the Company often securitizes these loans (primarily mortgage and student loans). In addition to providing a source of liquidity and less expensive funding, securitizing these assets also reduces the Company's credit exposure to the borrowers.

        The Company's mortgage and student loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchasers of the securities issued by the trust. However, the Company's Consumer business generally retains the servicing rights.

        The Company recognized gains (losses) related to the securitization of these mortgage and other consumer loan products of ($80) million and $60 million in the third quarters of 2008 and 2007, respectively, and $2 million and $249 million in the first nine months of 2008 and 2007, respectively.

Primary Uses of SPEs by Institutional Clients Group

Citi-administered Asset-backed Commercial Paper Conduits

        The Company is active in the asset-backed commercial paper conduit business as administrator of several multi-seller commercial paper conduits, and also as a service provider to single-seller and other commercial paper conduits sponsored by third parties.

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        The multi-seller commercial paper conduits are designed to provide the Company's customers access to low-cost funding in the commercial paper markets. The conduits purchase assets from or provide financing facilities to customers and are funded by issuing commercial paper to third-party investors. The conduits generally do not purchase assets originated by the Company. The funding of the conduit is facilitated by the liquidity support and credit enhancements provided by the Company and by certain third parties. As administrator to the conduits, the Company is responsible for the selection and structuring of assets purchased or financed by the conduits, making decisions regarding the funding of the conduits, including determining the tenor and other features of the commercial paper issued, monitoring the quality and performance of the conduits' assets, and facilitating the operations and cash flows of the conduits.

        In return, the Company earns structuring fees from clients for individual transactions and earns an administration fee from the conduit, which is equal to the income from client program and liquidity fees of the conduit after payment of interest costs and other fees. This administration fee is fairly stable, since most risks and rewards of the underlying assets are passed back to the customers and, once the asset pricing is negotiated, most ongoing income, costs and fees are relatively stable as a percentage of the conduit's size.

        The conduits administered by the Company do not generally invest in liquid securities that are formally rated by third parties. The assets are privately negotiated and structured transactions that are designed to be held by the conduit, rather than actively traded and sold. The yield earned by the conduit on each asset is generally tied to the rate on the commercial paper issued by the conduit, thus passing interest rate risk to the client. Each asset purchased by the conduit is structured with transaction-specific credit enhancement features provided by the third-party seller, including over-collateralization, cash and excess spread collateral accounts, direct recourse or third-party guarantees. Credit enhancements are sized based on historic asset performance to achieve an internal risk rating that, on average, approximates an AA or A rating.

        Over time, substantially all of the funding of the conduits is in the form of commercial paper, with a weighted average life historically ranging from 35-45 days. As of September 30, 2008 and December 31, 2007, the weighted average life of the commercial paper issued was approximately 58 days and 30 days, respectively. In addition, the conduits have issued Subordinate Loss Notes and equity with a notional amount of approximately $81 million and $77 million as of September 30, 2008 and December 31, 2007, respectively, with varying remaining tenors ranging from nine months to seven years.

        The primary credit enhancement provided to the conduit investors is in the form of transaction-specific credit enhancement described above. In addition, there are two additional forms of credit enhancement that protect the commercial paper investors from defaulting assets. First, the Subordinate Loss Notes issued by each conduit absorb any credit losses up to their full notional amount. It is expected that the Subordinate Loss Notes issued by each conduit are sufficient to absorb a majority of the expected losses from each conduit, thereby making the single investor in the Subordinate Loss Note the primary beneficiary under FIN 46-R. Second, each conduit has obtained either a letter of credit from the Company or a surety bond from a monoline insurer that will reimburse the conduit for any losses up to a specified amount, which is generally 8-10% of the conduit's assets. Where surety bonds are obtained, the Company, in turn, provides the surety bond provider a reimbursement guarantee up to a stated amount for aggregate losses incurred by any of the conduits covered by the surety bond. The total of the letters of credit and the reimbursement guarantee provided by the Company is approximately $1.8 billion and is considered in the Company's maximum exposure to loss. The net result across all multi-seller conduits administered by the Company is that, in the event of defaulted assets in excess of the transaction-specific credit enhancement described above, any losses in each conduit are allocated in the following order:

•

Subordinate Loss Note holders



•

the Company



•

the monoline insurer, if any (up to the 8%-10% cap), and



•

the commercial paper investors.

        The Company, along with third parties, also provides the conduits with two forms of liquidity facilities that are used to provide funding to the conduits in the event of a market disruption, among other events. Each asset of the conduit is supported by a transaction-specific liquidity facility in the form of an asset purchase agreement (APA). Under the APA, the Company has agreed to purchase non-defaulted eligible receivables from the conduit at par. Any assets purchased under the APA are subject to increased pricing. The APA is not designed to provide credit support to the conduit, as it generally does not permit the purchase of defaulted or impaired assets and generally reprices the assets purchased to consider any potential increased credit risk. The APA covers all assets in the conduits and is considered in the Company's maximum exposure to loss. In addition, the Company provides the conduits with program-wide liquidity in the form of short-term lending commitments. Under these commitments, the Company has agreed to lend to the conduits in the event of a short-term disruption in the commercial paper market, subject to specified conditions. The total notional exposure under the program-wide liquidity agreement is $11.3 billion and is considered in the Company's maximum exposure to loss. The Company receives fees for providing both types of liquidity agreements, and considers these fees to be on fair market terms.

        Finally, the Company is one of several named dealers in the commercial paper issued by the conduits and earns a market-based fee for providing such services. Along with third-party dealers, the Company makes a market in the commercial paper and may from time to time fund commercial paper pending sale to a third party. On specific dates with less liquidity in the market, the Company may hold in inventory commercial paper issued by conduits administered by the Company, as well as conduits administered by third parties. The amount of commercial paper issued by its administered conduits held in inventory fluctuates based on market conditions and activity. As of September 30, 2008 and December 31, 2007, the Company owned approximately $449 million and $10 million, respectively, of commercial paper issued by its administered conduits.

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        FIN 46-R requires that the Company quantitatively analyze the expected variability of the Conduit to determine whether the Company is the primary beneficiary of the conduit. The Company performs this analysis on a quarterly basis, and has concluded that the Company is not the primary beneficiary of the conduits as defined in FIN 46-R and, therefore, does not consolidate the conduits it administers. In conducting this analysis, the Company considers three primary sources of variability in the conduit: credit risk, interest rate risk and fee variability.

        The Company models the credit risk of the conduit's assets using a Credit Value at Risk (C-VaR) model. The C-VaR model considers changes in credit spreads (both within a rating class as well as due to rating upgrades and downgrades), name-specific changes in credit spreads, credit defaults and recovery rates and diversification effects of pools of financial assets. The model incorporates data from independent rating agencies as well as the Company's own proprietary information regarding spread changes, ratings transitions and losses given default. Using this credit data, a Monte Carlo simulation is performed to develop a distribution of credit risk for the portfolio of assets owned by each conduit, which is then applied on a probability-weighted basis to determine expected losses due to credit risk. In addition, the Company continuously monitors the specific credit characteristics of the conduit's assets and the current credit environment to confirm that the C-VaR model used continues to incorporate the Company's best information regarding the expected credit risk of the conduit's assets.

        The Company also analyzes the variability in the fees that it earns from the conduit, using monthly actual historical cash flow data to determine average fee and standard deviation measures for each conduit. Because any unhedged interest rate and foreign currency risk not contractually passed on to customers is absorbed by the fees earned by the Company, the fee variability analysis incorporates those risks.

        The fee variability and credit risk variability are then combined into a single distribution of the conduit's overall returns. This return distribution is updated and analyzed on at least a quarterly basis to ensure that the amount of the Subordinate Loss Notes issued to third parties is sufficient to absorb greater than 50% of the total expected variability in the conduit's returns. The expected variability absorbed by the Subordinate Loss Note investors is therefore measured to be greater than the expected variability absorbed by the Company through its liquidity arrangements and other fees earned, the surety bond providers, and the investors in commercial paper and medium-term notes. While the notional amounts of the Subordinate Loss Notes are quantitatively small compared to the size of the conduits, this is reflective of the fact that most of the substantive risks of the conduits are absorbed by the enhancements provided by the sellers and other third parties that provide transaction-level credit enhancements. Because FIN 46-R requires these risks and related enhancements to be excluded from the analysis, the remaining risks and expected variability are quantitatively small. The calculation of variability under FIN 46-R focuses primarily on expected variability, rather than the risks associated with extreme outcomes (for example, large levels of default) that are expected to occur very infrequently. So while the Subordinate Loss Notes are sized appropriately compared to expected losses as measured in FIN 46-R, they do not provide significant protection against extreme or unusual credit losses.

        The following tables describe the important characteristics of assets owned by the administered multi-seller conduits as of September 30, 2008 and December 31, 2007:

 

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Third-party Conduits

        The Company also provides liquidity facilities to single- and multi-seller conduits sponsored by third parties. These conduits are independently owned and managed and invest in a variety of asset classes, depending on the nature of the conduit. The facilities provided by the Company typically represent a small portion of the total liquidity facilities obtained by each conduit, and are collateralized by the assets for each conduit. The notional amount of these facilities is approximately $1.3 billion and $2.2 billion as of September 30, 2008 and December 31, 2007, respectively. The conduits received $25 million of funding as of September 30, 2008, compared to zero as of December 31, 2007.

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Collateralized Debt Obligations

        A collateralized debt obligation (CDO) is an SPE that purchases a pool of assets consisting of asset-backed securities and/or synthetic exposures through derivatives on asset-backed securities and issues multiple tranches of equity and notes to investors. A third-party manager is typically retained by the CDO to select the pool of assets and manage those assets over the term of the CDO. The Company earns fees for warehousing assets prior to the creation of a CDO, structuring CDOs, and placing securities with investors. In addition, the Company has retained interests in many of the CDOs it has structured and makes a market in those issued securities.

        A cash CDO, or arbitrage CDO, is a CDO designed to take advantage of the difference between the anticipated yield on a portfolio of selected assets, typically residential mortgage-backed securities, and the cost of funding the CDO through the sale of notes to investors. "Cash flow" CDOs are vehicles in which the CDO passes on cash flows from a pool of assets, while "market value" CDOs pay to investors the market value of the pool of assets owned by the CDO at maturity. In these transactions, all of the equity and notes issued by the CDO are funded, as the cash is needed to purchase the debt securities. In a typical cash CDO, the third-party manager selects a portfolio of assets, which the Company funds through a "warehouse" financing arrangement prior to the creation of the CDO. The Company then sells the debt securities to the CDO in exchange for cash raised through the issuance of notes. The Company's involvement in cash CDOs after issuance is typically limited to investing in a portion of the notes or loans issued by the CDO, making a market in those securities, and acting as derivative counterparty for interest rate or foreign currency swaps used in the structuring of the CDO.

        A synthetic CDO is similar to a cash CDO, except that the CDO obtains exposure to all or a portion of the referenced assets synthetically through derivative instruments, such as credit default swaps. Because the CDO does not need to raise cash sufficient to purchase the entire referenced portfolio, a substantial portion of the senior tranches of risk is typically passed on to CDO investors in the form of unfunded liabilities or derivative instruments. Thus, the CDO writes credit protection on selected referenced debt securities to the Company or third parties, and the risk is then passed on to the CDO investors in the form of funded notes or purchased credit protection through derivative instruments. Any cash raised from investors is invested in a portfolio of collateral securities or investment contracts. The collateral is then used to support the CDO's obligations on the credit default swaps written to counterparties. The Company's involvement in synthetic CDOs after issuance generally includes purchasing credit protection through credit default swaps with the CDO, owning a portion of the capital structure of the CDO in the form of both unfunded derivative positions (primarily super senior exposures discussed below) and funded notes, entering into interest rate swap and total return swap transactions with the CDO, lending to the CDO, and making a market in those funded notes.

        The following table describes credit ratings of assets of unconsolidated CDOs with which the Company had significant involvement as of September 30, 2008 and December 31, 2007:

Asset-Backed Commercial Paper CDOs (CPCDOs)

        During the second half of 2007, the market interest rates on commercial paper issued by certain CDO structures increased significantly. To pre-empt the formal exercise of liquidity puts provided by the Company to its CDO structures, the Company purchased all of the outstanding commercial paper issued by these entities, which totaled approximately $25 billion. Because of these purchases, which are deemed to be FIN 46-R reconsideration events, and because the value of the CDOs' commercial paper and subordinated tranches were deteriorating as the underlying collateral of the CDOs (primarily residential mortgage-backed securities) was being downgraded, the Company concluded that it was the primary beneficiary of these entities and began consolidating them in the fourth quarter of 2007. The commercial paper was subsequently converted to a funding note.

        Upon consolidation, the Company reflected the underlying assets of the CDOs on its balance sheet in Trading account assets at fair value, eliminated the commercial paper assets previously recognized, and recognized the subordinate CDO liabilities (owned by third parties) at fair value. This resulted in a balance sheet gross-up of approximately $400 million as of December 31, 2007 compared to the prior accounting treatment as unconsolidated VIEs.

        During the third quarter of 2008 and the fourth quarter of 2007, the Company recognized pretax losses of $0.8 billion and $4.3 billion, respectively, for changes in the fair value of the consolidated CPCDOs' assets.

CDO Super Senior Exposure

        In addition to asset-backed commercial paper positions in consolidated CDOs, the Company has retained significant portions of the "super senior" positions issued by certain CDOs. These positions are referred to as "super senior," because they represent the most senior positions in the CDO and, at the time of structuring, were senior to tranches rated AAA by independent rating agencies. However, since inception of these transactions, the subordinate positions have diminished significantly in value and in rating. There have been substantial reductions in value of these super senior positions since the fourth quarter of 2007.

        At inception of the transactions, the super senior tranches were well protected from the expected losses of these CDOs. Subsequent declines in value of the subordinate tranches and the super senior tranches in the fourth quarter of 2007

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indicated that the super senior tranches now are exposed to a significant portion of the expected losses of the CDOs, based on current market assumptions. The Company evaluates these transactions for consolidation when reconsideration events occur, as defined in FIN 46-R. The Company continues to monitor its involvement in these transactions and, if the Company were to acquire additional interests in these vehicles or if the CDOs' contractual arrangements were to be changed to reallocate expected losses or residual returns among the various interest holders, the Company may be required to consolidate the CDOs. For cash CDOs, the net result of such consolidation would generally be to gross up the Company's balance sheet by the current fair value of the subordinate securities held by third parties, which amounts are not considered material. For synthetic CDOs, the net result of such consolidation may reduce the Company's balance sheet by eliminating intercompany derivative receivables and payables in consolidation.

        During the third quarter, the Company purchased additional interests in certain CDO transactions. These purchases were determined to be reconsideration events as defined in FIN 46-R, and as a result it was determined that the Company is required to consolidate certain CDO's as it has become the primary beneficiary.

        The consolidation of these entities reduced the disclosed total assets of significant unconsolidated VIEs reflected above by $9.3 billion (representing the original cost basis or total notional of the VIE's asset positions), and reduced the Company's disclosed maximum exposure to significant unconsolidated VIEs by $0.9 billion. Upon consolidating these VIEs, the Company eliminates previously recognized assets and liabilities (including derivative payables and receivables with the VIEs), and recognizes the underlying third-party assets and liabilities of the VIEs at current fair value. The current fair value of the assets owned by these CDO VIEs is approximately $1.6 billion. The consolidation of the CDOs results in a net reduction of assets on the Company's consolidated balance sheet of approximately $4.5 billion.

Collateralized Loan Obligations

        A collateralized loan obligation (CLO) is substantially similar to the CDO transactions described above, except that the assets owned by the SPE (either cash instruments or synthetic exposures through derivative instruments) are corporate loans and to a lesser extent corporate bonds, rather than asset-backed debt securities.

        The following table describes credit ratings of assets of unconsolidated CLOs with which the Company had significant involvement as of September 30, 2008 and December 31, 2007, respectively:

Credit rating distribution

Mortgage Loan Securitizations

        CMB is active in structuring and underwriting residential and commercial mortgage-backed securitizations. In these transactions, the Company or its customer transfers loans into a bankruptcy-remote SPE. These SPEs are designed to be QSPEs as described above. The Company may hold residual interests and other securities issued by the SPEs until they can be sold to independent investors and makes a market in those securities on an ongoing basis. These securities are held as trading assets on the balance sheet, are managed as part of the Company's trading activities, and are marked to market with changes in value recognized in earnings. The Company sometimes retains servicing rights for certain entities. The table on page 64 shows the assets for mortgage QSPEs in which ICG acted as principal in transferring mortgages to the QSPE.

Asset-Based Financing

        The Company provides loans and other forms of financing to VIEs that hold assets. Those loans are subject to the same credit approvals as all other loans originated or purchased by the Company, and related loan loss reserves are reported as part of the Company's Allowance for loan losses. Financings in the form of debt securities or derivatives are, in most circumstances, reported in Trading account assets and accounted for at fair value through earnings.

        The primary types of asset-based financing, total assets of the unconsolidated VIEs with significant involvement, and the Company's maximum exposure to loss at September 30, 2008 and December 31, 2007 are shown below. For the Company to realize that maximum loss, the VIE (borrower) would have to default with no recovery from the assets held by the VIE.

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        The amounts disclosed as corporate loan assets and exposure relate to the senior financing the Company provided to the purchaser of a portfolio of corporate loans, including highly leveraged loans. The Company has purchased credit protection on the senior financing via total return swaps with the third parties who also own the subordinate interests in the loans. The credit risk in the total return swap is protected through margin agreements that provide for both initial margin as well as additional margin at specified triggers.

        The Company's involvement in the asset purchasing vehicles and Structured Investment Vehicles (SIVs) sponsored and managed by third parties is primarily in the form of providing backstop liquidity. Those vehicles finance a majority of their asset purchases with commercial paper and short-term notes. Certain of the assets owned by the vehicles have suffered significant declines in fair value, leading to an inability to re-issue maturing commercial paper and short-term notes. Citigroup has been required to provide loans to those vehicles to replace maturing commercial paper and short-term notes, in accordance with the original terms of the backstop liquidity facilities.

        The asset quality of the third-party asset purchasing vehicles and SIVs to which the Company had provided backstop liquidity as of September 30, 2008 and December 31, 2007 consisted of the following:

Municipal Securities Tender Option Bond (TOB) Trusts

        The Company sponsors TOB trusts that hold fixed- and floating-rate, tax-exempt securities issued by state and local municipalities. The trusts are single-issuer trusts whose assets are purchased from the Company and from the secondary market. The trusts issue long-term senior floating-rate notes ("Floaters") and junior residual securities ("Residuals"). The Floaters have a long-term rating based on the long-term rating of the underlying municipal bond and a short-term rating based on that of the liquidity provider to the trust. The Residuals are generally rated based on the long-term rating of the underlying municipal bond and entitle the holder to the residual cash flows from the issuing trust.

        The Company sponsors three kinds of TOB trusts: customer TOB trusts, proprietary TOB trusts, and QSPE TOB trusts.

•

Customer TOB trusts are trusts through which customers finance investments in municipal securities and are not consolidated by the Company. Proprietary and QSPE TOB trusts, on the other hand, provide the Company with the ability to finance its own investments in municipal securities.



•

Proprietary TOB trusts are generally consolidated, in which case the financing (the Floaters) is recognized on the Company's balance sheet as a liability. However, certain proprietary TOB trusts are not consolidated by the Company, where the Residuals are held by hedge funds that are consolidated and managed by the Company. The assets and the associated liabilities of these TOB trusts are not consolidated by the hedge funds (and, thus, are not consolidated by the Company) under the application of the AICPA Investment Company Audit Guide, which precludes consolidation of owned investments by investment companies. In accordance with the Audit Guide the hedge funds report their investments in the Residuals at fair value with changes in value included in earnings. The Company consolidates the hedge funds because the Company holds controlling financial interests in the hedge funds. Certain of the Company's equity investments in the hedge funds are hedged with derivatives transactions executed by the Company with third parties referencing the returns of the hedge funds.



•

QSPE TOB trusts provide the Company with the same exposure as proprietary TOB trusts and are not consolidated by the Company. The Company's residual interests in QSPE TOB trusts are evaluated for bifurcation in accordance with SFAS 133. Any embedded derivatives are separately reported at fair value, while the debt host contracts are classified as available-for-sale securities.

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        The total assets and other characteristics of the three categories of TOB trusts as of September 30, 2008 and December 31, 2007 are as follows:

September 30, 2008

December 31, 2007

        Credit rating distribution is based on the external rating of the municipal bonds within the TOB trusts, including any credit enhancement provided by monoline insurance companies or the Company in the primary or secondary markets, as discussed below. The total assets for proprietary TOB Trusts (Consolidated and Non-consolidated) include $6.1 billion and $5.0 billion of assets as of September 30, 2008 and December 31, 2007, respectively, where the Residuals are held by hedge funds that are consolidated and managed by the Company.

        The TOB trusts fund the purchase of their assets by issuing Floaters along with Residuals, which are frequently less than 1% of a trust's total funding. The tenor of the Floaters matches the maturity of the TOB trust and is equal to or shorter than the tenor of the municipal bond held by the trust. The Floaters bear interest rates that are typically reset weekly to a new market rate (based on the SIFMA index). Floater holders have an option to tender the Floaters they hold back to the trust periodically. Customer TOB trusts issue the Floaters and Residuals to third parties. Proprietary and QSPE TOB trusts issue the Floaters to third parties, and the Residuals are held by the Company.

        Approximately $2.8 billion as of September 30, 2008 and $5.7 billion as of December 31, 2007 of the municipal bonds owned by TOB trusts have an additional credit guarantee provided by the Company. In all other cases, the assets are either unenhanced or are insured with a monoline insurance provider in the primary market or in the secondary market. While the trusts have not encountered any adverse credit events as defined in the underlying trust agreements, certain monoline insurance companies have experienced downgrades. In these cases, the Company has proactively managed the TOB programs by applying additional secondary market insurance on the assets or proceeding with orderly unwinds of the trusts.

        The Company, in its capacity as remarketing agent, facilitates the sale of the Floaters to third parties at inception of the trust and facilitates the reset of the Floater coupon and tenders of Floaters. If Floaters are tendered and the Company (in its role as remarketing agent) is unable to find a new investor within a specified period of time, it can declare a failed remarketing (in which case the trust is unwound) or may choose to buy the Floaters into its own inventory and may continue to try to sell it to a third-party investor. While the levels of the Company's inventory of Floaters fluctuates, the Company held approximately $7.0 billion and $0.9 billion of Floater inventory related to the Customer, Proprietary and QSPE TOB programs as of September 30, 2008 and December 31, 2007, respectively.

        If a trust is unwound early due to an event other than a credit event on the underlying municipal bond, the underlying municipal bond is sold in the secondary market. If there is an accompanying shortfall in the trust's cash flows to fund the redemption of the Floaters after the sale of the underlying municipal bond, the trust draws on a liquidity agreement in an amount equal to the shortfall. Liquidity agreements are generally provided to the trust directly by the Company. For customer TOBs where the Residual is less than 25% of the trust's capital structure, the Company has a reimbursement agreement with the Residual holder under which the Residual holder reimburses the Company for any payment made under the liquidity arrangement. Through this reimbursement agreement, the Residual holder remains economically exposed to fluctuations in value of the municipal bond. These reimbursement agreements are actively margined based on changes in value of the underlying municipal bond to mitigate the Company's counterparty credit risk. In cases where a third party provides liquidity to a proprietary or QSPE TOB trust, a similar reimbursement arrangement is made whereby the Company (or a consolidated subsidiary of the Company) as Residual holder absorbs any losses incurred by the liquidity provider. As of September 30, 2008 and December 31, 2007, liquidity agreements provided with respect to customer TOB trusts totaled $8.8 billion and $14.4 billion, offset by reimbursement agreements in place with a notional amount of $6.8 billion and $11.5 billion, respectively. The remaining exposure relates to TOB transactions where the Residual owned by the customer is at least 25% of the bond value at the inception of the transaction. In addition, the Company has provided liquidity arrangements with a notional amount of $12.1 billion as of September 30, 2008, and $11.4 billion as of

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December 31, 2007, to QSPE TOB trusts and other non-consolidated proprietary TOB trusts described above.

        The Company considers the customer and proprietary TOB trusts (excluding QSPE TOB trusts) to be variable interest entities within the scope of FIN 46-R. Because third-party investors hold the Residual and Floater interests in the customer TOB trusts, the Company's involvement and variable interests include only its role as remarketing agent and liquidity provider. On the basis of the variability absorbed by the customer through the reimbursement arrangement or significant residual investment, the Company does not consolidate the Customer TOB trusts. The Company's variable interests in the Proprietary TOB trusts include the Residual as well as the remarketing and liquidity agreements with the trusts. On the basis of the variability absorbed through these contracts (primarily the Residual), the Company generally consolidates the Proprietary TOB trusts. Finally, certain proprietary TOB trusts and QSPE TOB trusts are not consolidated by application of specific accounting literature. For the nonconsolidated proprietary TOB trusts and QSPE TOB trusts, the Company recognizes only its residual investment on its balance sheet at fair value and the third-party financing raised by the trusts is off-balance sheet.

Municipal Investments

        Municipal investment transactions represent partnerships that finance the construction and rehabilitation of low-income affordable rental housing. The Company generally invests in these partnerships as a limited partner and earns a return primarily through the receipt of tax credits earned from the affordable housing investments made by the partnership.

Client Intermediation

        Client intermediation transactions represent a range of transactions designed to provide investors with specified returns based on the returns of an underlying security, referenced asset or index. These transactions include credit-linked notes and equity-linked notes. In these transactions, the SPE typically obtains exposure to the underlying security, referenced asset or index through a derivative instrument such as a total return swap or a credit default swap. In turn, the SPE issues notes to investors that pay a return based on the specified underlying security, referenced asset or index. The SPE invests the proceeds in a financial asset or a guaranteed insurance contract (GIC) that serves as collateral for the derivative contract over the term of the transaction. The Company's involvement in these transactions includes being the counterparty to the SPE's derivative instruments and investing in a portion of the notes issued by the SPE. In certain transactions, the investor's maximum risk of loss is limited and the Company absorbs risk of loss above a specified level.

        The Company's maximum risk of loss in these transactions is defined as the amount invested in notes issued by the SPE and the notional amount of any risk of loss absorbed by the Company through a separate instrument issued by the SPE. The derivative instrument held by the Company may generate a receivable from the SPE (for example, where the Company purchases credit protection from the SPE in connection with the SPE's issuance of a credit-linked note), which is collateralized by the assets owned by the SPE. These derivative instruments are not considered to be variable interests under FIN 46-R and any associated receivables are not included in the calculation of maximum exposure to the SPE.

Mutual Fund Deferred Sales Commission (DSC) Securitizations

        Mutual Fund Deferred Sales Commission (DSC) receivables are assets purchased from distributors of mutual funds that are backed by distribution fees and contingent deferred sales charges (CDSC) generated by the distribution of certain shares to mutual fund investors. These share investors pay no upfront load, but the shareholder agrees to pay, in addition to the management fee imposed by the mutual fund, the distribution fee over a period of time and the CDSC (a penalty for early redemption to recover lost distribution fees). Asset managers use the proceeds from the sale of DSC receivables to cover sales commissions owed to brokers associated with the shares sold.

        The Company purchases these receivables from mutual fund distributors and sells a diversified pool of receivables to a trust. The trust in turn issues two tranches of securities:

•

Senior term notes (generally 92-94%) via private placement to third-party investors. These notes are structured to have at least a single "A" rating standard. The senior notes receive all cash distributions until fully repaid, which is generally approximately 5-6 years;



•

A residual certificate in the trust (generally 6-8%) to the Company. This residual certificate is fully subordinated to the senior notes, and receives no cash flows until the senior notes are fully paid.

Structured Investment Vehicles

        Citigroup became the SIVs' primary beneficiary and began consolidating the SIVs on December 13, 2007, as a result of providing mezzanine financing to the SIVs, the terms of which were finalized on February 12, 2008. The mezzanine financing ranks senior to the junior notes and junior to the SIVs' senior debt. Citigroup increased its mezzanine financing to $4.5 billion, reflecting an increase of $1 billion from the original $3.5 billion financing. This additional mezzanine financing was funded subsequent to September quarter-end.

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        The impact of this consolidation on Citigroup's Consolidated Balance Sheet as of September 30, 2008 and December 31, 2007 is as follows:

        Balances include intercompany assets of $0.4 billion and intercompany liabilities of $6.7 billion as of September 30, 2008 and intercompany assets of $1 billion and intercompany liabilities of $7 billion as of December 31, 2007, respectively, which are eliminated in consolidation. In addition, long-term borrowings include the current portion of medium-term notes with an original maturity of greater than 364 days.

        The following tables summarize the seven Citigroup-advised SIVs as of September 30, 2008 and December 31, 2007 as well as the aggregate asset mix and credit quality of the SIV assets.

 

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(1)

Credit ratings based on Moody's ratings of the notional values of credit exposures, including credit derivatives, as of September 30, 2008 and December 31, 2007.

(2)

The SIVs have no direct exposure to U.S. subprime assets and have approximately $38 million and $50 million of indirect exposure to subprime assets through CDOs, which are Aaa rated and carry credit enhancements as of September 30, 2008 and December 31, 2007.

(3)

At September 30, 2008 the breakout of ratings of financial institutions debt was; A-10%, B-<1%, and below B-<1%. At September 30, 2008 the other structured finance category was 1% Baa rated.

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Investment Funds

        The Company is the investment manager for certain investment funds that invest in various asset classes including private equity, hedge funds, real estate, fixed income and infrastructure. The Company earns a management fee which is a percentage of capital under management, and may earn performance fees. In addition, for some of these funds, the Company has an ownership interest in the investment funds.

        The Company has also established a number of investment funds as opportunities for qualified employees to invest in private equity investments. The Company acts as investment manager to these funds and may provide employees with financing on both a recourse and non-recourse basis for a portion of the employees' investment commitments.

Certain Fixed Income Funds Managed By Institutional Clients Group

Falcon multi-strategy fixed income funds

        On February 20, 2008, the Company entered into a $500 million credit facility with the Falcon multi-strategy fixed income funds (the "Falcon funds") managed by Institutional Clients Group. As a result of providing this facility, the Company became the primary beneficiary of the Falcon funds and consolidated the assets and liabilities in its Consolidated Balance Sheet. At September 30, 2008, the total assets of the Falcon funds were approximately $1.3 billion.

ASTA/MAT municipal funds

        On March 3, 2008, the Company made an equity investment of $661 million (under a $1 billion commitment) which provides for gain sharing with unaffiliated investors, in the Municipal Opportunity Funds (MOFs). The MOFs are funds managed by Institutional Clients Group that make leveraged investments in tax-exempt municipal bonds and accept investments through feeder funds known as ASTA and MAT. As a result of the Company's equity commitment, the Company became the primary beneficiary of the MOFs and consolidated the assets and liabilities in its Consolidated Balance Sheet. At September 30, 2008, the total assets of the MOFs were approximately $1.5 billion.

Primary Uses of SPEs by Corporate/Other

Trust Preferred Securities

        The Company has raised financing through the issuance of trust preferred securities. In these transactions, the Company forms a statutory business trust and owns all of the voting equity shares of the trust. The trust issues preferred equity securities to third-party investors and invests the gross proceeds in junior subordinated deferrable interest debentures issued by the Company. These trusts have no other assets and no operations, revenues or cash flows other than those related to the issuance, administration, and repayment of the preferred equity securities held by third-party investors. These trusts' obligations are fully and unconditionally guaranteed by the Company.

        Because the sole asset of the trust is a receivable from the Company, the Company is not permitted to consolidate the trusts under FIN 46-R, even though the Company owns all of the voting equity shares of the trust, has fully guaranteed the trusts' obligations, and has the right to redeem the preferred securities in certain circumstances. The Company recognizes the subordinated debentures on its balance sheet as long-term liabilities.

        See Note 12 on page 104 for additional information about the Company's involvement with trust preferred securities. See Note 15 on page 109 for additional information regarding the Company's off-balance-sheet arrangements with respect to securitizations and SPEs.

Elimination of QSPEs and Changes in the FIN 46(R) Consolidation Model

        The FASB has issued an Exposure Draft of a proposed standard that would eliminate Qualifying Special Purpose Entities (QSPEs) from the guidance in SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." While the proposed standard has not been finalized and the Board's proposals are subject to a public comment period, this change may have a significant impact on Citigroup's consolidated financial statements as the Company may lose sales treatment for assets previously sold to a QSPE, as well as for future sales, and for transfers of a portion of an asset. This proposed revision could become effective in January 2010. As of September 30, 2008, the total assets of QSPEs to which Citigroup, acting as principal, has transferred assets and received sales treatment were approximately $820 billion.

        In connection with the proposed changes to SFAS 140, the FASB has also issued a separate exposure draft of a proposed standard that proposes three key changes to the consolidation model in FIN 46(R). First, the Board will now include former QSPEs in the scope of FIN 46(R). In addition, the FASB supports amending FIN 46(R) to change the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE to a primarily qualitative determination of power combined with benefits and losses instead of today's risks and rewards model. Finally, the proposed standard requires all VIEs and their primary beneficiaries to be reevaluated whenever circumstances change. The existing rules require reconsideration only when specified reconsideration events occur. As of September 30, 2008, the total assets of significant unconsolidated VIEs with which Citigroup is involved were approximately $325 billion.

        The Company will be evaluating the impact of these changes on Citigroup's consolidated financial statements once the actual guidelines are completed.

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Credit Commitments and Lines of Credit

        The table below summarizes Citigroup's credit commitments as of September 30, 2008 and December 31, 2007:

---

(1)

Credit card lines are unconditionally cancelable by the issuer.

(2)

Includes commercial commitments to make or purchase loans, to purchase third-party receivables, and to provide note issuance or revolving underwriting facilities. Amounts include $175 billion and $259 billion with original maturity of less than one year at September 30, 2008 and December 31, 2007, respectively.

        See Note 18 to the Consolidated Financial Statements on page 143 for additional information on credit commitments and lines of credit.

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Highly Leveraged Financing Commitments

        Included in the line item "Commercial and other consumer loan commitments" in the table above are highly leveraged financing commitments, which are agreements that provide funding to a borrower with higher levels of debt (measured by the ratio of debt capital to equity capital of the borrower) than is generally the case for other companies. Highly leveraged financing has been commonly employed in corporate acquisitions, management buy-outs and similar transactions.

        In these financings, debt service (that is, principal and interest payments) absorbs a significant portion of the cash flows generated by the borrower's business. Consequently, the risk that the borrower may not be able to meet its debt obligations is greater. Due to this risk, the interest rates and fees charged for this type of financing are generally higher than other types of financing.

        Prior to funding, highly leveraged financing commitments are assessed for impairment in accordance with SFAS 5 and losses are recorded when they are probable and reasonably estimable. For the portion of loan commitments that relate to loans that will be held for investment, loss estimates are made based on the borrower's ability to repay the facility according to its contractual terms. For the portion of loan commitments that relate to loans that will be held for sale, loss estimates are made in reference to current conditions in the resale market (both interest rate risk and credit risk are considered in the estimate). Loan origination, commitment, underwriting, and other fees are netted against any recorded losses.

        Citigroup generally manages the risk associated with highly leveraged financings it has entered into by seeking to sell a majority of its exposures to the market prior to or shortly after funding. In certain cases, all or a portion of a highly leveraged financing to be retained is hedged with credit derivatives or other hedging instruments. Thus, when a highly leveraged financing is funded, Citigroup records the resulting loan as follows:

•

The portion that Citigroup will seek to sell is recorded as a loan held-for-sale in Other Assets on the Consolidated Balance Sheet, and measured at the lower-of-cost-or-market (LOCOM)



•

The portion that will be retained is recorded as a loan held-for-investment in Loans and measured at amortized cost less impairment.

        Due to the dislocation of the credit markets and the reduced market interest in higher risk/higher yield instruments since the latter half of 2007, liquidity in the market for highly leveraged financings has been limited.

        Citigroup's exposures for highly leveraged financings totaled $23 billion at September 30, 2008 ($10 billion funded, recorded as loans-held-for-sale in other assets and carried at LOCOM, and $13 billion in unfunded commitments). This compares to total commitments of $43 billion ($22 billion funded and $21 billion unfunded) at December 31, 2007. During the third quarter of 2008, the Company recorded an incremental net $792 million pretax write down on its highly leveraged financing commitments as a result of the reduction in liquidity in the market for such instruments. This brings the cumulative write-downs for the nine months of 2008 to $4.3 billion pretax.

        On April 17, 2008, the Company completed the transfer of approximately $12 billion of loans to third parties, of which $8.5 billion relates to highly leveraged loans and commitments. In these transactions, the third parties purchased subordinate interests backed by the transferred loans. These subordinate interests absorb first loss on the transferred loans and provide the third parties with control of the loans. The Company retained senior debt securities backed by the transferred loans. These senior debt securities have a fair value of approximately $8.3 billion as of September 30, 2008 and are the Company's sole remaining risk with respect to the transferred loans. The Company purchased protection on these retained senior positions from the third party subordinate interest holders via total return swaps. The credit risk in the total return swap is protected through margin arrangements that provide for both initial margin as well as additional margin at specified triggers. These transactions were accounted for as sales of the transferred loans. The loans were removed from the balance sheet and the retained securities are classified as available-for-sale securities on the Company's consolidated balance sheet. Due to the initial cash margin received and the existing margin requirements on the total return swaps, and the substantive subordinate investments made by third parties, the Company believes that the transactions largely mitigate the Company's risk related to these transferred loans.

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FAIR VALUATION

        For a discussion of fair value of assets and liabilities, see Note 17 to the Consolidated Financial Statements on page 125.

CONTROLS AND PROCEDURES

Disclosure

        The Company's management, with the participation of the Company's CEO and CFO, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2008 and, based on that evaluation, the CEO and CFO have concluded that at that date the Company's disclosure controls and procedures were effective.

Financial Reporting

        There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2008 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

FORWARD-LOOKING STATEMENTS

        In this Quarterly Report on Form 10-Q, the Company uses certain forward-looking statements when describing future business conditions. The Company's actual results may differ materially from those included in the forward-looking statements and are indicated by words such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar expressions, or future or conditional verbs such as "will," "should," "would," and "could."

        These forward-looking statements involve external risks and uncertainties including, but not limited, to those described in the Company's 2007 Annual Report on Form 10-K section entitled "Risk Factors": economic conditions; credit, market and liquidity risk; competition; country risk; operational risk; fiscal and monetary policies; reputational and legal risk; and certain regulatory considerations. Risks and uncertainties disclosed in this 10-Q include, but are not limited to:

•

the impact on the value of those liabilities for which the Company has elected the fair value option if credit spreads on the Company's debt instruments are substantially narrower at December 31, 2008 than at September 30, 2008;



•

the possibility that credit card losses may continue to rise well into 2009 as the environment for consumer credit continues to deteriorate;



•

the effectiveness of the hedging products used in connection with Securities & Banking's trading positions in U.S. subprime RMBS and related products, including ABS CDOs, in the event of material changes in market conditions; and



•

the impact the elimination of QSPEs from the guidance on SFAS 140 may have on the Company's consolidated financial statements.

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Citigroup Inc.

TABLE OF CONTENTS

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CONSOLIDATED FINANCIAL STATEMENTS

CITIGROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME (Unaudited)

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(1)

Reclassified to conform to the current period's presentation.

(2)

Diluted shares used in the diluted EPS calculation represent basic shares for the 2008 periods due to the net loss. Using actual diluted shares would result in anti-dilution.

See Notes to the unaudited Consolidated Financial Statement.

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CITIGROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

---

(1)

Reclassified to conform to the current period's presentation.

        See Notes to the unaudited Consolidated Financial Statements.

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[This space intentionally left blank]

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CITIGROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)

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(1)

The issuance of shares for the nine months ended September 30, 2008 related to the acquisition of the remaining stake in Nikko Cordial. The issuance of shares for the nine months ended September 30, 2007 related to the acquisition of Grupo Cuscatlan.

(2)

Citigroup's January 1, 2007 opening Retained earnings balance has been reduced by $151 million to reflect a prior period adjustment to goodwill. This reduction adjusts goodwill to reflect a portion of the losses incurred in January 2002, related to the sale of the Argentinean subsidiary of Banamex, Bansud, that was recorded as an adjustment to the purchase price of Banamex. There is no tax benefit and there is no income statement impact for the quarter and nine-months ended September 30, 2008 and 2007 from this adjustment. See "Legal Proceedings" for further discussion.

(3)

The adjustment to the opening balance of Retained earnings represents the total of the after-tax gain (loss) amounts for the adoption of the following accounting pronouncements:

•

SFAS 157 for $75 million,

•

SFAS 159 for ($99) million,

•

FSP 13-2 for ($148) million, and

•

FIN 48 for ($14) million.

See Notes 1 and 17 on pages 88 and 126, respectively.

(4)

Common dividends declared were $0.32 per share in the first, second and third quarters of 2008 and $0.54 per share in the first, second and third quarters of 2007.

(5)

All open market repurchases were transacted under an existing authorized share repurchase plan.

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(6)

The after-tax adjustment to the opening balance of Accumulated other comprehensive income (loss) represents the reclassification of the unrealized gains (losses) related to the Legg Mason securities as well as several miscellaneous items previously reported in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). The related unrealized gains and losses were reclassified to Retained earnings upon the adoption of the fair value option in accordance with SFAS 159. See Notes 1 and 17 on pages 88 and 126 for further discussions.

See Notes to the unaudited Consolidated Financial Statements.

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CITIGROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

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(1)

Reclassified to conform to the current period's presentation

See Notes to the unaudited Consolidated Financial Statements.

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CITIBANK, N.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

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(1)

Amounts at September 30, 2008 and December 31, 2007 include the after-tax amounts for net unrealized gains (losses) on investment securities of ($6.233) billion and ($1.262) billion, respectively, for foreign currency translation of ($556) million and $1.687 billion, respectively, for cash flow hedges of ($2.298) billion and ($2.085) billion, respectively, and for pension liability adjustments of ($747) million and ($835) million, respectively.

See Notes to the unaudited Consolidated Financial Statements.

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CITIGROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.     BASIS OF PRESENTATION

        The accompanying unaudited consolidated financial statements as of September 30, 2008 and for the three- and nine-month period ended September 30, 2008 include the accounts of Citigroup Inc. (Citigroup) and its subsidiaries (collectively, the Company). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation, have been reflected. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in Citigroup's 2007 Annual Report on Form 10-K and Citigroup's Quarterly Reports on Form 10-Q for the quarter ended March 31, 2008 and June 30, 2008.

        Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles, but is not required for interim reporting purposes, has been condensed or omitted.

        Management must make estimates and assumptions that affect the Consolidated Financial Statements and the related footnote disclosures. While management makes its best judgment, actual results could differ from those estimates. Current market conditions increase the risk and complexity of the judgments in these estimates.

        Certain reclassifications have been made to the prior-period's financial statements to conform to the current period's presentation.

Significant Accounting Policies

        The Company's accounting policies are fundamental to understanding management's discussion and analysis of the results of operations and financial condition. The Company has identified five policies as being significant because they require management to make subjective and/or complex judgments about matters that are inherently uncertain. These policies relate to Valuations of Financial Instruments, Allowance for Credit Losses, Securitizations, Income Taxes and Legal Reserves. The Company, in consultation with the Audit and Risk Management Committee of the Board of Directors, has reviewed and approved these significant accounting policies, which are further described in the Company's 2007 Annual Report on Form 10-K.

ACCOUNTING CHANGES

SEC Staff Guidance on Loan Commitments Recorded at Fair Value through Earnings

        On January 1, 2008, the Company adopted Staff Accounting Bulletin No. 109 (SAB 109), which requires that the fair value of a written loan commitment that is marked to market through earnings should include the future cash flows related to the loan's servicing rights. However, the fair value measurement of a written loan commitment still must exclude the expected net cash flows related to internally developed intangible assets (such as customer relationship intangible assets).

        SAB 109 applies to two types of loan commitments: (1) written mortgage loan commitments for loans that will be held-for-sale when funded that are marked to market as derivatives under FAS 133 (derivative loan commitments); and (2) other written loan commitments that are accounted for at fair value through earnings under Statement 159's fair-value election. SAB 109 supersedes SAB 105, which applied only to derivative loan commitments and allowed the expected future cash flows related to the associated servicing of the loan to be recognized only after the servicing asset had been contractually separated from the underlying loan by sale or securitization of the loan with servicing retained. SAB 109 was applied prospectively to loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The impact of adopting this SAB was immaterial.

Netting of Cash Collateral against Derivative Exposures

        During April 2007, the FASB issued FASB Staff Position No. FIN 39-1, "Amendment of FASB Interpretation No. 39" (FSP FIN 39-1) modifying certain provisions of FIN 39, "Offsetting of Amounts Related to Certain Contracts". This amendment clarified the acceptability of the existing market practice of offsetting the amounts recorded for cash collateral receivables or payables against the fair value amounts recognized for net derivative positions executed with the same counterparty under the same master netting agreement, which was the Company's prior accounting practice. Thus, this amendment did not affect the Company's consolidated financial statements as of September 30, 2008.

Adoption of SFAS 157—Fair Value Measurements

        The Company elected to early-adopt SFAS No. 157, "Fair Value Measurements" (SFAS 157), as of January 1, 2007. SFAS 157 defines fair value, expands disclosure requirements around fair value and specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs create the following fair value hierarchy:

•

Level 1—Quoted prices for identical instruments in active markets.



•

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.



•

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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        This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

        For some products or in certain market conditions, observable inputs may not always be available. For example, during the market dislocations that started in the second half of 2007, certain markets became illiquid, and some key observable inputs used in valuing certain exposures were unavailable. When and if these markets become liquid, the valuation of these exposures will use the related observable inputs available at that time from these markets.

        Under SFAS 157, Citigroup is required to take into account its own credit risk when measuring the fair value of derivative positions as well as the other liabilities for which fair value accounting has been elected under SFAS 155, "Accounting for Certain Hybrid Financial Instruments" (SFAS 155) and SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159). The adoption of SFAS 157 has also resulted in some other changes to the valuation techniques used by Citigroup when determining fair value, most notably the changes to the way that the probability of default of a counterparty is factored in and the elimination of a derivative valuation adjustment which is no longer necessary under SFAS 157. The cumulative effect at January 1, 2007 of making these changes was a gain of $250 million after-tax ($402 million pretax), or $0.05 per diluted share, which was recorded in the first quarter of 2007 earnings within the S&B business.

        SFAS 157 also precludes the use of block discounts for instruments traded in an active market, which were previously applied to large holdings of publicly traded equity securities, and requires the recognition of trade-date gains after consideration of all appropriate valuation adjustments related to certain derivative trades that use unobservable inputs in determining their fair value. Previous accounting guidance allowed the use of block discounts in certain circumstances and prohibited the recognition of day-one gains on certain derivative trades when determining the fair value of instruments not traded in an active market. The cumulative effect of these changes resulted in an increase to January 1, 2007 retained earnings of $75 million.

Fair Value Option (SFAS 159)

        In conjunction with the adoption of SFAS 157, the Company early-adopted SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), as of January 1, 2007. SFAS 159 provides an option on an instrument-by-instrument basis for most financial assets and liabilities to be reported at fair value with changes in fair value reported in earnings. After the initial adoption, the election is made at the acquisition of a financial asset, financial liability, or a firm commitment and it may not be revoked. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that resulted prior to its adoption from being required to apply fair value accounting to certain economic hedges (e.g., derivatives) while having to measure the assets and liabilities being economically hedged using an accounting method other than fair value.

        Under the SFAS 159 transition provisions, the Company elected to apply fair value accounting to certain financial instruments held at January 1, 2007 with future changes in value reported in earnings. The adoption of SFAS 159 resulted in a decrease to January 1, 2007 retained earnings of $99 million.

        See Note 17 on page 126 for additional information.

Accounting for Uncertainty in Income Taxes

        In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes," which attempts to set out a consistent framework for preparers to use to determine the appropriate level of tax reserves to maintain for uncertain tax positions. This interpretation of FASB Statement No. 109 uses a two-step approach wherein a tax benefit is recognized if a position is more-likely-than-not to be sustained. The amount of the benefit is then measured to be the highest tax benefit which is greater than 50% likely to be realized. FIN 48 also sets out disclosure requirements to enhance transparency of an entity's tax reserves. Citigroup adopted this Interpretation as of January 1, 2007. The adoption of FIN 48 resulted in a reduction to 2007 opening retained earnings of $14 million.

        The Company is presently under audit by the Internal Revenue Service (IRS) for 2003-2005. It is reasonably possible that the exam will conclude within the next 12 months. An estimate of the change in FIN 48 liabilities cannot be made at this time due to the number of items still being reviewed by the IRS.

Leveraged Leases

        On January 1, 2007, the Company adopted FASB Staff Position No. 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leverage Lease Transaction" (FSP 13-2), which provides guidance regarding changes or projected changes in the timing of cash flows relating to income taxes generated by a leveraged lease transaction.

        Leveraged leases can provide significant tax benefits to the lessor, primarily as a result of the timing of tax payments. Since changes in the timing and/or amount of these tax benefits may have a significant effect on the cash flows of a lease transaction, a lessor, in accordance with FSP 13-2, will be required to perform a recalculation of a leveraged lease when there is a change or projected change in the timing of the realization of tax benefits generated by that lease. Previously, Citigroup did not recalculate the tax benefits if only the timing of cash flows had changed.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

New Additional Disclosures for Derivative Instruments

        In September 2008, the FASB issued FASB Staff Position No. FAS 133-1 and FIN 45-4 "Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45, and Clarification of the Effective Date of FASB Statement No. 161," (FSP FAS 133-1 and FIN 45-4), that require additional disclosures for sellers of credit derivative instruments and certain guarantees. This FSP amends FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," and FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," by requiring additional disclosures for certain guarantees and credit derivatives sold including: maximum potential amount

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of future payments, the related fair value, and the current status of the payment/performance risk.

        These new disclosure requirements are effective for the 2008 Annual Report. While the Company already provides some of these disclosures, enhancements will be incorporated into the 2008 Annual Report.

        In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" (SFAS 161), an amendment to SFAS 133. The standard requires enhanced disclosures about derivative instruments and hedged items that are accounted for under SFAS 133 and related interpretations. The standard will be effective for all of the Company's interim and annual financial statements beginning with the first quarter of 2009. The standard expands the disclosure requirements for derivatives and hedged items and has no impact on how Citigroup accounts for these instruments.

Business Combinations

        In December 2007, the FASB issued Statement No. 141 (revised), "Business Combinations" (SFAS 141(R)), which attempts to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement replaces SFAS 141, "Business Combinations". SFAS 141(R) retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also retains the guidance in SFAS 141 for identifying and recognizing intangible assets separately from goodwill. The most significant changes in SFAS 141(R) are: (1) acquisition costs and restructuring costs would now be expensed; (2) stock consideration will be measured based on the quoted market price as of the acquisition date instead of the date the deal is announced; (3) contingent consideration arising from contractual and noncontractual contingencies that meet the more-likely-than-not recognition threshold will be measured and recognized as an asset or liability at fair value at the acquisition date using a probability-weighted discounted cash flows model, with subsequent changes in fair value reflected in earnings. Noncontractual contingencies that do not meet the more-likely-than-not criteria will continue to be recognized when they are probable and reasonably estimable; and (4) acquirer records 100% step-up to fair value for all assets & liabilities, including the minority interest portion, and goodwill is recorded as if a 100% interest was acquired.

        SFAS 141(R) is effective for Citigroup on January 1, 2009. The Company is currently evaluating the potential impact of adopting this statement.

Noncontrolling Interests in Subsidiaries

        In December 2007, the FASB issued Statement No. 160, "Noncontrolling Interests in Consolidated Financial Statements" (SFAS 160), which establishes standards for the accounting and reporting of noncontrolling interests in subsidiaries (that is, minority interests) in consolidated financial statements and for the loss of control of subsidiaries.

        SFAS 160 requires: (1) the equity interest of noncontrolling shareholders, partners, or other equity holders in subsidiaries to be accounted for and presented in equity, separately from the parent shareholder's equity, rather than as liabilities or as "mezzanine" items between liabilities and equity; (2) the amount of consolidated net income attributable to the parent and to the noncontrolling interests be clearly identified and presented on the face of the consolidated statement of income; and (3) when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any noncontrolling equity investment rather than the carrying amount of that retained investment.

        SFAS 160 is effective for Citigroup on January 1, 2009. Early application is not allowed. The Company is currently evaluating the potential impact of adopting this statement.

Sale with Repurchase Financing Agreements

        In February 2008, the FASB issued FASB Staff Position (FSP) FAS 140-3, "Accounting for Transfers of Financial Assets and Repurchase Financing Transactions." The objective of this FSP is to provide implementation guidance on whether the security transfer and contemporaneous repurchase financing involving the transferred financial asset must be evaluated as one linked transaction or two separate de-linked transactions.

        Current practice records the transfer as a sale and the repurchase agreement as a financing. The FSP requires the recognition of the transfer and the repurchase agreement as one linked transaction, unless all of the following criteria are met: (1) the initial transfer and the repurchase financing are not contractually contingent on one another; (2) the initial transferor has full recourse upon default, and the repurchase agreement's price is fixed and not at fair value; (3) the financial asset is readily obtainable in the marketplace and the transfer and repurchase financing are executed at market rates; and (4) the maturity of the repurchase financing is before the maturity of the financial asset. The scope of this FSP is limited to transfers and subsequent repurchase financings that are entered into contemporaneously or in contemplation of one another.

        The FSP will be effective for Citigroup on January 1, 2009. Early adoption is prohibited. The Company is currently evaluating the potential impact of adopting this FSP.

Revisions to the Earnings Per Share Calculation

        In June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities." Under the FSP, unvested share-based payment awards that contain nonforfeitable rights to dividends will be considered to be a separate class of common stock and will be included in the basic EPS calculation using the "two-class method." The FSP will be effective for the Company on January 1, 2009, and will require restatement of all prior periods presented.

        In August 2008, the FASB also issued a revised Exposure Draft of a proposed amendment to FASB Statement No. 128, "Earnings per Share." This proposed amendment seeks to simplify the method of calculating EPS, while promoting the international convergence of accounting standards. This proposed amendment reaffirms the requirements of FSP EITF 03-6-1 for basic EPS and also changes the calculation of

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diluted EPS. The Exposure Draft does not contain an effective date.

        The Company is currently evaluating the impact of these changes.

New Loss-Contingency Disclosures

        In June 2008, the FASB issued an Exposure Draft proposing expanded disclosures regarding loss contingencies accounted for under FASB Statement No. 5, "Accounting for Contingencies," and FASB Statement No. 141(R), "Business Combinations." This proposal increases the number of loss contingencies subject to disclosure and requires substantial quantitative and qualitative information to be provided about those loss contingencies. The proposed effective date is December 31, 2009.

Elimination of QSPEs and Changes in the FIN 46(R) Consolidation Model

        The FASB has issued an Exposure Draft of a proposed standard that would eliminate Qualifying Special Purpose Entities (QSPEs) from the guidance in SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." While the proposed standard has not been finalized and the Board's proposals are subject to a public comment period, this change may have a significant impact on Citigroup's consolidated financial statements as the Company may lose sales treatment for assets previously sold to a QSPE, as well as for future sales, and for transfers of a portion of an asset. This proposed revision could become effective in January 2010. As of September 30, 2008, the total assets of QSPEs to which Citigroup, acting as principal, has transferred assets and received sales treatment were approximately $820 billion.

        In connection with the proposed changes to SFAS 140, the FASB has also issued a separate exposure draft of a proposed standard that proposes three key changes to the consolidation model in FIN 46(R). First, the Board will now include former QSPEs in the scope of FIN 46(R). In addition, the FASB supports amending FIN 46(R) to change the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE to a primarily qualitative determination of power combined with benefits and losses instead of today's risks and rewards model. Finally, the proposed standard requires all VIEs and their primary beneficiaries to be reevaluated whenever circumstances change. The existing rules require reconsideration only when specified reconsideration events occur. As of September 30, 2008, the total assets of significant unconsolidated VIEs with which Citigroup is involved were approximately $325 billion.

        The Company will be evaluating the impact of these changes on Citigroup's consolidated financial statements once the actual guidelines are completed..

Investment Company Audit Guide (SOP 07-1)

        In July 2007, the AICPA issued Statement of Position 07-1, "Clarification of the Scope of the Audit and Accounting Guide for Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies" (SOP 07-1), which was expected to be effective for fiscal years beginning on or after December 15, 2007. However, in February 2008, the FASB delayed the effective date indefinitely by issuing an FSP SOP 07-1-1, "Effective Date of AICPA Statement of Position 07-1." SOP 07-1 sets forth more stringent criteria for qualifying as an investment company than does the predecessor Audit Guide. In addition, SOP 07-1 establishes new criteria for a parent company or equity method investor to retain investment company accounting in their consolidated financial statements. Investment companies record all their investments at fair value with changes in value reflected in earnings. The Company is currently evaluating the potential impact of adopting SOP 07-1.

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2.     DISCONTINUED OPERATIONS

Sale of Citigroup's German Retail Banking Operation

        On July 11, 2008, Citigroup announced the agreement to sell its German retail banking operations to Credit Mutuel for Euro 4.9 billion in cash plus the German operating net earnings accrued in 2008 through the closing. The transaction is expected to result in an after-tax gain of approximately $4 billion. The sale does not include the corporate and investment banking business or the Germany-based European data center. The sale is expected to close in the fourth quarter of 2008 pending regulatory approvals.

        The German retail banking operations generated total revenue of $1.7 billion and $1.6 billion, and pretax earnings of $521 million and $398 million for the nine months ended September 30, 2008 and 2007, respectively. These results are reported in Discontinued operations on the Company's Consolidated Statement of Income. In addition to these results, there was a $330 million pre-tax FX gain realized during the third quarter of 2008 from the hedging of the sale proceeds, which are denominated in Euros, and a tax benefit of $279 million that arose as a result of this sale. Including these two items, total revenue and after-tax income from discontinued operations for the nine months ended September 30, 2008 was $2.0 billion and $829 million, respectively.

        The German retail banking operations had total assets and total liabilities as of September 30, 2008, of $18.6 billion and $14.3 billion, respectively.

        Results for all of the German retail banking businesses sold are reported as Discontinued operations for all periods presented. The assets and liabilities of the businesses being sold are included in Assets of Discontinued operations held for sale and Liabilities of Discontinued operations held for sale on the Consolidated Balance Sheet.

        The following is a summary as of September 30, 2008 of the assets and liabilities of Discontinued operations held for sale on the Consolidated Balance Sheet for the operations related to the German retail banking businesses to be sold:

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(1)

To mark assets held-for-sale to their selling price.

        Summarized financial information for discontinued operations, including cash flows, related to the sale of the German retail bank follows:

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(1)

Includes the recognition of a German foreign tax credit...(more language to follow)

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CitiCapital

        On July 31, 2008, the Company completed the sale of substantially all of its CitiCapital business unit to GE Capital, which includes its North American commercial lending and leasing business.

        The total proceeds from the transaction were approximately $12.5 billion and resulted in an after-tax loss to Citigroup of $305 million, with both amounts subject to closing adjustments. This loss is included in Income from discontinued operations on the Company's Consolidated Statement of Income for the third quarter of 2008.

        This transaction encompassed seven CitiCapital equipment finance business lines, including Healthcare Finance, Private Label Equipment Finance, Material Handling Finance, Franchise Finance, Construction Equipment Finance, Bankers Leasing, and CitiCapital Canada. CitiCapital's Tax Exempt Finance business was not part of the transaction and remained with Citigroup.

        CitiCapital has approximately 1,400 employees and 160,000 customers throughout North America.

        Results for all of the CitiCapital businesses sold, as well as the net loss recognized in the second quarter of 2008 from this sale, are reported as Discontinued operations for all periods presented.

        Summarized financial information for discontinued operations, including cash flows, related to the sale of CitiCapital follows:

 

Combined Results for Discontinued Operations

        Summarized financial information for the German retail banking operations and the CitiCapital business, is as follows:

 

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3.     BUSINESS SEGMENTS

        The following tables present certain information regarding the Company's operations by segment:

 

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(1)

Includes pretax provisions for credit losses and for benefits and claims in the Global Cards results of $2.7 billion and $1.6 billion; in the Consumer Banking results of $5.3 billion and $3.0 billion; in the ICG results of $1.0 billion and $238 million; and in the GWM results of $65 million and $57 million for the third quarters of 2008 and 2007, respectively.

(2)

Reclassified to conform to the current period's presentation.

(3)

Identifiable assets at September 30, 2008 exclude assets of discontinued operations held-for-sale.

(4)

Corporate/Other reflects the restructuring charge of $1.475 billion in the nine months ending September 30, 2007. See Note 7 on page 97 for further discussion.

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4.     INTEREST REVENUE AND EXPENSE

        For the three- and nine-month periods ended September 30, 2008 and 2007, interest revenue and expense consisted of the following:

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(1)

Reclassified to conform to the current period's presentation.

(2)

Interest expense on trading account liabilities of the Institutional Clients Group is reported as a reduction of interest revenue for Trading account assets.

5.     COMMISSIONS AND FEES

        Commissions and fees revenue includes charges to customers for credit and bank cards, including transaction-processing fees and annual fees; advisory, and equity and debt underwriting services; lending and deposit-related transactions, such as loan commitments, standby letters of credit, and other deposit and loan servicing activities; investment management-related fees, including brokerage services, and custody and trust services; and insurance fees and commissions.

        The following table presents commissions and fees revenue for the three and nine months ended September 30, 2008 and 2007:

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(1)

Reclassified to conform to the current period's presentation.

(2)

Commissions and fees for Nikko Cordial have not been detailed due to unavailability of the information.

(3)

Includes fair value adjustments on mortgage servicing assets. The mark-to-market on the underlying economic hedges of the MSRs is included in Other revenue.

(4)

Includes write-downs of approximately $792 million and $4.3 billion net of underwriting fees, for the three and nine months ended September 30, 2008 on funded and unfunded highly leveraged finance commitments. Write-downs were recorded on all highly leveraged finance commitments where there was value impairment, regardless of funding date.

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6.     RETIREMENT BENEFITS

        The Company has several non-contributory defined benefit pension plans covering U.S. employees and has various defined benefit pension and termination indemnity plans covering employees outside the United States. The principal U.S. defined benefit plan which formerly covered substantially all U.S. employees, is closed to new entrants and effective January 1, 2008 no longer accrues benefits for most employees. Employees satisfying certain age and service requirements remain covered by a prior final pay formula.

        The Company also offers postretirement health care and life insurance benefits to certain eligible U.S. retired employees, as well as to certain eligible employees outside the United States. For information on the Company's Retirement Benefit Plans and Pension Assumptions, see Citigroup's 2007 Annual Report on Form 10-K.

        The following tables summarize the components of the net expense recognized in the Consolidated Statement of Income for the three and nine months ended September 30, 2008 and 2007.

Net Expense (Benefit)

 

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(1)

The U.S. plans exclude nonqualified pension plans, for which the net expense was $9 million and $11 million for the three months ended September 30, 2008 and 2007, respectively, and $29 million and $35 million for the first nine months of 2008 and 2007, respectively.

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Employer Contributions

        Citigroup's pension funding policy for U.S. plans and non-U.S. plans is generally to fund to applicable minimum funding requirements, rather than to the amounts of accumulated benefit obligations. For the U.S. plans, the Company may increase its contributions above the minimum required contribution under the Employee Retirement Income Security Act of 1974 (ERISA), if appropriate to its tax and cash position and the plan's funded position. At September 30, 2008 and December 31, 2007, there were no minimum required contributions and no discretionary cash or non-cash contributions are currently planned for the U.S. plans. For the non-U.S. plans, the Company contributed $97 million as of September 30, 2008. Citigroup presently anticipates contributing an additional $65 million to fund its non-U.S. plans in 2008 for a total of $162 million.

7.     RESTRUCTURING

        During the first quarter of 2007, the Company completed a review of its structural expense base in a Company-wide effort to create a more streamlined organization, reduce expense growth and provide investment funds for future growth initiatives.

        The primary goals of the 2007 Structural Expense Review were:

•

Eliminate layers of management/improve workforce management;



•

Consolidate certain back-office, middle-office and corporate functions;



•

Increase the use of shared services;



•

Expand centralized procurement; and



•

Continue to rationalize operational spending on technology.

        For the three months ended September 30, 2008, Citigroup recorded a pretax net restructuring expense of $8 million composed of a gross charge of $20 million and a credit of $12 million due to changes in estimates attributable to lower than anticipated costs of implementing certain projects and the sale of businesses in Europe.

        The implementation of these restructuring initiatives also caused certain related premises and equipment assets to become redundant. The remaining depreciable lives of these assets were shortened, and accelerated depreciation charges began in the second quarter of 2007 in addition to normal scheduled depreciation.

        Additional net charges totaling approximately $5 million pretax are anticipated to be recorded by the end of the fourth quarter of 2008. Of this charge, $5 million is attributable to Corporate/Other.

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        The following table details the Company's restructuring reserves.

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(1)

Accounted for in accordance with SFAS No. 112, "Employer's Accounting for Post Employment Benefits" (SFAS 112).

(2)

Accounted for in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146).

(3)

Accounted for in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144).

        The total restructuring reserve balance as of September 30, 2008, net restructuring charges for the three-month period then ended and cumulative net restructuring expense incurred to date are presented below by business segment. The net expense is included in the Corporate/Other segment because this company-wide restructuring was a corporate initiative.

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(1)

Amounts shown net of $143 million related to changes in estimates recorded during fourth quarter 2007, second, and third quarter 2008.

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8.     EARNINGS PER SHARE

        The following is a reconciliation of the income and share data used in the basic and diluted earnings per share computations for the periods ended September 30, 2008 and 2007:

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(1)

Due to the net loss in the first, second and third quarters of 2008, income (loss) available to common stockholders for basic EPS was used to calculate diluted earnings per share. Adding back the effect of dilutive securities would result in anti-dilution.

(2)

Diluted shares used in the diluted EPS calculation represent basic shares for the 2008 periods due to the net loss. Using actual diluted shares would result in anti-dilution.

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9.     TRADING ACCOUNT ASSETS AND LIABILITIES

        Trading account assets and liabilities, at fair value, consisted of the following at September 30, 2008 and December 31, 2007:

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(1)

Reclassified to conform to the current period's presentation.

(2)

Pursuant to master netting agreements.

10.   INVESTMENTS

---

(1)

Unrealized gains and losses for non-marketable equity securities carried at fair value are recognized in earnings.

(2)

Non-marketable equity securities carried at cost are periodically evaluated for other-than-temporary impairment.

(3)

Recorded at amortized cost.

        The amortized cost and fair value of securities available-for-sale at September 30, 2008 and December 31, 2007 were as follows:

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(1)

Reclassified to conform to the current period's presentation.

        As described in more detail below, the Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss, in accordance with FASB Staff Position FAS No. 115-1, "The Meaning of Other-Than-

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Temporary Impairment and Its Application to Certain Investments" (FSP FAS 115-1). An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in Accumlated other comprehensive income (OCI). Unrealized losses identified as other than temporary are recorded directly in the Consolidated Statement of Income.

        For the investments in the table above, management has determined that the unrealized losses are temporary in nature. The primary factor considered in making that determination is management's intent and ability to hold each investment for a period of time sufficient to allow for an anticipated recovery in fair value. Management has the positive intent and ability to hold each investment until the earlier of its anticipated recovery or maturity. Other factors considered in determining whether a loss is temporary include:

•

The length of time and the extent to which fair value has been below cost;



•

The severity of the impairment;



•

The cause of the impairment and the financial condition and near-term prospects of the issuer; and



•

Activity in the market of the issuer which may indicate adverse credit conditions.

        For each debt security whose fair value is less than amortized cost, the determination of whether the unrealized loss is other than temporary in nature is made in two steps.

•

First, management determines whether it is probable that the Company will receive all amounts due according to the contractual terms of the security (principal and interest). The identification of credit- impaired securities considers a number of factors, including the nature of the security and the underlying collateral, the amount of subordination or credit enhancement supporting the security, published rating agency and other third-party views and information, and other evidential analyses of the probable cash flows from the security. If recovery of all amounts due is not probable, a "credit impairment" is deemed to exist, and the entire unrealized loss is recorded directly in the Consolidated Statement of Income. This unrealized loss recorded in income represents the security's entire decline in fair value, including the decline due to forecasted cash flow shortfalls as well as general market spread widening.



•

For securities with no identified credit impairment, management then determines whether it has the positive intent and ability to hold each investment for a period of time sufficient to allow for an anticipated recovery in fair value. Management estimates the forecasted recovery period using current estimates of volatility in market interest rates (including liquidity and risk premiums). Management's assertion regarding its intent and ability to hold investments considers a number of factors, including a quantitative estimate of the expected recovery period and the length of that period (which may extend to maturity), the severity of the impairment, and management's intended strategy with respect to the identified security or portfolio. If management does not have the intent and ability to hold the security for a sufficient time period, the unrealized loss is recorded directly in the Consolidated Statement of Income.

        The increase in gross unrealized losses on mortgage-backed securities and state and municipal debt securities during the quarter ended September 30, 2008 was primarily related to a widening of market spreads, reflecting an increase in risk/liquidity premiums. Management has asserted significant holding periods for mortgage-backed securities that in certain cases now approach maturity of the securities. The weighted-average estimated life of the securities is currently approximately 7 years for U.S. mortgage-backed securities, and approximately 4 years for European mortgage-backed securities. The estimated life of these securities may change depending on future performance of the underlying loans, including prepayment activity and experienced credit losses.

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11.   GOODWILL AND INTANGIBLE ASSETS

Goodwill

        The changes in goodwill during the first nine months of 2008 were as follows:

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(1)

Correction of an overstatement of goodwill to reflect a portion of the losses incurred in January 2002 related to the sale of the Argentinean subsidiary of Banamex, Bansud, that was recorded as an adjustment to the purchase price of Banamex. See Footnote 2 to the Consolidated Statement of Changes in Stockholders' Equity on page 84.

(2)

Goodwill allocated to CitiCapital assets sold.

(3)

Goodwill allocated to German Retail Banking Operation assets that were reclassified to Assets of discontinued operations held for sale.

Identification of New Reporting Units

        The changes in the organizational structure resulted in the creation of new reporting segments. As a result, commencing with the third quarter 2008, the Company has identified new reporting units as required under SFAS 142, Goodwill and Other Intangible Assets. Goodwill affected by the reorganization has been reassigned from seven reporting units to ten, using a fair value approach. Subsequent to June 30, 2008, goodwill will be allocated to disposals and tested for impairment under the new reporting units.

        During the first nine months of 2008, no goodwill was written off due to impairment.

Intangible Assets

        The components of intangible assets were as follows:

---

(1)

Includes contract-related intangible assets.

N/A

Not Applicable.

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        The changes in intangible assets during the first nine months of 2008 were as follows:

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(1)

During the first quarter of 2008, Old Lane notified investors in its multi-strategy hedge fund that they would have the opportunity to redeem their investments in the fund, without restriction, effective July 31, 2008. In April 2008, substantially all unaffiliated investors had notified Old Lane of their intention to redeem their investments. Based on the Company's expectation of the level of redemptions in the fund, the Company expected that the cash flows from the hedge fund management contract will be lower than previously estimated. The Company performed an impairment analysis of the intangible asset relating to the hedge fund management contract. As a result, an impairment loss of $202 million, representing the remaining unamortized balance of the intangible assets, was recorded in the first quarter of 2008 operating expenses in the results of the ICG segment. The fair value was estimated using a discounted cash flow approach.

(2)

Includes foreign exchange translation and purchase accounting adjustments.

(3)

See page 111 for the roll-forward of mortgage servicing rights.

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12.   DEBT

Short-Term Borrowings

        Short-term borrowings consist of commercial paper and other borrowings as follows:

        Borrowings under bank lines of credit may be at interest rates based on LIBOR, CD rates, the prime rate, or bids submitted by the banks. Citigroup pays commitment fees for its lines of credit.

        Some of Citigroup's non-bank subsidiaries have credit facilities with Citigroup's subsidiary depository institutions, including Citibank, N.A. Borrowings under these facilities must be secured in accordance with Section 23A of the Federal Reserve Act.

Long-Term Debt

---

(1)

At September 30, 2008 and December 31, 2007, collateralized advances from the Federal Home Loan Bank are $76.0 billion and $86.9 billion, respectively.

(2)

Includes Targeted Growth Enhanced Term Securities (TARGETS) with no carrying value at September 30, 2008 and $48 million issued by TARGETS Trust XXIV at December 31, 2007 (the "CGMHI Trust"). CGMHI owned all of the voting securities of the CGMHI Trust. The CGMHI Trust had no assets, operations, revenues or cash flows other than those related to the issuance, administration, and repayment of the TARGETS and the CGMHI Trust's common securities. The CGMHI Trust's obligations under the TARGETS were fully and unconditionally guaranteed by CGMHI, and CGMHI's guarantee obligations were fully and unconditionally guaranteed by Citigroup.

(3)

Includes Targeted Growth Enhanced Term Securities (CFI TARGETS) issued by TARGETS Trust XXVI with a carrying value of $27 million at September 30, 2008 and $55 million issued by TARGETS Trusts XXV and XXVI at December 31, 2007, (collectively, the "CFI Trusts"). CFI owns all of the voting securities of the CFI Trusts. The CFI Trusts have no assets, operations, revenues or cash flows other than those related to the issuance, administration, and repayment of the CFI TARGETS and the CFI Trusts' common securities. The CFI Trusts' obligations under the CFI TARGETS are fully and unconditionally guaranteed by CFI, and CFI's guarantee obligations are fully and unconditionally guaranteed by Citigroup.

(4)

Includes Principal-Protected Trust Securities (Safety First Trust Securities) with carrying values of $371 million issued by Safety First Trust Series 2006-1, 2007-1, 2007-2, 2007-3, 2007-4, 2008-1, 2008-2, 2008-3, and 2008-4 (collectively, the "Safety First Trusts") at September 30, 2008 and $301 million issued by Safety First Trust Series 2006-1, 2007-1, 2007-2, 2007-3 and 2007- 4 at December 31, 2007. CFI owns all of the voting securities of the Safety First Trusts. The Safety First Trusts have no assets, operations, revenues or cash flows other than those related to the issuance, administration, and repayment of the Safety First Trust Securities and the Safety First Trusts' common securities. The Safety First Trusts' obligations under the Safety First Trust Securities are fully and unconditionally guaranteed by CFI, and CFI's guarantee obligations are fully and unconditionally guaranteed by Citigroup.

        CGMHI has a syndicated five-year committed uncollateralized revolving line of credit facility with unaffiliated banks totaling $3.0 billion, which matures in 2011. CGMHI also has bilateral facilities totaling $575 million with unaffiliated banks maturing on various dates in 2009.

        CGMHI also has committed long-term financing facilities with unaffiliated banks. At September 30, 2008, CGMHI had drawn down the full $2.075 billion available under these facilities, of which $1.08 billion is guaranteed by Citigroup. A bank can terminate these facilities by giving CGMHI prior notice (generally one year). CGMHI also has substantial borrowing arrangements consisting of facilities that CGMHI has been advised are available, but where no contractual lending obligation exists. These arrangements are reviewed on an ongoing basis to ensure flexibility in meeting CGMHI's short-term requirements.

        The Company issues both fixed and variable rate debt in a range of currencies. It uses derivative contracts, primarily interest rate swaps, to effectively convert a portion of its fixed rate debt to variable rate debt and variable rate debt to fixed rate debt. The maturity structure of the derivatives generally corresponds to the maturity structure of the debt being hedged. In addition, the Company uses other derivative contracts to manage the foreign exchange impact of certain debt issuances.

        Long-term debt at September 30, 2008 and December 31, 2007 includes $23.8 billion of junior subordinated debt. The Company formed statutory business trusts under the laws of the state of Delaware. The trusts exist for the exclusive purposes of (i) issuing Trust Securities representing undivided beneficial interests in the assets of the Trust; (ii) investing the gross proceeds of the Trust securities in junior subordinated deferrable interest debentures (subordinated debentures) of its parent; and (iii) engaging in only those activities necessary or incidental thereto. Upon approval from the Federal Reserve, Citigroup has the right to redeem these securities.

        Citigroup has contractually agreed not to redeem or purchase (i) the 6.50% Enhanced Trust Preferred Securities of Citigroup Capital XV before September 15, 2056, (ii) the

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6.45% Enhanced Trust Preferred Securities of Citigroup Capital XVI before December 31, 2046, (iii) the 6.35% Enhanced Trust Preferred Securities of Citigroup Capital XVII before March 15, 2057, (iv) the 6.829% Fixed Rate/Floating Rate Enhanced Trust Preferred Securities of Citigroup Capital XVIII before June 28, 2047, (v) the 7.250% Enhanced Trust Preferred Securities of Citigroup Capital XIX before August 15, 2047, (vi) the 7.875% Enhanced Trust Preferred Securities of Citigroup Capital XX before December 15, 2067, and (vii) the 8.300% Fixed Rate/Floating Rate Enhanced Trust Preferred Securities of Citigroup Capital XXI before December 21, 2067 unless certain conditions, described in Exhibit 4.03 to Citigroup's Current Report on Form 8-K filed on September 18, 2006, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on November 28, 2006, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on March 8, 2007, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on July 2, 2007, in Exhibit 4.02 to Citigroup's Current Report on Form 8-K filed on August 17, 2007, in Exhibit 4.2 to Citigroup's Current Report on Form 8-K filed on November 27, 2007, and in Exhibit 4.2 to Citigroup's Current Report on Form 8-K filed on December 21, 2007, respectively, are met. These agreements are for the benefit of the holders of Citigroup's 6.00% Junior Subordinated Deferrable Interest Debentures due 2034.

        Citigroup owns all of the voting securities of these subsidiary trusts. These subsidiary trusts have no assets, operations, revenues or cash flows other than those related to the issuance, administration, and repayment of the subsidiary trusts and the subsidiary trusts' common securities. These subsidiary trusts' obligations are fully and unconditionally guaranteed by Citigroup.

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        The following table summarizes the financial structure of each of the Company's subsidiary trusts at September 30, 2008:

---

(1)

Represents the proceeds received from the Trust at the date of issuance.

        In each case, the coupon rate on the debentures is the same as that on the trust securities. Distributions on the trust securities and interest on the debentures are payable quarterly, except for Citigroup Capital III, Citigroup Capital XVIII and Citigroup Capital XXI on which distributions are payable semiannually.

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13.   PREFERRED STOCK

        The following table summarizes the Company's Preferred stock outstanding at September 30, 2008 and December 31, 2007:

---

(1)

Issued on January 23, 2008 as depositary shares, each representing a 1/1000th interest in a share of the corresponding series of Non-Cumulative Convertible Preferred Stock. Redeemable in whole or in part on or after February 15, 2015. Convertible into Citigroup common stock at a conversion rate of approximately 1,805.3285 per share, which is subject to adjustment under certain conditions. The dividend of $0.88 per depositary share is payable quarterly when, as and if declared by the Company's Board of Directors. Redemption is subject to a capital replacement covenant.

(2)

Issued on April 28, 2008 as depositary shares, each representing a 1/25^tth interest in a share of the corresponding series of Fixed Rate/Floating Rate Non-Cumulative Preferred Stock. Redeemable in whole or in part on or after April 30, 2018. Dividends are payable semi-annually for the first 10 years until April 30, 2018 at $42.70 per depositary share and thereafter quarterly at floating rate when, as and if declared by the Company's Board of Directors.

(3)

Issued on May 13, 2008 and May 28, 2008 as depositary shares, each representing a 1/1000^tth interest in a share of the corresponding series of Non-Cumulative Preferred Stock. Redeemable in whole or in part on or after June 15, 2013. The dividend of $0.53 per depositary share is payable quarterly when, as and if declared by the Company's Board of Directors.

(4)

Issued on January 23, 2008 and January 29, 2008 as depositary shares, each representing a 1/1000th interest in a share of the corresponding series of Non-Cumulative Convertible Preferred Stock. Redeemable in whole in or part on or after February 15, 2015. Convertible into Citigroup common stock at a conversion rate of approximately 1,482.3503 per share, which is subject to adjustment under certain conditions. The dividend of $0.81 per depositary share is payable quarterly when, as and if declared by the Company's Board of Directors. Redemption is subject to a capital replacement covenant.

(5)

Issued on January 25, 2008 as depositary shares, each representing a 1/1000^tth interest in a share of the corresponding series of Non-Cumulative Preferred Stock. Redeemable in whole or in part on or after February 15, 2018. The dividend of $0.51 per depositary share is payable quarterly when, as and if declared by the Company's Board of Directors. Redemption is subject to a capital replacement covenant.

        If dividends are declared on Series E as scheduled, the impact from preferred dividends on earnings per share in the first and third quarters will be lower than the impact in the second and fourth quarters. All other series currently have a quarterly dividend declaration schedule.

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14.   CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

        Changes in each component of "Accumulated Other Comprehensive Income (Loss)" for first, second and third quarters of 2008 were as follows:

---

(1)

Primarily related to mortgage-backed securities activity.

(2)

Reflects, among other items, the movements in the Japanese yen, Mexican peso, Euro, Korean won, and Turkish lira against the U.S. dollar, and changes in related tax effects.

(3)

Primarily reflects the decrease in market interest rates during the first quarter of 2008 in Citigroup's pay-fixed/receive-floating swap programs hedging floating rate deposits and long-term debt. Also reflects the widening of interest rate spreads during the period.

(4)

Primarily related to foreign government securities, foreign marketable equity securities, and mortgage-backed securities activities.

(5)

Reflects, among other items, the movements in the Japanese yen, Mexican peso, Korean won, Brazilian real, and Indian rupee against the U.S. dollar, and changes in related tax effects.

(6)

Primarily reflects the increase in market interest rates during the second quarter of 2008 in Citigroup's pay-fixed/receive-floating swap programs hedging floating rate deposits and long-term debt.

(7)

Primarily related to an increase in unrealized losses on Alt-A non agency mortgage-backed securities and on Municipal debt securities.

(8)

Reflects, among other items, the movements in the Mexican peso, Korean won, Pound sterling, Brazilian real, Australian dollar and Polish zloty against the U.S. dollar.

(9)

Primarily reflects the increase in market interest rates during the third quarter of 2008 in Citigroup's pay-fixed/receive-floating swap programs hedging floating rate deposits and long-term debt.

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15.   SECURITIZATIONS AND VARIABLE INTEREST ENTITIES

        The Company primarily securitizes credit card receivables and mortgages. Other types of assets securitized include corporate debt instruments (in cash and synthetic form), auto loans, and student loans.

        After securitization of credit card receivables, the Company continues to maintain credit card customer account relationships and provides servicing for receivables transferred to the trusts. The Company provides and at times arranges for third parties to provide credit enhancement to the trusts, including cash collateral accounts, subordinated securities, liquidity facilities and letters of credit. As specified in some of the sale agreements, the net revenue collected each month is accumulated up to a predetermined maximum amount, and is available over the remaining term of that transaction to make payments of yield, fees, and transaction costs in the event that net cash flows from the receivables are not sufficient. Once the predetermined amount is reached, net revenue is recognized by the Citigroup subsidiary that sold the receivables.

        The Company provides a wide range of mortgage and other loan products to a diverse customer base. In connection with the securitization of these loans, the Company's U.S. Consumer business retains the servicing rights, which entitle the Company to a future stream of cash flows based on the outstanding principal balances of the loans and the contractual servicing fee. Failure to service the loans in accordance with contractual requirements may lead to a termination of the servicing rights and the loss of future servicing fees. In non-recourse servicing, the principal credit risk to the Company is the cost of temporary advances of funds. In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans such as FNMA or FHLMC or with a private investor, insurer, or guarantor. Losses on recourse servicing occur primarily when foreclosure sale proceeds of the property underlying a defaulted mortgage loan are less than the outstanding principal balance and accrued interest of the loan and the cost of holding and disposing of the underlying property. The Company's mortgage loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchasers of the securities issued by the trust. Institutional Clients Group retains servicing for a limited number of its mortgage securitizations.

        The following tables summarize selected cash flow information related to credit card, mortgage, and certain other securitizations for the three months ended September 30, 2008 and 2007:

 

 

 

---

(1)

Other includes student loans and other assets

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        The Company recognized gains (losses) on securitizations of U.S. Consumer mortgages of ($81) million and $46 million for the third quarters of 2008 and 2007, respectively, and ($4) and $129 million for the nine-month periods ended September 30, 2008 and 2007, respectively. In the third quarter of 2008 and 2007, the Company recorded gains (losses) of ($1,443) million and $169 million related to the securitization of credit card receivables, and ($1,398) million and $747 million for the nine months ended September 30, 2008 and 2007, respectively. Gains (losses) recognized on the securitization of Institutional Clients Group activities and other assets during the third quarter of 2008 and 2007 were $1 million and $15 million, respectively, and $6 million and $120 million for the first nine months ended September 30, 2008 and 2007, respectively.

        Key assumptions used for the securitization of credit cards, mortgages, and certain other assets during the third quarter of 2008 and 2007 in measuring the fair value of retained interests at the date of sale or securitization are as follows:

 

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(1)

Other includes student loans and other assets. There were no securitizations of student loans during the third quarters of 2008 and 2007.

(2)

Retained interests obtained in the 2008 and 2007 third quarters were valued using third-party quotations and thus are not dependent on proprietary valuation models using assumptions.

        As required by SFAS 140, the effect of two negative changes in each of the key assumptions used to determine the fair value of retained interests must be disclosed. The negative effect of each change must be calculated independently, holding all other assumptions constant. Because the key assumptions may not in fact be independent, the net effect of simultaneous adverse changes in the key assumptions may be less than the sum of the individual effects shown below.

        At September 30, 2008, the key assumptions used to value retained interests and the sensitivity of the fair value to adverse changes of 10% and 20% in each of the key assumptions were as follows:

Key Assumptions at September 30, 2008

---

(1)

Includes mortgage servicing rights.

(2)

Other includes student loans and other assets.

110

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(1)

Other includes student loans and other assets. Sensitivity analysis excludes $946 million of retained interests that are valued using third-party quotations and thus are not dependent on proprietary valuation models.

Managed Loans

        After securitization of credit card receivables, the Company continues to maintain credit card customer account relationships and provides servicing for receivables transferred to the trusts. As a result, the Company considers the securitized credit card receivables to be part of the business it manages.

        The following tables present a reconciliation between the managed basis and on-balance sheet credit card portfolios and the related delinquencies (loans which are 90 days or more past due) and credit losses, net of recoveries.

 

 

Mortgage Servicing Rights

        The fair value of capitalized mortgage loan servicing rights (MSRs) was $8.3 billion and $10.0 billion at September 30, 2008 and 2007, respectively. The following table summarizes the changes in capitalized MSRs:

 

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(1)

Represents changes due to customer payments and passage of time.

        The market for MSRs is not sufficiently liquid to provide participants with quoted market prices. Therefore, the Company uses an option-adjusted spread valuation approach to determine the fair value of MSRs. This approach consists of projecting servicing cash flows under multiple interest rate scenarios, and discounting these cash flows using risk-adjusted discount rates. The key assumptions used in the valuation of MSRs include mortgage prepayment speeds and discount rates. The model assumptions and the MSRs' fair value estimates are compared to observable trades of similar

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MSR portfolios and interest-only security portfolios, as available, as well as to MSR broker valuations and industry surveys. The cash flow model and underlying prepayment and interest rate models used to value these MSRs are subject to validation in accordance with the Company's model validation policies.

        The fair value of the MSRs is primarily affected by changes in prepayments that result from shifts in mortgage interest rates. In managing this risk, the Company economically hedges a significant portion of the value of its MSRs through the use of interest rate derivative contracts, forward purchase commitments of mortgage-backed securities, and purchased securities classified as trading. The amount of contractually specified servicing fees, late fees and ancillary fees earned were $429 million, $25 million and $16 million, respectively, for the quarter ended September 30, 2008, and $481 million, $24 million, and $16 million, respectively, for the third quarter of 2007. These fees are classified in the Consolidated Statement of Income as Commissions and Fees.

Special-Purpose Entities

Primary Uses of and Involvement in SPEs

        Citigroup is involved with many types of special-purpose entities (SPEs) in the normal course of business. The primary uses of SPEs are to obtain sources of liquidity for the Company and its clients through securitization vehicles and commercial paper conduits; to create investment products for clients; to provide asset-based financing to clients; or to raise financing for the Company.

        The Company provides various products and services to SPEs. For example, it may:

•

Underwrite securities issued by SPEs and subsequently make a market in those securities;



•

Provide liquidity facilities to support short-term obligations of the SPE issued to third parties;



•

Provide credit enhancement in the form of letters of credit, guarantees, credit default swaps or total return swaps (where the Company receives the total return on certain assets held by the SPE);



•

Enter into interest rate, currency or other derivative contracts with the SPE;



•

Act as investment manager;



•

Provide debt financing to or have an ownership interest in the SPE; or



•

Provide administrative, trustee or other services.

        SPEs used by the Company are generally accounted for as qualifying SPEs (QSPEs) or Variable Interest Entities (VIEs), as described below.

Qualifying SPEs

        QSPEs are a special class of SPEs defined in FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 140). These SPEs have significant limitations on the types of assets and derivative instruments they may own and the types and extent of activities and decision-making they may engage in. Generally, QSPEs are passive entities designed to purchase assets and pass through the cash flows from those assets to the investors in the QSPE. QSPEs may not actively manage their assets through discretionary sales and are generally limited to making decisions inherent in servicing activities and issuance of liabilities. QSPEs are generally exempt from consolidation by the transferor of assets to the QSPE and any investor or counterparty.

        The following table summarizes the Company's involvement in QSPEs by business segment at September 30, 2008 and December 31, 2007:

---

(1)

Updated to conform to the current period's presentation.

Credit Card Master Trusts

        The Company securitizes credit card receivables through trusts which are established to purchase the receivables. Citigroup sells receivables into the QSPE trusts on a non-recourse basis. Credit card securitizations are revolving securitizations; that is, as customers pay their credit card balances, the cash proceeds are used to purchase new receivables and replenish the receivables in the trusts. The Company relies on securitizations to fund a significant portion of its managed N.A. Cards business.

        Citigroup is a provider of liquidity facilities to the commercial paper programs of the two primary securitization trusts it transacts with. Both facilities are made available on market terms to each trust. With respect to the Palisades commercial paper program in the Omni Master Trust, Citibank (South Dakota), N. A. is the sole provider of a full liquidity facility. The liquidity facility requires Citibank (South Dakota), N.A. to purchase Palisades's commercial paper at maturity if the commercial paper does not roll over as long as there are available credit enhancements outstanding, typically in the form of subordinated notes. The Palisades liquidity commitment amounted to $9.5 billion at September 30, 2008 and $7.5 billion at December 31, 2007. During the 2008 second quarter, Citibank (South Dakota) N.A. also became the sole provider of a full liquidity facility to the Dakota commercial program of the Citibank Master Credit Card Trust. This facility requires Citibank (South Dakota) N.A. to purchase Dakota commercial paper at maturity if the commercial paper does not roll over as long as there are

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available credit enhancements outstanding, typically in the form of subordinated notes. The Dakota liquidity commitment amounted to $9.0 billion at September 30, 2008.

Mortgage and Other Consumer Loan Securitization Vehicles

        The Company's Consumer business provides a wide range of mortgage and other consumer loan products to its customers. Once originated, the Company often securitizes these loans (primarily mortgage and student loans) through the use of QSPEs. In addition to providing a source of liquidity and less expensive funding, securitizing these assets also reduces the Company's credit exposure to the borrowers. These mortgage and student loan securitizations are primarily non-recourse to the Company, thereby effectively transferring the risk of future credit losses to the purchasers of the securities issued by the trust. However, the Company generally retains the servicing rights and a residual interest in future cash flows from the trusts.

Municipal Tender Option Bond (TOB) QSPEs

        The Company sponsors QSPE TOB trusts that hold municipal securities and issue long-term senior floating-rate notes ("Floaters") to third-party investors and junior residual securities ("Residuals") to the Company.

        Unlike other Proprietary TOB trusts, and to conform to the requirements for a QSPE, the Company has no ability to unilaterally unwind QSPE TOB trusts. The Company would reconsider consolidation of the QSPE TOB trusts in the event that the amount of Floaters held by third parties decreased to such a level that the QSPE TOB trusts no longer met the definition of a QSPE because of insufficient third-party investor ownership of the Floaters.

Mutual Fund Deferred Sales Commission (DSC) Securitizations

        Mutual Fund Deferred Sales Commission (DSC) receivables are assets purchased from distributors of mutual funds that are backed by distribution fees and contingent deferred sales charges (CDSC) generated by the distribution of certain shares to mutual fund investors. These share investors pay no upfront load, but the shareholder agrees to pay, in addition to the management fee imposed by the mutual fund, the distribution fee over a period of time and the CDSC (a penalty for early redemption to recover lost distribution fees). Asset managers use the proceeds from the sale of DSC receivables to cover the sales commissions associated with the shares sold.

        The Company purchases these receivables from mutual fund distributors and sells a diversified pool of receivables to a trust. The trust in turn issues two tranches of securities:

•

Senior term notes (generally 92-94%) via private placement to third-party investors. These notes are structured to have at least a single "A" rating standard. The senior notes receive all cash distributions until fully repaid, which is generally approximately 5-6 years;



•

A residual certificate in the trust (generally 6-8%) to the Company. This residual certificate is fully subordinated to the senior notes, and receives no cash flows until the senior notes are fully paid.

Mortgage Loan Securitizations

        Institutional Clients Group is active in structuring and underwriting residential and commercial mortgage-backed securitizations. In these transactions, the Company or its customer transfers loans into a bankruptcy-remote SPE. These SPEs are designed to be QSPEs as described above. The Company may hold residual interests and other securities issued by the SPEs until they can be sold to independent investors, and makes a market in those securities on an ongoing basis. The Company sometimes retains servicing rights for certain entities. These securities are held as trading assets on the balance sheet, are managed as part of the Company's trading activities, and are marked—to-market with most changes in value recognized in earnings. The table above shows the assets and retained interests for mortgage QSPEs in which the Company acted as principal in transferring mortgages to the QSPE.

Variable Interest Entities

        VIEs are entities defined in FIN 46-R as entities which either have a total equity investment at risk that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights, right to receive the expected residual returns of the entity, and obligation to absorb the expected losses of the entity). Investors that finance the VIE through debt or equity interests, or other counterparties that provide other forms of support, such as guarantees, subordinated fee arrangements, or certain types of derivative contracts, are variable interest holders in the entity. The variable interest holder, if any, that will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both, is deemed to be the primary beneficiary and must consolidate the VIE. Consolidation under FIN 46-R is based on expected losses and residual returns, which consider various scenarios on a probability-weighted basis. Consolidation of a VIE is, therefore, determined based primarily on variability generated in scenarios that are considered most likely to occur, rather than based on scenarios that are considered more remote. Certain variable interests may absorb significant amounts of losses or residual returns contractually, but if those scenarios are considered very unlikely to occur, they may not lead to consolidation of the VIE.

        All of these facts and circumstances are taken into consideration when determining whether the Company has variable interests that would deem it the primary beneficiary and, therefore, require consolidation of the related VIE or otherwise rise to the level where disclosure would provide useful information to the users of the Company's financial statements. In some cases, it is qualitatively clear based on the extent of the Company's involvement or the seniority of its investments that the Company is not the primary beneficiary of the VIE. In other cases, more detailed and quantitative analysis is required to make such a determination.

        FIN 46-R requires disclosure of the Company's maximum exposure to loss where the Company has "significant" variable interests in an unconsolidated VIE. FIN 46-R does not define "significant" and, as such, judgment is required. The Company

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generally considers the following types of involvement to be "significant":

•

Retaining any amount of debt financing (e.g., loans, notes, bonds, or other debt instruments) or an equity investment (e.g., common shares, partnership interests, or warrants) in any VIE where the Company has assisted with the structuring of the transaction;



•

Writing a "liquidity put" or other facility to support the issuance of short-term notes;



•

Writing credit protection (e.g., guarantees, letters of credit, credit default swaps or total return swaps where the Company receives the total return or risk on the assets held by the VIE); or



•

Certain transactions where the Company is the investment manager and receives variable fees for services.

        Thus, the Company's definition of "significant" involvement generally includes all variable interests held by the Company, even those where the likelihood of loss or the notional amount of exposure to any single legal entity is small. Involvement with a VIE as described above, regardless of the seniority or perceived risk of the Company's involvement, is included as significant. The Company believes that this more expansive interpretation of "significant" provides more meaningful and consistent information regarding its involvement in various VIE structures and provides more data for an independent assessment of the potential risks of the Company's involvement in various VIEs and asset classes.

        In various other transactions the Company may act as a derivative counterparty (for example, interest rate swap, cross-currency swap, or purchaser of credit protection under a credit default swap or total return swap where the Company pays the total return on certain assets to the SPE); may act as underwriter or placement agent; may provide administrative, trustee, or other services; or may make a market in debt securities or other instruments issued by VIEs. The Company generally considers such involvement, by itself, "not significant" under FIN 46-R.

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[This space intentionally left blank.]

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        The following tables summarize the Company's significant involvement in VIEs in millions of dollars:

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(1)

The definition of maximum exposure to loss is included in the text that follows.

(2)

A significant unconsolidated VIE is an entity where the Company has any variable interest considered to be significant as discussed on page 113, regardless of the likelihood of loss or the notional amount of exposure.

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(1)

Reclassified to conform to the current period's presentation.

(2)

A significant unconsolidated VIE is an entity where the Company has any variable interest considered to be significant, regardless of the likelihood of loss or the notional amount of exposure.

(3)

The definition of maximum exposure to loss is included in the text that follows.

        These tables do not include:

•

Certain venture capital investments made by some of the Company's private equity subsidiaries, as the Company accounts for these investments in accordance with the AICPA Investment Company Audit Guide;



•

Certain limited partnerships where the Company is the general partner and the limited partners have the right to replace the general partner or liquidate the funds;



•

Certain investment funds for which the Company provides investment management services and personal estate trusts for which the Company provides administrative, trustee and/or investment management services;



•

VIEs structured by third parties where the Company holds securities in trading inventory. These investments are made on arm's-length terms, and are typically held for relatively short periods of time; and



•

Transferred assets to a VIE where the transfer did not qualify as a sale and where the Company did not have any other involvement that is deemed to be a variable interest with the VIE. These transfers are accounted for as secured borrowings by the Company.

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        The asset balances for consolidated VIEs represent the carrying amounts of the assets consolidated by the Company. The carrying amount may represent the amortized cost or the current fair value of the assets depending on the legal form of the asset (security or loan) and the Company's standard accounting policies for the asset type and line of business.

        The asset balances for unconsolidated VIEs where the Company has significant involvement represent the most current information available to the Company regarding the remaining principal balance of cash assets owned. In most cases, the asset balances represent an amortized cost basis without regard to impairments in fair value, unless fair value information is readily available to the Company. For VIEs that obtain asset exposures synthetically through derivative instruments (for example, synthetic CDOs), the Company includes the full original notional amount of the derivative as an asset.

        The maximum funded exposure represents the balance sheet carrying amount of the Company's investment in the VIE in the form of purchased debt, funded loans or retained equity interest. It reflects the initial amount of cash invested in the VIE plus any accrued interest and is adjusted for any impairments in value recognized in earnings and any cash principal payments received. The maximum exposure of unfunded positions represents the remaining undrawn committed amount, including liquidity and credit facilities (such as guarantees) provided by the Company, or the notional amount of a derivative instrument considered to be a variable interest, adjusted for any declines in fair value recognized in earnings. In certain transactions, the Company has entered into derivative instruments or other arrangements that are not considered variable interests in the VIE under FIN 46-R (for example, interest rate swaps, cross-currency swaps, or where the Company is the purchaser of credit protection under a credit default swap or total return swap where the Company pays the total return on certain assets to the SPE). Receivables under such arrangements are not included in the maximum exposure amounts.

Consolidated VIEs—Balance Sheet Classification

        The following table presents the carrying amounts and classification of consolidated assets that are collateral for VIE obligations:

        The consolidated VIEs included in the table above represent hundreds of separate entities with which the Company is involved. In general, the third-party investors in the obligations of consolidated VIEs have recourse only to the assets of the VIEs and do not have recourse to the Company, except where the Company has provided a guarantee to the investors or is the counterparty to certain derivative transactions involving the VIE. Thus, the Company's maximum exposure to loss related to consolidated VIEs is significantly less than the carrying value of the consolidated VIE assets due to outstanding third-party financing.

Citi-Administered Asset-Backed Commercial Paper Conduits

        The Company is active in the asset-backed commercial paper conduit business as administrator of several multi-seller commercial paper conduits, and also as a service provider to single-seller and other commercial paper conduits sponsored by third parties.

        The multi-seller commercial paper conduits are designed to provide the Company's customers access to low-cost funding in the commercial paper markets. The conduits purchase assets from or provide financing facilities to customers and are funded by issuing high-grade commercial paper to third-party investors. The conduits generally do not purchase assets originated by the Company. The funding of the conduit is facilitated by the liquidity support and credit enhancement provided by the Company and by certain third parties. As administrator to the conduits, the Company is responsible for selecting and structuring assets purchased or financed by the conduits, making decisions regarding the funding of the conduit, including determining the tenor and other features of the commercial paper issued, monitoring the quality and performance of the conduit's assets, and facilitating the operations and cash flows of the conduit. In return, the Company earns structuring fees from clients for individual transactions and earns an administration fee from the conduit, which is equal to the income from client program and liquidity fees of the conduit after payment of interest costs and other fees.

Third-Party Conduits

        The Company also provides liquidity facilities to single-and multi-seller conduits sponsored by third parties. These conduits are independently owned and managed and invest in a variety of asset classes, depending on the nature of the conduit. The facilities provided by the Company typically represent a small portion of the total liquidity facilities obtained by each conduit, and are collateralized by the assets of each conduit. The notional amount of these facilities is approximately $1.3 billion as of September 30, 2008, and $2.2 billion as of December 31, 2007. The conduits received $25 million of funding as of September 30, 2008, compared to zero as of December 31, 2007.

Collateralized Debt Obligations

        A collateralized debt obligation (CDO) is an SPE that purchases a pool of assets consisting of asset-backed securities and/or synthetic exposures through derivatives on asset-backed securities and issues multiple tranches of equity and notes to investors. A third-party manager is typically retained by the CDO to select the pool of assets and manage those assets over the term of the CDO. The Company earns fees for warehousing assets prior to the creation of a CDO, structuring CDOs, and placing debt securities with investors. In addition, the Company has retained interests in many of the CDOs it has structured and makes a market in those issued notes.

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Collateralized Loan Obligations

        A collateralized loan obligation (CLO) is substantially similar to the CDO transactions described above, except that the assets owned by the SPE (either cash instruments or synthetic exposures through derivative instruments) are corporate loans and to a lesser extent corporate bonds, rather than asset-backed debt securities.

        Certain of the assets and exposure amounts relate to CLO warehouses, whereby the Company provides senior financing to the CLO to purchase assets during the warehouse period. The senior financing is repaid upon issuance of notes to third-parties.

Asset-Based Financing

        The Company provides loans and other forms of financing to VIEs that hold assets. Those loans are subject to the same credit approvals as all other loans originated or purchased by the Company, and related loan loss reserves are reported as part of the Company's Allowance for loan losses. Financing in the form of debt securities or derivatives is, in most circumstances, reported in Trading account assets and accounted for at fair value with changes in value reported in earnings.

Municipal Securities Tender Option Bond (TOB) Trusts

        The Company sponsors TOB trusts that hold fixed- and floating-rate, tax-exempt securities issued by state or local municipalities. The trusts are single-issuer trusts whose assets are purchased from the Company and from the secondary market. The trusts issue long-term senior floating rate notes ("Floaters") and junior residual securities ("Residuals"). The Floaters have a long-term rating based on the long-term rating of the underlying municipal bond and a short-term rating based on that of the liquidity provider to the trust. The Residuals are generally rated based on the long-term rating of the underlying municipal bond and entitle the holder to the residual cash flows from the issuing trust.

        The Company sponsors three kinds of TOB trusts: customer TOB trusts, proprietary TOB trusts, and QSPE TOB trusts. Customer TOB trusts are trusts through which customers finance investments in municipal securities and are not consolidated by the Company. Proprietary and QSPE TOB trusts, on the other hand, provide the Company with the ability to finance its own investments in municipal securities. Proprietary TOB trusts are generally consolidated, in which case the financing (the Floaters) is recognized on the Company's balance sheet as a liability. However, certain proprietary TOB trusts, the Residuals of which are held by hedge funds that are consolidated and managed by the Company, are not consolidated by the Company. The assets and the associated liabilities of these TOB trusts are not consolidated by the hedge funds (and, thus, are not consolidated by the Company) under the application of the AICPA Investment Company Audit Guide, which precludes consolidation of owned investments by investment companies. In accordance with the Audit Guide, the hedge funds report their investments in the Residuals at fair value with changes in value included in earnings. The Company consolidates the hedge funds because the Company holds controlling financial interests in the hedge funds. Certain of the Company's equity investments in the hedge funds are hedged with derivatives transactions executed by the Company with third parties referencing the returns of the hedge fund. QSPE trusts provide the Company with the same exposure as proprietary TOB trusts and are not consolidated by the Company. The Company's residual interest in QSPE TOB trusts are evaluated for bifurcation in accordance with SFAS 133. Any embedded derivatives are separately reported at fair value, while the debt host contracts are classified as available-for-sale securities.

        The total assets of the three categories of TOB trusts as of September 30, 2008 and December 31, 2007 are as follows:

Municipal Investments

        Municipal investment transactions represent partnerships that finance the construction and rehabilitation of low-income affordable rental housing. The Company generally invests in these partnerships as a limited partner and earns a return primarily through the receipt of tax credits accorded the affordable housing investments made by the partnership.

Client Intermediation

        Client intermediation transactions represent a range of transactions designed to provide investors with specified returns based on the returns of an underlying security, referenced asset or index. These transactions include credit-linked notes and equity-linked notes. In these transactions, the SPE typically obtains exposure to the underlying security, referenced asset or index through a derivative instrument such as a total return swap or a credit default swap. In turn the SPE issues notes to investors that pay a return based on the specified underlying security, referenced asset or index. The SPE invests the proceeds in a financial asset or a guaranteed insurance contract (GIC) that serves as collateral for the derivative contract over the term of the transaction.

        The Company's involvement in these transactions includes being the counterparty to the SPE's derivative instruments and investing in a portion of the notes issued by the SPE.

Other

        Other vehicles include the Company's interests in entities established to facilitate various client financing transactions as well as a variety of investment partnerships.

Structured Investment Vehicles

        On December 13, 2007, as a result of providing mezzanine financing to the SIVs, the terms of which were finalized on February 12, 2008, the Company became the primary beneficiary of the SIVs and began consolidating these entities. The Company increased its mezzanine financing to $4.5 billion, reflecting an increase of $1 billion from the original $3.5 billion financing. This additional mezzanine financing was funded subsequent to September quarter-end.

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Investment Funds

        The Company is the investment manager for certain VIEs that invest in various asset classes including private equity, hedge funds, real estate, fixed income and infrastructure. The Company earns a management fee, which is a percentage of capital under management, and may earn performance fees. In addition, for some of these funds, the Company has an ownership interest in the investment funds. As of September 30, 2008 and December 31, 2007 the total amount invested in these funds was $0.3 billion and $0.2 billion, respectively.

        The Company has also established a number of investment funds as opportunities for qualified employees to invest in private equity investments. The Company acts as investment manager to these funds and may provide employees with financing on both a recourse and non-recourse basis for a portion of the employees' investment commitments.

Certain Fixed Income Funds Managed by Institutional Clients Group

Falcon multi-strategy fixed income funds

        On February 20, 2008, the Company entered into a $500 million credit facility with the Falcon multi-strategy fixed income funds (the "Falcon funds") managed by Institutional Clients Group. As a result of providing this facility, the Company became the primary beneficiary of the Falcon funds and consolidated the assets and liabilities in its Consolidated Balance Sheet. At September 30, 2008, the total assets of the Falcon funds were approximately $1.3 billion.

ASTA/MAT municipal funds

        On March 3, 2008, the Company made an equity investment of $661 million (under a $1 billion commitment) which provides for gain sharing with unaffiliated investors, in the Municipal Opportunity Funds (MOFs). The MOFs are funds managed by Institutional Clients Group that make leveraged investments in tax-exempt municipal bonds and accept investments through feeder funds known as ASTA and MAT. As a result of the Company's equity commitment, the Company became the primary beneficiary of the MOFs and consolidated the assets and liabilities in its Consolidated Balance Sheet. At September 30, 2008, the total assets of the MOFs were approximately $1.5 billion.

Trust Preferred Securities

        The Company has raised financing through the issuance of trust preferred securities. In these transactions, the Company forms a statutory business trust and owns all of the voting equity shares of the trust. The trust issues preferred equity securities to third-party investors and invests the gross proceeds in junior subordinated deferrable interest debentures issued by the Company. These trusts have no other assets and no operations, revenues or cash flows other than those related to the issuance, administration, and repayment of the preferred equity securities held by third-party investors. These trusts' obligations are fully and unconditionally guaranteed by the Company.

        Because the sole asset of the trust is a receivable from the Company, the Company is not permitted to consolidate the trusts under FIN 46-R, even though the Company owns all of the voting equity shares of the trust, has fully guaranteed the trusts' obligations, and has the right to redeem the preferred securities in certain circumstances. The Company recognizes the subordinated debentures on its balance sheet as long-term liabilities.

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16.   DERIVATIVES ACTIVITIES

        In the ordinary course of business, Citigroup enters into various types of derivative transactions. These derivative transactions include:

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Futures and forward contracts which are commitments to buy or sell at a future date a financial instrument, commodity or currency at a contracted price and may be settled in cash or through delivery.



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Swap contracts which are commitments to settle in cash at a future date or dates that may range from a few days to a number of years, based on differentials between specified financial indices, as applied to a notional principal amount.



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Option contracts which give the purchaser, for a fee, the right, but not the obligation, to buy or sell within a limited time a financial instrument, commodity or currency at a contracted price that may also be settled in cash, based on differentials between specified indices or prices.

        Citigroup enters into these derivative contracts for the following reasons:

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Trading Purposes—Customer Needs—Citigroup offers its customers derivatives in connection with their risk-management actions to transfer, modify or reduce their interest rate, foreign exchange and other market/credit risks or for their own trading purposes. As part of this process, Citigroup considers the customers' suitability for the risk involved, and the business purpose for the transaction. Citigroup also manages its derivative-risk positions through offsetting trade activities, controls focused on price verification, and daily reporting of positions to senior managers.



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Trading Purposes—Own Account—Citigroup trades derivatives for its own account. Trading limits and price verification controls are key aspects of this activity.



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Asset/Liability Management Hedging—Citigroup uses derivatives in connection with its risk-management activities to hedge certain risks or reposition the risk profile of the Company. For example, Citigroup may issue fixed-rate long-term debt and then enter into a receive-fixed, pay-variable-rate interest rate swap with the same tenor and notional amount to convert the interest payments to a net variable-rate basis. This strategy is the most common form of an interest rate hedge, as it minimizes interest cost in certain yield curve environments. Derivatives are also used to manage risks inherent in specific groups of on-balance sheet assets and liabilities, including investments, corporate and consumer loans, deposit liabilities, as well as other interest-sensitive assets and liabilities. In addition, foreign exchange contracts are used to hedge non-U.S.-dollar denominated debt, available-for-sale securities, net capital exposures and foreign-exchange transactions.

        Citigroup accounts for its hedging activity in accordance with SFAS 133. As a general rule, SFAS 133 hedge accounting is permitted for those situations where the Company is exposed to a particular risk, such as interest rate or foreign-exchange risk, that causes changes in the fair value of an asset or liability, or variability in the expected future cash flows of an existing asset, liability or a forecasted transaction that may affect earnings.

        Derivative contracts hedging the risks associated with the changes in fair value are referred to as fair value hedges, while contracts hedging the risks affecting the expected future cash flows are called cash flow hedges. Hedges that utilize derivatives or debt instruments to manage the foreign exchange risk associated with equity investments in non-U.S.-dollar functional currency foreign subsidiaries (net investment in a foreign operation) are called net investment hedges.

        All derivatives are reported on the balance sheet at fair value. In addition, where applicable, all such contracts covered by master netting agreements are reported net. Gross positive fair values are netted with gross negative fair values by counterparty pursuant to a valid master netting agreement. In addition payables and receivables in respect of cash collateral received from or paid to a given counterparty is included in this netting. However, non-cash collateral is not included.

        As of September 30, 2008 and December 31, 2007, the amount of payables in respect of cash collateral received that was netted with unrealized gains from derivatives was $29 billion and $26 billion, respectively, while the amount of receivables in respect of cash collateral paid that was netted with unrealized losses from derivatives was $27 billion and $37 billion, respectively.

        If certain hedging criteria specified in SFAS 133 are met, including testing for hedge effectiveness, special hedge accounting may be applied. The hedge-effectiveness assessment methodologies for similar hedges are performed in a similar manner and are used consistently throughout the hedging relationships. For fair-value hedges, the changes in value of the hedging derivative, as well as the changes in value of the related hedged item, due to the risk being hedged, are reflected in current earnings. For cash-flow hedges and net-investment hedges, the changes in value of the hedging derivative are reflected in Accumulated other comprehensive income (loss) in stockholders' equity to the extent the hedge was effective. Hedge ineffectiveness, in either case, is reflected in current earnings.

        Continuing with the example referred to above, for Asset/Liability Management Hedging, the fixed-rate long-term debt may be recorded at amortized cost under current U.S. GAAP. However, by electing to use SFAS 133 hedge accounting, the carrying value of this note is adjusted for changes in the benchmark interest rate, with any such changes in value recorded in current earnings. The related interest-rate swap is also recorded on the balance sheet at fair value, with any changes in fair value reflected in earnings. Thus, any ineffectiveness resulting from the hedging relationship is recorded in current earnings. Alternatively, an economic hedge, which does not meet the SFAS 133 hedging criteria, would involve only recording the derivative at fair value on the balance sheet, with its associated changes in fair

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value recorded in earnings. The debt would continue to be carried at amortized cost and, therefore, current earnings would be impacted only by the interest rate shifts that cause the change in the swap's value and the underlying yield of the debt. This type of hedge is undertaken when SFAS 133 hedge requirements cannot be achieved or management decides not to apply SFAS 133 hedge accounting. Another alternative for the Company would be to elect to carry the note at fair value under SFAS 159. Once the irrevocable election is made upon issuance of the note, the full change in fair value of the note would be reported in earnings. The related interest rate swap, with changes in fair value also reflected in earnings, provides a natural offset to the note's fair value change. To the extent the two offsets would not be exactly equal, the difference would be reflected in current earnings. This type of economic hedge is undertaken when the Company prefers to follow this simpler method that achieves similar financial statement results to an SFAS 133 fair-value hedge.

Fair-value hedges

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Hedging of benchmark interest rate risk—Citigroup hedges exposure to changes in the fair value of fixed-rate financing transactions, including liabilities related to outstanding debt, and borrowings. The fixed cash flows from those financing transactions are converted to benchmark variable-rate cash flows by entering into receive-fixed, pay-variable interest rate swaps. Typically these fair-value hedge relationships use dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis.

        Citigroup also hedges exposure to changes in the fair value of fixed-rate assets, including available-for-sale debt securities and interbank placements. The hedging instruments used are receive-variable, pay-fixed interest rate swaps and future contracts. Most of these fair-value hedging relationships use dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis, while certain others use regression analysis.

        For a small number of fair-value hedges of benchmark interest-rate risk, Citigroup uses the "shortcut" method as SFAS 133 allows the Company to assume no ineffectiveness if the hedging relationship involves an interest-bearing financial asset or liability and an interest-rate swap. In order to assume no ineffectiveness, Citigroup ensures that all the shortcut method requirements of SFAS 133 for these types of hedging relationships are met. The amount of shortcut method hedges that Citigroup uses is de minimis.

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Hedging of foreign-exchange risk—Citigroup hedges the change in fair value attributable to foreign-exchange rate movements in available-for-sale securities that are denominated in currencies other than the functional currency of the entity holding the securities, which may be in or outside the U.S. Typically, the hedging instrument employed is a forward foreign-exchange contract. In this type of hedge, the change in fair value of the hedged available-for-sale security attributable to the portion of foreign-exchange risk hedged is reported in earnings and not Accumulated other comprehensive income—a process that serves to offset substantially the change in fair value of the forward contract that is also reflected in earnings. Citigroup typically considers the premium associated with forward contracts (differential between spot and contractual forward rates) as the cost of hedging; this is generally excluded from the assessment of hedge effectiveness and reflected directly in earnings. Dollar-offset method is typically used to assess hedge effectiveness. Since that assessment is based on changes in fair value attributable to changes in spot rates on both the available-for-sale securities and the forward contracts for the portion of the relationship hedged, the amount of hedge ineffectiveness is not significant.

Cash-flow hedges

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Hedging of benchmark interest rate risk—Citigroup hedges variable cash flows resulting from floating-rate liabilities and roll-over (re-issuance) of short-term liabilities. Variable cash flows from those liabilities are converted to fixed-rate cash flows by entering into receive-variable, pay-fixed interest-rate swaps and receive-variable, pay-fixed forward-starting interest-rate swaps. For some hedges, the hedge ineffectiveness is eliminated by matching all terms of the hedged item and the hedging derivative at inception and on an ongoing basis. Citigroup does not exclude any terms from consideration when applying the matched terms method. To the extent all terms are not perfectly matched, these cash-flow hedging relationships use either regression analysis or dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis. Since efforts are made to match the terms of the derivatives to those of the hedged forecasted cash flows as closely as possible, the amount of hedge ineffectiveness is not significant even when the terms do not match perfectly.

        Citigroup also hedges variable cash flows resulting from investments in floating-rate available-for-sale debt securities. Variable cash flows from those assets are converted to fixed-rate cash flows by entering into receive-fixed, pay-variable interest rate swaps. These cash-flow hedging relationships use either regression analysis or dollar-offset ratio analysis to assess whether the hedging relationships are highly effective at inception and on an ongoing basis. Since efforts are made to align the terms of the derivatives to those of the hedged forecasted cash flows as closely as possible, the amount of hedge ineffectiveness is not significant.

        Citigroup is currently not using the shortcut method for any cash-flow hedging relationships.

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•

Hedging of foreign exchange risk—Citigroup locks in the functional currency equivalent of cash flows of various balance sheet liability exposures, including deposits, short-term borrowings and long-term debt (and the forecasted issuances or rollover of such items) that are denominated in a currency other than the functional currency of the issuing entity. Depending on the risk management objectives, these types of hedges are designated as either cash-flow hedges of only foreign exchange risk or cash-flow hedges of both foreign exchange and interest-rate risk. The hedging instruments used are foreign-exchange forward contracts, cross-currency swaps and foreign-currency options. For some hedges, Citigroup matches all terms of the hedged item and the hedging derivative at inception and on an ongoing basis to eliminate hedge ineffectiveness. Citigroup does not exclude any terms from consideration when applying the matched terms method. To the extent all terms are not perfectly matched, any ineffectiveness is measured using the "hypothetical derivative method" from FASB Derivative Implementation Group Issue G7. Efforts are made to match up the terms of the hypothetical and actual derivatives used as closely as possible. As a result, the amount of hedge ineffectiveness is not significant even when the terms do not match perfectly.



•

Hedging the overall changes in cash flows—In situations where the contractual rate of a variable-rate asset or liability is not a benchmark rate, Citigroup designates the risk of overall changes in cash flows as the hedged risk. Citigroup primarily hedges variability in the total cash flows related to non-benchmark-rate-based liabilities and uses receive-variable, pay-fixed interest rate swaps as the hedging instrument. These cash flow hedging relationships use regression analysis to assess effectiveness at inception and on an ongoing basis.

Net investment hedges

        Consistent with SFAS No. 52, "Foreign Currency Translation" (SFAS 52), SFAS 133 allows hedging of the foreign-currency risk of a net investment in a foreign operation. Citigroup primarily uses foreign-currency forwards, options swaps and foreign-currency-denominated debt instruments to manage the foreign-exchange risk associated with Citigroup's equity investments in several non-U.S. dollar functional currency foreign subsidiaries. In accordance with SFAS 52, Citigroup records the change in the carrying amount of these investments in the cumulative translation adjustment account within Accumulated other comprehensive income (loss). Simultaneously, the effective portion of the hedge of this exposure is also recorded in the cumulative translation adjustment account, and the ineffective portion, if any, is immediately recorded in earnings.

        For derivatives used in net investment hedges, Citigroup follows the forward rate method from FASB Derivative Implementation Group Issue H8. According to that method, all changes in fair value, including changes related to the forward rate component of the foreign-currency forward contracts and the time value of foreign currency option, are recorded in the cumulative translation adjustment account. For foreign-currency-denominated debt instruments that are designated as hedges of net investments the translation gain or loss that is recorded in the cumulative translation adjustment account is based on the spot exchange rate between the functional currency of the respective subsidiary and the U.S. dollar, which is the functional currency of Citigroup. To the extent the notional amount of the hedging instrument exactly matches the hedged net investment and the underlying exchange rate of the derivative hedging instrument relates to the exchange rate between the functional currency of the net investment and Citigroup's functional currency (or, in the case of the non-derivative debt instrument, such instrument is denominated in the functional currency of the net investment), no ineffectiveness is recorded in earnings.

        Key aspects of achieving SFAS 133 hedge accounting are documentation of hedging strategy and hedge effectiveness at the hedge inception and substantiating hedge effectiveness on an ongoing basis. A derivative must be highly effective in accomplishing the hedge objective of offsetting either changes in the fair value or cash flows of the hedged item for the risk being hedged. Any ineffectiveness in the hedge relationship is recognized in current earnings. The assessment of effectiveness excludes changes in the value of the hedged item that are unrelated to the risks being hedged. Similarly, the assessment of effectiveness may exclude changes in the fair value of a derivative related to time value that, if excluded, are recognized in current earnings.

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        The following table summarizes certain information related to the Company's hedging activities for the three and nine months ended September 30, 2008 and 2007:

        For cash-flow hedges, any changes in the fair value of the end-user derivative remaining in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheet will be included in earnings of future periods to offset the variability of the hedged cash flows when such cash flows affect earnings.

        The change in Accumulated other comprehensive income (loss) from cash-flow hedges for the three and nine months ended September 30, 2008 and 2007 can be summarized as follows (after-tax):

        Derivatives may expose Citigroup to market, credit or liquidity risks in excess of the amounts recorded on the Consolidated Balance Sheet. Market risk on a derivative product is the exposure created by potential fluctuations in interest rates, foreign-exchange rates and other values, and is a function of the type of product, the volume of transactions, the tenor and terms of the agreement and the underlying volatility. Credit risk is the exposure to loss in the event of nonperformance by the other party to the transaction where the value of any collateral held is not adequate to cover such losses. The recognition in earnings of unrealized gains on these transactions is subject to management's assessment as to collectibility. Liquidity risk is the potential exposure that arises when the size of the derivative position may not be able to be rapidly adjusted in periods of high volatility and financial stress at a reasonable cost.

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17.   FAIR VALUE (SFAS 155, SFAS 156, SFAS 157, and SFAS 159)

        Effective January 1, 2007, the Company adopted SFAS 157 and SFAS 159. Both standards address aspects of the expanding application of fair-value accounting. SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair-value measurements. SFAS 157, among other things, requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In addition, SFAS 157 precludes the use of block discounts when measuring the fair value of instruments traded in an active market, which discounts were previously applied to large holdings of publicly traded equity securities. It also requires recognition of trade-date gains related to certain derivative transactions whose fair value has been determined using unobservable market inputs. This guidance supersedes the guidance in Emerging Issues Task Force Issue No. 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities" (EITF Issue 02-3), which prohibited the recognition of trade-date gains for such derivative transactions when determining the fair value of instruments not traded in an active market.

        As a result of the adoption of SFAS 157, the Company has made some amendments to the techniques used in measuring the fair value of derivative and other positions. These amendments change the way that the probability of default of a counterparty is factored into the valuation of derivative positions, include for the first time the impact of Citigroup's own credit risk on derivatives and other liabilities measured at fair value, and also eliminate the portfolio servicing adjustment that is no longer necessary under SFAS 157.

        Under SFAS 159, the Company may elect to report most financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. After the initial adoption, the election is made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made.

        Additionally, the transition provisions of SFAS 159 permit a one-time election for existing positions at the adoption date with a cumulative-effect adjustment included in opening retained earnings and future changes in fair value reported in earnings.

        The Company also has elected the fair value accounting provisions permitted under FASB Statement No. 155, "Accounting for Certain Hybrid Financial Instruments" (SFAS 155), and FASB Statement No 156, "Accounting for Servicing of Financial Assets" (SFAS 156) for certain assets and liabilities. In accordance with SFAS 155, which was primarily adopted on a prospective basis, hybrid financial instruments—such as structured notes containing embedded derivatives that otherwise would require bifurcation, as well as certain interest-only instruments may be accounted for at fair value if the Company makes an irrevocable election to do so on an instrument-by-instrument basis. The changes in fair value are recorded in current earnings. Additional discussion regarding the applicable areas in which SFAS 155 was adopted is presented below.

        SFAS 156 requires all servicing rights to be recognized initially at fair value. At its initial adoption, the standard permits a one-time irrevocable election to re-measure each class of servicing rights at fair value, with the changes in fair value recorded in current earnings. The classes of servicing rights are identified based on the availability of market inputs used in determining their fair values and the methods for managing their risks. The Company has elected fair-value accounting for its mortgage and student loan classes of servicing rights. The impact of adopting this standard was not material. See Note 15 on page 109 for further discussions regarding the accounting and reporting of mortgage servicing rights.

Fair-Value Hierarchy

        SFAS 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair-value hierarchy:

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Level 1—Quoted prices for identical instruments in active markets.



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Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.



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Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

        This hierarchy requires the use of observable market data when available. The Company considers relevant and observable market prices in its valuations where possible. The frequency of transaction, the size of the bid-ask spread and the amount of adjustment necessary when comparing similar transactions are all factors in determining the liquidity of markets and the relevance of observed prices in those markets.

Determination of Fair Value

        For assets and liabilities carried at fair value, the Company measures such value using the procedures set out below, irrespective of whether these assets and liabilities are carried at fair value as a result of an election under SFAS 159, SFAS 155 or SFAS 156, or whether they were previously carried at fair value.

        When available, the Company generally uses quoted market prices to determine fair value, and classifies such items in Level 1. In some cases where a market price is available the Company will make use of acceptable practical expedients (such as matrix pricing) to calculate fair value, in which case the items are classified in Level 2.

        If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based or independently

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sourced market parameters, such as interest rates, currency rates, option volatilities, etc. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be some significant inputs that are readily observable.

        Where available, the Company may also make use of quoted prices for recent trading activity in positions with the same or similar characteristics to that being valued. The frequency and size of transactions and the amount of the bid-ask spread are among the factors considered in determining the liquidity of markets and the relevance of observed prices from those markets. If relevant and observable prices are available, those valuations would be classified as Level 2. If prices are not available, other valuation techniques would be used and the item would be classified as Level 3.

        Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors or brokers. Vendors and brokers valuations may be based on a variety of inputs ranging from observed prices to proprietary valuation models.

        The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate the description includes details of the valuation models, the key inputs to those models as well as any significant assumptions.

Securities purchased under agreements to resell & securities sold under agreements to repurchase

        No quoted prices exist for such instruments and so fair value is determined using a discounted cash-flow technique. Cash flows are estimated based on the terms of the contract, taking into account any embedded derivative or other features. Expected cash flows are discounted using market rates appropriate to the maturity of the instrument as well as the nature and amount of collateral taken or received. Generally, such instruments are classified within Level 2 of the fair-value hierarchy as the inputs used in the fair valuation are readily observable.

Trading Account Assets—Trading Securities and Trading Loans

        When available, the Company uses quoted market prices to determine the fair value of trading securities; such items are classified in Level 1 of the fair-value hierarchy. Examples include some government securities and exchange-traded equity securities.

        For bonds and secondary market loans traded over the counter, the Company generally determines fair value utilizing internal valuation techniques. Fair values estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors. Vendors compile prices from various sources and may apply matrix pricing for similar bonds or loans where no price is observable. If available, the Company may also use quoted prices for recent trading activity of assets with similar characteristics to the bond or loan being valued. Trading securities and loans priced using such methods are generally classified as Level 2. However, when less liquidity exists for a security or loan, a quoted price is stale, or prices from independent sources vary, a loan or security is generally classified as Level 3.

        Where the Company's principal market for a portfolio of loans is the securitization market, the Company uses the securitization price to determine the fair value of the portfolio. The securitization price is determined from the assumed proceeds of a hypothetical securitization in the current market, adjusted for transformation costs (i.e., direct costs other than transaction costs) and securitization uncertainties such as market conditions and liquidity. As a result of the severe reduction in the level of activity in certain securitization markets since the second half of 2007, observable securitization prices for certain directly comparable portfolios of loans have not been readily available. Therefore, such portfolios of loans are generally classified within Level 3 of the fair value hierarchy. However, for other loan securitization markets, such as those related to conforming prime fixed rate and conforming adjustable-rate mortgage loans, pricing verification of the hypothetical securitizations has been possible, since these markets have remained active. Accordingly, these loan portfolios are classified as Level 2 within the fair value hierarchy.

Trading Account Assets and Liabilities—Derivatives

        Exchange-traded derivatives are generally fair valued using quoted market (i.e., exchange) prices and so are classified within Level 1 of the fair-value hierarchy.

        The majority of derivatives entered into by the Company are executed over the counter and so are valued using internal valuation techniques as no quoted market prices exist for such instruments. The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instrument. The principal techniques used to value these instruments are discounted cash flows, Black-Scholes and Monte Carlo simulation. The fair values of derivative contracts reflect cash the Company has paid or received (for example, option premiums paid and received).

        The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, foreign-exchange rates, the spot price of the underlying, volatility, and correlation. The item is placed in either Level 2 or Level 3 depending on the observability of the significant inputs to the model. Correlation and items with longer tenors are generally less observable.

Subprime-Related Direct Exposures in CDOs

        The Company accounts for its CDO super senior subprime direct exposures and the underlying securities on a fair-value basis with all changes in fair value recorded in earnings. Citigroup's CDO super senior subprime direct exposures are not subject to valuation based on observable transactions. Accordingly, the fair value of these exposures is based on management's best estimates based on facts and circumstances as of the date of these consolidated financial statements.

        Citigroup's CDO super senior subprime direct exposures are Level 3 assets and are subject to valuation based on significant unobservable inputs. Fair value of these exposures (other than high grade and mezzanine as described below) is based on estimates of future cash flows from the

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mortgage loans underlying the assets of the ABS CDOs. To determine the performance of the underlying mortgage loan portfolios, the Company estimates the prepayments, defaults and loss severities based on a number of macroeconomic factors, including housing price changes, unemployment rates, interest rates, and borrower and loan attributes, such as age, credit scores, documentation status, loan-to-value (LTV) ratios, and debt-to-income (DTI) ratios. The model is calibrated using available mortgage loan information including historical loan performance. In addition, the methodology estimates the impact of geographic concentration of mortgages, and the impact of reported fraud in the origination of subprime mortgages. An appropriate discount rate is then applied to the cash flows generated for each ABCP and CDO-squared tranche, in order to estimate its current fair value.

        When necessary, the valuation methodology used by Citigroup is refined and the inputs used for the purposes of estimation are modified, in part, to reflect ongoing market developments. More specifically, the inputs of home price appreciation (HPA) assumptions and delinquency data were updated during the quarter along with discount rates that are based upon a weighted average combination of implied spreads from single name ABS bond prices and ABX indices, as well as CLO spreads.

        As was the case in the second quarter of 2008, the third quarter housing-price changes were estimated using a forward-looking projection. However, for third quarter 2008, this projection incorporates the Loan Performance Index, whereas in second quarter 2008, it incorporated the S&P Case Shiller Index. This change was made because the Loan Performance Index provided more comprehensive geographic data. In addition, the Company's mortgage default model has been updated for mortgage performance data from the first half of 2008, a period of sharp home price declines and high levels of mortgage foreclosures.

        The valuation as of September 30, 2008 assumes a cumulative decline in U.S. housing prices from peak to trough of 32%. This rate assumes declines of 16% and 10% in 2008 and 2009, respectively, the remainder of the 32% decline having already occurred before the end of 2007. The valuation methodology as of June 30, 2008 assumed a cumulative decline in U.S. housing prices from peak to trough of 23%, with assumed declines of 12% and 3% in 2008 and 2009, respectively.

        In addition, during the second and third quarters of 2008, the discount rates were based on a weighted average combination of the implied spreads from single name ABS bond prices, ABX indices and CLO spreads, depending on vintage and asset types. To determine the discount margin, the Company applies the mortgage default model to the bonds underlying the ABX indices and other referenced cash bonds and solves for the discount margin that produces the market prices of those instruments. Using this methodology, the impact of the decrease of the home price appreciation projection from -23% to -32% resulted in a decrease in the discount margins incorporated in the valuation model.

        For the third quarter of 2008, the valuation of the high grade and mezzanine ABS CDO positions was changed from model valuation to trader prices based on the underlying assets of each high grade and mezzanine ABS CDO. Unlike the ABCP and CDO-squared positions, the high grade and mezzanine positions are now largely hedged through the ABX and bond short positions, which are by necessity, trader priced. Thus, this change brings closer symmetry in the way these long and short positions are valued by the Company. Citigroup intends to use trader marks to value this portion of the portfolio going forward so long as it remains largely hedged.

        The primary drivers that currently impact the super senior valuations are the discount rates used to calculate the present value of projected cash flows and projected mortgage loan performance.

        Given the above, the Company's CDO super senior subprime direct exposures were classified in Level 3 of the fair-value hierarchy.

        For most of the lending and structuring direct subprime exposures (excluding super seniors), fair value is determined utilizing observable transactions where available, other market data for similar assets in markets that are not active and other internal valuation techniques.

Investments

        The investments category includes available-for-sale debt and equity securities, whose fair value is determined using the same procedures described for trading securities above or, in some cases, using vendor prices as the primary source.

        Also included in investments are nonpublic investments in private equity and real estate entities held by the S&B business. Determining the fair value of nonpublic securities involves a significant degree of management resources and judgment as no quoted prices exist and such securities are generally very thinly traded. In addition, there may be transfer restrictions on private equity securities. The Company uses an established process for determining the fair value of such securities, using commonly accepted valuation techniques, including the use of earnings multiples based on comparable public securities, industry specific non-earnings-based multiples and discounted cash flow models. In determining the fair value of nonpublic securities, the Company also considers events such as a proposed sale of the investee company, initial public offerings, equity issuances, or other observable transactions.

        Private equity securities are generally classified in Level 3 of the fair value hierarchy.

Short-Term Borrowings and Long-Term Debt

        The fair value of non-structured liabilities is determined by discounting expected cash flows using the appropriate discount rate for the applicable maturity. Such instruments are generally classified in Level 2 of the fair-value hierarchy as all inputs are readily observable.

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        The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) and hybrid financial instruments (performance linked to risks other than interest rates, inflation or currency risks) using the appropriate derivative valuation methodology (described above) given the nature of the embedded risk profile. Such instruments are classified in Level 2 or Level 3 depending on the observability of significant inputs to the model.

Market Valuation Adjustments

        Liquidity adjustments are applied to items in Level 2 or Level 3 of the fair-value hierarchy to ensure that the fair value reflects the price at which the entire position could be liquidated. The liquidity reserve is based on the bid/offer spread for an instrument, adjusted to take into account the size of the position.

        Counterparty credit-risk adjustments are applied to derivatives such as over-the-counter derivatives, where the base valuation uses market parameters based on the LIBOR interest rate curves. Not all counterparties have the same credit risk as that implied by the relevant LIBOR curve, so it is necessary to consider the market view of the credit risk of a counterparty in order to estimate the fair value of such an item.

        Bilateral or "own" credit-risk adjustments are applied to reflect the Company's own credit risk when valuing derivatives and liabilities measured at fair value, in accordance with the requirements of SFAS 157.

        Counterparty and own credit adjustments consider the estimated future cash flows between Citi and its counterparties under the terms of the instrument, and the effect of credit risk on the valuation of those cash flows, rather than a point-in-time assessment of the current recognized net asset or liability. Furthermore, the credit-risk adjustments take into account the effect of credit-risk mitigants such as pledged collateral and any legal right of offset (to the extent such offset exists) with a counterparty through arrangements such as netting agreements.

Auction Rate Securities

        Auction Rate Securities (ARS) are long-term municipal bonds, corporate bonds, securitizations and preferred stocks with interest rates or dividend yields that are re-set through periodic auctions. The coupon paid in the current period is based on the rate determined by the prior auction. In the event of an auction failure, ARS holders receive a 'fail rate' coupon, which is specified by the original issue documentation of each ARS.

        Where insufficient orders to purchase all of the ARS issue to be sold in an auction were received, the primary dealer or auction agent would traditionally have purchased any residual unsold inventory (without a contractual obligation to do so). This residual inventory would then be repaid through subsequent auctions, typically in a short timeframe. Due to this auction mechanism and generally liquid market, ARS have historically traded and were valued as short-term instruments.

        Citigroup acted in the capacity of primary dealer for approximately $72 billion of ARS and continued to purchase residual unsold inventory in support of the auction mechanism until mid-February 2008. After this date, liquidity in the ARS market deteriorated significantly, auctions failed due to a lack of bids from third-party investors, and Citigroup ceased to purchase unsold inventory. Following a number of ARS refinancings, at September 30, 2008, Citigroup continued to act in the capacity of primary dealer for approximately $41 billion of outstanding ARS.

        The Company classifies its ARS as trading securities and accounts for them on a fair value basis with all changes in fair value recorded in earnings.

        Prior to our first auction failing in the first quarter of 2008, Citigroup valued ARS based on observation of auction market prices, because the auctions had a short maturity period (7, 28, and 35 days). This generally resulted in valuations at par. Once the auctions failed, ARS could no longer be valued using observation of auction market prices. Accordingly, the fair value of ARS is currently estimated using internally developed discounted cash flow valuation techniques specific to the nature of the assets underlying each ARS.

        For ARS with U.S. municipal securities as underlying assets, future cash flows are estimated based on the terms of the securities underlying each individual ARS and discounted at an estimated discount rate in order to estimate the current fair value. The key assumptions that impact the ARS valuations are estimated prepayments and re-financings, estimated fail rate coupons (i.e., the rate paid in the event of auction failure, which varies according to the current credit rating of the issuer), and the discount rate used to calculate the present value of projected cash flows. The discount rate used for each ARS is based on rates observed for straight issuances of other municipal securities. In order to arrive at the appropriate discount rate, these observed rates were adjusted upwards to factor in the specifics of the ARS structure being valued, such as callability, and the illiquidity in the ARS market.

        For ARS with student loans as underlying assets, future cash flows are estimated based on the terms of the loans underlying each individual ARS, discounted at an appropriate discount rate in order to estimate the current fair value. The key assumptions that impact the ARS valuations are the expected weighted average life of the structure, estimated fail rate coupons, the amount of leverage in each structure, and the discount rate used to calculate the present value of projected cash flows. The discount rate used for each ARS is based on rates observed for vanilla securitizations with similar maturities to the loans underlying each ARS being valued. In order to arrive at the appropriate discount rate, these observed rates were adjusted upwards to factor in the specifics of the ARS structure being valued, such as callability, and the illiquidity in the ARS market.

        During the first quarter of 2008, ARS for which the auctions failed and where no secondary market has developed were moved to Level 3, as the assets were subject to valuation using significant unobservable inputs. The majority of these ARS continued to be classified in Level 3 since then.

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Alt-A Mortgage Securities

        The Company reports Alt-A mortgage securities in Trading account assets and available-for-sale Investments. In both cases the securities are recorded at fair value with changes in fair value reported in current earnings and OCI, respectively. For these purposes, Alt-A mortgage securities are non-agency residential mortgage-backed securities (RMBS) where: (1) the underlying collateral has weighted average FICO scores between 680 and 720 or, (2) for instances where FICO scores are greater than 720, RMBS have 30% or less of the underlying collateral composed of full documentation loans.

        Similar to the valuation methodologies used for other trading securities and trading loans, the Company generally determines the fair value of Alt-A mortgage securities utilizing internal valuation techniques. Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors. Vendors compile prices from various sources. Where available, the Company may also make use of quoted prices for recent trading activity in securities with the same or similar characteristics to that being valued.

        The internal valuation techniques used for Alt-A mortgage securities, as with other mortgage exposures, consider estimated housing price changes, unemployment rates, interest rates, and borrower attributes. They also consider prepayment rates as well as other market indicators.

        Alt-A mortgage securities that are valued using these methods are generally classified as Level 2. However, Alt-A mortgage securities backed by Alt-A mortgages of lower quality or more recent vintages are mostly classified in Level 3 due to the reduced liquidity that exists for such positions, which reduces the reliability of prices available from independent sources.

Commercial Real Estate Exposure

        Citigroup reports a number of different exposures linked to commercial real estate at fair value with changes in fair value reported in earnings, including securities, loans and investments in entities that hold commercial real estate loans or commercial real estate directly. The Company also reports securities backed by commercial real estate as available-for-sale investments, which are carried at fair value with changes in fair value reported in OCI.

        Similar to the valuation methodologies used for other trading securities and trading loans, the Company generally determines the fair value of securities and loans linked to commercial real estate utilizing internal valuation techniques. Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors. Vendors compile prices from various sources. Where available, the Company may also make use of quoted prices for recent trading activity in securities or loans with the same or similar characteristics to that being valued. Securities and loans linked to commercial real estate valued using these methodologies are generally classified as Level 3 as a result of the reduced liquidity currently in the market for such exposures.

        The fair value of investments in entities that hold commercial real estate loans or commercial real estate directly is determined using a similar methodology to that used for other non-public investments in real estate held by S&B business. The Company uses an established process for determining the fair value of such securities, using commonly accepted valuation techniques, including the use of earnings multiples based on comparable public securities, industry specific non-earnings-based multiples and discounted cash flow models. In determining the fair value of such investments, the Company also considers events such as a proposed sale of the investee company, initial public offerings, equity issuances, or other observable transactions. Such investments are generally classified in Level 3 of the fair value hierarchy.

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Fair-Value Elections

        The following table presents, as of September 30, 2008, those positions selected for fair-value accounting in accordance with SFAS 159, SFAS 156, and SFAS 155, as well as the changes in fair value for the nine months ended September 30, 2008 and September 30, 2007.

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(1)

Reflects netting of the amounts due from securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase in accordance with FASB Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements."

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        The fair value of liabilities for which the fair-value option was elected (other than non-recourse and similar liabilities, such as the liabilities of the SIVs consolidated by the Company), was impacted by the widening of the Company's credit spread. The estimated change in the fair value of these liabilities due to such changes in the Company's own credit risk (or instrument-specific credit risk) was a gain of $1,525 million and $112 million for the three months ended September 30, 2008 and September 30, 2007, respectively, and a gain of $2,576 million and $241 million for the nine months ended September 30, 2008 and September 30, 2007, respectively. Changes in fair value resulting from changes in instrument-specific credit risk were estimated by incorporating the Company's current observable credit spreads into the relevant valuation technique used to value each liability as described above.

Impact on Retained earnings of certain fair-value elections in accordance with SFAS 159

        Detailed below are the December 31, 2006 carrying values prior to adoption of SFAS 159, the transition adjustments booked to opening Retained earnings and the fair values (that is, the carrying values at January 1, 2007 after adoption) for those items that were selected for fair-value option accounting and that had an impact on Retained earnings:

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(1)

The Legg Mason securities as well as several miscellaneous items were previously reported at fair value within available-for-sale securities. The cumulative-effect adjustment represents the reclassification of the related unrealized gain/loss from Accumulated other comprehensive income to Retained earnings upon the adoption of the fair value option.

(2)

Excludes netting of the amounts due from securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase in accordance with FIN 41.

        Additional information regarding each of these items follows.

Legg Mason convertible preferred equity securities

        The Legg Mason convertible preferred equity securities (Legg shares) were acquired in connection with the sale of Citigroup's Asset Management business in December 2005. The Company held these shares as a non-strategic investment for long-term appreciation and, therefore, selected fair-value option accounting in anticipation of the future implementation of the Investment Company Audit Guide Statement of Position 07-1, "Clarification of the Scope of Audit and Accounting Guide Audits of Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investment Companies" (SOP), which was to be effective beginning January 1, 2008. In February 2008, the FASB delayed the implementation of the SOP indefinitely.

        Under the current investment company accounting model, investments held in investment company vehicles are recorded at full fair value (where changes in fair value are recorded in earnings) and are not subject to consolidation guidelines. Under the SOP, non-strategic investments not held in investment companies, which are deemed similar to non-strategic investments held in Citigroup's investment companies, must be accounted for at full fair value in order for Citigroup to retain investment company accounting in the Company's Consolidated Financial Statements. Therefore, we have utilized the fair-value option to migrate the Legg shares from available-for-sale (where changes in fair value are recorded in accumulated other comprehensive income (loss)) to a full fair value model (where changes in value are recorded in earnings).

        Prior to the election of fair value option accounting, the shares were classified as available-for-sale securities with the unrealized loss of $232 million as of December 31, 2006 included in Accumulated other comprehensive income (loss). In connection with the Company's adoption of SFAS 159, this unrealized loss was recorded as a reduction of January 1, 2007 Retained earnings as part of the cumulative-effect adjustment.

        During the first quarter of 2008, the Company sold the remaining 8.4 million Legg shares at a pretax loss of $10.3 million ($6.7 million after-tax).

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Selected portfolios of securities purchased under agreements to resell, securities borrowed, securities sold under agreements to repurchase, securities loaned, and certain non-collateralized short-term borrowings

        The Company elected the fair-value option retrospectively for our United States and United Kingdom portfolios of fixed-income securities purchased under agreements to resell and fixed-income securities sold under agreements to repurchase (and certain non-collateralized short-term borrowings). The fair-value option was also elected prospectively in the second quarter of 2007 for certain portfolios of fixed-income securities lending and borrowing transactions based in Japan. In each case, the election was made because these positions are managed on a fair value basis. Specifically, related interest-rate risk is managed on a portfolio basis, primarily with derivative instruments that are accounted for at fair value through earnings. Previously, these positions were accounted for on an accrual basis.

        The cumulative effect of $58 million pretax ($37 million after-tax) from adopting the fair-value option for the U.S. and U.K. portfolios was recorded as an increase in the January 1, 2007 Retained earnings balance. The September 30, 2008 and December 31, 2007 net balances of $71.8 billion and $84.3 billion, respectively, for Securities purchased under agreements to resell and Securities borrowed, and $156.2 billion and $199.9 billion for Securities sold under agreements to repurchase and Securities loaned are included as such in the Consolidated Balance Sheet. The uncollateralized short-term borrowings of $3.4 billion and $5.1billion as of September 30, 2008 and December 31, 2007, respectively, are recorded in that account in the Consolidated Balance Sheet.

        Changes in fair value for transactions in these portfolios are recorded in Principal transactions. The related interest revenue and interest expense are measured based on the contractual rates specified in the transactions and are reported as interest revenue and expense in the Consolidated Statement of Income.

Selected letters of credit and revolving loans hedged by credit default swaps or participation notes

        The Company has elected fair-value accounting for certain letters of credit that are hedged with derivative instruments or participation notes. Upon electing the fair-value option, the related portions of the allowance for loan losses and the allowance for unfunded lending commitments were reversed. Citigroup elected the fair-value option for these transactions because the risk is managed on a fair-value basis and to mitigate accounting mismatches.

        The cumulative effect of $14 million pretax ($9 million after-tax) of adopting fair-value option accounting was recorded as an increase in the January 1, 2007 Retained earnings balance. The change in fair value, as well as the receipt of related fees, were reported as Principal transactions in the Company's Consolidated Statement of Income.

        The notional amount of these unfunded letters of credit was $1.4 billion as of September 30, 2008 and December 31, 2007. The amount funded was insignificant with no amounts 90 days or more past due or on a non-accrual status at September 30, 2008 and December 31, 2007.

        These items have been classified appropriately in Trading account assets or Trading account liabilities on the Consolidated Balance Sheet.

Various miscellaneous eligible items

        Several miscellaneous eligible items previously classified as available-for-sale securities were selected for fair-value option accounting. These items were selected in preparation for the adoption of the Investment Company Audit Guide SOP, as previously discussed. In February 2008, the FASB delayed the implementation of this SOP indefinitely.

Other items for which the fair value option was selected in accordance with SFAS 159

        The Company has elected the fair-value option for the following eligible items, which did not affect opening Retained earnings:

•

certain credit products

•

certain investments in private equity and real estate ventures

•

certain structured liabilities

•

certain non-structured liabilities

•

certain equity-method investments

•

certain mortgage loans

Certain credit products

        Citigroup has elected the fair-value option for certain originated and purchased loans, including certain unfunded loan products, such as guarantees and letters of credit, executed by Citigroup's trading businesses. None of these credit products are highly leveraged financing commitments. Significant groups of transactions include loans and unfunded loan products that will either be sold or securitized in the near term, or transactions where the economic risks are hedged with derivative instruments. Citigroup has elected the fair-value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplifications. Fair value was not elected for most lending transactions across the Company, including where those management objectives would not be met.

        The balances for these loan products, which are classified in Trading account assets or Loans, were $24.2 billion and $2.9 billion as of September 30, 2008, and $26.0 billion and $3.0 billion as of December 31, 2007, respectively. The aggregate unpaid principal balances exceeded the aggregate fair values by $1.6 billion and $894 million as of September 30, 2008 and December 31, 2007, respectively. $77 million and $186 million of these loans were on a non-accrual basis as of September 30, 2008 and December 31, 2007, respectively. For those loans that are on a non-accrual basis, the aggregate unpaid principal balances exceeded the aggregate fair values by $141 million as of September 30, 2008 and $68 million as of December 31, 2007.

        In addition, $164 million and $141 million of unfunded loan commitments related to certain credit products selected for fair-value accounting were outstanding as of September 30, 2008 and December 31, 2007, respectively.

        Changes in fair value of funded and unfunded credit products are classified in Principal transactions in the Company's Consolidated Statement of Income. Related interest revenue is measured based on the contractual interest

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rates and reported as Interest revenue on trading account assets or loans depending on their balance sheet classifications. The changes in fair value for the nine months ended September 30, 2008 due to instrument-specific credit risk totaled to a loss of $32 million.

Certain investments in private equity and real estate ventures

        Citigroup invests in private equity and real estate ventures for the purpose of earning investment returns and for capital appreciation. The Company has elected the fair-value option for certain of these ventures in anticipation of the future implementation of the Investment Company Audit Guide SOP, because such investments are considered similar to many private equity or hedge fund activities in our investment companies, which are reported at fair value. See previous discussion regarding the SOP. The fair-value option brings consistency in the accounting and evaluation of certain of these investments. As required by SFAS 159, all investments (debt and equity) in such private equity and real estate entities are accounted for at fair value.

        These investments, which totaled $665 million and $539 million as of September 30, 2008 and December 31, 2007, respectively, are classified as Investments on Citigroup's Consolidated Balance Sheet. Changes in the fair values of these investments are classified in Other revenue in the Company's Consolidated Statement of Income.

Certain structured liabilities

        The Company has elected the fair-value option for certain structured liabilities whose performance is linked to structured interest rates, inflation or currency risks ("structured liabilities").

        The Company has elected the fair-value option for structured liabilities, because these exposures are considered to be trading-related positions and, therefore, are managed on a fair-value basis. These positions will continue to be classified as debt, deposits or derivatives according to their legal form on the Company's Consolidated Balance Sheet. The balances for these structured liabilities, which are classified as Interest-bearing deposits and Long-term debt on the Consolidated Balance Sheet, are $380 million and $2.9 billion as of September 30, 2008 and $264 million and $3.0 billion as of December 31, 2007.

        For those structured liabilities classified as Long-term debt for which the fair-value option has been elected, the aggregate unpaid principal balance exceeds the aggregate fair value of such instruments by $211 million as of September 30, 2008 and $7 million as of December 31, 2007.

        The change in fair value for these structured liabilities is reported in Principal transactions in the Company's Consolidated Statement of Income.

        Related interest expense is measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.

Certain non-structured liabilities

        The Company has elected the fair-value option for certain non-structured liabilities with fixed and floating interest rates ("non-structured liabilities"). The Company has elected the fair-value option where the interest-rate risk of such liabilities is economically hedged with derivative contracts or the proceeds are used to purchase financial assets that will also be fair valued. The election has been made to mitigate accounting mismatches and to achieve operational simplifications. These positions are reported in Short-term borrowings and Long-term debt on the Company's Consolidated Balance Sheet. The balances of these short-term and long-term non-structured liabilities as of September 30, 2008 were $724 million and $23.6 billion and, as of December 31, 2007, were $4.8 billion and $49.1 billion, respectively.

        The majority of these non-structured liabilities are a result of the Company's election of the fair value option for liabilities associated with the consolidation of CAI's Structured Investment Vehicles (SIVs) during the fourth quarter of 2007. The change in fair values of the SIV's liabilities reported in earnings was $298 million for the quarter ended September 30, 2008. For these non-structured liabilities the aggregate fair value approximates the aggregate unpaid principal balance of such instruments as of September 30, 2008.

        For all other non-structured liabilities classified as Long-term debt for which the fair-value option has been elected, the aggregate fair value exceeds the aggregate unpaid principal balance of such instruments by $250 million as of September 30, 2008 and $112 million as of December 31, 2007. The change in fair value of these non-structured liabilities reported a loss of $1 million for the quarter ended September 30, 2008.

        These non-structured liabilities for which the fair value option has been elected are classified as Long-term debt. The change in fair value for these non-structured liabilities is reported in Principal transactions in the Company's Consolidated Statement of Income.

        Related interest expense continues to be measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.

Certain equity-method investments

        Citigroup adopted fair-value accounting for various non-strategic investments in leveraged buyout funds and other hedge funds that previously were required to be accounted for under the equity method. Management elected fair-value accounting to reduce operational and accounting complexity. Since the funds account for all of their underlying assets at full fair value, the impact of applying the equity method to Citigroup's investment in these funds was equivalent to fair value accounting. Thus, this fair-value election had no impact on opening Retained earnings.

        These fund investments, which totaled $1.1 billion as of September 30, 2008 and $1.1 billion as of December 31, 2007, are classified as Investments on the Consolidated Balance Sheet. Changes in the fair values of these investments are classified in Other revenue in the Consolidated Statement of Income.

Certain mortgage loans

        Citigroup has elected the fair-value option for certain purchased and originated prime fixed-rate and conforming adjustable-rate first mortgage loans held-for-sale. These loans are intended for sale or securitization and are hedged with derivative instruments. The Company has elected the fair-value option to mitigate accounting mismatches in cases

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where hedge accounting is complex and to achieve operational simplifications. The fair-value option was not elected for loans held-for-investment, as those loans are not hedged with derivative instruments. This election was effective for applicable instruments originated or purchased since September 1, 2007.

        The balance of these mortgage loans held-for-sale, which were classified as Other assets as of September 30, 2008 was $6.6 billion. As of December 31, 2007, the balance was $6.4 billion. The aggregate fair value exceeded the unpaid principal balances by $122 million as of September 30, 2008 and $136 million as of December 31, 2007. The balance of these loans 90 days or more past due and on a non-accrual basis was $5 million at September 30, 2008 and $17 million at December 31, 2007, with aggregate unpaid principal balances exceeding aggregate fair values by $6 million at September 30, 2008. The difference between aggregate fair values and aggregate unpaid principal balance was immaterial at December 31, 2007.

        The changes in fair values of these mortgage loans held-for-sale is reported in Other revenue in the Company's Consolidated Statement of Income. The changes in fair value during the nine months ended September 30, 2008 due to instrument-specific credit risk resulted in a $30 million loss. Related interest income continues to be measured based on the contractual interest rates and reported as such in the Consolidated Income Statement.

Items selected for fair-value accounting in accordance with SFAS 155 and SFAS 156

Certain hybrid financial instruments

        The Company has elected to apply fair-value accounting under SFAS 155 for certain hybrid financial assets and liabilities whose performance is linked to risks other than interest rate, foreign exchange or inflation (e.g., equity, credit or commodity risks). In addition, the Company has elected fair-value accounting under SFAS 155 for residual interests retained from securitizing certain financial assets.

        The Company has elected fair-value accounting for these instruments because these exposures are considered to be trading-related positions and, therefore, are managed on a fair-value basis. In addition, the accounting for these instruments is simplified under a fair-value approach as it eliminates the complicated operational requirements of bifurcating the embedded derivatives from the host contracts and accounting for each separately. The hybrid financial instruments are classified as Loans, Deposits, Trading liabilities (for pre-paid derivatives) or debt on the Company's Consolidated Balance Sheet according to their legal form, while residual interests in certain securitizations are classified as Trading account assets.

        The outstanding balances for these hybrid financial instruments classified in Loans is $504 million, while $3.1 billion was in Interest-bearing deposits, $10.0 billion in Trading account liabilities, $3.2 billion in Short-term borrowings and $21.0 billion in Long-term debt on the Consolidated Balance Sheet as of September 30, 2008. As of December 31, 2007, the outstanding balances for such instruments classified in Loans was $689 million, while $3.3 billion was in Interest-bearing deposits, $12.1 billion in Trading account liabilities, $3.6 billion in Short-term borrowings and $27.3 billion in Long-term debt on the Consolidated Balance Sheet. In addition, $4.2 billion and $2.6 billion of the amount reported in Trading account assets as of September 30, 2008 and December 31, 2007, respectively, were primarily for the retained interests in securitizations.

        For hybrid financial instruments for which fair-value accounting has been elected under SFAS 155 and that are classified as Long-term debt, the aggregate unpaid principal exceeds the aggregate fair value by $1.4 billion as of September 30, 2008, while the aggregate fair value exceeds the aggregate unpaid principal balance by $460 million as of December 31, 2007. The difference for those instruments classified as Loans is immaterial.

        Changes in fair value for hybrid financial instruments, which in most cases includes a component for accrued interest, are recorded in Principal transactions in the Company's Consolidated Statement of Income. Interest accruals for certain hybrid instruments classified as trading assets are recorded separately from the change in fair value as Interest revenue in the Company's Consolidated Statement of Income.

Mortgage servicing rights

        The Company accounts for mortgage servicing rights (MSRs) at fair value in accordance with SFAS 156. Fair value for MSRs is determined using an option-adjusted spread valuation approach. This approach consists of projecting servicing cash flows under multiple interest-rate scenarios and discounting these cash flows using risk-adjusted discount rates. The model assumptions used in the valuation of MSRs include mortgage prepayment speeds and discount rates. The fair value of MSRs is primarily affected by changes in prepayments that result from shifts in mortgage interest rates. In managing this risk, the Company hedges a significant portion of the values of its MSRs through the use of interest-rate derivative contracts, forward-purchase commitments of mortgage-backed securities, and purchased securities classified as trading. See Note 15 on page 109 for further discussions regarding the accounting and reporting of MSRs.

        These MSRs, which totaled $8.3 billion and $8.4 billion as of September 30, 2008 and December 31, 2007, respectively, are classified as Intangible assets on Citigroup's Consolidated Balance Sheet. Changes in fair value for MSRs are recorded in Commissions and fees in the Company's Consolidated Statement of Income.

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Items Measured at Fair Value on a Recurring Basis

        The following tables present for each of the fair-value hierarchy levels the Company's assets and liabilities that are measured at fair value on a recurring basis at September 30, 2008 and December 31, 2007. The Company often hedges positions that have been classified in the Level 3 category with financial instruments that have been classified as Level 1 or Level 2. In addition, the Company also hedges items classified in the Level 3 category with instruments classified in Level 3 of the fair value hierarchy. The effects of these hedges are presented gross in the following table.

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Items Measured at Fair Value on a Recurring Basis (continued)

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(1)

Represents netting of: (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase in accordance with FIN 41, and (ii) derivative exposures covered by a qualifying master netting agreement in accordance with FIN 39, cash collateral, and the market value adjustment.

(2)

There is no allowance for loan losses recorded for loans reported at fair value.

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        The following tables present the changes in the Level 3 fair-value category for the three months and nine months ended September 30, 2008 and 2007. The Company classifies financial instruments in Level 3 of the fair-value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.

        The Company often hedges positions with offsetting positions that are classified in a different level. For example, the gains and losses for assets and liabilities in the Level 3 category presented in the tables below do not reflect the effect of offsetting losses and gains on hedging instruments that have been classified by the Company in the Level 1 and Level 2 categories. In addition, the Company hedges items classified in the Level 3 category with instruments also classified in Level 3 of the fair-value hierarchy. The effects of these hedges are presented gross in the following tables.

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(1)

Changes in fair value for available-for-sale investments (debt securities) are recorded in Accumulated other comprehensive income, while gains and losses from sales and losses due to other than temporary impairment are recorded in Realized gains (losses) from sales of investments on the Consolidated Statement of Income.

(2)

Unrealized gains (losses) on MSRs are recorded in Commissions and fees on the Consolidated Statement of Income.

(3)

Represents the amount of total gains or losses for the period, included in earnings (and Accumulated other comprehensive income for changes in fair value for available-for-sale investments) attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at September 30, 2008 and 2007.

(4)

Total Level 3 derivative exposures have been netted on these tables for presentation purposes only.

        The following is a discussion of the changes to the Level 3 balances for each of the rollforward tables presented above.

•

For the period June 30, 2008 to September 30, 2008, the changes in Level 3 assets and liabilities are due to:



•

The increase in trading securities and loans of $8.5 billion, which was driven primarily by the net transfer of $13.3 billion of trading assets into Level 3, including ABS securities, warehouse loans backed by auto lease receivables, and certificates issued by the U.S. credit card securitization trust that are retained by the Company. This was offset by various write-downs recognized by the Company during the quarter.



•

The increase in net derivative trading account liabilities of $3.0 billion was due to $3.1 billion of net transfers into Level 3, as illiquid markets continued to negatively impact the availability of observable pricing inputs. $2.9 billion of net additions was offset by $2.9 billion of mark-to-market gains. A portion of these gains was offset by losses recognized for positions classified in Level 2.



•

The decrease in long-term debt of $4.5 billion as maturities of the consolidated SIV's debt was offset by the transfer of certain debt obligations from Level 2 to Level 3. Long-term debt was also reduced by mark-to-market gains, driven by the widening of Company's own-credit spreads.



•

The significant changes from December 31, 2007 to September 30, 2008 in Level 3 assets and liabilities are due to:



•

A net increase in trading securities and loans of $9.7 billion as net write-downs recognized on various trading securities and net reductions from settlements/sales were more than offset by the net transfer of trading securities into Level 3. The continued lack of availability of observable pricing inputs was the primary cause of this net transfer.



•

The increase in investments of $11.2 billion primarily resulted from the $8.7 billion in senior debt securities retained from the Company's April 17, 2008 sale of a corporate loan portfolio that included highly leveraged loans. In addition, $1.4 billion of certificates issued by the U.S credit card securitization trust and retained

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by the Company were transferred from Level 2 to Level 3 during the third quarter of 2008.

•

The reduction in securities sold under agreement to repurchase of $3.3 billion, was primarily driven by the transfer of positions from Level 3 to Level 2 as valuation methodology inputs considered to be unobservable were determined to be insignificant to the overall valuation.



•

The decrease in short-term borrowings of $3.1 billion, which was primarily due to net transfers out of $1.8 billion as valuation methodology inputs considered to be unobservable were determined to be insignificant to the overall valuation, and payments of $1.2 billion against the short-term debt obligations.



•

The increase in long-term debt of $24.9 billion was driven by the transfer of consolidated SIV liabilities to Level 3 due to the lack of observable inputs, offset by the payments made against this debt in the second and third quarters of 2008.



•

The significant changes from June 30, 2007, to September 30, 2007 in Level 3 assets and liabilities are due to:



•

The increase in trading securities and loans of $37.7 billion, which was driven by net additions/purchases of $30.4 billion including ABS CDO commercial paper and the net transfer-in of $9.0 billion for positions previously classified as Level 2, as prices and other valuation inputs became unobservable.



•

The significant changes from January 1, 2007 to September 30, 2007 in Level 3 assets and liabilities are due to:



•

The increase in trading securities and loans of $58.3 billion, which was driven primarily by the net additions/purchases of $45.7 billion, consisting of the third quarter 2007 additions/purchases of $30.4 billion, and the increase from the second quarter 2007 Nikko Cordial acquisitions of $15 billion, plus net transfers-in of $14 billion for items previously classified as Level 2 as prices and other valuation inputs became unobservable.



•

The increase in investments of $9 billion, primarily resulting from the acquisition of Nikko Cordial.



•

The increase in Mortgage servicing rights of $5 billion which was primarily due to the first quarter 2007 acquisition of ABN AMRO Mortgage Group.

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Items Measured at Fair Value on a Nonrecurring Basis

        Certain assets and liabilities are measured at fair value on a non-recurring basis and therefore are not included in the tables above. These include assets such as loans held-for-sale that are measured at the lower of cost or market (LOCOM) that were recognized at fair value below cost at the end of the period. Assets measured at cost that have been written down to fair value during the period as a result of an impairment are also included.

        The fair value of loans measured on a LOCOM basis is determined where possible using quoted secondary-market prices. Such loans are generally classified in Level 2 of the fair-value hierarchy given the level of activity in the market and the frequency of available quotes. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan.

        The following table presents all loans held-for-sale that are carried at LOCOM as of September 30, 2008 and December 31, 2007 (in billions):

        For the three and nine months ended September 30, 2008, the resulting charges taken on loans held-for-sale carried at fair value below cost were $143 million and $3.8 billion, respectively, $1.8 billion was the resulting charge taken on loans held-for-sale carried at fair value below cost for the year ended December 31, 2007.

Highly Leveraged Financing Commitments

        The Company reports a number of highly leveraged loans as held-for-sale, which are measured on a LOCOM basis. The fair value of such exposures is determined, where possible, using quoted secondary-market prices and classified in Level 2 of the fair-value hierarchy if there is a sufficient level of activity in the market and quotes or traded prices are available with suitable frequency.

        However, due to the dislocation of the credit markets and the reduced market interest in higher risk/higher yield instruments since the latter half of 2007, liquidity in the market for highly leveraged financings has been limited. Therefore, a majority of such exposures are classified in Level 3 as quoted secondary market prices do not generally exist. The fair value for such exposures is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of the loan being valued.

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18.   GUARANTEES

        The Company provides a variety of guarantees and indemnifications to Citigroup customers to enhance their credit standing and enable them to complete a wide variety of business transactions. FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45), provides initial measurement and disclosure guidance in accounting for guarantees. FIN 45 requires that, for certain contracts meeting the definition of a guarantee, the guarantor must recognize, at inception, a liability for the fair value of the obligation undertaken in issuing the guarantee.

        In addition, the guarantor must disclose the maximum potential amount of future payments the guarantor could be required to make under the guarantee, if there were a total default by the guaranteed parties. The determination of the maximum potential future payments is based on the notional amount of the guarantees without consideration of possible recoveries under recourse provisions or from collateral held or pledged. Such amounts bear no relationship to the anticipated losses, if any, on these guarantees.

        The following tables present information about the Company's guarantees at September 30, 2008 and December 31, 2007:

 

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(1)

The carrying values of securities lending indemnifications and credit card merchant processing are not material, as the Company has determined that the amount and probability of potential liabilities arising from these guarantees are not significant and the carrying amount of the Company's obligations under these guarantees is immaterial.

(2)

Reclassified to conform to the current period's presentation.

Financial Standby Letters of Credit

        Citigroup issues standby letters of credit which substitute its own credit for that of the borrower. If a letter of credit is drawn down, the borrower is obligated to repay Citigroup. Standby letters of credit protect a third party from defaults on contractual obligations. Financial standby letters of credit include guarantees of payment of insurance premiums and reinsurance risks that support industrial revenue bond underwriting and settlement of payment obligations to clearing houses, and also support options and purchases of securities or are in lieu of escrow deposit accounts. Financial standbys also backstop loans, credit facilities, promissory notes and trade acceptances.

Performance Guarantees

        Performance guarantees and letters of credit are issued to guarantee a customer's tender bid on a construction or systems installation project or to guarantee completion of such projects in accordance with contract terms. They are also issued to support a customer's obligation to supply specified products, commodities, or maintenance or warranty services to a third party.

Derivative Instruments

        Derivatives are financial instruments whose cash flows are based on a notional amount or an underlying instrument, where there is little or no initial investment, and whose terms require or permit net settlement.

        The main use of derivatives is to reduce risk for one party while offering the potential for high return (at increased risk) to another. Financial institutions often act as intermediaries for their clients, helping clients reduce their risks. However, derivatives may also be used to take a risk position. Certain derivative contracts entered into by the Company meet the definition of a guarantee, including credit default swaps, total return swaps and certain written options. However, credit derivatives (that is, credit default swaps and total return swaps) with banks, hedge funds, and broker-

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dealers are excluded from this definition as these counterparties are considered to be dealers in these instruments with the primary purpose of taking a risk position. In addition, non-credit derivative contracts that are cash settled and for which the Company is unable to assert that it is probable the counterparty held the underlying instrument at the inception of the contract are also not considered guarantees under FIN 45. Accordingly, these contracts are excluded from the disclosure above. In instances where the Company's maximum potential future payment is unlimited, such as in certain written foreign currency options, the notional amount of the contract is disclosed.

Loans Sold with Recourse

        Loans sold with recourse represent the Company's obligations to reimburse the buyers for loan losses under certain circumstances. Recourse refers to the clause in a sales agreement under which a lender will fully reimburse the buyer/investor for any losses resulting from the purchased loans. This may be accomplished by the seller's taking back any loans that become delinquent.

Securities Lending Indemnifications

        Owners of securities frequently lend those securities for a fee to other parties who may sell them short or deliver them to another party to satisfy some other obligation. Banks may administer such securities lending programs for their clients. Securities lending indemnifications are issued by the bank to guarantee that a securities lending customer will be made whole in the event that the security borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of the security.

Credit Card Merchant Processing

        Credit card merchant processing guarantees represent the Company's indirect obligations in connection with the processing of private label and bankcard transactions on behalf of merchants.

        Citigroup's primary credit card business is the issuance of credit cards to individuals. In addition, the Company provides transaction processing services to various merchants with respect to bankcard and private label cards. In the event of a billing dispute with respect to a bankcard transaction between a merchant and a cardholder that is ultimately resolved in the cardholder's favor, the third party holds the primary contingent liability to credit or refund the amount to the cardholder and charge back the transaction to the merchant. If the third party is unable to collect this amount from the merchant, it bears the loss for the amount of the credit or refund paid to the cardholder.

        The Company continues to have the primary contingent liability with respect to its portfolio of private label merchants. The risk of loss is mitigated as the cash flows between the third party or the Company and the merchant are settled on a net basis and the third party or the Company has the right to offset any payments with cash flows otherwise due to the merchant. To further mitigate this risk, the third party or the Company may require a merchant to make an escrow deposit, delay settlement, or include event triggers to provide the third party or the Company with more financial and operational control in the event of the financial deterioration of the merchant, or require various credit enhancements (including letters of credit and bank guarantees). In the unlikely event that a private label merchant is unable to deliver products, services or a refund to its private label cardholders, Citigroup is contingently liable to credit or refund cardholders. In addition, although a third party holds the primary contingent liability with respect to the processing of bankcard transactions, in the event that the third party does not have sufficient collateral from the merchant or sufficient financial resources of its own to provide the credit or refunds to the cardholders, Citigroup would be liable to credit or refund the cardholders.

        The Company's maximum potential contingent liability related to both bankcard and private label merchant processing services is estimated to be the total volume of credit card transactions that meet the requirements to be valid chargeback transactions at any given time. At September 30, 2008 and December 31, 2007, this maximum potential exposure was estimated to be $65 billion and $64 billion, respectively.

        However, the Company believes that the maximum exposure is not representative of the actual potential loss exposure based on the Company's historical experience and its position as a secondary guarantor (in the case of bankcards). In most cases, this contingent liability is unlikely to arise, as most products and services are delivered when purchased and amounts are refunded when items are returned to merchants. The Company assesses the probability and amount of its contingent liability related to merchant processing based on the financial strength of the primary guarantor (in the case of bankcards) and the extent and nature of unresolved chargebacks and its historical loss experience. At September 30, 2008 and December 31, 2007, the estimated losses incurred and the carrying amounts of the Company's contingent obligations related to merchant processing activities were immaterial.

Custody Indemnifications

        Custody indemnifications are issued to guarantee that custody clients will be made whole in the event that a third-party subcustodian fails to safeguard clients' assets. The scope of the custody indemnifications also covers all clients' assets held by third-party subcustodians.

Other

        In the fourth quarter of 2007, Citigroup recorded a $306 million (pretax) charge related to certain of Visa USA's litigation matters. As of September 30, 2008, the carrying value of the reserve is $147 million and is included in Other liabilities.

Other Guarantees and Indemnifications

        The Company, through its credit card business, provides various cardholder protection programs on several of its card products, including programs that provide insurance coverage for rental cars, coverage for certain losses associated with purchased products, price protection for certain purchases and protection for lost luggage. These guarantees are not included in the table, since the total outstanding amount of the guarantees and the Company's maximum exposure to loss cannot be quantified. The protection is limited to certain types of purchases and certain types of losses and it is not

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possible to quantify the purchases that would qualify for these benefits at any given time. The Company assesses the probability and amount of its potential liability related to these programs based on the extent and nature of its historical loss experience. At September 30, 2008, the actual and estimated losses incurred and the carrying value of the Company's obligations related to these programs were immaterial.

        In the normal course of business, the Company provides standard representations and warranties to counterparties in contracts in connection with numerous transactions and also provides indemnifications that protect the counterparties to the contracts in the event that additional taxes are owed due either to a change in the tax law or an adverse interpretation of the tax law. Counterparties to these transactions provide the Company with comparable indemnifications. While such representations, warranties and tax indemnifications are essential components of many contractual relationships, they do not represent the underlying business purpose for the transactions. The indemnification clauses are often standard contractual terms related to the Company's own performance under the terms of a contract and are entered into in the normal course of business based on an assessment that the risk of loss is remote. Often these clauses are intended to ensure that terms of a contract are met at inception (for example, that loans transferred to a counterparty in a sales transaction did in fact meet the conditions specified in the contract at the transfer date). No compensation is received for these standard representations and warranties, and it is not possible to determine their fair value because they rarely, if ever, result in a payment. In many cases, there are no stated or notional amounts included in the indemnification clauses and the contingencies potentially triggering the obligation to indemnify have not occurred and are not expected to occur. There are no amounts reflected on the Consolidated Balance Sheet as of September 30, 2008 and December 31, 2007, related to these indemnifications and they are not included in the table.

        In addition, the Company is a member of or shareholder in hundreds of value transfer networks (VTNs) (payment clearing and settlement systems as well as securities exchanges) around the world. As a condition of membership, many of these VTNs require that members stand ready to backstop the net effect on the VTNs of a member's default on its obligations. The Company's potential obligations as a shareholder or member of VTN associations are excluded from the scope of FIN 45, since the shareholders and members represent subordinated classes of investors in the VTNs. Accordingly, the Company's participation in VTNs is not reported in the table and there are no amounts reflected on the Consolidated Balance Sheet as of September 30, 2008 or December 31, 2007 for potential obligations that could arise from the Company's involvement with VTN associations.

        At September 30, 2008 and December 31, 2007, the carrying amounts of the liabilities related to the guarantees and indemnifications included in the table amounted to approximately $11 billion and $4 billion, respectively. The carrying value of derivative instruments is included in either Trading liabilities or Other liabilities, depending upon whether the derivative was entered into for trading or non-trading purposes. The carrying value of financial and performance guarantees is included in Other liabilities. For loans sold with recourse, the carrying value of the liability is included in Other liabilities. In addition, at September 30, 2008 and December 31, 2007, Other liabilities on the Consolidated Balance Sheet include an allowance for credit losses of $957 million and $1.250 billion relating to letters of credit and unfunded lending commitments, respectively.

        In addition to the collateral available in respect of the credit card merchant processing contingent liability discussed above, the Company has collateral available to reimburse potential losses on its other guarantees. Cash collateral available to the Company to reimburse losses realized under these guarantees and indemnifications amounted to $63 billion and $112 billion at September 30, 2008 and December 31, 2007, respectively. Securities and other marketable assets held as collateral amounted to $61 billion and $54 billion and letters of credit in favor of the Company held as collateral amounted to $495 million and $370 million at September 30, 2008 and December 31, 2007, respectively. Other property may also be available to the Company to cover losses under certain guarantees and indemnifications; however, the value of such property has not been determined.

Credit Commitments

        The table below summarizes Citigroup's other commitments as of September 30, 2008 and December 31, 2007.

        The majority of unused commitments are contingent upon customers' maintaining specific credit standards. Commercial commitments generally have floating interest rates and fixed expiration dates and may require payment of fees. Such fees (net of certain direct costs) are deferred and, upon exercise of the commitment, amortized over the life of the loan or, if exercise is deemed remote, amortized over the commitment period.

Commercial and similar letters of credit

        A commercial letter of credit is an instrument by which Citigroup substitutes its credit for that of a customer to enable the customer to finance the purchase of goods or to incur

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other commitments. Citigroup issues a letter on behalf of its client to a supplier and agrees to pay them upon presentation of documentary evidence that the supplier has performed in accordance with the terms of the letter of credit. When drawn, the customer then is required to reimburse Citigroup.

One- to four-family residential mortgages

        A one- to four-family residential mortgage commitment is a written confirmation from Citigroup to a seller of a property that the bank will advance the specified sums enabling the buyer to complete the purchase.

Revolving open-end loans secured by one- to four-family residential properties

        Revolving open-end loans secured by one- to four-family residential properties are essentially home equity lines of credit. A home equity line of credit is a loan secured by a primary residence or second home to the extent of the excess of fair market value over the debt outstanding for the first mortgage.

Commercial real estate, construction and land development

        Commercial real estate, construction and land development include unused portions of commitments to extend credit for the purpose of financing commercial and multifamily residential properties as well as land development projects. Both secured by real estate and unsecured commitments are included in this line. In addition, undistributed loan proceeds where there is an obligation to advance for construction progress payments are also included. However, this line only includes those extensions of credit that once funded will be classified as Loans on the Consolidated Balance Sheet.

Credit card lines

        Citigroup provides credit to customers by issuing credit cards. The credit card lines are unconditionally cancellable by the issuer.

Commercial and other consumer loan commitments

        Commercial and other consumer loan commitments include commercial commitments to make or purchase loans, to purchase third-party receivables, and to provide note issuance or revolving underwriting facilities. Amounts include $175 billion and $259 billion with an original maturity of less than one year at September 30, 2008 and December 31, 2007, respectively.

        In addition, included in this line item are highly leveraged financing commitments which are agreements that provide funding to a borrower with higher levels of debt (measured by the ratio of debt capital to equity capital of the borrower) than is generally considered normal for other companies. This type of financing is commonly employed in corporate acquisitions, management buy-outs and similar transactions.

19.   CONTINGENCIES

        As described in the "Legal Proceedings" discussion on page 157, the Company has been a defendant in numerous lawsuits and other legal proceedings arising out of alleged misconduct in connection with:

(i)

underwritings for, and research coverage of, WorldCom;



(ii)

underwritings for Enron and other transactions and activities related to Enron;



(iii)

transactions and activities related to research coverage of companies other than WorldCom; and



(iv)

transactions and activities related to the IPO Securities Litigation.

        As of September 30, 2008, the Company's litigation reserve for these matters, net of amounts previously paid or not yet paid but committed to be paid in connection with settlements arising out of these matters, was approximately $0.8 billion. The Company believes that this reserve is adequate to meet all of its remaining exposure for these matters.

        As described in the "Legal Proceedings" discussion on page 157, the Company is also a defendant in numerous lawsuits and other legal proceedings arising out of alleged misconduct in connection with other matters. In view of the large number of litigation matters, the uncertainties of the timing and outcome of this type of litigation, the novel issues presented, and the significant amounts involved, it is possible that the ultimate costs of these matters may exceed or be below the Company's litigation reserves. The Company will continue to defend itself vigorously in these cases, and seek to resolve them in the manner management believes is in the best interests of the Company.

        In addition, in the ordinary course of business, Citigroup and its subsidiaries are defendants or co-defendants or parties in various litigation and regulatory matters incidental to and typical of the businesses in which they are engaged. In the opinion of the Company's management, the ultimate resolution of these legal and regulatory proceedings would not be likely to have a material adverse effect on the consolidated financial condition of the Company but, if involving monetary liability, may be material to the Company's operating results for any particular period.

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20.    CITIBANK, N.A. STOCKHOLDER'S EQUITY

Statement of Changes in Stockholder's Equity

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(1)

The adjustment to opening balance for Retained earnings represents the total of the after-tax gain (loss) amounts for the adoption of the following accounting pronouncements:

•

SFAS 157 for $9 million,

•

SFAS 159 for $15 million,

•

FSP 13-2 for $(142) million, and

•

FIN 48 for $22 million.

See Notes 1 and 17 on pages 88 and 126, respectively.

(2)

The after-tax adjustment to the opening balance of Accumulated other comprehensive income (loss) represents the reclassification of the unrealized gains (losses) related to several miscellaneous items previously reported in accordance with SFAS 115. The related unrealized gains and losses were reclassified to retained earnings upon the adoption of the fair value option in accordance with SFAS 159. See Notes 1 and 17 on pages 88 and 126 for further discussions.

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21.    CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES

        These condensed consolidating financial statement schedules are presented for purposes of additional analysis but should be considered in relation to the consolidated financial statements of Citigroup taken as a whole.

Citigroup Parent Company

        The holding company, Citigroup Inc.

Citigroup Global Markets Holdings Inc. (CGMHI)

        Citigroup guarantees various debt obligations of CGMHI as well as all of the outstanding debt obligations under CGMHI's publicly issued debt.

Citigroup Funding Inc. (CFI)

        CFI is a first-tier subsidiary of Citigroup, which issues commercial paper, medium-term notes and structured equity-linked and credit-linked notes, all of which are guaranteed by Citigroup.

CitiFinancial Credit Company (CCC)

        An indirect wholly-owned subsidiary of Citigroup. CCC is a wholly-owned subsidiary of Associates. Citigroup has issued a full and unconditional guarantee of the outstanding indebtedness of CCC.

Associates First Capital Corporation (Associates)

        A wholly-owned subsidiary of Citigroup. Citigroup has issued a full and unconditional guarantee of the outstanding long-term debt securities of Associates. In addition, Citigroup guaranteed various debt obligations of Citigroup Finance Canada Inc. (CFCI), a wholly-owned subsidiary of Associates. CFCI continues to issue debt in the Canadian market supported by a Citigroup guarantee. Associates is the immediate parent company of CCC.

Other Citigroup Subsidiaries

        Includes all other subsidiaries of Citigroup and intercompany eliminations.

Consolidating Adjustments

        Includes Citigroup parent company elimination of distributed and undistributed income of subsidiaries, investment in subsidiaries and the elimination of CCC, which is included in the Associates column.

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CONDENSED CONSOLIDATING STATEMENT OF INCOME

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CONDENSED CONSOLIDATING STATEMENT OF INCOME

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CONDENSED CONSOLIDATING STATEMENT OF INCOME

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CONDENSED CONSOLIDATING STATEMENT OF INCOME

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CONDENSED CONSOLIDATING BALANCE SHEET

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CONDENSED CONSOLIDATING BALANCE SHEET

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

        The following information supplements and amends our discussion set forth under Part I, Item 3 "Legal Proceedings" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as updated by our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008.

Research

         Telecommunications Research Class Actions.    On September 30, 2008, the Court of Appeals for the Second Circuit vacated the District Court's order granting class certification in the matter IN RE SALOMON ANALYST METROMEDIA. Thereafter, on October 1, 2008, the parties reached a settlement pursuant to which the Company will pay $35 million to members of the settlement class that purchased or otherwise acquired MFN securities during the class period. The settlement is subject to judicial approval. The proposed settlement amount is covered by existing litigation reserves.

Parmalat

        In BONDI v. CITIGROUP, in Bergen County, New Jersey Superior Court, the jury returned a verdict on October 20, 2008, following a five-month trial. On plaintiff's claim, the jury ruled for Citigroup. On Citigroup's counterclaims, the jury ruled for Citigroup and awarded Citigroup damages of $364 million plus interest and court costs. Plaintiff has stated that he intends to appeal.

        In IN RE PARMALAT SECURITIES LITIGATION, pending in the United States District Court for the Southern District of New York, the Court granted Citigroup's motion for summary judgment on August 11, 2008, and entered judgment in Citigroup's favor on all claims asserted and pending against Citigroup.

        In criminal proceedings ongoing in Parma, Italy, on October 8, 2008, the court issued an order permitting Parmalat investors to proceed with civil claims against Citigroup, subject to proper service of a summons on Citigroup.

Subprime-Mortgage-Related Litigation

         Securities Actions.    On September 24, 2008, four actions alleging securities fraud claims were consolidated in the United States District Court for the Southern District of New York under the caption IN RE CITIGROUP INC. SECURITIES LITIGATION. Lead Plaintiffs are expected to file a consolidated class action complaint by November 10, 2008.

        Citigroup Inc., several current and former officers and directors, and numerous other financial institutions, have been named as defendants in a class action lawsuit filed on September 30, 2008, alleging violations of Sections 11, 12 and 15 of the Securities Act of 1933 arising out of offerings of Citigroup securities issued in 2006 and 2007. This action, LOUISIANA SHERIFFS' PENSION AND RELIEF FUND v. CITIGROUP INC., et al., is currently pending in New York state court.

         Derivative Actions.    On September 24, 2008, five actions alleging derivative claims were consolidated in the United States District Court for the Southern District of New York under the caption IN RE CITIGROUP INC. DERIVATIVE LITIGATION. Lead Plaintiffs are expected to file a consolidated class action complaint by November 10, 2008.

         ERISA Actions.    On September 15, 2008, a consolidated amended ERISA complaint was filed in IN RE CITIGROUP ERISA LITIGATION, pending in the United States District Court for the Southern District of New York.

         Other Matters.    Citigroup Global Markets Inc., along with numerous other firms, has been named as a defendant in several lawsuits by shareholders of Ambac Financial Group, Inc. for which CGMI underwrote securities offerings. These actions assert that CGMI violated Sections 11 and 12 of the Securities Act of 1933 arising out of allegedly false and misleading statements contained in the registration statements and prospectuses issued in connection with those offerings. Several of these actions have been consolidated under the caption IN RE AMBAC FINANCIAL GROUP, INC. SECURITIES LITIGATION, pending in the United States District Court for the Southern District of New York, and in which a consolidated amended class action complaint was filed on August 22, 2008.

        On September 12, 2008, defendants, including Citigroup Inc. and Citigroup Global Markets Inc., moved to dismiss the complaint in IN RE AMERICAN HOME MORTGAGE SECURITIES LITIGATION.

Auction Rate Securities-Related Litigation

         Securities Actions.    On September 19, 2008, MILLER v. CALAMOS GLOBAL DYNAMIC INCOME FUND, et al., which had been pending in the United States District Court for the Southern District of New York and in which Citigroup Global Markets Inc. had been named as a defendant, was voluntarily dismissed.

        On August 25, 2008, Lead Plaintiffs in IN RE CITIGROUP AUCTION RATE SECURITIES LITIGATION, pending in the United States District Court for the Southern District of New York, filed an amended consolidated class action complaint.

         Derivative Actions.    On August 20, 2008, LOUISIANA MUNICIPAL POLICE EMPLOYEES' RETIREMENT SYSTEM v. PANDIT, et al., was filed in the United States District Court for the Southern District of New York, against current and former officers and directors alleging several derivative claims.

         Antitrust Actions.    Citigroup Inc. and Citigroup Global Markets Inc., along with numerous other financial institutions, have been named as defendants in several lawsuits alleging that defendants artificially restrained trade in the market for auction rate securities in violation of the Sherman Act. These actions are (1) MAYOR AND CITY COUNCIL OF BALTIMORE, MARYLAND v. CITIGROUP INC., et al., and (2) MAYFIELD v. CITIGROUP INC., et al., and both are pending in the United States District Court for the Southern District of New York.

         Regulatory Actions.    On August 7, 2008, the Company reached a settlement with the New York Attorney General, the Securities and Exchange Commission, and other state regulatory agencies, pursuant to which the Company agreed to offer to purchase at par ARS that are not auctioning from all

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Citigroup individual investors, small institutions (as defined by the terms of the settlement), and charities that purchased ARS from Citigroup prior to February 11, 2008. In addition, the Company agreed to pay a $50 million fine to the State of New York and a $50 million fine to the other state regulatory agencies.

Interchange Fees

        On September 18, 2008, the Court granted plaintiffs' motion to file an amended complaint. Discovery is ongoing.

Wachovia/Wells Fargo Litigation

        On September 29, 2008, Citigroup Inc. announced that it had reached an agreement-in-principle to acquire all of the banking subsidiaries of Wachovia Corporation ("Wachovia") in an open-bank transaction assisted by the Federal Deposit Insurance Corporation. On October 3, 2008, Wachovia announced that it had entered into an agreement with Wells Fargo & Co. ("Wells Fargo") for Wells Fargo to purchase Wachovia. Since October 4, 2008, litigation has been instigated by all three parties and others in various courts, including the New York State Supreme Court and the United States District Court for the Southern District of New York. In this litigation, Citigroup seeks compensatory and punitive damages from Wachovia and Wells Fargo and their respective directors and advisors on various claims, including violation of a binding exclusivity agreement (the "Exclusivity Agreement") between Citigroup and Wachovia; tortious interference with the Exclusivity Agreement; and unjust enrichment. Wachovia and Wells Fargo seek, among other relief, a declaration that the proposed Wells Fargo-Wachovia transaction is valid and proper and not prohibited by the Exclusivity Agreement and an injunction barring Citigroup from taking any steps to interfere with or impede the Wells Fargo-Wachovia transaction.

Other Matters

         Falcon/ASTA MAT Actions.    On September 26, 2008, the action ZENTNER v. CITIGROUP INC., ET AL., previously removed on June 3, 2008 to the Southern District of New York, was remanded to New York state court.

        A consolidated amended class action complaint was filed in IN RE MAT FIVE SECURITIES LITIGATION on October 2, 2008.

        On July 21, 2008, the Court approved the voluntary dismissal without prejudice of FERGUSON FAMILY TRUST v. FALCON STRATEGIES TWO LLC, et al.

         Other ERISA Actions.    The Company and its administration and investment committees filed a motion to dismiss the purported class action complaint in LEBER v. CITIGROUP, INC., et al., on August 29, 2008. The motion is currently pending.

Item 1A.    Risk Factors

        There are no material changes from the risk factors set forth under Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

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Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

        (a) In connection with the November 2002 acquisition by the Company of Golden State Bancorp Inc., on September 26, 2008, the Company issued to GSB Investments Corp., a Delaware corporation (GSB Investments), and Hunter's Glen/Ford, Ltd., a limited partnership organized under the laws of the State of Texas (HG/F), respectively, 696,448 and 174,112 shares of Company common stock. These shares were issued in satisfaction of the rights of GSB Investments and HG/F to receive shares of Company common stock in respect of $16,266,737 of federal income tax benefits realized or to be realized by the Company.

        The September 26, 2008 issuances were made in reliance upon an exemption from the registration requirements of the Securities Act of 1933 provided by Section 4(2) thereof. GSB Investments and HG/F made certain representations to the Company as to investment intent and that they possessed a sufficient level of financial sophistication. The unregistered shares are subject to restrictions on transfer absent registration under or in compliance with the Securities Act of 1933.

(c) Share Repurchases

        Under its long-standing repurchase program, the Company buys back common shares in the market or otherwise from time to time. This program is used for many purposes, including to offset dilution from stock-based compensation programs.

        The following table summarizes the Company's share repurchases during the first nine months of 2008:

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(1)

All open market repurchases were transacted under an existing authorized share repurchase plan. On April 17, 2006, the Board of Directors authorized up to an additional $10 billion in share repurchases. Shares repurchased in 2008 relate to customer fails/errors.

(2)

Consists of shares added to treasury stock related to activity on employee stock option program exercises, where the employee delivers existing shares to cover the option exercise, or under the Company's employee restricted or deferred stock program, where shares are withheld to satisfy tax requirements.

N/A

Not applicable.

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Item 6.    Exhibits

        See Exhibit Index.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 31st day of October, 2008.

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EXHIBIT INDEX

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The total amount of securities authorized pursuant to any instrument defining rights of holders of long-term debt of the Company does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. The Company will furnish copies of any such instrument to the Securities and Exchange Commission upon request.

+

Filed herewith

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QuickLinks

Citigroup Inc.
TABLE OF CONTENTS
Part I—Financial Information

EVENTS IN 2008

SEGMENT AND REGIONAL—NET INCOME (LOSS) AND REVENUE

INSTITUTIONAL CLIENTS GROUP (ICG)

MANAGING GLOBAL RISK

EVALUATING INVESTMENTS FOR OTHER THAN TEMPORARY IMPAIRMENTS

Mark-to-Market (MTM) Receivables/Payables

INTEREST REVENUE/EXPENSE AND YIELDS

AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)
AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY, AND NET INTEREST REVENUE(1)(2)(3)

AVERAGE BALANCES AND INTEREST RATES—ASSETS(1)(2)(3)(4)

AVERAGE BALANCES AND INTEREST RATES—LIABILITIES AND EQUITY, AND NET INTEREST REVENUE(1)(2)(3)(4)
ANALYSIS OF CHANGES IN INTEREST REVENUE(1)(2)
ANALYSIS OF CHANGES IN INTEREST REVENUE, INTEREST EXPENSE, AND NET INTEREST REVENUE(1)(2)(3)

CAPITAL RESOURCES AND LIQUIDITY

Citigroup Inc. TABLE OF CONTENTS

CONSOLIDATED FINANCIAL STATEMENTS CITIGROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited)

CITIBANK, N.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET

20. CITIBANK, N.A. STOCKHOLDER'S EQUITY
21. CONDENSED CONSOLIDATING FINANCIAL STATEMENT SCHEDULES

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits

SIGNATURES
EXHIBIT INDEX