<PAGE>
FINANCIAL INFORMATION
THE COMPANY 2
FIVE-YEAR SUMMARY OF
SELECTED FINANCIAL DATA 4
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 5
GLOBAL CONSUMER 7
Banking/Lending 7
Citibanking North America 7
Mortgage Banking 8
Cards 8
Consumer Finance Services 9
Insurance 9
Travelers Life and Annuity 9
Primerica Financial Services 10
Personal Lines 11
International Consumer 12
Europe, Midd
le East, & Africa 12
Asia Pacific 12
Latin America 13
Global Private Bank 14
e-Citi 14
Other Consumer 14
Consumer Portfolio Review 15
Global Consumer Outlook 17
GLOBAL CORPORATE AND
INVESTMENT BANK 19
Salomon Smith Barney 20
Emerging Markets 21
Global Relationship Banking 22
Commercial Lines Insurance 22
Global Corporate and
Investment Bank Outlook 28
ASSET MANAGEMENT 29
CORPORATE/OTHER 30
INVESTMENT ACTIVITIES 30
DISCONTINUED OPERATIONS 30
YEAR 2000 31
FUTURE APPLICATION OF
ACCOUNTING STANDARDS 31
FORWARD-LOOKING STATEMENTS 31
MANAGING GLOBAL RISK 32
The Credit Risk Management Process 32
The Market Risk Management Process 33
Management of Cross-Border
Risk at Citigroup 36
LIQUIDITY AND CAPITAL RESOURCES 37
REPORT OF MANAGEMENT 41
INDEPENDENT AUDITORS' REPORT 41
CONSOLIDATED FINANCIAL STATEMENTS--
CITIGROUP INC. AND SUBSIDIARIES 42
CONSOLIDATED STATEMENT OF INCOME 42
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION 43
CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY 44
CONSOLIDATED STATEMENT OF
CASH FLOWS 45
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS 46
FINANCIAL DATA SUPPLEMENT 80
Average Balances and Interest Rates,
Taxable Equivalent Basis 80
Analysis of Changes in Net
Interest Revenue 82
Ratios 83
Loans Outstanding 83
Loan Maturities and Sensitivity to
Changes in Interest Rates 84
Cash-Basis, Renegotiated, and
Past Due Loans 84
Other Real Estate Owned and Assets
Pending Disposition 85
Foregone Interest Revenue on Loans 85
Details of Credit Loss Experience 85
Average Deposit Liabilities in Offices
Outside the U.S. 86
Time Deposits in U.S. Offices
Maturity Profile 86
Short-Term and Other Borrowings 86
10-K CROSS REFERENCE INDEX 94
1
<PAGE>
THE COMPANY
Citigroup Inc. (together with its subsidiaries, the "Company") is a diversified
holding company whose businesses provide a broad range of financial services to
consumer and corporate customers around the world. The Company's activities are
conducted through Global Consumer, Global Corporate and Investment Bank, Asset
Management, and Investment Activities.
The Company's Global Consumer segment includes a global, full-service
consumer franchise encompassing, among other things, branch and electronic
banking, consumer lending services and credit and charge card services,
personalized wealth management services for high net worth clients, and life,
auto and homeowners insurance. The businesses included in the Company's Global
Corporate and Investment Bank segment serve corporations, financial
institutions, governments and other participants in developed and emerging
markets throughout the world. These businesses provide, among other things,
investment banking, retail brokerage, corporate banking and cash management
products and services and commercial insurance. Asset Management includes asset
management services provided to mutual funds, institutional and individual
investors. The Investment Activities segment includes the Company's venture
capital activities, the realized investment gains and losses related to certain
corporate- and insurance-related investments and the results of certain
investments in countries that refinanced debt under the 1989 Brady Plan or plans
of a similar nature. Corporate/Other includes net corporate treasury results,
unallocated expenses, corporate administration, and variances between the
consolidated and local tax rate for banking segments.
Global Consumer
Global Consumer delivers a wide array of banking and lending services,
including the issuance of credit and charge cards, and personal insurance
products in 57 countries around the world.
Global Consumer creates products and platforms to meet the expanding needs
of the world's growing middle class. Citibanking North America delivers banking
services to customers through the branch network and through electronic delivery
systems. Through its Mortgage Banking unit, Global Consumer makes mortgage and
student loans to customers across North America.
The Cards unit offers products such as MasterCard and VISA, Diners Club
and private label credit cards. The April 1998 acquisition of Universal Card
Services from AT&T added approximately $15 billion in credit card receivables.
Global Consumer accounts for approximately 15% of the U.S. credit card
receivables market. Worldwide, Global Consumer has approximately 53 million card
member accounts.
The Consumer Finance Services unit of Global Consumer provides
community-based lending services through the branch network system of Commercial
Credit Company ("CCC"). As of December 31, 1998, Consumer Finance Services
maintained 980 loan offices in 45 states, including 19 servicing centers for
$.M.A.R.T. loans(R) and $.A.F.E.(R) loans sold through the independent agents
(the "Primerica sales force") of Primerica Financial Services ("Primerica"), a
subsidiary of Citigroup. Loans to consumers include real estate-secured loans,
unsecured and partially secured personal loans and loans to finance consumer
goods purchases.
The Insurance units of Global Consumer, through The Travelers Life and
Annuity Company ("TLAC") offer fixed and variable deferred annuities, payout
annuities and term, universal and variable life and long-term care insurance
to individuals and small businesses domestically. These products are primarily
marketed through The Copeland Companies ("Copeland"), an indirect wholly owned
subsidiary of The Travelers Insurance Company ("TIC"), Salomon Smith Barney
Financial Consultants and a nationwide network of independent agents.
Travelers Life and Annuity also provides group pension products,
including guaranteed investment contracts, and group annuities to U.S.
employer-sponsored retirement and savings plans through direct sales and
various intermediaries.
The business operations of Primerica involve the sale in North America of
life insurance as well as other products manufactured by the Company, including
mutual funds manufactured by Salomon Smith Barney and others, mortgages and
personal loans of CCC, automobile and homeowners insurance of Travelers Property
Casualty Corp. ("TAP") and Citibank personal checking and other accounts. The
Primerica sales force is composed of approximately 150,000 independent
representatives. A great majority of the sales force works on a part-time basis.
Through TAP, a subsidiary in which Citigroup has an approximate 84%
interest, Global Consumer writes virtually all types of property and casualty
insurance covering personal risks. TAP is the second largest writer of personal
lines insurance through independent agents in the U.S. based on 1997 direct
written premiums published by A.M. Best Company. The Personal Lines unit of TAP
had approximately 5.1 million policies in force at December 31, 1998. The
primary coverages are personal automobile and homeowners insurance sold to
individuals. These products are distributed through approximately 5,000
independent agencies located throughout the United States, most of which
represent several unrelated property and casualty companies. Personal Lines also
uses alternative distribution channels, including sponsoring organizations such
as employee and affinity groups, joint marketing arrangements with other
insurers and through the Primerica sales force.
The International unit of Global Consumer provides full-service banking
and lending, including credit and charge cards, in Europe, Middle East and
Africa, Asia Pacific (including Japan and Australia) and Latin America.
Citibank's Global Private Bank provides personalized wealth management services
for high net worth clients through 97 offices in 31 countries, generating fee
income from investment funds management, trust and fiduciary services and
custody services. Its Relationship Managers use their knowledge about their
clients' individual needs and goals to bring them an array of personal banking
services.
Through e-Citi, Global Consumer focuses on the development of electronic
banking initiatives, including Internet-based transactional banking products.
These initiatives help place customers' entire financial relationships at their
fingertips.
Global Corporate and Investment Bank
Global Corporate and Investment Bank provides investment advice, financial
planning and extensive retail brokerage services, banking and other financial
services and commercial insurance products throughout the United States and in
98 foreign countries.
Global Corporate and Investment Bank through Salomon Smith Barney delivers
investment banking services that encompass a full range of global capital market
activities, including the underwriting and distribution of fixed income and
equity securities for United States and foreign corporations and for state,
local and other governmental and government-sponsored authorities. Global
Corporate and Investment Bank also provides capital raising, advisory, research
and other brokerage services to its customers, acts as a market-maker and
executes securities and commodities futures brokerage transactions on all major
United States and international exchanges on behalf of customers and for its own
account. It also executes proprietary trading strategies on its own behalf,
principally in fixed income securities and in commodities. During 1998, these
trading strategies were
2
<PAGE>
significantly scaled down. In August 1998, Salomon Smith Barney entered into a
strategic alliance with The Nikko Securities Co., Ltd. to provide investment
banking, sales and trading and research services for corporate and institutional
clients in Japan and other overseas markets. The joint venture began operating
in the first quarter of 1999.
Global Corporate and Investment Bank is a major participant in foreign
exchange and in the over-the-counter ("OTC") market for derivative instruments
involving a wide range of products, including interest rate, equity and currency
swaps, caps and floors, options, warrants and other derivative products. It also
creates and sells various types of structured securities.
Citibank has a long-standing presence in emerging markets, which include
all locations outside the economies of North America, Western Europe, and Japan.
Citibank's Emerging Markets business offers a wide array of products and
services that help multinational and local companies fulfill their financial
goals or needs. Initially, Citibank typically enters a country to serve global
customers, providing them with cash management, short-term loans, and
foreign-exchange services. As the market begins to develop, Citibank offers
trade services, project finance, and fixed-income issuance and trading and,
thereafter, introduces securities custody, loan syndications and derivatives
services. Finally, as services for locally headquartered companies become
significant, consumer banking services may be offered. The Company's strategy in
emerging markets also targets middle market businesses, and is designed to
increase the Company's presence in the country and to help establish Citibank as
a local "hometown" bank, as well as a leading international bank.
The Global Relationship Bank provides banking and financial services to
multinational companies and their subsidiaries all over the world. This business
is organized by customer rather than by region or product. A dedicated
relationship team serves each parent company and its subsidiaries everywhere
they operate. Product offerings are determined by the demands of these
sophisticated customers. Core products include cash management, foreign
exchange, securities custody and structured products.
TAP's Commercial Lines unit offers a broad array of property and casualty
insurance and insurance-related services which it distributes through
approximately 5,200 brokers and independent agencies located throughout the
United States. TAP is the third largest writer of commercial lines insurance in
the U.S. based on 1997 direct written premiums published by A.M. Best Company.
Commercial Lines is organized into four marketing and underwriting groups that
are designed to focus on a particular client base or industry segment to provide
products and services that specifically address customers' needs: National
Accounts, primarily serving large national corporations; Commercial Accounts,
serving mid-size businesses; Select Accounts, serving small businesses; and
Specialty Accounts, providing a variety of specialty coverages. Environmental,
asbestos and other cumulative injury claims are segregated from other claims and
are handled separately by TAP's Special Liability Group, a special unit staffed
by dedicated legal, claim, finance and engineering professionals.
Asset Management
The Asset Management group is comprised of three primary asset management
business platforms: Salomon Brothers Asset Management, Smith Barney Asset
Management and Citibank Global Asset Management. These companies offer a broad
range of asset management products and services from global investment centers
around the world, including mutual funds, closed-end funds, managed accounts and
unit investment trusts.
Clients include private and public retirement plans, endowments,
foundations, banks, central banks, insurance companies, other corporations,
government agencies, high net worth and other individuals. Client relationships
may be introduced through the cross marketing and distribution opportunities
within the Citigroup structure, through Asset Management's own sales force or
through independent sources.
As of December 31, 1998, aggregate assets under management exceeded $327
billion with about $100 billion in each of the equity, fixed income and
liquidity product categories. Approximately $225 billion is managed in the
United States, $60 billion in Europe, $15 billion in Japan, $10 billion in Latin
America, $8 billion in Asia Pacific and $5 billion in Australia.
Investment Activities
In addition to the Company's three business segments, its Investment Activities
segment consists primarily of the Company's venture capital activities, the
realized investment gains and losses related to certain corporate- and
insurance-related investments and the results of certain investments in
countries that refinanced debt under the 1989 Brady Plan or plans of a similar
nature.
Corporate/Other
Corporate/Other includes net treasury results, revenues derived from charging
banking segments for funds employed, based upon a marginal cost of funds
concept, corporate staff and similar expenses, and the offset created by
attributing income taxes to core business activities on a local tax-rate basis
for Citicorp.
The periodic reports of Citicorp, CCC, Salomon Smith Barney Holdings Inc.
("SSBH"), TAP, The Student Loan Corporation ("STU"), the Travelers Insurance
Company ("TIC"), and the Travelers Life and Annuity Company ("TLAC"),
subsidiaries of the Company that make filings pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), provide additional
business and financial information concerning those companies and their
consolidated subsidiaries.
The principal executive offices of the Company are located at 153 East
53rd Street, New York, New York 10043; telephone number 212-559-1000.
3
<PAGE>
Citigroup Inc. and Subsidiaries
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
In Millions of Dollars, Except Per Share Amounts 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 76,431 $ 72,306 $ 65,101 $ 58,957 $ 54,369
Total revenues, net of interest expense 48,936 47,782 43,765 36,567 31,841
Provisions for benefits, claims, and credit losses 11,116 9,911 9,566 7,193 7,260
Operating expenses(2) 28,551 27,121 23,475 20,460 19,151
Income from continuing operations(2) 5,807 6,705 7,073 5,610 4,182
Discontinued operations -- -- (334) 150 180
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 5,807 $ 6,705 $ 6,739 $ 5,760 $ 4,362
==================================================================================================================================
Earnings per share(3)
Basic earnings per share:
Income from continuing operations $ 2.49 $ 2.86 $ 2.97 $ 2.41 $ 1.75
Net income 2.49 2.86 2.83 2.48 1.83
Diluted earnings per share:
Income from continuing operations 2.43 2.74 2.84 2.19 1.60
Net income 2.43 2.74 2.71 2.25 1.68
Dividends declared per common share(4) 0.555 0.400 0.300 0.267 0.192
- ----------------------------------------------------------------------------------------------------------------------------------
At December 31,
Total assets $ 668,641 $ 697,384 $ 626,906 $ 559,146 $ 537,540
Total deposits 228,649 199,121 184,955 167,131 155,726
Long-term debt 48,671 47,387 43,246 40,723 40,171
Mandatorily redeemable securities of subsidiary trusts 4,320 2,995 2,545 -- --
Redeemable preferred stock 140 280 420 560 700
Common stockholders' equity 40,395 38,498 35,213 31,000 24,646
Total stockholders' equity 42,708 41,851 38,416 35,183 29,945
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges and preferred
stock dividends 1.32x 1.41x 1.48x 1.35x 1.21x
Return on average common stockholders' equity(5) 13.95% 17.49% 19.42% 18.88% 16.56%
Common stockholders' equity to assets 6.04% 5.52% 5.62% 5.54% 4.58%
Total stockholders' equity to assets 6.39% 6.00% 6.13% 6.29% 5.57%
- ----------------------------------------------------------------------------------------------------------------------------------
Income Analysis(6)
Total revenues, net of interest expense $ 48,936 $ 47,782 $ 43,765 $ 36,567 $ 31,841
Effect of credit card securitization activity(7) 2,187 1,713 1,392 917 934
Net cost to carry(8) 8 (5) (46) 23 89
Capital building transactions -- -- -- -- (80)
- ----------------------------------------------------------------------------------------------------------------------------------
Adjusted revenues, net of interest expense 51,131 49,490 45,111 37,507 32,784
- ----------------------------------------------------------------------------------------------------------------------------------
Adjusted operating expenses(9) 27,812 25,475 23,533 20,565 19,142
- ----------------------------------------------------------------------------------------------------------------------------------
Provisions for benefits, claims, and credit losses(10) 11,116 9,911 9,566 7,193 7,260
Effect of credit card securitization activity(7) 2,187 1,713 1,392 917 934
Net cost to carry and net OREO benefits (48) (77) (90) (82) 98
Acquisition-related costs -- -- (541) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Adjusted provisions for benefits, claims, and credit costs 13,255 11,547 10,327 8,028 8,292
- ----------------------------------------------------------------------------------------------------------------------------------
Restructuring charges and merger-related costs (795) (1,718) -- -- --
Acquisition-related costs -- -- (650) -- --
Operating loss from discontinued operations -- -- 123 -- --
Gain on sale of stock by subsidiary -- -- 363 -- --
Gain on sale of subsidiaries and affiliates -- -- -- -- 226
Capital building transactions -- -- -- -- 80
- ----------------------------------------------------------------------------------------------------------------------------------
Income before taxes and minority interest 9,269 10,750 11,087 8,914 5,656
- ----------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 3,234 3,833 3,967 3,304 1,474
Minority interest, net of income taxes 228 212 47 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 5,807 6,705 7,073 5,610 4,182
Discontinued operations, net of tax -- -- (334) 150 180
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 5,807 $ 6,705 $ 6,739 $ 5,760 $ 4,362
==================================================================================================================================
</TABLE>
(1) All periods have been restated to reflect the mergers of Travelers Group
and Citicorp on October 8, 1998 and Salomon Inc on November 28, 1997. The
results of the property casualty business of Aetna P&C are included from
the date of acquisition, April 2, 1996. (See Note 2 of Notes to
Consolidated Financial Statements).
(2) The years ended December 31, 1998 and 1997 include net restructuring
charges (and in 1998 merger-related costs) of $795 million ($535 million
after-tax) and $1,718 million ($1,046 million after-tax), respectively.
(3) All amounts have been adjusted to reflect various stock splits.
(4) Amounts represent Travelers' historical dividends per common share.
(5) The return on average common stockholders' equity is calculated using net
income after deducting preferred stock dividend requirements. Excluding
gains and losses on discontinued operations, return on average common
stockholders' equity was 13.95% in 1998, 17.49% in 1997, 20.43% in 1996,
18.34% in 1995 and 15.79% in 1994.
(6) The income analysis reconciles amounts shown in the Consolidated Statement
of Income on page 42 to the basis employed by management for assessing
financial results.
(7) Commencing in 1997, includes effect related to credit card receivables
held for sale.
(8) Principally the net cost to carry commercial cash-basis loans and other
real estate owned (OREO).
(9) Excludes restructuring charges and net OREO benefits (principally gains
and losses on sales, direct revenue and expense, and writedowns of
commercial OREO), and in 1996, operating loss from discontinued operations
and acquisition-related costs.
(10) Includes a provision in excess of net credit losses to increase the
allowance for credit losses by $107 million, $128 million, $242 million,
$309 million, and $751 million for 1998, 1997, 1996, 1995 and 1994,
respectively.
4
<PAGE>
Citigroup Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Merger with Citicorp
On October 8, 1998, Citicorp merged with and into a newly formed, wholly owned
subsidiary of Travelers Group Inc. (TRV) (the Merger). Following the Merger, TRV
changed its name to Citigroup Inc. (Citigroup). Under the terms of the Merger,
approximately 1.1 billion shares of Citigroup common stock were issued in
exchange for all of the outstanding shares of Citicorp common stock based on an
exchange ratio of 2.5 shares of Citigroup common stock for each share of
Citicorp common stock. Each share of TRV common stock automatically represented
one share of Citigroup common stock. Following the exchange, former shareholders
of Citicorp and TRV each owned approximately 50% of the outstanding common stock
of Citigroup. Each outstanding share of Citicorp preferred stock was converted
into one share of a corresponding series of preferred stock of Citigroup having
identical terms (See Note 18 of Notes to Consolidated Financial
Statements--Series O through Series V).
The consolidated financial statements give retroactive effect to the
Merger in a transaction accounted for as a pooling of interests. The pooling of
interests method of accounting requires the restatement of all periods presented
as if TRV and Citicorp had always been combined. The consolidated statement of
changes in stockholders' equity reflects the accounts of Citigroup together with
its subsidiaries (the Company) as if the additional preferred and common stock
had been issued during all the periods presented.
Upon consummation of the Merger, the Company became a bank holding company
subject to the provisions of the Bank Holding Company Act of 1956 (the BHCA).
The BHCA precludes a bank holding company and its affiliates from engaging in
certain activities, generally including insurance underwriting. Under the BHCA
in its current form, the Company has two years from the date it became a bank
holding company to comply with all applicable provisions (the BHCA Compliance
Period). The BHCA Compliance Period may be extended, at the discretion of the
Federal Reserve Board, for three additional one-year periods so long as the
extension is not deemed to be detrimental to the public interest. At this time,
the Company believes that its compliance with applicable laws following the
Merger will not have a material adverse effect on the Company's financial
condition, results of operations, or liquidity.
There is pending federal legislation that would, if enacted, amend the
BHCA to authorize a bank holding company to own certain insurance underwriters.
There is no assurance that such legislation will be enacted. At the expiration
of the BHCA Compliance Period, the Company will evaluate its alternatives in
order to comply with whatever laws are then applicable.
Merger with Salomon
On November 28, 1997, a newly formed, wholly owned subsidiary of the Company
merged with and into Salomon Inc (Salomon) (the Salomon Merger). Under the terms
of the Salomon Merger, approximately 188.5 million shares of Citigroup common
stock were issued in exchange for all of the outstanding shares of Salomon
common stock, based on an exchange ratio of 1.695 shares of Citigroup common
stock for each share of Salomon common stock. Shares of each of Salomon's series
of preferred stock outstanding were exchanged for a corresponding series of
Citigroup preferred stock having substantially identical terms, except that the
Citigroup preferred stock issued in conjunction with the Salomon Merger has
certain voting rights. Thereafter, Smith Barney Holdings Inc. (Smith Barney), a
wholly owned subsidiary of Citigroup, was merged with and into Salomon to form
Salomon Smith Barney Holdings Inc. (Salomon Smith Barney). The Salomon Merger
was accounted for under the pooling of interests method.
Acquisition of Aetna P&C
On April 2, 1996, Travelers Property Casualty Corp. (TAP), an indirect
majority-owned subsidiary of Citigroup, acquired the domestic property and
casualty insurance subsidiaries of Aetna Services, Inc. (Aetna P&C) for
approximately $4.2 billion in cash. This acquisition was financed in part by the
issuance by TAP of common stock resulting in a minority interest in TAP of
approximately 18% at that time (currently 16%). The acquisition was accounted
for under the purchase method of accounting and, accordingly, the consolidated
financial statements include the results of Aetna P&C's operations from the date
of acquisition. TAP also owns The Travelers Indemnity Company and its
subsidiaries (Travelers P&C). TAP's insurance subsidiaries are the primary
vehicles through which the Company engages in the property and casualty
insurance business.
Business Focus
The table below shows the business income (loss) for each of Citigroup's
businesses:
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Global Consumer
Citibanking North America $ 113 $ 71 $ (12)
Mortgage Banking 175 117 64
Cards 737 523 713
Consumer Finance Services 264 213 199
- -------------------------------------------------------------------------------
Banking/Lending 1,289 924 964
- --------------------------------------------------------------------------------
Travelers Life & Annuity 496 424 360
Primerica Financial Services 400 335 273
Personal Lines 319 300 193
- -------------------------------------------------------------------------------
Insurance 1,215 1,059 826
- --------------------------------------------------------------------------------
Total North America 2,504 1,983 1,790
- --------------------------------------------------------------------------------
Europe, Middle East, & Africa 155 138 190
Asia Pacific 410 428 496
Latin America 163 273 281
Global Private Bank 254 281 231
- -------------------------------------------------------------------------------
Total International 982 1,120 1,198
- --------------------------------------------------------------------------------
e-Citi (142) (79) (51)
Other (86) 24 46
- -------------------------------------------------------------------------------
Total Global Consumer 3,258 3,048 2,983
- -------------------------------------------------------------------------------
Global Corporate and Investment Bank
Salomon Smith Barney 408 1,438 1,638
Emerging Markets 690 909 1,000
Global Relationship Banking 220 559 510
Commercial Lines Insurance 723 632 499
- -------------------------------------------------------------------------------
Total Global Corporate and Investment Bank 2,041 3,538 3,647
- --------------------------------------------------------------------------------
Asset Management 273 243 208
Corporate/Other (159) (370) (451)
- -------------------------------------------------------------------------------
Business Income 5,413 6,459 6,387
Investment Activities 929 1,292 594
- -------------------------------------------------------------------------------
Core Income 6,342 7,751 6,981
Restructuring charges and
merger-related costs (535) (1,046) --
Gain on sale of stock by subsidiary -- -- 363
Acquisition-related costs -- -- (346)
Loss on disposition of subsidiary -- -- (259)
- -------------------------------------------------------------------------------
Net Income $ 5,807 $ 6,705 $ 6,739
===============================================================================
5
<PAGE>
Results of Operations
Citigroup reported 1998 core income of $6.342 billion ($2.66 per diluted common
share), down $1.409 billion or 18% from $7.751 billion ($3.18 per diluted share)
in 1997, both excluding the after-tax effects of restructuring charges (and in
1998 merger-related costs) of $535 million in 1998 and $1.046 billion in 1997.
Net income including the charges was $5.807 billion ($2.43 per diluted share),
down $898 million or 13% from $6.705 billion ($2.74 per diluted share) in 1997.
Citigroup 1997 core income was up $770 million or 11% from $6.981 billion ($2.81
per diluted share) in 1996, excluding the after-tax effect of restructuring
charges in 1997 and the $242 million of net charges related to acquisitions and
dispositions in 1996. Net income in 1997 including those amounts was down $34
million or 1% from $6.739 billion ($2.71 per diluted share) in 1996. Excluding
the charges, return on common equity was 14.9% for 1998 compared to 20.2% a year
ago.
Core income in 1998 was sharply impacted by the global economic turmoil
experienced during the year as income decreased 42% in Global Corporate and
Investment Bank to $2.041 billion, reflecting events in Russia and Asia, and
decreased 28% in Investment Activities to $929 million. Partially offsetting
this was a 7% increase in Global Consumer to $3.258 billion, complemented by a
12% increase in SSB Citi Asset Management Group (Asset Management) core income
to $273 million. The $770 million increase in 1997 core income compared to 1996
primarily reflected strong performance in Investment Activities and the Global
Consumer Insurance business, up $698 million and $233 million, respectively,
partially offset by a $200 million decline in Salomon Smith Barney.
Global Consumer core income growth in 1998 was led by the Banking/Lending
and Insurance businesses in North America, up 40% to $1.289 billion and 15% to
$1.215 billion, respectively, partially offset by a 12% decrease in
International due to global economic conditions. Global Consumer core income was
also reduced by spending on global advertising, marketing, and distribution
development initiatives, and spending on the technological enhancements of
e-Citi. The decline in Global Corporate and Investment Bank reflected decreases
of 72% in Salomon Smith Barney to $408 million, 61% in Global Relationship
Banking to $220 million, and 24% in Emerging Markets to $690 million, partially
offset by an increase of 14% to $723 million in Commercial Lines Insurance.
Adjusted revenues of $51.1 billion and $49.5 billion in 1998 and 1997 were
up $1.6 billion or 3% from 1997 and $4.4 billion or 10% from 1996. Revenues in
Global Consumer in 1998 increased $3.2 billion or 14% to $25.9 billion, led
primarily by Cards, up $1.7 billion or 31%, including the $1.1 billion impact of
the Universal Card Services (UCS) acquisition. Also contributing to Global
Consumer growth were the Insurance businesses, up $858 million or 11% and
Consumer Finance Services up $271 million or 25%. Revenues in Global Consumer in
1997 increased $1.8 billion or 9% to $22.7 billion, led by a $1.1 billion or 17%
increase in Insurance and a $657 million or 8% increase in Banking/Lending.
Global Corporate and Investment Bank revenues of $21.7 billion in 1998 were down
$1.5 billion or 6%, principally reflecting a Salomon Smith Barney decline of
$1.9 billion or 18% to $8.3 billion, driven by a sharp drop in principal
transactions revenue. Emerging Markets increased by 8% to $3.4 billion,
Commercial Lines Insurance was up 3% to $6.5 billion, and Global Relationship
Banking was unchanged at $3.5 billion. Global Corporate and Investment Bank
revenues of $23.2 billion in 1997 were up $1.5 billion or 7%, led by increases
of $879 million or 16% in Commercial Lines, $319 million or 10% in Global
Relationship Banking, and $176 million or 6% in Emerging Markets. Asset
Management revenues growth of $192 million or 18% and $172 million or 20% in
1998 and 1997, respectively, reflected continued growth in assets under
management. Corporate/Other revenues of $932 million and $838 million in 1998
and 1997, respectively, were up $94 million in 1998 and down $64 million in
1997, primarily reflecting treasury activities. The $395 million decrease in
Investment Activities 1998 revenues was a result of lower venture capital
revenues, while the $978 million increase in 1997 revenues reflected increased
investment and net asset sales and venture capital revenues.
Adjusted net interest revenues (taxable equivalent basis), including
the effect of credit card securitization, of $22.6 billion were up $2.4
billion or 12% from 1997, reflecting the acquisitions of UCS and certain
consumer businesses in Latin America, and business volume growth in most
other markets, which was partially offset by the effect of foreign currency
translation. Adjusted net interest revenues of $20.2 billion in 1997 were up
$1.1 billion or 6% from 1996, reflecting business volume growth in most
markets which was partially offset by the effect of foreign currency
translation. Commissions and fees revenues of $11.6 billion were up $653
million or 6%, led by growth in Cards, including UCS, and were up $830
million or 8% in 1997, also led by growth in Cards. Insurance premiums of
$9.9 billion in 1998 were up $855 million or 10% and were up $1.362 billion
or 18% in 1997 reflecting solid growth in all sectors. Asset management and
administration fees of $2.3 billion were up $577 million or 34% in 1998 and
up $325 million or 23% in 1997 as a result of continued growth in assets
under management. These increases were partially offset by a drop of $2.5
billion in principal transactions revenues to $1.8 billion in 1998,
reflecting the difficult trading conditions in the markets for Global
Corporate and Investment Bank during the second half of the year, and a $297
million decline in 1997.
Adjusted operating expenses in 1998 of $27.8 billion, which exclude the
restructuring charges, and in 1998 merger-related costs, were up $2.3 billion or
9% from 1997, and grew $1.9 billion or 8% from 1996. Expenses increased in
Global Consumer by 16% in 1998 and 10% in 1997, reflecting UCS (in 1998), global
advertising, marketing, and distribution initiatives, and electronic banking
development efforts. Global Corporate and Investment Bank expenses were up 2% in
1998 and 8% in 1997, primarily attributable to increased spending on technology,
volume-related increases, and costs associated with implementing plans to gain
market share in selected emerging market countries.
Restructuring charges and merger-related costs of $795 million in 1998
represented $1.122 billion of exit costs associated with business improvement
and integration initiatives to be implemented over a 12 to 18 month period
and $65 million of costs associated with administratively closing the Merger,
partially offset by a $392 million reduction in the 1997 restructuring
charges due to changes in estimates. The $1.718 billion of restructuring
charges in 1997 consisted of $880 million related to cost management programs
and customer service initiatives in the Citicorp businesses, and $838 million
related to the Salomon Smith Barney merger. See Note 15 of Notes to
Consolidated Financial Statements for additional details.
Adjusted provisions for benefits, claims, and credit costs were $13.3
billion in 1998 compared with $11.5 billion and $10.3 billion in 1997 and 1996,
respectively. Policyholder benefits and claims increased 8% to $8.4 billion in
1998 and 5% to $7.7 billion in 1997. The adjusted provision for credit losses
increased 28% to $4.9 billion in 1998 and 9% to $3.8 billion in 1997. Global
Consumer managed net credit losses in 1998 were $4.4 billion and the related
loss ratio was 2.70%, compared with $3.8 billion and 2.61% in 1997 and $3.4
billion and 2.41% in 1996. The increases in the 1998 net credit losses
6
<PAGE>
primarily reflected the UCS acquisition. The managed consumer loan delinquency
ratio (90 days or more past due) was 2.12%, a decrease from 2.23% and 2.54% at
the end of 1997 and 1996, respectively.
Global Corporate and Investment Bank adjusted net credit costs increased
to $367 million from net benefits of $35 million in 1997 and $12 million in
1996, primarily reflecting the turmoil in Asia and Russia. Commercial cash-basis
loans and OREO of $2.1 billion at year-end were up from $1.8 billion a year
earlier, primarily reflecting the economic conditions in Asia, and down from
$2.2 billion in 1996.
The provision for benefits, claims, and credit losses as shown on the
Consolidated Statement of Income was $11.1 billion in 1998, compared to $9.9
billion and $9.6 billion in 1997 and 1996, respectively, reflecting the
increases described above.
Total capital (Tier 1 and Tier 2) was $55.0 billion or 11.43% of net
risk-adjusted assets, and Tier 1 capital was $41.8 billion or 8.68% at December
31, 1998. See page 38 for the components of Tier 1 and Tier 2 capital.
GLOBAL CONSUMER
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $23,743 $20,992 $19,513
Effect of credit card securitization activity 2,187 1,713 1,392
Net cost to carry cash-basis loans and OREO (17) (2) (10)
- -------------------------------------------------------------------------------
Adjusted revenues 25,913 22,703 20,895
- -------------------------------------------------------------------------------
Total operating expenses(1) 12,423 10,678 9,183
Restructuring charges (706) (580) --
Net OREO benefits (costs)(2) 4 4 (5)
- -------------------------------------------------------------------------------
Adjusted operating expenses 11,721 10,102 9,178
- -------------------------------------------------------------------------------
Operating margin 14,192 12,601 11,717
- -------------------------------------------------------------------------------
Provisions for benefits, claims, and
credit losses(1)(3) 6,968 6,314 5,918
Effect of credit card securitization activity 2,187 1,713 1,392
Net cost to carry and net OREO (benefits) costs (21) (6) (5)
- -------------------------------------------------------------------------------
Adjusted provisions for benefits, claims, and
credit costs 9,134 8,021 7,305
- -------------------------------------------------------------------------------
Business income before taxes and
minority interest 5,058 4,580 4,412
Income taxes 1,731 1,470 1,396
Minority interest, after-tax 69 62 33
- -------------------------------------------------------------------------------
Business income 3,258 3,048 2,983
Restructuring charges, after-tax 446 351 --
Acquisition-related benefits, after-tax -- -- 26
- -------------------------------------------------------------------------------
Net income $ 2,812 $ 2,697 $ 3,009
===============================================================================
(1) Excludes acquisition-related benefits in 1996.
(2) Includes amounts related to writedowns, gains and losses on sales, and
direct expense related to OREO for certain real estate lending activities.
(3) Includes a provision in excess of net credit losses to increase the
allowance for credit losses by $129 million, $128 million, and $242
million in 1998, 1997, and 1996, respectively.
Global Consumer--which provides banking, lending, and personal insurance
products and services, including credit and charge cards, to customers around
the world--reported business income of $3.258 billion in 1998, up $210 million
or 7% from 1997, reflecting strong growth in the businesses across North
America. Results in the International businesses declined during 1998,
reflecting economic conditions, including weakened currencies, in Asia Pacific
and Latin America. Net income of $2.812 billion in 1998 and $2.697 billion in
1997, included restructuring charges of $706 million ($446 million after-tax)
and $580 million ($351 million after-tax), respectively. Business income in 1997
of $3.048 billion was up $65 million from 1996.
The 1998 restructuring initiatives are designed to realize synergies and
operating efficiencies including regional consolidation of call centers and
other back office functions worldwide, reduction of management layers, sales
force restructuring and integration of overlapping marketing and product
management groups. Global Consumer also expects to improve results by exiting
several non-strategic operations. The 1997 restructuring charge was for the
consolidation of data centers and operations processing and customer service
facilities, the reconfiguration of electronic and other distribution channels,
the outsourcing of various technological functions, and the rationalization of
administrative and management functions. See Note 15 of Notes to Consolidated
Financial Statements for a discussion of restructuring charges.
BANKING/LENDING
Citibanking North America
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $ 1,989 $ 1,875 $ 1,619
Adjusted operating expenses(1) 1,705 1,611 1,507
- -------------------------------------------------------------------------------
Operating margin 284 264 112
Credit costs(2) 111 131 140
- -------------------------------------------------------------------------------
Business income (loss) before taxes 173 133 (28)
Income taxes (benefits) 60 62 (16)
- -------------------------------------------------------------------------------
Business income (loss) 113 71 (12)
Restructuring charges, after-tax 89 124 --
- -------------------------------------------------------------------------------
Net income (loss) $ 24 $ (53) $ (12)
===============================================================================
Average assets (in billions of dollars) $ 12 $ 11 $ 12
Return on assets 0.20% NM NM
===============================================================================
Excluding restructuring charges
Return on assets 0.94% 0.65% NM
===============================================================================
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
NM Not Meaningful.
Citibanking North America--which delivers banking services to customers
through Citibank's branch network and electronic delivery systems--reported
business income of $113 million in 1998, up $42 million or 59% from 1997
reflecting higher revenues, improved credit costs, and a lower effective tax
rate. Net income (loss) of $24 million in 1998 and ($53) million in 1997,
included restructuring charges of $139 million ($89 million after-tax) and $203
million ($124 million after-tax), respectively. Business income of $71 million
in 1997 was up significantly from a loss of $12 million in 1996, principally
reflecting higher revenues.
Revenues, net of interest expense, were $1.989 billion in 1998, up from
$1.875 billion in 1997 and $1.619 billion in 1996, reflecting growth in customer
deposits and higher investment product fees and commissions. The 1997 increase
also reflects higher spreads and a $64 million assessment in 1996 to
recapitalize the U.S. Savings Association Insurance fund (SAIF). Average
customer deposits were $39.6 billion in 1998, up from $37.1 billion in 1997 and
$34.9 billion in 1996.
7
<PAGE>
Adjusted operating expenses in 1998 were up $94 million or 6% from 1997
and grew $104 million or 7% in 1997, reflecting business volume growth.
Credit costs improved to $111 million in 1998 from $131 million in 1997
and $140 million in 1996. The net credit loss ratio was 1.49% in 1998, down from
1.61% in 1997 and 1.72% in 1996.
Business income in both 1998 and 1997 benefited from a lower effective tax
rate. The effective tax rates on business income (loss) before taxes were 35%,
47%, and 57%, in 1998, 1997, and 1996, respectively. Fluctuations in the
effective income tax rates result from changes in the nature and geographic mix
of pretax earnings.
Mortgage Banking
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $ 558 $519 $ 458
Adjusted operating expenses(1) 243 234 219
- -------------------------------------------------------------------------------
Operating margin 315 285 239
Credit costs(2) 20 87 134
- -------------------------------------------------------------------------------
Business income before taxes and
minority interest 295 198 105
Income taxes 115 81 41
Minority interest 5 -- --
- -------------------------------------------------------------------------------
Business income 175 117 64
Restructuring charges, after-tax 6 12 --
- -------------------------------------------------------------------------------
Net income $ 169 $105 $ 64
===============================================================================
Average assets (in billions of dollars) $ 25 $ 24 $ 22
Return on assets 0.68% 0.44% 0.29%
===============================================================================
Excluding restructuring charges
Return on assets 0.70% 0.49% 0.29%
===============================================================================
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
Mortgage Banking--which provides mortgages and student loans to customers
across North America--reported business income of $175 million in 1998, up $58
million or 50% from 1997, reflecting lower credit costs and higher revenues
resulting from increased business volumes. Net income of $169 million in 1998
and $105 million in 1997, included restructuring charges of $9 million ($6
million after-tax) and $20 million ($12 million after-tax), respectively. 1997
business income of $117 million was up from $64 million in 1996.
As shown in the following table, Mortgage Banking grew accounts, loans,
and mortgage originations in both 1998 and 1997.
In Billions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Accounts (in millions)(1) 2.8 2.5 2.2
Average loans(1) $ 23.9 $ 22.3 $ 20.8
Mortgage originations 16.1 8.2 5.3
================================================================================
(1) Includes student loans.
Revenues, net of interest expense, of $558 million in 1998 grew $39
million or 8% from 1997 and in 1997 were up $61 million or 13% from 1996,
reflecting increased mortgage originations, including refinancing activity, and
growth in the student loan portfolio. Adjusted operating expenses were up $9
million or 4% in 1998 and grew $15 million or 7% in 1997, reflecting additional
business volumes.
Credit costs of $20 million in 1998 declined from $87 million in 1997 and
$134 million in 1996. The 1998 net credit loss ratio of 0.31%, was down from
0.51% and 0.64% in 1997 and 1996, respectively, reflecting continued improvement
in the mortgage portfolio. Credit costs included a benefit of $55 million and
$28 million in 1998 and 1997, respectively, arising from a reduction in the
allowance for credit losses attributed to Mortgage Banking, reflecting continued
credit improvement in the mortgage portfolio.
Cards
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $4,921 $3,717 $3,848
Effect of credit card securitization activity 2,187 1,713 1,392
- -------------------------------------------------------------------------------
Adjusted revenues 7,108 5,430 5,240
Adjusted operating expenses(1) 2,692 1,832 1,737
- -------------------------------------------------------------------------------
Operating margin 4,416 3,598 3,503
Adjusted credit costs(2) 3,253 2,808 2,407
- -------------------------------------------------------------------------------
Business income before taxes 1,163 790 1,096
Income taxes 426 267 383
- -------------------------------------------------------------------------------
Business income 737 523 713
Restructuring charges, after-tax 39 36 --
- -------------------------------------------------------------------------------
Net income $ 698 $ 487 $ 713
===============================================================================
Average assets (in billions of dollars) $ 28 $ 25 $ 21
Return on assets 2.49% 1.95% 3.40%
===============================================================================
Excluding restructuring charges
Return on assets(3) 2.63% 2.09% 3.40%
===============================================================================
(1) Excludes restructuring charges.
(2) Represents provision for credit losses (on a managed basis).
(3) Adjusted for the effect of credit card securitization, the return on
managed assets for Cards was 1.13% in 1998, 0.97% in 1997, and 1.51% in
1996.
In 1998, Citibank acquired Universal Card Services from AT&T. As of
December 31, 1998, UCS added $16.9 billion in managed customer receivables and
14 million accounts to Cards. In 1998, UCS contributed $1.082 billion to
revenues, $693 million to expenses, and $500 million to credit costs, resulting
in a net loss of approximately $72 million. These amounts included $320 million
(pretax) of UCS acquisition premium costs (including funding costs associated
with the acquisition purchase premium).
Cards--U.S. bankcards (including Travelers Bank), Diners Club, and private
label cards--reported business income of $737 million, up $214 million or 41%
from 1997 reflecting significant improvements in the U.S. bankcards business.
Net income of $698 million in 1998 and $487 million in 1997, included
restructuring charges of $58 million ($39 million after-tax) and $59 million
($36 million after-tax), respectively. Business income of $523 million in 1997
was down from $713 million in 1996, reflecting higher credit costs in U.S.
bankcards.
Adjusted revenues of $7.108 billion increased $1.678 billion or 31% from
1997, reflecting the acquisition of UCS, and in other U.S. bankcards portfolios
increased delinquency charges due to pricing actions and higher interchange fee
revenue. Revenues in 1997 increased $190 million or 4% principally in U.S.
bankcards reflecting business volume growth and increased delinquency charges,
partially offset by lower spreads.
8
<PAGE>
As shown in the following table, on a managed basis, the U.S. bankcard
portfolio experienced strong growth in the year reflecting the acquisition of
UCS and the impact of enhanced target marketing efforts in 1998 and 1997.
Increase from 1997
- -----------------------------------------------------------------------------
In Billions of Dollars 1998 % % Ex UCS
- -----------------------------------------------------------------------------
Accounts (in millions) 41 58 4
Cards in force (in millions) 69 68 10
Charge volumes $ 140.6 32 11
End-of-period receivables 69.6 40 6
=============================================================================
Adjusted operating expenses of $2.692 billion were up $860 million or 47%,
reflecting the acquisition of UCS and increased target marketing efforts in U.S.
bankcards. Expenses in 1997 increased $95 million or 5% from 1996, principally
in U.S. bankcards, reflecting costs associated with risk management initiatives
and increased marketing efforts.
Adjusted credit costs in 1998 were $3.253 billion, up from $2.808 billion
in 1997 and $2.407 billion in 1996. Managed net credit losses in U.S. bankcards
were $3.123 billion, or 5.33% of average managed loans (excluding UCS $2.623
billion or 5.53% of average managed loans) compared to $2.662 billion or 5.74%
in 1997 and $2.169 billion or 4.95% in 1996. The decline in the net credit loss
ratio in 1998 reflects moderating industry-wide bankruptcy trends and the effect
of previously implemented credit risk management initiatives.
Adjusted credit costs include a provision in excess of net credit losses
to increase the allowance for credit losses by $62 million, $85 million, and
$183 million in 1998, 1997, and 1996, respectively. The decline in the
additional provision reflects credit improvements in the U.S. bankcards
portfolio.
Consumer Finance Services
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $1,338 $1,067 $ 917
Adjusted operating expenses(1) 504 422 316
- -------------------------------------------------------------------------------
Operating margin 834 645 601
Credit costs(2) 419 316 296
- -------------------------------------------------------------------------------
Business income before taxes 415 329 305
Income taxes 151 116 106
- -------------------------------------------------------------------------------
Business income 264 213 199
Restructuring charges, after-tax 1 -- --
- -------------------------------------------------------------------------------
Net income $ 263 $ 213 $ 199
===============================================================================
Average assets (in billions of dollars) $ 12 $ 9 $ 8
Return on assets 2.19% 2.37% 2.49%
===============================================================================
Excluding restructuring charges
Return on assets 2.20% 2.37% 2.49%
===============================================================================
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
Consumer Finance Services includes the consumer lending operations
(including secured and unsecured personal loans, real estate-secured loans and
consumer goods financing) of Commercial Credit Company. Also included are
related credit insurance services provided through subsidiaries. The credit card
operations of Commercial Credit Company are included in Cards, and accordingly,
all data has been restated to reflect this.
Business income was $264 million in 1998 compared to $213 million in
1997 and $199 million in 1996. The 24% increase in 1998 reflects continued
internal receivables growth in all major products, an improved charge-off
rate, and the integration of Security Pacific Financial Services (Security
Pacific) into the Commercial Credit branch system since July 1997. The 7%
increase in 1997 reflects strong receivables growth in all major products,
largely as a result of investments made over the prior year in marketing,
training and systems enhancements. Net receivables at December 31, 1998
reached a record $11.9 billion compared to $9.8 billion at year-end 1997 and
$7.1 billion at year-end 1996. Much of the growth in 1998 in real
estate-secured loans resulted from the continued strong performance of the
$.M.A.R.T. loan-Registered Trademark- program, as well as solid sales in the
branch network. The receivables increase in 1997 reflects strong internal
growth as well as the July 31, 1997 acquisition of Security Pacific, which
contributed approximately $1.2 billion in receivables growth. Internal
sources grew receivables 21% over year-end 1996 levels. The internal growth
during 1998 and 1997 was led by the Primerica generated portfolio, which grew
31% to $2.95 billion in 1998 and 49% to $2.26 billion in 1997.
While total interest margin increased in 1998 from the 1997 and 1996
periods due to the increase in the portfolio, average net interest margin
declined 10 basis points in 1998 to 8.46% and declined 46 basis points in 1997
to 8.56%, reflecting a decline in the average yield to 14.88% in 1998 and 15.24%
in 1997. These declines were partially offset by a decrease in cost of funds
over the period. The decline in the average yield has resulted from a shift in
the portfolio mix towards lower yielding, higher quality real estate loans,
particularly first mortgage loans. Consumer Finance borrows from the corporate
treasury operations of Commercial Credit Company (CCC), a holding company
subsidiary of Citigroup that raises funds externally. For fixed rate loan
products, Consumer Finance is charged agreed-upon rates that generally have been
set within a narrow range. For variable rate loan products, Consumer Finance is
charged rates based on prevailing short-term rates. CCC's actual cost of funds
may be higher or lower than rates charged to Consumer Finance, with the
difference reflected in the Corporate/Other segment. Overall rates charged
to Consumer Finance approximated 6.42% in 1998, 6.68% in 1997 and 6.84% in 1996.
The net credit loss ratio of 2.74% in 1998 was down from 2.82% in 1997 and
3.14% in 1996. As a result of the Security Pacific acquisition, net credit
losses in the second half of 1997 reflect a short-term benefit largely from the
transition of that portfolio to Commercial Credit's charge-off policies. Credit
costs included a provision in excess of net credit losses of $59 million, $21
million, and $38 million for 1998, 1997, and 1996, reflecting growth in the
portfolio.
As of December 31, 1998, CCC had 980 branches, making it one of the
largest domestic branch networks in the consumer finance industry.
INSURANCE
Travelers Life and Annuity
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $3,006 $2,670 $2,322
Policyholder claims and benefits 1,871 1,677 1,474
Adjusted operating expenses(1) 376 348 297
- --------------------------------------------------------------------------------
Business income before taxes 759 645 551
Income taxes 263 221 191
- --------------------------------------------------------------------------------
Business income(2) 496 424 360
Restructuring charges, after-tax 8 -- --
- --------------------------------------------------------------------------------
Net income $ 488 $ 424 $ 360
================================================================================
(1) Excludes restructuring charges.
(2) Excludes investment gains/losses included in Investment Activities
segment.
9
<PAGE>
Travelers Life and Annuity consists of annuity, life and long-term care
products marketed by The Travelers Insurance Company (TIC) and its wholly owned
subsidiary The Travelers Life and Annuity Company (TLAC) under the Travelers
name. Among the range of products offered are fixed and variable deferred
annuities, payout annuities and term, universal and variable life and long-term
care insurance to individuals and small businesses. These products are primarily
marketed through The Copeland Companies (Copeland), an indirect wholly owned
subsidiary of TIC, Salomon Smith Barney Financial Consultants and a nationwide
network of independent agents. In 1998, Travelers Life and Annuity products were
also introduced into the Primerica and Citibank distribution networks. Travelers
Life and Annuity also provides group pension products, including guaranteed
investment contracts, and group annuities to employer-sponsored retirement and
savings plans. The majority of the annuity business and a substantial portion of
the life business written by Travelers Life and Annuity is accounted for as
investment contracts, with the result that the premium and deposits collected
are not included in revenues.
Business income was $496 million in 1998 compared to $424 million in 1997
and $360 million in 1996. The 17% improvement in 1998 reflects strong
double-digit business volume growth in annuity account balances and life and
long term care premiums, an increase in net investment income despite a decline
in investment income yields during 1998, which vary by product line, resulting
primarily from participation in partnership investment interests being
negatively impacted by volatile market conditions. This decline in yields was
substantially offset by earnings on an increased capital base created by
business volume growth. Business income was also impacted by a favorable reserve
settlement in the runoff group life and health business. The 18% improvement in
1997 was largely driven by strong investment income as well as by double-digit
growth in individual and group annuity account balances and long-term care
insurance premiums.
The successful cross-selling initiative of Travelers Life and Annuity
products through the Primerica, Citibank, Copeland, and Salomon Smith Barney
Financial Consultants distribution channels, along with improved sales through a
nationwide network of independent agents, reflect the ongoing effort to build
market share by strengthening relationships in key distribution channels.
The following table shows net written premiums and deposits by product
line for the three years ended December 31, 1998:
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Deferred annuities
Fixed $ 774 $ 779 $ 621
Variable 2,651 1,775 1,370
Payout annuities 429 310 142
GIC and other annuities 3,690 2,109 1,100
Individual life insurance
Direct periodic premiums and deposits 322 290 286
Single premium deposits 85 56 59
Reinsurance (66) (58) (53)
Individual long-term care insurance 213 184 128
- -------------------------------------------------------------------------------
$ 8,098 $ 5,445 $ 3,653
===============================================================================
Significant deferred annuities sales, combined with favorable market
returns from variable annuities, drove account balances to $19.8 billion at
December 31, 1998, up 23% from $16.1 billion at year-end 1997 and $13.2 billion
at year-end 1996. Net written premiums and deposits increased 35% in 1998 to
$3.43 billion from $2.55 billion in 1997 and $1.99 billion in 1996. The strong
sales reflect the marketing initiatives at Salomon Smith Barney, as well as
Copeland's successful penetration of the small company segment of the 401(k)
market and a new product introduction in the Primerica distribution channel.
Payout and group annuity account balances and benefit reserves reached
$13.84 billion at December 31, 1998, up 16% from $11.94 billion at year-end
1997, and the $10.86 billion at year-end 1996. The revitalization of the payout
and group annuities business reflects strong sales of new payout annuities and
guaranteed investment contracts (GIC). Net written premiums and deposits
(excluding the Company's employee pension plan deposits) in 1998 were $4.12
billion, up 70% from $2.42 billion in 1997 and $1.24 billion in 1996.
Direct periodic premiums and deposits for individual life insurance of
$322 million in 1998 were 11% ahead of the $290 million in 1997 and $286 million
in 1996. Life insurance in force was $55.4 billion at December 31, 1998, up from
$51.6 billion at year-end 1997 and $50.4 billion at year-end 1996.
Net written premiums for the growing long-term care insurance line reached
$213 million in 1998 compared to $184 million in 1997 and $128 million in 1996.
Primerica Financial Services
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $1,654 $1,522 $1,415
Policyholder claims and benefits 484 497 528
Adjusted operating expenses(1) 546 502 460
- --------------------------------------------------------------------------------
Business income before taxes 624 523 427
Income taxes 224 188 154
- --------------------------------------------------------------------------------
Business income(2) 400 335 273
Restructuring charges, after-tax 2 -- --
- --------------------------------------------------------------------------------
Net income $ 398 $ 335 $ 273
================================================================================
(1) Excludes restructuring charges.
(2) Excludes investment gains/losses included in Investment Activities
segment.
Business income was $400 million in 1998 compared to $335 million in 1997
and $273 million in 1996. The 19% improvement in 1998 reflects continued success
at cross-selling a range of products, growth in life insurance in force,
favorable mortality experience and disciplined expense management. The 23%
increase in 1997 results principally reflects strong sales of mutual funds and
variable annuities, continued growth in life insurance in force, as well as
favorable mortality experience and disciplined expense management. Substantial
increases in total production and cross-selling initiatives were achieved during
1998 as Primerica continued to benefit from greater application of the Financial
Needs Analysis (FNA)--the diagnostic tool that enhances the ability of the
Personal Financial Analysts to address client needs. More than 535,000 FNAs were
submitted during 1998, an 18% increase over the 454,000 submitted in 1997.
Earned premiums net of reinsurance were $1.057 billion, $1.035 billion, and
$1.030 billion in 1998, 1997, and 1996, including $987 million, $967 million,
and $954 million for Primerica individual term life policies.
Total face amount of issued term life insurance was $57.4 billion in 1998
compared to $52.6 billion in 1997 and $52.0 billion in 1996. The number of
policies issued was 223,600 in 1998, compared to 228,900 in 1997 and 247,600 in
1996. The average face value (in thousands) per policy issued was $223 in 1998
compared to $200 in 1997 and $185 in 1996. Life insurance in
10
<PAGE>
force at year-end 1998 reached $383.7 billion, up from $369.9 billion at
year-end 1997 and $359.9 billion at year-end 1996, and continued to reflect good
policy persistency.
Over the last several years, Primerica has focused upon the strategic
expansion of its business beyond life insurance and now offers a greater
variety of financial products and services, delivered through its sales
force. Primerica has traditionally offered mutual funds to customers as a
means to invest the relative savings realized through the purchase of term
life insurance as compared to traditional whole life insurance. Sales of
mutual funds were $2.942 billion in 1998 compared to $2.689 billion in 1997
and $2.327 billion in 1996. During 1998, Salomon Smith Barney funds accounted
for 60% of Primerica's U.S. sales and 50% of Primerica's total sales.
Variable annuities continued to show momentum, reaching net written premiums
and deposits of $652 million in 1998 up from $347 million in 1997. Cash
advanced on $.M.A.R.T. loan-Registered Trademark- and $.A.F.E.-Registered
Trademark- loan products underwritten by Commercial Credit was $1.46 billion
in 1998, up 13% from the comparable period in 1997. The TRAVELERS
SECURE-Registered Trademark- line of property and casualty insurance products
showed strong growth, with premiums up 192% to $213 million in 1998 compared
to $73 million in 1997. The number of agents licensed to sell auto and
homeowners insurance jumped to almost 14,100 individuals at December 31,
1998, a 63% increase since the beginning of the year.
Personal Lines
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $3,666 $3,276 $2,658
Operating expenses(1) 930 884 665
Claims and claim adjustment expenses(1) 2,181 1,853 1,660
- --------------------------------------------------------------------------------
Business income before taxes and
minority interest 555 539 333
Income taxes 172 177 107
Minority interest 64 62 33
- --------------------------------------------------------------------------------
Business income(2) 319 300 193
Acquisition-related benefits, net,
after-tax and minority interest -- -- 26
- --------------------------------------------------------------------------------
Net income $ 319 $ 300 $ 219
================================================================================
(1) Excludes acquisition-related adjustments.
(2) Excludes investment gains/losses included in Investment Activities segment
and acquisition-related adjustments.
Business income was $319 million in 1998 compared to $300 million in 1997
and $193 million in 1996. The 1998 increase was primarily due to higher net
investment income and increased production, partially offset by higher
catastrophe losses and a decrease in favorable prior year reserve development.
The 1997 increase primarily reflected the inclusion in 1997 of Aetna P&C for the
entire year compared to only nine months in 1996, lower catastrophe losses, an
increase in favorable prior year reserve development of approximately $40
million, primarily in the automobile bodily injury line, and production-related
growth, partially offset by investments in service centers and market
expansions.
The following table shows net written premiums by product line for the
three years ended December 31:
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Personal automobile $2,328 $1,950 $1,645
Homeowners and other 1,162 1,124 714
- --------------------------------------------------------------------------------
$3,490 $3,074 $2,359
================================================================================
Certain production statistics related to Aetna P&C operations are provided
in the following narrative for comparative purposes for periods prior to April
2, 1996 and are not reflected in such prior period revenues or operating
results.
Personal Lines net written premiums for 1998 were $3.490 billion
compared to $3.074 billion in 1997 and $2.359 billion in 1996. On a combined
total basis including Aetna P&C (for periods prior to April 2, 1996 for
comparative purposes only), Personal Lines net written premiums in 1996 were
$2.675 billion. The 1998 and 1997 increases compared to 1997 and 1996,
respectively, primarily reflected growth in sales in target markets served by
independent agents and growth in affinity marketing, joint marketing
arrangements and TRAVELERS SECURE-Registered Trademark-. In addition, the
1997 increase compared to 1996 was partially attributable to lower ceded
premiums due to a change in a reinsurance arrangement in January 1997. The
growth in premiums from the independent agent distribution channel has been
primarily due to pursuing transfers of books of business to the Company
within certain independent insurance agencies. Frequently, Personal Lines
will pay these agencies an incentive to cover their expenses related to the
transfer and include a competitive inducement to move the book. Many
independent agencies are consolidating their business to a smaller number of
insurance carriers resulting in transfers of business to their preferred
carriers.
Catastrophe losses, net of taxes and reinsurance, were $44 million in 1998
compared to $10 million in 1997 and $58 million in 1996. Catastrophe losses in
1998 were primarily due to Hurricanes Bonnie and Georges, severe first quarter
winter storms and second and third quarter hail and wind storms. Catastrophe
losses in 1996 were primarily due to Hurricane Fran, severe first quarter winter
storms and second quarter hail and wind storms.
Statutory and GAAP combined ratios (before allocation of corporate
expenses) for Personal Lines were as follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Statutory
Loss and LAE ratio(1) 66.7% 63.5% 68.7%
Underwriting expense ratio 27.2 28.7 28.9
Combined ratio 93.9 92.2 97.6
- -------------------------------------------------------------------------------
GAAP
Loss and LAE ratio(1) 66.7% 63.5% 68.8%
Underwriting expense ratio 26.5 28.3 28.3
Combined ratio 93.2 91.8 97.1
===============================================================================
(1) LAE represents loss adjustment expenses.
GAAP combined ratios for Personal Lines differ from statutory combined
ratios primarily due to the deferral and amortization of certain expenses for
GAAP reporting purposes only. In addition, certain 1996 purchase accounting
adjustments recorded in connection with the Aetna P&C acquisition resulted in a
charge to statutory expenses.
The 1997 statutory and GAAP combined ratios for Personal Lines include an
adjustment associated with a change in the quota share reinsurance arrangement.
Excluding this adjustment, the 1997 statutory and GAAP combined ratios would
have been 92.1% and 92.5%, respectively. The increase in the 1998 statutory and
GAAP combined ratios compared to the 1997 statutory and GAAP combined ratios
excluding this adjustment was primarily due to higher catastrophe and other
weather-related losses and reduced favorable prior year reserve development,
partially offset by a decrease in the underwriting expense ratio due to a lower
commission expense ratio associated with the alternative distribution channels.
The 1996 statutory and
11
<PAGE>
GAAP combined ratios for Personal Lines include a benefit resulting from the
Company's review of reserves associated with the acquisition of Aetna P&C.
Excluding this item, the 1996 statutory and GAAP combined ratios were 100.1% and
99.7%, respectively. The decrease in the 1997 statutory and GAAP combined
ratios, excluding the adjustment associated with the change in the quota share
reinsurance arrangement, compared to the 1996 statutory and GAAP combined ratios
excluding the adjustment associated with the acquisition of Aetna P&C was due to
lower catastrophe losses and favorable prior year reserve development, primarily
in the automobile bodily injury line.
INTERNATIONAL CONSUMER
Europe, Middle East, & Africa
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $1,954 $1,864 $1,989
Adjusted operating expenses(1) 1,346 1,323 1,368
- -------------------------------------------------------------------------------
Operating margin 608 541 621
Credit costs(2) 292 274 303
- -------------------------------------------------------------------------------
Business income before taxes 316 267 318
Income taxes 161 129 128
- -------------------------------------------------------------------------------
Business income 155 138 190
Restructuring charges, after-tax 125 65 --
- -------------------------------------------------------------------------------
Net income $ 30 $ 73 $ 190
===============================================================================
Average assets (in billions of dollars) $ 21 $ 21 $ 24
Return on assets 0.14% 0.35% 0.79%
===============================================================================
Excluding restructuring charges
Return on assets 0.74% 0.66% 0.79%
===============================================================================
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
Europe, Middle East, & Africa (EMEA)--which provides banking and lending
services, including credit and charge cards, to customers throughout the
region--reported business income of $155 million in 1998, up $17 million or 12%
from 1997. Net income of $30 million in 1998 and $73 million in 1997, included
restructuring charges of $239 million ($125 million after-tax) and $112 million
($65 million after-tax), respectively. Business income of $138 million in 1997
was down from $190 million in 1996, reflecting the effect of foreign currency
translation and the 1996 gain associated with the sale of the consumer mortgage
portfolio in the United Kingdom.
As shown in the following table, EMEA reported 7% account growth in 1998
primarily reflecting loan growth, including credit cards. In 1997 accounts grew
3%; however, customer deposits and loans were reduced by the effect of foreign
currency translation.
In Billions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Accounts (in millions) 9.5 8.9 8.6
Average customer deposits $ 16.7 $ 16.8 $ 18.0
Average loans 15.8 15.1 17.3
================================================================================
Revenues, net of interest expense, of $1.954 billion in 1998 grew $90
million or 5% from 1997 reflecting growth across all countries except India and
Pakistan where revenues declined as a result of economic conditions. In 1998,
foreign currency translation reduced revenue growth by approximately 3
percentage points. Revenues in 1997 declined $125 million or 6% from 1996
reflecting the effect of foreign currency translation that reduced revenue
growth by approximately 11 percentage points and the 1996 gain associated with
the sale of the consumer mortgage portfolio in the United Kingdom, partially
offset by business volume growth.
Adjusted operating expenses of $1.346 billion were up $23 million or 2%
from 1997. Expenses in 1997 declined $45 million or 3% from 1996. Foreign
currency translation reduced expense growth by approximately 4 and 10 percentage
points in 1998 and 1997, respectively. Excluding the effect of foreign currency
translation, expenses in 1998 and 1997 reflected higher business volumes and
costs associated with expansion efforts in Central and Eastern Europe and
Africa.
Credit costs in 1998 were $292 million, compared to $274 million in 1997
and $303 million in 1996. The net credit loss ratio was 1.71% in 1998, compared
to 1.77% in 1997 and 1.68% in 1996. Foreign currency translation reduced credit
costs by approximately $8 million and $37 million in 1998 and 1997,
respectively.
Credit costs include a provision in excess of net credit losses to
increase the allowance for credit losses by $19 million, $7 million, and $12
million in 1998, 1997, and 1996, respectively, reflecting an increase in loans
in 1998, and a higher net credit loss ratio in 1997 compared to 1996.
Business income in both 1998 and 1997 was reduced by a higher effective
tax rate. The effective tax rates on business income before taxes were 51%, 48%,
and 40%, in 1998, 1997, and 1996, respectively. Fluctuations in the effective
income tax rates result from changes in the nature and geographic mix of pretax
earnings.
Asia Pacific
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $1,773 $1,799 $1,838
Adjusted operating expenses(1) 968 1,024 977
- -------------------------------------------------------------------------------
Operating margin 805 775 861
Credit costs(2) 251 201 167
- -------------------------------------------------------------------------------
Business income before taxes 554 574 694
Income taxes 144 146 198
- -------------------------------------------------------------------------------
Business income 410 428 496
Restructuring charges, after-tax 64 60 --
- -------------------------------------------------------------------------------
Net income $ 346 $ 368 $ 496
===============================================================================
Average assets (in billions of dollars) $ 28 $ 28 $ 25
Return on assets 1.24% 1.31% 1.98%
===============================================================================
Excluding restructuring charges
Return on assets 1.46% 1.53% 1.98%
===============================================================================
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
Asia Pacific (including Japan and Australia)--which provides banking and
lending services, including credit and charge cards, to customers throughout the
region--reported business income of $410 million in 1998, down from $428 million
and $496 million in 1997 and 1996, respectively, reflecting economic conditions
in the region, including weakened currencies. Foreign currency translation
reduced business income by approximately $127 million in 1998 and $34 million in
1997. The effect of foreign currency translation moderated during the second
half of 1998. Net income of $346 million in 1998 and $368 million in 1997,
included restructuring charges of $83 million ($64 million after-tax) and $97
million ($60 million after-tax), respectively.
12
<PAGE>
As shown in the following table, Asia Pacific accounts grew 19% and 13% in
1998 and 1997, respectively, principally reflecting growth in customer deposits
due to the "flight-to-quality" in the region, particularly in Japan. Customer
deposits grew 18% and 8% (32% and 16% excluding the effect of foreign currency
translation) in 1998 and 1997, respectively.
In Billions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Accounts (in millions) 7.4 6.2 5.5
Average customer deposits $ 36.1 $ 30.5 $ 28.2
Average loans 20.2 20.8 19.6
================================================================================
Revenues, net of interest expense, of $1.773 billion declined $26 million
from 1997 and in 1997 were down $39 million from 1996, reflecting the effect of
foreign currency translation and spread compression in certain countries, offset
by account and business volume growth due to the "flight-to-quality" in the
region. The 1997 decline in revenues also reflects the 1996 gain associated with
the sale of an affiliate. Foreign currency translation reduced revenue growth by
approximately 22 and 8 percentage points in 1998 and 1997, respectively.
Adjusted operating expenses in 1998 were down $56 million or 5% from 1997
reflecting the effect of foreign currency translation, partially offset by costs
associated with business volume growth. Expenses in 1997 increased $47 million
or 5% from 1996, reflecting account and business volume growth. Foreign currency
translation reduced expense growth by approximately 15 and 8 percentage points
in 1998 and 1997, respectively.
Credit costs in 1998 were $251 million, up from $201 million in 1997 and
$167 million in 1996. The net credit loss ratio was 1.12% in 1998, up from 0.82%
in 1997 and 0.81% in 1996, reflecting economic conditions in the region. Foreign
currency translation reduced credit costs by approximately $70 million and $26
million in 1998 and 1997, respectively.
Credit costs include a provision in excess of net credit losses to
increase the allowance for credit losses by $24 million, $30 million, and $8
million in 1998, 1997, and 1996, respectively, reflecting higher credit losses
in the portfolio.
Latin America
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $1,562 $1,446 $1,304
Adjusted operating expenses(1) 1,071 923 790
- -------------------------------------------------------------------------------
Operating margin 491 523 514
Credit costs(2) 265 192 192
- -------------------------------------------------------------------------------
Business income before taxes 226 331 322
Income taxes 63 58 41
- -------------------------------------------------------------------------------
Business income 163 273 281
Restructuring charges, after-tax 67 20 --
- -------------------------------------------------------------------------------
Net income $ 96 $ 253 $ 281
===============================================================================
Average assets (in billions of dollars) $ 12 $ 8 $ 7
Return on assets 0.80% 3.16% 4.01%
===============================================================================
Excluding restructuring charges
Return on assets 1.36% 3.41% 4.01%
===============================================================================
(1) Excludes restructuring charges.
(2) Represents provision for credit losses.
Latin America--which provides banking and lending services, including
credit and charge cards, to customers throughout the region--reported business
income of $163 million in 1998 down from $273 million and $281 million in 1997
and 1996, respectively, primarily reflecting lower earnings in Credicard, a
Brazilian Card affiliate. Net income of $96 million in 1998 and $253 million in
1997, included restructuring charges of $88 million ($67 million after-tax) and
$33 million ($20 million after-tax), respectively.
As shown in the following table, Latin America experienced strong business
volume growth in 1998 and 1997, including the effect of certain acquisitions
made in 1998. Customer deposit growth also reflects a "flight-to-quality" in the
region during 1998.
In Billions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Accounts (in millions) 6.7 4.9 4.2
Average customer deposits $ 10.2 $ 8.2 $ 7.8
Average loans 7.8 6.6 5.4
================================================================================
Revenues, net of interest expense, of $1.562 billion were up $116 million
or 8% from 1997 reflecting account and business volume growth and certain
acquisitions in the region, partially offset by lower earnings in Credicard and
reduced spreads. In 1998, foreign currency translation reduced revenue growth by
approximately 5 percentage points. 1997 revenues were up $142 million or 11%
from 1996, reflecting business volume growth offset by lower earnings in
Credicard.
Adjusted operating expenses in 1998 grew $148 million or 16% from 1997
reflecting acquisitions in the region, spending on new strategic alliances, and
increased collection efforts. In 1998, foreign currency translation reduced
expense growth by approximately 8 percentage points. Expenses in 1997 increased
$133 million or 17% from 1996 reflecting account growth, business expansion
efforts, and spending on technology initiatives.
Credit costs were $265 million in 1998, up from $192 million in both 1997
and 1996 reflecting economic conditions and loan growth. The net credit loss
ratio was 3.07% in 1998, compared to 2.66% in 1997 and 3.44% in 1996.
Credit costs include a provision in excess of net credit losses to
increase the allowance for credit losses by $26 million, $17 million, and $7
million in 1998, 1997, and 1996, respectively, reflecting the higher credit loss
experience in the portfolio during 1998 and portfolio growth.
Business income in 1998 and 1997 was also reduced by a higher effective
tax rate. The effective tax rates on business income before taxes were 28%, 18%,
and 13%, in 1998, 1997, and 1996, respectively. Fluctuations in the effective
income tax rates result from changes in the nature and geographic mix of pretax
earnings.
13
<PAGE>
Global Private Bank
In Millions of Dollars 1998 1997 1996
- ------------------------------------------------------------------------------
Adjusted revenues(1) $ 1,061 $ 1,018 $ 929
Adjusted operating expenses(2) 725 670 637
- ------------------------------------------------------------------------------
Operating margin 336 348 292
Adjusted credit benefits (3) (16) (19) (1)
- ------------------------------------------------------------------------------
Business income before taxes 352 367 293
Income taxes 98 86 62
- ------------------------------------------------------------------------------
Business income 254 281 231
Restructuring charges, after-tax 43 18 --
- ------------------------------------------------------------------------------
Net income $ 211 $ 263 $ 231
==============================================================================
Average assets (in billions of dollars) $ 17 $ 17 $ 16
Return on assets 1.24% 1.55% 1.44%
==============================================================================
Excluding restructuring charges
Return on assets 1.49% 1.65% 1.44%
==============================================================================
(1) Excludes net cost to carry cash-basis loans and OREO.
(2) Excludes restructuring charges and net OREO benefits (costs).
(3) Represents provision for credit losses, net cost to carry, and net OREO
benefits (costs).
Global Private Bank--which provides personalized wealth management
services for high net-worth clients around the world--reported business income
in 1998 of $254 million, down $27 million or 10% from 1997, primarily reflecting
lower earnings in Asia Pacific. Net income of $211 million in 1998 and $263
million in 1997, included restructuring charges of $70 million ($43 million
after-tax) and $28 million ($18 million after-tax), respectively. 1997 business
income of $281 million was up from $231 million in 1996, reflecting revenue
growth across all regions along with higher credit benefits in the United
States.
Client business volumes under management were $116 billion at the end of
the year, up from $101 billion in 1997 and $96 billion in 1996, reflecting
growth in all regions except Asia Pacific. Growth was led by the custody
business, investment funds management, banking, and trust and fiduciary
relationships.
Adjusted revenues in 1998 were $1.061 billion, up $43 million or 4% from
1997, reflecting strong growth in client-related foreign exchange and growth in
other fee revenues. Revenues for 1997 were $1.018 billion, up $89 million or 10%
from 1996, reflecting growth in fees from new investment products introduced
during the year and an increase in client-related foreign exchange.
Adjusted operating expenses of $725 million in 1998 were up $55 million or
8% from 1997, reflecting an increased sales force and higher product management
costs. Expenses of $670 million in 1997 were up $33 million or 5% from 1996,
reflecting a rise in staffing needed to support higher business volumes, as well
as increased spending on technology initiatives.
Adjusted credit benefits for 1998 were $16 million, compared with $19
million in 1997 and $1 million in 1996. 1998 credit benefits reflect increased
income on cash basis loans and higher recoveries in Europe and the United
States, offset by higher write-offs in Asia Pacific and Latin America. 1997
credit benefits improved from 1996, as the U.S. business continued to benefit
from recoveries, gains on sale of OREO, and income on cash-basis loans.
Business income in 1998 and 1997 was also reduced by a higher effective
tax rate. The effective tax rates on business income before taxes were 28%, 23%,
and 21%, in 1998, 1997, and 1996, respectively. Fluctuations in the effective
income tax rates result from changes in the nature and geographic mix of pretax
earnings.
e-CITI
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $ 147 $ 112 $ 88
Adjusted operating expenses(1) 379 239 163
- -------------------------------------------------------------------------------
Operating margin (232) (127) (75)
Credit costs 3 4 5
- -------------------------------------------------------------------------------
Business loss before taxes (235) (131) (80)
Income tax benefit (93) (52) (29)
- -------------------------------------------------------------------------------
Business loss (142) (79) (51)
Restructuring charges, after-tax 2 16 --
- -------------------------------------------------------------------------------
Net loss $(144) $ (95) $ (51)
===============================================================================
(1) Excludes restructuring charges.
e-Citi--the business that manages the Company's Internet strategy and
execution, including the creation and delivery of electronic financial services
and e-commerce initiatives, such as Direct Access and other Internet-based
transactional banking products, and provides to customers certain other
electronic banking services such as Global Debit Card Services--reported
business losses of $142 million in 1998, compared to $79 million in 1997 and $51
million in 1996. Net losses of $144 million in 1998 and $95 million in 1997,
included restructuring charges of $3 million ($2 million after-tax) and $28
million ($16 million after-tax), respectively.
Revenues, net of interest expense, were $147 million in 1998, up from $112
million in 1997 and $88 million in 1996, reflecting business volume increases in
certain electronic banking services.
Adjusted operating expenses of $379 million increased from $239 million
and $163 million in 1997 and 1996, respectively, reflecting Internet-based
financial services and e-commerce initiatives, and additional investment
spending on certain other electronic banking services.
OTHER CONSUMER
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $ 97 $ 105 $ 118
Operating expenses 236 90 42
- --------------------------------------------------------------------------------
Business income (loss) before taxes (139) 15 76
Income taxes (benefits) (53) (9) 30
- --------------------------------------------------------------------------------
Net income (loss) $ (86) $ 24 $ 46
================================================================================
Other Consumer--which includes certain treasury operations and global
marketing and other programs--reported a net loss of $86 million in 1998,
compared to net income of $24 million and $46 million in 1997 and 1996,
respectively, primarily reflecting higher spending on global advertising,
marketing, and distribution development initiatives.
14
<PAGE>
CONSUMER PORTFOLIO REVIEW
Managed loans of $181.6 billion as of December 31, 1998 were up from $149.8
billion and $145.4 billion as of December 31, 1997 and 1996, respectively. The
increase in managed consumer loans from December 31, 1997 reflects the
acquisition of UCS and worldwide portfolio growth.
In the consumer portfolio, credit loss experience is often expressed in
terms of annual net credit losses as a percentage of average loans. Pricing and
credit policies reflect the risk and credit loss experience of each particular
product. Consumer loans are generally written off no later than a predetermined
number of days past due on a contractual basis, or earlier in the event of
bankruptcy. The number of days is set at an appropriate level according to loan
product and country.
The table on page 16 summarizes delinquency and net credit loss experience
in both the managed and on-balance sheet loan portfolio in terms of loans 90
days or more past due, net credit losses, and as a percentage of related loans.
In North America, Mortgage Banking and Citibanking credit trends continue
to improve from both 1997 and 1996 levels. Mortgage Banking loans delinquent 90
days or more of $625 million at December 31, 1998 declined from $715 million at
December 31, 1997 and $903 million at December 31, 1996. Citibanking North
America delinquencies of $87 million declined from $142 million and $231
million, respectively. Similarly, Mortgage Banking net credit losses of $75
million in 1998 declined from $115 million in 1997 and $133 million in 1996.
Citibanking North America net credit losses of $124 million declined from $135
million and $147 million, respectively.
U.S. bankcards managed loans delinquent 90 days or more were $1.0 billion
or 1.45% ($812 million or 1.55% excluding UCS) at December 31, 1998, compared
with $868 million or 1.77% at December 31, 1997 and $897 million or 1.89% at
December 31, 1996. Net credit losses in 1998 were $3.1 billion and the related
loss ratio was 5.33% ($2.6 billion and 5.53% excluding UCS), compared with $2.7
billion and 5.74% in 1997 and $2.2 billion and 4.95% in 1996. The improvement in
1998 from 1997 in both the delinquency and net credit loss ratios reflects
moderating industry-wide bankruptcy trends and previously implemented credit
risk management initiatives. Citigroup continues to write off bankrupt accounts
upon notice of filing of bankruptcy.
Consumer Finance Services loans delinquent 90 days or more of $172 million
and the related ratio of 1.44% at December 31, 1998 increased from $133 million
or 1.36% at December 31, 1997 and $94 million or 1.33% at December 31, 1996. Net
credit losses in 1998 were $291 million and the related loss ratio was 2.74%,
compared with $233 million and 2.82% in 1997 and $209 million and 3.14% in 1996.
The increase in both dollar delinquencies and net credit losses principally
reflects loan growth.
In Europe, Middle East, & Africa, credit trends have been stable to
improving in most countries. Loans delinquent 90 days or more were $937 million
with a related ratio of 5.49% at December 31, 1998, compared with $905 million
or 6.00% at December 31, 1997 and $959 million or 5.91% at December 31, 1996.
Net credit losses in 1998 were $270 million and the related loss ratio was
1.71%, compared with $267 million and 1.77% in 1997 and $291 million and 1.68%
in 1996.
In Asia Pacific and Latin America, delinquencies and net credit losses
have increased from both 1997 and 1996 due to economic conditions in the
regions. Asia Pacific loans delinquent 90 days or more of $498 million at
December 31, 1998 increased from $259 million at December 31, 1997 and $256
million at December 31, 1996. Net credit losses of $227 million in 1998
increased from $171 million in 1997 and $159 million in 1996. Foreign currency
translation reduced net credit losses in Asia Pacific by approximately $70
million and $26 million in 1998 and 1997, respectively. Latin America loans
delinquent 90 days or more of $288 million at December 31, 1998 increased from
$173 million at December 31, 1997 and $124 million at December 31, 1996. Net
credit losses of $239 million in 1998 increased from $175 million in 1997 and
$185 million in 1996. The increase in Latin America delinquencies and net credit
losses also reflects loan growth.
Global Private Bank loans delinquent 90 days or more were $193 million at
December 31, 1998, compared with $110 million at December 31, 1997 and $193
million at December 31, 1996. The increase in delinquencies from 1997 reflects
an increase in Asia Pacific and Europe, the Middle East and Africa, partially
offset by improvements in North America. Net credit losses in 1998 were $5
million, compared with net recoveries of $13 million in 1997 and net credit
losses of $4 million in 1996. The increase in net credit losses from 1997
reflects higher write-offs in Asia Pacific and Latin America, partially offset
by improvements in North America.
Total consumer loans on the balance sheet delinquent 90 days or more on
which interest continued to be accrued were $1.1 billion at December 31, 1998
and $1.0 billion at both December 31, 1997 and 1996. Included in these amounts
are U.S. government-guaranteed student loans of $267 million at December 31,
1998, up from $240 million and $239 million at December 31, 1997 and 1996,
respectively, reflecting growth in the loan portfolio. Other consumer loans
delinquent 90 days or more on which interest continued to be accrued (which
primarily include worldwide bankcard receivables and certain loans in Germany)
were $790 million, $762 million, and $770 million, respectively. The majority of
these other loans are written off upon reaching a stipulated number of days past
due.
Citigroup's policy for suspending the accrual of interest on consumer
loans varies depending on the terms, security, and credit loss experience
characteristics of each product, as well as write-off criteria in place. At
December 31, 1998, interest accrual had been suspended on $2.3 billion of
consumer loans, primarily consisting of mortgage, installment, revolving, and
Private Banking loans, compared with $2.0 billion at December 31, 1997 and $2.3
billion at December 31, 1996. The increase from 1997 reflects increases in Asia
Pacific, Latin America, and the Global Private Bank, partially offset by
improvements in Mortgage Banking.
15
<PAGE>
Consumer Loan Delinquency Amounts, Net Credit Losses, and Ratios
<TABLE>
<CAPTION>
Total Average
Loans 90 Days or More Past Due(1) Loans Net Credit Losses(1)
- ---------------------------------------------- ------------------------------- ------- -------------------------------
In Millions of Dollars,
Except Loan Amounts in Billions 1998 1998 1997 1996 1998 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Citibanking North America $ 8.4 $ 87 $ 142 $ 231 $ 8.3 $ 124 $ 135 $ 147
Ratio 1.04% 1.61% 2.50% 1.49% 1.61% 1.72%
Mortgage Banking 25.6 625 715 903 24.0 75 115 133
Ratio 2.44% 3.13% 4.32% 0.31% 0.51% 0.64%
U.S. Bankcards(2) 69.1 1,001 868 897 58.6 3,123 2,662 2,169
Ratio 1.45% 1.77% 1.89% 5.33% 5.74% 4.95%
Other Cards 2.3 46 37 35 2.3 68 61 55
Ratio 1.96% 1.72% 1.76% 2.91% 2.86% 2.86%
Consumer Finance Services 11.9 172 133 94 10.6 291 233 209
Ratio 1.44% 1.36% 1.33% 2.74% 2.82% 3.14%
Europe, Middle East, & Africa 17.1 937 905 959 15.8 270 267 291
Ratio 5.49% 6.00% 5.91% 1.71% 1.77% 1.68%
Asia Pacific 21.8 498 259 256 20.2 227 171 159
Ratio 2.28% 1.34% 1.23% 1.12% 0.82% 0.81%
Latin America 8.0 288 173 124 7.8 239 175 185
Ratio 3.60% 2.34% 2.05% 3.07% 2.66% 3.44%
Global Private Bank 17.0 193 110 193 15.9 5 (13) 4
Ratio 1.14% 0.72% 1.26% 0.03% NM 0.02%
e-Citi 0.4 2 1 1 0.3 3 4 5
Ratio 0.35% 0.60% 0.56% 1.15% 1.93% 2.95%
- --------------------------------------------------------------------------------------------------------------------------------
Total managed 181.6 3,849 3,343 3,693 163.8 4,425 3,810 3,357
Ratio 2.12% 2.23% 2.54% 2.70% 2.61% 2.41%
- --------------------------------------------------------------------------------------------------------------------------------
Securitized credit card receivables (44.3) (658) (481) (501) (36.5) (2,053) (1,587) (1,392)
Loans held for sale(3) (5.0) (38) (35) -- (4.6) (134) (126) --
- --------------------------------------------------------------------------------------------------------------------------------
Total loans $ 132.3 $ 3,153 $ 2,827 $ 3,192 $ 122.7 $ 2,238 $ 2,097 $ 1,965
Ratio 2.38% 2.36% 2.66% 1.82% 1.79% 1.74%
================================================================================================================================
</TABLE>
(1) The ratios of 90 days or more past due and net credit losses are
calculated based on end-of-period and average loans, respectively, both
net of unearned income.
(2) Includes U.S. Bankcards and Travelers Bank. The U.S. Bankcards managed
ratios of 90 days or more past due and net credit losses were reduced by
10 and 20 basis points, respectively, in 1998, due to the acquisition of
the Universal Card portfolio.
(3) Commencing in 1997, Citigroup classifies credit card and mortgage loans
intended for sale as loans held for sale (included in other assets), which
are accounted for at the lower of cost or market value with net credit
losses charged to other income.
NM Not meaningful.
Consumer Loan Balances, Net of Unearned Income
<TABLE>
<CAPTION>
End of Period Average
- ------------------------------------------------------------------- -----------------------------
In Billions of Dollars 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Managed $ 181.6 $ 149.8 $ 145.4 $ 163.8 $ 145.7 $ 139.3
Securitized credit card receivables (44.3) (26.8) (25.2) (36.5) (25.2) (26.1)
Loans held for sale(1) (5.0) (3.5) -- (4.6) (3.6) --
- -------------------------------------------------------------------------------------------------------------
On-balance sheet $ 132.3 $ 119.5 $ 120.2 $ 122.7 $ 116.9 $ 113.2
=============================================================================================================
</TABLE>
(1) Commencing in 1997, Citigroup classifies credit card and mortgage loans
intended for sale as loans held for sale (included in other assets), which
are accounted for at the lower of cost or market value with net credit
losses charged to other income.
The portion of Citigroup's allowance for credit losses attributed to the
consumer portfolio was $3.3 billion as of December 31, 1998, up from $2.8
billion and $2.3 billion as of December 31, 1997 and 1996, respectively,
reflecting the 1998 addition of $320 million of credit loss reserves related to
the acquisition of the Universal Card portfolio and the 1997 restoration to the
allowance of $373 million of reserves that had previously been attributable to
credit card securitization transactions. The allowance as a percentage of loans
on the balance sheet was 2.50% as of December 31, 1998, compared with 2.35% and
1.93% at December 31, 1997 and 1996, respectively. The attribution of the
allowance is made for analytical purposes only and the entire allowance is
available to absorb probable credit losses inherent in the portfolio.
Global Consumer
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Allowance for credit losses $3,310 $2,808 $2,319
As a percentage of total loans 2.50% 2.35% 1.93%
===============================================================================
16
<PAGE>
GLOBAL CONSUMER OUTLOOK
During 1998, Global Consumer announced a number of business improvement and
integration initiatives that are projected to yield expense savings of
approximately $380 million pretax in 1999, and to reach a run rate of
approximately $540 million in annual pretax savings beginning in 2000. In 1999,
these actions, together with tighter management of non-customer expenses and
realized savings from earlier efficiency initiatives still in progress, are
expected to yield gross annual pretax expense savings of approximately $800
million. There can be no assurance that the projected cost savings will be
achieved.
Banking/Lending
Citibanking North America. The business is poised for growth in 1999 as a result
of continued improvements in revenues along with a reduction in operating
expenses. In addition, the business should benefit from the implementation of
cross-selling initiatives. Cross-selling programs and pilots currently underway
include the offering of credit cards, mortgages, investment products, and life
insurance to Citibanking customers, as well as the offering of Citibanking
products to customers of Primerica and Consumer Finance Services. Citibanking
has launched new training, licensing and compensation programs to enable and
motivate current bankers to sell the full range of financial services products
that meet clients' needs.
Mortgage Banking. Mortgage Banking, which includes Student Loans, will continue
to develop its national franchise in 1999. Growth in existing and new
distribution channels--including cross-selling programs--should maintain loan
volumes. Student Loans should continue to grow through affinity programs with
major universities and capitalize on its recently regained top position in the
U.S. government-guaranteed loan program. Continued development of other
products, including home equity and installment loans, will complement the
product offerings and should enable the business to establish lifetime
relationships with new and existing customers. Mortgage refinancing activity is
expected to moderate in 1999, however, lower than expected interest rates and
competitive pricing could result in continued higher than expected levels of
prepayment activity. Management has instituted hedging programs designed to
mitigate the impairment effects of prepayment activity.
Cards. In 1998, the business increased profitability through risk based pricing
initiatives and improved credit conditions. Additionally, the acquisition of UCS
drove the 40% growth in U.S. bankcard receivables and significantly increased
market share. As a result, the business will move into 1999 with strong
momentum. While competitive pressures will continue, the business expects to
leverage its size in meeting the needs of existing customers and to gain wallet
share by continuing to grow existing profitable relationships and testing new
value propositions and channels. Furthermore, Cards plans to meet its customers
broader financial and insurance needs through cross-selling opportunities that
should provide the fuel for continued portfolio growth. Credit costs and
delinquencies may increase from 1998 levels as a result of continued portfolio
growth.
The Consumer Finance results over the last several years have been affected by
the interest rate environment and general economic conditions. The lower
interest rate environment has resulted in modest downward pressure on interest
rates charged on new receivables secured by real estate. For CCC overall,
however, these trends have been offset somewhat by the lower costs of funds.
From time to time low interest rates combined with aggressive competitor pricing
may increase the likelihood of prepayments of mortgage loans. This impact has
been mitigated by a number of programs that have been instituted including those
designed to attract first mortgage business.
Insurance
Changes in the general interest rate environment affect the return received by
the insurance subsidiaries on newly invested and reinvested funds. While a
rising interest rate environment enhances the returns available, it reduces the
market value of existing fixed maturity investments and the availability of
gains on disposition. A decline in interest rates reduces the return available
on investment of funds, but could create the opportunity for realized investment
gains on disposition of fixed maturity investments.
As required by various state laws and regulations, the Company's insurance
subsidiaries are subject to assessments from state-administered guaranty
associations, second injury funds and similar associations. Management believes
that such assessments will not have a material impact on the Company's results
of operations, financial condition or liquidity.
Certain social, economic, and political issues have led to an increased
number of legislative and regulatory proposals aimed at addressing the cost and
availability of certain types of insurance. While most of these provisions have
failed to become law, these initiatives may continue as legislators and
regulators try to respond to public availability and affordability concerns and
the resulting laws, if any, could adversely affect the Company's ability to
write business with appropriate returns.
Travelers Life and Annuity should benefit from growth in the aging population
who are becoming more focused on the need to accumulate adequate savings for
retirement, to protect these savings and to plan for the transfer of wealth to
the next generation. Travelers Life and Annuity is well positioned to take
advantage of the favorable long-term demographic trends through its strong
financial position, widespread brand name recognition and broad array of
competitive life, annuity and long-term care insurance products sold through
established distribution channels.
However, competition in both product pricing and customer service is
intensifying. While there has been some consolidation within the industry, other
financial services organizations are increasingly involved in the sale and/or
distribution of insurance products. Deregulation of the banking industry,
including possible reform of restrictions on entry into the insurance business,
will likely accelerate this trend. Also, the annuities business is interest
sensitive, and swings in interest rates could influence sales and retention of
in force policies. In order to strengthen its competitive position, Travelers
Life and Annuity expects to maintain a current product portfolio, further
diversify its distribution channels, and retain its healthy financial position
through strong sales growth and maintenance of an efficient cost structure.
Primerica, during the last few years has instituted programs including sales and
product training that are designed to maintain high compliance standards,
increase the number of producing agents and customer contacts and, ultimately,
increase production levels. Additionally, increased effort has been made to
provide all Primerica customers full access to all Primerica marketed lines.
Insurance in force is continuing to grow and the number of producing agents is
stable. A continuation of these trends could positively influence future
operations. Primerica continues to expand cross-selling with other Company
subsidiaries of products such as loans, mutual funds, property
17
<PAGE>
and casualty insurance (automobile and homeowners), and more recently the
initiatives with Citibank.
Personal Lines strategy includes control of operating expenses to improve
competitiveness and profitability, growth in sales through independent agents
and continued expansion of alternative marketing channels to broaden
distribution to a wider customer base. Personal Lines is continuing its state by
state rollout of nonstandard auto insurance to broaden its product capabilities.
These growth strategies also provide opportunities to leverage the existing cost
structure and achieve economies of scale. In addition, Personal Lines continues
to take action to control its exposure to catastrophe losses, including limiting
the writing of new homeowners business in certain markets, and implementing
price increases in certain hurricane-prone areas, subject to restrictions
imposed by insurance regulatory authorities.
The personal auto insurance marketplace has become more competitive in
1998 as some personal auto carriers have reduced prices in selected markets.
This trend is expected to continue in 1999.
The property and casualty insurance industry in the United States
continues to consolidate. The Company's strategic objectives are to enhance its
position as a consistently profitable market leader and to become a low-cost
provider of property and casualty insurance in the United States, as the
industry consolidates. In this regard, an emphasis on claim payout and
performance and enhanced productivity efforts are expected to continue.
International Consumer
As a result of global economic conditions, particularly in Latin America and
Asia Pacific, net credit losses and the related loss ratios in certain
International Consumer businesses are expected to increase from 1998 levels.
Additionally, delinquencies and loans on which the accrual of interest is
suspended could remain at relatively high levels.
Europe, Middle East, & Africa. The newly unified Europe represents a large
market whose size and strong demographic characteristics rival that of the U.S.
Additional growth opportunity comes from the developing markets of Central and
Eastern Europe where an emerging middle class is expected to fuel the demand for
financial services. Along with the markets, consumers are experiencing profound
changes. Not unlike the U.S., as the social reforms take hold, an increasing
recognition on the part of consumers that they will need to fund their own
retirements is fueling a substantial investment product opportunity. Although
the European Economic Monetary Union (EMU) represents great opportunity, the
challenges are substantial. A single market requires pan-European product
offerings, brings increased competition, and creates a greater ability on the
part of consumers to comparison shop across borders. Citigroup's strengths in
distribution and consistent global advertising and marketing efforts will
provide a strong platform to expand beyond the current European presence.
Asia Pacific. The macroeconomic environment across Asia Pacific was difficult
during 1998 with most economies contracting along with significant volatility of
interest rates and foreign exchange rates. From a competitive perspective, the
economic turbulence has begun to lead to early rationalization and some
consolidation in the financial services and banking sector. During 1998,
franchise growth reflected the "flight-to-quality" in the region, particularly
in Japan. The business maintained a tight focus on loan underwriting and
increased productivity throughout the region, especially in the back office.
Credit costs have risen since 1997 and are expected to remain at high levels in
1999 as unemployment rises and GDP growth remains sluggish. However, the
business is well positioned in 1999 for continued franchise growth.
Latin America. Latin America now serves nearly five million customers, with
credit and charge cards commanding a leading share position in four countries.
Substantial steps have been taken to build the franchise across the region,
including acquisitions in Mexico and Argentina, and opening sales and service
channels through non-traditional means, such as presence in retail outlets in
four countries and enhanced online banking offerings in five countries. The
region has experienced deteriorating economic conditions in many of its
countries, which has resulted in reduced GDP growth and a difficult credit
environment. This trend is expected to continue in 1999, as the impact of the
Brazilian currency devaluation is felt across the region. Latin America will
mitigate the effects of this downturn by re-focusing lending efforts toward less
risky segments of the population. Additionally, increased efforts will be made
to grow existing customer relationships and toward continued operating expense
reductions.
Global Private Bank. The market for private banking services is extremely
attractive because the "wealth" segment has been growing faster than the overall
market. Although the financial crisis in a number of emerging market countries
has had an adverse impact, several regions, particularly the United States and
Europe, remain very strong and the prospects for the overall market continue to
be positive over the longer term. While competition for this attractive and
dynamic market segment is increasing, the global market is highly fragmented
with no dominant competitors. This presents the Global Private Bank with an
extremely attractive business opportunity because it is one of the few providers
that can claim to offer a full range of private banking services on a global
basis.
18
<PAGE>
GLOBAL CORPORATE AND
INVESTMENT BANK
<TABLE>
<CAPTION>
In Millions of Dollars 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Adjusted revenues(1) $ 21,744 $ 23,204 $ 21,719
Adjusted operating expenses(2) 14,512 14,237 13,202
Provisions for benefits, claims, and credit losses(3) 4,160 3,667 3,153
Net cost to carry and net OREO benefits (27) (71) (85)
- ----------------------------------------------------------------------------------------
Adjusted provisions for benefits, claims,
and credit costs 4,133 3,596 3,068
- ----------------------------------------------------------------------------------------
Business income before taxes and
minority interest 3,099 5,371 5,449
Income taxes 915 1,701 1,712
Minority interest, after-tax 143 132 90
- ----------------------------------------------------------------------------------------
Business income 2,041 3,538 3,647
Restructuring charges (credit), after-tax (26) 664 --
Acquisition-related costs, after-tax -- -- 372
Loss on disposition of subsidiary, after-tax -- -- 290
- ----------------------------------------------------------------------------------------
Net income $ 2,067 $ 2,874 $ 2,985
========================================================================================
</TABLE>
(1) Excludes net cost to carry cash-basis loans and OREO.
(2) Excludes restructuring charges (credit), net OREO benefits, and
acquisition-related costs and includes operating expenses from
discontinued operations.
(3) Excludes acquisition-related costs.
Citigroup's Global Corporate and Investment Bank business serves
corporations, financial institutions, governments, investors, and other
participants in capital markets throughout the world and consists of Salomon
Smith Barney (SSB), Emerging Markets, Global Relationship Banking (GRB), and the
Commercial Lines Insurance business of TAP. SSB is one of the largest brokerage
firms in the world, with a significant presence in most major financial
products. Emerging Markets provides a wide array of banking products and
services to multi-national and large and emerging local corporations in nearly
80 emerging-market countries worldwide. Global Relationship Banking focuses on
providing banking, capital markets, and transaction processing services to large
multi-national companies in 22 developed countries and to their subsidiaries
around the world. TAP is one of the largest property and casualty insurers in
the United States offering, among other products, workers' compensation,
commercial multi-peril, commercial auto, other liability, fidelity and surety,
and property and other lines, which it distributes through independent agents
and brokers. Adjusted revenues of $21.744 billion in 1998 were attributed to the
following geographic regions: North America--79%, Asia Pacific--8%, Latin
America--5%, Europe--3%, Japan--2%, and all other--3%.
During 1998, Global Corporate and Investment Bank recorded a restructuring
charge totaling $324 million ($203 million after-tax). The restructuring
initiatives are designed to realize synergies and operating efficiencies. The
savings will come from SSB, Emerging Markets, and GRB as the businesses
rationalize their presence in countries with multiple operations, consolidate
Citibank and SSB locations, integrate trading platforms, and exit non-strategic
businesses. During 1997 SSB recorded a restructuring charge of $838 million
($496 million after-tax) primarily for severance and costs related to excess or
unused office space, facilities, and other assets. During 1998 SSB recorded an
adjustment of $354 million ($209 million after-tax) to the 1997 restructuring
reserve as a result of negotiations indicating that certain excess space would
be disposed of on terms more favorable than had originally been estimated.
During 1997 Emerging Markets and GRB recorded an aggregate restructuring charge
of $281 million ($168 million after-tax) related to standardization and
consolidation of operations, the outsourcing of various technological functions,
the rationalization of support functions, and other organizational realignments
designed to better serve target market customers. During 1998, Emerging Markets
and GRB recorded an adjustment of $32 million ($20 million after-tax) to reduce
the 1997 restructuring reserve primarily reflecting lower than anticipated
severance costs due to higher attrition and redeployment of personnel within the
Company. See Note 15 of Notes to Consolidated Financial Statements.
Global Corporate and Investment Bank results in 1998 were adversely
affected by the global economic turmoil experienced during the year, which
dampened revenue performance at SSB, Emerging Markets, and GRB and negatively
affected credit at Emerging Markets and GRB. In addition, costs associated with
the Year 2000 and preparation for the introduction of the Euro contributed to
expense growth in GRB. Commercial Lines reported improved results compared with
1997 due to increased net investment income, partially offset by catastrophe and
other weather-related losses during the year. Global Corporate and Investment
Bank results in 1997 compared with 1996 reflected lower principal trading
revenues at SSB resulting from the volatility in the global equity markets and a
loss on a risk arbitrage position. Additionally, lower results in Emerging
Markets were largely attributable to investment spending on franchise expansion
and higher credit costs in Asia. Improved results in GRB reflected revenue
growth and better credit performance. A 27% improvement in Commercial Lines
results primarily related to higher net investment income, lower catastrophe
losses, and expense savings associated with the integration of the business
acquired from Aetna P&C.
Losses on commercial lending activities can vary widely with respect to
timing and amount, particularly within any narrowly-defined business or loan
type. Commercial loans are identified as impaired and placed on a nonaccrual
basis when it is determined that the payment of interest or principal is
doubtful of collection or when interest or principal is past due for 90 days or
more, except when the loan is well secured and in the process of collection.
Impaired commercial loans are written down to the extent that principal is
judged to be uncollectible. Citigroup's allowance for credit losses of $6.6
billion is available to absorb all probable credit losses inherent in the
portfolio. For analytical purposes only, Citigroup attributes a portion of this
reserve to its commercial loans. Reserves attributed to commercial loans totaled
$3.3 billion at both December 31, 1998 and 1997. In 1998 and 1997, asset quality
improved in the developed markets, but deteriorated in a number of emerging
markets. The commercial allowance for credit losses as a percentage of
commercial loans at December 31, 1998 and 1997 was 3.7% and 4.2%, respectively.
Credit costs and cash-basis loans may increase from the 1998 levels due to
global economic developments, particularly in Latin America and Asia Pacific.
At December 31, 1998, Global Corporate and Investment Bank had
mark-to-market exposure to hedge funds of $2.0 billion, fully collateralized by
cash and government securities. Within these amounts, certain hedge funds have
collateral in excess of the mark-to-market deficit, and others have deficits in
excess of collateral held. The total exposure to hedge funds with mark-to-market
deficits in excess of collateral held is $40 million. No single hedge fund had a
mark-to-market deficit of more than $14 million in excess of collateral held
from that hedge fund. Other outstandings and commitments to hedge funds totaled
$131 million, of which $129 million was secured and $2 million was unsecured.
Mark-to-market exposure includes those hedge funds that owe Global Corporate and
Investment Bank on foreign exchange and derivative contracts such as swaps, swap
options, and other over-the-counter options, and only the uncollateralized
portion of receivables on reverse repurchase and repurchase agreements. This
exposure can change significantly as a result of extreme market movements.
During 1998,
19
<PAGE>
Salomon Smith Barney made an investment of $300 million in Long-Term Capital
Management, LP, a hedge fund, in concert with a consortium of banks and
securities firms.
SALOMON SMITH BARNEY
The following data does not include the Asset Management division of Salomon
Smith Barney. The division's results are included in the Asset Management
segment.
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $ 8,333 $10,218 $10,107
Adjusted operating expenses(1) 7,702 7,895 7,418
- --------------------------------------------------------------------------------
Business income before taxes 631 2,323 2,689
Income taxes 223 885 1,051
- --------------------------------------------------------------------------------
Business income 408 1,438 1,638
Restructuring charges (credit), after-tax (163) 496 --
Loss on disposition of subsidiary, after-tax -- -- 290
- --------------------------------------------------------------------------------
Net income $ 571 $ 942 $ 1,348
================================================================================
(1) Excludes restructuring charges (credit).
Salomon Smith Barney's earnings include Salomon for all periods presented.
During the latter part of 1998 Salomon Smith Barney's performance was depressed
by extreme economic turmoil in much of the world. Volatility in the global
markets continued to negatively affect principal trading results, particularly
in fixed income trading, as well as in global arbitrage as Salomon Smith Barney
continued to scale back non-strategic positions. Revenues for the three years
ended December 31, 1998 by category were as follows:
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Commissions $ 3,203 $ 2,956 $ 2,600
Investment banking 2,281 2,082 1,975
Principal transactions (116) 2,501 3,024
Asset management and administration fees(1) 1,308 998 777
Net interest and dividends(2) 1,457 1,533 1,515
Other income 200 148 216
- --------------------------------------------------------------------------------
Total revenues, net of interest expense(2) $ 8,333 $10,218 $10,107
================================================================================
(1) Excludes the revenues of SSB Asset Management which are reported in the
Asset Management business segment.
(2) Net of interest expense of $11.432 billion, $10.496 billion and $8.137
billion in 1998, 1997 and 1996, respectively.
Revenues, net of interest expense in 1998 declined 18% to $8.333 billion,
due primarily to a decline in principal transaction revenue from fixed income
and global arbitrage offset to an extent by increases in commissions, asset
management and administration fees and investment banking revenues. Revenues,
net of interest expense in 1997 were $10.218 billion, a slight improvement over
the $10.107 billion in 1996 primarily reflecting increases in commissions and
asset management and administration fees offset by a decline in principal
transaction revenues from equities, fixed income and commodities trading.
Commissions revenue increased 8% in 1998 to $3.203 billion, from $2.956
billion in 1997 and $2.600 billion in 1996. The 1998 and 1997 increases reflect
growth in sales of listed and over-the-counter (OTC) securities. The 1997
increase also reflects higher commissions from mutual funds activity as well as
increased insurance and annuity sales.
Investment banking revenues were $2.281 billion in 1998 compared to
$2.082 billion in 1997 and $1.975 billion in 1996. The increases in 1998 and
1997 reflect revenue growth in unit trust, public finance and high grade debt
underwritings, and mergers and acquisitions. This was offset somewhat by a
decline in equity underwritings. Investment banking revenues in 1997 were also
favorably impacted by an increase in private placement fees offset by a decline
in high yield underwritings. Investment banking revenues in 1998 were also
favorably impacted by increased high yield underwriting revenues. For 1998,
Salomon Smith Barney was ranked #1 in the industry in municipal underwritings,
and #2 in domestic and #3 in global debt and equity underwriting, according to
Securities Data Corp.
Principal transactions revenues declined to a loss of $116 million in
1998. Decreases in fixed income trading results include losses due to risk
reductions in the U.S. fixed income arbitrage business, and losses in other
global arbitrage. These decreases were partially offset by an increase in equity
trading results. Fixed income trading results were adversely impacted by
significant dislocations in the global fixed income markets, including greatly
reduced liquidity and widening credit spreads. Included in these results are
Russian-related losses. In 1997, principal transaction revenues decreased to
$2.501 billion from $3.024 billion in 1996. This was the result of a decrease in
long-term fixed income trading strategies, partially offset by an increase in
customer sales and trading. Also contributing to the 1997 decline was increased
volatility in the global equity markets and a loss on a risk arbitrage position
in British Telecommunications PLC and MCI Communications Corporation, partially
offset by improved results in long-term equity strategies.
Salomon Smith Barney's assets at December 31, 1998 were approximately $211
billion, consisting primarily of highly liquid marketable securities and
collateralized receivables. Approximately 42% of these assets represent trading
securities, commodities and derivatives used for proprietary trading and to
facilitate customer transactions and approximately 42% of these assets were
related to collateralized financing transactions where securities are bought,
borrowed, sold and lent in generally offsetting amounts. A significant portion
of the remainder of the assets represented receivables from brokers, dealers,
clearing organizations and customers that relate to securities transactions in
the process of being settled.
Salomon Smith Barney's assets are financed through a number of sources
including long and short-term unsecured borrowings, the financing transactions
described above and payables to brokers, dealers and customers.
Asset management and administration fees were $1.308 billion in 1998
compared to $998 million in 1997 and $777 million in 1996. Total assets under
fee-based management at December 31, were as follows:
In Billions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Financial Consultant managed accounts $ 16.5 $ 11.6 $ 7.9
Consulting Group externally managed assets 71.9 59.7 44.1
- --------------------------------------------------------------------------------
Total assets under fee-based management(1) $ 88.4 $ 71.3 $ 52.0
================================================================================
(1) Excludes the assets under management of SSB Asset Management, which are
reported in the Asset Management business segment.
20
<PAGE>
Net interest and dividends were $1.457 billion in 1998 compared to $1.533
billion in 1997 and $1.515 billion in 1996.
Adjusted operating expenses were $7.702 billion in 1998 compared to $7.895
billion in 1997 and $7.418 billion in 1996. Adjusted operating expenses were
relatively unchanged in 1998 while the 6% increase in 1997 over 1996 primarily
reflects an increase in production-related compensation and employee benefits
expense, reflecting increased revenues, as well as higher floor brokerage and
other production-related costs. Salomon Smith Barney also continues to maintain
its focus on controlling fixed expenses.
EMERGING MARKETS
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $3,363 $3,168 $3,004
Net cost to carry cash-basis loans and OREO 59 15 3
- -------------------------------------------------------------------------------
Adjusted revenues 3,422 3,183 3,007
Adjusted operating expenses(1) 2,017 1,893 1,644
- -------------------------------------------------------------------------------
Operating margin 1,405 1,290 1,363
Adjusted credit costs(2) 480 135 76
- -------------------------------------------------------------------------------
Business income before taxes 925 1,155 1,287
Income taxes 235 246 287
- -------------------------------------------------------------------------------
Business income 690 909 1,000
Restructuring charges, after-tax 50 32 --
- -------------------------------------------------------------------------------
Net income $ 640 $ 877 $1,000
===============================================================================
Average assets (in billions of dollars) $ 81 $ 66 $ 54
Return on assets 0.79% 1.33% 1.85%
===============================================================================
Excluding restructuring charges
Return on assets 0.85% 1.38% 1.85%
===============================================================================
(1) Excludes restructuring charges and net OREO benefits.
(2) Represents provision for credit losses, net cost to carry, and net OREO
benefits.
Emerging Markets business income totaled $690 million in 1998, down $219
million or 24% from 1997. Net income was $640 million in 1998, down $237 million
or 27% from 1997. Included in 1998 and 1997 net income are net restructuring
charges of $73 million ($50 million after-tax) and $54 million ($32 million
after-tax), respectively. Business income in 1997 of $909 million declined $91
million or 9% from 1996.
Adjusted revenues of $3.422 billion grew $239 million or 8% (17% excluding
the effect of foreign currency translation) compared with 1997 reflecting a $245
million improvement in trading-related revenues to $1.051 billion (which
includes a $57 million loss attributable to Russia), double-digit growth in
transaction banking services and loan product revenues, and improved treasury
results. These increases were partially offset by a $248 million decline in
realized gains from sales of investments (which includes a $148 million
writedown of impaired Russian available-for-sale securities in 1998) and a $59
million decline in net asset gains. Adjusted revenues of $3.183 billion in 1997
grew $176 million or 6% (9% excluding the effect of foreign currency
translation) compared with 1996, reflecting a $70 million improvement in
realized gains from sales of investments, moderate growth in transaction banking
services revenues, and a $36 million improvement in trading-related revenues to
$806 million. Higher asset levels across the franchise mitigated the effect of
net interest spread compression on 1997 revenue growth.
Adjusted revenues in Asia Pacific (comprising 13 countries and territories
excluding Japan and the Indian subcontinent, but including Australia and New
Zealand) improved 14% in 1998 compared with 1997 and improved 15% in 1997
compared with 1996. The improvement in both periods resulted primarily from
higher trading-related revenues, while 1998 also benefited from improved
treasury results and 1997 reflects significantly improved transaction banking
results. Revenues attributed to Citigroup's plans to gain market share in
selected emerging market countries, together with new franchises, accounted for
7%, 5%, and 2% of the Emerging Markets business revenues in 1998, 1997, and
1996, respectively, and grew 63% from 1997 to 1998 and 119% from 1996 to 1997.
About 31%, 29%, and 27% of the revenue in the Emerging Markets business in 1998,
1997, and 1996 was attributable to business from multinational companies managed
jointly with Global Relationship Banking, with that revenue having grown 15%
from 1997 to 1998 and 15% from 1996 to 1997.
Adjusted operating expenses were $2.017 billion, $1.893 billion, and
$1.644 billion in 1998, 1997, and 1996, respectively. The growth in expenses in
the three-year period was primarily attributable to investment spending to build
the franchise, together with volume growth.
Adjusted credit costs were $480 million, $135 million, and $76 million in
1998, 1997, and 1996, respectively. The increase in 1998 was concentrated in
Indonesia and Russia, while the increase in 1997 was concentrated in Thailand,
in each case reflecting the effects of economic turmoil experienced in those
countries. Adjusted credit costs in 1998 and 1997 included $83 million and $35
million, respectively, related to foreign currency derivative contracts.
Cash-basis loans at December 31, 1998, 1997, and 1996 were $1.062 billion, $649
million, and $366 million. The increase in 1998 was concentrated in Indonesia
and several other Asian countries while the increase in 1997 was concentrated in
Thailand and several other Asian and Latin American countries. Cash-basis loans
at December 31, 1998 and 1997 include approximately $14 million and $59 million,
respectively, of balance sheet credit exposure related to foreign currency
derivative contracts for which the recognition of revaluation gains has been
suspended. See the table entitled "Cash-Basis, Renegotiated, and Past Due Loans"
on page 84.
The effective income tax rates on business income before taxes in 1998,
1997, and 1996 were 25%, 21%, and 22%, respectively. Fluctuations in the
effective income tax rates result from changes in the nature and geographic mix
of pretax earnings.
Average assets of $81 billion in 1998 rose $15 billion or 23% from 1997
reflecting growth across all geographic segments. The growth was concentrated in
the loan portfolio and trade finance products, together with treasury
initiatives. Average assets of $66 billion in 1997 rose $12 billion or 22% from
1996 reflecting growth in loan products and treasury initiatives.
21
<PAGE>
GLOBAL RELATIONSHIP BANKING
In Millions of Dollars 1998 1997 1996
- ------------------------------------------------------------------------------
Total revenues, net of interest expense $ 3,542 $ 3,518 $ 3,220
Net cost to carry cash-basis loans and OREO (34) (18) (39)
- ------------------------------------------------------------------------------
Adjusted revenues 3,508 3,500 3,181
Adjusted operating expenses(1) 3,218 2,821 2,603
- ------------------------------------------------------------------------------
Operating margin 290 679 578
Adjusted credit benefits(2) (113) (170) (88)
- ------------------------------------------------------------------------------
Business income before taxes 403 849 666
Income taxes 183 290 156
- ------------------------------------------------------------------------------
Business income 220 559 510
Restructuring charges, after-tax 87 136 --
- ------------------------------------------------------------------------------
Net income $ 133 $ 423 $ 510
==============================================================================
Average assets (in billions of dollars) $ 89 $ 81 $ 76
Return on assets 0.15% 0.52% 0.67%
==============================================================================
Excluding restructuring charges
Return on assets 0.25% 0.69% 0.67%
==============================================================================
(1) Excludes restructuring charges and net OREO benefits.
(2) Represents provision for credit losses, net cost to carry, and net OREO
benefits.
Business income from Global Relationship Banking in North America, Europe,
and Japan was $220 million in 1998, down $339 million or 61% from 1997. Net
income was $133 million in 1998, down $290 million or 69% from 1997. Included in
1998 and 1997 net income are net restructuring charges of $141 million ($87
million after-tax) and $227 million ($136 million after-tax), respectively.
Business income in 1997 of $559 million improved $49 million or 10% from 1996.
Adjusted revenues in 1998 of $3.508 billion were essentially unchanged
from 1997. The 1998 results reflect double-digit growth in transaction banking
services revenues, a $37 million increase in realized gains from sales of
investments, and a $13 million increase in trading-related revenues to $999
million (which includes losses of $168 million attributable to the volatility
experienced in the global capital markets during the second half of the year).
The growth was essentially offset by an $86 million decline in asset sales and
lower corporate finance revenues. Adjusted revenues of $3.500 billion in 1997
grew $319 million or 10% from 1996. Revenue growth reflected improved
trading-related revenues totaling $986 million--up $101 million from 1996,
double-digit growth rates in transaction banking services and corporate finance
revenues, a $90 million increase in realized gains from sales of investments,
and a $44 million increase in net asset gains primarily from the real estate
portfolio, partially offset by net interest spread compression.
Adjusted operating expenses were $3.218 billion, $2.821 billion, and
$2.603 billion in 1998, 1997, and 1996, respectively. The growth in expenses in
the three-year period was primarily attributable to increased spending on
technology, including costs related to the Year 2000 and the European EMU,
volume-related expense growth and, in 1997, higher incentive compensation.
Adjusted credit benefits of $113 million in 1998 declined from a benefit
of $170 million in 1997, primarily reflecting the write-off of foreign currency
derivative contracts totaling $53 million attributable to the financial market
turmoil in Russia. Adjusted credit benefits of $170 million in 1997 improved $82
million from 1996 reflecting lower gross write-offs together with a continued
high level of recoveries.
Cash-basis loans at December 31, 1998, 1997 and 1996 were $268 million,
$401 million, and $521 million while the OREO portfolio totaled $235 million,
$440 million, and $587 million, respectively. The improvements in both
cash-basis loans and OREO in 1998 and 1997 are primarily related to the real
estate portfolio. See the tables entitled "Cash-Basis, Renegotiated, and Past
Due Loans" and "Other Real Estate Owned and Assets Pending Disposition" on pages
84 and 85.
The effective income tax rates on business income before taxes in 1998,
1997, and 1996 were 45%, 34%, and 23%, respectively. Fluctuations in the
effective income tax rates result from changes in the nature and geographic mix
of pretax earnings.
Average assets of $89 billion in 1998 grew $8 billion or 10% from 1997,
primarily reflecting an increase in the fair value of trading assets, including
derivative and foreign exchange contracts, higher lending to target market
clients, and higher volumes in transaction banking services. Average assets of
$81 billion in 1997 grew $5 billion or 7% from 1996 primarily in trading-related
activities and the loan portfolio.
COMMERCIAL LINES INSURANCE
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $6,481 $6,303 $5,424
Operating expenses(1) 1,575 1,628 1,537
Claims and claim adjustment expenses(1) 3,766 3,631 3,080
- --------------------------------------------------------------------------------
Business income before taxes and
minority interest 1,140 1,044 807
Income taxes 274 280 218
Minority interest 143 132 90
- --------------------------------------------------------------------------------
Business income(2) 723 632 499
Acquisition-related costs, after-tax and
minority interest -- -- 372
- --------------------------------------------------------------------------------
Net income $ 723 $ 632 $ 127
================================================================================
(1) Excludes acquisition-related costs.
(2) Excludes investment gains/losses included in Investment Activities segment
and acquisition-related costs.
Business income was $723 million in 1998 compared to $632 million in 1997
and $499 million in 1996. The 1998 increase compared to 1997 was due to
increased after-tax net investment income, continued expense reductions and
lower environmental and cumulative injury incurred losses, partially offset by
increased losses from catastrophes and other weather-related events. The
improvement in 1997 primarily resulted from the inclusion in 1997 of Aetna P&C
for the entire year compared to only nine months for 1996, higher net investment
income, lower catastrophe losses and expense savings associated with the
acquisition and integration of Aetna P&C. Operating results also reflected
market conditions characterized by difficult pricing and increased competition.
The impact of this trend in market conditions on 1998 and 1997 operating results
was offset by the factors previously indicated as well as a continued
disciplined approach to underwriting and risk management.
The Company incurred charges during 1996 related to the acquisition and
integration of Aetna P&C. These charges resulted primarily from costs of the
acquisition and the application of the Company's strategies, policies and
practices to Aetna P&C reserves. The charges related to Commercial Lines include
$261 million after-tax and minority interest ($490 million before tax and
minority interest) in reserve increases, net of reinsurance, related primarily
to cumulative injury claims other than asbestos (CIOTA); $45
22
<PAGE>
million after-tax and minority interest ($84 million before tax and minority
interest) in additional asbestos liabilities pursuant to an existing settlement
agreement with a customer of Aetna P&C; a $32 million after-tax and minority
interest ($60 million before tax and minority interest) charge related to
premium collection issues on loss sensitive programs, specifically large
deductible products; an $18 million after-tax and minority interest ($34 million
before tax and minority interest) provision for uncollectibility of reinsurance
recoverables of Aetna P&C determined by applying TAP's normal guidelines for
estimating collectibility of such accounts; and a $16 million after-tax and
minority interest ($30 million before tax and minority interest) provision for
lease and severance costs of Travelers P&C related to the restructuring plan for
the acquisition.
Net written premiums by market for the three years ended December 31, 1998
were as follows:
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
National accounts $ 625 $ 657 $ 714
Commercial accounts 1,800 1,986 1,485
Select accounts 1,494 1,432 1,191
Specialty accounts 695 682 605
- --------------------------------------------------------------------------------
$4,614 $4,757 $3,995
================================================================================
Certain production statistics related to Aetna P&C operations are provided
in the following narrative for comparative purposes for periods prior to April
2, 1996 and are not reflected in such prior period revenues or operating
results.
Commercial Lines net written premiums in 1998 totaled $4.614 billion, down
$143 million from $4.757 billion in 1997, reflecting a $142 million adjustment
in the first quarter of 1997 to net written premiums due to a change to conform
the Aetna P&C method of recording certain net written premiums to the method
employed by Travelers P&C. Without this adjustment, net written premiums were
level with the prior year reflecting the highly competitive marketplace and the
Company's continued disciplined approach to underwriting and risk management.
Commercial Lines net written premiums totaled $4.757 billion in 1997, up $673
million from $4.084 billion in 1996 (excluding an adjustment associated with a
reinsurance transaction), reflecting the inclusion in 1997 of Aetna P&C for the
entire year compared to only nine months in 1996 and the $142 million adjustment
noted above. This increase was offset in part by the highly competitive
conditions in the marketplace and the Company's continued disciplined approach
to underwriting and risk management. On a combined total basis including Aetna
P&C (for periods prior to April 2, 1996 for comparative purposes only),
Commercial Lines net written premiums totaled $4.757 billion in 1997, up $67
million from $4.690 billion in 1996. The 1997 increase was attributable to the
change to conform the Aetna P&C method with the Travelers P&C method of
recording net written premiums, partially offset by the highly competitive
marketplace and the Company's disciplined approach to underwriting and risk
management.
Fee income was $306 million in 1998 compared to $365 million in 1997 and
$392 million in 1996. The decreases in fee income were the result of the
depopulation of involuntary pools serviced by the Company as the loss experience
of workers' compensation improved and insureds moved to voluntary markets and
the Company's continued success in lowering workers' compensation losses of
service customers.
National Accounts works with national brokers and regional agents
providing insurance coverages and services, primarily workers' compensation,
mainly to large corporations. National Accounts also includes the alternative
market business, which sells claims and policy management services to workers'
compensation and automobile assigned risk plans, self-insurance pools throughout
the United States and to niche voluntary markets. National Accounts' net written
premiums were $625 million in 1998 compared to $657 million in 1997 and $803
million in 1996 (excluding a one-time adjustment associated with a reinsurance
transaction). On a combined total basis including Aetna P&C (for periods prior
to April 2, 1996 for comparative purposes only), National Accounts net written
premiums were $874 million in 1996. The 1998 decrease was primarily due to a
decrease in the Company's level of involuntary pool participation, the result of
pricing declines due to the highly competitive marketplace, and the Company's
continued disciplined approach to underwriting and risk management. The 1997
decrease was primarily due to a decrease in the Company's level of involuntary
pool participation, the highly competitive marketplace and the Company's
continued disciplined approach to underwriting and risk management.
National Accounts new business and business retention ratio were virtually
the same in 1998 as they were in 1997. National Accounts experienced an increase
in claim service-only business as well as favorable results from continued
product development efforts, especially in workers' compensation managed care
programs. National Accounts new business in 1997 was significantly higher than
in 1996 reflecting continued product development efforts, especially in workers'
compensation managed care programs. National Accounts business retention ratio
was also significantly higher in 1997 than in 1996, reflecting the Company's
continued focus on retaining profitable business.
Commercial Accounts serves mid-size businesses for casualty products and
both large and mid-size businesses for property products through a network of
independent agents and brokers. Commercial Accounts net written premiums were
$1.800 billion in 1998 compared to $1.986 billion in 1997 and $1.485 billion in
1996. On a combined total basis including Aetna P&C (for periods prior to April
2, 1996 for comparative purposes only), Commercial Accounts net written premiums
were $1.725 billion in 1996. The 1998 decrease reflected a $127 million
adjustment in the first quarter of 1997 to net written premiums due to the
change to conform the Aetna P&C method with the Travelers P&C method of
recording certain net written premiums. Excluding this adjustment, net written
premiums decreased $59 million reflecting pricing declines due to the highly
competitive marketplace and the Company's continued disciplined approach to
underwriting and risk management. The increase in 1997 reflected a $127 million
adjustment due to the change to conform the Aetna P&C method with the Travelers
P&C method of recording certain net written premiums and the continued growth
through programs designed to leverage underwriting experience in specific
industries, partially offset by the highly competitive marketplace and the
Company's continued disciplined approach to underwriting and risk management.
For 1998, new premium business in Commercial Accounts significantly
declined compared to 1997, reflecting the Company's focus on obtaining new
accounts where it can maintain its selective underwriting policy. The Commercial
Accounts business retention ratio remained strong in 1998 and was virtually the
same as 1997, reflecting the Company's focus on retaining profitable business.
In 1997, new business in Commercial Accounts significantly improved compared to
1996, reflecting continued growth in programs designed to leverage underwriting
experience in specific industries. The Commercial Accounts business retention
ratio in 1997 significantly
23
<PAGE>
improved compared to 1996. Commercial Accounts continues to focus on the
retention of existing business while maintaining its product pricing standards
and its selective underwriting policy.
Select Accounts serves small businesses through a network of independent
agents. Select Accounts net written premiums were $1.494 billion in 1998
compared to $1.432 billion in 1997 and $1.191 billion in 1996. On a combined
total basis including Aetna P&C (for periods prior to April 2, 1996 for
comparative purposes only), Select Accounts net written premiums were $1.412
billion in 1996. The 1997 amount included a first quarter increase of $15
million to net written premiums due to the change to conform the Aetna P&C
method with the Travelers P&C method of recording certain net written premiums.
Excluding this adjustment, the increase in Select Accounts net written premiums
reflected lower ceded premiums, partially offset by the highly competitive
marketplace and the Company's continued disciplined approach to underwriting and
risk management. The increase in 1997 reflected the $15 million adjustment due
to the change to conform the Aetna P&C method with the Travelers P&C method of
recording certain net written premiums and the continued benefit from the
broader industry and product line expertise of the combined company, partially
offset by the highly competitive marketplace and the Company's continued
disciplined approach to underwriting and risk management.
New premium business in Select Accounts was moderately lower in 1998
compared to 1997 reflecting the highly competitive marketplace and the Company's
continued disciplined approach to underwriting and risk management. Select
Accounts business retention ratio remained strong in 1998 and was virtually the
same as 1997. New premium business in Select Accounts was moderately higher in
1997 than in 1996, reflecting an increase due to the acquisition of Aetna P&C,
partially offset by a decrease due to the competitive marketplace. The Select
Accounts business retention ratio remained strong in 1997 and was moderately
higher than in 1996, reflecting the Company's focus on retaining profitable
business.
Specialty Accounts markets products to national, midsize, and small
customers, and distributes them through both wholesale brokers and retail agents
and brokers throughout the United States. Specialty Accounts net written
premiums were $695 million in 1998 compared to $682 million in 1997 and $605
million in 1996. On a combined total basis including Aetna P&C (for periods
prior to April 2, 1996 for comparative purposes only), Specialty Accounts net
written premiums for 1996 were $679 million. The 1998 increase reflects strong
production in excess and surplus lines, partially offset by a highly competitive
marketplace and the Company's continued disciplined approach to underwriting and
risk management. The 1997 increase compared to 1996 was due to increased
writings of its excess and surplus lines business, partially offset by lower
directors' and officers' liability insurance writings due to the termination of
an exclusive arrangement with a managing general agent.
Catastrophe losses, net of tax and reinsurance, were $25 million in 1998
compared to $5 million in 1997 and $31 million in 1996. The 1998 catastrophe
losses were primarily due to Hurricane Georges in the third quarter and
tornadoes in Nashville, Tennessee in the second quarter. The 1997 catastrophe
losses were primarily due to tornadoes in the Midwest in the first quarter.
Catastrophe losses in 1996 were primarily due to Hurricane Fran and December
storms on the West Coast.
Statutory and GAAP combined ratios (before allocation of corporate
expenses) for Commercial Lines were as follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Statutory
Loss and LAE ratio 78.5% 78.4% 95.6%
Underwriting expense ratio 29.7 30.6 32.5
Combined ratio before policyholder dividends 108.2 109.0 128.1
Combined ratio 109.1 111.0 128.8
- -------------------------------------------------------------------------------
GAAP
Loss and LAE ratio 78.4% 78.3% 92.4%
Underwriting expense ratio 31.1 30.4 35.9
Combined ratio before policyholder dividends 109.5 108.7 128.3
Combined ratio 110.4 109.9 129.3
===============================================================================
GAAP combined ratios for Commercial Lines differ from statutory combined
ratios primarily due to the deferral and amortization of certain expenses for
GAAP reporting purposes only. In addition, certain 1996 purchase accounting
adjustments recorded in connection with the Aetna P&C acquisition resulted in a
charge to statutory expenses. For purposes of computing GAAP combined ratios,
fee income is allocated as a reduction of losses and loss adjustment expenses
and other underwriting expenses.
The 1997 statutory and GAAP combined ratios for Commercial Lines included
an adjustment due to a change to conform the Aetna P&C method with the Travelers
P&C method of recording certain net written premiums. Excluding this adjustment,
the statutory and GAAP combined ratios before policyholder dividends for 1997
would have been 109.5% and 109.6%, respectively. The decrease in the 1998
statutory and GAAP combined ratios before policyholder dividends compared to the
1997 statutory and GAAP combined ratios before policyholder dividends excluding
this adjustment was due to continued expense reductions and lower environmental
and cumulative injury incurred losses, partially offset by higher catastrophe
and other weather-related losses and lower fee income.
The decrease in the 1997 statutory and GAAP combined ratios for Commercial
Lines, excluding the adjustment to conform the Aetna P&C method with the
Travelers P&C method of recording certain net written premiums, compared to 1996
were primarily attributable to the 1996 charges related to the acquisition and
integration of Aetna P&C. Excluding these amounts, the statutory and GAAP
combined ratios before policyholder dividends for 1996 would have been 109.3%
and 110.8%, respectively. The decrease in the 1997 statutory and GAAP combined
ratios, excluding the adjustment to conform the Aetna P&C method with the
Travelers P&C method of recording certain net written premiums, compared to the
1996 statutory and GAAP combined ratios excluding acquisition-related charges
was due to lower catastrophe losses and reduced expenses, partially offset by
the inclusion in 1997 of Aetna P&C's results for the entire year compared to
only nine months in 1996. Aetna P&C has historically had a higher underwriting
expense ratio, partially offset by a lower loss ratio, which reflected the mix
of business including the favorable effect of the lower loss ratio of the Bond
Specialty business.
Environmental Claims
As a result of various state and federal regulatory efforts aimed at
environmental remediation, the insurance industry has been, and continues to be,
involved in extensive litigation involving policy coverage and liability issues.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") was first enacted in 1980, and significantly
24
<PAGE>
expanded in 1984. CERCLA enables private parties and the federal and state
governments to take action with respect to releases and threatened releases of
hazardous substances and to recover their response costs from certain liable
parties or such parties may be ordered to undertake remedial action directly.
Liability under CERCLA may be joint and several with other responsible persons.
In addition to the regulatory pressures, the Company believes that certain court
decisions have expanded insurance coverage beyond the original intent of the
insurers and insureds, frequently involving policies that were issued prior to
the mid-1970s. The results of court decisions affecting the industry's coverage
positions continue to be inconsistent. Accordingly, the ultimate responsibility
and liability for environmental remediation costs remain uncertain.
The Company continues to receive claims alleging liability exposures
arising out of insureds' alleged disposition of toxic substances. These claims
when submitted rarely indicate the monetary amount being sought by the claimant
from the insured and the Company does not keep track of the monetary amount
being sought in those few claims which indicated such a monetary amount.
The Company's reserves for environmental claims are not established on a
claim-by-claim basis. An aggregate bulk reserve is carried for all of the
Company's environmental claims that are in the dispute process, until the
dispute is resolved. This bulk reserve is established and adjusted based upon
the aggregate volume of in-process environmental claims and the Company's
experience in resolving such claims. At December 31, 1998, approximately 19% of
the net environmental loss reserve (i.e., approximately $155 million) consists
of case reserves for resolved claims. The balance, approximately 81% of the net
aggregate reserve (i.e., approximately $677 million), is carried in a bulk
reserve and includes incurred but not reported environmental claims for which
the Company has not received any specific claims.
The Company's reserving methodology is preferable to one based on
"identified claims" since the resolution of environmental exposures by the
Company generally occurs on an insured-by-insured basis as opposed to a
claim-by-claim basis. The nature of the resolution often is through coverage
litigation, which often pertains to more than one claim, as well as through a
settlement with an insured. Generally, the settlement between the Company and
the insured extinguishes any obligation the Company may have under any policy
issued to the insured for past, present and future environmental liabilities.
This form of settlement is commonly referred to as a "buy-back" of policies for
future environmental liability. Additional provisions of these agreements
include appropriate indemnities and hold harmless provisions to protect the
Company. The Company's general purpose in executing such agreements is to reduce
its potential environmental exposure and eliminate both the risks presented by
coverage litigation with the insured and the cost of such litigation.
The reserving methodology includes an analysis by the Company of the
exposure presented by each insured and the anticipated cost of resolution, if
any, for each insured. This analysis is completed by the Company on a quarterly
basis. In the course of its analysis, an assessment of the probable liability,
available coverage, judicial interpretations and historical value of similar
exposures is considered by the Company. In addition, due consideration is given
to the many variables presented, such as the nature of the alleged activities of
the insured at each site; the allegations of environmental damage at each site;
the number of sites; the total number of potentially responsible parties at each
site; the nature of environmental harm and the corresponding remedy at a site;
the nature of government enforcement activities at each site; the ownership and
general use of each site; the overall nature of the insurance relationship
between the Company and the insured; the identification of other insurers; the
potential coverage available, if any, including the number of years of coverage,
if any; and the applicable law in each jurisdiction. Analysis of these and other
factors, including the potential for future claims, results in the establishment
of the bulk reserve.
The duration of the Company's investigation and review of such claims and
the extent of time necessary to determine an appropriate estimate, if any, of
the value of the claim to the Company, vary significantly and are dependent upon
a number of factors. These factors include, but are not limited to, the
cooperation of the insured in providing claim information, the pace of
underlying litigation or claim processes, the pace of coverage litigation
between the insured and the Company and the willingness of the insured and the
Company to negotiate, if appropriate, a resolution of any dispute between them
pertaining to such claims. Since the foregoing factors vary from claim to claim
and insured by insured, the Company cannot provide a meaningful average of the
duration of an environmental claim. However, based upon the Company's experience
in resolving such claims, the duration may vary from months to several years.
The property and casualty insurance industry does not have a standard
method of calculating claim activity for environmental losses. Generally for
Superfund remediation-type environmental claims, the Company establishes a claim
file for each insured on a per site, per claimant basis. If there is more than
one claimant such as a federal and a state agency, this method will result in
two claims being set up for a policyholder at that one site. The Company adheres
to this method of calculating claim activity on all environmental-related
claims, whether such claims are tendered on primary, excess or umbrella
policies. Since the implementation of the claim system conversion in 1997, the
Company's method of establishing claims in the foregoing manner now applies to
claims tendered under the Travelers P&C and Aetna P&C policies.
In addition, the Company establishes claim files for environmental claims
brought by individual claimants who allege injury or damage as a result of the
discharge of wastes or pollutants allegedly by the policyholder. As it pertains
to such claims tendered on policies issued by Travelers P&C, the Company
establishes a claim file on a per claim, per insured, per site basis. For
example, if one hundred claimants file a lawsuit against five policyholders
alleging bodily injury and property damage as a result of the discharge of
wastes or pollutants, one thousand claims (five hundred for the bodily injury
claims and five hundred for the property damage claims) would be established.
As it pertains to environmental claims brought by individual claimants and
tendered on Aetna P&C policies, the Company establishes claim files on a per
insured, per site basis due to current claim system limitations. For example, if
one hundred claimants file a lawsuit against five policyholders alleging bodily
injury and property damage as a result of the discharge of wastes or pollutants,
five claims would be established for all the bodily injury claims and five
claims would be established for all of the property damage claims.
25
<PAGE>
As of December 31, 1998, calculated as described above, the Company had
approximately 43,400 pending environmental-related claims tendered by 1,185
active policyholders. Of the total pending environmental-related claims, 31,100
claims relate to Travelers P&C policies tendered by 470 policyholders and 12,300
claims relate to Aetna P&C policies tendered by 810 policyholders. Approximately
95 of these Aetna P&C policyholders are also included in the 470 Travelers P&C
policyholders' count. The pending environmental-related claims represent federal
or state EPA-type claims as well as plaintiffs' claims alleging bodily injury
and property damage due to the discharge of waste or pollutants allegedly by the
policyholder.
The following table displays activity for environmental losses and loss
expenses and reserves for the years ended December 31:
Environmental Losses
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Beginning reserves
Direct $ 1,193 $ 1,369 $ 454
Ceded (74) (127) (50)
- -------------------------------------------------------------------------------
Net 1,119 1,242 404
Acquisition of Aetna P&C
Direct -- -- 968
Ceded -- -- (39)
Incurred losses and loss expenses
Direct 123 79 114
Ceded (73) (14) (52)
Losses paid
Direct 388 271 167
Ceded (51) (67) (14)
Other(1)
Direct -- 16 --
Ceded -- -- --
- -------------------------------------------------------------------------------
Ending reserves
Direct 928 1,193 1,369
Ceded (96) (74) (127)
- -------------------------------------------------------------------------------
Net $ 832 $ 1,119 $ 1,242
===============================================================================
(1) Represents reallocation of general liability reserves to environmental
reserves.
As indicated by the preceding table, the Company experienced in 1998 an
increase in paid activity for environmental losses over the previous two years.
As anticipated, this paid activity resulted in a significant reduction in the
number of coverage litigation disputes pending at year end 1998, as well as a
further reduction in the number of policyholders with active environmental
claims.
As of December 31, 1998, the number of policyholders with pending coverage
litigation disputes pertaining to environmental claims was 404, approximately
24% less than the number pending as of December 31, 1997. The Company generally
has been successful in resolving its coverage litigation disputes and continues
to reduce its potential exposure through favorable settlements with certain
insureds. These settlement agreements with certain insureds are based on the
variables presented in each piece of coverage litigation. Generally the
settlement dollars paid in disputed coverage claims are a percentage of the
total coverage sought by such insureds. Based upon the Company's reserving
methodology and the experience of its historical resolution of environmental
exposures, it believes that the environmental reserve position is appropriate.
As of December 31, 1998, the Company, for approximately $1.44 billion, has
resolved the environmental liabilities presented by 4,475 of the 5,660
policyholders who have tendered environmental claims to the Company. This
resolution comprises 79% of the policyholders who have tendered such claims. The
Company has reserves of approximately $572 million included in its bulk reserve
relating to the remaining 1,185 policyholders (21% of the total) with unresolved
environmental claims, as well as for any other policyholder that may tender an
environmental claim in the future.
Asbestos Claims
In the area of asbestos claims, the Company believes that the property and
casualty insurance industry has suffered from judicial interpretations that have
attempted to maximize insurance availability from both a coverage and liability
standpoint far beyond the intent of the contracting parties. These policies
generally were issued prior to the 1980s. The Company continues to receive
asbestos claims alleging insureds' liability from claimants' asbestos-related
injuries. These claims, when submitted, rarely indicate the monetary amount
being sought by the claimant from the insured and the Company does not keep
track of the monetary amount being sought in those few claims that indicated
such a monetary amount. Originally the cases involved mainly plant workers and
traditional asbestos manufacturers and distributors. However, in the mid-1980s,
a new group of plaintiffs, whose exposure to asbestos was less direct and whose
injuries were often speculative, began to file lawsuits in increasing numbers
against the traditional defendants as well as peripheral defendants who had
produced products that may have contained small amounts of some form of
encapsulated asbestos. These claims continue to arise and on an individual basis
generally involve smaller companies with smaller limits of potential coverage.
Also, there has emerged a group of non-product claims by plaintiffs, mostly
independent labor union workers, mainly against companies, alleging exposure to
asbestos while working at these companies' premises. The Company continues to
receive this type of asbestos claim.
In summary, various classes of asbestos defendants, such as major product
manufacturers, peripheral and regional product defendants as well as premises
owners, are tendering asbestos-related claims to the industry. Because each
insured presents different liability and coverage issues, the Company evaluates
those issues on an insured-by-insured basis.
The Company's evaluations have not resulted in any meaningful data from
which an average asbestos defense or indemnity payment may be determined. The
varying defense and indemnity payments made by the Company on behalf of its
insureds have also precluded the Company from deriving any meaningful data by
which it can predict whether its defense and indemnity payments for asbestos
claims (on average or in the aggregate) will remain the same or change in the
future. Based upon the Company's experience with asbestos claims, the duration
period of an asbestos claim from the date of submission to resolution is
approximately two years.
At December 31, 1998, approximately 21% of the net aggregate reserve
(i.e., approximately $210 million) is for pending asbestos claims. The balance,
approximately 79% (i.e., approximately $776 million) of the net asbestos
reserve, represents incurred but not reported losses for which the Company has
not received any specific claims.
In general, the Company posts case reserves for pending asbestos claims
within approximately 30 business days of receipt of such claims. The following
table displays activity for asbestos losses and loss expenses and reserves for
the years ended December 31:
26
<PAGE>
Asbestos Losses
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Beginning reserves
Direct $ 1,363 $ 1,443 $ 695
Ceded (249) (370) (293)
- -------------------------------------------------------------------------------
Net 1,114 1,073 402
Acquisition of Aetna P&C
Direct -- -- 801
Ceded -- -- (121)
Incurred losses and loss expenses
Direct 135 87 120
Ceded (69) (18) (35)
Losses paid
Direct 246 174 173
Ceded (52) (140) (79)
Other(1)
Direct -- 7 --
Ceded -- (1) --
- -------------------------------------------------------------------------------
Ending reserves
Direct 1,252 1,363 1,443
Ceded (266) (249) (370)
- -------------------------------------------------------------------------------
Net $ 986 $ 1,114 $ 1,073
===============================================================================
(1) Represents reallocation of reserves.
Uncertainty Regarding Adequacy of Environmental and Asbestos Reserves
It is difficult to estimate the reserves for environmental and asbestos-related
claims due to the vagaries of court coverage decisions, plaintiffs' expanded
theories of liability, the risks inherent in major litigation and other
uncertainties. Conventional actuarial techniques are not used to estimate such
reserves.
For environmental claims, the Company estimates its financial exposure and
establishes reserves based upon an analysis of its historical claim experience
and the facts of the individual underlying claims. The unique facts presented in
each claim are evaluated individually and collectively. Due consideration is
given to the many variables presented in each claim, as discussed above.
The following factors are evaluated in projecting the ultimate reserve for
asbestos-related claims: available insurance coverage; limits and deductibles;
an analysis of each policyholder's potential liability; jurisdictional
involvement; past and projected future claim activity; past settlement values of
similar claims; allocated claim adjustment expense; potential role of other
insurance; and applicable coverage defenses, if any. Once the gross ultimate
exposure for indemnity and allocated claim adjustment expense is determined for
a policyholder by policy year, a ceded projection is calculated based on any
applicable facultative and treaty reinsurance, and past ceded experience. In
addition, a similar review is conducted for asbestos property damage claims.
However, due to the relatively minor claim volume, these reserves have remained
relatively unchanged.
As a result of these processes and procedures, the reserves carried for
environmental and asbestos claims at December 31, 1998 are the Company's best
estimate of ultimate claims and claim adjustment expenses based upon known facts
and current law. However, the conditions surrounding the final resolution of
these claims continue to change. Currently, it is not possible to predict
changes in the legal and legislative environment and their impact on the future
development of asbestos and environmental claims. Such development will be
affected by future court decisions and interpretations, as well as changes in
legislation applicable to such claims. Because of these future unknowns,
additional liabilities may arise for amounts in excess of the current reserves.
These additional amounts, or a range of these additional amounts, cannot now be
reasonably estimated, and could result in a liability exceeding reserves by an
amount that would be material to the Company's operating results in a future
period. However, the Company believes that it is not likely that these claims
will have a material adverse effect on the Company's financial condition or
liquidity.
Cumulative Injury Other than Asbestos (CIOTA) Claims
CIOTA claims are generally submitted to the Company under general liability
policies and often involve an allegation by a claimant against an insured that
the claimant has suffered injuries as a result of long-term or continuous
exposure to potentially harmful products or substances. Such potentially harmful
products or substances include, but are not limited to, lead paint, pesticides,
pharmaceutical products, silicone-based personal products, solvents and other
deleterious substances.
Due to claimants' allegations of long-term bodily injury in CIOTA claims,
numerous complex issues regarding such claims are presented. The claimants'
theories of liability must be evaluated, evidence pertaining to a causal link
between injury and exposure to a substance must be reviewed, the potential role
of other causes of injury must be analyzed, the liability of other defendants
must be explored, an assessment of a claimant's damages must be made, and the
law of the jurisdiction must be applied. In addition, the Company must review
the number of policies issued by it to the insured and whether such policies are
triggered by the allegations, the terms and limits of liability of such
policies, the obligations of other insurers to respond to the claim, and the
applicable law in each jurisdiction.
To the extent disputes exist between the Company and a policyholder
regarding the coverage available for CIOTA claims, the Company resolves the
disputes, where feasible, through settlements with the policyholder or through
coverage litigation. Generally, the terms of a settlement agreement set forth
the nature of the Company's participation in resolving CIOTA claims, the scope
of coverage to be provided by the Company and contain the appropriate
indemnities and hold harmless provisions to protect the Company. These
settlements generally eliminate uncertainties for the Company regarding the
risks extinguished, including the risk that losses would be greater than
anticipated due to evolving theories of tort liability or unfavorable coverage
determinations. The Company's approach also has the effect of determining losses
at a date earlier than would have occurred in the absence of such settlement
agreements. On the other hand, in cases where future developments are favorable
to insurers, this approach could have the effect of resolving claims for amounts
in excess of those that would ultimately have been paid had the claims not been
settled in this manner. No inference should be drawn that because of the
Company's method of dealing with CIOTA claims, its reserves for such claims are
more conservatively stated than those of other insurers.
Prior to the acquisition, Aetna P&C did not distinguish CIOTA from other
general liability claims or treat CIOTA claims as a special class of claims. In
addition, there were substantial differences in claim approach and resolution
between Travelers P&C and Aetna P&C regarding CIOTA claims. During the second
quarter of 1996, the Company completed its review of Aetna P&C's exposure to
CIOTA claims in order to determine an appropriate level of reserves using the
Company's approach as described above. Based on the results of that review, the
Company's general liability insurance reserves were
27
<PAGE>
increased in 1996 by $360 million, net of reinsurance ($192 million after-tax
and minority interest).
At December 31, 1998, approximately 17% of the net aggregate reserve
(i.e., approximately $163 million) is for pending CIOTA claims. The balance,
approximately 83% (i.e., approximately $791 million) of the net CIOTA reserve,
represents incurred but not reported losses for which the Company has not
received any specific claims.
In general, the Company posts case reserves for pending CIOTA claims
within approximately 30 business days of receipt of such claims. The following
table displays activity for CIOTA losses and loss expenses and reserves for the
years ended December 31:
CIOTA Losses
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Beginning reserves
Direct $ 1,520 $ 1,560 $ 374
Ceded (432) (446) --
- -------------------------------------------------------------------------------
Net 1,088 1,114 374
Acquisition of Aetna P&C
Direct -- -- 709
Ceded -- -- (293)
Incurred losses and loss expenses
Direct (31) 32 565
Ceded 29 (6) (155)
Losses paid
Direct 143 72 88
Ceded (11) (20) (2)
- -------------------------------------------------------------------------------
Ending reserves
Direct 1,346 1,520 1,560
Ceded (392) (432) (446)
- -------------------------------------------------------------------------------
Net $ 954 $ 1,088 $ 1,114
===============================================================================
GLOBAL CORPORATE AND INVESTMENT BANK OUTLOOK
During 1998, Global Corporate and Investment Bank announced a number of business
improvement and integration initiatives that are projected to yield expense
savings of approximately $260 million pretax in 1999, and to reach a run rate of
approximately $370 million in annual pretax savings beginning in 2000. In 1999,
these actions, together with tighter management of non-customer expenses and
realized savings from earlier efficiency initiatives still in progress, are
expected to yield gross annual pretax expense savings of approximately $1.1
billion. There can be no assurance that the projected cost savings will be
achieved.
Global Corporate Banking and Salomon Smith Barney. These businesses are
significantly affected by the levels of activity in the global capital markets
which, in turn, are influenced by macro-economic and political policies and
developments, among other factors, in the 99 countries in which the businesses
operate. During the last half of 1997 and throughout 1998, the global capital
markets experienced economic turmoil not seen in at least a decade, as currency
crises sparked economic turmoil that began in Asia Pacific and spread to Eastern
Europe and, in early 1999, to Latin America. The second largest economy in the
world--Japan--remains in a prolonged recession, and many economists continue to
be concerned about economic fundamentals in certain Asian countries, which could
precipitate a return of instability to the region. And, on January 1, 1999, a
common currency--the Euro--was introduced in 11 European nations, bringing
Europe closer to a single market as big as that of North America.
Global economic turmoil like that experienced during 1997 and 1998 can
have both positive and negative effects on the revenue performance of the
businesses and can negatively affect credit performance. In particular, levels
of principal transactions, realized gains from sales of investments, and net
asset gains may fluctuate in the future as a result of market and asset-specific
factors.
The businesses have undertaken a number of initiatives to mitigate the
negative effects of the current global instability. These initiatives include
significantly reducing the risk profile, particularly in Salomon Smith Barney's
global arbitrage operation, and making risk management a priority throughout the
global banking business, with the goal of deriving a higher percentage of
earnings from controllable business operations than has been the case in the
past.
Commercial Lines Insurance. A variety of factors continue to affect the property
and casualty insurance market and the Company's core business outlook, including
the competitive pressures affecting pricing and profitability, inflation in the
cost of medical care and litigation.
Operating results for 1998 reflected the negative impact of pricing
declines in all markets. This trend in market conditions, characterized by
difficult pricing and increased competition, continued from prior years.
In National Accounts, where programs include risk transfer and risk
service, such as claims settlement, loss control and risk management services
and are generally offered in connection with a large deductible or self-insured
program, or a guaranteed cost or retrospectively rated insurance policy, pricing
declines have continued. This business continues to reflect the negative impact
of price declines as evidenced by the decrease in premium and fee levels and,
more importantly, in the narrowing of profit margins earned on this business.
Additionally, there has been an increasing trend in this marketplace for
guaranteed cost products at what the Company believes are inadequate price
levels.
For Commercial Accounts and Select Accounts, the highly competitive
marketplace and soft underwriting cycle continue to pressure the pricing of
guaranteed cost products. Premiums on this business continue to reflect price
declines, and have not kept pace with loss cost inflation in recent years. The
impact of this negative trend in market conditions and resultant price declines
has been partially offset by a continued disciplined approach to underwriting
and risk management by the Company. The Company's focus is to retain existing
profitable business and obtain new accounts where it can maintain its selective
underwriting policy. The Company continues to adhere to strict guidelines to
maintain high quality underwriting and to focus on its core product lines and
markets, with particular emphasis on both product and industry specialization.
Specialty Accounts also operates within a highly competitive marketplace
characterized by pressure on both price and terms. The Company's focus in this
market is to sustain its emphasis on strict adherence to underwriting standards
and to increase its efforts to cross-sell its expanding array of specialty
products to existing customers of National Accounts, Commercial Accounts and
Select Accounts where it believes it has the greatest sales and profit
opportunities.
28
<PAGE>
The combination of price declines associated with the highly competitive
marketplace and the Company's selective underwriting criteria has had an adverse
impact on premium and fee levels during the past several years. If the
competitive pressures on pricing do not improve in 1999, these factors may
continue to affect premium and fee levels unfavorably. Although the Company
believes that pricing in the Commercial Lines marketplace will continue to be
very competitive in 1999, recent data has suggested that the pricing environment
may be improving.
In December 1998, TAP announced a global strategic relationship with
Winterthur International, called Travelers/Winterthur International, which
markets a variety of commercial lines products to multinational corporations.
The Company expects that Travelers/Winterthur International will allow it to
gain a global capability in international underwriting and insurance services.
The property and casualty insurance industry in the United States
continues to consolidate. The Company's strategic objectives are to enhance its
position as a consistently profitable market leader and to become a low-cost
provider of property and casualty insurance in the United States, as the
industry consolidates. In this regard, an emphasis on claim payout and
performance and enhanced productivity efforts are expected to continue.
Changes in the general interest rate environment affect the return
received by the insurance subsidiaries on newly invested and reinvested funds.
While a rising interest rate environment enhances the returns available, it
reduces the market value of existing fixed maturity investments and the
availability of gains on disposition. A decline in interest rates reduces the
return available on investment of funds but could create the opportunity for
realized investment gains on disposition of fixed maturity investments.
As required by various state laws and regulations, the Company's insurance
subsidiaries are subject to assessments from state-administered guaranty
associations, second injury funds and similar associations. Management believes
that such assessments will not have a material impact on the Company's results
of operations, financial condition or liquidity.
Certain social, economic and political issues have led to an increased
number of legislative and regulatory proposals aimed at addressing the cost and
availability of certain types of insurance. While most of these provisions have
failed to become law, these initiatives may continue as legislators and
regulators try to respond to public availability and affordability concerns and
the resulting laws, if any, could adversely affect the Company's ability to
write business with appropriate returns.
ASSET MANAGEMENT
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Total revenues, net of interest expense $1,244 $1,052 $ 880
Adjusted operating expenses(1) 820 685 574
- --------------------------------------------------------------------------------
Business income before taxes 424 367 306
Income taxes 151 124 98
- --------------------------------------------------------------------------------
Business income 273 243 208
Restructuring charges, after-tax 10 -- --
- --------------------------------------------------------------------------------
Net income $ 263 $ 243 $ 208
================================================================================
Assets under management(2) (in billions of dollars) $ 327 $ 261 $ 220
================================================================================
(1) Excludes restructuring charges.
(2) Includes $34 billion, $28 billion, and $25 billion in 1998, 1997, and
1996, respectively, for Global Private Banking clients.
Asset Management is comprised of the substantial resources that are
available through its three primary asset management business platforms: Salomon
Brothers Asset Management, Smith Barney Asset Management, and Citibank Global
Asset Management. Asset Management companies offer institutional, high net worth
and retail clients a broad range of investment disciplines from global
investment centers around the world. Products and services offered include
mutual funds, closed-end funds, separately managed accounts, unit investment
trusts, and variable annuities (through affiliated and third party insurance
companies). Aggregate assets under management totaled $327 billion as of
December 31, 1998.
Asset Management's assets under management grew 25% over the prior year
with strong growth in all major asset categories. Contributing to the year over
year increase was the acquisition of JP Morgan's Australian asset management
business with assets of $4.8 billion at acquisition date, cross-selling efforts
throughout the organization resulting in $10 billion of long-term, mutual fund
sales (up 67% from 1997), strong growth in institutional and private client
separately managed account assets, and the overall positive impact of market
performance on all asset management products.
Asset Management business income of $273 million in 1998 was up $30
million or 12% from 1997. Business income before taxes increased by $57 million,
or 16% over 1997. Revenues, net of interest expense, rose 18% to $1,244 million
in 1998 compared to $1,052 million in 1997 and $880 million in 1996. This
increase is predominantly in advisory fee revenues and reflects the broad growth
in assets under management.
Adjusted expenses were $820 million in 1998 compared to $685 million in
1997 and $574 million in 1996. The 20% expense growth in 1998 expenses over 1997
primarily reflected Asset Management's build-out of its fundamental research and
quantitative analysis investment teams, investment in marketing and wholesaler
support teams, incremental technology spending related to year 2000 and EMU, and
the acquisition of JP Morgan's Australian asset management business.
During 1998, Asset Management recorded a restructuring charge totaling $17
million ($10 million after-tax), primarily reflecting the costs of eliminating
redundancies.
29
<PAGE>
CORPORATE/OTHER
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $ 932 $ 838 $ 902
Adjusted operating expenses(1) 712 413 543
Provisions for benefits, claims, and
credit losses (2) (6) 34
- -------------------------------------------------------------------------------
Business income before taxes 222 431 325
Income taxes 381 801 776
- -------------------------------------------------------------------------------
Business loss (159) (370) (451)
Gain on disposition of subsidiary, after-tax -- -- 31
Gain on sale of stock by subsidiary -- -- 363
Restructuring charges and merger-
related costs, after-tax 105 31 --
- -------------------------------------------------------------------------------
Net loss $(264) $(401) $ (57)
===============================================================================
(1) Excludes restructuring charges and merger-related costs.
Corporate/Other includes net treasury results, revenues derived from
charging banking segments for funds employed, based upon a marginal cost of
funds concept, corporate staff and similar expenses, and the offset created by
attributing income taxes to core business activities on a local tax-rate basis
for Citicorp businesses. The effective tax rates for these businesses were 31%,
26%, and 26%, for 1998, 1997, and 1996, respectively, while Citicorp's effective
tax rate was 37% for 1998 and 1997 and 38% for 1996.
Revenues in 1998 included income from the disposition of a real estate
development property while 1996 included residual revenues from certain run-off
businesses.
Expense in 1998 included a $100 million contribution of appreciated
venture capital securities to the Company's Foundation, which had minimal impact
on Citigroup's earnings after related tax benefits and investment gains, as well
as increases in certain technology expense and other unallocated corporate
costs. Additionally, expense in 1998, 1997 and 1996 included $70 million, $72
million, and $113 million, respectively, associated with performance-based stock
options.
The 1998 amounts included a $69 million restructuring charge ($40 million
after-tax) to streamline and integrate corporate staff functions, as well as $65
million (before and after-tax) of one-time expenses associated with merging
Citigroup's predecessor organizations. The 1997 amounts include a $19 million
restructuring charge ($11 million after-tax), principally related to the
reorganization of various Citicorp corporate support functions. In addition,
income taxes in 1997 included a $20 million charge related to the offset created
by attributing income taxes to Citicorp's core business restructuring charges on
a local tax-rate basis.
The Company recognized a gain of $363 million (before and after-tax) in
1996 from the issuance of shares of Class A Common Stock by TAP (see Note 2 of
Notes to Consolidated Financial Statements).
INVESTMENT ACTIVITIES
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Total revenues, net of interest expense $ 1,298 $ 1,693 $ 715
Operating expenses 47 38 36
Credit benefits (10) (64) (80)
- -------------------------------------------------------------------------------
Income before taxes and minority interest 1,261 1,719 759
Income taxes 316 409 166
Minority interest 16 18 (1)
- -------------------------------------------------------------------------------
Net income $ 929 $ 1,292 $ 594
===============================================================================
Investment Activities comprises Citigroup's venture capital activities,
realized investment gains (losses) related to certain corporate- and
insurance-related investments, and the results of certain investments in
countries that refinanced debt under the 1989 Brady Plan or plans of a similar
nature.
Revenues in 1998 of $1.298 billion declined $395 million or 23% from 1997
primarily reflecting a $262 million decrease in venture capital revenues to $487
million. Net interest revenues declined $110 million from 1997 reflecting a
lower level of interest earning assets. Realized gains from sales of investments
of $778 million declined $45 million while net asset gains of $28 million
increased $29 million. Revenues in 1997 of $1.693 billion grew $978 million from
1996 primarily reflecting a $653 million improvement in realized gains from
sales of investments to $823 million, a $299 million increase in venture capital
results to $749 million, and a $60 million improvement in net asset gains. Net
asset gains in 1998, 1997, and 1996 include net gains (write-downs) of $29
million, $(39) million and $(100) million related to investments in Latin
America.
Credit benefits totaled $10 million, $64 million, and $80 million in 1998,
1997, and 1996, respectively. Credit benefits in 1997 included $50 million from
the refinancing agreement concluded with Peru while 1996 included $75 million
from the refinancing agreements concluded with Panama, Slovenia, and Croatia.
The effective income tax rates in 1998, 1997, and 1996 were 25%, 24%, and
22%, respectively. Fluctuations in the effective income tax rates result from
changes in the nature and geographic mix of pretax earnings.
Levels of venture capital revenues, realized gains from sales of
investments, and net asset gains may fluctuate in the future as a result of
market and asset-specific factors.
DISCONTINUED OPERATIONS
1996
- -------------------------------------------------------------------------------
In Millions of Dollars Net Loss
- -------------------------------------------------------------------------------
Operations $ (75)
Loss on disposition (259)
- -------------------------------------------------------------------------------
Total discontinued operations $(334)
===============================================================================
As discussed in Note 3 of Notes to Consolidated Financial Statements,
Basis Petroleum, Inc. (Basis), which was sold to Valero Energy Corporation
(Valero) was classified as discontinued operations.
The Company's 1996 loss on disposition of $259 million represents the $290
million after-tax loss on the sale of Basis to Valero, partially offset by a $31
million after-tax gain resulting from a contingency payment received from United
HealthCare Corporation related to the 1995 sale of The MetraHealth Companies,
Inc.
30
<PAGE>
YEAR 2000
The arrival of the year 2000 poses a unique worldwide challenge to the ability
of time sensitive computer systems to recognize the date change from December
31, 1999 to January 1, 2000. Citigroup has assessed and is modifying its
computer systems and business processes to provide for their continued
functionality and is also assessing the readiness of third parties with which it
interfaces.
Citigroup is highly dependent on computer systems and system applications
for conducting its ongoing business functions. The inability of systems to
recognize properly the year 2000 could result in major systems failure or
miscalculations that would disrupt Citigroup's ability to meet its customer and
other obligations on a timely basis, and Citigroup has engaged in a worldwide
process of identifying, assessing, and modifying its computer programs to
address this issue. As part of and following achievement of year 2000
compliance, systems are subjected to a process that validates the modified
programs before they can be used in production.
The pre-tax cost associated with the required modifications and
conversions is expected to total approximately $900 million through 1999, funded
from a combination of a reprioritization of technology development initiatives
and incremental costs. This is being expensed as incurred. Of the total,
approximately $660 million has been incurred to date, including approximately
$470 million in 1998.
Substantially all of the required modification and internal testing work
has been completed at year-end 1998, with the remainder scheduled for completion
early in 1999, leaving the rest of the year 1999 primarily for external testing,
full integration testing and production assurance. Citigroup is addressing other
technology-related matters including business applications to be sunset (that
is, removed from use in favor of replacement applications), end-user computing
applications, networks, data centers, and desktops, and these are similarly
progressing towards timely resolution.
Citigroup is also addressing year 2000 issues that may exist outside its
own global technology activities, including its facilities and business
processes, external service providers, and other third parties with which it
interfaces. Substantially all of Citigroup's facilities and related systems have
been investigated, and modification is under way. Other business processes are
likewise being addressed across the Company.
Significant third parties with which Citigroup interfaces with regard to
the year 2000 problem include customers and counterparties, external service
providers, technology vendors, the global financial market infrastructure
including payment and clearing systems, and the utility infrastructure on which
all corporations rely. Unreadiness by these third parties would expose Citigroup
to the potential for loss, impairment of business processes and activities, and
disruption of financial markets. Citigroup is addressing these risks worldwide
through bilateral and multiparty efforts and participation in industry, country,
and global initiatives. While significant third parties are generally engaged in
efforts intended to address and resolve their year 2000 issues on a timely
basis, it is possible that a series of failures by third parties could have a
material adverse effect on the Company's results of operations in future
periods.
Citigroup is creating contingency plans intended to address perceived
risks associated with its year 2000 effort. These activities include planning to
mitigate any remaining risks associated with remediation of critical systems,
business resumption planning to address the possibility of systems failure, and
market resumption planning to address the possibility of failure of systems or
processes outside Citigroup's control. Contingency planning, and preparations
for the management of the date change, will continue worldwide through 1999.
Notwithstanding these activities, the failure of efforts to address in a timely
manner, the year 2000 problem, could have a material adverse effect on the
Company's results of operations in future periods.
An additional year 2000 issue for TAP is the potential future impact of
claims for insurance coverage from customers who suffer year 2000 business
losses or claim coverage for their potential liability to third parties. TAP has
taken certain initiatives to mitigate this potential risk, including addressing
year 2000 issues, where applicable, in the underwriting of insurance policies.
Losses for year 2000 insurance claims and litigation costs related to such
claims are not reasonably estimable at this time.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 1 of Notes to Consolidated Financial Statements for a discussion of
recently issued accounting pronouncements.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. Many of these statements appear under the heading "Global
Consumer Outlook" and "Global Corporate and Investment Bank Outlook". The
Company's actual results may differ materially from those included in the
forward-looking statements. Forward-looking statements are typically identified
by words or phrases such as "believe," "expect," "anticipate," "intend,"
"estimate," "may increase," and similar expressions or future or conditional
verbs such as "will," "should," "would," and "could." These forward-looking
statements involve risks and uncertainties including, but not limited to, the
following: changes in general economic conditions, including the performance of
global financial markets, and risks associated with fluctuating currency values,
and interest rates, and the level of personal bankruptcies; customer
responsiveness to both new products and distribution channels; competitive,
regulatory, or tax changes that affect the cost of or demand for the Company's
products; the resolution of legal proceedings and related matters; and the
possibility that the Company will be unable to achieve anticipated levels of
operational efficiencies related to recent mergers, as well as achieving its
other cost-saving initiatives.
31
<PAGE>
MANAGING GLOBAL RISK
Risk management is the cornerstone of Citigroup's business. Risks arise from
lending, underwriting, trading, insurance and other activities routinely
undertaken on behalf of customers around the world. Outlined below is the
process that management employs to provide oversight and direction of risk
taking, followed by discussions of the credit and market risk management
processes in place across the corporation.
The Windows on Risk Committee is the most senior corporate forum for
reviewing the corporation's risk tolerance and practices. It provides top-down
examination and review of material corporate-wide risks. The Committee is
chaired by the Vice Chairman responsible for risk management, and includes the
Chairmen of Citigroup and other senior officers in the Company.
The Windows on Risk process has three major components: an assessment of
the global external environment, drawing on our own knowledge and understanding,
and often bringing in experts on identified subjects, including contrarion
views; an assessment of the Company's exposures in terms of different risk
windows, particularly looking for potentially large material risks to Citigroup;
and specific decisions and follow-ups are taken which are designed to adjust the
corporate exposure to identified risk.
The review of the external environment encompasses the outlook for major
country and regional economies, significant consumer markets and global
industries, potential near-term critical economic and political events, and the
implications of potential unfavorable developments as they relate to specific
businesses.
The review of the risk profile covers 18 windows, as described below:
o Credit risk ratings, including trends in client creditworthiness together
with a comparison of risk against return;
o Industry concentrations, globally and within regions;
o Limits assigned to relationship concentrations and consumer programs;
o Product concentrations in consumer managed receivables, by product and by
region;
o Global real estate limits and exposure, including commercial and consumer
portfolios;
o Country risk, encompassing political and cross-border risk;
o Counterparty risk, evaluating presettlement risk on foreign exchange,
derivative products, and securities trades;
o Dependency, linking and evaluating specific industry and consumer product
exposure to external environmental factors;
o Distribution and underwriting risk, capturing the risk that arises when
Citigroup commits to purchase an instrument from an issuer for subsequent
sale;
o Corporate Control and Risk Assessment, evaluating and measuring defects in
our business processes;
o Price risk, evaluating the earnings risk resulting from changing levels
and implied volatilities of interest rates, foreign exchange rates, and
commodity and security prices;
o Liquidity risk, evaluating funding exposure;
o Commodities risk, evaluating earnings risk resulting from changing levels
and volatilities of commodity prices;
o Life Insurance, evaluating the risks that result from the underwriting,
sale, and reinsurance of life insurance policies;
o Property & Casualty, evaluating the risks that result from the
underwriting, sale, and reinsurance of commercial, personal, and
performance bonds insurance policies;
o Equity and subordinated debt investment risk, monitored against portfolio
limits;
o Legal, evaluating vulnerability and business implications of legal issues;
o Technology, assessing the vulnerability to the electronic environment.
The review provides Citigroup with a view of the environment in which it
operates and of the risk inherent in its businesses. Based on this review, the
Windows on Risk Committee formulates recommendations and assigns responsibility
for recommended actions.
The following sections summarize the processes currently in place for
managing credit and market risks within Citigroup's major businesses. As
Citigroup's businesses become more closely integrated, it is expected that these
management processes will also be more closely integrated within the overall
framework provided by Windows on Risk.
The Credit Risk Management Process
Within Citicorp, line management conducts the day-to-day credit process in
accordance with core policies established by the Credit Policy Committee which
are guided by the overall risk appetite and portfolio targets set by senior
management. Line management initiates and approves all extensions of credit and
is responsible for credit quality. Line managers must also establish
supplementary credit policies specific to each business, deploy the credit
talent needed, and monitor portfolio and process quality. The managers are
required to identify problem credits or programs as they develop, and to correct
deficiencies as needed through remedial management. Business Risk Review
conducts independent periodic examinations of both portfolio quality and the
credit process at the individual business level.
Citicorp's credit policies are organized around two basic
approaches--Credit Programs and Credit Transactions. Credit Programs, used
primarily for the Consumer businesses, focus on the decision to extend credit to
sets of customers with similar characteristics and/or product needs. Approvals
under this approach cover the expected level of aggregate exposure, the terms,
risk acceptance criteria, operating systems, and reporting mechanisms. This is a
cost-effective way of handling high-volume, small-dollar amount transactions.
Credit Programs are reviewed annually, with approvals tiered on the basis of
projected outstandings as well as the maturity and performance of the product.
32
<PAGE>
Citicorp's Credit Transaction approach focuses on the decision to extend
credit to an individual customer or customer relationship. It starts with target
market definition and risk acceptance criteria, and requires detailed customized
financial analysis. Approval requirements for each decision are tiered based on
the transaction amount, the customer's aggregate facilities, credit risk
ratings, and the banking business serving the customer.
Credit Programs and Credit Transactions are approved by three line credit
officers, with one designated as responsible to ensure that all aspects of the
credit process are properly coordinated and executed. As the size or risk
increases, the three approvals may include one or two Senior Credit or
Securities Officers. These include over 500 of Citicorp's most experienced
lenders and underwriters appointed by the Credit Policy Committee, with their
designation reviewed annually. In addition, approvals from underwriting,
product, industry or functional specialists may be required. At certain higher
levels of risk, Credit Policy Committee members as well as senior management
review individual credit decisions.
Within Salomon Smith Barney, the office of the Chief Credit Officer,
through established credit policies and control procedures, assesses, approves,
monitors, and coordinates the extension of credit. The office evaluates the
risk/return trade-offs as well as current and potential credit exposures to a
counterparty or to groups of counterparties that are related because of
industry, geographic, or economic characteristics. At Phibro, the credit
department determines the credit limits for counterparties in its
commodities-related activities.
Both Citicorp and Salomon Smith Barney manage their credit exposure on
derivative and foreign exchange instruments as part of the overall extension of
credit to customers, subject to the same credit approvals, limits, and
monitoring procedures they use for other activities. The extension of credit in
a derivative or foreign exchange contract is equivalent to the loss that could
result if the counterparty were to default. The current replacement cost of a
derivative or foreign exchange contract is equal to the amount, if any, of
Citigroup's unrealized gain on the contract. In the aggregate, for all
contracts, this represents a balance sheet exposure of $37.4 billion at December
31, 1998, which is reflected in Trading Account Assets. See Note 23 of Notes to
Consolidated Financial Statements for additional details on the combined
Citigroup exposures. A substantial portion of the total balance sheet exposure
is to counterparties considered by Citigroup to be investment grade and under
three years tenor. In managing the credit risk associated with derivative and
foreign exchange contracts, the amount at risk is measured as the sum of the
current replacement cost (the balance sheet credit exposure) plus the potential
increase in the replacement cost over the remaining life of the instrument
should market rates change. The potential increase in replacement cost of a
contract is estimated based on a statistical simulation of values that would
result from changing market rates.
In the course of its insurance activities, TAP reinsures a portion of the
risks it underwrites in an effort to control its exposure to losses, stabilize
earnings and protect capital resources. TAP cedes to reinsurers a portion of
these risks and pays premiums based upon the risk and exposure of the policies
subject to such reinsurance. Reinsurance involves credit risk and is subject to
aggregate loss limits. Although the reinsurer is liable to TAP to the extent of
the reinsurance ceded, TAP remains primarily liable as the direct insurer on all
risks reinsured. TAP also holds collateral, including escrow funds and letters
of credit, under certain reinsurance agreements. TIC and Primerica also reinsure
a portion of their life insurance risks. The Company monitors the financial
condition of reinsurers on an ongoing basis, and reviews its reinsurance
arrangements periodically. Reinsurers are selected based on their financial
condition, business practices and the price of their product offerings. For
additional information concerning reinsurance, see Note 14 of Notes to
Consolidated Financial Statements.
The Market Risk Management Process
Market risk encompasses liquidity risk and price risk, both of which are
fundamental to the business of a financial intermediary. Liquidity risk, which
is discussed on pages 37-40, is the risk that some entity, in some location and
in some currency, may be unable to meet a financial commitment to a customer,
creditor, or investor when due. Price risk is the risk to earnings that arises
from changes in interest rates, foreign exchange rates, equity and commodity
prices, and in their implied volatilities. These exposures arise in the normal
course of business of a global financial intermediary.
Citigroup's business and corporate oversight groups have well-defined
market risk management responsibilities. Within each business, a process is in
place to control market risk exposure. The risk management process includes the
establishment of appropriate market controls, policies and procedures,
appropriate senior management risk oversight with thorough risk analysis and
reporting, and independent risk management with capabilities to evaluate and
monitor risk limits. Management of this process begins with the professionals
nearest to Citigroup's customers, products, and markets, and extends up to the
senior executives who manage these businesses and to the country level. Market
risk management is an evolutionary process that integrates changes in markets,
products, and technologies into policies and practices. Periodic reviews are
conducted by Audit and Risk Review to ensure compliance with institutional
policies and procedures for the assessment, management, and control of market
risk.
33
<PAGE>
Within Citicorp the Market Risk Policy Committee serves an oversight role
in the management of all market risks in Citicorp. The committee is a group of
Citicorp's most senior market risk professionals, chaired by the Corporate
Treasurer, and establishes and oversees corporate market risk policies and
standards to serve as a check and balance in the business risk management
process. Market risk positions are controlled by limits on exposure based on the
size and nature of a business. Risk limits are approved by the Finance and
Capital Committee, which is composed of senior management including the
Corporate Treasurer, and are overseen by the Market Risk Policy Committee.
Similarly, Salomon Smith Barney's risk management control framework is
based upon the ongoing participation of senior management, business unit
managers, and the coordinated efforts of various support units throughout the
firm. The Risk Management Committee, which is comprised of senior management,
recommends the appropriate levels of risk, reviews risk capital allocations,
balance sheet and regulatory capital usage by business units and recommends
overall risk policies and controls. An independent Global Risk Management Group
provides technical and quantitative analysis of the market risk to senior
management and the Risk Management Committee. Salomon Smith Barney's trading
businesses have implemented business unit limits on exposure to risk factors.
These limits, which are intended to enforce the discipline of communicating and
gaining approval for higher risk positions, are periodically reviewed by the
Global Risk Management Group. Business units may not exceed risk limits without
the approval of the appropriate member of the Risk Management Committee. Trading
positions are necessary for an active market maker, but can be a major source of
market liquidity risk. Monitoring the trading inventory levels and composition
and oversight for pricing is the responsibility of the Global Risk Management
Group and various support units, which monitor trading positions on a position
by position basis, and employ specific risk models to track inventory exposure
in credit markets, emerging markets and the mortgage market. Salomon Smith
Barney also provides for market liquidity risk by imposing markdowns as the age
of the inventory increases. Inventory event risk, both for issuer credit and
emerging markets, is analyzed with the involvement of senior traders, economists
and credit department personnel. Market scenarios for the major emerging markets
are maintained and updated to reflect event risk. In addition, Salomon Smith
Barney, as a dealer of securities in the global capital markets, has risk to
issuers of fixed income securities for the timely payment of principal and
interest. Principal risk is reviewed by the Global Risk Management Group, which
identifies and reports major risks undertaken by the trading businesses. The
Credit Department combines principal risk positions with credit risks resulting
from market and delivery risk to review aggregate exposures by counterparty,
industry and country.
Across Citigroup, price risk is measured using various tools, including
Earnings-at-Risk (EAR) and sensitivity analysis, which are applied to interest
rate risk in the non-trading portfolios and Value-at-Risk (VAR), stress and
scenario analysis which are applied to the trading portfolios.
Non-Trading Portfolios
Business units manage the potential earnings effect of interest rate movements
by managing the asset and liability mix, either directly or through the use of
derivative financial products. These include interest rate swaps and other
derivative instruments which are either designated and effective as hedges or
designated and effective in modifying the interest rate characteristics of
specified assets or liabilities. The utilization of derivatives is managed in
response to changing market conditions as well as to changes in the
characteristics and mix of the related assets and liabilities. Additional
information about non-trading derivatives is located in Note 23 of Notes to
Consolidated Financial Statements. Citigroup does not utilize instruments with
leverage features in connection with its risk management activities.
At Citicorp, Earnings-at-Risk measures the discounted pre-tax earnings
impact over a specified time horizon of a specified shift in the interest rate
yield curve for the appropriate currency. The yield curve shift is statistically
derived as a two standard deviation change in a short-term interest rate over
the period required to defease the position (usually four weeks).
Earnings-at-Risk is calculated separately for each currency and reflects the
repricing gaps in the position, as well as option positions, both explicit and
embedded. As part of the annual planning process, limits are set for
Earnings-at-Risk on a business, country and total Citicorp basis, with exposures
reviewed on a regular basis by the Finance and Capital Committee in relation to
limits and the current interest rate environment.
Citicorp's primary non-trading price risk exposure is to movements in U.S.
dollar interest rates. As of December 31, 1998, the rate shift over a four-week
defeasance period applied to the U.S. dollar yield curve for purposes of
calculating Earnings-at-Risk was 55 basis points. Citicorp also has
Earnings-at-Risk in various other currencies; however, there are no significant
risk concentrations in any individual non-U.S. dollar currency. As of December
31, 1998, the rate shifts applied to these currencies for purposes of
calculating Earnings-at-Risk over a one-to four-week defeasance period ranged
from 18 to 1,098 basis points, depending on the currency.
The following table illustrates that, as of December 31, 1998, a 55 basis
point increase in the U.S. dollar yield curve would have a potential negative
impact on Citicorp's pre-tax earnings of approximately $148 million for 1999,
and approximately $20 million for the total five-year period 1999-2003. A two
standard deviation increase in non-U.S. dollar interest rates would have a
potential negative impact on Citicorp's pre-tax earnings of approximately $93
million for 1999, and approximately $107 million for the five-year period
1999-2003.
34
<PAGE>
Citicorp Earnings-at-Risk (impact on pre-tax earnings)
<TABLE>
<CAPTION>
Assuming a U.S. Assuming a Non-U.S.
Dollar Rate Move of Dollar Rate Move of(1)
------------------- -------------------
Two Standard Two Standard
Deviations Deviations(2)
In Millions of ------------------- -------------------
Dollars at December 31, 1998 Increase Decrease Increase Decrease
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overnight to three months $ (85) $ 87 $ (23) $ 23
Four to six months (34) 38 (30) 30
Seven to twelve months (29) 31 (40) 40
- ------------------------------------------------------------------------------------------------------------------
Total overnight
to twelve months (148) 156 (93) 93
- ------------------------------------------------------------------------------------------------------------------
Year two (28) 22 (51) 51
Year three 12 (22) 17 (16)
Year four 54 (64) 22 (21)
Year five 119 (152) 24 (23)
Effect of discounting (29) 39 (26) 26
- ------------------------------------------------------------------------------------------------------------------
Total $ (20) $ (21) $(107) $ 110
==================================================================================================================
</TABLE>
(1) Primarily results from Earnings-at-Risk in Thai baht, Singapore dollar and
Hong Kong dollar.
(2) Total assumes a two standard deviation increase or decrease for every
currency, not taking into account any covariance between currencies.
The following table summarizes Citicorp's worldwide Earnings-at-Risk over
the next 12 months from changes in interest rates and shows a relatively stable
trend over the three-year period.
Citicorp Twelve Month Earnings-at-Risk
(impact on pre-tax earnings)
U.S. Dollar Non-U.S. Dollar
In Millions of -------------------- --------------------
Dollars at December 31, 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------
Assuming a
two standard
deviation rate
Increase $(148) $(180) $(165) $ (93) $ (25) $ (22)
Decrease 156 211 191 93 25 17
- -------------------------------------------------------------------------------
The tables above illustrate that Citicorp's pre-tax earnings in its
non-trading activities over the next 12 months would be reduced by an increase
in interest rates and would benefit from a decrease.
Receive-fixed interest rate swaps and similar instruments effectively
modify the repricing characteristics of certain consumer and commercial loan
portfolios, deposits, and long-term debt. Excluding the effects of these
instruments, Citicorp's Earnings-at-Risk over the next twelve months in its
non-trading activities would be as follows:
Citicorp Twelve Month Earnings-at-Risk
(excluding effect of derivatives)
U.S. Dollar Non-U.S. Dollar
In Millions of -------------------- --------------------
Dollars at December 31, 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------
Assuming a
two standard
deviation rate
Increase $ 10 $ 64 $ 80 $(94) $(26) $(22)
Decrease (3) (44) (70) 94 27 17
- -------------------------------------------------------------------------------
During 1998, Citicorp's U.S. dollar Earnings-at-Risk for the following 12
months assuming a two standard deviation increase in rates would have had a
potential negative impact ranging from approximately $65 million to $173 million
in the aggregate at each month end, compared with a range from $142 million to
$209 million during 1997 and a range from $116 million to $204 million during
1996. The relatively lower U.S. dollar Earnings-at-Risk experienced during 1998
was primarily due to the reduction in the level of receive fixed swaps, offset
slightly by the acquisition of UCS. A two standard deviation increase in
non-U.S. dollar interest rates for the following twelve months would have had a
potential negative impact ranging from approximately $53 million to $98 million
in the aggregate at each month end during 1998, compared with a range from $15
million to $33 million during 1997 and a range from $17 million to $28 million
during 1996. The higher non-U.S. dollar Earnings-at-Risk experienced during 1998
primarily reflected the higher interest rate volatility seen across the Asia
Pacific region.
The table above also illustrates that Citicorp's risk profile in the
one- to two-year time horizon was directionally similar, but generally tends to
reverse in subsequent periods. This reflects the fact that the majority of the
derivative instruments utilized to modify repricing characteristics as described
above will mature within three years. Additional detail regarding these
derivative instruments may be found in Note 23 of Notes to Consolidated
Financial Statements.
The table below reflects the estimated decrease in the fair value of
financial instruments held in non-trading portfolios outside Citicorp, that
would result from a 100 basis point increase in interest rates (including the
effect of derivatives) at December 31:
In Millions of Dollars 1998
- --------------------------------------------------------------------------------
Assets
Investments $2,841
Net consumer finance receivables 256
- --------------------------------------------------------------------------------
Liabilities
Long-term debt $ 497
Contractholder funds 415
Redeemable securities of subsidiary trusts 127
================================================================================
A significant portion of the liabilities, e.g. insurance policy and claims
reserves, are not financial instruments and are excluded from the above
sensitivity analysis. Corresponding changes in fair value of these accounts,
based on the present value of estimated cash flows, would materially mitigate
the impact of the net decrease in values implied above. The analysis also
excludes all financial instruments, including long-term debt, identified with
trading activities. The analysis reflects the estimated gross change in value
resulting from a change in interest rates only and is not comparable to the
Earnings-at-Risk used for the Citicorp non-trading portfolios or the
Value-at-Risk used for the trading portfolios, described below. Changes in value
representing unrealized gains or losses on these non-trading financial
instruments are not reflected in earnings.
Trading Portfolios
The price risk of trading activities is primarily measured using the
Value-at-Risk method, which estimates, at a 99% confidence level, the potential
pretax loss in market value that could occur over a one day holding period. The
Value-at-Risk method incorporates the market factors to which the market value
of the trading position is exposed (interest rates, foreign exchange rates,
equity and commodity prices, and their implied volatilities), the sensitivity of
the position to changes in those market factors, and the volatilities and
correlation of those factors. The Value-at-Risk measurement includes the foreign
exchange risks that arise in traditional banking businesses as well as in
explicit trading positions. The volatility and correlation assumptions used in
the Value-at-Risk computations are based on historical experience. The
35
<PAGE>
Value-at-Risk method is not a predictor of future results or worst-case
scenarios, but rather a statistical estimate of potential risk.
The level of exposure taken depends on the market environment and
expectations of future price and market movements, and will vary from period to
period. For Citicorp's major trading centers, the aggregate pretax Value-at-Risk
in the trading portfolios was $15 million at December 31, 1998. Daily exposures
at Citicorp averaged $18 million in 1998 and ranged from $14 million to $22
million. At Salomon Smith Barney the aggregate pretax Value-at-Risk in the
trading portfolios was $71 million at December 31, 1998. Quarterly exposures at
Salomon Smith Barney averaged $70 million in 1998 and ranged from $66 million to
$73 million.
The following table summarizes Citigroup's Value-at-Risk in its trading
portfolio as of December 31, 1998 and 1997 along with the 1998 average.
<TABLE>
<CAPTION>
Citicorp Salomon Smith Barney
------------------------------ ------------------------------
Dec. 31, 1998 Dec. 31, Dec. 31, 1998 Dec. 31,
In Millions of Dollars 1998 Average 1997 1998 Average 1997(1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate $ 13 $ 16 $ 23 $ 75 $ 67 $ 57
Foreign exchange 7 8 8 3 17 12
Equity 5 7 8 15 9 11
All other (primarily
commodity) 1 1 -- 11 11 11
Covariance adjustment (11) (14) (14) (33) (34) (30)
- --------------------------------------------------------------------------------------
Total $ 15 $ 18 $ 25 $ 71 $ 70 $ 61
======================================================================================
</TABLE>
(1) In 1998, Salomon Smith Barney adopted the use of a 99% confidence level
rather than the previously used 95% confidence level, primarily for
consistency with capital guidelines issued by the Federal Reserve Board
and other U.S. Banking regulators. The amounts in the table above provide
the restated VAR at the 99% confidence level.
The table below provides the distribution of Value-at-Risk during 1998.
Citicorp Salomon Smith Barney
-------------- --------------------
In Millions of Dollars High Low High Low
- ---------------------------------------------------------------------------
Interest rate 25 10 75 62
Foreign exchange 16 3 26 3
Equity 13 4 15 5
All other (primarily commodity) 5 1 12 9
===========================================================================
In addition to Value-at-Risk, stress and scenario analysis are also
applied to the trading portfolios.
Stress analysis is performed by repricing inventory positions for
specified upward and downward moves in risk factors, and computing the revenue
implications of these repricings. Stress analysis is a useful tool for
identifying exposures that appear to be relatively small in the current
environment but grow more than proportionately with changes in risk factors.
Such risk is typical of a number of derivative instruments, including options
sold, many mortgage derivatives and a number of structured products. Stress
analysis provides for the measurement of the potential impact of extremely large
moves in risk factors, which, though infrequent, can be expected to occur from
time to time.
Scenario analysis is a tool that generates forward-looking "what-if"
simulations for specified changes in market factors. For example, the scenario
analysis simulates the impact of significant changes in domestic and foreign
interest rates. The revenue implications of the specified scenario are
quantified on a business unit and geographic basis.
Management of Cross-Border Risk at Citigroup
Cross-border risk is the risk that Citigroup will be unable to obtain payment
from customers on their contractual obligations as a result of actions taken by
foreign governments such as exchange controls, debt moratoria and restrictions
on the remittance of funds.
Citigroup manages cross-border risk as part of the Windows on Risk process
described on page 32. Management oversight of cross-border risk is performed
through a formal country risk review process that includes setting of
cross-border limits, at least annually, in each country in which Citigroup has
cross-border exposure, monitoring of economic conditions globally and within
individual countries with proactive action as warranted, and the establishment
of internal risk management policies. The Country Corporate Officer is required
to prepare an annual country risk review that is subject to approval by senior
management and the Windows on Risk Committee depending on the size of the
country limit, and may also be updated periodically on an as needed basis.
Cross-border limits are also established in the aggregate for certain products
that meet risk acceptance criteria.
The table on page 37 presents Citigroup's cross-border outstandings and
commitments at year-end 1998 and 1997 on a regulatory basis in accordance with
Federal Financial Institutions Examination Council (FFIEC) guidelines. Total
cross-border outstandings include cross-border claims on third parties as well
as investments in and funding of local franchises.
Cross-border claims on third parties (trade, short-term, and medium- and
long-term claims) include cross-border loans, securities, deposits at interest
with banks, investments in affiliates, and other monetary assets, as well as net
revaluation gains on foreign exchange and derivative products. Adjustments have
been made to assign externally guaranteed outstandings to the country of the
guarantor and outstandings for which tangible, liquid collateral is held outside
of the obligor's country to the country in which the collateral is held. For
securities received as collateral, outstandings are assigned to the domicile of
the issuer of the securities.
Investments in and funding of local franchises represents the excess of
local country assets over local country liabilities, as defined by the FFIEC.
Local country assets are claims on local residents recorded by branches and
majority-owned subsidiaries of Citigroup domiciled in the country, adjusted for
externally guaranteed outstandings and certain collateral. Local country
liabilities are obligations of branches and majority-owned subsidiaries of
Citigroup domiciled in the country for which no cross-border guarantee is issued
by Citigroup offices outside the country.
36
<PAGE>
The following table presents total cross-border outstandings and commitments on
a regulatory basis in accordance with Federal Financial Institutions Examination
Council (FFIEC) guidelines. Total cross-border outstandings include cross-border
claims on third parties as well as investments in and funding of local
franchises. Countries with outstandings greater than 0.75% of Citigroup assets
at December 31, 1998 and 1997 include:
<TABLE>
<CAPTION>
1998
- --------------------------------------------------------------------------------------------------
Investments
Trading and Short- in and
Cross-Border Claims on Third Parties Term Claims(1) Funding
In Billions of Dollars ------------------------------------ ------------------ of Local
at Year-End Banks Public Private Total SSB Citicorp Franchises
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Germany $ 4.8 $10.1 $ 2.2 $17.1 $12.0 $ 4.7 $ 0.3
United Kingdom 2.8 0.1 5.0 7.9 1.4 3.5 --
Italy 1.2 6.3 0.6 8.1 5.9 2.1 0.6
France 2.7 3.1 2.6 8.4 4.0 4.0 0.3
Japan 1.3 9.8 1.8 12.9 11.0 1.4 --
Mexico 0.1 4.0 1.2 5.3 2.1 1.3 0.6
Brazil 0.4 1.4 1.7 3.5 0.8 1.3 1.0
Spain 0.5 1.1 0.6 2.2 1.6 0.5 1.6
Sweden 1.0 1.6 1.0 3.6 2.1 1.1 0.1
==================================================================================================
<CAPTION>
1998 1997
- ----------------------------------------------------------- ----------------------------------
Total Total
In Billions of Dollars Cross-Border Cross-Border
at Year-End Outstandings Commitments(2) Outstandings Commitments(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Germany $17.4(3) $1.4 $15.1(3) $ 1.7
United Kingdom 7.9(3) 8.9 6.5(4) 7.8
Italy 8.7(3) 0.3 15.9(3) 0.5
France 8.7(3) 1.1 9.5(3) 0.6
Japan 12.9(3) 0.1 12.7(3) 1.1
Mexico 5.9(4) 0.2 6.4(4) 0.6
Brazil 4.5 0.1 7.3(3) 0.1
Spain 3.8 0.4 6.0(4) 0.4
Sweden 3.7 0.9 5.9(4) 0.7
====================================================================================================
</TABLE>
(1) Included in total cross-border claims on third parties. SSB refers to
Salomon Smith Barney.
(2) Commitments (not included in total cross-border outstandings) include
legally binding cross-border letters of credit and other commitments and
contingencies as defined by the FFIEC.
(3) Total cross-border outstandings were in excess of 1.0% of Citigroup's
total assets at the end of the respective period.
(4) Total cross-border outstandings were between 0.75% and 1.0% of Citigroup's
total assets at the end of the respective period.
Trading and short-term claims (included in total cross-border claims on
third parties) include cross-border debt and equity securities in the trading
account, resale agreements, trade finance receivables, net revaluation gains on
foreign exchange and derivative contracts, and other claims with a maturity of
less than one year. Under resale agreements, the counterparty has the legal
obligation for repayment; however, for purposes of the above table, resale
agreements are reported based on the domicile of the issuer of the securities
that are held as collateral, as required by FFIEC guidelines. A substantial
portion of resale agreements are with investment grade counterparties in the G-7
countries (Canada, France, Germany, Italy, Japan, United Kingdom, and the United
States).
LIQUIDITY AND CAPITAL RESOURCES
Citigroup services its obligations primarily with dividends and advances that it
receives from subsidiaries. The subsidiaries' dividend paying abilities are
limited by certain covenant restrictions in credit agreements and/or by
regulatory requirements. Citigroup believes it will have sufficient funds to
meet current and future commitments. Each of Citigroup's major operating
subsidiaries finances its operations on a basis consistent with its
capitalization and ratings.
Citigroup, Citicorp, Commercial Credit Company (CCC), TAP and The
Travelers Insurance Company (TIC) issue commercial paper directly to investors.
Citicorp and Citigroup, both of which are bank holding companies, maintain
combined liquidity reserves of cash and securities (at Citicorp) and unused bank
lines of credit (at Citigroup) at least equal to their combined outstanding
commercial paper. CCC, TAP, and TIC each maintains unused credit availability
under their bank lines of credit at least equal to the amount of its outstanding
commercial paper.
Borrowings under bank lines of credit may be at interest rates based on
LIBOR, CD rates, the prime rate or bids submitted by the banks. Each company
pays its banks commitment fees for its lines of credit.
Citicorp and some of its nonbank subsidiaries have credit facilities with
Citicorp's subsidiary banks, including Citibank, N.A. Borrowings under these
facilities would be secured in accordance with Section 23A of the Federal
Reserve Act.
Citigroup
Citigroup, CCC and TIC have an agreement with a syndicate of banks to provide
$1.0 billion of revolving credit, to be allocated to any of Citigroup, CCC or
TIC. The participation of TIC in this agreement is limited to $250 million. The
revolving credit facility consists of a five-year revolving credit facility that
expires in June 2001. At December 31, 1998, all of the facility was allocated to
Citigroup. Under this facility Citigroup is required to maintain a certain level
of consolidated stockholders' equity (as defined in the agreement). Citigroup
exceeded this requirement by approximately $27.2 billion at December 31, 1998.
Citigroup and CCC also have $450 million in 364-day facilities of which $200
million expires in August 1999 and $250 million expires in March 1999 and may be
allocated to either of Citigroup or CCC. At December 31, 1998 all $450 million
was allocated to Citigroup. At December 31, 1998 there were no borrowings
outstanding under either of these facilities.
Citigroup is subject to risk-based capital guidelines issued by the Board
of Governors of the FRB. These guidelines are used to evaluate capital adequacy
based primarily on the perceived credit risk associated with balance sheet
assets, as well as certain off-balance sheet exposures such as unused loan
commitments, letters of credit, and derivative and foreign exchange contracts.
The risk-based capital guidelines are supplemented by a leverage ratio
requirement.
37
<PAGE>
Citigroup Ratios
At Year-End 1998 1997
- -------------------------------------------------------------------------------
Tier 1 capital 8.68% 8.37%
Total capital (Tier 1 and Tier 2) 11.43 11.07
Leverage(1) 6.03 5.64
Common stockholders' equity 6.04 5.52
===============================================================================
(1) Tier 1 capital divided by adjusted average assets.
Citigroup maintained a strong capital position during 1998. Total capital
(Tier 1 and Tier 2) amounted to $55.0 billion at December 31, 1998, representing
11.43% of net risk-adjusted assets. This compares to $52.3 billion and 11.07% at
December 31, 1997. Tier 1 capital of $41.8 billion at December 31, 1998
represented 8.68% of net risk-adjusted assets, compared to $39.5 billion and
8.37% at December 31, 1997. Citigroup's leverage ratio was 6.03% at December 31,
1998 compared to 5.64% at December 31, 1997.
Components of Capital Under Regulatory Guidelines
In Millions of Dollars at Year-End 1998 1997
- -------------------------------------------------------------------------------
Tier 1 Capital
Common stockholders' equity $ 40,395 $ 38,498
Perpetual preferred stock 2,313 3,353
Mandatorily redeemable securities of
subsidiary trusts 4,320 2,995
Minority interest(1) 1,602 1,395
Less: Net unrealized gains on securities
available for sale(2) (1,359) (1,692)
Intangible assets:
Goodwill (3,764) (3,697)
Other intangible assets (1,620) (1,202)
50% investment in certain subsidiaries(3) (110) (129)
- -------------------------------------------------------------------------------
Total Tier 1 capital $ 41,777 $ 39,521
- -------------------------------------------------------------------------------
Tier 2 Capital
Allowance for credit losses(4) $ 6,024 $ 5,910
Qualifying debt(5) 7,296 6,977
Unrealized marketable equity securities gains(2) 21 --
Less: 50% investment in certain subsidiaries(3) (110) (129)
- -------------------------------------------------------------------------------
Total Tier 2 capital 13,231 12,758
- -------------------------------------------------------------------------------
Total capital (Tier 1 and Tier 2) $ 55,008 $ 52,279
===============================================================================
Net risk-adjusted assets(6) $ 481,208 $ 472,095
===============================================================================
(1) Primarily related to Travelers Property Casualty Corp.
(2) Tier 1 capital excludes unrealized gains and losses on debt securities
available for sale in accordance with regulatory risk-based capital
guidelines. During 1998, the federal bank regulatory agencies amended
their risk-based capital guidelines to 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.
(3) Represents investment in certain overseas insurance activities and
unconsolidated banking and finance subsidiaries.
(4) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is
deducted from risk-adjusted assets.
(5) Includes qualifying senior and subordinated debt in an amount not
exceeding 50% of Tier 1 capital, and subordinated capital notes subject to
certain limitations.
(6) Includes risk-weighted credit equivalent amounts, net of applicable
bilateral netting agreements, of $37.3 billion for interest rate,
commodity and equity derivative contracts and foreign exchange contracts,
as of December 31, 1998, compared with $35.2 billion as of December 31,
1997. Net risk-adjusted assets also includes the effect of other
off-balance sheet exposures such as unused loan commitments and letters of
credit and reflects deductions for intangible assets and any excess
allowance for credit losses.
Common stockholders' equity increased a net $1.9 billion during the year
to $40.4 billion at December 31, 1998, representing 6.04% of assets, compared to
$38.5 billion and 5.52% at year-end 1997. The increase in common stockholders'
equity during the year principally reflected net income of $5.8 billion, and
$1.3 billion related to the issuance of shares pursuant to employee benefit
plans, conversion of redeemable preferred stock, and the exercise of warrants,
partially offset by treasury stock acquired of $3.1 billion and dividends
declared on common and preferred stock of $1.8 billion. The increase in the
common stockholders' equity ratio during the year reflected the above items as
well as the decrease in total assets.
During 1998, preferred stock redemptions included 7.5% Noncumulative
Preferred Stock, Series 17 for $350 million, 8% Noncumulative Preferred Stock,
Series 16 for $325 million, Adjustable Rate Preferred Stock, Second and Third
Series for $303 million, and Graduated Rate Cumulative Preferred Stock, Series
8A for $62 million. In February 1999, Citigroup redeemed the $200 million Series
J Preferred Stock.
The $4,320 million of mandatorily redeemable securities of subsidiary
trusts (trust securities) outstanding at December 31, 1998 qualify as Tier 1
capital. The amount outstanding at year-end includes $1,700 million of
parent-obligated securities and $2,620 million of subsidiary-obligated
securities. The increase in trust securities outstanding during 1998 of $1,325
million includes $700 million of Citigroup (parent company)-obligated
securities, $400 million of Salomon Smith Barney Holdings Inc.-obligated
securities, and $225 million of Citicorp-obligated securities.
Effective January 1, 1998, Citigroup adopted the U.S. bank regulatory
agencies amendment to their risk-based capital guidelines to incorporate market
risk in the measurement of net risk-adjusted assets. Market risk-equivalent
assets included in net risk-adjusted assets amounted to $51.5 billion at
December 31, 1998.
Citigroup's subsidiary depository institutions are subject to the
risk-based capital guidelines issued by their respective primary federal bank
regulatory agencies, which are generally similar to the FRB's guidelines. At
December 31, 1998, all of Citigroup's subsidiary depository institutions were
"well capitalized" under the federal bank regulatory agencies' definitions.
From time-to-time, the FRB and the FFIEC propose amendments to, and issue
interpretations of, risk-based capital guidelines and reporting instructions.
Such proposals or interpretations could, if implemented in the future, affect
reported capital ratios and net risk-adjusted assets.
Citicorp
Management of liquidity at Citicorp is the responsibility of the Corporate
Treasurer. The Country Corporate Officer and the Country Treasurer ensure that
all funding obligations in each country are met when due. The Country Treasurer
is appointed by the Market Risk Policy Committee upon the recommendation of line
management and Regional Treasurers.
The in-country forum for liquidity issues is the Asset/Liability
Management Committee (ALCO), which includes senior executives within each
country. The ALCO reviews the current and prospective funding requirements for
all businesses and legal entities within the country, as well as the capital
position and balance sheet. All businesses within the country are represented on
the committee with the focal point being the Country Treasurer.
Each Country Treasurer must prepare a liquidity plan at least annually
that is approved by the Country Corporate Officer, the Regional Treasurer, and
the Market Risk Policy Committee. The liquidity profile is monitored on an
on-going basis and reported monthly. Limits are established on the extent to
which businesses in a country can take liquidity risk. The size of the limit
depends on the depth of the market, experience level of local management, the
stability of the liabilities, and liquidity of the assets.
Regional Treasurers generally have responsibility for monitoring liquidity
risk across a number of countries within a defined geography. They are also
38
<PAGE>
available for consultation and special approvals, especially in unusual or
volatile market conditions.
Citicorp's assets and liabilities are diversified across many currencies,
geographic areas, and businesses. Particular attention is paid to those
businesses which for tax, sovereign risk, or regulatory reasons cannot be freely
and readily funded in the international markets.
A diversity of funding sources, currencies, and maturities is used to gain
a broad access to the investor base. Citicorp's deposits, which represent 66%
and 64% of total funding at December 31, 1998 and 1997, respectively, are
broadly diversified by both geography and customer segments.
Stockholder's equity, which grew $1.5 billion during the year to $22.6
billion at year-end 1998, continues to be an important component of the overall
funding structure. In addition, long-term debt is issued by Citicorp and its
subsidiaries. Total Citicorp long-term debt outstanding at year-end 1998 was
$19.6 billion, compared with $19.0 billion at year-end 1997. Asset
securitization programs remain an important source of liquidity. Loans
securitized during 1998 included $17.5 billion of U.S. credit cards, $9.1
billion of U.S. consumer mortgages, and $0.3 billion of non-U.S. consumer loans.
As credit card securitization transactions amortize, newly originated
receivables are recorded on Citicorp's balance sheet and become available for
asset securitization. In 1998, the scheduled amortization of certain credit card
securitization transactions made available $7.8 billion of new receivables. In
addition, $3.8 billion of credit card securitization transactions are scheduled
to amortize during 1999.
Citicorp is a legal entity separate and distinct from Citibank, N.A. and
its other subsidiaries and affiliates. There are various legal limitations on
the extent to which Citicorp's banking subsidiaries may extend credit, pay
dividends or otherwise supply funds to Citicorp. The approval of the Office of
the Comptroller of the Currency is required if total dividends declared by a
national bank in any calendar year exceed net profits (as defined) for that year
combined with its retained net profits for the preceding two years. In addition,
dividends for such a bank may not be paid in excess of the bank's undivided
profits. State-chartered bank subsidiaries are subject to dividend limitations
imposed by applicable state law.
Citicorp's national and state-chartered bank subsidiaries can declare
dividends to their respective parent companies in 1999, without regulatory
approval, of approximately $3.0 billion, adjusted by the effect of their net
income (loss) for 1999 up to the date of any such dividend declaration. In
determining whether and to what extent to pay dividends, each bank subsidiary
must also consider the effect of dividend payments on applicable risk-based
capital and leverage ratio requirements as well as policy statements of the
federal regulatory agencies that indicate that banking organizations should
generally pay dividends out of current operating earnings. Consistent with these
considerations, Citicorp estimates that its bank subsidiaries can distribute
dividends to Citicorp of approximately $2.5 billion of the available $3.0
billion, adjusted by the effect of their net income (loss) up to the date of any
such dividend declaration.
Citicorp also receives dividends from its nonbank subsidiaries. These
nonbank subsidiaries are generally not subject to regulatory restrictions on
their payment of dividends except that the approval of the Office of Thrift
Supervision (OTS) may be required if total dividends declared by a savings
association in any calendar year exceed amounts specified by that agency's
regulations.
Citicorp is subject to risk-based capital and leverage guidelines issued
by the Board of Governors of the FRB.
Citicorp Ratios
At Year-End 1998 1997
- -------------------------------------------------------------------------------
Tier 1 capital 8.44% 8.27%
Total capital (Tier 1 and Tier 2) 12.38 12.25
Leverage(1) 6.68 6.95
Common stockholder's equity 6.57 6.15
===============================================================================
(1) Tier 1 capital divided by adjusted average assets.
Citicorp maintained a strong capital position during 1998. Total capital
(Tier 1 and Tier 2) amounted to $33.9 billion at December 31, 1998, representing
12.38% of net risk-adjusted assets. This compares with $31.0 billion and 12.25%
at December 31, 1997. Tier 1 capital of $23.1 billion at year-end 1998
represented 8.44% of net risk-adjusted assets, compared with $20.9 billion and
8.27% at year-end 1997. The Tier 1 capital ratio at year-end 1998 exceeded
Citicorp's target range of 8.00% to 8.30%.
Commercial Credit Company
At December 31, 1998, CCC, in addition to the bi-lateral agreements with
Citigroup, also had a committed and available revolving credit facility on a
stand-alone basis of $4.750 billion, consisting of $3.4 billion in five-year
facilities which expire in 2002 and $1.350 billion in a 364-day facility that
expires in July 1999. At December 31, 1998, there were no borrowings outstanding
under these facilities.
CCC is limited by covenants in its revolving credit agreements as to the
amount of dividends and advances that may be made to Citigroup or its affiliated
companies. At December 31, 1998, CCC would have been able to remit $819 million
under its most restrictive covenants.
Travelers Property Casualty Corp.
TAP has a five-year revolving credit facility in the amount of $250 million with
a syndicate of banks that expires in December 2001. Under this facility TAP is
required to maintain a certain level of consolidated stockholders' equity (as
defined in the agreement). At December 31, 1998, this requirement was exceeded
by approximately $4.2 billion. At December 31, 1998, there were no borrowings
outstanding under this facility.
TAP's insurance subsidiaries are subject to various regulatory
restrictions that limit the maximum amount of dividends available to be paid to
their parent without prior approval of insurance regulatory authorities.
Dividend payments to TAP from its insurance subsidiaries are limited to $1
billion in 1999 without prior approval of the Connecticut Insurance Department.
Salomon Smith Barney Holdings Inc.
Salomon Smith Barney's total assets were $212 billion at December 31, 1998, down
from $277 billion at year-end 1997. Due to the nature of Salomon Smith Barney's
trading activities, including its matched book activities, it is not uncommon
for asset levels to fluctuate from period to period. A "matched book"
transaction involves a security purchased under an agreement to resell (i.e.,
reverse repurchase transaction) and simultaneously sold under an agreement to
repurchase (i.e., repurchase transaction). Salomon Smith Barney's balance sheet
is highly liquid, with the vast majority of its assets consisting of marketable
securities and collateralized short-term financing agreements arising from
securities transactions. The highly liquid nature of these assets provides
Salomon Smith Barney with flexibility in financing and managing its business.
Salomon Smith Barney monitors and evaluates the adequacy of its capital and
borrowing base on a daily basis in order to allow for flexibility in its
funding, to maintain liquidity, and to ensure that its capital base supports the
regulatory capital requirements of its subsidiaries.
39
<PAGE>
Salomon Smith Barney funds its operations through the use of secured
and unsecured short-term borrowings, long-term borrowings and
TruPS-Registered Trademark-. Secured short-term financing, including
repurchase agreements and secured loans, is Salomon Smith Barney's principal
funding source. Unsecured short-term borrowings provide a source of
short-term liquidity and are also utilized as an alternative to secured
financing when they represent a cheaper funding source. Sources of short-term
unsecured borrowings include commercial paper, unsecured bank borrowings and
letters of credit, deposit liabilities, promissory notes and corporate loans.
At December 31, 1998 Salomon Smith Barney had a $1.5 billion revolving
credit agreement with a bank syndicate that extends through May 2001, and a $3.5
billion, 364-day revolving credit agreement that extends through May 1999.
Salomon Smith Barney may borrow under its revolving credit facilities at various
interest rate options (LIBOR, CD or base rate) and compensates the banks for the
facilities through commitment fees. Under these facilities Salomon Smith Barney
is required to maintain a certain level of consolidated adjusted net worth (as
defined in the agreement). At December 31, 1998, this requirement was exceeded
by approximately $2.8 billion. At December 31, 1998, there were no borrowings
outstanding under either facility. Salomon Smith Barney also has substantial
borrowing arrangements consisting of facilities that it has been advised are
available, but where no contractual lending obligation exists. These
arrangements are reviewed on an ongoing basis to ensure flexibility in meeting
short-term requirements.
Unsecured term debt is a significant component of Salomon Smith Barney's
long-term capital. Long-term debt totaled $19.1 billion at December 31, 1998 and
1997. Salomon Smith Barney utilizes interest rate swaps to convert the majority
of its fixed rate long-term debt used to fund inventory-related working capital
requirements into variable rate obligations. Long-term debt issuances
denominated in currencies other than the U.S. dollar that are not used to
finance assets in the same currency are effectively converted to U.S. dollar
obligations through the use of cross-currency swaps and forward currency
contracts. The average remaining maturity of Salomon Smith Barney's long-term
debt was 4.0 years at December 31, 1998 and 3.7 years at December 31, 1997. See
Note 12 of Notes to the Consolidated Financial Statements for additional
information regarding debt and an analysis of the impact of interest rate swaps
on debt.
Salomon Smith Barney's borrowing relationships are with a broad range of
banks, financial institutions and other firms from which it draws funds. The
volume of borrowings generally fluctuates in response to changes in the level of
financial instruments, commodities and contractual commitments, customer
balances, the amount of reverse repurchase transactions outstanding and
securities borrowed transactions. As Salomon Smith Barney's activities increase,
borrowings generally increase to fund the additional activities. Availability of
financing can vary depending upon market conditions, credit ratings, and the
overall availability of credit to the securities industry. Salomon Smith Barney
seeks to expand and diversify its funding mix as well as its creditor sources.
Concentration levels for these sources, particularly for short-term lenders, are
closely monitored both in terms of single investor limits and daily maturities.
Salomon Smith Barney monitors liquidity by tracking asset levels,
collateral and funding availability to maintain flexibility to meet its
financial commitments. As a policy, Salomon Smith Barney attempts to maintain
sufficient capital and funding sources in order to have the capacity to finance
itself on a fully collateralized basis in the event that access to unsecured
financing was temporarily impaired. Salomon Smith Barney's liquidity management
process includes a contingency funding plan designed to ensure adequate
liquidity even if access to unsecured funding sources is severely restricted or
unavailable. This plan is reviewed periodically to keep the funding options
current and in line with market conditions. The management of this plan includes
an analysis that is utilized to determine the ability to withstand varying
levels of stress, which could impact Salomon Smith Barney's liquidation horizons
and required margins. In addition, Salomon Smith Barney monitors its leverage
and capital ratios on a daily basis.
The Travelers Insurance Company
At December 31, 1998, TIC had $25.7 billion of life and annuity product deposit
funds and reserves. Of that total, $13.8 billion is not subject to discretionary
withdrawal based on contract terms. The remaining $11.9 billion is for life and
annuity products that are subject to discretionary withdrawal by the
contractholder. Included in the amount that is subject to discretionary
withdrawal are $2.4 billion of liabilities that are surrenderable with market
value adjustments. Also included are an additional $5.1 billion of the life
insurance and individual annuity liabilities which are subject to discretionary
withdrawals, and have an average surrender charge of 4.7%. In the payout phase,
these funds are credited at significantly reduced interest rates. The remaining
$4.4 billion of liabilities are surrenderable without charge. More than 14.2% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders. Insurance
liabilities that are surrendered or withdrawn are reduced by outstanding policy
loans and related accrued interest prior to payout.
Scheduled maturities of guaranteed investment contracts (GICs) in 1999,
2000, 2001, 2002 and 2003 are $2.61 billion, $463.4 million, $491.9 million,
$341.7 million and $188.1 million, respectively. At December 31, 1998, the
interest rates credited on GICs had a weighted average rate of 6.20%.
TIC is subject to various regulatory restrictions that limit the maximum
amount of dividends available to its parent without prior approval of the
Connecticut Insurance Department. A maximum of $504 million of statutory surplus
is available in 1999 for such dividends without Department approval.
Insurance Industry -- Risk Based Capital
The National Association of Insurance Commissioners (NAIC) adopted risk-based
capital (RBC) requirements for life insurance companies and for property and
casualty insurance companies. The RBC requirements are to be used as minimum
capital requirements by the NAIC and states to identify companies that merit
further regulatory action. The formulas have not been designed to differentiate
among adequately capitalized companies that operate with levels of capital
higher than RBC requirements. Therefore, it is inappropriate and ineffective to
use the formulas to rate or to rank such companies. At December 31, 1998 and
1997, all of the Company's life and property & casualty companies had adjusted
capital in excess of amounts requiring any regulatory action.
40
<PAGE>
REPORT OF MANAGEMENT
The management of Citigroup is responsible for the preparation and fair
presentation of the financial statements and other financial information
contained in this annual report. The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles appropriate
in the circumstances. Where amounts must be based on estimates and judgments,
they represent the best estimates and judgments of management. The financial
information appearing throughout this annual report is consistent with that in
the financial statements.
The management of Citigroup is also responsible for maintaining effective
internal control over financial reporting. Management establishes an environment
that fosters strong controls and it designs business processes to identify and
respond to risk. Management maintains a comprehensive system of controls
intended to ensure that transactions are executed in accordance with its
authorization, assets are safeguarded, and financial records are reliable. And
management takes steps to see that information and communication flows are
effective and to monitor performance, including performance of internal control.
Citigroup's accounting policies and internal control are under the general
oversight of the Board of Directors, acting through the Audit Committee of the
Board. The committee is composed entirely of directors who are not officers or
employees of Citigroup. The Committee reviews reports by internal audit covering
its extensive program of audits and business risk reviews worldwide. In
addition, KPMG LLP, independent auditors, are engaged to audit Citigroup's
financial statements.
KPMG LLP obtains and maintains an understanding of Citigroup's internal
control and procedures for financial reporting and conducts such tests and other
auditing procedures as it considers necessary in the circumstances to express
the opinion in its report that follows. KPMG LLP has free access to the Audit
Committee, with no members of management present, to discuss its audit and its
findings as to the integrity of Citigroup's financial reporting and the
effectiveness of internal control.
Management recognizes that there are inherent limitations in the
effectiveness of any system of internal control, and accordingly, even effective
internal control can provide only reasonable assurance with respect to financial
statement preparation. However, management believes that Citigroup maintained
effective internal control over financial reporting as of December 31, 1998.
/s/ John S. Reed /s/ Sanford I. Weill
John S. Reed Sanford I. Weill
Chairman and Co-Chief Chairman and Co-Chief
Executive Officer Executive Officer
/s/ Heidi G. Miller
Heidi G. Miller
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
[GRAPHIC OMITTED]
The Board of Directors and Stockholders
Citigroup Inc.
We have audited the accompanying consolidated statement of financial position of
Citigroup Inc. (formerly Travelers Group Inc.) and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the separate consolidated statements of income, changes in
stockholders' equity and cash flows of Salomon Inc and subsidiaries for the year
ended December 31, 1996, which consolidated statements reflect total revenues of
$9,046 million for the year ended December 31, 1996. Those consolidated
financial statements, were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Salomon Inc and subsidiaries for such period, is based solely on the report
of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Citigroup Inc. and subsidiaries as
of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1998 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
January 25, 1999
41
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
Citigroup Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
In Millions, Except Per Share Amounts 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Loan interest, including fees $ 22,543 $ 20,765 $ 20,090
Other interest and dividends 23,696 21,336 17,708
Insurance premiums 9,850 8,995 7,633
Commissions and fees 11,589 10,936 10,106
Principal transactions 1,780 4,231 4,528
Asset management and administration fees 2,292 1,715 1,390
Realized gains from sales of investments 840 995 276
Other income 3,841 3,333 3,370
- ----------------------------------------------------------------------------------------------------------------------
Total revenues 76,431 72,306 65,101
Interest expense 27,495 24,524 21,336
- ----------------------------------------------------------------------------------------------------------------------
Total revenues, net of interest expense 48,936 47,782 43,765
- ----------------------------------------------------------------------------------------------------------------------
Provisions for benefits, claims, and credit losses
Policyholder benefits and claims 8,365 7,714 7,366
Provision for credit losses 2,751 2,197 2,200
- ----------------------------------------------------------------------------------------------------------------------
Total provisions for benefits, claims, and credit losses 11,116 9,911 9,566
- ----------------------------------------------------------------------------------------------------------------------
Operating expenses
Non-insurance compensation and benefits 13,336 12,942 12,028
Insurance underwriting, acquisition, and operating 3,274 3,236 3,013
Restructuring charges and merger-related costs 795 1,718 --
Other operating 11,146 9,225 8,434
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 28,551 27,121 23,475
- ----------------------------------------------------------------------------------------------------------------------
Gain on sale of stock by subsidiary -- -- 363
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and minority interest 9,269 10,750 11,087
Provision for income taxes 3,234 3,833 3,967
Minority interest, net of income taxes 228 212 47
- ----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 5,807 6,705 7,073
- ----------------------------------------------------------------------------------------------------------------------
Discontinued operations, net of income taxes
Loss from operations net of tax benefit of $(48) -- -- (75)
Loss on disposition net of tax benefit of $(198) -- -- (259)
- ----------------------------------------------------------------------------------------------------------------------
Loss from discontinued operations -- -- (334)
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 5,807 $ 6,705 $ 6,739
======================================================================================================================
Basic earnings per share
Income from continuing operations $ 2.49 $ 2.86 $ 2.97
Discontinued operations -- -- (0.14)
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 2.49 $ 2.86 $ 2.83
======================================================================================================================
Weighted average common shares outstanding 2,242.4 2,247.9 2,271.6
- ----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share
Income from continuing operations $ 2.43 $ 2.74 $ 2.84
Discontinued operations -- -- (0.13)
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 2.43 $ 2.74 $ 2.71
======================================================================================================================
Adjusted weighted average common shares outstanding 2,315.2 2,357.7 2,393.9
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
42
<PAGE>
Citigroup Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------------------
In Millions of Dollars 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents (including segregated
cash and other deposits) $ 13,837 $ 12,618
Deposits at interest with banks 11,643 13,049
Investments 103,672 91,633
Federal funds sold and securities borrowed or
purchased under agreements to resell 94,831 119,967
Brokerage receivables 21,413 15,627
Trading account assets 119,845 180,088
Loans, net
Consumer 132,255 119,490
Commercial 89,703 79,116
- -------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 221,958 198,606
Allowance for credit losses (6,617) (6,137)
- -------------------------------------------------------------------------------------------------------------------------
Total loans, net 215,341 192,469
Reinsurance recoverables 9,492 9,579
Separate and variable accounts 15,820 11,319
Other assets 62,747 51,035
- -------------------------------------------------------------------------------------------------------------------------
Total assets $ 668,641 $ 697,384
=========================================================================================================================
Liabilities
Non-interest-bearing deposits in U.S. offices $ 17,058 $ 16,901
Interest-bearing deposits in U.S. offices 44,169 40,361
Non-interest-bearing deposits in offices outside the U.S. 10,856 9,627
Interest-bearing deposits in offices outside the U.S. 156,566 132,232
- -------------------------------------------------------------------------------------------------------------------------
Total deposits 228,649 199,121
Federal funds purchased and securities loaned or sold
under agreements to repurchase 81,025 132,103
Brokerage payables 21,055 12,763
Trading account liabilities 94,584 127,152
Contractholder funds and separate and variable accounts 33,037 26,157
Insurance policy and claims reserves 43,990 43,782
Investment banking and brokerage borrowings 14,040 11,464
Short-term borrowings 16,112 14,028
Long-term debt 48,671 47,387
Other 40,310 38,301
Citigroup or subsidiary obligated mandatorily redeemable securities of
subsidiary trusts holding solely junior subordinated debt securities of -- Parent 1,700 1,000
-- Subsidiary 2,620 1,995
Redeemable preferred stock -- Series I 140 280
- -------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value 2,313 3,353
Common stock ($.01 par value; authorized shares: 6.0 billion),
issued shares: 1998 -- 2,402,070,912 shares and 1997 -- 2,512,680,182 shares 24 25
Additional paid-in capital 8,905 12,471
Retained earnings 35,971 32,002
Treasury stock, at cost: 1998 -- 144,095,466 shares and 1997 -- 232,757,097 shares (4,789) (6,595)
Accumulated other changes in equity from nonowner sources 781 1,057
Unearned compensation (497) (462)
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 42,708 41,851
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 668,641 $ 697,384
=========================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
43
<PAGE>
Citigroup Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------
Amounts
- ---------------------------------------------------------------------------------------------------------
In Millions of Dollars Except Shares in Thousands 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred stock at aggregate liquidation value
Balance, beginning of year $ 3,353 $ 3,203 $ 4,183
Issuance of preferred stock -- 1,000 250
Redemption or retirement of preferred stock (1,040) (850) (112)
Conversion of preferred stock to common stock -- -- (1,118)
- ---------------------------------------------------------------------------------------------------------
Balance, end of year 2,313 3,353 3,203
- ---------------------------------------------------------------------------------------------------------
Common stock and additional paid-in capital
Balance, beginning of year 12,496 14,940 13,418
Conversion of preferred stock to common stock 293 140 855
Exercise of common stock warrants 131 14 --
Employee benefit plans 531 756 696
Retirement of treasury stock (4,497) (3,347) --
Other (25) (7) (29)
- ---------------------------------------------------------------------------------------------------------
Balance, end of year 8,929 12,496 14,940
- ---------------------------------------------------------------------------------------------------------
Retained earnings
Balance, beginning of year 32,002 26,989 22,443
Net income 5,807 6,705 6,739
Common dividends (1,622) (1,409) (1,205)
Preferred dividends (216) (283) (325)
Adjustment for treasury shares issued on conversion
of convertible preferred stock -- -- (663)
- ---------------------------------------------------------------------------------------------------------
Balance, end of year 35,971 32,002 26,989
- ---------------------------------------------------------------------------------------------------------
Treasury stock, at cost
Balance, beginning of year (6,595) (7,073) (5,008)
Issuance of shares pursuant to employee benefit
plans and other 408 578 586
Treasury stock acquired (3,085) (3,447) (3,717)
Retirement of treasury stock 4,497 3,347 --
Issuance of shares on conversion of preferred stock -- -- 1,066
Other (14) -- --
- ---------------------------------------------------------------------------------------------------------
Balance, end of year (4,789) (6,595) (7,073)
- ---------------------------------------------------------------------------------------------------------
Accumulated other changes in equity from nonowner sources
Balance, beginning of year 1,057 662 348
Net change in unrealized gains and losses on investment
securities, net of tax (333) 547 257
Foreign currency translations adjustment, net of tax 57 (152) (57)
Adjustment for minimum pension liability, net of tax -- -- 114
- ---------------------------------------------------------------------------------------------------------
Balance, end of year 781 1,057 662
- ---------------------------------------------------------------------------------------------------------
Unearned compensation
Balance, beginning of year (462) (305) (201)
Net issuance of restricted stock (420) (467) (314)
Restricted stock amortization 385 310 210
- ---------------------------------------------------------------------------------------------------------
Balance, end of year (497) (462) (305)
- ---------------------------------------------------------------------------------------------------------
Total common stockholders' equity and common shares outstanding 40,395 38,498 35,213
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 42,708 $ 41,851 $ 38,416
=========================================================================================================
Summary of changes in equity from nonowner sources
Net income $ 5,807 $ 6,705 $ 6,739
Other changes in equity from nonowner sources, net of tax (276) 395 314
- ---------------------------------------------------------------------------------------------------------
Total changes in equity from nonowner sources $ 5,531 $ 7,100 $ 7,053
=========================================================================================================
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------ -------------------------------------
In Millions of Dollars Except Shares in Thousands 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred stock at aggregate liquidation value
Balance, beginning of year 14,831 20,231 22,465
Issuance of preferred stock -- 4,000 500
Redemption or retirement of preferred stock (6,356) (9,400) (225)
Conversion of preferred stock to common stock -- -- (2,509)
- ---------------------------------------------------------------------------------------------------------
Balance, end of year 8,475 14,831 20,231
- ---------------------------------------------------------------------------------------------------------
Common stock and additional paid-in capital
Balance, beginning of year 2,512,680 2,663,141 2,534,255
Conversion of preferred stock to common stock 13,187 6,245 108,636
Exercise of common stock warrants 10,130 1,113 --
Employee benefit plans 22 -- 20,240
Retirement of treasury stock (133,925) (157,836) --
Other (23) 17 10
- ---------------------------------------------------------------------------------------------------------
Balance, end of year 2,402,071 2,512,680 2,663,141
- ---------------------------------------------------------------------------------------------------------
Retained earnings
Balance, beginning of year
Net income
Common dividends
Preferred dividends
Adjustment for treasury shares issued on conversion
of convertible preferred stock
- ------------------------------------------------------------------
Balance, end of year
- ------------------------------------------------------------------
Treasury stock, at cost
Balance, beginning of year (232,757) (364,077) (337,106)
Issuance of shares pursuant to employee benefit
plans and other 18,031 50,023 36,345
Treasury stock acquired (62,831) (76,539) (118,509)
Retirement of treasury stock 133,925 157,836 --
Issuance of shares on conversion of preferred stock -- -- 55,193
Other (464) -- --
- ---------------------------------------------------------------------------------------------------------
Balance, end of year (144,096) (232,757) (364,077)
- ---------------------------------------------------------------------------------------------------------
Accumulated other changes in equity from nonowner sources
Balance, beginning of year
Net change in unrealized gains and losses on investment
securities, net of tax
Foreign currency translations adjustment, net of tax
Adjustment for minimum pension liability, net of tax
- ------------------------------------------------------------------
Balance, end of year
- ------------------------------------------------------------------
Unearned compensation
Balance, beginning of year
Net issuance of restricted stock
Restricted stock amortization
- ---------------------------------------------------------------------------------------------------------
Balance, end of year
- ---------------------------------------------------------------------------------------------------------
Total common stockholders' equity and common shares outstanding 2,257,975 2,279,923 2,299,064
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity
=========================================================================================================
Summary of changes in equity from nonowner sources
Net income
Other changes in equity from nonowner sources, net of tax
- ---------------------------------------------------------------------------------------------------------
Total changes in equity from nonowner sources
=========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
44
<PAGE>
Citigroup Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
In Millions of Dollars 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Income from continuing operations $ 5,807 $ 6,705 $ 7,073
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities:
Amortization of deferred policy acquisition costs
and value of insurance in force 1,509 1,424 1,192
Additions to deferred policy acquisition costs (1,784) (1,685) (1,388)
Depreciation and amortization 1,470 1,218 1,182
Deferred tax provision (benefit) (194) (1,430) 475
Provision for credit losses 2,751 2,197 2,200
Change in trading account assets 60,243 (22,730) (3,458)
Change in trading account liabilities (32,568) 13,008 33,521
Change in Federal funds sold and securities purchased under
agreements to resell 25,136 (10,849) (15,979)
Change in Federal funds purchased and securities
sold under agreements to repurchase (51,078) 18,536 (7,807)
Change in brokerage receivables net of brokerage payables 2,506 (1,291) (3,418)
Change in insurance policy and claims reserves 208 381 (309)
Net gain on sale of securities (840) (995) (276)
Venture capital activity (698) (475) (270)
Restructuring charges and merger-related costs 795 1,718 --
Other, net (8,418) 2,649 (2,343)
- -----------------------------------------------------------------------------------------------------------------------------------
Total adjustments (962) 1,676 3,322
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,845 8,381 10,395
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Change in deposits at interest with banks 1,406 (1,401) (2,620)
Change in loans (165,237) (117,921) (120,776)
Proceeds from sales of loans and credit card receivables 146,477 104,119 109,821
Purchases of investments (88,229) (78,594) (68,989)
Proceeds from sales of investments 45,717 46,927 39,873
Proceeds from maturities of investments 33,819 23,026 20,248
Other investments, primarily short-term, net (427) (501) (325)
Capital expenditures on premises and equipment (1,805) (1,533) (1,596)
Proceeds from sales of premises and equipment, subsidiaries and
affiliates, and other real estate owned 764 1,164 1,723
Business acquisitions (3,890) (1,618) (4,160)
Other, net (214) (514) 267
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (31,619) (26,846) (26,534)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Dividends paid (1,846) (1,692) (1,530)
Issuance of common stock 418 434 537
Subsidiary's sale of Class A common stock -- -- 1,453
Issuance of preferred stock -- 1,000 250
Issuance of mandatorily redeemable securities of subsidiary trusts 1,325 450 2,545
Redemption of preferred stock (1,040) (850) (112)
Treasury stock acquired (3,085) (3,447) (3,711)
Stock tendered for payment of withholding taxes (520) (384) (201)
Issuance of long-term debt 14,295 15,333 11,975
Payments and redemptions of long-term debt (12,307) (10,713) (9,127)
Change in deposits 29,528 14,166 17,824
Change in short-term borrowings including investment
banking and brokerage borrowings (304) 6,636 (1,452)
Contractholder fund deposits 4,422 3,544 2,493
Contractholder fund withdrawals (2,579) (2,757) (3,262)
Other, net (345) (114) (422)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 27,962 21,606 17,260
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 31 (688) (170)
- -----------------------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 1,219 2,453 951
Cash and cash equivalents at beginning of period 12,618 10,165 9,214
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 13,837 $ 12,618 $ 10,165
===================================================================================================================================
Supplemental disclosure of cash flow information
Cash paid during the period for income taxes $ 2,860 $ 3,917 $ 3,441
Cash paid during the period for interest 26,292 23,016 20,286
Non-cash investing activities -- Transfers from loans
to other real estate owned 265 336 632
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Citigroup Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The consolidated financial statements include the
accounts of Citigroup Inc. and its subsidiaries (the Company). Twenty percent to
50%-owned affiliates, other than investments of designated venture capital
subsidiaries, are accounted for under the equity method, and the pro rata share
of their income (loss) is included in other income. Income from investments in
less than 20%-owned companies is generally recognized when dividends are
received. Gains and losses on disposition of branches, subsidiaries, affiliates,
and other investments and charges for management's estimate of impairment in
value that is other than temporary, such that recovery of the carrying amount is
deemed unlikely, are included in other income. Minority interest principally
represents the interest in Travelers Property Casualty Corp. (TAP) not held by
the Company. The Company recognizes a gain or loss in the statement of income
when a subsidiary issues its own stock at a price higher or lower than the
Company's proportionate carrying amount.
Foreign currency translation. Assets and liabilities denominated in non-U.S.
dollar currencies are translated into U.S. dollar equivalents using year-end
spot foreign exchange rates. Revenues and expenses are translated monthly at
amounts which approximate weighted average exchange rates, with resulting gains
and losses included in income. The effects of translating operations with a
functional currency other than the U.S. dollar are included in stockholders'
equity along with related hedge and tax effects. The effects of translating
operations with the U.S. dollar as the functional currency, including those in
highly inflationary environments, are included in other income along with
related hedge effects. Hedges of foreign currency exposures include forward
currency contracts and designated issues of non-U.S. dollar debt.
Risks and uncertainties. The preparation of the consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents include cash on hand and due from banks, cash
segregated under federal and brokerage regulations, cash deposited with clearing
organizations and short-term highly liquid investments with maturities of three
months or less when purchased, other than those held for sale in the ordinary
course of business. Cash flows from risk management activities are classified in
the same category as the related assets and liabilities.
Investments include fixed maturity and equity securities. Fixed maturities
includes bonds, notes and redeemable preferred stocks, as well as certain
loan-backed and structured securities subject to prepayment risk. Equity
securities include common and non-redeemable preferred stocks. Fixed maturities
classified as "held to maturity" represent securities that the Company has both
the ability and the intent to hold until maturity and are carried at amortized
cost. Fixed maturity securities classified as "available for sale" and
marketable equity securities are carried at fair values, based primarily on
quoted market prices or if quoted market prices are not available, discounted
expected cash flows using market rates commensurate with the credit quality and
maturity of the investment, with unrealized gains and losses and related hedge
effects reported in a separate component of stockholders' equity, net of
applicable income taxes. Accrual of income is suspended on fixed maturities that
are in default, or on which it is likely that future interest payments will not
be made as scheduled. Fixed maturities subject to prepayment risk are accounted
for using the retrospective method, where the principal amortization and
effective yield are recalculated each period based on actual historical and
projected future cash flows. Realized gains and losses on sales of investments
are included in earnings on a specific identified cost basis.
Citigroup's venture capital subsidiaries include subsidiaries registered
as Small Business Investment Companies and other subsidiaries that engage
exclusively in venture capital activities. Venture capital investments are
carried at fair value, with changes in fair value recognized in other income.
The fair values of publicly-traded securities held by these subsidiaries are
generally based upon quoted market prices. In certain situations, including
thinly-traded securities, large-block holdings, restricted shares or other
special situations, the quoted market price is adjusted to produce an estimate
of the attainable fair value for the securities. For securities that are not
publicly traded, estimates of fair value are made based upon review of the
investee's financial results, condition, and prospects.
Securities borrowed and securities loaned are recorded at the amount of cash
advanced or received. With respect to securities loaned, the Company receives
cash collateral in an amount in excess of the market value of securities loaned.
The Company monitors the market value of securities borrowed and loaned on a
daily basis with additional collateral obtained as necessary.
Repurchase and resale agreements are treated as collateralized financing
transactions and are carried at the amounts at which the securities will be
subsequently reacquired or resold, including accrued interest, as specified in
the respective agreements. The Company's policy is to take possession of
securities purchased under agreements to resell. The market value of securities
to be repurchased and resold is monitored, and additional collateral is obtained
where appropriate to protect against credit exposure.
Trading account assets and liabilities include securities, commodities and
derivatives and are recorded at either market value or, when market prices are
not readily available, fair value, which is determined under an alternative
approach, such as matrix or model pricing. Obligations to deliver securities
sold but not yet purchased are also valued at market and included in trading
account liabilities. The determination of market or fair value considers various
factors, including: closing exchange or over-the-counter market price
quotations; time value and volatility factors underlying options, warrants and
derivatives; price activity for equivalent or synthetic instruments in markets
located in different time zones; counterparty credit quality; and the potential
impact on market prices or fair value of liquidating the Company's positions in
an orderly manner over a reasonable period of time under current market
conditions. Interest expense on trading account liabilities is reported as a
reduction of interest revenues.
Commodities include physical quantities of commodities involving future
settlement or delivery and related gains or losses are reported as "Principal
transactions."
Derivatives used for trading purposes include interest rate, currency,
equity, and commodity swap agreements, swap options, caps and floors, options,
warrants and financial and commodity futures and forward contracts. The fair
values (unrealized gains and losses) associated with derivatives are reported
net by counterparty, provided a legally enforceable master netting
46
<PAGE>
agreement exists, and are netted across products and against cash collateral
when such provisions are stated in the master netting agreement. Derivatives in
a net receivable position, as well as options owned and warrants held, are
reported as Trading account assets. Similarly, derivatives in a net payable
position, as well as options written and warrants issued, are reported as
Trading account liabilities. The recognition of unrealized gains on these
contracts is subject to management's assessment as to collectibility. At the
inception of certain derivative and foreign exchange contracts the Company
defers an appropriate portion of the initial fair value attributable to ongoing
costs, and amortizes this amount into revenue over the life of the contract.
Revenues generated from derivative instruments used for trading purposes are
reported as "Principal transactions" and include realized gains and losses as
well as unrealized gains and losses resulting from changes in the market or fair
value of such instruments.
Commissions, underwriting and principal transaction revenues and related
expenses are recognized in income on a trade date basis. Customer security
transactions are recorded on a settlement date basis.
Consumer loans includes loans managed by the Global Consumer business. Consumer
loans are generally written off not later than a predetermined number of days
past due on a contractual basis, or earlier in the event of bankruptcy. The
number of days is set at an appropriate level by loan product and by country.
The policy for suspending accruals of interest on consumer loans varies
depending on the terms, security and loan loss experience characteristics of
each product, and in consideration of write-off criteria in place.
Commercial loans represent loans managed by the Global Corporate and
Investment Bank business. Commercial loans are identified as impaired and
placed on a cash (nonaccrual) basis when it is determined that the payment of
interest or principal is doubtful of collection, or when interest or
principal is past due for 90 days or more, except when the loan is well
secured and in the process of collection. Any interest accrued is reversed
and charged against current earnings, and interest is thereafter included in
earnings only to the extent actually received in cash. When there is doubt
regarding the ultimate collectibility of principal, all cash receipts are
thereafter applied to reduce the recorded investment in the loan. Impaired
commercial loans are written down to the extent that principal is judged to
be uncollectible. Impaired collateral-dependent loans where repayment is
expected to be provided solely by the underlying collateral and there are no
other available and reliable sources of repayment are written down to the
lower of cost or collateral value. Cash-basis loans are returned to an
accrual status when all contractual principal and interest amounts are
reasonably assured of repayment and there is a sustained period of repayment
performance in accordance with the contractual terms.
Lease financing transactions. Loans include the Company's share of aggregate
rentals on lease financing transactions and residual values net of related
unearned income. Lease financing transactions substantially represent direct
financing leases and also include leveraged leases. Unearned income is amortized
under a method which substantially results in an approximate level rate of
return when related to the unrecovered lease investment. Gains and losses from
sales of residual values of leased equipment are included in other income.
Loans held for sale. Credit card receivables and consumer mortgage loans
originated for sale are classified as loans held for sale, which are accounted
for at the lower of aggregate cost or fair value in Other assets with net credit
losses charged to other income.
Allowance for credit losses. Additions to the allowance are made by means of the
provision for credit losses. Credit losses are deducted from the allowance, and
subsequent recoveries are added. Securities received in exchange for loan claims
in debt restructurings are initially recorded at fair value, with any gain or
loss reflected as a recovery or charge-off to the allowance, and are
subsequently accounted for as securities available for sale.
The amount of the provision is determined based on management's assessment
of historical and expected net credit losses, business and economic conditions,
the character, quality and performance of the portfolios, and other pertinent
indicators. This evaluation encompasses all activities involving the extension
of credit and also includes an assessment of the ability of borrowers with
foreign currency obligations to obtain the foreign exchange necessary for
orderly debt servicing. Larger-balance, non-homogenous exposures representing
significant individual credit exposures are evaluated based upon the borrower's
character, overall financial condition, resources, and payment record; the
prospects for support from any financially responsible guarantors; and, if
appropriate, the realizable value of any collateral. Impairment of
larger-balance, non-homogenous loans is measured by comparing the net carrying
amount of the loan to the present value of the expected future cash flows
discounted at the loan's effective rate, the secondary market value of the loan,
or the fair value of the collateral for collateral-dependent loans. A valuation
allowance is established if necessary within the portion of the allowance
deducted from loans. The evaluation of smaller balance, homogenous loans,
including consumer mortgage, installment, revolving credit and most other
consumer loans, are collectively evaluated for impairment based upon historical
loss experience, adjusted for changes in trends and conditions including
delinquencies and nonaccruals; trends in volume and terms of loans; the effects
of any changes in lending policies and procedures; national and local economic
trends and conditions; and concentrations of credit. Based upon these analyses,
the resulting allowance is deemed adequate to absorb all probable credit losses
inherent in the portfolio.
Other real estate owned. Upon repossession, loans are adjusted if necessary to
the estimated fair value of the underlying collateral and transferred to Other
Real Estate Owned, which is reported in Other assets net of a valuation
allowance for selling costs and net declines in value as appropriate.
Risk management activities--derivatives used for non-trading purposes. The
Company manages its exposures to market rate movements outside of its trading
activities by modifying the asset and liability mix, either directly or through
the use of derivative financial products including interest rate swaps, futures,
forwards, and purchased option positions such as interest rate caps, floors, and
collars. These end-user derivative contracts include qualifying hedges and
qualifying positions that modify the interest rate characteristics of specified
financial instruments. Derivative instruments not qualifying as end-user
positions are treated as trading positions and carried at fair value.
To qualify as a hedge, the swap, futures, forward, or purchased option
position must be designated as a hedge and effective in reducing the market risk
of an existing asset, liability, firm commitment, or identified anticipated
47
<PAGE>
transaction which is probable to occur. To qualify as a position modifying the
interest rate characteristics of an instrument, there must be a documented and
approved objective to synthetically alter the market risk characteristics of an
existing asset, liability, firm commitment or identified anticipated transaction
which is probable to occur, and the swap, forward or purchased option position
must be designated as such a position and effective in accomplishing the
underlying objective.
The foregoing criteria are applied on a decentralized basis, consistent
with the level at which market risk is managed, but are subject to various
limits and controls. The underlying asset, liability, firm commitment or
anticipated transaction may be an individual item or a portfolio of similar
items.
The effectiveness of these contracts is evaluated on an initial and
ongoing basis using quantitative measures of correlation. If a contract is found
to be ineffective, it no longer qualifies as an end-user position and any excess
gains and losses attributable to such ineffectiveness as well as subsequent
changes in fair value are recognized in earnings.
End-user contracts are primarily employed in association with on-balance
sheet instruments accounted for at amortized cost, including loans, deposits,
and long-term debt, and with credit card securitizations. These qualifying
end-user contracts are accounted for consistent with the risk management
strategy as follows. Amounts payable and receivable on interest rate swaps and
options are accrued according to the contractual terms and included currently in
the related revenue and expense category as an element of the yield on the
associated instrument (including the amortization of option premiums). Amounts
paid or received over the life of futures contracts are deferred until the
contract is closed; accumulated deferred amounts on futures contracts and
amounts paid or received at settlement of forward contracts are accounted for as
elements of the carrying value of the associated instrument, affecting the
resulting yield.
End-user contracts related to instruments that are carried at fair value
are also carried at fair value, with amounts payable and receivable accounted
for as an element of the yield on the associated instrument. When related to
securities available for sale, fair value adjustments are reported in
stockholders' equity, net of tax.
If an end-user derivative contract is terminated, any resulting gain or
loss is deferred and amortized over the original term of the agreement provided
that the effectiveness criteria have been met. If the underlying designated
items are no longer held, or if an anticipated transaction is no longer likely
to occur, any previously unrecognized gain or loss on the derivative contract is
recognized in earnings and the contract is accounted for at fair value with
subsequent changes recognized in earnings.
Foreign exchange contracts which qualify under applicable accounting
guidelines as hedges of foreign currency exposures, including net capital
investments outside the U.S., are revalued at the spot rate with any forward
premium or discount recognized over the life of the contract in net interest
revenue. Gains and losses on foreign exchange contracts which qualify as a hedge
of a firm commitment are deferred and recognized as part of the measurement of
the related transaction, unless deferral of a loss would lead to recognizing
losses on the transaction in later periods.
Insurance premiums from long-duration contracts, principally life insurance, are
earned when due. Premiums from short-duration insurance contracts are earned
over the related contract period. Short-duration contracts include primarily
property and casualty, credit life and accident and health policies, including
estimated ultimate premiums on retrospectively rated policies. Benefits and
expenses are associated with premiums by means of the provision for future
policy benefits, unearned premiums and the deferral and amortization of policy
acquisition costs. Receivables related to retrospectively rated policies on
property-casualty business are reported in Other assets.
Value of insurance in force, included in Other assets, represents the
actuarially determined present value of anticipated profits to be realized from
life and accident and health business on insurance in force at the date of the
Company's acquisition of its insurance subsidiaries using the same assumptions
that were used for computing related liabilities where appropriate. The value of
insurance in force acquired prior to December 31, 1993 is amortized over the
premium paying periods in relation to anticipated premiums. The value of
insurance in force relating to the 1993 acquisition of The Travelers Corporation
(old Travelers) was the actuarially determined present value of the projected
future profits discounted at interest rates ranging from 14% to 18% for the
business acquired. The value of insurance in force is amortized over the
contract period using current interest crediting rates to accrete interest and
using amortization methods based on the specified products. Traditional life
insurance is amortized over the period of anticipated premiums; universal life
in relation to estimated gross profits; and annuity contracts employing a level
yield method. The value of insurance in force is reviewed periodically for
recoverability to determine if any adjustment is required.
Deferred policy acquisition costs, included in Other assets, for the life
business represent the costs of acquiring new business, principally commissions,
certain underwriting and agency expenses and the cost of issuing policies.
Deferred policy acquisition costs for traditional life business are amortized
over the premium-paying periods of the related policies, in proportion to the
ratio of the annual premium revenue to the total anticipated premium revenue.
Deferred policy acquisition costs of other business lines are generally
amortized over the life of the insurance contract or at a constant rate based
upon the present value of estimated gross profits expected to be realized. For
certain property and casualty lines, acquisition costs (primarily commissions
and premium taxes) have been deferred to the extent recoverable from future
earned premiums and are amortized ratably over the terms of the related
policies. Deferred policy acquisition costs are reviewed to determine if they
are recoverable from future income, including investment income, and, if not
recoverable, are charged to expense. All other acquisition expenses are charged
to operations as incurred.
Separate and variable accounts primarily represent funds for which investment
income and investment gains and losses accrue directly to, and investment risk
is borne by, the contractholders. Each account has specific investment
objectives. The assets of each account are legally segregated and are not
subject to claims that arise out of any other business of the Company. The
assets of these accounts are generally carried at market value. Amounts assessed
to the contractholders for management services are included in revenues.
Deposits, net investment income and realized investment gains and losses for
these accounts are excluded from revenues, and related liability increases are
excluded from benefits and expenses.
Insurance policy and claims reserves represent liabilities for future insurance
policy benefits. Insurance reserves for traditional life insurance, annuities,
and accident and health policies have been computed based upon mortality,
morbidity, persistency and interest assumptions applicable to these coverages,
which range from 2.5% to 10%, including
48
<PAGE>
adverse deviation. These assumptions consider Company experience and industry
standards and may be revised if it is determined that future experience will
differ substantially from that previously assumed. Property-casualty reserves
include (1) unearned premiums representing the unexpired portion of policy
premiums, and (2) estimated provisions for both reported and unreported claims
incurred and related expenses. The reserves are adjusted regularly based on
experience.
In determining insurance policy and claims reserves, the Company carries
on a continuing review of its overall position, its reserving techniques and its
reinsurance. Reserves for property-casualty insurance losses represent the
estimated ultimate cost of all incurred claims and claim adjustment expenses.
Since the reserves are based on estimates, the ultimate liability may be more or
less than such reserves. The effects of changes in such estimated reserves are
included in the results of operations in the period in which the estimates are
changed. Such changes may be material to the results of operations and could
occur in a future period.
Contractholder funds represent receipts from the issuance of universal life,
pension investment and certain individual annuity contracts. Such receipts are
considered deposits on investment contracts that do not have substantial
mortality or morbidity risk. Account balances are increased by deposits received
and interest credited and are reduced by withdrawals, mortality charges and
administrative expenses charged to the contractholders. Calculations of
contractholder account balances for investment contracts reflect lapse,
withdrawal and interest rate assumptions (ranging from 3.8% to 8.6%) based on
contract provisions, the Company's experience and industry standards.
Contractholder funds also include other funds that policyholders leave on
deposit with the Company.
Employee benefits expense includes prior and current service costs of pension
and other postretirement benefit plans, which are accrued on a current basis,
contributions and unrestricted awards under other employee plans, the
amortization of restricted stock awards, and costs of other employee benefits.
There are no charges to earnings upon the grant or exercise of fixed stock
options or the subscription for or purchase of stock under stock purchase
agreements. Compensation expense related to performance-based stock options is
recorded over the period to the estimated vesting dates. Upon issuance of
previously unissued shares under employee plans, proceeds received in excess of
par value are credited to additional paid-in capital. Upon issuance of treasury
shares, the difference between the proceeds received and the average cost of
treasury shares is recorded in additional paid-in capital.
Income taxes. Deferred taxes are recorded for the future tax consequences of
events that have been recognized in the financial statements or tax returns,
based upon enacted tax laws and rates. Deferred tax assets are recognized
subject to management's judgment that realization is more likely than not. The
Company and its domestic non-life insurance subsidiaries file a consolidated
federal income tax return. The major life insurance subsidiaries are included in
their own consolidated federal income tax return. Citicorp and its domestic
subsidiaries and Salomon Inc and its domestic subsidiaries each filed their own
consolidated federal income tax returns prior to the respective mergers.
Earnings per common share is computed after recognition of preferred stock
dividend requirements. Basic earnings per share is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and has been computed after giving consideration to the dilutive
effect of the Company's convertible securities, common stock warrants, stock
options and the incremental shares assumed issued under the Company's Capital
Accumulation Plan and other restricted stock plans.
Future Application of Accounting Standards
Insurance-related assessments. In December 1997, the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
(AcSEC) issued Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides
guidance for determining when an entity should recognize a liability for
guaranty-fund and other insurance-related assessments, how to measure that
liability, and when an asset may be recognized for the recovery of such
assessments through premium tax offsets or policy surcharges. This SOP is
effective for fiscal years beginning after December 15, 1998, and the effect of
initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed. The
Company estimates that the cumulative catch-up adjustment associated with the
adoption of SOP 97-3 in the first quarter of 1999 will be a charge of
approximately $135 million after-tax and minority interest, with no material
ongoing impact.
Deposit Accounting. In October 1998, AcSEC issued Statement of Position 98-7,
"Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do
Not Transfer Insurance Risk" (SOP 98-7). SOP 98-7 provides guidance on how to
account for insurance and reinsurance contracts that do not transfer insurance
risk and applies to all entities and all such contracts, except for
long-duration life and health insurance contracts. The method used to account
for such contracts is referred to as deposit accounting. SOP 98-7 does not
address in what circumstances deposit accounting should be applied. SOP 98-7
identifies several methods of deposit accounting for insurance and reinsurance
contracts that do not transfer insurance risk and provides guidance on the
application of each method. SOP 98-7 is effective for financial statements for
fiscal years beginning after June 15, 1999, with earlier adoption encouraged.
Restatement of previously issued financial statements is not permitted. The
effect of initially adopting SOP 98-7 should be reported as a cumulative
catch-up adjustment. The Company does not expect the adoption of SOP 98-7 to
have a material impact on results of operations, financial condition, or
liquidity.
Start-up costs. In April 1998, AcSEC issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires
costs of start-up activities and organization costs to be expensed as incurred
and is effective for fiscal years beginning after December 15, 1998. The Company
expects the impact of adopting SOP 98-5 to be immaterial.
Derivatives and hedge accounting. In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
No. 133), which becomes effective on January 1, 2000 for calendar year companies
such as the Company. The new standard will significantly change the accounting
treatment of end-user derivative and foreign exchange contracts used by the
Company and its customers. Depending on the underlying risk management strategy,
these
49
<PAGE>
accounting changes could affect reported earnings, assets, liabilities, and
stockholders' equity. As a result, the Company and the customers to which it
provides derivatives and foreign exchange products will have to reconsider their
risk management strategies, since the new standard will not reflect the results
of many of those strategies in the same manner as current accounting practice.
The Company is in the process of evaluating the potential impact of the new
accounting standard.
2. BUSINESS COMBINATIONS
Merger with Citicorp
On October 8, 1998, Citicorp merged with and into a newly formed, wholly owned
subsidiary of Travelers Group, Inc. (TRV) (the Merger). Following the Merger,
TRV changed its name to Citigroup Inc. (Citigroup). Under the terms of the
Merger, 1.13 billion shares of Citigroup common stock were issued in exchange
for all of the outstanding shares of Citicorp common stock based on an exchange
ratio of 2.5 shares of Citigroup common stock for each share of Citicorp common
stock. Each share of TRV common stock automatically represents one share of
Citigroup common stock. Following the exchange, former shareholders of Citicorp
and TRV each owned approximately 50% of the outstanding common stock of
Citigroup. Each outstanding share of Citicorp preferred stock was converted into
one share of a corresponding series of preferred stock of Citigroup having
identical terms. The consolidated financial statements give retroactive effect
to the Merger in a transaction accounted for as a pooling of interests, with all
periods presented as if TRV and Citicorp had always been combined. Certain
reclassifications and adjustments have been recorded to conform the accounting
policies and presentations of Citicorp and Travelers.
Upon consummation of the Merger, Citigroup became a bank holding company
subject to the provisions of the Bank Holding Company Act of 1956 (the BHCA).
The BHCA precludes a bank holding company and its affiliates from engaging in
certain activities, generally including insurance underwriting. Under the BHCA
in its current form, the Company has two years from the date it became a bank
holding company to comply with all applicable provisions (the BHCA Compliance
Period). The BHCA Compliance Period may be extended, at the discretion of the
Federal Reserve Board, for three additional one-year periods so long as the
extension is not deemed to be detrimental to the public interest. At this time,
the Company believes that its compliance with applicable laws associated with
the Merger will not have a material adverse effect on the Company's financial
condition or results of operations. At the expiration of the BHCA Compliance
Period, the Company will evaluate its alternatives in order to comply with
whatever laws are then applicable.
The following table sets forth the results of operations for the separate
companies and the combined amounts for periods prior to the Merger.
Nine Months
Ended Year Ended
September 30, December 31,
- -------------------------------------------------------------------------------
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Revenues
TRV $28,686 $37,609 $32,414
Citicorp 28,306 34,697 32,605
Reclassifications(1) -- -- 82
- -------------------------------------------------------------------------------
Citigroup $56,992 $72,306 $65,101
================================================================================
Net Income
TRV $ 2,433 $ 3,104 $ 2,948
Citicorp 2,692 3,591 3,788
SFAS No. 106 Adjustment(2) 8 18 12
Other(3) (3) (8) (9)
- -------------------------------------------------------------------------------
Citigroup $ 5,130 $ 6,705 $ 6,739
===============================================================================
(1) Reclassifications have been made to conform to the Company's post-merger
presentation.
(2) Adjusted to reflect the adoption by Citicorp of the immediate recognition
of the transition obligation under SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" effective January 1,
1993, to conform to the method used by TRV.
(3) Other adjustments have been made to conform the accounting policies of the
companies and to record the related tax effects of these adjustments.
Acquisition of Universal Card Services
On April 2, 1998, Citicorp completed its acquisition of Universal Card Services
from AT&T for $3.5 billion in cash. This purchase added $15 billion in customer
receivables and 13.5 million accounts. In addition, Citicorp entered into a
ten-year cobranding and joint marketing agreement with AT&T.
Merger with Salomon
On November 28, 1997, a newly formed, wholly owned subsidiary of TRV merged with
and into Salomon (the Salomon Merger). Under the terms of the Salomon Merger,
approximately 188.5 million shares of TRV common stock were issued in exchange
for all of the outstanding shares of Salomon common stock, based on an exchange
ratio of 1.695 shares of TRV common stock for each share of Salomon common
stock, for a total value of approximately $9 billion. Each of Salomon's series
of preferred stock outstanding was exchanged for a corresponding series of TRV
preferred stock having substantially identical terms, except that the TRV
preferred stock issued in conjunction with the Salomon Merger has certain voting
rights (see Note 18). Thereafter, Smith Barney Holdings Inc. (Smith Barney) was
merged with and into Salomon to form Salomon Smith Barney Holdings Inc. (Salomon
Smith Barney). As a result of the Salomon Merger, Salomon Smith Barney recorded
in the fourth quarter of 1997 a restructuring charge of $838 million ($496
million after-tax) (See Note 15).
Acquisition of Aetna P&C
On April 2, 1996, TAP, an indirect majority-owned subsidiary of the Company,
purchased from Aetna Services, Inc. (Aetna), all of the outstanding capital
stock of Travelers Casualty and Surety Company (formerly The Aetna Casualty and
Surety Company) and The Standard Fire Insurance Company (collectively, Aetna
P&C) for approximately $4.2 billion in cash. The acquisition was financed in
part by the sale by TAP of approximately 33 million shares of its Class A Common
Stock, representing approximately 9% of its outstanding common stock (at that
time) to four private investors, including Aetna, for an aggregate of $525
million and the sale in a public offering of approximately 39 million shares of
its Class A Common Stock,
50
<PAGE>
representing approximately 9.75% of its outstanding common stock, for total
proceeds of $928 million. The Travelers Insurance Group Inc. (TIGI), a wholly
owned subsidiary of the Company, acquired approximately 328 million shares of
Class B Common Stock of TAP in exchange for contributing the outstanding capital
stock of The Travelers Indemnity Company (Travelers Indemnity) and a capital
contribution of approximately $1.1 billion.
The acquisition was accounted for under the purchase method of accounting
and, accordingly, the consolidated financial statements include the results of
Aetna P&C's operations from the date of acquisition. The excess of the purchase
price over the estimated fair value of net assets acquired was approximately
$1.2 billion and is being amortized over 40 years. TAP also owns Travelers
Indemnity and its subsidiaries (Travelers P&C). Travelers P&C along with Aetna
P&C are the primary vehicles through which the Company engages in the property
and casualty insurance business.
During 1996, TAP recorded charges related to the acquisition and
integration of Aetna P&C. These charges resulted primarily from costs of the
acquisition and the application of TAP's strategies, policies and practices to
Aetna P&C reserves and include: $229 million after-tax and minority interest
($430 million before tax and minority interest) in reserve increases, net of
reinsurance, related primarily to cumulative injury claims other than asbestos
(CIOTA); a $45 million after-tax and minority interest ($84 million before tax
and minority interest) provision for an additional asbestos liability related to
an existing settlement agreement with a customer of Aetna P&C; a $32 million
after-tax and minority interest ($60 million before tax and minority interest)
charge related to premium collection issues; a $22 million after-tax and
minority interest ($41 million before tax and minority interest) provision for
uncollectibility of reinsurance recoverables; and an $18 million after-tax and
minority interest ($35 million before tax and minority interest) provision for
lease and severance costs of Travelers Indemnity related to the restructuring
plan for the acquisition. In addition, the Company recognized a gain in 1996 of
$363 million (before and after-tax) from the issuance of shares of Class A
Common Stock by TAP.
Supplemental Information to the Consolidated Statement of Cash Flows Relating to
the Acquisition of Aetna P&C
Year Ended
December 31,
- -------------------------------------------------------------------------------
In Millions of Dollars 1996
- -------------------------------------------------------------------------------
Assets and liabilities of business acquired
Invested assets $ 13,969
Reinsurance recoverables and other assets 10,386
Insurance policy and claim reserves (18,302)
Other liabilities (1,893)
- -------------------------------------------------------------------------------
Cash payment related to business acquisition $ 4,160
===============================================================================
3. DISCONTINUED OPERATIONS
In March 1997, the Company entered into a non-binding letter of intent to
sell all of the outstanding stock of Basis Petroleum, Inc. (Basis), a wholly
owned subsidiary that owns and operates oil refineries in the U.S. Gulf Coast
area, to Valero Energy Corporation (Valero). This transaction resulted in the
recognition in 1996 in the Consolidated Financial Statements of a pre-tax
loss of approximately $505 million ($290 million after-tax). The sale was
completed on May 1, 1997. Proceeds from the sale included cash of $365
million, Valero common stock with a market value of $120 million and
participation payments based on a fixed notional throughput and the
difference, if any, between an average market crackspread, as defined, and a
base crackspread, as defined, over each of the next ten years. The total of
the participation payments is capped at $200 million, with a maximum of $35
million per year. During 1998, the Company received $11 million in
participation payments from Valero. In addition, as a result of Valero's
merger agreement with PG&E Corporation (PG&E), Valero's common stock was
exchanged for stock of PG&E and a new stock of the spin-off company (New
Valero), representing Valero's refining assets. In the third quarter of 1997,
the Company liquidated its interest in the PG&E and New Valero common stock.
In July 1997, the Company paid Valero $3 million in connection with the final
determination of working capital. The estimated loss includes severance costs
and anticipated operating losses to be incurred prior to the completion of
the sale, and reflects other estimates of value at the time of closing.
Revenues of Basis for the year ended December 31, 1996 were immaterial.
4. BUSINESS SEGMENT INFORMATION
Citigroup is a diversified financial services holding company whose businesses
provide a broad range of financial services to consumer and corporate customers
around the world. The Company's activities are conducted through Global
Consumer, Global Corporate and Investment Bank, Asset Management, and Investment
Activities.
The Global Consumer segment includes a global, full-service consumer
franchise encompassing, among other things, branch and electronic banking,
consumer lending services and credit and charge card services, personalized
wealth management services for high net-worth clients, and life, auto and
homeowners insurance. The businesses included in the Global Corporate and
Investment Bank segment serve corporations, financial institutions,
governments, and other participants in developed and emerging markets
throughout the world providing, among other things, investment banking,
retail brokerage, corporate banking and cash management products and
services, and commercial insurance. The Asset Management segment includes
asset management services provided to mutual funds and institutional and
individual investors. Investment Activities include the Company's venture
capital activities, the realized investment gains and losses related to
certain corporate- and insurance-related investments and the results of
certain investments in countries that refinanced debt under the 1989 Brady
Plan or plans of a similar nature. Corporate/Other includes net treasury
results, revenues derived from charging banking segments for funds employed,
based upon a marginal cost of funds concept, corporate staff and similar
expenses, and the offset created by attributing income taxes to core business
activities on a local tax-rate basis for Citicorp.
51
<PAGE>
The following table presents certain information regarding these industry
segments:
<TABLE>
<CAPTION>
Total Revenues, Net Provision for Identifiable
of Interest Expense(1) Income Taxes Net Income (Loss)(2) Assets at Year-End
In Millions of Dollars, Except ------------------------- ---------------------- ------------------------ --------------------
Identifiable Assets in Billions 1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Global Consumer(3) $23,743 $20,992 $19,513 $1,471 $1,241 $1,412 $2,812 $2,697 $3,009 $237 $202 $192
Global Corporate and
Investment Bank(3)(4) 21,719 23,207 21,755 951 1,246 1,515 2,067 2,874 2,985 416 478 418
Asset Management 1,244 1,052 880 144 124 98 263 243 208 2 2 1
Investment Activities 1,298 1,693 715 316 409 166 929 1,292 594 8 9 9
Corporate/Other(5) 932 838 902 352 813 776 (264) (401) (57) 6 6 7
- -----------------------------------------------------------------------------------------------------------------------------------
Total $48,936 $47,782 $43,765 $3,234 $3,833 $3,967 $5,807 $6,705 $6,739 $669 $697 $627
===================================================================================================================================
</TABLE>
(1) Includes total revenues, net of interest expense in the United States of
$37.3 billion, $34.4 billion, and $31.9 billion in 1998, 1997, and 1996,
respectively. Total revenues, net of interest expense attributable to
individual foreign countries are not material to the total.
(2) For the 1998 period, Global Consumer, Global Corporate and Investment
Bank, Asset Management, and Corporate/Other results reflect after-tax
restructuring charges (credit) and merger-related costs of $446 million,
($26) million, $10 million, and $105 million, respectively. For the 1997
period, Global Consumer, Global Corporate and Investment Bank, and
Corporate/Other results reflect after-tax restructuring charges of $351
million, $664 million, and $31 million, respectively.
(3) Includes provisions for benefits, claims, and credit losses in the Global
Consumer results of $7.0 billion, $6.3 billion, and $5.9 billion, and in
the Global Corporate and Investment Bank results of $4.2 billion, $3.7
billion, and $3.7 billion for 1998, 1997, and 1996, respectively.
(4) Included in the 1996 results is a $365 million loss on discontinued
operations, net of tax related to SSB. Additionally, in 1996, Commercial
Lines Insurance recorded a $372 million after-tax charge related to the
acquisition of Aetna P&C.
(5) Included in the 1996 results is a $31 million gain on discontinued
operations, net of tax.
5. INVESTMENTS
In Millions of Dollars at Year-End 1998 1997
- --------------------------------------------------------------------------------
Fixed maturities, primarily available for sale at fair value $ 90,414 $77,920
Equity securities, at fair value 4,203 3,928
Venture capital, at fair value 3,297 2,599
Short-term and other 5,758 7,186
- --------------------------------------------------------------------------------
$103,672 $91,633
================================================================================
The fair value of investments for which a quoted market price or dealer
quote are not available amounted to $6.0 billion and $6.6 billion at December
31, 1998 and 1997, respectively.
The amortized cost and fair value of investments in fixed maturities and equity
securities at December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------- ----------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
In Millions of Dollars at Year-End Cost Gains Losses Value Cost Gains Losses Value
- ---------------------------------------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity securities held to maturity,
principally mortgage-backed securities $ 30 $ 6 $ -- $ 36 $ 41 $ 9 $ -- $ 50
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed maturity securities available for sale
Mortgage-backed securities, principally
obligations of U.S. Federal agencies $12,646 $ 350 $ 14 $12,982 $ 9,795 $ 310 $ 6 $10,099
U.S. Treasury and Federal agency 5,250 455 4 5,701 6,816 312 -- 7,128
State and municipal 13,714 799 227 14,286 10,351 583 117 10,817
Foreign government 26,444 424 600 26,268 19,381 883 268 19,996
U.S. corporate 23,424 1,213 302 24,335 23,306 958 127 24,137
Other debt securities 6,642 248 78 6,812 5,625 168 91 5,702
- ----------------------------------------------------------------------------------------------------------------------------------
$88,120 $3,489 $1,225 $90,384 $75,274 $3,214 $ 609 $77,879
==================================================================================================================================
Equity securities(1) $ 4,060 $ 310 $ 167 $ 4,203 $ 3,661 $ 363 $ 96 $ 3,928
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed maturity securities available for
sale include:
Government of Brazil Brady Bonds $ 660 $ 26 $ -- $ 686 $ 1,436 $ 612 $-- $ 2,048
Government of Venezuela Brady Bonds 478 -- 174 304 535 -- 55 480
==================================================================================================================================
</TABLE>
(1) Includes non-marketable equity securities carried at cost which are
reported in both the amortized cost and fair value columns.
52
<PAGE>
The accompanying table shows components of interest and dividends on
investments, realized gains and losses from sales of investments, and net
gains on investments held by venture capital subsidiaries.
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Taxable interest $6,000 $5,486 $4,595
Interest exempt from U.S. federal income tax 636 496 377
Dividends 159 144 121
- --------------------------------------------------------------------------------
Gross realized investments gains $1,507 $1,414 $ 771
Gross realized investments losses 667 419 495
- --------------------------------------------------------------------------------
Net realized and unrealized venture capital gains $ 487 $ 749 $ 450
which included:
Gross unrealized gains 709 612 416
Gross unrealized losses 412 82 150
================================================================================
The following table presents the amortized cost, fair value, and average
yield on amortized cost of fixed maturity securities by contractual maturity
dates as of December 31, 1998:
Amortized Fair
In Millions of Dollars Cost Value Yield
- -------------------------------------------------------------------------------
U.S. Treasury and Federal agency(1)
Due within 1 year $ 1,045 $ 1,045 4.95%
After 1 but within 5 years 934 956 5.69
After 5 but within 10 years 2,241 2,459 6.76
After 10 years(2) 11,017 11,516 6.95
- -------------------------------------------------------------------------------
Total $15,237 $15,976 6.71
===============================================================================
State and municipal
Due within 1 year $ 105 $ 106 5.29%
After 1 but within 5 years 436 429 5.69
After 5 but within 10 years 2,649 2,733 5.28
After 10 years(2) 10,524 11,018 5.59
- -------------------------------------------------------------------------------
Total $13,714 $14,286 5.53
===============================================================================
All other(3)
Due within 1 year $13,041 $13,021 8.22%
After 1 but within 5 years 20,814 21,178 6.74
After 5 but within 10 years 13,211 13,428 12.30
After 10 years(2) 12,133 12,531 9.36
- -------------------------------------------------------------------------------
Total $59,199 $60,158 8.84
===============================================================================
(1) Includes mortgage-backed securities of U.S. Federal agencies.
(2) Investments with no stated maturities are included as contractual
maturities of greater than 10 years. Actual maturities may differ due to
call or prepayment rights.
(3) Includes foreign government, U.S. corporate, mortgage-backed securities
issued by U.S. corporations, and other debt securities. Yields reflect the
impact of local interest rates prevailing in countries outside the U.S.
6. FEDERAL FUNDS, SECURITIES BORROWED, LOANED AND SUBJECT TO REPURCHASE
AGREEMENTS
Federal funds sold and securities borrowed or purchased under agreements to
resell, at their respective carrying values, consisted of the following at
December 31:
In Millions of Dollars 1998 1997
- --------------------------------------------------------------------------------
Federal funds sold and resale agreements $ 45,439 $ 86,035
Deposits paid for securities borrowed 49,392 33,932
- --------------------------------------------------------------------------------
$ 94,831 $119,967
================================================================================
Federal funds purchased and securities loaned or sold under agreements to
repurchase, at their respective carrying values, consisted of the following at
December 31:
In Millions of Dollars 1998 1997
- --------------------------------------------------------------------------------
Federal funds purchased and repurchase agreements $ 71,399 $124,775
Deposits received for securities loaned 9,626 7,328
- --------------------------------------------------------------------------------
$ 81,025 $132,103
================================================================================
The resale and repurchase agreements represent collateralized financing
transactions used to generate net interest income and facilitate trading
activity. These instruments are collateralized principally by government and
government agency securities and generally have terms ranging from overnight to
up to a year. It is the Company's policy to take possession of the underlying
collateral, monitor its market value relative to the amounts due under the
agreements, and, when necessary, require prompt transfer of additional
collateral or reduction in the loan balance in order to maintain contractual
margin protection. In the event of counterparty default, the financing agreement
provides the Company with the right to liquidate the collateral held. Resale
agreements and repurchase agreements are reported net by counterparty, when
applicable, pursuant to FASB Interpretation 41, "Offsetting of Amounts Related
to Certain Repurchase and Reverse Repurchase Agreements" (FIN 41). Excluding the
impact of FIN 41, resale agreements totaled $100.2 billion and $129.1 billion at
December 31, 1998 and 1997, respectively.
Deposits paid for securities borrowed (securities borrowed) and deposits
received for securities loaned (securities loaned) are recorded at the amount of
cash advanced or received and are collateralized principally by government and
government agency securities, corporate debt and equity securities. Securities
borrowed transactions require the Company to deposit cash with the lender. With
respect to securities loaned, the Company receives cash collateral in an amount
generally in excess of the market value of securities loaned. The Company
monitors the market value of securities borrowed and securities loaned daily,
and additional collateral is obtained as necessary. Securities borrowed and
securities loaned are reported net by counterparty, when applicable, pursuant to
FIN 41. Excluding the impact of FIN 41, securities borrowed totaled $50.2
billion and $40.5 billion at December 31, 1998 and 1997, respectively.
7. BROKERAGE RECEIVABLES AND BROKERAGE PAYABLES
The Company has receivables and payables for financial instruments purchased
from and sold to brokers and dealers and customers. The Company is exposed to
risk of loss from the inability of brokers and dealers or customers to pay for
purchases or to deliver the financial instrument sold, in which case the Company
would have to sell or purchase the financial instruments at prevailing market
prices. Credit risk is reduced to the extent that an exchange or clearing
organization acts as a counterparty to the transaction.
The Company seeks to protect itself from the risks associated with
customer activities by requiring customers to maintain margin collateral in
compliance with regulatory and internal guidelines. Margin levels are monitored
daily, and customers deposit additional collateral as required. Where customers
cannot meet collateral requirements, the Company will liquidate sufficient
underlying financial instruments to bring the customer into compliance with the
required margin level.
53
<PAGE>
Exposure to credit risk is impacted by market volatility, which may impair
the ability of clients to satisfy their obligations to the Company. Credit
limits are established and closely monitored for customers and brokers and
dealers engaged in forward and futures and other transactions deemed to be
credit-sensitive.
Brokerage receivables and brokerage payables, which arise in the normal
course of business, consisted of the following at December 31:
In Millions of Dollars 1998 1997
- --------------------------------------------------------------------------------
Receivables from customers $14,075 $12,415
Receivables from brokers,
dealers and clearing organizations 7,338 3,212
- --------------------------------------------------------------------------------
Total brokerage receivables $21,413 $15,627
================================================================================
Payables to customers $13,153 $ 9,791
Payables to brokers,
dealers, and clearing organizations 7,902 2,972
- --------------------------------------------------------------------------------
Total brokerage payables $21,055 $12,763
================================================================================
8. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities consisted of the following at December
31:
In Millions of Dollars 1998 1997
- --------------------------------------------------------------------------------
Trading Account Assets
U.S. Treasury and Federal agency securities $ 24,729 $ 56,007
State and municipal securities 3,165 3,255
Foreign government securities 21,240 50,924
Corporate and other debt securities 12,595 16,637
Derivative and other
contractual commitments(1) 37,431 34,585
Equity securities 7,291 9,236
Mortgage loans and
collateralized mortgage securities 6,082 3,160
Commodities 245 1,274
Other 7,067 5,010
- --------------------------------------------------------------------------------
$119,845 $180,088
================================================================================
Trading Account Liabilities
Securities sold, not yet purchased $ 53,228 $ 90,247
Derivative and other contractual commitments(1) 41,356 36,905
- --------------------------------------------------------------------------------
$ 94,584 $127,152
================================================================================
(1) Net of master netting agreements and securitization.
The average fair value of derivative and other contractual commitments in
trading account assets during 1998 and 1997 was $39.6 billion and $28.8 billion,
respectively. The average fair value of contractual commitments in trading
account liabilities during 1998 and 1997 was $39.4 billion and $32.6 billion,
respectively.
Deferred revenue on derivative and other contractual commitments
attributable to ongoing costs totaled $472 million and $391 million at December
31, 1998 and 1997, respectively, which is reported in other liabilities.
See Note 23 for a discussion of trading securities, commodities,
derivatives and related risks.
9. PRINCIPAL TRANSACTION REVENUES
Principal transaction revenues, consisting of realized and unrealized gains and
losses from trading activities, were as follows for the years ended December 31:
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Salomon Smith Barney
Fixed income(1) $ (869) $1,882 $2,049
Equities(2) 536 397 576
Commodities(3) 205 218 393
Other 15 7 9
- --------------------------------------------------------------------------------
(113) 2,504 3,027
- --------------------------------------------------------------------------------
Citicorp
Foreign exchange(4) 1,409 1,063 765
Derivative(5) 658 354 485
Fixed income(6) (162) 102 12
Other (12) 208 239
- --------------------------------------------------------------------------------
1,893 1,727 1,501
- --------------------------------------------------------------------------------
Total principal transaction revenues $ 1,780 $4,231 $4,528
================================================================================
(1) Includes revenues from government securities and corporate debt, municipal
securities, preferred stock, mortgage securities, and other debt
instruments. Also includes spot and forward trading of currencies and
exchange-traded and over-the-counter (OTC) currency options, options on
fixed income securities, interest rate swaps, currency swaps, swap
options, caps and floors, financial futures, and OTC options and forward
contracts on fixed income securities.
(2) Includes revenues from common and convertible preferred stock, convertible
corporate debt, equity-linked notes, and exchange-traded and OTC equity
options and warrants.
(3) Includes revenues from the results of Phibro Inc. (Phibro), which trades
crude oil, refined oil products, natural gas, electricity, metals, and
various soft commodities and related derivative instruments. During 1998,
Phibro continued its downsizing effort to significantly reduce the scope
of some of its activities.
(4) Includes revenues from foreign exchange spot, forward, and option
contracts.
(5) Includes revenues from interest rate and currency swaps, options,
financial futures, and equity and commodity contracts.
(6) Includes revenues from government and corporate debt, mortgage assets, and
other debt instruments.
54
<PAGE>
10. LOANS
In Millions of Dollars at Year-End 1998 1997
- -------------------------------------------------------------------------------
Consumer
In U.S. offices
Mortgage and real estate(1)(2) $ 29,962 $ 28,084
Installment, revolving credit, and other 47,869 42,415
- -------------------------------------------------------------------------------
77,831 70,499
- -------------------------------------------------------------------------------
In offices outside the U.S.
Mortgage and real estate(1)(3) 19,456 17,685
Installment, revolving credit, and other 36,048 32,179
Lease financing 484 544
- -------------------------------------------------------------------------------
55,988 50,408
- -------------------------------------------------------------------------------
133,819 120,907
Unearned income (1,564) (1,417)
- -------------------------------------------------------------------------------
Consumer loans, net of unearned income $ 132,255 $ 119,490
===============================================================================
Commercial
In U.S. offices
Commercial and industrial(4) $ 12,279 $ 10,841
Mortgage and real estate(1) 5,344 5,960
Loans to financial institutions 173 371
Lease financing 2,951 3,087
- -------------------------------------------------------------------------------
20,747 20,259
- -------------------------------------------------------------------------------
In offices outside the U.S.
Commercial and industrial(4) 55,828 47,417
Mortgage and real estate(1) 1,792 1,651
Loans to financial institutions 8,008 6,480
Governments and official institutions 2,132 2,376
Lease financing 1,386 1,092
- -------------------------------------------------------------------------------
69,146 59,016
- -------------------------------------------------------------------------------
89,893 79,275
Unearned income (190) (159)
- -------------------------------------------------------------------------------
Commercial loans, net of unearned income $ 89,703 $ 79,116
===============================================================================
(1) Loans secured primarily by real estate.
(2) Includes $3.3 billion in 1998 and $3.4 billion in 1997 of commercial real
estate loans related to community banking and private banking activities.
(3) Includes $2.4 billion in 1998 and $2.3 billion in 1997 of loans secured by
commercial real estate.
(4) Includes loans not otherwise separately categorized.
The following table presents information about impaired loans. Impaired
loans are those on which Citigroup believes it is not probable that it will be
able to collect all amounts due according to the contractual terms of the loan,
excluding smaller-balance homogeneous loans that are evaluated collectively for
impairment, and are carried on a cash basis:
In Millions of Dollars at Year-End 1998 1997
- --------------------------------------------------------------------------------
Impaired commercial loans $1,536 $ 971
Other impaired loans(1) 218 241
- --------------------------------------------------------------------------------
Total impaired loans(2) $1,754 $1,212
================================================================================
Impaired loans with valuation allowances $ 257 $ 98
Total valuation allowances(3) 24 16
================================================================================
During the year(4):
Average balance of impaired loans $1,498 $1,188
Interest income recognized on impaired loans 68 62
================================================================================
(1) Primarily commercial real estate loans related to community and private
banking activities.
(2) At year-end 1998, approximately 31% of these loans were measured for
impairment using the fair value of the collateral, with the remaining 69%
measured using the present value of the expected future cash flows,
discounted at the loan's effective interest rate, compared with
approximately 39% and 61%, respectively, at year-end 1997.
(3) Included in the allowance for credit losses.
(4) For the year ended December 31, 1996, the average balance of impaired
loans was $1.7 billion and interest income recognized on impaired loans
was $116 million.
11. ALLOWANCE FOR CREDIT LOSSES
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Allowance for credit losses
at beginning of year $ 6,137 $ 5,743 $ 5,561
Additions
Provision for credit losses 2,751 2,197 2,200
Deductions
Consumer credit losses(1) 2,735 2,604 2,438
Consumer credit recoveries(1) (497) (507) (473)
- -------------------------------------------------------------------------------
Net consumer credit losses(1) 2,238 2,097 1,965
- -------------------------------------------------------------------------------
Commercial credit losses 576 191 259
Commercial credit recoveries (170) (219) (266)
- -------------------------------------------------------------------------------
Net commercial credit losses (recoveries) 406 (28) (7)
- -------------------------------------------------------------------------------
Other -- net(2) 373 266 (60)
- -------------------------------------------------------------------------------
Allowance for credit losses at end of year $ 6,617 $ 6,137 $ 5,743
===============================================================================
(1) Commencing in 1997, reflects the classification of credit card receivables
intended for sale as loans held for sale (included in other assets) with
net credit losses charged to other income.
(2) Primarily includes net transfers from (to) the reserves for securitization
activities and foreign currency translation effects. In 1998, reflects the
addition of $320 million of credit loss reserves related to the
acquisition of the Universal Card portfolio. In 1997, $373 million was
restored to the allowance for credit losses that had previously been
attributed to credit card securitization transactions where the exposure
to credit losses is contractually limited to the cash flows from the
securitized receivables, $50 million attributable to standby letters of
credit and guarantees was reclassified to other liabilities, and $50
million attributable to derivative and foreign exchange contracts was
reclassified as a deduction from trading account assets.
55
<PAGE>
12. DEBT
Investment Banking and Brokerage Borrowings
Investment banking and brokerage borrowings and the corresponding weighted
average interest rates at December 31 are as follows:
1998 1997
- ---------------------------------------------------- -------------------
Interest Interest
In Millions of Dollars Balance Rate Balance Rate
- -------------------------------------------------------------------------------
Bank borrowings $ 556 5.1% $ 2,415 5.9%
Commercial paper 10,493 5.3% 7,110 5.8%
Other 2,991 1,939
- -------------------------------------------------------------------------------
$14,040 $11,464
================================================================================
Investment banking and brokerage borrowings are short-term in nature and
include commercial paper, bank borrowings and other borrowings, used to finance
Salomon Smith Barney's operations, including the securities settlement process.
Outstanding bank borrowings include both U.S. dollar and non-U.S. dollar
denominated loans. The non-U.S. dollar loans are denominated in multiple
currencies including Japanese yen and U.K. sterling. All commercial paper
outstanding at December 31, 1998 and 1997 was U.S. dollar denominated.
At December 31, 1998, Salomon Smith Barney had a $1.5 billion revolving
credit agreement with a bank syndicate that extends through May 2001, and a $3.5
billion, 364-day revolving credit agreement that extends through May 1999.
Salomon Smith Barney may borrow under its revolving credit facilities at various
interest rate options (LIBOR, CD or base rate) and compensates the banks for the
facilities through commitment fees. Under these facilities Salomon Smith Barney
is required to maintain a certain level of consolidated adjusted net worth (as
defined in the agreements). At December 31, 1998, this requirement was exceeded
by approximately $2.8 billion. At December 31, 1998, there were no borrowings
outstanding under either facility.
Salomon Smith Barney also has substantial borrowing arrangements
consisting of facilities that it has been advised are available, but where no
contractual lending obligation exists.
Short-Term Borrowings
At December 31, short-term borrowings consisted of commercial paper and other
short-term borrowings with weighted average interest rates as follows:
1998 1997
- ------------------------------------------------------- ------------------
Out- Interest Out- Interest
In Millions of Dollars standing Rate standing Rate
- -------------------------------------------------------------------------------
Commercial paper
Citigroup $ 991 5.40% $ -- --%
Commercial Credit Company 2,908 5.35 3,871 5.83
Citicorp 132 5.53 1,941 5.46
Travelers Property Casualty Corp. -- -- 108 6.11
- -------------------------------------------------------------------------------
4,031 5,920
Other short-term borrowings 12,081 12.14 8,108 9.04
- -------------------------------------------------------------------------------
$16,112 $14,028
===============================================================================
Citigroup, Citicorp, Commercial Credit Company (CCC), TAP and The
Travelers Insurance Company (TIC) issue commercial paper directly to investors.
Citicorp and Citigroup, both of which are bank holding companies, maintain
combined liquidity reserves of cash and securities (at Citicorp) and unused bank
lines of credit (at Citigroup) at least equal to their combined outstanding
commercial paper. CCC, TAP, and TIC each maintains unused credit availability
under its bank lines of credit at least equal to the amount of its outstanding
commercial paper.
Borrowings under bank lines of credit may be at interest rates based on
LIBOR, CD rates, the prime rate or bids submitted by the banks. Each company
pays its banks commitment fees for its lines of credit.
Citicorp and some of its nonbank subsidiaries have credit facilities with
Citicorp's subsidiary banks, including Citibank, N.A. Borrowings under these
facilities would be secured in accordance with Section 23A of the Federal
Reserve Act.
Citigroup, CCC and TIC have a five-year revolving credit facility which
expires in June 2001 with a syndicate of banks to provide $1.0 billion of
revolving credit, to be allocated to any of Citigroup, CCC or TIC. The
participation of TIC in this facility is limited to $250 million. At December
31, 1998, all of the facility was allocated to Citigroup. Under this facility,
the Company is required to maintain a certain level of consolidated
stockholders' equity (as defined in the agreement). At December 31, 1998, the
Company exceeded the requirement by approximately $27.2 billion. Citigroup and
CCC also have $450 million in 364-day facilities, $200 million which expires in
August 1999 and $250 million which expires in March 1999 and may be allocated to
either of Citigroup or CCC. At December 31, 1998, all $450 million was allocated
to Citigroup. At December 31, 1998, there were no borrowings outstanding under
either facility.
At December 31, 1998, CCC also had a committed and available revolving
credit facility on a stand-alone basis of $4.750 billion, consisting of $3.4
billion in five-year facilities which expire in 2002 and $1.350 billion in a
364-day facility that expires in July 1999.
CCC is limited by covenants in its revolving credit agreements as to the
amount of dividends and advances that may be made to its parent or its
affiliated companies. At December 31, 1998, CCC would have been able to remit
$819 million under its most restrictive covenants.
TAP has a five-year revolving credit facility in the amount of $250
million with a syndicate of banks that expires in December 2001. Under this
facility TAP is required to maintain a certain level of consolidated
stockholders' equity (as defined in the agreement). At December 31, 1998, this
requirement was exceeded by approximately $4.2 billion. At December 31, 1998,
there were no borrowings outstanding under this facility.
56
<PAGE>
Long-Term Debt
At December 31, long-term debt was as follows:
Weighted
Average
In Millions of Dollars Coupon Maturities 1998 1997
- -------------------------------------------------------------------------------
Citigroup Inc.
Senior Notes(1) 6.97% 1999-2028 $ 2,412 $ 1,662
Other(2) 10 33
Salomon Smith Barney
Holdings Inc.
Senior Notes 6.25% 1999-2023 19,092 19,064
Citicorp
Senior Notes 7.20% 1999-2012 11,265 11,372
Subordinated Notes 7.18% 1999-2035 8,359 7,663
Commercial Credit
Company
Senior Notes 6.99% 1999-2025 6,250 6,300
Travelers Property
Casualty Corp.
Senior Notes 6.83% 1999-2026 1,250 1,250
Other(3) -- (1)
The Travelers Insurance
Group Inc.
Other(4) 33 44
- -------------------------------------------------------------------------------
Total
Senior Notes 40,269 39,648
Subordinated Notes 8,359 7,663
Other 43 76
- -------------------------------------------------------------------------------
$48,671 $47,387
===============================================================================
(1) Includes $250 million of notes maturing in 2098.
(2) Unamortized premium of $10 million in 1998 and $15 million in 1997; and an
ESOP note guarantee of $18 million in 1997.
(3) Unamortized discount.
(4) Principally 12% GNMA/FNMA-collateralized obligations.
Salomon Smith Barney and Citicorp issue both U.S. dollar and non-U.S.
dollar denominated fixed and variable rate debt. Both companies also utilize
derivative contracts, primarily interest rate swaps, to effectively convert most
of their fixed rate debt to variable rate debt. The maturity structure of the
derivatives generally corresponds with the maturity structure of the debt being
hedged. At December 31, 1998, Salomon Smith Barney had entered into interest
rate swaps to convert $11.5 billion of its $13.6 billion of fixed rate debt to
variable rate obligations. The contractual weighted average fixed rate on
swapped fixed rate debt versus the weighted average variable rate on swapped
debt (Salomon Smith Barney's actual borrowing cost) was 6.6% and 5.5% at
December 31,1998.
At December 31, 1998, Citicorp had converted, through the use of
derivative contracts, $10.0 billion of its $11.7 billion of fixed rate debt into
variable rate obligations. In addition, Citicorp utilizes other derivative
contracts to manage the foreign exchange impact of certain debt issuances. At
year-end 1998, Citicorp's overall weighted average interest rate for long-term
debt was 7.2% on a contractual basis and 6.5% after including the effects of
derivative contracts.
Aggregate annual maturities on long-term debt obligations (based on final
maturity dates), excluding principal payments on the 12%
GNMA/FNMA-collateralized obligations, are as follows:
<TABLE>
<CAPTION>
In Millions of Dollars 1999 2000 2001 2002 2003 Thereafter
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Citigroup Inc. $ 100 $ 650 $ -- $ 300 $ -- $ 1,362
Salomon Smith Barney Holdings Inc. 2,784 3,417 2,099 2,428 2,845 5,519
Citicorp 2,844 2,569 1,963 2,667 2,093 7,488
Commercial Credit Company 350 750 700 900 400 3,150(1)
Travelers Property Casualty Corp. 400 -- 500 -- -- 350
- -------------------------------------------------------------------------------------------------
$6,478 $7,386 $5,262 $6,295 $5,338 $17,869
=================================================================================================
</TABLE>
(1) Includes $450 million redeemable at option of holders during 1999 at face
amount and $200 million redeemable at option of holders during 2002 at
face amount.
57
<PAGE>
13. INSURANCE POLICY AND CLAIMS RESERVES
At December 31, insurance policy and claims reserves consisted of the following:
In Millions of Dollars 1998 1997
- --------------------------------------------------------------------------------
Benefit and loss reserves:
Property-casualty(1) $28,624 $29,343
Accident and health 803 1,080
Life and annuity 9,398 8,660
Unearned premiums 4,702 4,267
Policy and contract claims 463 432
- --------------------------------------------------------------------------------
$43,990 $43,782
================================================================================
(1) Included at December 31, 1998 and 1997 are $1.3 billion and $1.5 billion,
respectively, of reserves related to workers' compensation that have been
discounted using an interest rate of 5%.
The following table is a reconciliation of beginning and ending
property-casualty reserve balances for claims and claim adjustment expenses for
the years ended December 31:
In Millions of Dollars 1998 1997 1996
- --------------------------------------------------------------------------------
Claims and claim adjustment expense
reserves at beginning of year $ 29,343 $ 29,967 $14,715
Less reinsurance recoverables on
unpaid losses 7,937 8,151 4,613
- --------------------------------------------------------------------------------
Net balance at beginning of year 21,406 21,816 10,102
- --------------------------------------------------------------------------------
Provision for claims and claim adjustment
expense for claims arising in current year 6,057 5,730 4,827
Estimated claims and claim adjustment
expense for claims arising in prior years (323) (492) 192
Increase for purchase of Aetna P&C -- -- 11,752
- --------------------------------------------------------------------------------
Total increases 5,734 5,238 16,771
- --------------------------------------------------------------------------------
Claims and claim adjustment expense
payments for claims arising in:
Current year 2,352 1,944 1,858
Prior years 4,025 3,704 3,199
- --------------------------------------------------------------------------------
Total payments 6,377 5,648 5,057
- --------------------------------------------------------------------------------
Net balance at end of year 20,763 21,406 21,816
Plus reinsurance recoverables on
unpaid losses 7,861 7,937 8,151
- --------------------------------------------------------------------------------
Claims and claim adjustment expense
reserves at end of year $ 28,624 $ 29,343 $29,967
================================================================================
The decrease in the claims and claim adjustment expense reserves in 1998
primarily was attributable to net payments of $663 million of environmental,
asbestos, and other cumulative injury claims.
In 1998, estimated claims and claim adjustment expenses for claims arising
in prior years includes approximately $176 million primarily relating to net
favorable development in certain Personal Lines coverages, predominantly
automobile coverages. In addition, in 1998 Commercial Lines experienced
favorable prior year loss development on loss sensitive policies in the workers'
compensation line; however, since the business to which it relates is subject to
premium adjustments, there was no impact on results of operations.
In 1997, estimated claims and claim adjustment expenses for claims arising
in prior years included $154 million of net favorable development in certain
Personal Lines coverages and Commercial Lines coverages, predominantly
automobile coverages. In addition, in 1997 Commercial Lines experienced $122
million of favorable prior year loss development in the workers' compensation
line; however, since the business to which it relates is subject to premium
adjustments, there was no impact on results of operations. Also in 1997, the
Company adopted newly prescribed statutory allocations of certain claim
adjustment expenses. The new allocations resulted in favorable prior year loss
development of $216 million offset by an increase in the current accident year
provision of the same amount.
In 1996 estimated claims and claim adjustment expenses for claims arising
in prior years included $238 million of net favorable development in certain
Commercial Lines and Personal Lines coverages. Also in 1996, estimated claims
and claim adjustment expenses for claims arising in prior years included $430
million within Commercial Lines related to acquisition-related charges,
primarily related to Cumulative Injury Other Than Asbestos (CIOTA), insurance
products involving financial guarantees, and assumed reinsurance.
The property-casualty claims and claim adjustment expense reserves include
$1.818 billion and $2.233 billion for asbestos and environmental-related claims
net of reinsurance at December 31, 1998 and 1997, respectively.
It is difficult to estimate the reserves for environmental and
asbestos-related claims due to the vagaries of court coverage decisions,
plaintiffs' expanded theories of liability, the risks inherent in major
litigation and other uncertainties. Conventional actuarial techniques are not
used to estimate such reserves.
For environmental claims, the Company estimates its financial exposure and
establishes reserves based upon an analysis of its historical claim experience
and the facts of the individual underlying claims. The unique facts presented in
each claim are evaluated individually and collectively. Due consideration is
given to the many variables presented in each claim.
The following factors are evaluated in projecting the ultimate reserve for
asbestos-related claims: available insurance coverage; limits and deductibles;
an analysis of each policyholder's potential liability; jurisdictional
involvement; past and projected future claim activity; past settlement values of
similar claims; allocated claim adjustment expense; potential role of other
insurance, and applicable coverage defenses, if any. Once the gross ultimate
exposure for indemnity and allocated claim adjustment expense is determined for
a policyholder by policy year, a ceded projection is calculated based on any
applicable facultative and treaty reinsurance and past ceded experience. In
addition, a similar review is conducted for asbestos property damage claims.
However, due to the relatively minor claim volume, these reserves have remained
at a constant level.
As a result of these processes and procedures, the reserves carried for
environmental and asbestos claims at December 31, 1998 are the Company's best
estimate of ultimate claims and claim adjustment expenses, based upon known
facts and current law. However, the conditions surrounding the final resolution
of these claims continue to change. Currently, it is not possible to predict
changes in the legal and legislative environment and their impact on the future
development of asbestos and environmental claims. Such development will be
impacted by future court decisions and interpretations as well as changes in
legislation applicable to such claims. Because of these future unknowns,
additional liabilities may arise for amounts in excess of the current reserves.
These additional amounts, or a range of these additional amounts, cannot now be
reasonably estimated, and could result in a liability exceeding reserves by an
amount that would be material to the Company's operating results in a future
period. However, the Company believes that it is
58
<PAGE>
not likely that these claims will have a material adverse effect on the
Company's financial condition or liquidity.
The Company has a geographic exposure to catastrophe losses in certain
areas of the country. Catastrophes can be caused by various events including
hurricanes, windstorms, earthquakes, hail, severe winter weather, explosions and
fires, and the incidence and severity of catastrophes are inherently
unpredictable. The extent of losses from a catastrophe is a function of both the
total amount of insured exposure in the area affected by the event and the
severity of the event. Most catastrophes are restricted to small geographic
areas; however, hurricanes and earthquakes may produce significant damage in
large, heavily populated areas. The Company generally seeks to reduce its
exposure to catastrophes through individual risk selection and the purchase of
catastrophe reinsurance.
14. REINSURANCE
The Company's insurance operations participate in reinsurance in order to limit
losses, minimize exposure to large risks, provide additional capacity for future
growth and effect business-sharing arrangements. Life reinsurance is
accomplished through various plans of reinsurance, primarily coinsurance,
modified coinsurance and yearly renewable term. Property-casualty reinsurance is
placed on both a quota-share and excess of loss basis. The property-casualty
insurance subsidiaries also participate as a servicing carrier for, and a member
of, several pools and associations. Reinsurance ceded arrangements do not
discharge the insurance subsidiaries as the primary insurer, except for cases
involving a novation.
Reinsurance amounts included in the Consolidated Statement of Income for
the year ended December 31 were as follows:
Gross Net
In Millions of Dollars Amount Ceded Amount
- --------------------------------------------------------------------------------
1998
Premiums
Property-casualty insurance $ 9,579 $(1,689) $7,890
Life insurance 1,915 (304) 1,611
Accident and health insurance 410 (61) 349
- --------------------------------------------------------------------------------
$11,904 $(2,054) $9,850
================================================================================
Claims incurred $ 9,024 $(1,560) $7,464
================================================================================
1997
Premiums
Property-casualty insurance $ 9,045 $(1,751) $7,294
Life insurance 1,669 (279) 1,390
Accident and health insurance 373 (62) 311
- --------------------------------------------------------------------------------
$11,087 $(2,092) $8,995
================================================================================
Claims incurred $ 8,226 $(1,357) $6,869
================================================================================
1996
Premiums
Property-casualty insurance $ 7,902 $(1,806) $6,096
Life insurance 1,529 (296) 1,233
Accident and health insurance 402 (98) 304
- --------------------------------------------------------------------------------
$ 9,833 $(2,200) $7,633
================================================================================
Claims incurred $ 8,389 $(1,892) $6,497
================================================================================
Reinsurance recoverables, net of valuation allowance, at December 31
include amounts recoverable on unpaid and paid losses and were as follows:
In Millions of Dollars 1998 1997
- --------------------------------------------------------------------------------
Life business $1,303 $1,372
Property-casualty business:
Pools and associations 3,070 3,378
Other reinsurance 5,119 4,829
- --------------------------------------------------------------------------------
$9,492 $9,579
================================================================================
15. RESTRUCTURING CHARGES AND MERGER-RELATED COSTS
In Millions of Dollars 1998 1997
- --------------------------------------------------------------------------------
Restructuring charges $ 1,122 $1,718
Changes in 1997 estimates (392) --
Merger-related costs 65 --
- --------------------------------------------------------------------------------
Total $ 795 $1,718
================================================================================
In December 1998 Citigroup recorded a restructuring charge of $1.122
billion, reflecting exit costs associated with business improvement and
integration initiatives to be implemented over a 12 to 18 month period. The
charge included $760 million related to employee severance, $327 million related
to exiting leasehold and other contractual obligations, and $35 million related
to the write-down to estimated salvage value of assets that are available for
immediate disposal.
In addition, the implementation of these restructuring initiatives will
cause some related premises and equipment assets to become redundant. In
accordance with recent SEC guidelines, the remaining depreciable lives of these
assets have been shortened, and accelerated depreciation charges of $262 million
(in addition to normal scheduled depreciation on these assets) will be
recognized in subsequent periods. Additional implementation costs associated
with these restructuring initiatives will be expensed as incurred but are not
expected to be material.
Of the $1.122 billion charge, $712 million in the Global Consumer business
includes regional consolidation of call centers and other back office functions
worldwide, reduction of management layers, sales force restructuring and
integration of overlapping marketing and product management groups, and exiting
several non-strategic operations; $324 million in the Global Corporate and
Investment Bank business includes rationalization of operations in countries
with multiple operations, consolidation of Citibank and Salomon Smith Barney
locations, integration of trading platforms, and exiting non-strategic
businesses; $17 million in the Asset Management business includes elimination of
redundancies; and the remaining $69 million includes streamlining and
integration of Corporate and other staff functions. Approximately $507 million
of the $1.122 billion charge relates to operations in the United States. Because
the charge was recorded near the end of the year, there was no significant
utilization during 1998.
The $760 million portion of the charge related to employee severance
reflects the costs of eliminating approximately 11,900 positions, after
considering attrition and redeployment within the Company, including
approximately 8,000 in the Global Consumer business, 3,100 in the Global
Corporate and Investment Bank business, 200 in the Asset Management business and
600 in Corporate and other staff functions
59
<PAGE>
(costs associated with corporate and staff functions have been allocated to
businesses as appropriate). Approximately 4,200 of these positions relate to the
United States. The overall workforce reduction, net of anticipated rehires to
fill relocated positions, is expected to be approximately 10,400 positions
worldwide.
Changes in 1997 estimates are attributable to facts and circumstances
arising subsequent to the original restructuring charge. The most significant
item is a $324 million reduction to the Salomon Smith Barney charge related to
the Seven World Trade Center lease, which resulted from negotiations on a
sub-lease which indicated that excess space could be disposed of on terms more
favorable than originally estimated. In addition, the reassessment of space
requirements as a result of the Citicorp merger could indicate that space
previously considered to be excess may be needed, which could result in a
further reduction to the restructuring reserve. Changes in 1997 estimates are
also attributable to lower severance costs due to higher than anticipated levels
of attrition and redeployment within the Company, and other unforeseen changes
including those resulting from the Citicorp merger.
Merger-related costs include the direct and incremental costs of
administratively closing the Citicorp merger and primarily reflect legal,
regulatory, accounting and similar one-time transaction costs.
In 1997, Citigroup recorded restructuring charges of $1.718 billion,
consisting of a $880 million restructuring charge related to cost-management
programs and customer service initiatives to improve operational efficiency and
productivity in the Citicorp businesses, and a $838 million charge related to
the Salomon Smith Barney merger. The Citicorp charge included $487 million for
severance benefits (associated with approximately 9,000 positions to be
reduced), $245 million related to writedowns of equipment and premises which
management committed to dispose of, and $148 million of lease termination and
other exit costs. The Salomon Smith Barney charge included $161 million for
severance benefits (associated with approximately 1,900 positions to be
reduced), $663 million of costs associated with the planned abandonment of
certain facilities, premises and other assets, principally those related to the
Seven World Trade Center lease and $14 million of other costs related directly
to the Salomon Smith Barney merger. The status of these 1997 restructuring
initiatives is summarized in the following table.
Activity in 1997 Restructuring Reserve
In Millions of Dollars Citicorp SSB Total
- -------------------------------------------------------------------------------
1997 restructuring charges $ 880 $ 838 $ 1,718
Utilization (641) (171) (812)
Changes in 1997 estimates (38) (354) (392)
- -------------------------------------------------------------------------------
Balance at December 31, 1998 $ 201 $ 313 $ 514
===============================================================================
Utilization includes $271 million of non-cash charges (including $245
million of equipment and premises write-downs at Citicorp and $26 million at
SSB) as well as $544 million of severance and other exit costs (of which $354
million related to employee severance and $129 million related to leasehold and
other exit costs have been paid in cash and $61 million is legally obligated),
together with translation effects. Through December 31, 1998, approximately
5,600 gross staff positions have been eliminated under these programs.
16. INCOME TAXES
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Current
Federal $ 2,081 $ 3,259 $ 1,833
Foreign 1,022 1,539 1,128
State 325 465 531
- -------------------------------------------------------------------------------
3,428 5,263 3,492
- -------------------------------------------------------------------------------
Deferred
Federal (149) (1,095) 450
Foreign 104 (109) 67
State (149) (226) (42)
- -------------------------------------------------------------------------------
(194) (1,430) 475
- -------------------------------------------------------------------------------
Provision for income tax on continuing
operations before minority interest(1) 3,234 3,833 3,967
Provision for income tax on discontinued
operations -- -- (246)
Income tax expense (benefit) reported in
stockholders' equity related to:
Foreign currency translation 11 26 28
Securities available for sale (175) 370 186
Employee stock plans (701) (728) (430)
Minimum pension liability -- -- 61
Other (1) 9 15
- -------------------------------------------------------------------------------
Income taxes before minority interest $ 2,368 $ 3,510 $ 3,581
===============================================================================
(1) Includes the effect of securities transactions resulting in a provision of
$270 million in 1998, $376 million in 1997, and $93 million in 1996.
60
<PAGE>
The reconciliation of the federal statutory income tax rate to the
Company's effective income tax rate applicable to income from continuing
operations (before minority interest) for the years ended December 31 was as
follows:
1998 1997 1996
- -------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
Limited taxability of investment income (2.4) (1.7) (1.4)
State income taxes, net of federal benefit 1.2 1.4 2.9
Other, net 1.1 1.0 (0.7)
- -------------------------------------------------------------------------------
Effective income tax rate 34.9% 35.7% 35.8%
===============================================================================
Deferred income taxes at December 31 related to the following:
In Millions of Dollars 1998 1997
- -------------------------------------------------------------------------------
Deferred tax assets
Credit loss deduction $ 2,327 $ 2,205
Differences in computing policy reserves 2,066 2,042
Unremitted foreign earnings 1,257 1,019
Deferred compensation 1,222 1,035
Employee benefits 865 628
Interest-related items 412 508
Foreign and state loss carryforwards 256 316
Other deferred tax assets 1,094 941
- -------------------------------------------------------------------------------
Gross deferred tax assets 9,499 8,694
Valuation allowance 394 424
- -------------------------------------------------------------------------------
Deferred tax assets after valuation allowance 9,105 8,270
- -------------------------------------------------------------------------------
Deferred tax liabilities
Investments (1,244) (1,549)
Deferred policy acquisition costs and value of
insurance in force (858) (786)
Leases (648) (496)
Investment management contracts (218) (236)
Other deferred tax liabilities (1,116) (819)
- -------------------------------------------------------------------------------
Gross deferred tax liabilities (4,084) (3,886)
- -------------------------------------------------------------------------------
Net deferred tax asset $ 5,021 $ 4,384
===============================================================================
Foreign pre-tax earnings approximated $2.4 billion in 1998, $4.8 billion
in 1997, and $4.2 billion in 1996. As a U.S. corporation, Citigroup is subject
to U.S. taxation currently on all of its foreign pre-tax earnings if earned by a
foreign branch or when earnings are effectively repatriated if earned by a
foreign subsidiary or affiliate. In addition, certain of Citigroup's U.S. income
is subject to foreign income tax where the payor of such income is domiciled
outside the United States. The Company provides income taxes on the
undistributed earnings of non-U.S. subsidiaries except to the extent that such
earnings are indefinitely invested outside the United States. At December 31,
1998, $1.3 billion of accumulated undistributed earnings of non-U.S.
subsidiaries was indefinitely invested. At the existing U.S. federal income tax
rate, additional taxes of $376 million would have to be provided if such
earnings were remitted.
Income taxes are not provided for on the Company's life insurance
subsidiaries' "policyholders' surplus account" because under current U.S. tax
rules such taxes will become payable only to the extent such amounts are
distributed as a dividend or exceed limits prescribed by federal law.
Distributions are not contemplated from this account, which aggregated $982
million (subject to a tax effect of $344 million) at December 31, 1998.
The 1998 net change in the valuation allowance related to deferred tax
assets was a decrease of $30 million primarily relating to an increased
utilization of certain foreign tax credits. The valuation allowance of $394
million includes $100 million to cover any capital losses on investments that
may exceed the capital gains able to be generated in the life insurance group's
consolidated federal income tax return based upon management's best estimate of
the character of the reversing temporary differences. Reversal of the valuation
allowance is contingent upon the recognition of future capital gains or a change
in circumstances that causes the recognition of the benefits to become more
likely than not. The initial recognition of any benefit produced by the reversal
of this portion of the valuation allowance will be recognized by reducing
goodwill. The remaining valuation allowance of $294 million at December 31, 1998
is primarily reserved for specific state and local, and foreign tax
carryforwards or tax law restrictions on benefit recognition in the U.S. federal
and the above jurisdictions.
Management believes that the realization of the recognized net deferred
tax asset of $5.021 billion is more likely than not based on existing carryback
ability and expectations as to future taxable income. The Company has reported
pre-tax financial statement income from continuing operations exceeding $10
billion on average over the last three years and has generated federal taxable
income exceeding $8 billion, on average, each year during this same period.
61
<PAGE>
17. MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS
The Company formed statutory business trusts under the laws of the state of
Delaware, which 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. These
subordinated debentures and the related income effects are eliminated in the
consolidated financial statements. Distributions on the mandatorily redeemable
securities of subsidiary trusts below have been classified as interest expense
in the Consolidated Statement of Income. The following tables summarize the
financial structure of each of the Company's subsidiary trusts at December 31,
1998:
<TABLE>
<CAPTION>
Citigroup Citigroup Citigroup
Capital I Capital II Capital III
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Securities
Issuance date October 1996 December 1996 December 1996
Securities issued 16,000,000 400,000 200,000
Liquidation preference per security $25 $1,000 $1,000
Liquidation value
(in millions of dollars) $400 $400 $200
Coupon rate 8% 7.75% 7.625%
Distributions payable Quarterly Semi-annually Semi-annually
Distributions guaranteed by(1) Citigroup Citigroup Citigroup
Common shares issued to parent 494,880 12,372 6,186
- ---------------------------------------------------------------------------------------------
Junior Subordinated Debentures
Amount owned
(in millions of dollars) $412 $412 $206
Coupon rate 8% 7.75% 7.625%
Interest payable Quarterly Semi-annually Semi-annually
Maturity date September 30, 2036 December 1, 2036 December 1, 2036
Redeemable by issuer on or after October 7, 2001 December 1, 2006 Not redeemable
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Citigroup Citigroup Travelers P&C
Capital IV Capital V Capital I
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Securities
Issuance date January 1998 November 1998 April 1996
Securities issued 8,000,000 20,000,000 32,000,000
Liquidation preference per security $25 $25 $25
Liquidation value
(in millions of dollars) $200 $500 $800
Coupon rate 6.85% 7.00% 8.08%
Distributions payable Quarterly Quarterly Quarterly
Distributions guaranteed by(1) Citigroup Citigroup TAP
Common shares issued to parent 247,440 618,557 989,720
- ------------------------------------------------------------------------------------------
Junior Subordinated Debentures
Amount owned
(in millions of dollars) $206 $515 $825
Coupon rate 6.85% 7.00% 8.08%
Interest payable Quarterly Quarterly Quarterly
Maturity date January 22, 2038 November 15, 2028 April 30, 2036
Redeemable by issuer on or after January 22, 2003 November 15, 2003 April 30, 2001
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Travelers P&C SI Financing SSBH
Capital II Trust I Capital I
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Securities
Issuance date May 1996 July 1996 January 1998
Securities issued 4,000,000 13,800,000 16,000,000
Liquidation preference per security $25 $25 $25
Liquidation value
(in millions of dollars) $100 $345 $400
Coupon rate 8% 9.25% 7.20%
Distributions payable Quarterly Quarterly Quarterly
Distributions guaranteed by(1) TAP Salomon Smith Salomon Smith
Barney Barney
Common shares issued to parent 123,720 426,800 494,880
- --------------------------------------------------------------------------------------
Junior Subordinated Debentures
Amount owned
(in millions of dollars) $103 $356 $412
Coupon rate 8% 9.25% 7.20%
Interest payable Quarterly Quarterly Quarterly
Maturity date May 15, 2036 June 30, 2026 January 28, 2038
Redeemable by issuer on or after May 15, 2001 June 30, 2001 January 28, 2003
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Citicorp Citicorp Citicorp
Capital I Capital II Capital III
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Securities
Issuance date December 1996 January 1997 June 1998
Securities issued 300,000 450,000 9,000,000
Liquidation preference per security $1,000 $1,000 $25
Liquidation value
(in millions of dollars) $300 $450 $225
Coupon rate 7.933% 8.015% 7.10%
Distributions payable Semi-annually Semi-annually Quarterly
Distributions guaranteed by(1) Citicorp Citicorp Citicorp
Common shares issued to parent 9,000 13,500 270,000
- --------------------------------------------------------------------------------------------
Junior Subordinated Debentures
Amount owned
(in millions of dollars) $309 $464 $232
Coupon rate 7.933% 8.015 7.10%
Interest payable Semi-annually Semi-annually Quarterly
Maturity date February 15, 2027 February 15, 2027 August 15, 2028
Redeemable by issuer on or after February 15, 2007 February 15, 2007 August 15, 2003
============================================================================================
</TABLE>
(1) Under the arrangements, taken as a whole, payments due are fully and
unconditionally guaranteed on a subordinated basis.
SI Financing Trust I, a wholly owned subsidiary of Salomon Smith
Barney, issued TRUPS-Registered Trademark- units to the public. Each
TRUPS-Registered Trademark- unit includes a security of SI Financing Trust I,
and a purchase contract that requires the holder to purchase, in 2021 (or
earlier if Salomon Smith Barney elects to accelerate the contract), one
depositary share representing a one-twentieth interest in a share of the
Company's 9.50% Cumulative Preferred Stock, Series L. Salomon Smith Barney is
obligated under the terms of each purchase contract to pay contract fees of
0.25% per annum.
62
<PAGE>
18. PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable Preferred Stock
At December 31, 1997 there were 2,866,689 shares of Series C Preferred
outstanding with a carrying value of $135 million included in Other
Liabilities. In January, 1998 all of the outstanding shares of Series C
Preferred were converted into 6,941,859 shares of common stock.
In 1987, the Company issued 700,000 shares of Series I Cumulative
Convertible Preferred Stock (Series I Preferred) to affiliates of Berkshire
Hathaway Inc. at $1,000 per share. Annual cumulative dividends on the Series I
Preferred are $90 per share and payable quarterly. Each share of Series I
Preferred has a redemption value of $1,000 and is convertible into 44.60526
shares of Citigroup common stock (subject to antidilution adjustments in certain
circumstances). Series I Preferred shareholders are entitled to vote on all
matters on which the Company's common stockholders vote, and are entitled to one
vote per common share into which it is convertible. Commencing October 31, 1995,
140,000 Series I Preferred shares must be redeemed annually (if not previously
converted) at $1,000 per share plus any accrued and unpaid dividends. The first
tranche of 140,000 Series I Preferred shares was redeemed in October 1995, while
the second, third and forth tranches of 140,000 shares were converted into 6.2
million shares of common stock each in October 1996, 1997 and October 1998,
respectively. The Company had 6.2 million shares reserved for future conversions
at December 31, 1998.
Perpetual Preferred Stock
The following table sets forth the Company's perpetual preferred stock
outstanding at December 31:
<TABLE>
<CAPTION>
Redeemable, in Redemption
whole or in part Price Number of Carrying Value (In Millions)
Rate on or after(1) Per Share(2) Shares 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Series F(3) 6.365% June 16, 2007 $250 1,600,000 $ 400 $ 400
Series G(3) 6.213% July 11, 2007 $250 800,000 200 200
Series H(3) 6.231% September 8, 2007 $250 800,000 200 200
Series J(4) 8.08% March 31, 1998 $500 400,000 200 200
Series K(4) 8.40% March 31, 2001 $500 500,000 250 250
Series M(3) 5.864% October 8, 2007 $250 800,000 200 200
Series O(5) Graduated August 15, 2004 $100 625,000 63 63
Series Q(6) Adjustable May 31, 1999 $250 700,000 175 175
Series R(6) Adjustable August 31, 1999 $250 400,000 100 100
Series S(6) 8.30% November 15, 1999 $250 500,000 125 125
Series T(6) 8.50% February 15, 2000 $250 600,000 150 150
Series U(6) 7.75% May 15, 2000 $250 500,000 125 125
Series V(6) Fixed/Adjustable February 15, 2006 $500 250,000 125 125
Second Series Adjustable At any time $100 2,195,636 -- 220
Third Series Adjustable At any time $100 834,867 -- 83
Series 8A(5) Graduated August 15, 2004 $100 625,000 -- 62
Series 16 8.00% June 1, 1998 $250 1,300,000 -- 325
Series 17 7.50% September 1, 1998 $250 1,400,000 -- 350
- -------------------------------------------------------------------------------------------------------------------------
$2,313 $3,353
=========================================================================================================================
</TABLE>
(1) Under various circumstances, the Company may redeem certain series of
preferred stock at times other than described above.
(2) Liquidation preference per share equals redemption price per share.
(3) Issued as depositary shares each representing a one-fifth interest in the
corresponding series of preferred stock.
(4) Issued as depositary shares each representing a one-twentieth interest in
the corresponding series of preferred stock.
(5) Also redeemable on any of the dividend repricing dates through August 15,
2004.
(6) Issued as depositary shares each representing a one-tenth interest in the
corresponding series of preferred stock.
63
<PAGE>
All dividends on the Company's perpetual preferred stock are payable
quarterly and, with the exception of the Series 16, 17, S, and T Preferred
Stock, all dividends are cumulative. Only the holders of Series J and K
Preferred Stock have voting rights. Holders of Series J and K Preferred Stock
are entitled to three votes per share when voting together as a class with the
Citigroup common stock on all matters submitted to a vote of the Company's
stockholders.
Dividends on the Series O Preferred Stock are payable at 8.25% through
August 15, 1999 and thereafter at a rate equal to the five-year treasury rate
plus an amount equal to 2.25% and increasing to 3% for all dividend periods
ending after August 15, 2004. The dividend rate through August 15, 2004 on the
Series O Preferred Stock cannot be less than 7% or greater than 14%, and
thereafter cannot be less than 8% or greater than 16%.
Dividends on Series Q and R Preferred Stock are payable at rates
determined quarterly by formulas based on interest rates of certain U.S.
Treasury obligations, subject to certain minimum and maximum rates as specified
in the certificates of designation. The weighted-average dividend rate on the
Series Q and R Preferred Stock was 5.0% for 1998.
Dividends on the Series V Preferred Stock are payable at 5.86% through
February 15, 2006 and thereafter at rates determined quarterly by a formula
based on certain interest rate indices, subject to a minimum rate of 6% and a
maximum rate of 12%. The rate of dividends on the Series V Preferred Stock is
subject to adjustment based upon the applicable percentage of the dividends
received deduction.
The Second and Third Series as well as the Series 16 Preferred Stock were
redeemed by the Company in the first half of 1998. The Series 8A and 17
Preferred Stock were redeemed on August 15, 1998 and September 1, 1998,
respectively.
In February 1999, Citigroup redeemed the Series J Preferred Stock.
Regulatory Capital
Citigroup and Citicorp are subject to risk-based capital and leverage guidelines
issued by the Board of Governors of the Federal Reserve System (FRB), and their
U.S. insured depository institution subsidiaries, including Citibank, N.A., are
subject to similar guidelines issued by their respective primary regulators.
These guidelines are used to evaluate capital adequacy and include the required
minimums shown below.
To be "well capitalized" under federal bank regulatory agency definitions,
a depository institution must have a Tier 1 ratio of at least 6%, a combined
Tier 1 and Tier 2 ratio of at least 10%, and a leverage ratio of at least 5% and
not be subject to a directive, order, or written agreement to meet and maintain
specific capital levels. The regulatory agencies are required by law to take
specific prompt actions with respect to institutions that do not meet minimum
capital standards. As of December 31, 1998 and 1997, all of Citigroup's U.S.
insured subsidiary depository institutions were "well capitalized." At December
31, 1998, regulatory capital as set forth in guidelines issued by the U.S.
federal bank regulators is as follows:
Minimum Citibank,
In Millions of Dollars Requirement Citigroup Citicorp N.A.
- -------------------------------------------------------------------------------
Tier 1 capital $41,777 $23,084 $19,291
Total capital(1) 55,008 33,858 28,783
Tier 1 capital ratio 4.00% 8.68% 8.44% 8.41%
Total capital ratio(1) 8.00% 11.43% 12.38% 12.55%
Leverage ratio(2) 3.00%+ 6.03% 6.68% 6.32%
===============================================================================
(1) Total capital includes Tier 1 and Tier 2.
(2) Tier 1 capital divided by adjusted average assets.
The combined insurance subsidiaries' statutory capital and surplus at
December 31, 1998 and 1997 was $12.843 billion (including Citicorp Life
Insurance Company) and $10.505 billion, respectively, and are subject to certain
restrictions imposed by state insurance departments as to the transfer of funds
and payment of dividends. The combined insurance subsidiaries' net income,
determined in accordance with statutory accounting practices, for the years
ended December 31, 1998, 1997, and 1996 was $2.255 billion (including Citicorp
Life Insurance Company), $1.794 billion, and $843 million (which includes $285
million for Aetna P&C in the first quarter of 1996), respectively.
TIC is subject to various regulatory restrictions that limit the maximum
amount of dividends available to its parent without prior approval of the
Connecticut Insurance Department. A maximum of $504 million of statutory surplus
is available in 1999 for such dividends without the prior approval of the
Connecticut Insurance Department.
TAP's insurance subsidiaries are subject to various regulatory
restrictions that limit the maximum amount of dividends available to be paid to
their parent without prior approval of insurance regulatory authorities.
Dividend payments to TAP from its insurance subsidiaries are limited to $1.0
billion in 1999 without prior approval of the Connecticut Insurance Department.
Certain of the Company's U.S. and non-U.S. broker-dealer subsidiaries are
subject to various securities and commodities regulations and capital adequacy
requirements promulgated by the regulatory and exchange authorities of the
countries in which they operate. The principal regulated subsidiaries, their net
capital requirement or equivalent and excess over the minimum requirement as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
In Millions of Dollars
Excess over
Net Capital minimum
Subsidiary Jurisdiction or equivalent requirement
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salomon Smith Barney Inc(1) U.S. Securities and Exchange Commission Uniform Net
Capital Rule (Rule 15c3-1) $3,195 $2,841
Salomon Brothers International Limited United Kingdom's Securities and Futures Authority 4,972 1,090
Salomon Smith Barney Japan Limited(2) Japan's Ministry of Finance 688 375
Salomon Brothers AG Germany's Banking Supervisory Authority 236 150
The Robinson-Humphrey Company LLC U.S. Securities and Exchange Commission Uniform Net
Capital Rule (Rule 15c3-1) 79 78
====================================================================================================================================
</TABLE>
(1) On September 1, 1998, Salomon Brothers Inc and Smith Barney Inc. merged to
form Salomon Smith Barney Inc.
(2) Prior to April 1, 1998, this entity was known as Salomon Brothers Asia
Limited.
See Note 12 for additional restrictions on stockholders' equity.
64
<PAGE>
19. CHANGES IN EQUITY FROM NONOWNER SOURCES
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" (SFAS No. 130), which established standards for the
reporting and display of equity from nonowner sources and its components in a
full set of general purpose financial statements. Equity from nonowner sources
and its components have been reported, net of tax, in the Consolidated Statement
of Changes in Stockholders' Equity with all earlier periods restated to reflect
the adoption of SFAS No. 130.
Changes in each component of Accumulated Other Changes in Equity from
Nonowner Sources for the three-year period ended December 31, 1998 are as
follows:
Accumulated
Net Adjustment Other
Unrealized Foreign for Changes in
Gains on Currency Minimum Equity from
Investment Translation Pension Nonowner
In Millions of Dollars Securities Adjustment Liability Sources
- --------------------------------------------------------------------------------
Balance, Jan. 1, 1996 $ 888 $(426) $(114) $ 348
Unrealized gains on investment
securities, net of tax of $279 440 440
Less: Reclassification adjustment
for gains included in net
income, net of tax of ($93) (183) (183)
Foreign currency translation
adjustment, net of tax of $28 (57) (57)
Adjustment for minimum
pension liability, net of
tax of $61 114 114
- -------------------------------------------------------------------------------
Current period change 257 (57) 114 314
- -------------------------------------------------------------------------------
Balance, Dec. 31, 1996 1,145 (483) -- 662
Unrealized gains on investment
securities, net of tax of $746 1,166 1,166
Less: Reclassification adjustment
for gains included in net
income, net of tax of ($376) (619) (619)
Foreign currency translation
adjustment, net of tax of $26 (152) (152)
- -------------------------------------------------------------------------------
Current period change 547 (152) -- 395
- -------------------------------------------------------------------------------
Balance, Dec. 31, 1997 1,692 (635) -- 1,057
Unrealized gains on investment
securities, net of tax of $95 237 237
Less: Reclassification adjustment
for gains included in net
income, net of tax of ($270) (570) (570)
Foreign currency translation
adjustment, net of tax of $11 57 57
- -------------------------------------------------------------------------------
Current period change (333) 57 -- (276)
- -------------------------------------------------------------------------------
Balance, Dec. 31, 1998 $1,359 $(578) -- $ 781
===============================================================================
20. EARNINGS PER SHARE
The following reflects the income and share data used in the basic and diluted
earnings per share computations for the years ended December 31:
In Millions, Except Per Share Amounts 1998 1997 1996
- -------------------------------------------------------------------------------
Income from continuing operations $ 5,807 $ 6,705 $ 7,073
Discontinued operations -- -- (334)
Preferred dividends (216) (279) (319)
- -------------------------------------------------------------------------------
Income available to common stockholders
for basic EPS 5,591 6,426 6,420
Effect of dilutive securities 24 36 56
- -------------------------------------------------------------------------------
Income available to common stockholders
for diluted EPS $ 5,615 $ 6,462 $ 6,476
===============================================================================
Weighted average common shares
outstanding applicable to basic EPS 2,242.4 2,247.9 2,271.6
- -------------------------------------------------------------------------------
Effect of dilutive securities:
Convertible securities 11.8 25.2 44.9
Options 40.2 52.4 52.6
Warrants 2.3 7.0 5.0
Restricted stock 18.5 25.2 19.8
- -------------------------------------------------------------------------------
Adjusted weighted average common shares
outstanding applicable to diluted EPS 2,315.2 2,357.7 2,393.9
===============================================================================
Basic earnings per share
Continuing operations $ 2.49 $ 2.86 $ 2.97
Discontinued operations -- -- (0.14)
- -------------------------------------------------------------------------------
$ 2.49 $ 2.86 $ 2.83
===============================================================================
Diluted earnings per share
Continuing operations $ 2.43 $ 2.74 $ 2.84
Discontinued operations -- -- (0.13)
- -------------------------------------------------------------------------------
$ 2.43 $ 2.74 $ 2.71
===============================================================================
During 1998, 1997 and 1996, weighted average options of 19.1 million
shares, 8.5 million shares and 4.1 million shares with weighted average exercise
prices of $62.57 per share, $45.79 per share and $25.83 per share, respectively,
were excluded from the computation of diluted EPS because the options' exercise
price was greater than the average market price of the Company's common stock.
65
<PAGE>
21. INCENTIVE PLANS
The Company has adopted a number of compensation plans to attract, retain and
motivate officers and employees, to compensate them for their contributions to
the growth and profits of the Company and to encourage employee stock ownership.
At December 31, 1998, 166,005,302 shares were available for grant under
Citigroup's stock option and restricted stock plans.
Stock Option Plans
The Company has a number of stock option plans that provide for the granting of
stock options to officers and employees. Options are granted at the fair market
value of Citigroup common stock at the time of grant for a period of ten years.
Generally, options granted under Travelers predecessor plans and options granted
since the date of the merger vest over a five-year period and are exercisable
only if the optionee is employed by the Company. Generally, 50% of the options
granted under Citicorp predecessor plans prior to 1995 are exercisable beginning
on the first anniversary and 50% beginning on the second anniversary of the date
of grant, and, generally, 50% of the options granted under Citicorp predecessor
plans during the period from 1995 until the date of the merger are exercisable
beginning on the third anniversary and 50% beginning on the fourth anniversary
of the date of grant. Certain of the plans also permit an employee exercising an
option to be granted new options (reload options) in an amount equal to the
number of common shares used to satisfy the exercise price and the withholding
taxes due upon exercise. The reload options are granted for the remaining term
of the related original option and vest after six months.
To further encourage employee stock ownership, during 1997 the
WealthBuilder stock option program was introduced. Under this program, eligible
Travelers employees meeting certain requirements were granted stock options.
These options vest over a five-year period and do not carry a reload feature.
Options granted in 1995 and 1996 included five-year performance-based
stock options granted to key Citicorp employees. Performance-based options
granted in 1995 and 1996 were at prices ranging from equivalent Citigroup stock
prices of $25.95 to $28.05, equal to Citicorp market prices on the respective
dates of grant, and expire in 2000 and 2001. One-half vested in 1996 when
Citicorp's stock price reached an equivalent Citigroup stock price of $40 per
share, and the balance vested in 1997 when such price reached $46 per share.
During 1998, a group of key Citicorp employees was granted 6,340,000
performance-based stock options at an equivalent Citigroup strike price of
$48.25. The performance-based options will vest when Citigroup's common stock
price reaches $80 per share, provided that the price remains at or above $80 for
ten of thirty consecutive trading days. The performance-based options expire in
January 2003.
Vesting and expense related to performance-based options are summarized in
the following table (all options are equivalent Citigroup options).
1998 1997 1996
- -----------------------------------------------------------------------------
Options vested during the year -- 5,984,375(1) 6,068,750(1)
After-tax expense recognized for
all grants (in millions of dollars) $43 $45 $70
Options unvested at year-end 6,050,000(2) -- 6,059,375(1)
=============================================================================
(1) Relates to 1995 and 1996 grants.
(2) Relates to 1998 grants.
The cost of performance-based options is measured as the difference
between the exercise price and market price required for vesting, and this
expense is recognized over the period to the estimated vesting dates and in full
for options that have vested, by a charge to expense with an offsetting increase
in common stockholders' equity. All of the expense related to vested grants has
been recognized.
Information with respect to stock options granted under Citigroup stock option
plans is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 135,209,280 $27.97 144,844,309 $17.38 167,538,127 $13.35
Granted-original 97,520,913 48.90 34,986,547 43.92 25,612,348 25.74
Granted-reload 20,048,464 62.04 33,958,262 41.11 30,770,388 24.17
Forfeited (8,655,070) 35.75 (3,312,603) 27.48 (6,290,001) 14.98
Exercised (39,427,536) 30.30 (75,267,235) 20.97 (72,786,553) 14.12
- -----------------------------------------------------------------------------------------------------------------
Outstanding, end of year 204,696,051 40.46 135,209,280 27.97 144,844,309 17.38
- -----------------------------------------------------------------------------------------------------------------
Exercisable at year end 48,557,341 44,631,411 66,594,479
=================================================================================================================
</TABLE>
66
<PAGE>
The following table summarizes information about stock options outstanding under
Citigroup stock option plans at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------- ---------------------------------
Weighted
Average Weighted Weighted
Contractual Average Average
Number Life Exercise Number Exercise
Range of Exercise Prices Outstanding Remaining Price Exercisable Price
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.48--$ 9.99 8,692,019 3.0 years $ 7.92 8,484,432 $ 7.94
$10.00--$19.99 26,869,225 5.2 years 14.26 16,902,712 14.13
$20.00--$29.99 21,121,814 5.4 years 25.14 6,496,106 25.50
$30.00--$39.99 5,727,682 7.5 years 32.74 392,639 33.82
$40.00--$49.99 110,229,906 9.0 years 46.62 2,249,406 44.70
$50.00--$59.99 7,661,969 7.6 years 53.69 2,886,842 54.62
$60.00--$69.99 21,965,268 6.4 years 63.04 9,363,704 62.37
$70.00--$73.00 2,428,168 4.5 years 72.49 1,781,500 73.00
- ----------------------------------------------------------------------------------------------------
$ 3.48--$73.00 204,696,051 7.5 years 40.46 48,557,341 30.02
====================================================================================================
</TABLE>
The Restricted Stock Plans
The Company through its Capital Accumulation Plan and other restricted stock
programs, issues shares of Citigroup common stock in the form of restricted
stock to participating officers and employees. The restricted stock generally
vests after a two or three-year period. Except under limited circumstances,
during this period the stock cannot be sold or transferred by the participant,
who is required to render service during the restricted period. Participants may
elect to receive part of their awards in restricted stock and part in stock
options. Unearned compensation expense associated with the restricted stock
grants represents the market value of Citigroup common stock at the date of
grant and is recognized as a charge to income ratably over the vesting period.
Information with respect to restricted stock awards is as follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Shares awarded 10,444,673 14,342,269 17,483,573
Weighted average fair market value
per share $50.12 $34.79 $20.31
After-tax compensation cost charged to
earnings (in millions of dollars) $243 $186 $129
================================================================================
Certain employees of Salomon Smith Barney will receive Deferred Stock
Awards (DSA's). A DSA award is an unfunded promise to deliver shares at the end
of a three-year deferral period. It is comprised of a basic award representing a
portion of the participant's prior year incentive award which vests immediately
upon grant, and an additional premium award amounting to 33% of the basic award
which vests one-third per year over a three-year period. The entire award is
forfeited if the participant leaves Salomon Smith Barney to join a competitor
within three years after award date. Participants may elect to receive a portion
of their award in the form of stock options. The basic portion of the award is
expensed in the bonus year that it was earned. The expense associated with the
additional 33% premium award is amortized over the appropriate vesting period.
After-tax expense of approximately $150 million was recognized during 1998 for
1998 awards that were granted in January of 1999.
The Equity Partnership Plan (EPP)
Prior to 1998, qualifying Salomon Smith Barney employees received a portion of
their compensation in the form of common stock under EPP. Under the terms of EPP
payment of the stock is deferred for three years and the Company contributes an
additional 25% of the deferred compensation to the participant's account. The
award is forfeited if the participant leaves Salomon Smith Barney to join a
competitor within three years after the award date. If a participant leaves
other than by virtue of death, disability, retirement or as a result of
downsizing during the three years following the award, the entire additional
contribution of 25% is forfeited.
Information with respect to EPP awards is as follows:
1997 1996
- --------------------------------------------------------------------------------
Shares awarded 5,416,476 6,097,798
Fair market value per share $35.26 $26.55
After-tax compensation cost charged to
earnings (in millions of dollars) $120 $90
================================================================================
Savings Incentive Plan
Under the Savings Incentive Plan, eligible employees receive awards equal to 3%
of their covered salary. Employees of Citicorp have the option of receiving
their award in cash or deferring some or all of it in various investment funds.
The Company grants an additional award equal to the amount elected to be
deferred by the employee. Several investment options are available, including
common stock. Shares of Citigroup common stock delivered under the Savings
Incentive Plan may be sourced from authorized but unissued shares, treasury
shares, or purchased in the open market. The after-tax expense associated with
the plan amounted to $68 million in 1998, $63 million in 1997, and $59 million
in 1996.
Stock Purchase Plan
The 1997 offering under the Stock Purchase Plan allows eligible employees of
Citicorp to enter into fixed subscription agreements to purchase shares at the
market value on the date of the agreements. Such shares can be purchased from
time to time through the expiration date. Shares of Citigroup's common stock
delivered under the Stock Purchase Plan may be sourced from authorized but
unissued shares, treasury shares or purchased in the open market.
67
<PAGE>
Following is the share activity under the 1997 fixed-price offering for
the purchase of shares at the equivalent Citigroup price of $45.30 per share.
The 1997 offering will expire on June 30, 1999.
1998 1997
- --------------------------------------------------------------------------------
Outstanding agreements at beginning of year 10,189,380 --
Agreements entered into -- 11,172,458
Shares purchased 1,723,972 635,040
Canceled or terminated 920,302 348,038
- --------------------------------------------------------------------------------
Outstanding agreements at year-end 7,545,106 10,189,380
================================================================================
Deferred Compensation Plan
Under the Deferred Compensation Plan, adopted in 1995 by Citicorp, participants
must defer 25% of their variable compensation awards into mandatory deferral
accounts whose return equals the return on Citigroup common stock. Beginning
with the 1996 awards, select participants are allowed to defer from 10% to 85%
of the remainder of their variable compensation awards into voluntary deferral
accounts, which may be allocated among a variety of investments, including an
account whose return equals the return on Citigroup common stock. The amounts
credited to the mandatory deferral accounts generally are payable to the
participant in cash five years after they are credited. However, participants
may elect to postpone cash distribution of the amounts in the mandatory deferral
account by having such amounts credited to a voluntary deferral account.
Pro Forma Impact of SFAS No. 123
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock-based
compensation plans under which there is generally no charge to earnings for
employee stock option awards (other than performance-based options) and the
dilutive effect of outstanding options is reflected as additional share dilution
in the computation of earnings per share.
Alternatively, Financial Accounting Standards Board (FASB) rules would
permit a method under which a compensation cost for all stock awards would be
calculated and recognized over the service period (generally equal to the
vesting period). This compensation cost would be determined in a manner
prescribed by the FASB using option pricing models, intended to estimate the
fair value of the awards at the grant date. Earnings per share dilution would be
recognized as well.
Under both methods, an offsetting increase to stockholders' equity is
recorded equal to the amount of compensation expense charged.
Had the Company applied SFAS No. 123 in accounting for the Company's stock
option plans, net income and net income per share would have been the pro forma
amounts indicated below:
In Millions of Dollars, Except Per Share Amounts 1998 1997 1996
- --------------------------------------------------------------------------------
Compensation expense
related to stock
option plans As reported $ 70 $ 72 $ 113
Pro forma 416 329 144
- --------------------------------------------------------------------------------
Net income As reported $5,807 $6,705 $6,739
Pro forma 5,522 6,516 6,713
- --------------------------------------------------------------------------------
Basic earnings per share As reported $ 2.49 $ 2.86 $ 2.83
Pro forma 2.36 2.78 2.82
- --------------------------------------------------------------------------------
Diluted earnings per share As reported $ 2.43 $ 2.74 $ 2.71
Pro forma 2.31 2.66 2.70
================================================================================
The pro forma adjustments relate to stock options granted from 1995
through 1998 for which a fair value on the date of grant was determined using a
Black-Scholes option pricing model. No effect has been given to options granted
prior to 1995. The pro forma information above reflects the compensation expense
that would have been recognized under SFAS No. 123 for both Travelers and
Citicorp. The fair values of stock-based awards are based on assumptions that
were appropriate at the grant date and have not been restated to reflect the
Merger.
SFAS No. 123 requires that reload options be treated as separate grants
from the related original option grants. Under the Company's reload program,
upon exercise of an option, employees generally tender previously owned shares
to pay the exercise price and related tax withholding, and receive a reload
option covering the same number of shares tendered for such purposes. New reload
options are only granted if the Company's stock price has increased at least
twenty percent over the exercise price of the option being reloaded, and vest at
the end of a six-month period. Reload options are intended to encourage
employees to exercise options at an earlier date and to retain the shares so
acquired, in furtherance of the Company's long-standing policy of encouraging
increased employee stock ownership. The result of this program is that employees
generally will exercise options as soon as they are able and, therefore, these
options have shorter expected lives. Shorter option lives result in lower
valuations using a Black-Scholes option model. However, such values are expensed
more quickly due to the shorter vesting period of reload options. In addition,
since reload options are treated as separate grants, the existence of the reload
feature results in a greater number of options being valued.
Shares received through option exercises under the reload program are
subject to restrictions on sale. Discounts (as measured by the estimated cost of
protection) have been applied to the fair value of options granted to reflect
these sale restrictions.
68
<PAGE>
The weighted average fair value of options granted under Travelers' option
plans and under all plans after the Citicorp merger date during 1998, 1997, and
1996 was $10.82, $6.44, and $3.00 per share, respectively. The weighted average
expected life of reload options was approximately one year and the weighted
average expected life of original grants was approximately three years for 1998,
1997 and 1996. Additional valuation and related assumption information for
Travelers' option plans and options granted after the Citicorp merger date are
presented in the following table:
Weighted averages for
options granted during
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Valuation assumptions
Expected volatility 37.0% 32.2% 28.5%
Risk-free interest rate 4.72% 5.75% 5.58%
Expected annual dividends per share $0.65 $0.47 $0.37
Expected annual forfeitures 5% 5% 5%
===============================================================================
The weighted average fair value of regular options granted under
Citicorp's option plans prior to the merger date (equivalent Citigroup options)
during 1998, 1997, and 1996 was $12.88, $12.60, and $6.59 per share,
respectively. The weighted average fair value of the 1998 performance options
was $9.62 per share and the weighted average fair value of the 1997 stock
purchase offering was $6.71 per share. The weighted average expected life of
options was six years for regular options and two years for the 1997 stock
purchase offering. Additional valuation and related assumption information for
Citicorp's stock-based plans are presented below:
Weighted averages for
options granted during
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
Valuation assumptions
Expected volatility 25% 25% 25%
Risk-free interest rate 5.51% 6.30% 5.58%
Expected dividend yield 2.44% 2.39% 3.27%
Expected annual forfeitures 5% 5% 5%
===============================================================================
22. RETIREMENT BENEFITS
The Company has several non-contributory defined benefit pension plans covering
substantially all U.S. employees and has various defined benefit pension
termination indemnity plans covering employees outside the United States. 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. The following tables summarize the
components of net benefit expense recognized in the Consolidated Statement of
Income and the funded status and amounts recognized in the Consolidated
Statement of Financial Position for the Company's U.S. plans and significant
plans outside the U.S.
Net Benefit Expense
<TABLE>
<CAPTION>
Pension Plans Postretirement Benefit Plans(1)
---------------------------------------------------- ----------------------------
U.S. Plans Plans Outside U.S. U.S. Plans
- ----------------------------------------------------------------------------------------- ----------------------------
In Millions of Dollars 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Benefits earned during the year $ 232 $ 197 $ 198 $ 60 $ 59 $ 64 $ 13 $ 12 $ 13
Interest cost on benefit obligation 443 412 390 80 76 77 62 63 62
Expected return on plan assets (557) (496) (458) (73) (65) (60) (14) (11) (8)
Amortization of unrecognized:
Net transition (asset) obligation (18) (21) (20) 3 6 7 -- -- --
Prior service cost 18 14 10 -- -- 1 -- (2) 1
Net actuarial loss 5 4 21 3 2 3 (6) (5) (9)
Curtailment (gain) loss (15) -- -- 2 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net benefit expense $ 108 $ 110 $ 141 $ 75 $ 78 $ 92 $ 55 $ 57 $ 59
========================================================================================================================
</TABLE>
(1) For plans outside the U.S., net postretirement benefit expense totaled $10
million in 1998, $8 million in 1997, and $6 million in 1996.
69
<PAGE>
Prepaid Benefit Cost (Benefit Liability)
<TABLE>
<CAPTION>
Postretirement
Pension Plans Benefit Plans(3)
---------------------------------------- ---------------
U.S. Plans(1) Plans Outside U.S.(2) U.S. Plans
- ------------------------------------------------------------------------------------------------------------------------------
In Millions of Dollars at Year-End 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $6,248 $5,633 $1,162 $1,149 $ 915 $ 878
Benefits earned during the year 232 197 60 59 13 12
Interest cost on benefit obligation 443 412 80 76 62 63
Plan amendments 31 3 3 (10) 3 (6)
Actuarial loss 385 280 130 53 22 26
Benefits paid (287) (270) (66) (59) (63) (58)
Acquisitions -- -- 27 -- -- --
Expenses (10) (7) -- -- -- --
Curtailment (15) -- (7) -- -- --
Foreign exchange impact -- -- 50 (106) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $7,027 $6,248 $1,439 $1,162 $ 952 $ 915
==============================================================================================================================
Change in plan assets
Plan assets at fair value at beginning of year $6,675 $5,836 $ 814 $ 780 $ 163 $ 123
Actual return on plan assets 1,004 1,007 98 76 28 26
Company contributions 22 109 141 49 63 72
Employee contributions -- -- 5 5 -- --
Acquisitions -- -- 24 -- -- --
Benefits paid (287) (270) (53) (52) (63) (58)
Expenses (10) (7) -- -- -- --
Foreign exchange impact -- -- 27 (44) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value at end of year $7,404 $6,675 $1,056 $ 814 $ 191 $ 163
==============================================================================================================================
Reconciliation of prepaid (accrued) benefit cost and total
amount recognized
Funded status of the plan $ 377 $ 427 $ (383) $ (348) $(761) $(752)
Unrecognized:
Net transition (asset) obligation (16) (33) 20 58 -- --
Prior service cost 105 89 2 (1) (11) (16)
Net actuarial (gain) loss (153) (84) 119 75 (59) (72)
- ------------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 313 $ 399 $ (242) $ (216) $(831) $(840)
==============================================================================================================================
Amounts recognized in the statement of financial position
consist of
Prepaid benefit cost $ 646 $ 690 $ 69 $ 56 $ -- $ --
Accrued benefit liability (406) (334) (338) (287) (831) (840)
Intangible asset 73 43 27 15 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 313 $ 399 $ (242) $ (216) $(831) $(840)
==============================================================================================================================
</TABLE>
(1) For unfunded U.S. plans, the aggregate benefit obligation was $512 million
and $403 million, and the aggregate accumulated benefit obligation was
$393 million and $314 million at December 31, 1998 and 1997, respectively.
(2) For plans outside the U.S., the aggregate benefit obligation was $1,176
million and $992 million, and the fair value of plan assets was $732
million and $617 million at December 31, 1998 and 1997, respectively, for
plans whose benefit obligation exceeds plan assets. The aggregate
accumulated benefit obligation was $308 million and $332 million, and the
fair value of plan assets was $3 million and $87 million at December 31,
1998 and 1997, respectively, for plans whose accumulated benefit
obligation exceeds plan assets.
(3) For plans outside the U.S., the accumulated postretirement benefit
obligation was $96 million and $62 million and the postretirement benefit
liability was $33 million and $31 million at December 31, 1998 and 1997,
respectively.
70
<PAGE>
The expected long-term rates of return on assets used in determining the
Company's pension and postretirement expense are shown below.
1998 1997 1996
- -------------------------------------------------------------------------------
Rate of return on assets
U.S. plans 9.0% to 9.5% 9.0% 9.0%
Plans outside the U.S.(1) 4.0% to 12.0% 4.5% to 13.0% 6.0% to 13.0%
===============================================================================
(1) Excluding highly inflationary countries.
The principal assumptions used in determining pension and post retirement
benefit obligations for the Company's plans are shown below.
At Year-End 1998 1997
- -------------------------------------------------------------------------------
Discount rate
U.S. plans 6.75% 7.0% to 7.2%
Plans outside the U.S.(1) 3.0% to 12.0% 3.5% to 12.0%
Future compensation increase rate
U.S. plans 4.5% 4.5% to 5.0%
Plans outside the U.S.(1) 1.5% to 10.0% 1.0% to 10.0%
Health care cost increase rate -- U.S. plans
Following year 7.0% to 11% 8.0% to 12.0%
Decreasing to 5.0% to 5.5% 5.0% to 5.5%
===============================================================================
(1) Excluding highly inflationary countries.
As an indicator of sensitivity, increasing the assumed health care cost
trend rate by 1% in each year would have increased the accumulated
postretirement benefit obligation as of December 31, 1998 by $37 million and the
aggregate of the benefits earned and interest components of 1998 net
postretirement benefit expense by $3 million. Decreasing the assumed health care
cost trend rate by 1% in each year would have decreased the accumulated
postretirement benefit obligation as of December 31, 1998 by $37 million and the
aggregate of the benefits earned and interest components of 1998 net
postretirement benefit expense by $4 million.
23. TRADING SECURITIES, COMMODITIES, DERIVATIVES AND RELATED RISKS
Derivative and Foreign Exchange Contracts
Notional Balance Sheet
Principal Amounts Credit Exposure(1)
- ---------------------------------------------------------- ---------------
In Billions of Dollars at Year-End 1998 1997 1998 1997
- -----------------------------------------------------------------------------
Interest rate products
Futures contracts $ 998.1 $1,080.2 $ -- $ --
Forward contracts 698.8 626.1 0.9 0.4
Swap agreements 3,181.4 1,972.1 22.9 15.3
Options 674.2 636.4 2.0 1.2
Foreign exchange products
Futures contracts 5.1 0.9 -- --
Forward contracts 1,644.0 1,432.5 26.0 29.8
Cross-currency swaps 132.4 60.3 3.8 3.3
Options 440.6 426.5 5.2 4.3
Equity products 163.5 127.0 7.2 4.0
Commodity products 20.0 32.5 1.0 1.2
Credit derivative products 28.7 6.9 0.2 --
- -----------------------------------------------------------------------------
69.2 59.5
Effects of master netting
agreements at Citicorp(2) (29.1) (24.1)
Effects of securitization(3) (2.7) (0.8)
- -----------------------------------------------------------------------------
$37.4 $ 34.6
=============================================================================
(1) There is no balance sheet credit exposure for futures contracts because
they settle daily in cash, and none for written options because they
represent obligations (rather than assets) of Citigroup.
(2) Master netting agreements mitigate credit risk by permitting the offset of
amounts due from and to individual counterparties in the event of
counterparty default. The effect of master netting agreements at Salomon
Smith Barney is reflected in the individual line items for each of the
products in the table above.
(3) Citibank has securitized and sold net receivables, and the associated
credit risk related to certain derivative and foreign exchange contracts
via Markets Assets Trust.
Citigroup enters into derivative and foreign exchange futures, forwards,
options, and swaps, which enable customers to transfer, modify, or reduce their
interest rate, foreign exchange, and other market risks, and also trades these
products for its own account. In addition, Citigroup uses derivatives and other
instruments, primarily interest rate products, as an end-user in connection with
its risk management activities. Derivatives are used to manage interest rate
risk relating to specific groups of on-balance sheet assets and liabilities,
including investments, commercial and consumer loans, deposit liabilities,
long-term debt, and other interest-sensitive assets and liabilities, as well as
credit card securitizations and redemptions and sales. In addition, foreign
exchange contracts are used to hedge non-U.S. dollar denominated debt, net
capital exposures and foreign exchange transactions. Through the effective use
of derivatives, Citigroup has been able to modify the volatility of its revenue
from asset and liability positions. Derivative instruments with leverage
features are not utilized in connection with risk management activities. The
preceding table presents the aggregate notional principal amounts of Citigroup's
outstanding derivative and foreign exchange contracts at December 31, 1998 and
1997, along with the related balance sheet credit exposure. The table includes
all contracts with third parties, including both trading and end-user positions.
71
<PAGE>
Futures and forward contracts 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. Swap contracts are commitments to
settle in cash at a future date or dates which 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. Option contracts give the purchaser, for
a fee, the right, but not the obligation, to buy or sell within a limited time a
financial instrument or currency at a contracted price that may also be settled
in cash, based on differentials between specified indices.
Citigroup also sells various financial instruments that have not been
purchased (short sales). In order to sell securities short, the securities are
borrowed or received as collateral in conjunction with short-term financing
agreements and, at a later date, must be delivered (i.e. replaced) with like or
substantially the same financial instruments or commodities to the parties from
which they were originally borrowed.
Derivatives and short sales may expose Citigroup to market risk or credit
risk in excess of the amounts recorded on the balance sheet. Market risk on a
derivative, short sale or foreign exchange 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 and if the value of collateral held, if any, was 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 times of high
volatility and financial stress at a reasonable cost.
Balance sheet credit exposure represents the current cost of replacing the
contracts and is equal to the amount of Citigroup's unrealized gain. A
substantial majority of the total balance sheet exposure was to counterparties
considered by Citigroup to be investment grade and was under three years tenor.
The balance sheet credit exposure of foreign currency derivative contracts for
which the recognition of revaluation gains had been suspended amounted to $14
million and $59 million at December 31, 1998 and 1997. For the three years ended
December 31, 1998, there were no material credit losses related to derivative
and foreign exchange contracts. During 1998 and 1997, credit losses related to
foreign currency derivative contracts totaled $154 million and $35 million,
respectively. Recoveries in 1998 were $16 million.
End-User Derivative Interest Rate and Foreign Exchange Contracts
<TABLE>
<CAPTION>
Notional Principal Amounts Percentage of 1998 Amount Maturing
- --------------------------------------------------------------- ---------------------------------------------------
Dec. 31, Dec. 31, Within 1 to 2 to 3 to 4 to After
In Billions of Dollars 1998 1997 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years
- --------------------------------------------------------------------------------------------------------------------
Interest rate products
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Futures contracts $ 28.6 $ 29.3 78% 16% 3% 2% 1% --%
Forward contracts 6.5 6.9 100 -- -- -- -- --
Swap agreements 113.7 122.8 35 12 12 9 12 20
Option contracts 9.9 20.1 47 21 9 5 3 15
Foreign exchange products
Futures and forward contracts 68.2 67.2 95 3 1 1 -- --
Cross-currency swaps 4.8 4.8 5 14 9 18 41 13
====================================================================================================================
</TABLE>
End-User Interest Rate Swaps and Net Purchased Options as of December 31, 1998
<TABLE>
<CAPTION>
Remaining Contracts Outstanding--Notional Principal Amounts
- -----------------------------------------------------------------------------------------------------------
In Billions of Dollars at Year-End 1998 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive fixed swaps $78.5 $63.0 $51.2 $39.1 $29.7 $16.8
Weighted-average fixed rate 6.4% 6.4% 6.5% 6.5% 6.4% 6.7%
Pay fixed swaps 20.4 9.8 8.4 7.2 6.6 5.5
Weighted-average fixed rate 6.0% 6.3% 6.3% 6.4% 6.4% 6.4%
Basis swaps 14.8 0.5 0.4 0.3 0.2 0.2
Purchased caps (including collars) 4.0 1.7 -- -- -- --
Weighted-average cap rate purchased 6.8% 7.0% --% --% --% --%
Purchased floors 2.9 0.7 0.7 0.1 0.1 0.1
Weighted-average floor rate purchased 4.9% 5.1% 5.1% 5.8% 5.8% 5.8%
Written floors related to purchased caps (collars) 0.5 0.5 0.1 -- -- --
Weighted-average floor rate written 6.5% 6.5% 6.5% --% --% --%
Written caps related to other purchased caps(1) 2.5 2.4 2.4 2.2 1.7 1.4
Weighted-average cap rate written 9.8% 9.8% 9.8% 9.8% 10.6% 10.7%
- -----------------------------------------------------------------------------------------------------------
Three-month forward LIBOR rates(2) 5.1% 5.3% 5.3% 5.4% 5.5% 5.7%
===========================================================================================================
</TABLE>
(1) Includes written options related to purchased options embedded in other
financial instruments.
(2) Represents the implied forward yield curve for three-month LIBOR as of
December 31, 1998, provided for reference.
72
<PAGE>
The tables above provide data on the notional principal amounts and
maturities of end-user (non-trading) derivatives, along with additional data on
end-user interest rate swaps and net purchased option positions at year-end 1998
with three-month LIBOR forward rates included for reference. The tables are
intended to provide an overview of these components of the end-user portfolio,
but should be viewed only in the context of Citigroup's related assets and
liabilities. Contract maturities are related to the underlying risk management
strategy.
The majority of derivative positions used in Citigroup's asset and
liability management activities are established via intercompany transactions
with independently managed Citigroup dealer units, with the dealer acting as a
conduit to the marketplace.
Citigroup's utilization of these instruments is modified from time to time
in response to changing market conditions as well as changes in the
characteristics and mix of the related assets and liabilities. In this
connection, during 1998 interest rate futures, swaps and options with a notional
principal amount of $23.3 billion were closed out which resulted in a net
deferred gain of approximately $302 million. Total unamortized net deferred
gains, including those from prior year close-outs, were approximately $245
million at December 31, 1998, which will be amortized into earnings over the
remaining life of the original contracts (approximately 46% in 1999, 36% in
2000, and 18% in subsequent years), consistent with the risk management
strategy.
24. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk exist when changes in economic, industry or
geographic factors similarly affect groups of counterparties whose aggregate
credit exposure is material in relation to Citigroup's total credit exposure.
Although Citigroup's portfolio of financial instruments is broadly diversified
along industry, product, and geographic lines, material transactions are
completed with other financial institutions, particularly in the securities
trading, derivative, and foreign exchange businesses.
25. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated Fair Value of Financial Instruments
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------- ------------
Estimated Estimated
Fair Value Fair Value
In Excess of In Excess of
(Less Than) (Less Than)
Carrying Estimated Carrying Carrying
In Billions of Dollars at Year-End Value Fair Value Value Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets $630.1 $637.7 $ 7.6 $ 6.8
Liabilities 559.4 560.8 (1.4) (0.3)
End-user derivative and foreign
exchange contracts 0.6 2.7 2.1 1.1
Credit card securitizations -- (0.6) (0.6) (0.3)
- -----------------------------------------------------------------------------------
Subtotal 7.7 7.3
Deposits with no fixed maturity(1) 2.8 3.3
- -----------------------------------------------------------------------------------
Total $10.5 $10.6
===================================================================================
</TABLE>
(1) Represents the estimated excess fair value related to the expected time
period until runoff of existing deposits with no fixed maturity on the
balance sheet at year-end, without assuming any regeneration of balances,
based on the estimated difference between the cost of funds on these
deposits and the cost of funds from alternative sources. The decrease
during 1998 was primarily due to lower spreads between the cost of funds
on the deposits and the cost of funds from alternative sources. Under
applicable requirements, excess fair values of these deposits are excluded
from amounts included under the Liabilities caption above and from the *73
following table, in which the estimated fair value is shown as being equal
to the carrying value.
Citigroup's financial instruments, as defined in accordance with
applicable requirements, include financial assets and liabilities recorded on
the balance sheet as well as off-balance sheet instruments such as derivative
and foreign exchange contracts and credit card securitizations. To better
reflect Citigroup's values subject to market risk and to illustrate the
interrelationships that characterize risk management strategies, the table above
also provides estimated fair value data for the expected time period until
runoff of existing deposits with no fixed maturity.
In the aggregate, estimated fair values exceeded the carrying values by
approximately $10.5 billion at December 31, 1998. Fair values vary from
period to period based on changes in a wide range of factors, including
interest rates, credit quality, and market perceptions of value, and as
existing assets and liabilities run off and new items are entered into. The
changes from the prior year are primarily due to a higher value of derivative
contracts and loans due to a lower interest rate environment in the U.S. and
certain markets outside the U.S., offset by fair value declines related to
deposits, deposits with no fixed maturity, long-term debt, and credit card
securitizations as a result of the same interest rate environment.
Additional detail is provided in the following table. In accordance with
applicable requirements, the disclosures exclude leases, affiliate investments,
and pension and benefit obligations, and contractholder funds amounts exclude
certain insurance contracts. Also, in accordance with the applicable
requirements the disclosures also exclude the effect of taxes, do not reflect
any premium or discount that could result from offering for sale at one time the
entire holdings of a particular instrument, as well as other expenses that would
be incurred in a market transaction. In addition, the table excludes the values
of nonfinancial assets and liabilities, as well as a wide range of franchise,
relationship, and intangible values, which are integral to a full assessment of
Citigroup's financial position and the value of its net assets.
The data represents management's best estimates based on a range of
methodologies and assumptions. The carrying value of short-term financial
instruments as well as receivables and payables arising in the ordinary course
of business, approximates fair value because of the relatively short period of
time between their origination and expected realization. Quoted market prices
are used for most investments, for loans where available, and for both trading
and end-user derivative and foreign exchange contracts, as well as for
liabilities, such as long-term debt, with quoted prices. For performing loans
where no quoted market prices are available, contractual cash flows are
discounted at quoted secondary market rates or estimated market rates if
available. Otherwise, sales of comparable loan portfolios or current market
origination rates for loans with similar terms and risk characteristics are
used. For loans with doubt as to collectibility, expected cash flows are
discounted using an appropriate rate considering the time of collection and a
premium for the uncertainty of the flows. The value of collateral is also
considered. For liabilities such as long-term debt without quoted market prices,
market borrowing rates of interest are used to discount contractual cash flows.
73
<PAGE>
Fair values of credit card securitizations reflect the various components
of these transactions but principally arise from fixed rates payable to
certificate holders. Under the applicable requirements, the estimated fair value
of deposits with no fixed maturity in the following table excludes the premium
values available in the market for such deposits, and the estimated value is
shown in the table as being equal to the carrying value.
1998 1997
- -------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
In Billions of Dollars at Year-End Value Fair Value Value Fair Value
- -------------------------------------------------------------------------------
Assets and related
instruments
Investments $103.7 $103.7 $ 91.6 $ 91.6
Federal funds sold and securities
borrowed or purchased under
agreements to resell 94.8 94.8 120.0 120.0
Trading account assets 119.8 119.8 180.1 180.1
Loans(1) 210.5 218.2 187.9 194.6
Related derivatives 0.2 0.6 0.3 0.5
Other financial assets(2) 101.3 101.2 84.3 84.4
Credit card securitizations -- (0.6) -- (0.3)
Related derivatives 0.1 0.5 0.5 0.5
- -------------------------------------------------------------------------------
Liabilities and related
instruments
Deposits 228.6 229.0 199.1 198.9
Related derivatives (0.3) (0.6) (0.4) (0.7)
Federal funds purchased and
securities loaned or sold under
agreements to repurchase 81.0 81.0 132.1 132.1
Trading account liabilities 94.6 94.6 127.2 127.2
Contractholder funds
With defined maturities 3.3 3.3 2.3 2.3
Without defined maturities 10.4 10.2 9.7 9.5
Long-term debt 48.7 50.1 47.4 48.3
Related derivatives (0.1) (1.1) (0.2) (0.9)
Other financial liabilities(3) 92.8 92.6 73.9 73.7
Related derivatives 0.1 0.1 -- 0.1
===============================================================================
(1) The carrying value of loans is net of the allowance for credit losses and
also excludes $4.8 billion and $4.7 billion of lease finance receivables
in 1998 and 1997, respectively.
(2) Includes cash and cash equivalents, deposits at interest with banks,
brokerage receivables, reinsurance recoverables and separate and variable
accounts for which the carrying value is a reasonable estimate of fair
value, and the carrying value and estimated fair value of financial
instruments included in other assets on the balance sheet.
(3) Includes brokerage payables, separate and variable accounts, investment
banking and brokerage borrowings, and short-term borrowings for which the
carrying value is a reasonable estimate of fair value, and the carrying
value and estimated fair value of financial instruments included in other
liabilities on the balance sheet.
The estimated fair values of loans reflect changes in credit status since
the loans were made, changes in interest rates in the case of fixed-rate loans,
and premium values at origination of certain loans. The estimated fair values of
Citigroup's loans, in the aggregate, exceeded carrying values (reduced by the
allowance for credit losses) by $7.7 billion at year-end 1998 compared with $6.7
billion at year-end 1997, an improvement of $1.0 billion. Within these totals,
estimated fair values exceeded carrying values for consumer loans net of the
allowance by $4.9 billion, an improvement of $1.2 billion from year-end 1997,
and for commercial loans net of the allowance by $2.8 billion, which was a
decline of $0.2 billion from year-end 1997.
The improvement in estimated fair values in excess of carrying values of
consumer loans primarily reflects the acquisition of the UCS portfolio and lower
interest rates in the U.S. and certain countries in the Asia Pacific region,
slightly offset by a decline in the credit quality of loans in Latin America.
The estimated fair values in excess of carrying values of commercial loans
declined slightly from year-end 1997 due to a decline in the credit quality of
loans in Latin America.
The estimated fair value of credit card securitizations was $0.6 billion
less than their carrying value at December 31, 1998, which is $0.3 billion lower
than December 31, 1997, when the carrying value also exceeded the estimated fair
value by $0.3 billion. This decrease is due to the effects of a lower interest
rate environment on the fixed-rate investor certificates.
The decline in the estimated fair value of interest-bearing deposits and
long-term debt reflects lower market interest rates since the deposits were
taken or the debt was issued.
For all derivative and foreign exchange contracts in the previous tables,
the gross difference between the fair value and carrying amount as of December
31, 1998 and 1997 was $2.5 billion and $1.9 billion, respectively, for contracts
whose fair value exceeds carrying value, and $0.4 billion and $0.8 billion at
December 31, 1998 and 1997, respectively, for contracts whose carrying value
exceeds fair value.
26. PLEDGED ASSETS AND COMMITMENTS
Pledged Assets
At December 31,1998, the approximate market values of securities sold under
agreements to repurchase and other assets pledged, excluding the impact of FIN
41, or pledged by the Company was as follows:
In Millions of Dollars 1998 1997
- --------------------------------------------------------------------------------
For securities sold under agreements to repurchase $119,206 $160,853
As collateral for securities borrowed of approximately
equivalent value 82,796 59,216
As collateral on bank loans 3,584 7,293
To clearing organizations or segregated under
securities laws and regulations 10,793 2,165
For securities loaned 7,752 7,879
As collateral for letters of credit 23 44
Other 9,370 3,321
- --------------------------------------------------------------------------------
$233,524 $240,771
================================================================================
In addition, included in cash and cash equivalents at December 31, 1998
and 1997 is $2,358 million and $2,034 million, respectively, of cash segregated
under federal and other brokerage regulations or deposited with clearing
organizations.
At December 31, 1998 the Company had $2.2 billion of outstanding letters
of credit from banks to satisfy various collateral and margin requirements.
74
<PAGE>
Lease Commitments
Rental expense (principally for offices and computer equipment) was $1,058
million, $1,030 million and $982 million for the years ended December 31, 1998,
1997 and 1996, respectively.
Future minimum annual rentals under noncancellable leases, net of sublease
income, are as follows:
In Millions of Dollars
- --------------------------------------------------------------------------------
1999 $ 739
2000 645
2001 568
2002 466
2003 371
Thereafter 1,497
- --------------------------------------------------------------------------------
$4,286
================================================================================
The Company and certain of Salomon Smith Barney's subsidiaries together
have an option to purchase the buildings presently leased for Salomon Smith
Barney's executive offices and New York City operations at the expiration of the
lease term.
Loan Commitments
In Billions of Dollars at Year-End 1998 1997
- --------------------------------------------------------------------------------
Unused commercial commitments to make or purchase loans,
to purchase third-party receivables, and to provide
note issuance or revolving underwriting facilities $132.6 $107.0
Unused credit card and other consumer
revolving commitments $227.8 $135.6
================================================================================
The increase during 1998 in unused credit card and other consumer
revolving commitments resulted primarily from the acquisition of UCS.
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. The table does not include
commercial letters of credit issued on behalf of customers and collateralized by
the underlying shipment of goods which totaled $5.3 billion at December 31, 1998
and $5.8 billion at December 31, 1997.
Loans Sold with Credit Enhancements
Amounts
- ---------------------------------------------------
In Billions of Dollars at Year-End 1998 1997 Form of Credit Enhancement
- --------------------------------------------------------------------------------
Residential mortgages and other
loans sold with recourse(1) $ 6.1 $ 8.1 Recourse obligation $2.4
in 1998 and $4.7 in 1997
GNMA sales/servicing agreements(2) 1.0 1.0 Secondary recourse
obligation
Securitized credit card receivables 44.3 26.8 Primarily net revenue over
the life of the transaction
================================================================================
(1) Residential mortgages represent 57% of amounts in 1998 and 92% in 1997.
(2) Government National Mortgage Association sales/servicing agreements
covering securitized residential mortgages.
Citigroup and its subsidiaries are obligated under various credit
enhancements related to certain sales of loans or sales of participations in
pools of loans, summarized above.
Net revenue on securitized credit card receivables is realized over the
life of each sale transaction. The net revenue is based upon the sum of finance
charges and fees received from cardholders and interchange revenue earned on
cardholder transactions, less the sum of the yield paid to investors, credit
losses, transaction costs, and a contractual servicing fee, which is also
retained by certain Citigroup subsidiaries as servicers. As specified in certain
of the sale agreements, the net revenue collected each month is deposited in an
account, up to a predetermined maximum amount, and is available over the
remaining term of that transaction to make payments of yield, fees, and
transaction costs in the event that net cash flows from the receivables are not
sufficient. When the account reaches the predetermined amount, net revenue is
passed directly to the Citigroup subsidiary that sold the receivables. The
amount contained in these accounts is included in other assets and was $30
million at December 31, 1998 and $20 million at December 31, 1997. Net revenue
from securitized credit card receivables included in other income was $1.3
billion, $559 million, and $907 million for the years ended December 31, 1998,
1997, and 1996, respectively.
75
<PAGE>
Financial Guarantees
Financial guarantees are used in various transactions to enhance the credit
standing of Citigroup customers. They represent irrevocable assurances that
Citigroup will make payment in the event that the customer fails to fulfill its
obligations to third parties.
Citicorp issues financial standby letters of credit which are obligations
to pay a third-party beneficiary when a customer fails to repay an outstanding
loan or debt instrument, such as assuring payments by a foreign reinsurer to a
U.S. insurer, to act as a substitute for an escrow account, to provide a payment
mechanism for a customer's third-party obligations, and to assure payment of
specified financial obligations of a customer. Fees are recognized ratably over
the term of the standby letter of credit. The following table summarizes
financial standby letters of credit issued by Citicorp. The table does not
include securities lending indemnifications issued to customers, which are fully
collateralized and totaled $11.1 billion at December 31, 1998 and $9.8 billion
at December 31, 1997, and performance standby letters of credit.
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------
Expire Within Expire After Total Amount Total Amount
In Billions of Dollars at Year-End 1 Year 1 Year Outstanding Outstanding
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance, surety $2.0 $4.7 $ 6.7 $ 7.4
Options, purchased securities,
and escrow 0.7 0.1 0.8 1.0
Clean payment 1.9 0.4 2.3 1.5
Backstop state, county, and
municipal securities 0.3 0.2 0.5 0.7
Other debt related 4.6 1.9 6.5 6.2
- --------------------------------------------------------------------------------------------------
Total(1) $9.5 $7.3 $16.8 $16.8
==================================================================================================
</TABLE>
(1) Total is net of cash collateral of $2.0 billion in 1998 and $1.5 billion
in 1997. Collateral other than cash covered 27% of the total in 1998 and
26% in 1997.
In addition, TAP underwrote insurance guaranteeing the securities of other
issuers, primarily corporate and industrial revenue bond issuers. The aggregate
gross amount of guarantees of principal and interest for such securities was
$5.1 billion and $5.6 billion at December 31, 1998 and 1997, respectively.
Included in these amounts are financial guarantees representing TAP's
participation in the Municipal Bond Insurance Association's guarantee of
municipal bond obligations of $4.8 billion and $5.3 billion at December 31, 1998
and 1997, respectively. The bonds are generally rated A or above, and TAP's
participation has been reinsured. At December 31, 1998, the scheduled maturities
for these guarantees, net of TAP's participation in the municipal bond guarantee
pools, was $8 million, $9 million, $6 million, $6 million and $188 million for
1999, 2000, 2001, 2002 and 2003 and thereafter, respectively.
Other Commitments
Salomon Smith Barney and a principal broker-dealer subsidiary have each provided
a portion of a residual value guarantee in the amount of $586 million in
connection with the lease of the buildings occupied by Salomon Smith Barney's
executive offices and New York operations.
The Company makes commitments to fund partnership investments and
transfers receivables to third parties with recourse from time to time. The
off-balance sheet risks of these financial instruments were not significant at
December 31, 1998 or 1997.
27. CONTINGENCIES
In the ordinary course of business, the Company and/or its subsidiaries are
defendants or co-defendants in various litigation matters, other than
environmental and asbestos property and casualty insurance claims. Although
there can be no assurances, the Company believes, based on information currently
available, that the ultimate resolution of these legal proceedings would not be
likely to have a material adverse effect on its results of operations, financial
condition or liquidity.
28. CITIGROUP (PARENT COMPANY ONLY)
Condensed Statement of Income
Year Ended December 31,
- -------------------------------------------------------------------------------
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Revenues $ 29 $ 1 $ 1
- -------------------------------------------------------------------------------
Expenses:
Interest 218 171 162
Other 158 143 126
- -------------------------------------------------------------------------------
Total 376 314 288
- -------------------------------------------------------------------------------
Pre-tax loss (347) (313) (287)
Income tax benefit 130 112 103
- -------------------------------------------------------------------------------
Loss before equity in net
income of subsidiaries (217) (201) (184)
Equity in net income of subsidiaries from
continuing operations 6,024 6,906 7,257
Equity in net income of subsidiaries from
discontinued operations -- -- (334)
- -------------------------------------------------------------------------------
Net income $5,807 $6,705 $6,739
===============================================================================
76
<PAGE>
Condensed Statement of Financial Position
December 31,
- -------------------------------------------------------------------------------
In Millions of Dollars 1998 1997
- -------------------------------------------------------------------------------
Assets
Investment in and advances to:
Bank and bank holding company subsidiaries $22,712 $21,134
Other subsidiaries 25,804 23,977
Cost of acquired businesses in excess of net assets 409 422
Other--principally investments 1,697 430
- -------------------------------------------------------------------------------
Total $50,622 $45,963
===============================================================================
Liabilities
Advances from and payables to subsidiaries $ 2,078 $ 29
Short-term borrowings 991 --
Junior subordinated debentures, held by subsidiary trusts 1,748 1,026
Long-term debt 2,422 1,695
Other 309 721
Redeemable preferred stock, held by subsidiary 226 226
Redeemable preferred stock--Series I 140 280
ESOP preferred stock--Series C -- 153
Guaranteed ESOP obligation -- (18)
Stockholders' equity
Preferred stock ($1.00 par value; authorized shares:
30 million), at aggregate liquidation value 2,313 3,353
Common stock ($.01 par value; authorized shares:
6.0 billion; issued shares: 1998--2,402,070,912 shares
and 1997--2,512,680,182 shares 24 25
Additional paid-in capital 8,905 12,471
Retained earnings 35,971 32,002
Treasury stock, at cost (1998--144,095,466 shares;
1997--232,757,097 shares) (4,789) (6,595)
Accumulated other changes in equity from
nonowner sources 781 1,057
Unearned compensation (497) (462)
- -------------------------------------------------------------------------------
Stockholders' equity 42,708 41,851
- -------------------------------------------------------------------------------
Total $50,622 $45,963
===============================================================================
Condensed Statement of Cash Flows
Year Ended December 31,
- -------------------------------------------------------------------------------
In Millions of Dollars 1998 1997 1996
- -------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 5,807 $ 6,705 $ 6,739
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in net income of subsidiaries (6,024) (6,906) (6,923)
Dividends received from subsidiaries, net 2,996 1,324 1,808
Receivables from and payables
to subsidiaries, net (1,921) 37 (130)
Other, net 2,955 4,183 3,907
- -------------------------------------------------------------------------------
Net cash provided by operating activities 3,813 5,343 5,401
- -------------------------------------------------------------------------------
Cash flows from investing activities
Capital contributions to subsidiary (1,276) (521) (1,140)
Other, principally investments (1,130) 240 (408)
- -------------------------------------------------------------------------------
Net cash used in investing activities (2,406) (281) (1,548)
- -------------------------------------------------------------------------------
Cash flows from financing activities
Dividends paid (1,846) (1,692) (1,530)
Issuance of common stock 418 434 537
Issuance of preferred stock -- 1,000 250
Redemption of preferred stock (1,040) (850) (112)
Stock tendered for payment of withholding taxes (520) (384) (201)
Treasury stock acquired (3,085) (3,447) (3,711)
Issuance of long-term debt 1,000 -- --
Issuance of junior subordinated debentures 722 -- 1,026
Payments and redemptions of long-term debt (250) (185) (100)
Change in short-term borrowings 991 -- --
Proceeds from advances from subsidiaries 2,049 -- --
Other, net 154 62 (12)
- -------------------------------------------------------------------------------
Net cash used in financing activities (1,407) (5,062) (3,853)
- -------------------------------------------------------------------------------
Change in cash and cash equivalents $ -- $ -- $ --
===============================================================================
Supplemental disclosure of cash
flow information
Cash paid during the period for interest $ 202 $ 180 $ 157
Cash received during the period for taxes 712 569 263
===============================================================================
77
<PAGE>
29. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
In Millions of Dollars, Except Per Share Amounts Fourth Third Second First Fourth Third Second First
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $19,439 $17,594 $19,961 $19,437 $18,763 $18,821 $17,773 $16,949
Total revenues, net of interest expense 12,754 10,421 12,965 12,796 12,139 12,422 11,703 11,518
Total provisions for benefits, claims, and credit losses 2,899 2,925 2,703 2,589 2,562 2,457 2,494 2,398
Total operating expenses 8,793 6,339 6,680 6,739 7,367 7,460 6,132 6,162
Income before income taxes and minority interest 1,062 1,157 3,582 3,468 2,210 2,505 3,077 2,958
Provision for income taxes 320 375 1,290 1,249 713 906 1,120 1,094
Minority interest, net of income taxes 65 53 52 58 59 55 49 49
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 677 $ 729 $ 2,240 $ 2,161 $ 1,438 $ 1,544 $ 1,908 $ 1,815
- --------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.28 $ 0.30 $ 0.97 $ 0.94 $ 0.61 $ 0.66 $ 0.82 $ 0.77
- --------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.28 $ 0.30 $ 0.94 $ 0.90 $ 0.59 $ 0.63 $ 0.78 $ 0.74
- --------------------------------------------------------------------------------------------------------------------------------
Common stock price per share
High $53.250 $72.938 $73.500 $63.375 $57.375 $49.078 $44.078 $38.922
Low 28.500 37.125 59.125 45.125 43.125 42.000 30.828 29.172
Close 49.688 37.500 60.625 60.000 53.875 45.547 42.047 32.000
Dividends per share of common stock(1) 0.180 0.125 0.125 0.125 0.100 0.100 0.100 0.100
================================================================================================================================
</TABLE>
(1) Amounts represent Travelers' historical dividends per common share.
Due to changes in the number of average shares outstanding, quarterly
earnings per share of common stock do not add to the totals for the years.
The selected quarterly financial data gives retroactive effect to the
mergers with Citicorp and Salomon (Note 2) in transactions accounted for as
pooling of interests. The pooling of interests method of accounting requires the
restatement of all periods presented as if the companies had always been
combined. The fourth quarter of 1998 includes a $703 million after-tax ($1,122
million pre-tax) restructuring charge associated with business improvement and
integration initiatives, and $65 million of merger-related costs. As a result of
the Salomon Merger, in the fourth quarter of 1997, Salomon Smith Barney recorded
an after-tax restructuring charge of $496 million ($838 million pre-tax)
primarily for severance and costs related to excess or unused office space,
facilities and other assets. In the second and fourth quarters of 1998, $191
million after-tax ($324 million pre-tax) and $18 million after-tax ($30 million
pre-tax) of this reserve was released as a result of negotiations on a sub-lease
which indicated that excess space would be disposed of on terms more favorable
than had been originally estimated. The third quarter of 1997 includes a $550
million after-tax ($880 million pre-tax) restructuring charge related to
Citicorp. In the fourth quarter of 1998, $24 million after-tax ($38 million
pre-tax) of this reserve was released.
78
<PAGE>
"THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK"
79
<PAGE>
FINANCIAL DATA SUPPLEMENT
Average Balances and Interest Rates, Taxable Equivalent Basis(1)(2)(3)
<TABLE>
<CAPTION>
Average Volume Interest Revenue % Average Rate
- ------------------------------------------------------------------------- ---------------------------- ---------------------
In Millions of Dollars 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents
In U.S. offices $ 3,199 $ 2,416 $ 1,847 $ 1 $ -- $ 1 0.03 -- 0.05
In offices outside the U.S.(4) 1,087 1,114 1,568 21 16 19 1.93 1.44 1.21
- --------------------------------------------------------------------------------------------------------
Total 4,286 3,530 3,415 22 16 20 0.51 0.45 0.59
- --------------------------------------------------------------------------------------------------------
Deposits at interest with banks(4) 14,313 14,003 12,559 1,070 995 858 7.48 7.11 6.83
- --------------------------------------------------------------------------------------------------------
Investments
In U.S. offices
Taxable 59,254 57,661 48,415 3,731 3,828 3,265 6.30 6.64 6.74
Exempt from U.S. income tax 13,059 8,613 6,383 946 724 556 7.24 8.41 8.71
In offices outside the U.S.(4) 24,628 20,729 15,189 2,441 1,661 1,342 9.91 8.01 8.84
- --------------------------------------------------------------------------------------------------------
Total 96,941 87,003 69,987 7,118 6,213 5,163 7.34 7.14 7.38
- --------------------------------------------------------------------------------------------------------
Federal funds sold and securities borrowed
or purchased under agreements to resell
In U.S. offices 78,096 76,034 68,171 6,087 5,326 4,257 7.79 7.00 6.24
In offices outside the U.S.(4) 57,122 51,074 37,825 2,511 2,527 2,094 4.40 4.95 5.54
- --------------------------------------------------------------------------------------------------------
Total 135,218 127,108 105,996 8,598 7,853 6,351 6.36 6.18 5.99
- --------------------------------------------------------------------------------------------------------
Brokerage receivables
In U.S. offices 14,307 7,643 7,341 1,087 857 645 7.60 11.21 8.79
In offices outside the U.S.(4) 8,742 5,934 4,668 200 73 37 2.29 1.23 0.79
- --------------------------------------------------------------------------------------------------------
Total 23,049 13,577 12,009 1,287 930 682 5.58 6.85 5.68
- --------------------------------------------------------------------------------------------------------
Trading account assets(5)(6)
In U.S. offices 71,307 75,916 69,500 3,171 2,899 2,620 4.45 3.82 3.77
In offices outside the U.S.(4) 59,211 71,539 57,316 1,624 2,160 2,087 2.74 3.02 3.64
- --------------------------------------------------------------------------------------------------------
Total 130,518 147,455 126,816 4,795 5,059 4,707 3.67 3.43 3.71
- --------------------------------------------------------------------------------------------------------
Loans (net of unearned income)(7)
Consumer loans
In U.S. offices 71,068 65,652 61,913 7,820 7,250 6,937 11.00 11.04 11.20
In offices outside the U.S.(4) 51,664 51,274 51,282 6,384 6,308 6,489 12.36 12.30 12.65
- --------------------------------------------------------------------------------------------------------
Total consumer loans 122,732 116,926 113,195 14,204 13,558 13,426 11.57 11.60 11.86
- --------------------------------------------------------------------------------------------------------
Commercial loans
In U.S. offices
Commercial and industrial 11,215 10,171 8,697 915 876 807 8.16 8.61 9.28
Mortgage and real estate 6,017 6,386 8,268 616 678 748 10.24 10.62 9.05
Loans to financial institutions 324 499 481 27 40 36 8.33 8.02 7.48
Lease financing 2,958 3,048 3,219 189 205 211 6.39 6.73 6.55
In offices outside the U.S.(4) 64,639 50,791 43,387 6,981 5,411 4,867 10.80 10.65 11.22
- --------------------------------------------------------------------------------------------------------
Total commercial loans 85,153 70,895 64,052 8,728 7,210 6,669 10.25 10.17 10.41
- --------------------------------------------------------------------------------------------------------
Total loans 207,885 187,821 177,247 22,932 20,768 20,095 11.03 11.06 11.34
- --------------------------------------------------------------------------------------------------------
Other interest-earning assets 6,577 4,338 1,393 747 511 117 11.36 11.78 8.40
- --------------------------------------------------------------------------------------------------------
Total interest-earning assets 618,787 584,835 509,422 $ 46,569 $42,345 $37,993 7.53 7.24 7.46
=====================================================
Non-interest-earning assets(5) 111,755 93,485 82,368
- -------------------------------------------------------------------------
Total assets $730,542 $678,320 $591,790
=================================================================================================================================
</TABLE>
(1) The taxable equivalent adjustment is based on the U.S. federal statutory
tax rate of 35%.
(2) Interest rates and amounts include the effects of risk management
activities associated with the respective asset and liability categories.
See Note 23 of Notes to Consolidated Financial Statements.
(3) For certain amounts associated with Travelers, monthly or quarterly
averages have been used as daily averages are unavailable.
(4) Average rates reflect prevailing local interest rates including
inflationary effects and monetary correction in certain countries.
(5) The fair value carrying amounts of derivative and foreign exchange
contracts are reported in non-interest earning assets and other
non-interest bearing liabilities.
(6) Interest expense on trading account liabilities of Salomon Smith Barney is
reported as a reduction of interest revenue.
(7) Includes cash-basis loans.
80
<PAGE>
Average Balances and Interest Rates, Taxable Equivalent Basis(1)(2)(3)
<TABLE>
<CAPTION>
Average Volume Interest Expense % Average Rate
- ------------------------------------------------------------------------------ --------------------------- --------------------
In Millions of Dollars 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Deposits
In U.S. offices
Savings deposits(7) $ 31,179 $ 27,149 $ 25,927 $ 919 $ 811 $ 756 2.95 2.99 2.92
Other time deposits 10,997 12,302 12,556 498 610 782 4.53 4.96 6.23
In offices outside the U.S.(4) 149,982 128,546 116,565 10,229 8,192 7,436 6.82 6.37 6.38
- ------------------------------------------------------------------------------------------------------------
Total 192,158 167,997 155,048 11,646 9,613 8,974 6.06 5.72 5.79
- ------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities loaned
or sold under agreements to repurchase
In U.S. offices 83,094 85,817 77,026 6,612 6,251 4,897 7.96 7.28 6.36
In offices outside the U.S.(4) 51,649 55,321 38,524 2,860 2,969 2,420 5.54 5.37 6.28
- ------------------------------------------------------------------------------------------------------------
Total 134,743 141,138 115,550 9,472 9,220 7,317 7.03 6.53 6.33
- ------------------------------------------------------------------------------------------------------------
Brokerage payables
In U.S. offices 11,555 6,103 5,962 264 155 69 2.28 2.54 1.16
In offices outside the U.S.(4) 13,454 5,394 4,847 24 57 55 0.18 1.06 1.13
- ------------------------------------------------------------------------------------------------------------
Total 25,009 11,497 10,809 288 212 124 1.15 1.84 1.15
- ------------------------------------------------------------------------------------------------------------
Trading account liabilities(5)(6)
In U.S. offices 34,037 44,881 42,107 165 147 157 0.48 0.33 0.37
In offices outside the U.S.(4) 40,178 42,882 33,584 112 178 175 0.28 0.42 0.52
- ------------------------------------------------------------------------------------------------------------
Total 74,215 87,763 75,691 277 325 332 0.37 0.37 0.44
- ------------------------------------------------------------------------------------------------------------
Investment banking and brokerage borrowings
In U.S. offices 13,554 8,259 5,869 587 543 382 4.33 6.57 6.51
In offices outside the U.S.(4) 1,773 3,369 3,482 151 104 56 8.52 3.09 1.61
- ------------------------------------------------------------------------------------------------------------
Total 15,327 11,628 9,351 738 647 438 4.82 5.56 4.68
- ------------------------------------------------------------------------------------------------------------
Short-term borrowings
In U.S. offices 9,641 7,663 6,267 669 578 525 6.94 7.54 8.38
In offices outside the U.S.(4) 5,948 5,101 3,672 951 713 628 15.99 13.98 17.10
- ------------------------------------------------------------------------------------------------------------
Total 15,589 12,764 9,939 1,620 1,291 1,153 10.39 10.11 11.60
- ------------------------------------------------------------------------------------------------------------
Long-term debt
In U.S. offices 44,440 41,394 38,154 2,812 2,568 2,447 6.33 6.20 6.41
In offices outside the U.S.(4) 3,528 4,448 4,356 347 412 426 9.84 9.26 9.78
- ------------------------------------------------------------------------------------------------------------
Total 47,968 45,842 42,510 3,159 2,980 2,873 6.59 6.50 6.76
- ------------------------------------------------------------------------------------------------------------
Other interest-bearing liabilities -- -- 1,234 -- -- 54 -- -- 4.38
- ------------------------------------------------------------------------------------------------------------
Mandatorily redeemable securities of
subsidiary trusts 3,687 2,958 937 295 236 71 8.00 7.98 7.58
- ------------------------------------------------------------------------------------------------------------========================
Demand deposits in U.S. offices 10,747 11,166 12,368
Other non-interest-bearing liabilities(5) 168,088 145,185 121,407
Redeemable preferred stock 246 403 543
Total stockholders' equity 42,765 39,979 36,403
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $730,542 $678,320 $591,790 $27,495 $24,524 $21,336
====================================================================================================================================
NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST-EARNING ASSETS
In U.S. offices(8) $337,168 $318,353 $285,690 $11,730 $10,675 $ 9,654 3.48 3.35 3.38
In offices outside the U.S.(8) 281,619 266,482 223,732 7,344 7,146 7,003 2.61 2.68 3.13
- ------------------------------------------------------------------------------------------------------------
Total $618,787 $584,835 $509,422 $19,074 $17,821 $16,657 3.08 3.05 3.27
====================================================================================================================================
</TABLE>
(1) The taxable equivalent adjustment is based on the U.S. federal statutory
tax rate of 35%.
(2) Interest rates and amounts include the effects of risk management
activities associated with the respective asset and liability categories.
See Note 23 of Notes to Consolidated Financial Statements.
(3) For certain amounts associated with Travelers, monthly or quarterly
averages have been used as daily averages are unavailable.
(4) Average rates reflect prevailing local interest rates including
inflationary effects and monetary correction in certain countries.
(5) The fair value carrying amounts of derivative and foreign exchange
contracts are reported in non-interest earning assets and other
non-interest bearing liabilities.
(6) Interest expense on trading account liabilities of Salomon Smith Barney is
reported as a reduction of interest revenue.
(7) Savings deposits consist of Insured Money Market Rate accounts, NOW
accounts, and other savings deposits.
(8) Includes allocations for capital and funding costs based on the location
of the asset.
81
<PAGE>
Analysis of Changes in Net Interest Revenue
<TABLE>
<CAPTION>
1998 vs. 1997 1997 vs. 1996
- ------------------------------------------------------------------------------------ -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Change In: Due to Change In:
------------------- -------------------
Average Average Net Average Average Net
In Millions of Dollars on a Taxable Equivalent Basis (1) Volume Rate Change(2) Volume Rate Change(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ -- $ 6 $ 6 $ (6) $ 2 $ (4)
- --------------------------------------------------------------------------------------------------------------------
Deposits at interest with banks(3) 22 53 75 102 35 137
- --------------------------------------------------------------------------------------------------------------------
Investments
In U.S. offices 400 (275) 125 789 (58) 731
In offices outside the U.S.(3) 345 435 780 453 (134) 319
- --------------------------------------------------------------------------------------------------------------------
Total 745 160 905 1,242 (192) 1,050
- --------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities borrowed or purchased
under agreements to resell
In U.S. offices 148 613 761 520 549 1,069
In offices outside the U.S.(3) 282 (298) (16) 674 (241) 433
- --------------------------------------------------------------------------------------------------------------------
Total 430 315 745 1,194 308 1,502
- --------------------------------------------------------------------------------------------------------------------
Brokerage receivables
In U.S. offices 571 (341) 230 27 185 212
In offices outside the U.S.(3) 45 82 127 12 24 36
- --------------------------------------------------------------------------------------------------------------------
Total 616 (259) 357 39 209 248
- --------------------------------------------------------------------------------------------------------------------
Trading account assets(4)
In U.S. offices (184) 456 272 245 34 279
In offices outside the U.S.(3) (350) (186) (536) 464 (391) 73
- --------------------------------------------------------------------------------------------------------------------
Total (534) 270 (264) 709 (357) 352
- --------------------------------------------------------------------------------------------------------------------
Loans--consumer
In U.S. offices 596 (26) 570 414 (101) 313
In offices outside the U.S.(3) 48 28 76 (1) (180) (181)
- --------------------------------------------------------------------------------------------------------------------
Total 644 2 646 413 (281) 132
- --------------------------------------------------------------------------------------------------------------------
Loans--commercial
In U.S. offices 36 (88) (52) (50) 47 (3)
In offices outside the U.S.(3) 1,495 75 1,570 799 (255) 544
- --------------------------------------------------------------------------------------------------------------------
Total 1,531 (13) 1,518 749 (208) 541
- --------------------------------------------------------------------------------------------------------------------
Total loans 2,175 (11) 2,164 1,162 (489) 673
- --------------------------------------------------------------------------------------------------------------------
Other interest-earning assets 255 (19) 236 332 62 394
- --------------------------------------------------------------------------------------------------------------------
Total interest revenue 3,709 515 4,224 4,774 (422) 4,352
====================================================================================================================
Deposits
In U.S. offices 95 (99) (4) 38 (155) (117)
In offices outside the U.S.(3) 1,433 604 2,037 763 (7) 756
- --------------------------------------------------------------------------------------------------------------------
Total 1,528 505 2,033 801 (162) 639
- --------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities loaned or sold
under agreements to repurchase
In U.S. offices (203) 564 361 595 759 1,354
In offices outside the U.S.(3) (201) 92 (109) 940 (391) 549
- --------------------------------------------------------------------------------------------------------------------
Total (404) 656 252 1,535 368 1,903
- --------------------------------------------------------------------------------------------------------------------
Brokerage payables
In U.S. offices 126 (17) 109 2 84 86
In offices outside the U.S.(3) 40 (73) (33) 6 (4) 2
- --------------------------------------------------------------------------------------------------------------------
Total 166 (90) 76 8 80 88
- --------------------------------------------------------------------------------------------------------------------
Trading account liabilities(4)
In U.S. offices (41) 59 18 10 (20) (10)
In offices outside the U.S.(3) (11) (55) (66) 42 (39) 3
- --------------------------------------------------------------------------------------------------------------------
Total (52) 4 (48) 52 (59) (7)
- --------------------------------------------------------------------------------------------------------------------
Investment banking and brokerage borrowings
In U.S. offices 271 (227) 44 157 4 161
In offices outside the U.S.(3) (68) 115 47 (2) 50 48
- --------------------------------------------------------------------------------------------------------------------
Total 203 (112) 91 155 54 209
- --------------------------------------------------------------------------------------------------------------------
Short-term borrowings
In U.S. offices 140 (49) 91 109 (56) 53
In offices outside the U.S.(3) 127 111 238 214 (129) 85
- --------------------------------------------------------------------------------------------------------------------
Total 267 62 329 323 (185) 138
- --------------------------------------------------------------------------------------------------------------------
Long-term debt
In U.S. offices 192 52 244 203 (82) 121
In offices outside the U.S.(3) (89) 24 (65) 9 (23) (14)
- --------------------------------------------------------------------------------------------------------------------
Total 103 76 179 212 (105) 107
- --------------------------------------------------------------------------------------------------------------------
Other interest-bearing liabilities -- -- -- (27) (27) (54)
- --------------------------------------------------------------------------------------------------------------------
Mandatorily redeemable securities of subsidiary trusts 58 1 59 161 4 165
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 1,869 1,102 2,971 3,220 (32) 3,188
- --------------------------------------------------------------------------------------------------------------------
Net interest revenue $ 1,840 $ (587) $ 1,253 $ 1,554 $(390) $ 1,164
====================================================================================================================
</TABLE>
(1) The taxable equivalent adjustment is based on the U.S. federal statutory
tax rate of 35%.
(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 correction in certain
countries.
(4) Interest expense on trading account liabilities of Salomon Smith Barney is
reported as a reduction of interest revenue.
82
<PAGE>
Ratios
1998 1997 1996
- -------------------------------------------------------------------------------
Net income to average assets 0.79% 0.99% 1.14%
Return on common stockholders' equity(1) 13.95% 17.49% 19.42%
Return on total stockholders' equity(2) 13.52% 16.70% 18.41%
Total average equity to average assets 5.85% 5.89% 6.15%
Dividends declared per common
share as a percentage of income per
common share, assuming dilution(3) 22.8% 14.6% 11.1%
===============================================================================
(1) Based on income less total preferred stock dividends as a percentage of
average common stockholders' equity.
(2) Based on net income less redeemable preferred stock dividends as a
percentage of average total stockholders' equity.
(3) Dividend amounts represent Travelers' historical dividends per common
share.
Loans Outstanding
<TABLE>
<CAPTION>
In Millions of Dollars at Year-End 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer loans
In U.S. offices
Mortgage and real estate $ 29,962 $ 28,084 $ 27,173 $ 25,862 $ 24,231
Installment, revolving
credit, and other 47,869 42,415 41,489 37,321 34,002
Lease financing -- -- -- -- 32
- ---------------------------------------------------------------------------------------------
77,831 70,499 68,662 63,183 58,265
- ---------------------------------------------------------------------------------------------
In offices outside the U.S.
Mortgage and real estate 19,456 17,685 18,379 18,240 16,830
Installment, revolving
credit, and other 36,048 32,179 33,905 32,521 29,303
Lease financing 484 544 754 765 732
- ---------------------------------------------------------------------------------------------
55,988 50,408 53,038 51,526 46,865
- ---------------------------------------------------------------------------------------------
133,819 120,907 121,700 114,709 105,130
Unearned income (1,564) (1,417) (1,532) (1,606) (1,583)
- ---------------------------------------------------------------------------------------------
Consumer loans--net 132,255 119,490 120,168 113,103 103,547
- ---------------------------------------------------------------------------------------------
Commercial loans
In U.S. offices
Commercial and industrial 12,279 10,841 8,458 9,255 10,152
Mortgage and real estate 5,344 5,960 6,789 8,729 11,032
Loans to financial
institutions 173 371 1,035 365 297
Lease financing 2,951 3,087 3,017 3,239 3,271
- ---------------------------------------------------------------------------------------------
20,747 20,259 19,299 21,588 24,752
- ---------------------------------------------------------------------------------------------
In offices outside the U.S.
Commercial and industrial 55,828 47,417 36,901 32,966 27,120
Mortgage and real estate 1,792 1,651 1,815 1,901 1,995
Loans to financial
institutions 8,008 6,480 4,837 4,229 3,263
Governments and official
institutions 2,132 2,376 2,252 2,180 3,265
Lease financing 1,386 1,092 1,294 1,098 934
- ---------------------------------------------------------------------------------------------
69,146 59,016 47,099 42,374 36,577
- ---------------------------------------------------------------------------------------------
89,893 79,275 66,398 63,962 61,329
Unearned income (190) (159) (110) (169) (177)
- ---------------------------------------------------------------------------------------------
Commercial loans--net 89,703 79,116 66,288 63,793 61,152
- ---------------------------------------------------------------------------------------------
Total loans--net of
unearned income 221,958 198,606 186,456 176,896 164,699
Allowance for credit
losses (6,617) (6,137) (5,743) (5,561) (5,337)
- ---------------------------------------------------------------------------------------------
Total loans--net of
unearned income
and allowance for
credit losses $ 215,341 $ 192,469 $ 180,713 $ 171,335 $ 159,362
=============================================================================================
</TABLE>
83
<PAGE>
Loan Maturities and Sensitivity to Changes
in Interest Rates
Over 1
Due Within but Within Over
In Millions of Dollars at Year-End 1 Year 5 Years 5 Years Total
- --------------------------------------------------------------------------------
Maturities of the gross
commercial loan portfolio
In U.S. offices
Commercial and industrial loans $ 4,258 $ 5,754 $ 2,267 $12,279
Mortgage and real estate 972 1,741 2,631 5,344
Loans to financial institutions 67 87 19 173
Lease financing 880 1,129 942 2,951
In offices outside the U.S. 51,701 13,486 3,959 69,146
- --------------------------------------------------------------------------------
Total commercial loan portfolio $57,878 $22,197 $ 9,818 $89,893
================================================================================
Sensitivity of loans due after one
year to changes in interest rates(1)
Loans at predetermined interest rates $ 5,703 $ 4,423
Loans at floating or adjustable
interest rates 16,494 5,395
- --------------------------------------------------------------------------------
Total $22,197 $ 9,818
================================================================================
(1) Based on contractual terms. Repricing characteristics may effectively be
modified from time to time using derivative contracts. See Note 23 of
Notes to Consolidated Financial Statements.
Cash-Basis, Renegotiated, and Past Due Loans(1)
In Millions of Dollars at Year-End 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
Commercial
cash-basis loans
Collateral dependent
(at lower of cost or
collateral value)(2) $ 394 $ 258 $ 263 $ 779 $1,347
Other(3) 1,201 806 642 755 770
- -------------------------------------------------------------------------------
Total $1,595 $1,064 $ 905 $1,534 $2,117
===============================================================================
Commercial
cash-basis loans
In U.S. offices $ 463 $ 296 $ 292 $ 925 $1,547
In offices outside the U.S.(3) 1,132 768 613 609 570
- -------------------------------------------------------------------------------
Total $1,595 $1,064 $ 905 $1,534 $2,117
===============================================================================
Commercial
renegotiated loans
In U.S. offices $ -- $ 20 $ 264 $ 309 $ 563
In offices outside the U.S. 45 39 57 112 155
- -------------------------------------------------------------------------------
Total $ 45 $ 59 $ 321 $ 421 $ 718
===============================================================================
Consumer loans on which
accrual of interest had
been suspended
In U.S. offices(4) $ 815 $ 998 $1,184 $1,466 $1,586
In offices outside the U.S. 1,458 993 1,071 1,247 1,066
- -------------------------------------------------------------------------------
Total $2,273 $1,991 $2,255 $2,713 $2,652
===============================================================================
Accruing loans 90 or more
days delinquent(5)
In U.S. offices(4) $ 562 $ 606 $ 696 $ 499 $ 415
In offices outside the U.S. 532 467 422 498 460
- -------------------------------------------------------------------------------
Total $1,094 $1,073 $1,118 $ 997 $ 875
===============================================================================
(1) For a discussion of risks in the consumer loan portfolio, see page 15, and
of commercial cash-basis loans, see pages 19, 21 and 22.
(2) A cash-basis loan is defined as collateral dependent when repayment is
expected to be provided solely by the underlying collateral and there are
no other available and reliable sources of repayment, in which case the
loans are written down to the lower of cost or collateral value.
(3) Includes foreign currency derivative contracts with a balance sheet credit
exposure of $14 million and $59 million at December 31, 1998 and 1997,
respectively, for which the recognition of revaluation gains has been
suspended.
(4) Excludes $10 million and $11 million of consumer loans on which accrual of
interest had been suspended and $30 million and $27 million of accruing
loans 90 or more days delinquent related to loans held for sale at
December 31, 1998 and 1997, respectively.
(5) Includes consumer loans of $1.1 billion, $1.0 billion, $1.0 billion, $951
million, and $828 million at December 31, 1998, 1997, 1996, 1995, and
1994, respectively, of which $267 million, $240 million, $239 million,
$208 million, and $150 million, respectively, are government-guaranteed
student loans.
84
<PAGE>
Other Real Estate Owned and Assets
Pending Disposition
In Millions of Dollars at Year-End 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
Consumer(1) $ 254 $ 275 $ 459 $ 535 $ 577
Commercial(1) 496 698 1,309 946 1,378
- -------------------------------------------------------------------------------
Total $ 750 $ 973 $1,768 $1,481 $1,955
===============================================================================
Assets pending disposition(2) $ 100 $ 96 $ 160 $ 205 $ 195
===============================================================================
(1) Represents repossessed real estate, carried at lower of cost or collateral
value.
(2) Represents consumer residential mortgage loans that have a high
probability of foreclosure, carried at lower of cost or collateral value.
Foregone Interest Revenue on Loans(1)
In U.S. In Non-U.S. 1998
In Millions of Dollars Offices Offices Total
- -----------------------------------------------------------------------------
Interest revenue that would have been
accrued at original contractual rates(2) $122 $353 $475
Amount recognized as interest revenue(2) 73 78 151
- -----------------------------------------------------------------------------
Foregone interest revenue $ 49 $275 $324
=============================================================================
(1) Relates to commercial cash-basis and renegotiated loans and consumer loans
on which accrual of interest had been suspended.
(2) Interest revenue in offices outside the U.S. may reflect prevailing local
interest rates, including the effects of inflation and monetary correction
in certain countries.
Details of Credit Loss Experience
In Millions of Dollars 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
Allowance for credit losses
at beginning of year $6,137 $5,743 $5,561 $5,337 $4,547
- -------------------------------------------------------------------------------
Provision for credit losses 2,751 2,197 2,200 2,176 2,034
Gross credit losses
Consumer(1)
In U.S. offices 1,726 1,736 1,562 1,347 1,284
In offices outside the U.S. 1,009 868 876 825 594
Commercial
Mortgage and real estate
In U.S. offices 13 21 27 118 200
In offices outside the U.S. 58 47 32 25 48
Governments and official
institutions outside the U S. 3 -- -- 37 --
Loans to financial institutions
in offices outside the U.S. 97 7 12 11 --
Commercial and industrial
In U.S. offices 62 7 29 40 57
In offices outside the U.S. 343 109 159 137 64
- -------------------------------------------------------------------------------
3,311 2,795 2,697 2,540 2,247
- -------------------------------------------------------------------------------
Credit recoveries
Consumer (1)
In U.S. offices 235 273 257 260 239
In offices outside the U.S. 262 234 216 187 147
Commercial
Mortgage and real estate
In U.S. offices 83 47 88 26 15
In offices outside the U.S. 10 7 8 21 8
Governments and official
institutions outside the U S. 10 36 81 52 240
Loans to financial institutions
in offices outside the U.S. 16 17 1 1 3
Commercial and industrial
In U.S. offices 21 58 44 80 64
In offices outside the U.S. 30 54 44 46 248
- -------------------------------------------------------------------------------
667 726 739 673 964
- -------------------------------------------------------------------------------
Net credit losses
In U.S. offices 1,462 1,386 1,229 1,139 1,223
In offices outside the U.S. 1,182 683 729 728 60
- -------------------------------------------------------------------------------
2,644 2,069 1,958 1,867 1,283
- -------------------------------------------------------------------------------
Other--net(2) 373 266 (60) (85) 39
- -------------------------------------------------------------------------------
Allowance for credit losses
at end of year $6,617 $6,137 $5,743 $5,561 $5,337
===============================================================================
Net consumer credit losses $2,238 $2,097 $1,965 $1,725 $1,492
As a percentage of average
consumer loans 1.82 1.79 1.74 1.61 1.60
===============================================================================
Net commercial credit
losses (recoveries) $ 406 $ (28) $ (7) $ 142 $ (209)
As a percentage of average
commercial loans 0.48 NM NM 0.23 NM
===============================================================================
(1) Consumer credit losses and recoveries primarily relate to revolving credit
and installment loans.
(2) Primarily includes net transfers from (to) the reserves for securitization
activities and foreign currency translation effects. In 1998, reflects the
addition of $320 million of credit loss reserves related to the
acquisition of the Universal Card portfolio. In 1997, $373 million was
restored to the allowance for credit losses that had previously been
attributed to credit card securitization transactions where the exposure
to credit losses is contractually limited to the cash flows from the
securitized receivables, $50 million attributable to standby letters of
credit and guarantees was reclassified to other liabilities, and $50
million attributable to derivative and foreign exchange contracts was
reclassified as a deduction from trading account assets.
NM Not Meaningful.
85
<PAGE>
Average Deposit Liabilities in Offices Outside the U.S.(1)
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------- ------------------------ ------------------------
Average Average Average Average Average Average
In Millions of Dollars at Year-End Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Banks(2) $ 18,559 8.46% $ 15,326 7.33% $ 10,528 8.44%
Other demand deposits 33,466 3.49 31,833 2.99 28,801 3.27
Other time and savings deposits(2) 107,999 6.94 90,610 6.75 85,176 6.58
- -----------------------------------------------------------------------------------------------------------------------
Total $160,024 6.39 $137,769 5.95 $124,505 5.97
=======================================================================================================================
</TABLE>
(1) Interest rates and amounts include the effects of risk management
activities, and also reflect the impact of the local interest rates
prevailing in certain countries. See Note 23 of Notes to Consolidated
Financial Statements.
(2) Primarily consists of time certificates of deposit and other time deposits
in denominations of $100,000 or more.
Time Deposits in U.S. Offices Maturity Profile
<TABLE>
<CAPTION>
In Millions of Dollars Under 3 Over 3 to 6 Over 6 to 12 Over 12
($100,000 or More) at Year-End 1998 Months Months Months Months
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificates of deposit $2,854 $361 $584 $255
Other time deposits 573 106 92 117
======================================================================================
</TABLE>
Short-Term and Other Borrowings(1)
<TABLE>
<CAPTION>
Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase Commercial Paper Other Funds Borrowed(2)
- ------------------------------------------------------ -------------------------- ---------------------------
In Millions of Dollars 1998 1997 1996 1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts outstanding
at year-end $ 81,025 $132,103 $113,567 $4,031 $5,920 $2,795 $12,081 $8,108 $6,958
Average outstanding
during the year 134,743 141,138 115,550 6,010 4,366 3,898 9,579 8,398 6,041
Maximum month-end
outstanding 163,421 170,110 136,806 9,393 6,090 4,372 12,081 9,949 6,958
- -------------------------------------------------------------------------------------------------------------------
Weighted-average
interest rate
===================================================================================================================
During the year(3) 7.03% 6.53% 6.33% 5.57% 5.57% 5.49% 13.26% 12.47% 15.54%
===================================================================================================================
At year-end(4) 4.94% 5.92% 5.79% 5.36% 5.71% 6.12% 12.14% 9.04% 8.81%
===================================================================================================================
</TABLE>
Investment Banking and
Brokerage Borrowings
- ---------------------------------------------------
In Millions of Dollars 1998 1997 1996
- ---------------------------------------------------
Amounts outstanding
at year-end $14,040 $11,464 $10,020
Average outstanding
during the year 15,327 11,628 9,351
Maximum month-end
outstanding 20,576 13,174 10,020
- ---------------------------------------------------
Weighted-average
interest rate
===================================================
During the year(3) 4.82% 5.56% 4.68%
===================================================
At year-end(4) 4.59% 5.80% 5.69%
===================================================
(1) Original maturities of less than one year.
(2) Rates reflect the impact of local interest rates prevailing in countries
outside the United States.
(3) Interest rates include the effects of risk management activities. See
Notes 12 and 23 of Notes to Consolidated Financial Statements.
(4) Based on contractual rates at year-end.
86
<PAGE>
Cross-Marketing
Among the benefits of the Citicorp/Travelers Group merger is the ability to
offer a broader number of products to customers through Citigroup's various
organizations. The Company's cross-marketing efforts before the merger focused
on the distribution channels of the Primerica sales force and the Financial
Consultants of Salomon Smith Barney. With the merger, the number of distribution
channels has expanded.
In addition to marketing the products provided by their respective member
companies, the employees and agents of Citigroup cross-market other Company
products, as follows:
o The Primerica sales force markets Citibank EZ Checking accounts and small
business checking accounts and lending products to their customers.
Primerica also sells Smith Barney mutual funds, Travelers Property
Casualty auto and homeowners insurance (TRAVELERS SECURE(R)), Commercial
Credit personal loans and Travelers Bank & Trust, fsb real-estate secured
loans ($.A.F.E.(R) loan and $.M.A.R.T. loan(R)), and Travelers Life &
Annuity variable annuities. In addition, Primerica is testing sales of
Citibank credit cards and Travelers Life & Annuity long term care
insurance.
o Investment employees at Citibank branches are marketing Travelers Life &
Annuity variable annuities and SSB Citi Asset Management mutual funds.
o Salomon Smith Barney Financial Consultants are marketing Travelers Life &
Annuity annuities and long term care insurance, Citibank mortgage loans,
and SSB Citi Asset Management mutual funds.
o Commercial Credit branches are testing sales of Citibank EZ Checking
accounts.
o The call centers for Citibank's credit card operation refer cardholders to
Travelers Property Casualty for auto and homeowners insurance. Citibank
Cards also markets Commercial Credit real estate-secured loans.
o Insurance agents representing Travelers Property Casualty market Citibank
EZ Checking accounts, student loans, credit cards, and small business
loans to their customers.
o Travelers Property Casualty claim offices market Travelers Life & Annuity
payout annuities to claimants receiving structured settlements.
o Salomon Smith Barney institutional sales representatives and Citibank
corporate relationship managers jointly market their transaction services,
asset management, lending and liquidity, trading, and underwriting
capabilities.
The Company has established a cross-marketing legal review committee which
reviews proposed cross-marketing programs to ensure compliance with applicable
banking, securities and insurance laws and regulations. In addition, to ensure
that there are proper controls around the use of customer information, the
committee reviews any information sharing under the programs.
Property-Casualty Insurance Services--
Other Information
Selected Product Information
The following table sets forth by product line net written premiums for
Commercial Lines and Personal Lines for the year ended 1998. Many larger
National Accounts customers often demand service-type products, primarily for
workers' compensation coverage and to a lesser extent in general liability and
commercial automobile coverages. These types of products include risk management
services such as claims settlement, loss control and engineering. Many of these
products generate fee income rather than net written premiums, and are not
reflected in the following table.
1998 Net Written Premiums
Amount of Percentage of
Net Written Total Net Written
In Millions of Dollars Premiums Premiums
- --------------------------------------------------------------------------------
Product Line
Commercial Lines
Commercial multi-peril $1,436 31.1%
Workers' compensation 1,179 25.6
Commercial automobile 781 16.9
General liability 539 11.7
Property 281 6.1
Fidelity and surety 209 4.5
Other 189 4.1
- -------------------------------------------------------------------------------
Total Commercial Lines $4,614 100.0%
- -------------------------------------------------------------------------------
Personal Lines
Automobile $2,328 66.7%
Homeowners and other 1,162 33.3
- -------------------------------------------------------------------------------
Total Personal Lines $3,490 100.0%
===============================================================================
87
<PAGE>
Property and Casualty Reserves
Property and casualty claim reserves are established to account for the
estimated ultimate costs of claims and claim adjustment expenses for claims that
have been reported but not yet settled and claims that have been incurred but
not reported. The Company establishes reserves by line of business, coverage and
year.
The following table sets forth the year-end reserves from 1988 through
1998 and the subsequent changes in those reserves, presented on a historical
basis for the Company. The original estimates, cumulative amounts paid and
reestimated reserves in the table for the years 1988-1995 have not been restated
to include the property-casualty insurance businesses acquired by the Company
from Aetna Services, Inc. in 1996 ("Aetna P&C"). Beginning in 1996, the table
includes the reserve activity of Aetna P&C. The data in the table is presented
in accordance with reporting requirements of the Securities and Exchange
Commission. Care must be taken to avoid misinterpretation by those unfamiliar
with such information or familiar with other data commonly reported by the
insurance industry. The following data is not accident year data, but rather a
display of 1988-1998 year-end reserves and the subsequent changes in those
reserves. For instance, the "cumulative deficiency or redundancy" shown in the
following table for each year represents the aggregate amount by which original
estimates of reserves as of that year-end have changed in subsequent years.
Accordingly, the cumulative deficiency for a year relates only to reserves at
that year-end and such amounts are not additive. Expressed another way, if the
original reserves at the end of 1988 included $4 million for a loss that is
finally settled in 1998 for $5 million, the $1 million deficiency (the excess of
the actual settlement of $5 million over the original estimate of $4 million)
would be included in the cumulative deficiencies in each of the years 1988-1997
shown in the following table.
Certain factors may distort the re-estimated reserves and cumulative
deficiency or redundancy shown in the following table. For example, a
substantial portion of the cumulative deficiencies in each of the years
1988-1998 arises from claims on policies written prior to the mid-1970s
involving liability exposures such as environmental, asbestos and other
cumulative injury claims. In the post-1984 period, the Company has developed
more stringent underwriting standards and policy exclusions and has
significantly contracted or terminated the writing of such risks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Environmental Claims, Asbestos Claims and Cumulative Injury Other
Than Asbestos Claims." General conditions and trends that have affected the
development of these liabilities in the past will not necessarily recur in the
future.
Other factors that affect the data in the following table include the
discounting of workers' compensation reserves and the use of retrospectively
rated insurance policies. To the extent permitted under applicable accounting
practices, workers' compensation reserves are discounted to reflect the time
value of money, due to the relatively long time period over which these claims
are to be paid. Apparent deficiencies will continue to occur as the discount on
these workers' compensation reserves is accreted at the appropriate interest
rates. Also, a portion of National Accounts business is underwritten with
retrospectively rated insurance policies in which the ultimate loss experience
is primarily borne by the insured. For this business, increases in loss
experience result in an increase in reserves, and an offsetting increase in
amounts recoverable from insureds. Likewise, decreases in loss experience result
in a decrease in reserves, and an offsetting decrease in amounts recoverable
from these insureds. These amounts recoverable mitigate the impact of the
cumulative deficiencies or redundancies but are not reflected in the following
table. This mechanism affords the Company significant financial protection
against adverse development on this block of net reserves.
Because of these and other factors, it is difficult to develop meaningful
extrapolation of estimated future redundancies or deficiencies in loss reserves
from the data in the following table. The differences between the reserves for
claims and claim adjustment expenses shown in the following table, which is
prepared in accordance with GAAP, and those reported in the annual statements of
the Company's subsidiaries filed with state insurance departments, which are
prepared in accordance with statutory accounting practices, were: $37 million,
$31 million, and $14 million for the years 1998, 1997, and 1996, respectively.
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<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995
In Millions of Dollars (1) (1) (1) (1) (1) (1) (1) (1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves for Loss and Loss Adjustment
Expense Originally Estimated $ 8,116 $ 8,947 $ 9,239 $ 9,406 $ 9,873 $ 10,190 $ 10,251 $ 10,102
Cumulative amounts paid as of
One year later 2,147 2,430 2,419 2,135 2,206 1,900 1,852 1,521
Two years later 3,632 3,992 3,932 3,584 3,554 3,221 2,888 2,809
Three years later 4,706 5,095 4,993 4,594 4,561 3,988 4,055 3,903
Four years later 5,487 5,878 5,755 5,375 5,160 4,941 4,933
Five years later 6,080 6,479 6,351 5,851 5,963 5,652
Six years later 6,555 6,966 6,746 6,547 6,576
Seven years later 6,963 7,304 7,325 7,090
Eight years later 7,262 7,822 7,812
Nine years later 7,736 8,258
Ten years later 8,142
Reserves re-estimated as of
One year later 8,292 9,099 9,358 9,446 10,013 10,151 9,942 9,848
Two years later 8,497 9,220 9,470 9,755 10,112 10,116 9,766 9,785
Three years later 8,698 9,408 9,897 10,038 10,142 9,990 9,851 9,789
Four years later 8,912 9,953 10,325 10,154 10,148 10,153 9,883
Five years later 9,488 10,421 10,478 10,251 10,364 10,180
Six years later 9,970 10,616 10,614 10,495 10,399
Seven years later 10,150 10,755 10,870 10,524
Eight years later 10,306 11,019 10,905
Nine years later 10,598 11,043
Ten years later 10,624
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative deficiency (redundancy) 2,508 2,096 1,666 1,118 526 (10) (368) (313)
=================================================================================================================================
Gross liability--end of year $ 13,805 $ 13,872 $ 14,715
Reinsurance recoverables 3,615 3,621 4,613
- ---------------------------------------------------------------------------------------------------------------------------------
Net liability--end of year $ 10,190 $ 10,251 $ 10,102
=================================================================================================================================
Gross reestimated liability--latest $ 13,959 $ 13,933 $ 14,420
Reestimated reinsurance recoverables--latest 3,779 4,050 4,631
- ---------------------------------------------------------------------------------------------------------------------------------
Net reestimated liability--latest $ 10,180 $ 9,883 $ 9,789
=================================================================================================================================
Gross cumulative deficiency (redundancy) $ 154 $ 61 $ (295)
=================================================================================================================================
</TABLE>
Year Ended December 31,
-------------------------------
1996 1997 1998
In Millions of Dollars (2) (2) (2)
- ------------------------------------------------------------------------------
Reserves for Loss and Loss Adjustment
Expense Originally Estimated $ 21,816 $ 21,406 $20,763
Cumulative amounts paid as of
One year later 3,704 4,025
Two years later 6,600
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Reserves re-estimated as of
One year later 21,345 21,083
Two years later 21,160
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
- ------------------------------------------------------------------------------
Cumulative deficiency (redundancy) (656) (323)
==============================================================================
Gross liability--end of year $ 29,967 $ 29,343 $28,624
Reinsurance recoverables 8,151 7,937 7,861
- ------------------------------------------------------------------------------
Net liability--end of year $ 21,816 $ 21,406 $20,763
==============================================================================
Gross reestimated liability--latest $ 29,428 $ 29,091
Reestimated reinsurance recoverables--latest 8,268 8,008
- ------------------------------------------------------------------------------
Net reestimated liability--latest $ 21,160 $ 21,083
==============================================================================
Gross cumulative deficiency (redundancy) $ (539) $ (252)
==============================================================================
(1) Reflects reserves of Travelers P&C, excluding Aetna P&C reserves which
were acquired on April 2, 1996. Accordingly, the reserve development (net
reserves for loss and loss adjustment expense recorded at the end of the
year, as originally estimated, less net reserves reestimated as of
subsequent years) relates only to losses recorded by Travelers P&C and
does not include reserve development recorded by Aetna P&C.
(2) Includes Aetna P&C gross reserves of $16,775 million and net reserves of
$11,752 million acquired on April 2, 1996 and subsequent development
recorded by Aetna P&C.
Property and Casualty Reinsurance
TAP reinsures a portion of the risks it underwrites in an effort to control its
exposure to losses, stabilize earnings and protect capital resources. TAP cedes
to reinsurers a portion of these risks and pays premiums based upon the risk and
exposure of the policies subject to such reinsurance. Reinsurance involves
credit risk and is subject to aggregate loss limits. Although the reinsurer is
liable to TAP to the extent of the reinsurance ceded, TAP remains primarily
liable as the direct insurer on all risks reinsured. TAP also holds collateral,
including escrow funds and letters of credit, under certain reinsurance
agreements. TAP monitors the financial condition of reinsurers on an ongoing
basis, and reviews its reinsurance arrangements periodically. Reinsurers are
selected based on their financial condition, business practices and the price of
their product offerings. For additional information concerning reinsurance, see
Note 14 of Notes to Consolidated Financial Statements.
TAP utilizes a variety of reinsurance agreements to control its exposure
to large property and casualty losses.
Net Retention Policy. The descriptions below relate to reinsurance arrangements
of TAP in effect at January 1, 1999. For third-party liability, including
automobile no-fault, the reinsurance agreements used by Commercial Accounts,
Construction, and Select Accounts limit the net retention to a maximum of $4
million per insured, per occurrence. Gulf Specialty utilizes various reinsurance
mechanisms and has limited its net retention to a maximum of $3.75 million per
risk for any line of business. For commercial property insurance, there is a $5
million maximum retention per risk with 100% reinsurance coverage for risks with
higher limits. The reinsurance agreement in place for workers' compensation
policies written by Commercial Accounts, Construction, National Accounts, Select
Accounts, and some segments of Alternative Markets and Gulf Specialty covers
100% of each loss between $1 million and $10 million. For National Accounts,
reinsurance arrangements are typically tiered, or layered, such that only levels
of risk acceptable to TAP are retained. The reinsurance agreement in place for
Personal Lines umbrella policies covers 100% of each loss between $1 million and
$5 million. For personal property insurance, there is a $6 million maximum
retention per risk. For directors' and officers' liability, employment practices
liability and blended insurance, Bond Specialty retains up to $5 million per
risk. For surety protection, Bond Specialty has reinsurance
89
<PAGE>
coverage for 95% of up to $50 million of liability in excess of $50 million of
liability. The risk tolerance of Bond Specialty varies by line of business and
by risk. Bond Specialty purchases an accident year aggregate cover attaching at
a 40% loss ratio to lower its exposure to large losses or loss frequency. The
first layer of the aggregate provides 96% of approximately $41.4 million and the
second layer provides 80% of approximately $35.5 million of reinsurance coverage
in excess of a $94.7 million retention.
Catastrophe Reinsurance. TAP utilizes reinsurance agreements with nonaffiliated
reinsurers to control its exposure to losses resulting from one occurrence. For
the accumulation of net property losses arising out of one occurrence,
reinsurance agreements cover 40% of total losses between $250 million and $750
million. For multiple workers' compensation losses arising from a single
occurrence, reinsurance agreements cover 100% of losses between $10 million and
$250 million and, for workers' compensation losses caused by property perils,
reinsurance agreements cover 40% of losses between $250 million and $750
million.
For the accumulation of net casualty losses arising out of one
occurrence, a casualty clash agreement covers 95% of losses between $10 million
and $50 million.
Regulation and Supervision
Bank Holding Company Regulation
The Company is a bank holding company within the meaning of the U.S. Bank
Holding Company Act of 1956 ("BHC Act") registered with, and subject to
examination by, the Federal Reserve Board ("FRB"). The subsidiary depository
institutions of the Company (the "banking subsidiaries"), including its
principal bank subsidiary, Citibank, N.A. ("Citibank"), are subject to
supervision and examination by their respective federal and state banking
authorities. The nationally chartered subsidiary banks, including Citibank, are
supervised and examined by the Office of the Comptroller of the Currency
("OCC"); federal savings association subsidiaries are regulated by the Office of
Thrift Supervision ("OTS"); and state-chartered depository institutions are
supervised by the banking departments within their respective states (New York,
Delaware and Utah), as well as the Federal Deposit Insurance Corporation
("FDIC"). The FDIC also has back-up enforcement authority with respect to each
of the banking subsidiaries, the deposits of which are insured by the FDIC, up
to applicable limits. The Company also controls (either directly or indirectly)
overseas banks, branches, and agencies. In general, the Company's overseas
activities are regulated by the FRB and OCC, and are also regulated by
supervisory authorities of the host countries.
The Company's banking subsidiaries are also subject to requirements and
restrictions under federal, state and foreign law, including requirements to
maintain reserves against deposits, restrictions on the types and amounts of
loans that may be made and the interest that may be charged thereon, and
limitations on the types of investments that may be made and the types of
services that may be offered. Various consumer laws and regulations also affect
the operations of the Company's banking subsidiaries.
The activities of U.S. bank holding companies are generally limited to the
business of banking, managing or controlling banks and other activities that the
FRB determines to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. Section 4 of the BHC Act provides
that, with certain exceptions, it is not closely related to banking or managing
or controlling banks for a bank holding company or any subsidiary (other than a
bank or the subsidiary of a bank) to provide insurance as principal, agent or
broker. Under the BHC Act in its current form, after two years from the date as
of which the Company became a bank holding company, the Company will be required
to conform any activities that are not considered to be closely related to
banking under the BHC Act. This two-year period may be extended by the FRB for
three additional one-year periods, upon application by the Company and finding
by the FRB that such an extension would not be detrimental to the public
interest.
Section 20 of the Glass-Steagall Act prohibits a member bank of the
Federal Reserve System, such as Citibank, from being affiliated with a company
that is principally engaged in underwriting and dealing in securities. The FRB
has determined by regulation that underwriting and dealing in certain "eligible"
securities is an activity closely related to banking and is therefore
permissible for bank holding companies and their subsidiaries. The FRB has also
determined that a securities firm that does not generate more than 25% of its
gross revenue from underwriting and dealing in certain "ineligible" securities
is not deemed for purposes of the Glass-Steagall Act to be "principally engaged"
in securities underwriting and dealing. The Company believes that the ineligible
revenues of its securities businesses are below this threshold.
The activities of U.S. bank holding companies are generally limited to
managing or controlling banks. Nonbank acquisitions in the U.S. are generally
limited to 5% of voting shares unless the FRB determines that the acquisition is
so closely related to banking as to be a proper incident to banking or managing
or controlling banks. Subject to prior specific or general FRB consent, a bank
holding company may generally acquire less than 20 percent of the voting
securities of a company that does not do business in the United States, and 20
percent or more of the voting securities of any such company if the FRB finds by
regulation or order that its activities are usual in connection with banking or
finance outside the United States. In general, bank holding companies may engage
in a broader set of activities outside of the United States. Outside the United
States, for example, bank holding company subsidiaries may sponsor, distribute,
and advise open-end mutual funds without regard to the 20% revenue limit
discussed above. Bank holding companies may also underwrite and deal in debt,
and to a limited extent, equity securities, subject to local country laws. In
addition, a bank holding company and its bank subsidiaries may, subject to
certain requirements for prior FRB consent or notice, acquire banks and
establish branches subject to local country laws and to United States laws
prohibiting companies from doing business in certain countries.
The Company's earnings and activities are affected by legislation, by
actions of its regulators, and by local legislative and administrative bodies
and decisions of courts in the foreign and domestic jurisdictions in which the
Company and its subsidiaries conduct business. For example, these include
limitations on the ability of subsidiaries to pay dividends to their
intermediate holding companies and on the abilities of those holding companies
to pay dividends to the Company (see Note 18 of Notes to Consolidated Financial
Statements). It is the policy of the FRB that bank holding companies should pay
cash dividends on common stock only out of income available over the
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<PAGE>
past year and only if prospective earnings retention is consistent with the
organization's expected future needs and financial condition. The policy
provides that bank holding companies should not maintain a level of cash
dividends that undermines the bank holding company's ability to serve as a
source of strength to its banking subsidiaries.
Various federal and state statutory provisions limit the amount of
dividends that subsidiary banks and savings associations can pay to their
holding companies without regulatory approval. In addition to these explicit
limitations, the federal regulatory agencies are authorized to prohibit a
banking subsidiary or bank holding company from engaging in an unsafe or unsound
banking practice. Depending upon the circumstances, the agencies could take the
position that paying a dividend would constitute an unsafe or unsound banking
practice.
Numerous other federal and state laws also affect the Company's earnings
and activities including federal and state consumer protection laws. Legislation
may be enacted or regulation imposed in the U.S. or its political subdivisions,
or in any other jurisdiction in which the Company does business, to further
regulate banking and financial services or to limit finance charges or other
fees or charges earned in such activities. There can be no assurance whether any
such legislation or regulation will place additional limitations on the
Company's operations or adversely affect its earnings.
There are various legal restrictions on the extent to which a bank holding
company and certain of its nonbank subsidiaries can borrow or otherwise obtain
credit from banking subsidiaries or engage in certain other transactions with or
involving those banking subsidiaries. In general, these restrictions require
that any such transactions must be on terms that would ordinarily be offered to
unaffiliated entities and secured by designated amounts of specified collateral.
Transactions between a banking subsidiary and the holding company or any nonbank
subsidiary are limited to 10 percent of the banking subsidiary's capital stock
and surplus, and as to the holding company and all such nonbank subsidiaries in
the aggregate, to 20 percent of the bank's capital stock and surplus.
Subject to certain limitations and restrictions, a U.S. bank holding
company, with the prior approval of the FRB, may acquire an out-of-state bank.
Banks in states that do not prohibit out-of-state mergers may merge with the
approval of the appropriate federal bank regulatory agency. A national or state
bank may establish a de novo branch out of state if such branching is expressly
permitted by the other state. A federal saving association is generally
permitted to open a de novo branch in any state.
Outside the U.S., subject to certain requirements for prior FRB consent or
notice, the Company may acquire banks and Citibank may establish branches
subject to local laws and to U.S. laws prohibiting companies from doing business
in certain countries.
The Company's right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a liquidation
or other resolution of an insured depository institution, the claims of
depositors and other general or subordinated creditors are entitled to a
priority of payment over the claims of holders of any obligation of the
institution to its shareholders, including any depository institution holding
company (such as the Company) or any shareholder or creditor thereof.
In the liquidation or other resolution of a failed U.S. insured depository
institution, deposits in U.S. offices and certain claims for administrative
expenses and employee compensation are afforded a priority over other general
unsecured claims, including deposits in offices outside the U.S., non-deposit
claims in all offices, and claims of a parent such as the Company. Such priority
creditors would include the FDIC, which succeeds to the position of insured
depositors.
A financial institution insured by the FDIC that is under common control
with a failed or failing FDIC-insured institution can be required to indemnify
the FDIC for losses resulting from the insolvency of the failed institution,
even if this causes the affiliated institution also to become insolvent. Any
obligations or liability owed by a subsidiary depository institution to its
parent company is subordinate to the subsidiary's cross-guarantee liability with
respect to commonly controlled insured depository institutions and to the rights
of depositors.
Under FRB policy, a bank holding company is expected to act as a source of
financial strength to each of its banking subsidiaries and commit resources to
their support. As a result of that policy, the Company may be required to commit
resources to its subsidiary banks in certain circumstances.
The Company and its U.S. insured depository institution subsidiaries are
subject to risk-based capital and leverage guidelines issued by U.S. regulators
for banks, savings associations, and bank holding companies. The regulatory
agencies are required by law to take specific prompt actions with respect to
institutions that do not meet minimum capital standards and have defined five
capital tiers, the highest of which is "well-capitalized." As of December 31,
1998, the Company's bank and thrift subsidiaries, including Citibank, were "well
capitalized." See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for capital analysis.
A bank is not required to repay a deposit at a branch outside the U.S. if
the branch cannot repay the deposit due to an act of war, civil strife, or
action taken by the government in the host country, unless the bank has
expressly agreed in writing to do so.
The earnings of the Company, Citibank, and their subsidiaries and
affiliates are affected by general economic conditions and the conduct of
monetary and fiscal policy by the U.S. government and by governments in other
countries in which they do business.
Various legislation, including proposals to overhaul the bank regulatory
system and expand the powers of bank holding companies, is from time to time
introduced in Congress. Such legislation may change banking statutes and the
operating environment of the Company and its banking subsidiaries in substantial
and unpredictable ways. The Company cannot determine whether such potential
legislation will ultimately be enacted, and if enacted, the ultimate effect that
any such potential legislation or implementing regulations would have upon the
financial condition or results of operations of the Company or its subsidiaries.
Insurance--State Regulation
The Company's insurance subsidiaries are subject to regulation in the various
states and jurisdictions in which they transact business. The regulation,
supervision and administration relate, among other things, to the standards of
solvency that must be met and maintained, the licensing of insurers and their
agents, the lines of insurance in which they may engage, the nature of and
limitations on investments, premium rates, restrictions on the size of risks
that may be insured under a single policy, reserves and provisions for unearned
premiums, losses and other obligations, deposits of securities for the benefit
of policyholders, approval of policy forms and the regulation of
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market conduct including the use of credit information in underwriting as well
as other underwriting and claims practices. In addition, many states have
enacted variations of competitive rate-making laws which allow insurers to set
certain premium rates for certain classes of insurance without having to obtain
the prior approval of the state insurance department. State insurance
departments also conduct periodic examinations of the affairs of insurance
companies and require the filing of annual and other reports relating to the
financial condition of companies and other matters.
Although the Company is not regulated as an insurance company, it is the
owner, through various holding company subsidiaries, of the capital stock of its
insurance subsidiaries and as such is subject to state insurance holding company
statutes, as well as certain other laws, of each of the states of domicile of
its insurance subsidiaries. All holding company statutes, as well as certain
other laws, require disclosure and, in some instances, prior approval of
material transactions between an insurance company and an affiliate.
The Company's insurance subsidiaries are subject to various state
statutory and regulatory restrictions in each company's state of domicile, which
limit the amount of dividends or distributions by an insurance company to its
stockholders. See Note 18 of Notes to Consolidated Financial Statements.
The Company's property and casualty insurance subsidiaries are also
required to participate in various involuntary assigned risk pools, principally
involving workers' compensation and automobile insurance, which provide various
insurance coverages to individuals or other entities that otherwise are unable
to purchase such coverage in the voluntary market. Participation in these pools
in most states is generally in proportion to voluntary writings of related lines
of business in that state.
Many state insurance regulatory laws intended primarily for the protection
of policyholders contain provisions that require advance approval by state
agencies of any change in control of an insurance company that is domiciled (or,
in some cases, having such substantial business that it is deemed to be
commercially domiciled) in that state. "Control" is generally presumed to exist
through the ownership of 10% or more of the voting securities of a domestic
insurance company or of any company that controls a domestic insurance company.
In addition, many state insurance regulatory laws contain provisions that
require prenotification to state agencies of a change in control of a
nondomestic admitted insurance company in that state. Such requirements may
deter, delay or prevent certain transactions affecting the control of or the
ownership of the Company's common stock, including transactions that could be
advantageous to the stockholders of the Company.
Securities Regulation
Certain U.S. and non-U.S. subsidiaries are subject to various securities and
commodities regulations and capital adequacy requirements promulgated by the
regulatory and exchange authorities of the jurisdictions in which they operate.
The Company's registered broker-dealer subsidiaries are subject to the
Securities and Exchange Commission's (the "SEC") net capital rule, Rule 15c3-1
(the "Net Capital Rule"), promulgated under the Exchange Act. These companies
compute net capital under the alternative method of the Net Capital Rule, which
requires the maintenance of minimum net capital, as defined. The Net Capital
Rule also limits the ability of broker-dealers to transfer large amounts of
capital to parent companies and other affiliates. Compliance with the Net
Capital Rule could limit those operations of the Company that require the
intensive use of capital, such as underwriting and trading activities and the
financing of customer account balances, and also could restrict SSBH's ability
to withdraw capital from its broker-dealer subsidiaries, which in turn could
limit SSBH's ability to pay dividends and make payments on its debt. See Note 18
of Notes to Consolidated Financial Statements. Certain of the Company's
broker-dealer subsidiaries are also subject to regulation in the countries
outside of the U.S. in which they do business. Such regulations include
requirements to maintain specified levels of net capital or its equivalent.
The Company is the indirect parent of investment advisers registered and
regulated under the Investment Advisers Act of 1940 who provide investment
advice to investment companies subject to regulation under the Investment
Company Act of 1940. Under these Acts, advisory contracts between the Company's
investment adviser subsidiaries and these investment companies (Affiliated
Funds) would automatically terminate upon an assignment of such contracts by the
investment adviser. Such an assignment would be presumed to have occurred if any
party were to acquire more than 25% of the Company's voting securities. In that
event, consent to the assignment from the shareholders of the Affiliated Funds
involved would be needed for the advisory relationship to continue. In addition,
subsidiaries of the Company and the Affiliated Funds are subject to certain
restrictions in their dealings with each other.
Competition
The Company and its subsidiaries are subject to intense competition in all
aspects of their businesses from both bank and non-bank institutions that
provide financial services and, in some of their activities, from government
agencies.
General Business Factors
In the judgment of the Company, no material part of the business of the Company
and its subsidiaries is dependent upon a single customer or group of customers,
the loss of any one of which would have a materially adverse effect on the
Company, and no one customer or group of affiliated customers accounts for as
much as 10% of the Company's consolidated revenues.
At December 31, 1998, the Company had approximately 107,000 full-time and
7,200 part-time employees in the United States and approximately 59,500
employees outside of the United States.
Properties
The Company's executive offices are located in Citicorp Center, a 59-story
building located at 153 East 53rd Street which is owned one-third by Citibank.
The Company and certain of its subsidiaries occupy all of such owned space.
Offices and other properties used by the Company's subsidiaries are located
throughout the United States and in various cities outside of the United States.
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The principal offices of Citicorp and Citibank are located at 399 Park
Avenue, New York, New York, a 39-story building of which two-thirds is owned by
Citibank. The Company occupies all of the space it owns in such building.
Citibank also owns a building in Long Island City, New York and a building
located at 111 Wall Street in New York City, which are totally occupied by the
Company and certain of its subsidiaries.
The Company's property-casualty insurance subsidiaries lease 199 field
offices throughout the United States. The principal offices of TIC, TLAC, and
TAP are located in Hartford, Connecticut. All of such occupied space is owned by
TIC. TAP also rents from Aetna P&C space at CityPlace, located in Hartford,
Connecticut.
The Company's life insurance subsidiaries lease office space at
approximately 20 locations throughout the United States. TIC and/or The
Travelers Insurance Group Inc. lease two other buildings in Hartford,
Connecticut, most of which is subleased to third parties. TIC also owns a
building in Norcross, Georgia that is occupied by its information systems
department.
Salomon Smith Barney owns two office buildings in New York City, an office
building in Rutherford, New Jersey, an office building in Tampa, Florida, and an
office building in London, England. Most of Salomon Smith Barney's other offices
are located in leased premises, the leases for which expire at various times.
Salomon Smith Barney leases two buildings located at 388 and 390 Greenwich
Street in New York City, through 2003. Salomon Smith Barney has a purchase
option with respect to these properties. Salomon Smith Barney also leases office
space at Seven World Trade Center in New York City.
Other offices and certain warehouse space are owned, none of which is
material to the Company's financial condition or operations.
The Company believes its properties are adequate and suitable for its
business as presently conducted and are adequately maintained. For further
information concerning leases, see Note 26 of Notes to Consolidated Financial
Statements.
Legal Proceedings
From time to time, Citigroup and its subsidiaries have been named as defendants
in various matters incident to and typical of the businesses in which they are
engaged. These include numerous civil actions, arbitration proceedings and other
matters in which the Company's broker-dealer subsidiaries have been named,
arising in the normal course of business out of activities as a broker and
dealer in securities, as an underwriter of securities, as an investment banker
or otherwise. These also include numerous matters in which the Company's
insurance subsidiaries are named, arising in the normal course of their
business. In the opinion of the Company's management, none of these actions is
expected to have a material adverse effect on the consolidated financial
condition of the Company and its subsidiaries.
Executive Officers
The following information with respect to each executive officer of Citigroup is
set forth below as of March 3, 1999: name, age and the position held with
Citigroup.
Name Age Position and Office Held
- --------------------------------------------------------------------------------
William I. Campbell 54 Co-Chief Executive Officer, Global Consumer
Businesses
Michael A. Carpenter 51 Co-Chief Executive Officer, Global Corporate
and Investment Bank
Paul J. Collins 62 Vice Chairman
Edward D. Horowitz* 51 e-Citi
Thomas W. Jones 49 Co-Chairman and Chief Executive Officer,
SSB Citi Asset Management Group
Robert I. Lipp 60 Co-Chief Executive Officer,
Global Consumer Businesses
Deryck C. Maughan 51 Vice Chairman
Victor J. Menezes 49 Co-Chief Executive Officer,
Global Corporate and Investment Bank
Heidi G. Miller 45 Chief Financial Officer
Charles O. Prince III 49 Co-General Counsel and Corporate Secretary
John S. Reed 60 Chairman and Co-Chief Executive Officer
Mary Alice Taylor 49 Global Operations & Technology
Todd S. Thomson* 38 Strategy & Business Development
Marc P. Weill* 42 Citigroup Investments
Sanford I. Weill 65 Chairman and Co-Chief Executive Officer
- --------------------------------------------------------------------------------
* Named as executive officer of Citigroup in 1999. All others were named as
executive officers of Citigroup as of October 8, 1998, the date of the
merger.
Except as described below, each executive officer has been employed in
such position or in other executive or management positions within the Company
for at least five years.
Mr. Campbell served in a number of executive positions with Philip Morris
Companies, Inc., most recently as Chairman of U.S. Operations. Mr. Horowitz
joined Citibank in January 1997 and, prior to that time, from 1989 was Senior
Vice President--Technology at Viacom, Inc. and Chairman and Chief Executive
Officer of Viacom Interactive Media. Mrs. Taylor joined Citibank in January 1997
and, prior to that time, was a Senior Vice President at Federal Express
Corporation. Before that, Mrs. Taylor held management positions with Shell Oil
Corporation, Cook Industries, and Northern Telecom, Inc. Mr. Thomson joined
Citigroup in July of 1998 and, prior to that time, was Senior Vice President,
Strategic Planning and Business Development for GE Capital Services. Previously,
Mr. Thomson held management positions at Barents Group LLC and Bain and Company.
93
<PAGE>
10-K CROSS-REFERENCE INDEX
This Annual Report and Form 10-K incorporate into a single document the
requirements of the accounting profession and the Securities and Exchange
Commission, including a comprehensive explanation of 1998 results.
Form 10-K
- --------------------------------------------------------------------------------
Item Number Page
Part I
1. Business.......................................... 2-3, 5-40,
87-92
2. Properties........................................ 92
3. Legal Proceedings................................. 93
4. Submission of Matters to a Vote of
Security Holders................................... Not Applicable
- --------------------------------------------------------------------------------
Part II
5. Market for Registrant's Common Equity
and Related Stockholder Matters................... 78, 95-96
6. Selected Financial Data........................... 4
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................... 5-40
7A. Quantitative and Qualitative Disclosures
About Market Risk................................. 32-36, 52-59,
71-76
8. Financial Statements and
Supplementary Data................................ 41-78, 80-89*
9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.............................. Not Applicable
- --------------------------------------------------------------------------------
* Also, see Exhibit 99.02 filed with the SEC, incorporated herein by reference.
- --------------------------------------------------------------------------------
Part III
10. Directors and Executive Officers
of the Registrant................................... 93*
11. Executive Compensation.............................. **
12. Security Ownership of Certain Beneficial
Owners and Management.............................. ***
13. Certain Relationships and
Related Transactions................................ ****
- --------------------------------------------------------------------------------
Part IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K............................. 95
- --------------------------------------------------------------------------------
* For information regarding Citigroup Directors, see the material under
"Election of Directors" in the definitive Proxy Statement for Citigroup's
Annual Meeting of Stockholders to be held on April 20, 1999, filed with
the SEC (the "Proxy Statement"), incorporated herein by reference.
** See the material under "Executive Compensation" of the Proxy Statement,
incorporated herein by reference.
*** See the material under the captions "Voting Rights," "Security Ownership
of Certain Beneficial Owners" and "Security Ownership of Management" of
the Proxy Statement, incorporated herein by reference.
**** See the material under the captions "Election of Directors" and "Executive
Compensation" of the Proxy Statement, incorporated herein by reference.
None of the foregoing incorporation by reference shall include the information
referred to in Item 402(a)(8) of Regulation S-K.
94
<PAGE>
EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
The following exhibits are either filed herewith or have been previously filed
with the Securities and Exchange Commission and are filed herewith by
incorporation by reference:
o Citigroup's Restated Certificate of Incorporation, as amended,
o Citigroup's By-Laws,
o Instruments Defining the Rights of Security Holders, Including Indentures,
o Material Contracts, including certain compensatory plans available only to
officers and/or directors,
o Statements re Computation of Ratios,
o Subsidiaries of the Registrant,
o Consents of Experts and Counsel,
o Powers of Attorney of Directors Armstrong, Belda, Bialkin, Derr, Deutch,
Jordan, Mark, Masin, Mecum, Parsons, Pearson, Shapiro, Thomas, Woolard,
and Zankel,
o Financial Data Schedules
A more detailed exhibit index has been filed with the SEC. Stockholders
may obtain copies of that index, or any of the documents on that index by
writing to Citigroup, Corporate Governance, 425 Park Avenue, 2nd Floor, New
York, New York 10043 or on the Internet: http://www.sec.gov.
Financial Statements filed for Citigroup Inc. and Subsidiaries:
Consolidated Statement of Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Stockholders' Equity
Consolidated Statement of Cash Flows
On October 8, 1998, the Company filed a Current Report on Form 8-K, dated
October 8, 1998, reporting under Item 2 thereof the consummation of the
transaction with Citicorp, reporting under Item 5 thereof the issuance of a
press release relating to the impact of economic turbulence on third quarter
earnings and filing under Item 7 thereof such press release.
On October 23, 1998, the Company filed a Current Report on Form 8-K, dated
October 21, 1998, reporting under Item 5 thereof the issuance of a press release
relating to certain quarterly pro forma financial information and filing under
Item 7 thereof certain financial statements and exhibits.
On October 26, 1998, the Company filed a Current Report on Form 8-K, dated
October 26, 1998, reporting under Item 5 thereof certain supplemental financial
information relating to the transaction with Citicorp and filing under Item 7
thereof certain financial statements and exhibits.
On November 2, 1998, the Company filed a Current Report on Form 8-K, dated
October 29, 1998, filing under Item 7 thereof certain exhibits relating to the
offer and sale of the Company's Floating Rate Senior Notes due February 3, 2000.
On November 2, 1998, the Company filed a Current Report on Form 8-K, dated
November 1, 1998, reporting under Item 5 thereof the issuance of a press release
relating to the integration of its corporate business and certain related
executive matters and filing under Item 7 thereof relevant portions of such
press release.
On November 13, 1998, the Company filed a Current Report on Form 8-K,
dated November 13, 1998, reporting under Item 5 thereof certain supplemental
financial information relating to the transaction with Citicorp and filing under
Item 7 thereof certain financial statements and exhibits.
On December 24, 1998, the Company filed a Current Report on Form 8-K,
dated December 15, 1998, reporting under Item 5 thereof the announced approval
by the Company's Board of Directors of a restructuring charge for the quarter
ended December 31, 1998.
No other reports on Form 8-K were filed during the fourth quarter of 1998;
however, on January 26, 1998, the Company filed a Current Report on Form 8-K,
dated January 25, 1998, reporting under Item 5 thereof the results of its
operations for the quarter and year ended December 31, 1998, and certain other
selected financial data.
- -------------------------------------------------------------------------------
Securities and Exchange Commission
Washington, DC 20549
Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1998
Commission File Number 1-9924
Citigroup Inc.
Incorporated in the State of Delaware
IRS Employer Identification Number: 52-1568099
Address: 153 East 53rd Street
New York, New York 10043
Telephone: (212) 559-1000
- -------------------------------------------------------------------------------
Shareholder Information
Citigroup common stock is listed on the New York Stock Exchange and the Pacific
Exchange under the ticker symbol "C."
Citigroup Preferred Stocks Series F, G, H, K, M, R, S, T and U are
also listed on the New York Stock Exchange.
Annual Meeting
The annual meeting will be held at 9:00 a.m. on April 20, 1999, at Carnegie
Hall, 881 Seventh Avenue, New York, NY.
Transfer Agent
Shareholder address changes and inquiries regarding stock transfers, dividend
replacement, 1099-DIV reporting and lost securities for common and preferred
stocks should be directed to:
Citibank Shareholder Services
P. O. Box 2502
Jersey City, NJ 07303-2502
Telephone No. (201) 536-8057
Toll-free No. (888) 250-3985
Facsimile No. (201) 324-3284
E-mail address: [email protected]
95
<PAGE>
Exchange Agent
Holders of Citicorp, Citigroup Preferred Stock Series J, Salomon Inc, The
Travelers Corporation or Travelers Group Preferred Stock Series A or D should
arrange to exchange their certificates by contacting:
Citibank Shareholder Services
P. O. Box 2502
Jersey City, NJ 07303-2502
Toll-free No. (888) 250-3985
E-mail address: [email protected]
The 1998 Forms 10-K filed with the Securities and Exchange Commission for
the corporation and certain subsidiaries, as well as Annual and Quarterly
reports, are available from Citigroup Corporate Affairs Distribution at (212)
559-0233 or by writing to:
Citigroup Inc.
ATTN: Corporate Affairs Distribution
850 Third Avenue, 13th Floor
New York, NY 10043.
To view or retrieve copies of this annual report and other Citigroup
financial reports on the Internet: http://www.citi.com or http://www.sec.gov.
Securities Registered pursuant to Section 12(b) and (g) of the Act:
A list of Citigroup securities registered pursuant to Section 12(b) and (g)
of the Securities Exchange Act of 1934 is available from Citigroup Corporate
Governance, 425 Park Avenue, 2nd Floor, New York, New York 10043 or on the
Internet: http://www.sec.gov.
As of February 28, 1999, Citigroup had 2,256,812,076 shares of common
stock outstanding.
As of February 28, 1999, Citigroup had approximately 97,660 common
stockholders of record. This figure does not represent the actual number of
beneficial owners of common stock because shares are frequently held in
"street name" by securities dealers and others for the benefit of individual
owners who may vote the shares.
Citigroup (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.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein nor in Citigroup's 1999 Proxy Statement incorporated by
reference in Part III of this Form 10-K.
The aggregate market value of Citigroup common stock held by
non-affiliates of Citigroup on February 28, 1999 was approximately
$132 billion.
Certain information has been incorporated by reference as described herein
into Part III of this annual report from Citigroup's 1999 Proxy Statement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 8th day of March,
1999.
CITIGROUP INC.
(Registrant)
/s/ Heidi G. Miller
Heidi G. Miller
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on the 8th day of March, 1999.
Citigroup's Principal Executive Officers:
/s/ John S. Reed /s/ Sanford I. Weill
John S. Reed Sanford I. Weill
Citigroup's Principal Financial Officer:
/s/ Heidi G. Miller
Heidi G. Miller
Citigroup's Principal Accounting Officers:
/s/ Irwin R. Ettinger /s/ Roger W. Trupin
Irwin R. Ettinger Roger W. Trupin
The Directors of Citigroup (listed below) executed a power of attorney
appointing Heidi G. Miller their attorney-in-fact, empowering her to sign this
report on their behalf.
C. Michael Armstrong Dudley C. Mecum
Alain J.P. Belda Richard D. Parsons
Kenneth J. Bialkin Andrall E. Pearson
Kenneth T. Derr Robert B. Shapiro
John M. Deutch Franklin A. Thomas
Ann Dibble Jordan Edgar S. Woolard, Jr.
Reuben Mark Arthur Zankel
Michael T. Masin
96
<PAGE>
CITIGROUP BOARD OF DIRECTORS
C. Michael Armstrong
Chairman and
Chief Executive Officer
AT&T Corp.
Alain J.P. Belda
President and
Chief Operating Officer
Alcoa Inc.
Kenneth J. Bialkin
Partner
Skadden, Arps, Slate, Meagher & Flom LLP
Kenneth T. Derr
Chairman and
Chief Executive Officer
Chevron Corporation
John M. Deutch
Institute Professor
Massachusetts Institute of Technology
Ann Dibble Jordan
Consultant and Former Director of Social Services,
University of Chicago
Medical Center
Reuben Mark
Chairman and
Chief Executive Officer
Colgate-Palmolive Company
Michael T. Masin
Vice Chairman and
President International
GTE Corporation
Dudley C. Mecum
Managing Director
Capricorn Holdings, LLC
Richard D. Parsons
President
Time Warner Inc.
Andrall E. Pearson
Chairman and
Chief Executive Officer
Tricon Global Restaurants, Inc.
John S. Reed
Chairman and
Co-Chief Executive Officer
Citigroup Inc.
Robert B. Shapiro
Chairman and
Chief Executive Officer
Monsanto Company
Franklin A. Thomas
Lawyer/Consultant and
Former President
The Ford Foundation
Sanford I. Weill
Chairman and
Co-Chief Executive Officer
Citigroup Inc.
Edgar S. Woolard, Jr.
Former Chairman and
Chief Executive Officer
E.I. du Pont de Nemours & Company
Arthur Zankel
General Partner
First Manhattan Co.
HONORARY DIRECTOR
The Honorable
Gerald R. Ford
Former President of the
United States
97
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
3.01.1 Restated Certificate of Incorporation of Citigroup Inc. (the
"Company"), incorporated by reference to Exhibit 4.01 to the
Company's Registration Statement on Form S-3 filed December 15,
1998 (No. 333-68949).
3.01.2 Certificate of Designation of 5.321% Cumulative Preferred Stock,
Series YY, of the Company, incorporated by reference to Exhibit 4.45
to Amendment No. 1 to the Company's Registration Statement on Form
S-3 filed January 22, 1999 (No. 333-68949).
3.02 By-Laws of the Company effective October 8, 1998, incorporated by
reference to Exhibit 3.02 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998 (File No.
1-9924).
10.01* Employment Protection Agreement, dated as of December 31, 1987,
between the Company (as successor to Commercial Credit Company
("CCC")) and Sanford I. Weill, incorporated by reference to Exhibit
10.03 to CCC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987 (File No. 1-6594).
10.02.1* Travelers Group Stock Option Plan (as amended and restated as of
April 24, 1996), incorporated by reference to Exhibit 10.02.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 1-9924).
10.02.2* Amendment No. 14 to the Travelers Group Stock Option Plan,
incorporated by reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1996 (File No. 1-9924).
10.02.3* Amendment No. 15 to the Travelers Group Stock Option Plan (effective
July 23, 1997), incorporated by reference to Exhibit 10.04 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997 (File No. 1-9924) (the "Company's September 30,
1997 10-Q").
10.03* Travelers Group 1996 Stock Incentive Plan (as amended through July
23, 1997), incorporated by reference to Exhibit 10.03 to the
Company's September 30, 1997 10-Q.
10.04*+ Travelers Group Inc. Retirement Benefit Equalization Plan (as
amended and restated as of January 2, 1996).
10.05*+ Citigroup Inc. Amended and Restated Compensation Plan for
Non-Employee Directors (as of October 20, 1998).
10.06.1* Supplemental Retirement Plan of the Company, incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1990 (File No.
1-9924).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.06.2* Amendment to the Company's Supplemental Retirement Plan,
incorporated by reference to Exhibit 10.06.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993
(File No. 1-9924).
10.07*+ Travelers Group Amended and Restated Executive Performance
Compensation Plan (effective as of March 26, 1997).
10.08* Travelers Group Capital Accumulation Plan (as amended through July
23, 1997), incorporated by reference to Exhibit 10.02 to the
Company's September 30, 1997 10-Q.
10.09* The Travelers Inc. Deferred Compensation and Partnership
Participation Plan, incorporated by reference to Exhibit 10.31 to
the Company's Annual Report on Form 10-K/A-1 for the fiscal year
ended December 31, 1994 (File No. 1-9924).
10.10*+ The Travelers Insurance Deferred Compensation Plan (formerly The
Travelers Corporation TESIP Restoration and Non-Qualified Savings
Plan) (as amended through December 10, 1998).
10.11* The Travelers Corporation Directors' Deferred Compensation Plan (as
amended November 7, 1986), incorporated by reference to Exhibit
10(d) to the Annual Report on Form 10-K of The Travelers Corporation
for the fiscal year ended December 31, 1986 (File No. 1-5799).
10.12* Travelers Property Casualty Corp. Capital Accumulation Plan (as
amended through July 23, 1997), incorporated by reference to Exhibit
10.01 to the Quarterly Report on Form 10-Q of Travelers Property
Casualty Corp. for the fiscal quarter ended September 30, 1997 (File
No. 1-14328).
10.13* Letter Agreement, dated as of August 14, 1997, between the Company
and Thomas W. Jones, incorporated by reference to Exhibit 10.01 to
the Company's September 30, 1997 10-Q (File No. 1-09924).
10.14* Salomon Inc Equity Partnership Plan for Key Employees (as amended
through March 19, 1997), incorporated by reference to Exhibit 10.19
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (File No. 1-9924).
10.15* Citicorp Executive Incentive Compensation Plan, incorporated by
reference to Citicorp's Registration Statement on Form S-8 filed
April 25, 1988 (No. 2-47648).
10.16* Citicorp 1988 Stock Incentive Plan, incorporated by reference to
Exhibit 4 to Citicorp's Registration Statement on Form S-8 filed
April 25, 1988 (No. 2-47648).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.17* 1994 Citicorp Annual Incentive Plan for Selected Executive Officers,
incorporated by reference to Exhibit 10 to Citicorp's March 30, 1994
10-Q (File No. 01-05378).
10.18* Citicorp Deferred Compensation Plan, incorporated by reference to
Exhibit 10 to Citicorp's Registration Statement on Form S-8 filed
February 15, 1996 (No. 333-0983).
10.19* Citicorp 1997 Stock Incentive Plan, incorporated by reference to
Citicorp's 1997 Proxy Statement filed February 26, 1997 (File No.
01-05378).
10.20* Supplemental Executive Retirement Plan of Citicorp and Affiliates,
as amended and restated, incorporated by reference to Exhibit 10.(F)
to Citicorp's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (File No. 1-05378).
10.21* Supplemental ERISA Compensation Plan of Citibank, N.A. and
Affiliates, as amended and restated, incorporated by reference to
Exhibit 10.(G) to Citicorp's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (File No. 1-05378).
10.22* Supplemental ERISA Excess Plan of Citibank, N.A. and Affiliates, as
amended and restated, incorporated by reference to Exhibit 10.(H) to
Citicorp's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (File No. 1-05378).
10.23*+ Directors' Deferred Compensation Plan, Restated May 1, 1988
12.01+ Computation of Ratio of Earnings to Fixed Charges.
21.01+ Subsidiaries of the Company.
23.01+ Consent of KPMG LLP, Independent Auditors.
23.02+ Consent of Arthur Andersen LLP, Independent Certified Public
Accountants.
24.01+ Powers of Attorney.
27.01+ Financial Data Schedule.
99.01+ List of Securities Registered Pursuant to Section 12(b) of the
Securities Exchange Act of 1934.
99.02+ Independent Auditors' Report.
</TABLE>
<PAGE>
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 SEC upon
request.
The financial statements required by Form 11-K for 1998 for the Company's
employee savings plans will be filed as an exhibit by amendment to this Form
10-K pursuant to Rule 15d-21 of the Securities Exchange Act of 1934, as
amended.
Copies of any of the exhibits referred to above will be furnished at a cost
of $.25 per page (although no charge will be made for the 1998 Annual Report
on Form 10-K) to security holders who make written request therefor to
Corporate Governance, Citigroup Inc., 425 Park Avenue, 2nd Floor,
New York, New York 10043.
- -----------
* Denotes a management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
+ Filed herewith.
<PAGE>
Exhibit 10.04
TRAVELERS GROUP INC.
RETIREMENT BENEFIT EQUALIZATION PLAN
(as amended and restated as of January 2, 1996)
I. Purpose of the Plan
The Cash Balance Plan consists of two parts, the Travelers Group Pension Plan
(the "Retirement Plan") and the Retirement Benefit Equalization Plan (the
"Plan"), both sponsored by Travelers Group Inc. (the "Company"). For eligible
employees, the Retirement Plan gives benefits calculated up to a certain
limitation on compensation and benefits prescribed by the Internal Revenue Code
of 1986, and amended. This Plan covers benefits in excess of those ceilings and
is restated effective as of January 2, 1996.
II. Administration of the Plan
The Plan Administrator is the Plans Administration Committee of the Company. The
Plan Administrator has such powers as may be necessary to carry out the
provisions of the Plan, including the power and discretion to determine all
benefits and resolve all questions pertaining to the administration,
interpretation and application of Plan provisions.
III. Application of the Plan
This Plan together with the Retirement Plan shall apply to any Participant of
the Retirement Plan whose benefits under the Retirement Plan are reduced by the
application of limitations on benefits payable under the Retirement Plan that
are imposed to conform to the provisions of section 415 or section 401(a)(17) of
the Code.
This Plan is not open to any participant in the Retirement Plan whose
participation in the Retirement Plan is attributable to his employment or
indirect employment by Smith Barney Shearson Inc. (or its predecessors).
Effective January 2, 1996, The Travelers Corporation Supplemental Benefit Plan,
Part I and Part II ("Supplemental Plan") was merged with this Plan. Employers
participating in the Supplemental Plan shall participate in this Plan.
IV. Benefits Payable
Benefits under the Plan shall not be funded and shall be paid out of the general
assets of the Company.
The Plan shall pay to each covered Participant of the Retirement Plan, or
beneficiaries thereunder a benefit equal to the excess of:
<PAGE>
(1) the benefit that would have been accrued and vested under the
Retirement Plan (as the same may be in effect from time to time) after
December 31, 1998 as if the Retirement Plan did not contain the
limitations imposed by section 415 or section 401(a)(17) of the Code, over
(2) the benefit actually accrued under the Retirement Plan as amended to
conform to such limitations, taking into account in any case any decision
made regarding early or deferred retirement or optional methods of benefit
payment.
Vesting occurs in accordance with the vesting schedule of the Retirement Plan.
Notwithstanding the foregoing, qualifying compensation for the purposes of this
Plan shall be as defined under the provisions of the Retirement Plan, but, for
Plan Years beginning on or after January 1, 1994, any qualifying compensation in
excess of $300,000 shall be disregarded,
Additionally, any benefits accrued prior to the Effective Date (to the extent
not paid to the Participant) in the retirement benefit equalization plans
sponsored by the Company or its affiliates shall be converted to a benefit form
in this Plan in the same fashion in the same manner as if such benefits were
earned in the Retirement Plan.
Benefits payable to any person hereunder shall be paid at the same time and in
the same form as benefits payable to such person under the Retirement Plan, in
accordance with all the terms and conditions applicable to such benefits under
the Retirement Plan. Any beneficiary designation under the Retirement Plan or
election of form of benefits shall be deemed to be a beneficiary designation or
benefits form under this Plan.
Any benefits paid under this Plan are not subject to any special tax treatment
and are not eligible for rollover to any qualified plan or IRA.
V. General
The Plan may be amended or terminated at any time by the Board of Directors or
by the Senior Vice President, Human Resources, of the Travelers Group Inc.,
except that no such amendment or termination shall adversely affect the benefits
payable on account of any covered Participant of the Retirement Plan in respect
of benefits earned and vested prior to such amendment or termination.
The Plan shall be construed, administered and enforced according to the Employee
Retirement Income Security Act of 1974 and the laws of the State of New York.
<PAGE>
Exhibit 10.05
CITIGROUP INC.
AMENDED AND RESTATED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS (the "Plan")
(as of October 20, 1998)
Section 1. Eligibility. Each member of the Board of Directors of Citigroup
Inc. (the "Company") or one of its subsidiaries, if so designated by the Board
of Directors, who is not an employee of the Company or any of its subsidiaries
(an "Eligible Director") is eligible to participate in the Plan.
Section 2. Administration. The Plan shall be administered, construed and
interpreted by the Board of Directors of the Company. Pursuant to such
authorization, the Board of Directors shall have the responsibility for carrying
out the terms of the Plan, including but not limited to the determination of the
annual retainer to be paid to all Eligible Directors (the "Annual Fixed Director
Compensation"). To the extent permitted under the securities laws applicable to
compensation plans including, without limitation, the requirements of Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
under the Internal Revenue Code of 1986, as amended (the "Code"), the Personnel,
Compensation and Directors Committee of the Board of Directors, or a
subcommittee of the Personnel, Compensation and Directors Committee, may
exercise the discretion granted to the Board under the Plan, provided that the
composition of such Committee or subcommittee shall satisfy the requirements of
Rule 16b-3 under the Exchange Act, or any successor rule or regulation. The
Board of Directors may also designate a plan administrator to manage the record
keeping and other routine administrative duties under the Plan.
Section 3. Annual Fixed Director Compensation. Payment of Annual Fixed
Director Compensation shall be made quarterly, on the first business day
following the end of the quarter for which the compensation is payable, to each
Eligible Director who served as a director during at least one-half of such
quarter and who was a director on the last day of such quarter.
Each Eligible Director may elect to receive up to fifty percent (50%) of
each quarterly payment of Annual Fixed Director Compensation in cash. The
balance of each quarterly payment shall be paid in shares of common stock, par
value $.01 of the Company ("Common Stock"). If an Eligible Director does not
elect to receive a percentage of his or her Annual Fixed Director Compensation
in cash, such compensation shall be paid entirely in Common Stock.
The number of shares of the Company's Common Stock to be transferred to
the Eligible Director in respect of each quarterly installment of Annual Fixed
Director Compensation shall be determined in the manner set forth in paragraph
5(a), and such shares shall not be transferred or sold by such Eligible Director
for a period of six months following the date of grant.
1
<PAGE>
Section 4. Election to Defer.
(a) Time of Election. As soon as practicable prior to the beginning
of a calendar year, an Eligible Director may elect to defer the Common Stock
component of Annual Fixed Director Compensation pursuant to the Plan by
directing that such Common Stock which otherwise would have been payable in
accordance with paragraph 3 above during such calendar year and succeeding
calendar years shall be credited to a deferred compensation account (the
"Director's Account"). Under a valid election, such deferred compensation shall
be payable in accordance with paragraph 5(a) below. Any person who shall become
an Eligible Director during any calendar year, and who was not an Eligible
Director of the Company prior to the beginning of such calendar year, may elect,
within thirty (30) days after his or her term begins, to defer payment of the
Common Stock component of his or her Annual Fixed Director Compensation earned
during the remainder of such calendar year and for succeeding calendar years.
The cash component of Annual Fixed Director Compensation may not be deferred.
(b) Form and Duration of Election. An election to defer the Common
Stock component of Annual Fixed Director Compensation shall be made by written
notice executed by the Eligible Director and filed with the Secretary of the
Company. Such election shall continue until the Eligible Director terminates
such election by subsequent written notice filed with the Secretary of the
Company. Any such election to terminate deferral shall become effective for the
calendar quarter following receipt of the election form by the Company and shall
only be effective with respect to the Common Stock component of Annual Fixed
Director Compensation payable for services rendered as an Eligible Director
thereafter. Amounts credited to the Director's Account prior to the effective
date of termination shall not be affected by such termination and shall be
distributed only in accordance with the terms of the Plan.
(c) Change of Election. An Eligible Director who has terminated his
or her election to defer the Common Stock component of Annual Fixed Director
Compensation hereunder may thereafter make another election in accordance with
paragraph 4(a) to defer such compensation for the calendar year subsequent to
the filing of such election and succeeding calendar years.
Section 5. The Director's Account. Shares of Common Stock that an Eligible
Director has elected to defer under the Plan shall be credited to the Director's
Account as follows:
(a) As of each date that a quarterly installment of the Annual Fixed
Director Compensation would otherwise be payable, there shall be credited to the
Director's Account the number of full shares of the Company's Common Stock
obtained by multiplying the percentage such Eligible Director has elected to
receive in shares of Common Stock by the total amount of Annual Fixed Director
Compensation allocable to such calendar quarter, and then by dividing the result
by the average of the closing price of the Company's Common Stock on the
Composite Tape of the New York Stock Exchange Inc. on the last ten (10) trading
days of the calendar quarter for which such Common Stock would otherwise be
payable. If the applicable percentage of Annual Fixed Director Compensation for
the calendar quarter is not evenly divisible by such
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average closing price of the Company's Common Stock, the balance shall be
credited to the Director's Account in cash.
(b) At the end of each calendar quarter, there shall be credited to
the Director's Account an amount equal to the cash dividends that would have
been paid on the number of shares of Common Stock credited to the Director's
Account as of the dividend record date, if any, occurring during such calendar
quarter as if such shares had been shares of issued and outstanding Common Stock
on such record date, and such amount shall be treated as reinvested in
additional shares of Common Stock on the dividend payment date.
(c) Cash amounts credited to the Director's Account pursuant to
subparagraphs (a) and (b) above shall accrue interest commencing from the date
the cash amounts are credited to the Director's Account at a rate per annum to
be determined from time to time by the Company. Amounts credited to the
Director's Account shall continue to accrue interest until distributed in
accordance with the Plan. An Eligible Director may be given the opportunity make
a written election to treat the existing cash balance and interest accrued
thereon as invested in additional shares of Common Stock. The timing of the
effectiveness of such election shall be subject to the Company's discretion.
(d) An Eligible Director shall not have any interest in the cash or
Common Stock in his or her Director's Account until such cash or Common Stock is
distributed in accordance with the Plan.
Section 6. Distribution from Accounts.
(a) Form of Election. At the time an Eligible Director makes an
election to defer receipt of Annual Fixed Director Compensation pursuant to
paragraphs 5(a) or 5(c), such Director shall also file with the Secretary of the
Company a written election with respect to the distribution of the aggregate
amount of cash and shares credited to the Director's Account pursuant to such
election. An Eligible Director may elect to receive such amount in one lump-sum
payment or in a number of approximately equal annual installments (provided the
payout period does not exceed 15 years). The lump-sum payment or the first
installment shall be paid as of (i) the first business day of any calendar year
subsequent to the date the Annual Fixed Director Compensation would otherwise be
payable, as specified by the Director, (ii) the first business day of the
calendar quarter immediately following the cessation of the Eligible Director's
service as a director of the Company or (iii) the earlier of (i) or (ii), as the
Eligible Director may elect. Subsequent installments shall be paid as of the
first business day of each succeeding annual installment period until the entire
amount credited to the Director's Account shall have been paid. A cash payment
will be made with the final installment for any fraction of a share of Common
Stock credited to the Director's Account.
(b) Adjustment of Method of Distribution. An Eligible Director
participating in the Plan may, prior to the beginning of any calendar year, file
another written election with the Secretary of the Company electing to change
the date and/or method of distribution of the
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aggregate amount of cash and shares of Common Stock credited to the Director's
Account for services rendered as a director commencing with such calendar year.
Amounts credited to the Director's Account prior to the effective date of such
change (the "Prior Amounts") shall not be affected by such change and shall be
distributed only in accordance with the election in effect at the time the Prior
Amounts were credited to the Director's Account; provided, however, that an
Eligible Director may elect to change the time at which Prior Amounts are to be
paid, if (i) a written election to effect such change is filed with the
Secretary of the Company before the earliest scheduled payment of the Prior
Amounts and (ii) such change would not accelerate the Eligible Director's
receipt of the Prior Amounts. Notwithstanding the foregoing, in the event an
Eligible Director suffers a severe financial hardship outside the control of
such Director, as determined by the Company, the Eligible Director may elect to
advance or defer the date of distribution of his or her Director's Account or
change the method of distribution thereof.
(c) Change of Control. Notwithstanding anything to the contrary
contained herein, upon a "Change of Control" (as defined below), the full number
of shares of Common Stock and cash in each Director's Account shall be
immediately funded and be distributable on the later of the date six months and
one day following the "Change of Control" or the distribution date(s) previously
elected by an Eligible Director. For purposes of this Plan, a "Change of
Control" shall mean the occurrence of any of the following, unless such
occurrence shall have been approved or ratified by at least a two-thirds (2/3)
vote of the Continuing Directors (defined below): (i) any person within the
meaning of Sections 13(d) and 14(d) of the Exchange Act, shall have become the
beneficial owner, within the meaning of Rule 13d-3 under the Exchange Act, of
shares of stock of the Company having twenty-five percent (25%) or more of the
total number of votes that may be cast for election of the directors of the
Company; or (ii) there shall have been a change in the composition of the Board
of Directors such that at any time a majority of the Board of Directors shall
have been members of the Board for less than twenty-four (24) months, unless the
election of each new director who was not a director at the beginning of the
period was approved by a vote of at least two-thirds (2/3) of the directors then
still in office who were directors at the beginning of such period, or who were
approved as directors pursuant to the provisions of this paragraph (the
"Continuing Directors").
Section 7. Distribution on Death. If an Eligible Director should die
before all amounts credited to the Director's Account shall have been paid in
accordance with the election referred to in paragraph 6, the balance in such
Director's Account as of the date of such Director's death shall be paid
promptly following such Director's death, in accordance with the method of
payment elected by the Eligible Director, to the beneficiary designated in
writing by such Director. Such balance shall be paid to the estate of the
Eligible Director if (a) no such designation has been made or (b) the designated
beneficiary shall have predeceased the Director and no further beneficiary
designation has been made.
Section 8. Miscellaneous.
(a) The right of an Eligible Director to receive any amount in the
Director's Account shall not be transferable or assignable by such Director,
except by will or by the laws of
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descent and distribution, and no part of such amount shall be subject to
attachment or other legal process.
(b) Except as otherwise set forth herein, the Company shall not be
required to reserve or otherwise set aside funds or shares of Common Stock for
the payment of its obligations hereunder. The Company shall make available as
and when required a sufficient number of shares of Common Stock to meet the
requirements arising under the Plan.
(c) The establishment and maintenance of, or allocation and credits
to, the Director's Account shall not vest in the Eligible Director or his
beneficiary any right, title or interest in and to any specific assets of the
Company. An Eligible Director shall not have any dividend or voting rights or
any other rights of a stockholder (except as expressly set forth in paragraph
5(b) with respect to dividends and as provided in subparagraph (f) below) until
the shares of Common Stock credited to a Director's Account are distributed. The
rights of an Eligible Director to receive payments under this Plan shall be no
greater than the right of an unsecured general creditor of the Company.
(d) The Plan shall continue in effect until terminated by the Board
of Directors. The Board of Directors may at any time amend or terminate the
Plan; provided, however, that (i) no amendment or termination shall impair the
rights of an Eligible Director with respect to amounts then credited to the
Director's Account; (ii) the provisions of the Plan relating to eligibility, the
amount and price of securities to be awarded, the timing of and the amount of
Annual Fixed Director Compensation awards shall not be amended more than once
every six months, other than to comport with changes in the Internal Revenue
Code of 1986, as amended, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder; and (iii) no amendment shall become
effective without approval of the stockholders of the Company if such
stockholder approval is required to enable the Plan to satisfy applicable state
or Federal statutory or regulatory requirements.
(e) Each Eligible Director participating in the Plan will receive an
annual statement indicating the amount of cash and number of shares of Common
Stock credited to the Director's Account as of the end of the preceding calendar
year.
(f) If adjustments are made to outstanding shares of Common Stock as
a result of stock dividends, stock splits, recapitalizations, mergers,
consolidations and similar transactions, an appropriate adjustment shall be made
in the number of shares of Common Stock credited to the Director's Account.
(g) Shares of Common Stock that may be granted under the Plan shall
be subject to adjustment upon the occurrence of adjustments to the outstanding
Common Stock described in paragraph 8(f) hereof.
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(h) The validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to the
Plan, shall be determined solely in accordance with the laws of the State of
Delaware.
(i) All claims and disputes between an Eligible Director and the
Company arising out of the Plan shall be submitted to arbitration in accordance
with the then current arbitration policy of the Company. Notice of demand for
arbitration shall be given in writing to the other party and shall be made
within a reasonable time after the claim or dispute has arisen. The award
rendered by the arbitrator shall be final, and judgment may be entered upon it
in accordance with applicable law in any court having jurisdiction thereof. The
provisions of this Section 8(i) shall be specifically enforceable under
applicable law in any court having jurisdiction thereof.
(j) If any term or provision of this Plan or the application thereof
to any person or circumstances shall, to any extent, be invalid or
unenforceable, then the remainder of the Plan, or the application of such term
or provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision hereof shall be valid and be enforced to the fullest extent permitted
by applicable law.
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Exhibit 10.07
TRAVELERS GROUP
AMENDED AND RESTATED EXECUTIVE PERFORMANCE
COMPENSATION PLAN
as of March 26, 1997
ARTICLE I
PURPOSE
Section 1.1 The purpose of the Travelers Group Executive Performance
Compensation Plan (the "Plan") is to establish certain performance criteria for
determining the maximum amount of any bonus that may be paid to certain
executives of Travelers Group Inc. (the "Company") under the Plan including that
portion of the bonus paid in the form of restricted stock under the Company's
Capital Accumulation Plan, who, on the last day of the Company's taxable year,
consist of the chief executive officer and the four other most highly
compensated executive officers of the Company or its subsidiaries named in the
Summary Compensation Table in the Company's proxy statement from time to time.
The Plan is intended to address certain limitations on the deductibility
of executive compensation under Section 162(m) of the Internal Revenue Code of
1986, as amended by the Omnibus Budget Reconciliation Act of 1993 (the "Revenue
Act"). The Revenue Act limits the deductibility of certain compensation in
excess of $1 million per year paid by a publicly traded corporation to Covered
Employees (as defined in such Act).
ARTICLE II
DEFINITIONS
Section 2.1 The following words and phrases shall have the meanings
indicated for the purpose of the Plan unless the context clearly indicates
otherwise:
(a) Adjusted Net Income shall mean the Net Income (i) reduced by the
aggregate amount of dividends on the Company's preferred stock, and
(ii) increased or reduced by the after-tax earnings impact of each
of the following items if they occur during a Bonus Year:
(i) realized investment gains and losses, including those resulting
from the sale of subsidiaries and affiliates, for the Bonus Year;
(ii) the cumulative effect to the beginning of the year of changes
in accounting principles for the Bonus Year required by the Financial
Accounting Standards Board, the Securities and Exchange Commission or any
other governing body that sets accounting standards as
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set forth in the Consolidated Statement of Income or the Notes thereto as
reported in the Annual Report;
(iii) the cumulative effect to the beginning of the year of changes
in the tax law occurring during the Bonus Year as set forth in the
Consolidated Statement of Income or the Notes thereto as reported in the
Annual Report; and
(iv) extraordinary items, as defined under generally accepted
accounting principles, during the Bonus Year as set forth in the
Consolidated Statement of Income as reported in the Annual Report.
Extraordinary items would not include such items as catastrophic insurance
losses or restructuring charges.
(b) Annual Report shall mean the Annual Report to Stockholders of the
Company containing the audited financial statements of the Company.
(c) Board shall mean the Board of Directors of Travelers Group Inc.
(d) Bonus Pool shall mean the total maximum amount available to be paid
as bonus compensation to all Covered Employees for each Bonus Year,
whether paid in cash or restricted stock under the CAP Plan.
(e) Bonus Year shall mean the annual period corresponding to a calendar
year for which the calculation of a bonus award is to be made.
(f) CAP Plan shall mean the Company's Capital Accumulation Plan, as the
same shall be in effect from time to time.
(g) Chief Executive Officer shall mean the Chief Executive Officer of
the Company or the individual acting in such capacity.
(h) Code shall mean the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
(i) Committee shall mean the Nominations, Compensation and Corporate
Governance Committee of the Board, or any subcommittee thereof,
provided, however, that if any such committee or subcommittee fails
to be comprised solely of Outside Directors, then those members of
such committee or subcommittee that are Outside Directors shall act
as the Committee.
(j) Common Equity shall mean the common stockholders' equity appearing
on the Consolidated Statements of Changes in Stockholders' Equity in
the Company's Annual Report as of the beginning of the Bonus Year.
(k) Company shall mean Travelers Group Inc. and its successors. Where
the context
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requires, the "Company" shall mean Travelers Group Inc. and its
consolidated subsidiaries.
(l) Covered Employee shall mean the Chief Executive Officer of the
Company (or the individual acting in such capacity) and the four
other most highly compensated executive officers of the Company as
determined on the last day of the taxable year and in accordance
with Section 162(m) of the Code.
(m) Exchange Act shall mean the Securities Exchange Act of 1934, as
amended.
(n) MD&A shall mean Management's Discussion and Analysis of Financial
Condition and Results of Operations as reported in the Company's
Annual Report.
(o) Measurement Period shall mean any period other than the calendar
year determined by the Committee pursuant to Section 5.1.
(p) Net Income shall mean the consolidated net income of the Company as
disclosed in the Consolidated Statement of Income as reported in the
Company's Annual Report for the Bonus Year.
(q) Outside Director shall mean a member of the Board who falls within
the definition of an "outside director" under Section 162(m) of the
Code and any regulations promulgated thereunder, including any
transition or interim rules for such definition.
(r) Performance Goal shall mean the financial measurements of corporate
performance that must be met in order for a Covered Employee to
receive a payment under this Plan.
(s) Return on Equity shall mean the percentage equivalent to the
fraction resulting from dividing (i) Adjusted Net Income by (ii)
Common Equity.
ARTICLE III
ADMINISTRATION OF THE PLAN
Section 3.1 The Plan shall be administered by the Committee.
Section 3.2 The Plan shall be interpreted and construed in accordance with
Section 162(m) of the Code and the regulations issued thereunder. Any action by
the Committee that would be violative of Section 162(m) of the Code and the
regulations thereunder shall be void.
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Otherwise the Committee shall have full and exclusive authority, power and
discretion to construe and interpret the Plan (subject to the advice of the
Company's General Counsel with respect to any question of law), and generally to
determine any and all questions arising under the Plan. The Committee shall have
the authority to reduce the bonus of any Covered Employee earned under this Plan
even if the performance goals applicable to maximum bonus awards to such
Employee have been met. The Committee shall not have any authority hereunder to
increase any bonus compensation calculated in accordance with this Plan.
Section 3.3 The Committee shall be responsible for certifying in writing
to the Company that the applicable Performance Goals have been met before any
bonus payments are made under this Plan. If permitted under Section 162(m) of
the Code, such certification may be based upon reasonably estimated financial
information available prior to the end of the Bonus Year.
ARTICLE IV
CALCULATION OF BONUS AMOUNTS FOR COVERED EMPLOYEES
Section 4.1 As soon as practicable following the certification described
in Section 3.3 above, and subject to the Committee's discretion to reduce
bonuses under Section 3.2, Covered Employees shall be entitled to receive for
the Bonus Year a maximum bonus (whether paid in cash or restricted stock under
the CAP Plan) not exceeding the following percentages of the Bonus Pool:
The Chief Executive Officer.............................25.2%
Each other Covered Employee.............................18.7%
Section 4.2 The Bonus Pool for any Bonus Year shall be equal to a
percentage of the Adjusted Net Income for such Bonus Year. Adjusted Net Income
shall be calculated without giving effect to the payment of bonuses provided for
under the Plan. The percentage shall be based upon the Return on Equity, as
follows:
If the Return on Equity is: The Maximum Amount of the Bonus Pool shall be:
- -------------------------- ----------------------------------------------
less than 10% (A) = 0%
10% (B) = 1.722% of Adjusted Net Income
greater than 10% up to and (C) = the amount determined under (B) plus
including 12.5% 2.952% of the amount by which Adjusted Net
Income exceeds 10% of Common Equity
greater than 12.5% up to (D) = the amount determined under (C) plus
and including 15% 4.182% of the amount by which Adjusted Net
Income exceeds 12.5% of Common Equity
greater than 15% (E) = the amount determined under (D) plus
4.674% of the amount by which Adjusted Net
Income exceeds 15% of Common Equity
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In the event that any of the Covered Employees does not qualify as a
Covered Employee for a particular Bonus Year, the percentage share of the Bonus
Pool otherwise allocable to such person shall be allocated to the executive
officer who replaces him or her as a Covered Employee for such Bonus Year. In
the event one of the Covered Employees becomes the chief executive officer of
the Company, such Covered Employee shall be allocated the percentage share
allocated to the chief executive officer.
Section 4.3 Any portion (up to $3 million) of a share of the Bonus Pool
calculated for any Covered Employee for a particular Bonus Year may be awarded
by the Committee to such Covered Employee in a succeeding year to the extent not
awarded for the Bonus Year; provided that such award by the Committee will only
be made to reward extraordinary performance by any such Covered Employee.
ARTICLE V
CHANGE OF MEASUREMENT PERIOD
Section 5.1 If permitted by Section 162(m) of the Code, the Committee (as
constituted in Section 3.1 of the Plan) may establish a Measurement Period other
than the calendar year for determining the Bonus Pool if the Committee concludes
that all or a portion of the Bonus Pool for any Bonus Year should be paid to
Covered Employees (other than the Segment Executive) before the end of any
calendar year. Any such change will be made before the new Measurement Period
begins. In such event all relevant criteria will be based upon the books and
records of the Company for the Measurement Period in a manner consistent with
the terms of this Plan.
ARTICLE VI
STOCKHOLDER APPROVAL AND AMENDMENT
Section 6.1 This Plan shall become effective as of January 1, 1994,
subject, however, to the approval of the Company's stockholders at the 1994
Annual Meeting of the Stockholders of the Company.
Section 6.2 The Plan applicable to Covered Employees may be amended at any
time by the Committee which shall act in accordance with Section 3.1 of the
Plan. In the event that subsequent guidance under Section 162(m) is
substantially different, with the effect that the Plan fails to ensure the
deductibility of the compensation payable hereunder, the Committee shall retain
the right to modify the Plan for Covered Employees to the extent necessary to
conform any provisions hereof to bring them into compliance, including but not
limited to deletion of any non-conforming provisions, or to discontinue the Plan
altogether. No amendment shall be made without approval of the stockholders of
the Company if such approval is required in order for the Plan to continue to
meet the requirements of Section 162(m) of the Code.
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Exhibit 10.10
THE TRAVELERS INSURANCE
DEFERRED COMPENSATION PLAN
[FORMERLY THE TRAVELERS TESIP
RESTORATION AND NON-QUALIFIED SAVINGS PLAN]
As amended through December 10, 1998
ARTICLE 1
PURPOSE
The purpose of The Travelers Insurance Deferred Compensation Plan (the
"Plan") is to provide a means whereby The Travelers Insurance Group Inc. (the
"Company"), as successor to The Travelers Corporation, may restore the
tax-deferral savings opportunities to employees of The Travelers Insurance
Company and The Travelers Indemnity Company and certain of their affiliates who
are treated as "highly compensated employees" under the Internal Revenue Code of
1986, as amended (the "Code"), and as such are restricted in the level of
participation under 401(k) and similar plans as are afforded non-highly
compensated employees and to offer improved flexibility for retirement, tax and
estate planning to a select group of key management employees of the Company and
its subsidiaries (including, at the Committee's option, subsidiaries the
employees of which are not eligible to participate in TESIP) who have rendered
and continue to render valuable services to the Company.
The Plan incorporates and replaces the TESIP Restoration Plan which was
effective as of January 1, 1990 and The Travelers TESIP Restoration and
Non-Qualified Savings Plan which was effective as of January 1, 1991. The Plan
includes the rollover of non-qualified balances for Transferred Employees that
had previously been part of Aetna Life and Casualty Company's Incentive Deferral
Plan and Aetna Life and Casualty Company's Supplemental Incentive Savings Plan
("SISP"). The Plan set forth herein is amended and restated as of January 1,
1997.
ARTICLE 2
DEFINITIONS AND CERTAIN PROVISIONS
Beneficiary. "Beneficiary" means the person or persons designated as such
in accordance with Article 6.
Board. "Board" means the Board of Directors of the Company.
Committee. "Committee" means the Plans Administration Committee of
Citigroup, Inc. (formerly Travelers Group Inc.)
Fixed Income Declared Rate. "Fixed Income Declared Rate" means the fixed
interest rate expressed as an effective annual yield for the Plan Year for the
Stable Value Fund under the Travelers Group 401(k) Savings Plan (the "401(k)
Plan") which is invested in a group annuity contract. The Fixed Income Declared
Rate will be determined annually at the beginning of each Plan Year and credited
monthly as of the last business day of the month.
Deferral Account. "Deferral Account" means the account maintained on the
books of account of the Company for each Participant for each Deferral Account
Cycle pursuant to Section 4.2.
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Deferral Account Cycle. "Deferral Account Cycle" means a period of five
(5) Plan Years as determined by the Committee over which a Participant defers
Salary and/or Incentive Award. The first Deferral Account Cycle covers the Plan
Years 1990 through 1994.
Disability. "Disability" means any disability as defined under the terms
of The Travelers Group Long-Term Disability Plan.
Eligible Employee. "Eligible Employee" means any Employee of the Company
or any designated subsidiary who is considered by the Company to be a key
management employee, including employees of a subsidiary which does not
participate in the 401(k) Plan and employees who have not yet met the 401(k)
Plan service requirements.
Employee. "Employee" means any person employed by an Employer on a regular
full-time salaried basis, including officers of the Employer.
Employer. "Employer" means the Company and any of its subsidiaries.
Enrollment Agreement. "Enrollment Agreement" means the authorization form
which an Eligible Employee files with the Company to participate in the Plan.
Enrollment Period. "Enrollment Period" means the period from 10/31 to
12/31 of the calendar year preceding the Plan Year or for newly hired employees,
within 30 days of employment and otherwise as determined by the Committee.
401(k) Plan. "401(k) Plan" means the Travelers Group 401(k) Savings Plan.
Incentive Award. "Incentive Award" means with respect to a Participant for
any Plan Year the incentive award paid to the Participant for such Plan Year
under an annual incentive plan.
Participant. "Participant" means an Eligible Employee who has filed a
completed and executed Enrollment Agreement with the Committee and is
participating in the Plan in accordance with the provisions of Article 4.
Plan Year. "Plan Year" means the calendar year beginning January 1 and
ending December 31.
Retirement. "Retirement" means the termination of a Participant's
employment with an Employer for reasons other than death or disability on or
after attaining age 55 with 5 or more years of Continuous Service, as determined
under The Travelers Pension Plan, or termination of employment on or after
attaining age 50 with 5 or more years of continuous service under circumstances
where the Participant is separated from service and entitled to payments under
the terms of The Travelers Separation Pay Plan. Retirement also means, where
applicable, the termination of a Participant's employment with the ability to
begin receiving benefits following such termination under the Retirement Plan
for Employees of Aetna Life and Casualty Company, however, in such event,
certain payments may not commence until a participant reaches age 62 in
accordance with elections made at the time of deferral.
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Salary. "Salary" means with respect to a Participant for any Plan Year
such Participant's annual base salary and commissions, as established on the
books and records of the participating employers.
Termination of Employment means a complete severance of an Employee's
employment relationship with the Employer and other affiliated organizations (as
defined in Section 414(a) of the Internal Revenue Code of 1986) or the cessation
of affiliated organization status of the employing entity of the Employee.
TESIP. "TESIP" means the Travelers Group 401(k) Savings Plan, as successor
plan to The Travelers Savings, Investment and Stock Ownership Plan, as amended
from time to time.
The Travelers Pension Plan means The Pension Plan for Salaried Employees
of The Travelers Insurance Company and certain affiliates and any successor plan
thereto as amended from time to time.
ARTICLE 3
ADMINISTRATION OF THE PLAN
The Plan is administered by the Committee which is responsible for
overseeing the operation of the Plan and has the power to interpret provisions
of the plan. The Committee shall have all of the powers vested in it pursuant to
the terms of the Plan, including but not limited to the power and authority to
establish and modify eligibility criteria for participation and to modify the
terms and provisions of the Plan.
Members of the Committee are appointed by the Board of Directors of
Citigroup Inc. ("Citigroup") for indefinite terms, may resign or be removed at
any time and serve without compensation for their services. Citigroup
indemnifies such members to the fullest extent permitted by law and the By-Laws
of Citigroup. Members of the Committee currently are officers or employees of
Citigroup or its subsidiaries. The Committee maintains an office at 388
Greenwich Street, 36th Floor, New York, New York 10013. Correspondence to the
Committee should be sent to such address c/o Citigroup Inc., Attention: Plans
Administration Committee.
The Committee has delegated the day-to-day operations of the Plan which
are managed by the Corporate Compensation Department. Corporate Compensation can
be reached by dialing (860) 277-3422.
Additional information about the Plan, the Committee and its members may
be obtained upon written request to Citigroup Inc., Attn: Corporation
Compensation Department, 388 Greenwich Street, 36th Floor, New York, New York
10013 or by calling (212) 559-6695.
ARTICLE 4
PARTICIPATION
4.1 Election to Participate. Any Eligible Employee may elect to
participate in the Plan effective as of the first day of the Plan Year by filing
during the Enrollment Period a completed and fully executed Enrollment Agreement
with the Committee prior to the beginning of such Plan Year. A separate
Enrollment Agreement must be completed for each Plan Year in which a Participant
makes deferrals under the Plan.
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For any Plan Year an Eligible Employee may elect to defer a percentage of
Salary (not to exceed 50% of the Participant's Salary at the rate in effect
during the Plan Year, or for newly hired eligible employees 50% of their initial
annual salary prorated for the remaining months of the Plan Year) and/or a
percentage of an Incentive Award (up to 70% of the Participant's cash Incentive
Award). This plan is offered in addition to the Travelers Group Capital
Accumulation Plan (CAP), Travelers Property Casualty Corp. Capital Accumulation
Plan (TAP CAP), and the Greenwich Street Capital Partners, L.P. (GSP). Incentive
deferrals to this plan will be made subsequent to any deferrals which may apply
due to voluntary or automatic participation in CAP, TAP CAP, or GSP.
The Committee may establish minimum or maximum individual or aggregate
deferral amounts for each Plan Year. The Company reserves the right to make a
reduction in individual deferral amounts if the individual or aggregate
deferrals exceed a Company-determined dollar threshold. The Committee may
establish a minimum account value for continued participation in the plan and
may pay to participants the value of accounts below the minimum.
4.2 Deferral Accounts. The Company shall establish and maintain a separate
Deferral Account for each Participant for each Deferral Account Cycle. The
amount by which a Participant's Salary or Incentive Award is reduced pursuant to
Section 4.1 shall be credited to the Participant's Deferral Account no later
than the first day of the month following the month in which such compensation
would otherwise have been paid. The Deferral Account shall be debited by the
amount of any such payments made to the Participant or the Participant's
Beneficiary with respect to such Deferral Account pursuant to this Plan.
(a) Company Contributions. Prior to the 1997 Plan Year, the Plan
provided that certain eligible Participants received Company
Contributions. For 1990, the Company made contributions in accordance with
Appendix A hereto. For 1991 to 1993 the Company made contributions in
accordance with Appendix B hereto. For 1994 and 1995 the Company made
contributions in accordance with Appendix C hereto. For 1996 the Company
made contributions in accordance with Appendix D hereto for participants
in Aetna Life and Casualty Company's Incentive Deferral Plan and Aetna
Life and Casualty Company's Supplemental Incentive Savings Plan.
(b) Interest on Deferral Accounts. Prior to 1996 two types of
returns were credited on Deferral Accounts prior to commencement of
payment of benefits depending on the Declared Rate option which a
Participant chose. These options were the Fixed Income Declared Rate and
Equity Simulator Declared Rate.
Under the Fixed Income Declared Rate interest will be credited
monthly to Deferral Accounts in the same manner as interest is credited on
the Stable Value Fund under the 401(k) Plan. Under the Equity Simulator
Declared Rate in effect prior to 1996, a rate of return (which may be
positive or negative) was credited as of the end of each month at the same
rate which was credited on Fund 1 under TESIP. After 1995 all Deferral
Accounts are credited with the Fixed Income Declared Rate.
A Participant's Deferral Account will continue to be credited with
the Fixed Income Declared Rate after benefit payments from such Deferral
Account commence.
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4.3 Valuation of Accounts. The value of a Deferral Account as of any date
shall equal the amounts theretofore credited to such account, plus the interest
deemed to be earned on such account in accordance with Section 4.2 through the
valuation date, less the amounts theretofore debited to such account. Any
valuation shall be made as of the last business day of the month.
4.4 Statement of Accounts. The Committee shall submit to each Participant,
within one hundred twenty (120) days after the close of each Plan Year, a
statement in such form as the Committee deems desirable setting forth the
balance standing to the credit of each Participant in each of his or her
Deferral Accounts.
ARTICLE 5
BENEFITS
5.1 Retirement Benefit. A Participant is eligible for a Retirement Benefit
under this Plan when he or she has satisfied all of the requirements for
Retirement (as defined in Article 2). The Retirement Benefit for a Deferral
Account will be based on the total value of the Deferral Account.
The Retirement Benefit for a Deferral Account will be paid beginning
approximately 30 days of the date and in the manner which the Participant elects
when he or she enrolls in the Deferral Account. After the Participant elects the
commencement date and the form of payment, he or she may not change the
election. At the time of enrollment a Participant may elect to receive a
Retirement Benefit for a Deferral Account at Retirement or at age 65, if later,
in either a lump sum or annual installments over 5, 10 or 15 years. The lump-sum
payment will be made or annual installment payments will commence approximately
30 days after Retirement or approximately 30 days following the date on which
the Participant attains age 65, according to the Participant's enrollment
agreement. The account valuation will be as of the last business day of the
month preceding the payment date.
If a Participant elects to receive his or her Retirement Benefit in
installment payments, the account will be valued on the last business day of the
month in which the Participant is deemed to be retired, or attained age 65 if
applicable. Retirements are deemed to be the first of a month following the
termination of employment. The payments will be determined annually by dividing
the Participant's then current Deferral Account balance at commencement and on
each anniversary of the valuation year by the number of remaining years in the
payment period based on the Participant's retirement payment election. The Fixed
Income Declared Rate will be credited during any payment year on the unpaid
Deferral Account balance. After the Participant's death, interest earned during
the payment period will instead be distributed in full.
The Committee may, in its discretion, permit alternative payment elections
for future deferrals and may permit the form and timing of payments elected by
participants (in accordance with the terms and provisions of a plan then in
effect) with respect to balances transferred into the Plan when such transfers
are authorized by the Company or the Employer in connection with a merger,
acquisition or other business combination.
5.2 Disability. If a Participant becomes disabled, Participant deferrals
that otherwise would have been credited to the Participant's Deferral Accounts
will cease during such Disability. The Participant's Deferral Accounts will
continue to earn interest at the Declared
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Rate. The Participant's Deferral Account balances will be distributed as a
Retirement Benefit or Survivor Benefit, whichever is applicable, beginning on
the date and in the form which the Participant elected in his Enrollment
Agreement, but in no event beginning earlier than 12 months after the date of
the Participant's Disability. In the sole discretion of the Committee, the
Company may commence payments on an earlier date.
5.3 Termination Benefit. Notwithstanding other provisions of this plan if
a Participant (i) has a Termination of Employment for any reason other than
death, Disability or Retirement, or (ii) fails to return to the status of an
Active Employee within sixty (60) days following recovery from a Disability
prior to Retirement, the Company shall pay to the Participant in one lump sum an
amount (the "Termination Benefit") equal to the value of the Participant's
Deferral Accounts as provided in Section 4.3.
The account valuation will be as of the last business day of the month of
termination of employment (or the end of the 60-day period following the end of
a disability).
5.4 Survivor Benefits. If a Participant dies, a Survivor Benefit will be
paid to his Beneficiary in a lump sum in the month following the Participant's
death. The Survivor Benefit will be equal to the Deferral Account balance(s) of
the Participant.
The account valuation will be as of the last business day of the month of
the death.
5.5 Emergency Benefit. In the event that the Committee, upon written
petition of the Participant or beneficiary of such Participant, determines in
its sole discretion that the Participant has suffered an unforeseeable financial
emergency, the Employer shall pay to the Participant, as soon as practicable
following such determination, an amount necessary to meet the emergency.
Participants who suffer an emergency prior to commencement of benefit payments
would receive an amount not in excess of the Deferral Account balance to which
such Participant would have been entitled pursuant to Section 5.3 if he or she
had a termination of employment on the date of such determination and received a
lump sum payment (the "Emergency Benefit"). Participants in the process of
receiving installment payments would receive an amount not in excess of the
present value of the remaining installment payments. For purposes of this Plan,
an unforeseeable financial emergency is an unexpected need for cash arising from
an illness, casualty loss, sudden financial reversal, or other such
unforeseeable occurrence. The amount of the benefits otherwise payable under the
Plan shall thereafter be adjusted to reflect the early payment of the Emergency
Benefit.
5.6 Small Benefit. In the event the Committee determines that the balance
of a Participant's Deferral Account is less than $10,000 at the time of
commencement of payment of his or her Retirement Benefit, or the portion of the
balance of the Participant's Deferral Account payable to any Beneficiary is less
than $10,000 at the time of commencement of payment of a Survivor Benefit to
such Beneficiary, the Company may pay the benefit in the form of a lump-sum
payment, notwithstanding any provision of this Article 5 to the contrary. Such
lump-sum payment shall be equal to the balance of the Participant's Deferral
Account or the portion thereof payable to a Beneficiary.
5.7 Withholding; Unemployment Taxes. To the extent required by the law in
effect at the time payments are made, the Company shall withhold from any
amounts deferred under the Plan or from payments made hereunder the taxes
required to be withheld by the federal or any state or local government.
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ARTICLE 6
BENEFICIARY DESIGNATION
Each Participant shall have the right, at any time, to designate any
person or persons as Beneficiary or Beneficiaries to whom payments under this
Plan shall be made in the event of the Participant's death prior to complete
distribution to the Participant of the benefits due under the Plan. Each
Beneficiary designation shall become effective only when filed in writing with
the Committee on a form prescribed or accepted by the Committee.
Any Participant shall have the right to designate a new Beneficiary at any
time by filing with the Committee a written request for such change, but any
such change shall become effective only upon receipt of such request by the
Committee. Upon receipt by the Committee of such request, the change shall
relate back to and take effect as of the date the Participant signs such request
whether or not the Participant is living at the time the Committee receives such
request.
To the extent a Participant designates a beneficiary other than a spouse,
the administrative rules under the 401(k) Plan apply. If there is no designated
Beneficiary living at the death of the Participant when any payment hereunder
shall be payable to a Beneficiary, then such payment shall be made as follows:
To such Participant's wife or husband, if living and if not living, to
such Participant's then living lineal descendants, in equal shares, per
stirpes; if none survives, to such Participant's surviving parents,
equally; if neither survives, to such Participant's executors or
administrators.
ARTICLE 7
AMENDMENT AND TERMINATION OF PLAN
7.1 Amendment. The Senior Vice President, Human Resources of Travelers
Group Inc. or the Board may at any time amend the Plan in whole or in part;
provided, however, that no such amendment shall be effective to decrease the
benefits accrued by any Participant prior to the date of such amendment and any
change in the definitions of the Declared Rates shall be effective only as to
Plan Years beginning after the date of such amendment. Written notice of any
amendment shall be given to each current or former Employee then participating
in the Plan.
7.2 Termination.
(a) Company's Right to Terminate. The Chief Human Resources Officer
of Citigroup Inc. or the Board may at any time terminate the Plan, if in
his or her or its judgment, the continuance of the Plan would not be in
the best interests of Citigroup, the Company or its affiliates.
(b) Payments Upon Termination. Upon termination of the Plan under
this Section 7.2, the Participants will be deemed to have voluntarily
terminated their participation under the Plan as of the date of such
termination. Salary and Incentive Awards shall cease to be deferred, and
the Company will pay to each Participant the value of each of the
Participant's Deferral Accounts, determined as if each Participant had
terminated employment on the date of such termination of the Plan, at such
times and
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pursuant to such terms and conditions as the Committee in its sole
discretion shall determine. Participants or Beneficiaries receiving
Retirement Benefit installments shall receive a lump sum payment equal to
the remaining, unpaid Deferred Account balance.
ARTICLE 8
MISCELLANEOUS
8.1 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors, and assigns shall have no legal or equitable rights, claims,
or interests in any specific property or assets of the Company, nor shall they
be beneficiaries of, or have any rights, claims, or interests in any life
insurance policies, annuity contracts, or the proceeds therefrom owned or which
may be acquired by the Company ("Policies"). Such Policies or other assets of
the Company shall not be held under any trust for the benefit of Participants,
their Beneficiaries, heirs, successors, or assigns (other than a grantor trust
established to assist the Company in meeting its obligations hereunder and the
assets of which are available to general creditors if the Company becomes
insolvent), or held as collateral security for the fulfilling of the obligation
of the Company under this Plan. Any and all of the Company's assets and Policies
shall be, and remain, the general, unpledged, unrestricted assets of the
Company. The Company's obligation under the Plan shall be merely that of an
unfunded and unsecured promise of the Company to pay money in the future.
8.2 Obligations to Company. If a Participant becomes entitled to a
distribution of benefits under the Plan, and if at such time the Participant has
outstanding any debt, obligation, or other liability representing an amount
owing to the Company or its affiliates, then the Company may offset such amount
owed to it against the amount of benefits otherwise distributable. Such
determination shall be made by the Committee.
8.3 Nonassignability. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, hypothecate or convey in advance of actual receipt the
amounts, if any, payable, hereunder, or any part thereof, or interest therein
which are, and all rights to which are, expressly declared to be unassignable
and non-transferable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant or any other
person, nor be transferable by operation of law in the event of a Participant's
or any other person's bankruptcy or insolvency.
8.4 Employment Not Guaranteed. Nothing contained in this Plan nor any
action taken hereunder shall be construed as a contract of employment or as
giving any Employee any right to be retained in the employ of the Company or its
affiliates.
8.5 Protective Provisions. Each Participant shall cooperate with the
Company by furnishing any and all information requested by the Company in order
to facilitate the payment of benefits hereunder, by taking such physical
examinations as the Company may deem necessary and by taking such other relevant
action as may be requested by the Company. If a Participant refuses to
cooperate, the Company shall have no further obligation to the Participant under
the Plan, other than payment to such Participant of the cumulative reductions in
Salary and Incentive Awards theretofore made pursuant to this Plan.
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8.6 Gender, Singular & Plural. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, as the identity
of the person or persons may require. As the context may require, the singular
may be read as the plural and the plural as the singular.
8.7 Captions. The captions of the articles, sections, and paragraphs of
this Plan are for convenience only and shall not control or affect the meaning
of construction of any of its provisions.
8.8 Validity. In the event any provision of this Plan is held invalid,
void, or unenforceable, the same shall not affect, in any respect, whatsoever,
the validity of any other provision of this Plan.
8.9 Notice. Any notice or filing required or permitted to be given to the
Committee under the Plan shall be sufficient if in writing and hand delivered,
or sent by registered or certified mail, to the Company, directed to the
attention of the Plans Administration Committee of the Company, Attention:
Administrator, at the address set forth in Article 3. Such notice shall be
deemed given as to the date of delivery or, if delivery is made by mail, as of
the date shown on the postmark on the receipt for registration or certification.
8.10 Applicable Law. This Plan shall be governed and construed in
accordance with the laws of the State of Connecticut.
8.11 Trust Fund. The Company shall be responsible for the payment of all
benefits provided under the Plan. At its discretion, the Company may establish
one or more trusts, with such trustees as the Board or the Committee may
approve, for the purpose of providing for the payment of such benefits. Such
trust or trusts may be irrevocable, but the assets thereof shall be subject to
the claims of the Company's creditors. To the extent any benefits provided under
the Plan are actually paid from any such trust, the Company shall have no
further obligation with respect thereto, but to the extent not so paid, such
benefits shall remain the obligation of, and shall be paid by, the Company.
8.12 Ineligible Participant. Notwithstanding any other provisions of this
Plan to the contrary, if any Participant is determined not to be a "management
or highly compensated employee" within the meaning of ERISA or Regulations
thereunder, such Participant will not be eligible to participate in this Plan
and shall receive an immediate lump-sum payment equal to the amounts standing
credited to his or her Deferral Accounts. Upon such payment, no survivor benefit
or other benefit shall thereafter be payable under this Plan either to the
Participant or any Beneficiary of the Participant.
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APPENDIX A
TESIP RESTORATION PLAN
The TESIP Restoration Plan was effective only for 1990. Deferral Accounts
under the TESIP Restoration Plan were converted to Deferral Accounts under The
Travelers TESIP Restoration and Non-Qualified Savings Plan effective January 1,
1991.
Eligible Employees were permitted to make Salary deferrals for the period
from July through December 1990 and were permitted to defer Incentive Awards
paid in 1990. The maximum deferral permitted was 17% of compensation (year-end
1989 Salary plus last paid Incentive Award) minus the TESIP Offset ($10,480 for
1990).
For 1990 the Company contributed to the Deferral Account of a Participant
the following amounts:
(a) Company Matching Contribution. The Company made a matching
contribution of 100% of the amount of compensation the Participant
deferred (up to a maximum of the first 5% of compensation), less the TESIP
Offset of $10,480.
(b) TESIP Restoration Contribution. The Company also made an
additional contribution if participation in the TESIP Restoration Plan
reduced the Participant's Company contribution under TESIP.
The Fixed Income Declared Rate was credited during 1990 on all Deferral
Accounts under the TESIP Restoration Plan.
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APPENDIX B
1991 - 1993
*Deferral of up to 50% of salary and up to 100% of incentive plan
award (eg., MIP) on a pre-tax basis.
*Restore matching contributions from The Travelers up to a full 5%
of compensation.
*Earn tax-deferred interest based on either a fixed rate of return
or a simulated equity rate of return, eg., S&P 500 Index.
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APPENDIX C
1994 and 1995
*Deferral of up to 50% of salary and up to 100% of eligible
incentive plan awards on a pre-tax basis.
*Restore matching contributions from The Travelers up to 2.5% of
compensation plus a variable matching contribution in the event such
a contribution is made under TESIP.
*Earn tax-deferred interest based on either a fixed rate of return
or a simulated equity rate of return, e.g., S&P 500 Index.
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APPENDIX D
Pursuant to section 4.2 of the Plan, the Company allows the tax deferred
rollover of non-qualified balances that had previously been part of Aetna's
Incentive Deferral Plan and Aetna's Supplemental Incentive Savings Plan (SISP)
and will credit to Deferral Accounts any amounts deferred during 1996 and
Company Contributions made pursuant to Aetna's Incentive Deferral Plan
and Aetna's SISP during 1996.
Distribution Elections
For all balances transferred from Aetna's Incentive Deferral plan, the payment
elections that were made under Aetna's Plan will continue to govern the
distribution of those balances.
For all balances transferred from Aetna's SISP, participants will make a payment
election based on choices that are similar to those that existed under Aetna's
Incentive Deferral Plan. The Company reserves the right to require participants
to provide new payment elections consistent with those then available under the
Plan. Elections for payment upon retirement for balances transferred from
Aetna's SISP plan commence by definition under such plan on or after age 62.
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Exhibit 10.23
DIRECTORS' DEFERRED COMPENSATION PLAN, RESTATED MAY 1, 1988
1. Purpose of The Plan
The purpose of the Directors' Deferred Compensation Plan (the "Plan") is
to assist the eligible directors of Citicorp, a Delaware corporation, and
Citibank, N.A., a national banking association ("Citibank"), in planning
for their retirement.
2. Definitions
(a) Compensation. "Compensation" shall mean all compensation payable to a
Director including retainers, meeting fees and fees for services on
committees duly authorized by the By-Laws of Citicorp or Citibank or
by resolutions duly adopted from time to time by the Boards of
Directors of either.
(b) Director. "Director" shall mean those persons duly elected to the
Boards of Directors of Citicorp or Citibank by the shareholders
thereof or duly appointed by the Board of Directors.
(c) Participant. "Participant" shall mean a Director who elects to defer
Compensation under the Plan.
(d) Secretary. "Secretary" shall mean the Secretary of Citicorp.
(e) The terms "Fund", "Valuation Date" and "Fiscal Quarter Date" shall
have the same meanings as under the Savings Incentive Plan of
Citibank, N.A. and Affiliates ("SIP"), as it may be amended from time
to time.
3. Administration
(a) The Plan shall be administered by the Secretary. The Secretary shall
have authority to interpret and construe the provisions of the Plan
and make determinations pursuant to any Plan provision which shall be
final and binding on all persons.
(b) The Secretary may designate employees of Citicorp or Citibank to
assist in carrying out his administrative responsibilities.
4. Eligibility
A Director shall be eligible to become a Participant immediately upon his
election or appointment to the Board of Directors of Citicorp or Citibank.
<PAGE>
5. Elections to Defer
(a) A Director may file an election at any time in the manner provided in
Section 10(f), to defer Compensation. Such election shall be
irrevocable as to amounts deferred pursuant thereto, and shall take
effect as to Compensation payable to such Director after the date of
receipt of the election by the Secretary.
(b) A Director may file an election at any time, in the manner provided
in Section 10(f), to increase, decrease or cancel a previous election
to defer, but such new election shall have effect only as to
Compensation payable after the new election is received by the
Secretary.
(c) An election shall state the percentage of each payment of
Compensation to be deferred, which shall be in multiples of 25%.
(d) An election shall state the time at which the deferred Compensation
shall be paid or commence to be paid to the Director. Such time shall
be a definite date, which may be determined by reference to specific
events, including without limitation the date on which the
Participant ceases to be a Director or the date on which the Director
retires from his principal occupation or employment.
(e) Notwithstanding the foregoing provisions of this Section 5, all
elections shall be subject to the approval of the Secretary.
6. Investment Elections
(a) Investment Accounts shall be established under the Plan, for
bookkeeping purposes only, which shall correspond to the Trust
Funds established from time to time under Section 2 of Article V
of the SIP, to which Investment Accounts deferred Compensation
shall be credited. The amounts credited shall be expressed in
units of such Investment Accounts, which shall have the same
value and Valuation Dates as the corresponding Fund units under
Section 3 of Article V of the SIP, provided, however, that for
purposes of this Plan, SIP Fund D shall be deemed to have a
monthly Valuation Date, and a unit value equal to the value at
the Fiscal Quarter Date coincident with or immediately preceding
such Valuation Date. Transactions under the Plan may occur only
as of a Valuation Date.
(b) The Participant shall elect, in the manner provided in Section
10(f), that his Compensation subject to a deferral election under
Section 5 shall be credited to one or more of the Investment
Accounts in multiples of 10% of the amount deferred. Amounts so
credited shall be converted to units at the rate prevailing for
Trust Fund units on the Valuation Date coincident with
<PAGE>
or immediately preceding the date as of which the Compensation would
have been paid in the absence of deferral.
(c) A Participant may elect, in the manner provided in Section 10(f), to
transfer amounts to his credit in any Investment Account to any
other Investment Account, except that no amounts may be transferred
directly between Investment Accounts B and D. Such election shall be
effective as of the Valuation Date coincident with or next following
the date of the Secretary's receipt of the election.
7. Payment of Deferred Compensation
(a) All payments of deferred Compensation under the Plan shall be made
solely as provided in this Section 7.
(b) Payments of deferred Compensation credited to Investment
Accounts other than Investment Accounts B and D shall be in
cash. Payments of deferred Compensation credited to Investment
Accounts B and D shall be in shares of common stock of Citicorp.
The number of shares payable shall be calculated by dividing the
amount of deferred Compensation to be paid out of Investment
Accounts B or D by the average of the highest and the lowest
quoted selling price for a share of Citicorp stock on the New
York Stock Exchange on the relevant Valuation Date or, if there
were no sales on the Valuation Date, as determined under Treasury
Regulation 20.2031-2(b).
(c) A Participant may elect, subject to the approval of the
Secretary and in the manner provided in Section 10(f), that his
deferred Compensation shall be paid in a single payment or in
installments over a period not exceeding fifteen years. Such
election shall be filed with the Secretary not less than 30 days
prior to the date elected under Section 5(d) in the case of a
payment in cash and not less than 6 months prior to such date in
the case of a payment in common stock. In the event that no
election is made, the payment shall be a single sum.
(d) In the case of installment payments, the Investment Account credits
of the Participant shall be charged for each payment on a pro-rata
basis. Remaining undistributed amounts shall remain in the
Investment Accounts, and shall continue to be subject to the
provisions of the Plan.
(e) The Secretary may accelerate and pay to a Participant in a lump sum
all or such part of the Participant's deferred amount as the
Secretary finds, in his sole discretion, necessary to relieve a
severe financial hardship to the Participant which is unforeseeable
by and beyond the control of the Participant.
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(f) In the event of a Participant's death, the Secretary shall pay all
undistributed amounts in a single sum to the Participant's
beneficiary designated pursuant to Section 10(a), or if no
beneficiary has been designated, to the Participant's estate or
personal representative.
8. Amendment, Suspension And Termination Of The Plan
The Board of Directors of Citicorp and/or Citibank may from time to time
amend, suspend or terminate the Plan, in whole or part, except that no
such amendment, suspension or termination may be made to the Plan if such
change would permit members of the Board of Directors of Citicorp or
Citibank who are full time employees of Citicorp or a subsidiary or
affiliate to participate in the Plan. No amendment, suspension,
termination or reinstatement shall adversely affect the rights of any
Participant to deferred Compensation previously earned by such Participant
which has not been paid, unless such Participant shall consent to such
change; provided that this provision shall not be interpreted to restrict
the powers granted to either the Secretary or reserved to the Board of
Directors of Citicorp and Citibank.
9. Other Plans
Nothing herein contained shall be construed as limiting the establishment
or continued operation of other director compensation plans by Citicorp or
Citibank or as limiting the authority of the Boards of Directors of
Citicorp or Citibank to establish, amend, substitute or reinstate director
compensation plans for Citicorp or Citibank.
10. General Provisions
(a) Designation Of Beneficiary. A Participant may designate a beneficiary
or beneficiaries and may change such designation from time to time by
filing a written designation of beneficiary with the Secretary in the
manner provided in Section 10(f); provided that no such designation
shall be effective unless so filed prior to the death of such
Participant.
(b) No Right Of Continued Status. Neither the establishment of the Plan
nor the payment of any benefits hereunder nor any action of Citicorp
or Citibank of the Boards of Directors of Citicorp or Citibank, or of
any committee thereof shall be held or construed to confer upon any
person any legal right to remain a Director of Citicorp or Citibank.
(c) Discretion Of Citicorp, Citibank Boards of Directors And The
Secretary. Any decision made or action taken by Citicorp or
Citibank or by the Boards of Directors of Citicorp or Citibank or
by the Secretary arising out of or in connection with the
construction, administration, interpretation and effect of the
Plan shall be within the absolute discretion of Citicorp,
Citibank, of the
<PAGE>
Boards of Directors of Citicorp or Citibank or the Secretary, as the
case may be, and shall be conclusive and binding upon all persons.
(d) Absence Of Liability. A member of the Board of Directors of
Citicorp or Citibank or the Secretary, or any other officer of
Citicorp or Citibank shall not be liable for any act or action
hereunder, whether of commission or omission, taken by any other
member, or by any officer, agent, or employer, or except in
circumstances involving his bad faith, for anything done or
omitted to be done by himself, and shall be entitled to
indemnification and reimbursement in the manner provided in
Citicorp's Restated Certificate of Incorporation, as it may be
amended from time to time.
(e) No Segregation Of Cash. Memorandum accounts established for
Participants are merely a bookkeeping convenience and Citicorp or
Citibank shall not be required to segregate any cash which may at
any time be represented by deferred Compensation and nothing
provided herein shall be construed as providing for such
segregation. No interest at any time shall be allowable or
payable with respect to any deferred Compensation except as
expressly provided herein. Further, Citicorp or Citibank or the
Boards of Directors thereof or the Secretary shall not, by any
provisions of the Plan, be deemed to be a trustee of any property,
and the liabilities of Citicorp or Citibank to any Participant
pursuant to the Plan shall be those of a debtor pursuant to such
contractual obligations as are created by the Plan, and no such
obligation of Citicorp or Citibank shall be deemed to be secured
by any pledge or other encumbrance on any property of Citicorp or
Citibank.
(f) Elections. Elections and designations hereunder shall be made by a
Director or Participant in writing delivered to the Secretary. The
Secretary may prescribe forms for any such election or designation.
(g) Inalienability Of Benefits And Interests. Except as provided in
paragraph (a) of this Section , no benefit payable under or
interest in the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any such attempted action shall be void
and no such benefit or interest shall be in any manner liable for
or subject to debts, contracts, liabilities, engagements or torts
of any Participant or beneficiary. If any Participant or
beneficiary shall become bankrupt or shall attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge any
benefit payable under or interest in the Plan, then the Secretary
in his discretion may hold or apply such benefit or interest or
any part thereof to or for the benefit of such Participant or his
beneficiary, spouse, children, blood relatives or other
dependents, or any of them, in such manner and in such proportions
as the Secretary may consider proper.
<PAGE>
(h) New York Law To Govern. All questions pertaining to the construction,
regulation, validity and effect of the provisions of the Plan shall
be determined in accordance with the laws of the Sate of New York.
(i) Accounting For Director Compensation. Payment of deferred
Compensation shall be by or for the account of Citicorp or Citibank
as the case may be, and Citicorp and Citibank may make such
arrangements as they may deem appropriate with respect thereto.
(j) Change In Conditions Or Federal Income Tax Laws. In the event of
relevant changes in the Federal Income Tax laws, regulations and
rulings or other factors affecting the continued appropriateness of
deferred Compensation under the Plan, the Secretary may, in his sole
discretion, accelerate payment or distribution of deferred
Compensation or unpaid installments of deferred Compensation.
(k) Stock. The Stock subject to the provisions of the Plan shall be
shares of authorized but unissued common stock of Citicorp and shares
of common stock of Citicorp held as Treasury Stock.
(l) If any provision of the Plan does not comply with Section 16(b) of
the Securities Exchange Act of 1934 and the rules and regulations
thereunder, such provision shall be deemed deleted from the Plan and
the remaining provisions of the Plan shall not be affected thereby.
11. Effective Date of Plan
The Plan, as restated, shall be effective as of May 1, 1988, subject to
the approval of shareholders.
<PAGE>
Exhibit 12.01
CITIGROUP, INC.
CALCULATION OF RATIO OF INCOME TO FIXED CHARGES
(In Millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE (OTHER THAN
INTEREST ON DEPOSITS) 15,849 14,911 12,362 13,488 13,532
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302
--------- --------- --------- --------- ---------
TOTAL FIXED CHARGES 16,243 15,212 12,644 13,763 13,834
--------- --------- --------- --------- ---------
INCOME:
INCOME BEFORE TAXES & MINORITY INTEREST 9,269 10,750 11,087 8,914 5,656
OTHER - - 1 - -
FIXED CHARGES 16,243 15,212 12,644 13,763 13,834
--------- --------- --------- --------- ---------
TOTAL INCOME 25,512 25,962 23,732 22,677 19,490
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIO OF INCOME TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 1.57 1.71 1.88 1.65 1.41
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
INCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE 27,495 24,524 21,336 22,390 22,528
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302
--------- --------- --------- --------- ---------
TOTAL FIXED CHARGES 27,889 24,825 21,618 22,665 22,830
--------- --------- --------- --------- ---------
INCOME:
INCOME BEFORE TAXES & MINORITY INTEREST 9,269 10,750 11,087 8,914 5,656
OTHER - - 1 - -
FIXED CHARGES 27,889 24,825 21,618 22,665 22,830
--------- --------- --------- --------- ---------
TOTAL INCOME 37,158 35,575 32,706 31,579 28,486
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIO OF INCOME TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.33 1.43 1.51 1.39 1.25
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<PAGE>
CITIGROUP, INC.
CALCULATION OF RATIO OF INCOME TO FIXED CHARGES
INCLUDING PREFERRED STOCK DIVIDENDS
(In Millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE (OTHER THAN
INTEREST ON DEPOSITS) 15,849 14,911 12,362 13,488 13,532
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302
DIVIDENDS--PREFERRED STOCK 332 433 505 800 704
--------- --------- --------- --------- ---------
TOTAL FIXED CHARGES 16,575 15,645 13,149 14,563 14,538
--------- --------- --------- --------- ---------
INCOME:
INCOME BEFORE TAXES & MINORITY INTEREST 9,269 10,750 11,087 8,914 5,656
OTHER - - 1 - -
FIXED CHARGES (EXCLUDING PREFERRED
STOCK DIVIDENDS) 16,243 15,212 12,644 13,763 13,834
--------- --------- --------- --------- ---------
TOTAL INCOME 25,512 25,962 23,732 22,677 19,490
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIO OF INCOME TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 1.54 1.66 1.80 1.56 1.34
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
INCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE 27,495 24,524 21,336 22,390 22,528
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302
DIVIDENDS--PREFERRED STOCK 332 433 505 800 704
--------- --------- --------- --------- ---------
TOTAL FIXED CHARGES 28,221 25,258 22,123 23,465 23,534
--------- --------- --------- --------- ---------
INCOME:
INCOME BEFORE TAXES & MINORITY INTEREST 9,269 10,750 11,087 8,914 5,656
OTHER - - 1 - -
FIXED CHARGES (EXCLUDING PREFERRED
STOCK DIVIDENDS) 27,889 24,825 21,618 22,665 22,830
--------- --------- --------- --------- ---------
37,158 35,575 32,706 31,579 28,486
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIO OF INCOME TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.32 1.41 1.48 1.35 1.21
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<PAGE>
Exhibit 21.01
SUBSIDIARIES OF CITIGROUP INC.
As of December 31, 1998
The following list omits certain subsidiaries, which considered in the
aggregate as a single subsidiary, would not constitute a significant
subsidiary. The jurisdiction of incorporation of each subsidiary is also
indicated.
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
Associated Madison Companies, Inc. Delaware
... Mid-America Insurance Services, Inc. Georgia
... PFS Services, Inc. Georgia
... ... PFS Shareholder Services* Georgia
... ... The Travelers Insurance Group Inc. Connecticut
... ... ... The Prospect Company Delaware
... ... ... ... One Twenty Five High Street Limited Partnership Massachusetts
... ... ... ... Panther Valley, Inc. New Jersey
... ... ... ... The Travelers Asset Funding Corporation Connecticut
... ... ... The Travelers Insurance Company Connecticut
... ... ... ... 440 South LaSalle LLC Delaware
... ... ... ... American Financial Life Insurance Company Texas
... ... ... ... Carlton Arms of Bradenton Florida
... ... ... ... Cripple Creek Venture Partner II L.P.* Colorado
... ... ... ... Greenwich Street Capital Partners, L.P.* Delaware
... ... ... ... Greenwich Street Investments II LLC Delaware
... ... ... ... Hollow Creek, L.L.C. North Carolina
... ... ... ... ... Station Hill, L.L.C. North Carolina
... ... ... ... Oakbrook Hotel Venture Illinois
... ... ... ... Prospect/Nissei 190 L.P. Illinois
... ... ... ... ... 190 S. LaSalle Associates L.P. Illinois
... ... ... ... Primerica Life Insurance Company Massachusetts
... ... ... ... ... National Benefit Life Insurance Company New York
... ... ... ... ... Primerica Financial Services (Canada) Ltd. Canada
... ... ... ... ... ... PFSL Investments Canada Ltd. Canada
... ... ... ... ... ... Primerica Life Insurance Company of Canada Canada
... ... ... ... ... ... ... Primerica Client Services Inc. (Canada) Canada
... ... ... ... ... ... ... Primerica Financial Services Ltd. Canada
... ... ... ... SSB Private Selections, LLC* Delaware
... ... ... ... ... Salomon Smith Barney Private Selection Fund I, LLC Delaware
... ... ... ... The Greenwich Street Fund L.P.* Delaware
... ... ... ... The Plaza Corporation Connecticut
... ... ... ... ... The Copeland Companies (Holding Company) New Jersey
... ... ... ... ... ... American Odyssey Funds Management, Inc. New Jersey
... ... ... ... ... ... Copeland Associates, Inc. Delaware
... ... ... ... ... ... ... Copeland Associates Agency of Ohio, Inc. Ohio
... ... ... ... ... ... ... Copeland Associates of Alabama, Inc. Alabama
... ... ... ... ... ... ... Copeland Associates of Montana, Inc. Montana
... ... ... ... ... ... ... Copeland Associates of Nevada, Inc. Nevada
... ... ... ... ... ... ... Copeland Equities, Inc. New Jersey
... ... ... ... ... ... ... Donald F. Smith & Associates New Jersey
... ... ... ... ... ... ... H.C. Copeland Associates, Inc. of Massachusetts Massachusetts
... ... ... ... ... ... ... Smith Annuity Services, Inc. New Jersey
... ... ... ... ... ... Copeland Financial Services, Inc. New Jersey
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... ... ... Copeland Mortgage Services, Inc. New Jersey
... ... ... ... ... ... H.C. Copeland and Associates, Inc. of Texas Texas
... ... ... ... ... Tower Square Securities, Inc. Connecticut
... ... ... ... ... ... Tower Square Securities Insurance Agency of Alabama, Inc. Alabama
... ... ... ... ... ... Tower Square Securities Insurance Agency of Massachusetts, Inc. Massachusetts
... ... ... ... ... ... Tower Square Securities Insurance Agency of New Mexico, Inc. New Mexico
... ... ... ... ... ... Tower Square Securities Insurance Agency of Ohio, Inc. Ohio
... ... ... ... ... ... Tower Square Securities Insurance Agency of Texas, Inc. Texas
... ... ... ... ... Travelers Asset Management International Corporation New York
... ... ... ... ... Travelers Distribution Company Delaware
... ... ... ... ... Travelers Investment Advisers, Inc. Delaware
... ... ... ... ... Travelers/Net Plus Insurance Agency, Inc. Massachusetts
... ... ... ... ... Travelers/Net Plus, Inc. Connecticut
... ... ... ... ... ... Travelers/Net Plus Agency of Ohio, Inc. Ohio
... ... ... ... The Travelers Life and Annuity Company Connecticut
... ... ... ... ... Travelers Annuity UK Investments, LLC Connecticut
... ... ... ... ... Travelers/Nissei 190 S. LaSalle Company Illinois
... ... ... ... TowerMark of New York New York
... ... ... ... Travelers Highland Park, LLC Colorado
... ... ... ... ... Highland Park Ventures, LLC Colorado
... ... ... ... Travelers Insurance UK Investments, LLC Connecticut
... ... ... ... Travelers International Investments Ltd. Cayman Islands
... ... ... ... Travelers Opportunity Fund I, LLC Delaware
... ... ... ... ... Tishman Speyer/Travelers Associates Delaware
... ... ... ... Travelers Opportunity Fund II, LLC Delaware
... ... ... ... ... Tishman Speyer/Travelers Real Estate Venture L.P. Delaware
... ... ... ... Travelers Schaumberg Windy Point LLC Delaware
... ... ... ... ... Windy Point of Schaumberg LLC Delaware
... ... ... ... Travelers York Road LLC Delaware
... ... ... ... ... York Road Properties LLC Delaware
... ... ... ... Travko 1998-1, L.P. Texas
... ... ... ... Tribeca Management, L.L.C. Delaware
... ... ... ... TriCounty Grove Florida
... ... ... ... Umbrella Capital Company LLC Delaware
... ... ... Travelers Mortgage Securities Corporation Delaware
... ... ... Travelers Property Casualty Corp.** Delaware
... ... ... ... The Standard Fire Insurance Company Connecticut
... ... ... ... ... AE Properties, Inc. California
... ... ... ... ... ... AE Town and Country Limited Partnership Arizona
... ... ... ... ... ... Bayhill Associates California
... ... ... ... ... ... Bayhill Restaurant II Associates California
... ... ... ... ... ... Industry Land Development Company California
... ... ... ... ... ... Industry Partners* California
... ... ... ... ... Community Rehabilitation Investment Corporation Connecticut
... ... ... ... ... Standard Fire UK Investments, LLC Connecticut
... ... ... ... ... The Automobile Insurance Company of Hartford, Connecticut Connecticut
... ... ... ... ... TravCal Secure Insurance Company California
... ... ... ... ... ... TravCal Indemnity Company California
... ... ... ... ... Travelers Alpha Holdings, Inc.* Connecticut
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... ... Travelers Personal Security Insurance Company Connecticut
... ... ... ... ... Travelers Property Casualty Insurance Company Connecticut
... ... ... ... ... Travelers Property Casualty Insurance Company of Illinois Illinois
... ... ... ... The Travelers Indemnity Company Connecticut
... ... ... ... ... Black Enterprise/Greenwich Street Corporate Growth Partners L.P. Delaware
... ... ... ... ... Commercial Insurance Resources, Inc. Delaware
... ... ... ... ... ... Gulf Insurance Company Missouri
... ... ... ... ... ... ... Atlantic Insurance Company Texas
... ... ... ... ... ... ... Gulf Group Lloyds Texas
... ... ... ... ... ... ... Gulf Insurance Holdings UK Limited England
... ... ... ... ... ... ... ... Gulf Insurance Company U.K. Limited England
... ... ... ... ... ... ... Gulf Risk Services, Inc. Delaware
... ... ... ... ... ... ... Gulf Underwriters Insurance Company Missouri
... ... ... ... ... ... ... Select Insurance Company Texas
... ... ... ... ... Countersignature Agency, Inc. Florida
... ... ... ... ... Cripple Creek Venture Partner L.P.* Colorado
... ... ... ... ... First Floridian Auto and Home Insurance Company Florida
... ... ... ... ... First Trenton Indemnity Company New Jersey
... ... ... ... ... ... Red Oak Insurance Company New Jersey
... ... ... ... ... Midkiff Development Drilling Program, L.P.* Texas
... ... ... ... ... Parrish Equipment Partners, L.P.* New York
... ... ... ... ... Pep Pendulum Holdings, L.L.C. New York
... ... ... ... ... Salomon Brothers Capital Structure Arbitrage Fund I, L.P.* Delaware
... ... ... ... ... Secure Affinity Agency, Inc. Delaware
... ... ... ... ... The Charter Oak Fire Insurance Company Connecticut
... ... ... ... ... The Phoenix Insurance Company Connecticut
... ... ... ... ... ... Constitution State Service Company Montana
... ... ... ... ... ... Constitution State Services LLC* Delaware
... ... ... ... ... ... Phoenix UK Investments, LLC Connecticut
... ... ... ... ... ... The Travelers Indemnity Company of America Connecticut
... ... ... ... ... ... The Travelers Indemnity Company of Connecticut Connecticut
... ... ... ... ... ... The Travelers Indemnity Company of Illinois Illinois
... ... ... ... ... The Premier Insurance Company of Massachusetts Massachusetts
... ... ... ... ... The Travelers Home and Marine Insurance Company Indiana
... ... ... ... ... The Travelers Indemnity Company of Missouri Missouri
... ... ... ... ... The Travelers Lloyds Insurance Company Texas
... ... ... ... ... The Travelers Marine Corporation California
... ... ... ... ... TravCo Insurance Company Indiana
... ... ... ... ... Travelers Bond Investments, Inc. Connecticut
... ... ... ... ... Travelers Foreign Bond Partnership Connecticut
... ... ... ... ... Travelers General Agency of Hawaii, Inc. Hawaii
... ... ... ... ... Travelers Medical Management Services Inc. Delaware
... ... ... ... ... Triple T Diamond Gateway LLC Delaware
... ... ... ... TPC Investments, Inc. Connecticut
... ... ... ... Travelers (Bermuda) Limited Bermuda
... ... ... ... Travelers Casualty and Surety Company Connecticut
... ... ... ... ... 2677 Main Street Associates LLC Delaware
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... ... Farmington Casualty Company Connecticut
... ... ... ... ... ... Heartland Insurance Services, Inc. Connecticut
... ... ... ... ... Ponderosa Homes* Connecticut
... ... ... ... ... T-W Master LLC Delaware
... ... ... ... ... ... T-W Santa Clara LLC Delaware
... ... ... ... ... Travelers Casualty & Surety Company of Canada Canada
... ... ... ... ... Travelers Casualty and Surety Company of America Connecticut
... ... ... ... ... Travelers Casualty and Surety Company of Illinois Illinois
... ... ... ... ... Travelers Casualty Company of Connecticut Connecticut
... ... ... ... ... Travelers Casualty UK Investments, LLC Connecticut
... ... ... ... ... Travelers Commercial Insurance Company Connecticut
... ... ... ... ... Travelers Excess and Surplus Lines Company Connecticut
... ... ... ... ... Travelers Lloyds of Texas Insurance Company Texas
... ... ... ... ... Travelers Tribeca Investments, Inc. New York
... ... ... ... ... ... Travelers Tribeca Investments, LLC New York
... ... ... ... Travelers P&C Capital I Delaware
... ... ... ... Travelers P&C Capital II Delaware
... ... ... ... Travelers P&C Capital III Delaware
... ... ... ... Tribeca Alternative Strategies, Inc. Connecticut
... Primerica Services, Inc. Georgia
... Primerica Client Services, Inc. (USA) Delaware
... Primerica Convention Services, Inc. Georgia
... Primerica Finance Corporation Delaware
... ... PFS Distributors, Inc. Georgia
... ... PFS Investments Inc. Georgia
... Primerica Financial Services Home Mortgages, Inc. Georgia
... ... Primerica Financial Services Home Mortgages Limited Partnership of Arizona Delaware
... ... Primerica Financial Services Home Mortgages Limited Partnership of North Carolina North Carolina
... ... Primerica Financial Services Home Mortgages Limited Partnership of Ohio Ohio
... Primerica Financial Services, Inc. Nevada
... ... Primerica Financial Insurance Services of Texas, Inc. Texas
... ... Primerica Financial Services Agency of New York, Inc. New York
... ... Primerica Financial Services Agency of Ohio, Inc. Ohio
... ... Primerica Financial Services Insurance Marketing of Connecticut, Inc. Connecticut
... ... Primerica Financial Services Insurance Marketing of Idaho, Inc. Idaho
... ... Primerica Financial Services Insurance Marketing of Maine, Inc. Maine
... ... Primerica Financial Services Insurance Marketing of Nevada, Inc. Nevada
... ... Primerica Financial Services Insurance Marketing of Pennsylvania, Inc. Pennsylvania
... ... Primerica Financial Services Insurance Marketing of the Virgin Islands, Inc. U.S. Virgin Islands
... ... Primerica Financial Services Insurance Marketing of Wyoming, Inc. Wyoming
... ... Primerica Financial Services Insurance Marketing, Inc. Delaware
... ... Primerica Financial Services of Alabama, Inc. Alabama
... ... Primerica Financial Services of Arizona, Inc. Arizona
... ... Primerica Financial Services of Kentucky, Inc. Kentucky
... ... Primerica Financial Services of New Mexico, Inc. New Mexico
... ... Primerica Insurance Agency of Massachusetts, Inc. Massachusetts
... ... Primerica Insurance Marketing Services of Puerto Rico, Inc. Puerto Rico
... ... Primerica Insurance Services of Louisiana, Inc. Louisiana
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... SL&H Reinsurance, Ltd. Leeward Islands
... ... Southwest Service Agreements, Inc. North Carolina
... Southwest Warranty Corporation Florida
CCC Holdings, Inc. Delaware
... CCC Fairways, Inc. Delaware
... Commercial Credit Company Delaware
... ... American Health and Life Insurance Company Texas
... ... Brookstone Insurance Company Vermont
... ... CC Credit Card Corporation Delaware
... ... CC Finance System Incorporated Delaware
... ... Chesapeake Appraisal and Settlement Services Inc. Maryland
... ... ... Chesapeake Appraisal and Settlement Services Agency of Ohio Inc. Ohio
... ... ... Chesapeake West Escrow Services Inc. California
... ... City Loan Financial Services, Inc. Ohio
... ... Commercial Credit Consumer Services, Inc. Minnesota
... ... Commercial Credit Corporation (Hawaii) Hawaii
... ... Commercial Credit Corporation (AL) Alabama
... ... Commercial Credit Corporation (CA) California
... ... Commercial Credit Corporation (IA) Iowa
... ... ... Commercial Credit of Alabama, Inc. Delaware
... ... ... Commercial Credit of Mississippi, Inc. Delaware
... ... Commercial Credit Corporation (KY) Kentucky
... ... ... Commercial Credit Investment, Inc. Kentucky
... ... Commercial Credit Corporation (MD) Maryland
... ... ... Commercial Credit Plan, Incorporated (OK) Oklahoma
... ... Commercial Credit Corporation (SC) South Carolina
... ... Commercial Credit Corporation (WV) West Virginia
... ... Commercial Credit Corporation NC North Carolina
... ... Commercial Credit Insurance Services, Inc. Maryland
... ... ... Commercial Credit Insurance Agency (P&C) of Mississippi, Inc. Mississippi
... ... ... Commercial Credit Insurance Agency of Alabama, Inc. Alabama
... ... ... Commercial Credit Insurance Agency of Hawaii, Inc. Hawaii
... ... ... Commercial Credit Insurance Agency of Kentucky, Inc. Kentucky
... ... ... Commercial Credit Insurance Agency of Massachusetts, Inc. Massachusetts
... ... ... Commercial Credit Insurance Agency of Nevada, Inc. Nevada
... ... ... Commercial Credit Insurance Agency of New Mexico, Inc. New Mexico
... ... ... Commercial Credit Insurance Agency of Ohio, Inc. Ohio
... ... Commercial Credit International, Inc. Delaware
... ... ... Commercial Credit International Banking Corporation Oregon
... ... Commercial Credit Loan, Inc. (NY) New York
... ... Commercial Credit Loans, Inc. (DE) Delaware
... ... Commercial Credit Loans, Inc. (OH) Ohio
... ... Commercial Credit Loans, Inc. (VA) Virginia
... ... Commercial Credit Management Corporation Maryland
... ... Commercial Credit Plan Incorporated (TN) Tennessee
... ... Commercial Credit Plan Incorporated (UT) Utah
... ... Commercial Credit Plan Incorporated of Georgetown Delaware
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... Commercial Credit Plan Industrial Loan Company Virginia
... ... Commercial Credit Plan, Incorporated (CO) Colorado
... ... Commercial Credit Plan, Incorporated (DE) Delaware
... ... Commercial Credit Plan, Incorporated (GA) Georgia
... ... Commercial Credit Plan, Incorporated (MO) Missouri
... ... Park Tower Holdings, Inc. Delaware
... ... ... CC Retail Services, Inc. Delaware
... ... ... ... Park Tower Brokerage Associates Delaware
... ... ... Travelers Home Mortgage Services of Alabama, Inc. Delaware
... ... Resource Deployment, Inc. Texas
... ... The Travelers Bank USA Delaware
... ... Travelers Bank & Trust, fsb Delaware
... ... Travelers Home Equity, Inc. North Carolina
... ... ... CC Consumer Services of Alabama, Inc. Alabama
... ... ... CC Home Lenders Financial, Inc. Georgia
... ... ... CC Home Lenders, Inc. Ohio
... ... ... Commercial Credit Corporation (TX) Texas
... ... ... Commercial Credit Financial of West Virginia, Inc. West Virginia
... ... ... Commercial Credit Plan Consumer Discount Company Pennsylvania
... ... ... Travelers Home Mortgage Services, Inc. North Carolina
... ... Travelers Home Mortgage Services of Pennsylvania, Inc. Pennsylvania
... ... Triton Insurance Company Missouri
... ... World Service Life Insurance Company Colorado
Citicorp Delaware
... Citibank, N.A. United States
... ... 399 Venture Partners, Inc. Delaware
... ... Agamemnon Incorporated Liberia
... ... Citibank International Florida
... ... Citicorp Venture Capital Ltd. New York
... ... Banco de Honduras S.A. Honduras
... ... Camwil Lease, Inc. New York
... ... ... Citicorp Investor Lease, Inc. Delaware
... ... ... Citicorp Multilease (SEF), Inc. Delaware
... ... ... ... Citi Center Building Corporation* Philippines
... ... Citi (Nominees) Limited Hong Kong
... ... Citi Chrematodotikes Misthosis S.A. Greece
... ... Citi Tower Building Corporation Philippines
... ... CitiAch, Inc.* Delaware
... ... Citibank (Channel Islands) Limited Channel Islands
... ... ... CCIL (Nominees) Limited Channel Islands
... ... ... CCIL Pension Scheme Trustees Limited Channel Islands
... ... Citibank (Zaire) S.A.R.L. Congo(Zaire)
... ... Citibank Consumers Nominee Pte. Ltd. Singapore
... ... Citibank-Maghreb Morocco
... ... Citibank Nominees (Ireland) Limited Ireland
... ... Citibank Nominees Singapore Pte. Ltd. Singapore
... ... Citibank Overseas Investment Corporation Delaware
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... Asesores Corporativos de Costa Rica, S.A. Costa Rica
... ... ... ... Citibank (Costa Rica) Sociedad Anonima Costa Rica
... ... ... ... Citiseguros de Costa Rica, S.A. Costa Rica
... ... ... ... Cititarjetas, S.A. Costa Rica
... ... ... ... Citivalores Puesto de Bolsa, S.A. Costa Rica
... ... ... Asia Pacific Technology Services Pte. Limited Singapore
... ... ... Banco Citibank S.A.* Brazil
... ... ... ... Citibank-Corretora de Cambio, Titulos e Valores Mobiliarios S.A. Brazil
... ... ... ... Citibank-Distribuidora de Titulos e Valores Mobiliarios S.A. Brazil
... ... ... ... Citibank Companhia Hipotecaria S.A. Brazil
... ... ... Banco de Desarrollo Citicorp, S.A. Dominican Republic
... ... ... ... Citinversiones de Titulos y Valores (Puesto de Bolsa) S.A. Dominican Republic
... ... ... Berlin Real Estate B.V. Netherlands
... ... ... CCSCI, Inc. Puerto Rico
... ... ... Centaur Investment Corporation Delaware
... ... ... Citi Inversiones, S.A. de C.V. El Salvador
... ... ... ... Citi Valores de El Salvador S.A. de C.V. El Salvador
... ... ... Citi Mutual Funds Management Company S.A. Greece
... ... ... Citi-Info, S.A. de C.V. Mexico
... ... ... Citi-Inmobiliaria e Inversiones, S.A. de C.V. Honduras
... ... ... Citibank (Poland) S.A. Poland
... ... ... ... Citibrokerage S.A. Poland
... ... ... ... Citileasing Sp. z o.o. Poland
... ... ... Citibank (Slovakia) a.s. United States
... ... ... Citibank a.s. Czech Republic
... ... ... ... Citicorp Securities (CR), s.r.o. Czech Republic
... ... ... Citibank Belgium S.A./N.V. Belgium
... ... ... Citibank Berhad Malaysia
... ... ... ... Citicorp Nominee (Malaysia) Sendirian Berhad Malaysia
... ... ... ... ... Citicorp Nominees (Asing) Sdn. Bhd. Malaysia
... ... ... ... ... Citicorp Nominees (Tempatan) Sdn. Bhd. Malaysia
... ... ... Citibank Canada Canada
... ... ... ... 1084851 Ontario Inc. Canada
... ... ... ... 1169513 Ontario Inc. Canada
... ... ... ... 2490827 Nova Scotia Limited Canada
... ... ... ... 3121615 Canada Inc. Canada
... ... ... ... 3278662 Canada Inc. Canada
... ... ... ... 598299 Alberta Limited Canada
... ... ... ... Avenida Place Shopping Centre Ltd. Canada
... ... ... ... Bershaw & Company Canada
... ... ... ... Chudleigh Funding Inc. Canada
... ... ... ... Citibank Canada Investment Funds Limited Canada
... ... ... ... Citibank Canada Securities Limited Canada
... ... ... ... Citibank Nominees Ltd. Canada
... ... ... ... Citicorp Capital Investors Ltd. Canada
... ... ... ... Commercial Credit Corporation CCC Limited Canada
... ... ... Citibank Capital Corporation Cayman Islands
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... Citibank Colombia* Colombia
... ... ... ... Cititrust Colombia S.A. Sociedad Fiduciaria* Colombia
... ... ... Citibank-Colombia (Nassau) Limited Bahamas
... ... ... ... Leasing Citibank S.A. Compania de Financiamiento Comercial* Colombia
... ... ... Citibank Espana S.A. Spain
... ... ... ... Cantabra de Aviacion, Sociedad Limitada Spain
... ... ... ... Citi Recovery, A.I.E.* Spain
... ... ... ... Citibank Broker Correduria de Seguros S.A. Spain
... ... ... ... Citiconsulting A.I.E.* Spain
... ... ... ... Citigestion, Sociedad Gestora de Instituciones de Inversion Colectiva, S.A. Spain
... ... ... ... Citihouse, S.A. Spain
... ... ... ... CITIPENSIONES, ENTIDAD GESTORA DE FONDOS DE PENSIONES, S.A. Spain
... ... ... Citibank Finance Limited Singapore
... ... ... Citibank Housing Finance Company Limited Pakistan
... ... ... Citibank Investment and Securities Rt. Hungary
... ... ... Citibank Investment Services Ireland Ltd. Ireland
... ... ... ... Citi Institutional Liquidity Fund plc Ireland
... ... ... Citibank Investment Services Limited Hong Kong
... ... ... Citibank Investments Limited United Kingdom
... ... ... ... Channel Collections Limited United Kingdom
... ... ... ... CIB Properties Limited United Kingdom
... ... ... ... Citi Pensions & Trustees Limited United Kingdom
... ... ... ... Citibank International plc United Kingdom
... ... ... ... ... Vidacos Nominees Limited United Kingdom
... ... ... ... Citibank London Nominees Limited United Kingdom
... ... ... ... Citibank Pensions Trustees Ireland Ltd. Ireland
... ... ... ... Citicorp Capital Limited United Kingdom
... ... ... ... Citicorp Trustee Company Limited United Kingdom
... ... ... ... ... Norwich Property Trust Limited United Kingdom
... ... ... ... Citicorporate Limited United Kingdom
... ... ... ... Citidealings Limited United Kingdom
... ... ... ... CitiFriends Nominee Limited United Kingdom
... ... ... ... CITILOANS PLC United Kingdom
... ... ... ... Citinet Limited United Kingdom
... ... ... ... Citinvest S.p.A. Italy
... ... ... ... CUIM NOMINEE LIMITED United Kingdom
... ... ... ... N.C.B. Trust Limited United Kingdom
... ... ... ... National City Nominees Limited United Kingdom
... ... ... ... New York London Finance Co. Limited United Kingdom
... ... ... Citibank Malaysia (L) Limited Malaysia
... ... ... CITIBANK MERCADO DE CAPITALES, CITIMERCA C.A. Venezuela
... ... ... Citibank Nigeria Nigeria
... ... ... Citibank Romania S.A. Romania
... ... ... Citibank Rt. Hungary
... ... ... ... European Commercial Bank Ltd.* Hungary
... ... ... ... ... EKB Kereskedelmi es Szolgaltato Kft. Hungary
... ... ... Citibank, S.A. France
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... Citi Chanzy S.A. France
... ... ... ... Citi Churchill S.A. France
... ... ... ... Citi-Immobilier S.A. France
... ... ... ... SNC CITI GESTION* France
... ... ... ... ... SNC CITI MANAGEMENT* France
... ... ... Citibank Shipping Bank S.A. Greece
... ... ... Citibank T/O Russia
... ... ... Citibank Tanzania Limited Tanzania
... ... ... Citibank Trustees (Ireland), Limited Ireland
... ... ... CitiCapital Limited Thailand
... ... ... Citicard S.A. Argentina
... ... ... CITICO, SGPS, Lda.* Portugal
... ... ... ... Citibank Portugal, S.A. Portugal
... ... ... Citicorp (B) Sdn. Bhd. Brunei
... ... ... Citicorp Administradora de Inversiones S.A. Argentina
... ... ... Citicorp Asesora de Seguros S.A. Argentina
... ... ... Citicorp Banco de Inversion S.A. Argentina
... ... ... Citicorp Capital Asia (Taiwan) Ltd. Taiwan
... ... ... Citicorp Capital Asia Limited Bahamas
... ... ... ... Citicorp China Investment Management (BVI) Limited British Virgin Is.
... ... ... ... Citicorp China Investment Management Limited Hong Kong
... ... ... Citicorp Capital Markets Sociedad Anonima Argentina
... ... ... ... Citicorp Valores S.A. Sociedad de Bolsa* Argentina
... ... ... Citicorp Capital Markets Uruguay S.A. Uruguay
... ... ... Citicorp Capital Philippines, Inc.* Philippines
... ... ... Citicorp Capital Sdn. Bhd. Malaysia
... ... ... Citicorp Chile S.A. Chile
... ... ... ... Cambios Citiexchange Limitada Chile
... ... ... ... Citicorp Chile Administradora de Fondos de Inversion S.A. Chile
... ... ... ... Citicorp Chile Adminsitradora de Fondos Mutuos S.A. Chile
... ... ... ... Citicorp Chile S.A. Corredores de Bolsa Chile
... ... ... ... Citicorp Chile Servicios y Asesorias Limitada Chile
... ... ... ... Corredores de Seguros Citicorp Limitada Chile
... ... ... ... Sociedad Comercial Citibank Leasing S.A. Chile
... ... ... Citicorp Commercial Finance (H.K.) Ltd. Hong Kong
... ... ... Citicorp Credit Guam
... ... ... Citicorp Deutschland Aktiengesellschaft Germany
... ... ... ... CCD Immobilien Beteiligungs GmbH Germany
... ... ... ... CCD Immobilien Beteiligungs GmbH & Co. Berlin KG* Germany
... ... ... ... CCD Immobilien Beteiligungs GmbH & Co. Frankfurt Buero KG* Germany
... ... ... ... CCD Immobilien Beteiligungs GmbH & Co. Frankfurt Hotel KG* Germany
... ... ... ... Citibank Beteiligungen Aktiengesellschaft Germany
... ... ... ... ... Citi Services GmbH Germany
... ... ... ... ... Citibank Aktiengesellschaft Germany
... ... ... ... ... Citibank Privatkunden AG* Germany
... ... ... ... Citicorp Leasing (Deutschland) GmbH Germany
... ... ... ... ... Achtzehnte Gamma Trans Leasing Verwaltungs GmbH & Co.
Finanzierungs-Management KG* Germany
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... ... Beta Trans Leasing Verwaltungs GmbH Germany
... ... ... ... ... Einundzwandzigste Gamma Trans Leasing Verwaltungs GmbH & Co.
Finanzierungs-Management KG* Germany
... ... ... ... ... Neunzehnte Gamma Trans Leasing Verwaltungs GmbH & Co.
Finanzierungs-Management KG* Germany
... ... ... ... ... Zwanzigste Gamma Trans Leasing Verwaltungs GmbH & Co.
Finanzierungs-Management KG* Germany
... ... ... ... ... Gamma Trans Leasing Verwaltungs GmbH Germany
... ... ... ... Citicorp Card Operations GmbH Germany
... ... ... ... Citicorp Kartenservice GmbH Germany
... ... ... ... ... Achtundzwanzigste Gamma Trans Leasing Verwaltungs GmbH & Co.
Finanzierungs-Management KG* Germany
... ... ... ... ... Dreissigste Gamma Trans Leasing Verwaltungs GmbH & Co.
Finanzierungs-Management KG* Germany
... ... ... ... ... Dreiundzwanzigste Gamma Trans Leasing Verwaltungs GmbH & Co.
Finanzierungs-Management KG* Germany
... ... ... ... ... Dritte Beta Trans Leasing Verwaltungs GmbH & Co. Finanzierungs-Management KG Germany
... ... ... ... ... Einunddreissigste Gamma Trans Leasing Verwaltungs GmbH & Co.
Finanzierungs-Management KG* Germany
... ... ... ... ... Fuenfte Beta Trans Leasing Verwaltungs GmbH & Co. Finanzierungs-Management KG* Germany
... ... ... ... ... Fuenfundzwanzigste Gamma Trans Leasing Verwaltungs GmbH & Co.
Finanzierungs-Management KG* Germany
... ... ... ... ... Neunundzwanzigste Gamma Trans Leasing Verwaltungs GmbH & Co.
Finanzierungs-Management KG* Germany
... ... ... ... ... Sechsundzwanzigste Gamma Trans Leasing Verwaltungs GmbH & Co. Finanzierungs-Management KG* Germany
... ... ... ... ... Siebenundzwanzigste Gamma Trans Leasing Verwaltungs GmbH & Co. Finanzierungs-Management KG*Germany
... ... ... ... ... Vierte Beta Trans Leasing Verwaltungs GmbH & Co. Finanzierungs-Management KG* Germany
... ... ... ... ... Vierundzwanzigste Gamma Trans Leasing Verwaltungs GmbH & Co. Finanzierungs-Management KG* Germany
... ... ... ... ... Zweite Beta Trans Leasing Verwaltungs GmbH & Co. Finanzierungs-Management KG* Germany
... ... ... ... ... Zweiundzwandzigste Gamma Trans Leasing Verwaltungs GmbH & Co. Finanzierungs-Management KG* Germany
... ... ... ... Citicorp Operations Consulting GmbH Germany
... ... ... ... Citifinanzberatung GmbH Germany
... ... ... Citicorp European Service Center B.V. Netherlands
... ... ... Citicorp Finance (India) Limited India
... ... ... ... Citicorp Maruti Finance Ltd. India
... ... ... Citicorp Finance & Securities (Thailand) Ltd. Thailand
... ... ... Citicorp Finance International Ltd. Bermuda
... ... ... Citicorp Finance Ireland Limited Ireland
... ... ... ... Citicorp (Dublin) Finance Ireland
... ... ... Citicorp Financial Services Corporation Puerto Rico
... ... ... Citicorp Financial Services Limited Hong Kong
... ... ... Citicorp Finanziaria S.p.A. Italy
... ... ... Citicorp FSC I Ltd. Bermuda
... ... ... Citicorp General Insurance Agency Corporation Taiwan
... ... ... Citicorp Gulf Finance Ltd. United Arab Emirates
... ... ... Citicorp Insurance Agency Co., Ltd. Taiwan
... ... ... Citicorp International Limited Hong Kong
... ... ... Citicorp International Securities Finance Ltd United Kingdom
... ... ... ... Citicorp International Securities Ltd United Kingdom
... ... ... ... ... Citivic Nominees Limited United Kingdom
... ... ... Citicorp Inversora S.A. Gerente de Fondos Comunes de Inversion Argentina
... ... ... Citicorp Investicni Spolecnost, a.s. Czech Republic
... ... ... Citicorp Investment Bank (Pakistan) Limited Pakistan
... ... ... Citicorp Investment Bank (Singapore) Limited Singapore
... ... ... Citicorp Investment Managers Ireland Limited Ireland
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... Citicorp Investment Services Limited Hong Kong
... ... ... Citicorp Leasing (Thailand) Limited Thailand
... ... ... Citicorp Leasing Argentina S.A. Argentina
... ... ... Citicorp Leasing International, Inc. Delaware
... ... ... ... Citicorp Card Services, Inc. Delaware
... ... ... ... Citicorp Credit, Inc. Japan
... ... ... ... Citilease Company Ltd. Japan
... ... ... ... ... Aarhus Aircraft Ltd. Japan
... ... ... ... ... Alpha Aircraft Ltd. Japan
... ... ... ... ... AMS Aircraft Ltd. Japan
... ... ... ... ... Andromeda Citiaircraft Ltd. Japan
... ... ... ... ... Arboga Aircraft Ltd. Japan
... ... ... ... ... Arizona Aircraft Ltd. Japan
... ... ... ... ... Arlanda Aircraft Ltd. Japan
... ... ... ... ... Ascot Aircraft Ltd. Japan
... ... ... ... ... Atlanta Aircraft Ltd. Japan
... ... ... ... ... BALTIC AIRCRAFT LTD. Japan
... ... ... ... ... Beta Aircraft Ltd. Japan
... ... ... ... ... Birmingham Aircraft Ltd. Japan
... ... ... ... ... Bishop Aircraft Ltd. Japan
... ... ... ... ... Boston Aircraft Ltd. Japan
... ... ... ... ... Bristol Aircraft Ltd. Japan
... ... ... ... ... Bromma Aircraft Ltd. Japan
... ... ... ... ... Bunga Emas Ltd. Japan
... ... ... ... ... California Aircraft Ltd. Japan
... ... ... ... ... Cambridge Aircraft Ltd. Japan
... ... ... ... ... Castle Aircraft Ltd. Japan
... ... ... ... ... Charlie Aircraft Ltd. Japan
... ... ... ... ... Chicago Aircraft Ltd. Japan
... ... ... ... ... VENUS AIRCRAFT LTD. Japan
... ... ... ... ... Colorado Aircraft Ltd. Japan
... ... ... ... ... Condor Aircraft Ltd. Japan
... ... ... ... ... Coventry Aircraft Ltd. Japan
... ... ... ... ... Crane Aircraft Ltd. Japan
... ... ... ... ... Crown Aircraft Ltd. Japan
... ... ... ... ... Crux Leasing Co. Ltd. Japan
... ... ... ... ... CSA ROBIN AIRCRAFT LTD. Japan
... ... ... ... ... CSA SWAN AIRCRAFT LTD. Japan
... ... ... ... ... Curie Aircraft Ltd. Japan
... ... ... ... ... Daini Citiaircraft Ltd. Japan
... ... ... ... ... Dallas Aircraft Ltd. Japan
... ... ... ... ... Delta Aircraft Ltd. Japan
... ... ... ... ... Denver Aircraft Ltd. Japan
... ... ... ... ... Detroit Aircraft Ltd. Japan
... ... ... ... ... Donau Aircraft Ltd. Japan
... ... ... ... ... Durham Aircraft Ltd. Japan
... ... ... ... ... Eagle Aircraft Ltd. Japan
... ... ... ... ... Echo Aircraft Ltd. Japan
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... ... Eiffel Aircraft Ltd. Japan
... ... ... ... ... Elbe Aircraft Ltd. Japan
... ... ... ... ... Elysee Aircraft Ltd. Japan
... ... ... ... ... EMS Aircraft Ltd. Japan
... ... ... ... ... ENNS Lease Co., Ltd. Japan
... ... ... ... ... Epsilon Aircraft Ltd. Japan
... ... ... ... ... Erie Aircraft Ltd. Japan
... ... ... ... ... Europe Aircraft Ltd. Japan
... ... ... ... ... Fairfield Aircraft Ltd. Japan
... ... ... ... ... Florida Aircraft Ltd. Japan
... ... ... ... ... Fornebu Aircraft Ltd. Japan
... ... ... ... ... Foxtrot Aircraft Ltd. Japan
... ... ... ... ... Gamma Aircraft Ltd. Japan
... ... ... ... ... Goteborg Aircraft Ltd. Japan
... ... ... ... ... Hague Aircraft Ltd. Japan
... ... ... ... ... Havel Aircraft Ltd. Japan
... ... ... ... ... Honolulu Aircraft Ltd. Japan
... ... ... ... ... Houston Aircraft Ltd. Japan
... ... ... ... ... Huron Aircraft Ltd. Japan
... ... ... ... ... Huskvarna Aircraft Ltd. Japan
... ... ... ... ... Illinois Aircraft Ltd. Japan
... ... ... ... ... Indiana Aircraft Ltd. Japan
... ... ... ... ... Isar Aircraft Ltd. Japan
... ... ... ... ... Ithaca Aircraft Ltd. Japan
... ... ... ... ... Jota Aircraft Ltd. Japan
... ... ... ... ... Jupiter Aircraft Ltd. Japan
... ... ... ... ... King Aircraft Ltd. Japan
... ... ... ... ... Knight Aircraft Ltd. Japan
... ... ... ... ... LA Aircraft Ltd. Japan
... ... ... ... ... Lahn Aircraft Ltd. Japan
... ... ... ... ... Lambda Aircraft Ltd. Japan
... ... ... ... ... LEONE LEASE LTD. Japan
... ... ... ... ... Linden Citiaircraft Ltd. Japan
... ... ... ... ... Liverpool Aircraft Ltd. Japan
... ... ... ... ... Loire Aircraft Ltd. Japan
... ... ... ... ... London Aircraft Ltd. Japan
... ... ... ... ... Louvre Aircraft Ltd. Japan
... ... ... ... ... Madrid Aircraft Ltd. Japan
... ... ... ... ... Main Aircraft Ltd. Japan
... ... ... ... ... Manchester Aircraft Ltd. Japan
... ... ... ... ... Maple Aircraft Ltd. Japan
... ... ... ... ... Marseilles Aircraft Ltd. Japan
... ... ... ... ... Mette Aircraft Ltd. Japan
... ... ... ... ... Miami Aircraft Ltd. Japan
... ... ... ... ... Michigan Aircraft Ltd. Japan
... ... ... ... ... Milwaukee Aircraft Ltd. Japan
... ... ... ... ... Minnesota Aircraft Ltd. Japan
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... ... Molen Aircraft Ltd. Japan
... ... ... ... ... Mosel Aircraft Ltd. Japan
... ... ... ... ... Nashville Aircraft Ltd. Japan
... ... ... ... ... Neckar Aircraft Ltd. Japan
... ... ... ... ... NS Cititrain Ltd. Japan
... ... ... ... ... Oder Aircraft Ltd. Japan
... ... ... ... ... Ohio Aircraft Ltd. Japan
... ... ... ... ... Oregon Aircraft Ltd. Japan
... ... ... ... ... Ottawa Aircraft Ltd. Japan
... ... ... ... ... Oxford Aircraft Ltd. Japan
... ... ... ... ... Paris Aircraft Ltd. Japan
... ... ... ... ... Pegasus Leasing Co. Ltd. Japan
... ... ... ... ... Phoenix Aircraft Ltd. Japan
... ... ... ... ... Quebec Aircraft Ltd. Japan
... ... ... ... ... Queen Aircraft Ltd. Japan
... ... ... ... ... Rhein Aircraft Ltd. Japan
... ... ... ... ... Rotter Aircraft Ltd. Japan
... ... ... ... ... Saale Aircraft Ltd. Japan
... ... ... ... ... Sakura FA Citiaircraft Ltd. Japan
... ... ... ... ... Seagull Aircraft Ltd. Japan
... ... ... ... ... Seattle Aircraft Ltd. Japan
... ... ... ... ... Seine Aircraft Ltd. Japan
... ... ... ... ... Sigma Aircraft Ltd. Japan
... ... ... ... ... St. Louis Aircraft Ltd. Japan
... ... ... ... ... Stamford Aircraft Ltd. Japan
... ... ... ... ... Stockholm Aircraft Ltd. Japan
... ... ... ... ... Tachibana FA Citiaircraft Ltd. Japan
... ... ... ... ... Tampa Aircraft Ltd. Japan
... ... ... ... ... Theta Aircraft Ltd. Japan
... ... ... ... ... Tokyo FA Citiaircraft Ltd. Japan
... ... ... ... ... Toronto Aircraft Ltd. Japan
... ... ... ... ... Uppsala Aircraft Ltd. Japan
... ... ... ... ... Utrecht Aircraft Ltd. Japan
... ... ... ... ... Vancouver Aircraft Ltd. Japan
... ... ... ... ... Versailles Aircraft Ltd. Japan
... ... ... ... ... Washington Aircraft Ltd. Japan
... ... ... ... ... Windsor Aircraft Ltd. Japan
... ... ... ... ... Zwolle Aircraft Ltd. Japan
... ... ... Citicorp Menkul Kiymetler Anonim Sirketi Turkey
... ... ... Citicorp Merchant Bank Limited Trinidad & Tobago
... ... ... ... Citibank (Trinidad & Tobago) Limited Trinidad & Tobago
... ... ... Citicorp Overseas Software Limited* India
... ... ... ... Citicorp Brokerage (India) Limited India
... ... ... Citicorp P.R. Mortgage, Inc. Puerto Rico
... ... ... Citicorp Pension Management Limited Bahamas
... ... ... ... Citicorp Peru Sociedad Titulizadora S.A. Peru
... ... ... CITICORP SECURITIES BOLIVIA S.A. Bolivia
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... Citicorp Securities (Taiwan) Ltd. Taiwan
... ... ... Citicorp Securities International (RP) Inc. Philippines
... ... ... Citicorp Services Limited New Zealand
... ... ... ... Advanced Futures Limited New Zealand
... ... ... ... Citibank Global Asset Management Limited New Zealand
... ... ... ... Citibank Nominees (New Zealand) Limited New Zealand
... ... ... ... Citicorp Capital Markets New Zealand Limited New Zealand
... ... ... ... Citicorp New Zealand Limited New Zealand
... ... ... ... Future Technology Limited New Zealand
... ... ... ... Optional Development Holdings Limited New Zealand
... ... ... ... Seabird Limited New Zealand
... ... ... Citicorp Servium S.A. Peru
... ... ... ... Citicorp Peru S.A. Sociedad Agente de Bolsa* Peru
... ... ... ... Citileasing S.A.* Peru
... ... ... Citicorp Subsahara Investments, Inc. Delaware
... ... ... Citicorp Trade Services (Malaysia) Sendirian Berhad Malaysia
... ... ... Citicorp Trustee (Singapore) Limited Singapore
... ... ... Citicorp Venture Capital Beratungs Gesellschaft mbH Germany
... ... ... Citicorp Ventures Philippines, Inc. Philippines
... ... ... Citicredito S.A. Honduras
... ... ... Citidatos S.A. Ecuador
... ... ... Citifinance Limited Jamaica
... ... ... ... Citimerchant Bank Limited Jamaica
... ... ... Citinversiones, S.A. Guatemala
... ... ... Citilease, S.A. Belgium
... ... ... Citilease Finansal Kiralama Anonim Sirketi Turkey
... ... ... CitiLeasing (Hungary) Ltd. Hungary
... ... ... Citileasing s.r.o. Czech Republic
... ... ... Citinvest Casa de Bolsa Sociedad Anonima Paraguay
... ... ... Citinvestment Chile Limited Bahamas
... ... ... Citiportfolio Limited Channel Islands
... ... ... CitiProperties (BVI) Limited British Virgin Is.
... ... ... ... CitiRealty (BVI) Limited British Virgin Is.
... ... ... ... ... CitiRealty (Hong Kong) Limited Hong Kong
... ... ... ... CitiRealty China (BVI) Limited British Virgin Is.
... ... ... ... Garden Road (BVI) Limited British Virgin Is.
... ... ... ... ... CitiProperties (Hong Kong) Limited Hong Kong
... ... ... CitiService S.p.A. Italy
... ... ... Cititarjetas de Guatemala, S.A. Guatemala
... ... ... Cititrust (Bahamas) Limited Bahamas
... ... ... ... Albacore Investments, Ltd. Bahamas
... ... ... ... Antares Associates Limited Bahamas
... ... ... ... Astaire Associates Limited Bahamas
... ... ... ... Beaconsfield Holdings Limited Bahamas
... ... ... ... Cititrust Services Limited Bahamas
... ... ... ... Donat Investments S.A. Bahamas
... ... ... ... First National Nominees, Ltd. Bahamas
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... Hitchcock Investments S.A. Panama
... ... ... ... Madeleine Investments S.A. Bahamas
... ... ... ... Providence Associates, Ltd. Bahamas
... ... ... Cititrust (Cayman) Limited Cayman Islands
... ... ... ... Brennan Limited Cayman Islands
... ... ... ... Buchanan Limited Cayman Islands
... ... ... Cititrust (Jersey) Limited Channel Islands
... ... ... ... Secundus Nominees (Jersey) Limited Channel Islands
... ... ... ... Tertius Nominees (Jersey) Limited Channel Islands
... ... ... Cititrust (Kenya) Limited Kenya
... ... ... Cititrust and Banking Corporation Japan
... ... ... Citivalores de Honduras, S.A. Honduras
... ... ... Citivalores, S.A. Guatemala
... ... ... Citivalores, S.A. Panama
... ... ... CJSC Citibank Kazakhstan Kazakhstan
... ... ... Confidas Finance et Placement S.A. Switzerland
... ... ... CORPIFEXSA, Corporacion de Inversiones y Fomento de Exportaciones S.A. Ecuador
... ... ... ... Cititrading S.A. Casa de Valores Ecuador
... ... ... ... Inmociti S.A. Ecuador
... ... ... Corporacion Citibank G.F.C. S.A. Costa Rica
... ... ... Creinvest B.V. Netherlands
... ... ... Diners Club (Thailand) Limited, The Thailand
... ... ... Diners Club Argentina S.A.C. y de T. Argentina
... ... ... ... Diners Travel S.A.C. y de T. Argentina
... ... ... ... Servicios Comerciales S.A.C.I.M. y F. Argentina
... ... ... Diners Club Benelux S.A., The Belgium
... ... ... Diners Club de France S.A. France
... ... ... ... Leadair Assurances France
... ... ... ... Leadair Selection France
... ... ... Diners Club de Mexico S.A. de C.V. Mexico
... ... ... Diners Club Deutschland GmbH Germany
... ... ... Diners Club International (Hong Kong) Limited Hong Kong
... ... ... Diners Club International (Taiwan) Limited Taiwan
... ... ... Diners Club of Greece, S.A. Greece
... ... ... Diners Club Uruguay S.A. Uruguay
... ... ... Fimen S.A. Belgium
... ... ... ... Citicorp Insurance Services S.A./N.V. Belgium
... ... ... ... ... Citibank Insurance Services S.A. Greece
... ... ... FNC-Comercio e Participacoes Ltda. Brazil
... ... ... ... Chelsea-Empreendimentos e Participacoes Limitada Brazil
... ... ... ... Citi CP Mercantil S.A. Brazil
... ... ... ... Citibank Leasing S.A.-Arrendamento Mercantil Brazil
... ... ... ... Citicorp Corretora de Seguros S.A. Brazil
... ... ... ... Mibrak S.A. Uruguay
... ... ... FOFIP S.A. Uruguay
... ... ... Foremost Investment Corporation Delaware
... ... ... FREPERP 1 LLC Delaware
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... FREPERP 2 LLC Delaware
... ... ... Grupo Financiero Citibank, S.A. de C.V. Mexico
... ... ... ... Arrendadora Citibank, S.A. de C.V., Organizacion Auxiliar del Credito, Grupo
Financiero Citibank Mexico
... ... ... ... Casa de Bolsa Citibank, S.A. de C.V., Grupo Financiero Citibank Mexico
... ... ... ... Citibank Mexico, S.A., Grupo Financiero Citibank Mexico
... ... ... ... ... Hacienda El Campanario, S.A. de C.V. Mexico
... ... ... ... ... Imref S.A. de C.V. Mexico
... ... ... ... ... Inmobiliaria Confia, S.A. de C.V. Mexico
... ... ... Hanseatic Real Estate B.V. Netherlands
... ... ... Inarco International Bank N.V. Aruba
... ... ... Interco (Intermediaciones Comerciales) S.A. Bolivia
... ... ... International Finance Associates, B.V. Netherlands
... ... ... ... Citicorp Investment Bank (The Netherlands) N.V. Netherlands
... ... ... ... Citicorp Leasing Nederland, B.V. Netherlands
... ... ... ... ... Citicorp Fubtina Leasing B.V. Netherlands
... ... ... ... ... Citicorp Xacobeo Leasing B.V. Netherlands
... ... ... Inversiones Citicorp (R.D.), S.A. Dominican Republic
... ... ... Inversiones y Adelantos, C.A. Venezuela
... ... ... JSCB Citibank (Ukraine) Ukraine
... ... ... Latin American Investment Bank Bahamas Limited Bahamas
... ... ... ... Citibrazil Bond Fund-Fundo de Renda Fixa Capital Estrangeiro Brazil
... ... ... ... Citibrazil Investments-Fundo de Privatizacao Capital Estrangeiro Brazil
... ... ... Matrix Ltd. Bermuda
... ... ... Nessus Investment Corporation Delaware
... ... ... ... Citibank Limited Australia
... ... ... ... ... Citicorp Capital Markets Australia Limited Australia
... ... ... ... ... ... Citifutures Limited Australia
... ... ... ... ... ... Citisecurities Limited Australia
... ... ... ... ... Citicorp Equity Capital Limited Australia
... ... ... ... ... Citicorp Investments Limited* Australia
... ... ... ... ... Citicorp Limited Australia
... ... ... ... ... ... Citicorp General Insurance Limited Australia
... ... ... ... ... ... Citicorp Life Insurance Limited Australia
... ... ... ... ... ... Margaret Street Nominees Pty. Limited Australia
... ... ... ... ... Citicorp Nominees Pty. Limited* Australia
... ... ... ... ... Citicorp Regional Service Centre Pty. Ltd. Australia
... ... ... ... ... Phinda Pty. Limited Australia
... ... ... ... ... Remittance Collection Services Limited Australia
... ... ... ... ... Tarwood Pty. Limited Australia
... ... ... Nostro Investment Corporation Delaware
... ... ... P.T. Citicorp Finance Indonesia Indonesia
... ... ... P.T. Citicorp Securities Indonesia Indonesia
... ... ... Pavec Developments Limited Ireland
... ... ... Premium Finance No. 3 C.V. Netherlands
... ... ... Repfin Ltda. Colombia
... ... ... ... Citivalores S.A. Comisionista de Bolsa* Colombia
... ... ... ... Compania Exportadora Cityexport S.A.* Colombia
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... Scottish Provident (Irish Holdings) Limited Ireland
... ... ... Tarjetas de Chile S.A. Chile
... ... ... Universal Holdcorp, Inc. Delaware
... ... ... Yonder Investment Corporation Delaware
... ... Citibank Premium Finance No. 1, Ltd. Channel Islands
... ... Citibank Premium Finance No. 2, Ltd. Channel Islands
... ... Citibank Strategic Technology Inc. Delaware
... ... Citibank Zambia Limited Zambia
... ... ... Citibureau Zambia Limited Zambia
... ... CitiCal, Inc. California
... ... ... ... One Sansome Street Associates California
... ... ... ... Sansome Land Associates California
... ... Citicorp Capital Investors, Limited Delaware
... ... ... World Subordinated Debt Partners, L.P. New York
... ... Citicorp Electronic Commerce, Inc. Delaware
... ... Citicorp Finance Puerto Rico, Inc. Puerto Rico
... ... Citicorp Financial Guaranty Holdings, Inc. Delaware
... ... Citicorp Insurance Services, Inc. Delaware
... ... Citicorp Interim Services, Inc. Delaware
... ... ... ADV Eleven, Inc. Delaware
... ... ... AZ Notes Corp. Arizona
... ... ... Monaco Art Corp. New York
... ... ... MBBT Corp. Florida
... ... ... Mr Ables Inc. New York
... ... Citicorp Investment Services Delaware
... ... Citicorp Leasing, Inc. Delaware
... ... ... ADV Three, Inc. Delaware
... ... ... CPI Leasing Corp. New York
... ... Citicorp Payment Services, Inc. Delaware
... ... Citicorp Real Estate, Inc. Delaware
... ... Citicorp Trust, N.A. (Florida) Florida
... ... Citicorp Trust, National Association United States
... ... Citicorp USA, Inc. Delaware
... ... ... Haydon Corporation New Jersey
... ... ... International Media Group California
... ... Citiflight, Inc. Delaware
... ... CitiMae, Inc. Delaware
... ... Citipartners Services Group A.I.E.* Spain
... ... Cititrust Limited Hong Kong
... ... Groupement d'Interet Economique "Paris Citicorp Center"* France
... ... International Equity Investments, Inc. Delaware
... ... ... Corporacion Inversora de Capitales S.R.L. Argentina
... ... ... ... Celulosa Argentina S.A. Argentina
... ... ... ... ... Cartulinas Argentinas S.A. Argentina
... ... ... ... ... Tissucel S.A. Argentina
... ... ... ... Usina Bernal S.A. Argentina
... ... ... CVC/Opportunity Equity Partners, L.P. Cayman Islands
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... 525 Participacoes S.A. Brazil
... ... ... Sweet River Fund Cayman Islands
... ... ... ... ... Opportunity Prime Fundo Mutuo de Investimento em Acoes-Carteira Livre* Brazil
... ... ... ... ... ... Eletron S.A.* Brazil
... ... Matin Realty, Inc. New York
... ... Perennially Green, Inc. New York
... ... R de VR Investments (Pty) Ltd. South Africa
... ... Universal Card Services Corp. Delaware
... ... ... Universal Bancorp Services Delaware
... ... ... Universal Bank, N.A. Delaware
... ... ... Universal Financial Corp. Utah
... Citibank (New York State) United States
... ... Citicorp Development Center, Inc. Delaware
... ... Diners Club International Ltd. New York
... ... Student Loan Corporation, The Delaware
... Citicorp Banking Corporation Delaware
... ... CB Income Pesos Fund Argentina
... ... CB Income Dollar Mediano Plazo Fund Argentina
... ... CB Income Dollar Largo Plazo Fund Argentina
... ... Citi Islamic Investment Bank Bahrain
... ... Citi Islamic Portfolios S.A. Luxembourg
... ... Citibank (Luxembourg) S.A. Luxembourg
... ... Citibank (Switzerland) Switzerland
... ... Citibank, Federal Savings Bank United States
... ... ... ... Citibank Mortgage Services, Inc. Florida
... ... ... Citibank Insurance Agency, Inc. Illinois
... ... ... Citibank Service Corporation California
... ... ... Citicorp Financial Services Corporation (D.C.) District of Columbia
... ... ... Citicorp Insurance Agency, Inc. District of Columbia
... ... ... First Savings Corporation Illinois
... ... ... ... FSC Development Corp. Illinois
... ... ... ... Lake Terrace Associates Illinois
... ... ... Holiday Harbor Management Corporation Florida
... ... ... THL, Ltd. Illinois
... ... ... West Suburban Investments, Inc. Illinois
... ... ... ... First Paddle Creek, Inc. Florida
... ... ... ... West Florida Investments, Inc. Florida
... ... ... ... West Suburban Investments, Inc. of California California
... ... ... ... West Suburban Investments, Inc. of Colorado Colorado
... ... Citicorp (Jersey) Limited Channel Islands
... ... Citicorp Administradora de Inversiones S.A. Uruguay
... ... Citicorp Capital Investors Europe Limited Delaware
... ... Citicorp Community Development, Inc. New York
... ... ... ... Mission Park Corporation Massachusetts
... ... Citicorp Data Distribution, Inc. Delaware
... ... Citicorp Data Systems Incorporated Delaware
... ... Citicorp Delaware Services, Inc. Delaware
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... Citicorp Funding, Inc. Delaware
... ... Citicorp Global Holdings, Inc. Delaware
... ... Citicorp Global Technology, Inc. Delaware
... ... Citicorp Information Technology, Inc. Delaware
... ... Citicorp Insurance USA, Inc. Vermont
... ... Citicorp International Finance Corporation Delaware
... ... ... Brazil Holdings Inc. Limited Bahamas
... ... ... CHL Comercio e Participacoes Ltda. Brazil
... ... ... Citicorp Mercantil-Participacoes e Investimentos S.A. Brazil
... ... Citicorp International Insurance Company, Ltd. Bermuda
... ... Citicorp International Technology, Inc. Delaware
... ... Citicorp International Trading Company, Inc. Delaware
... ... ... Advanx S.A. Uruguay
... ... ... Citicom de Mexico, S.A. de C.V. Mexico
... ... ... Citicorp International Trade Indemnity, Inc. New Jersey
... ... ... ... Citicorp Marine Management, Inc. New Jersey
... ... ... Citicorp International Trading Company (Bahamas) Ltd. Bahamas
... ... ... Citicorp International Trading Company Argentina S.A. Argentina
... ... ... Citicorp Trading S.A. Brazil
... ... ... Comercializadora Citicorp, S.A. Dominican Republic
... ... ... Esmeril Trading Lda Portugal
... ... ... ... Marchante Trading Lda Portugal
... ... ... ... Richemont Servicos Lda Portugal
... ... ... ... Trevano Servicos e Gestao Lda Portugal
... ... ... ... Turbante Comercio Internacional Lda Portugal
... ... ... ... Vilacete Investimentos e Gestao Lda Portugal
... ... Citicorp Investment Management (Luxembourg) S.A. Luxembourg
... ... Citicorp Investment Partners, Inc. Delaware
... ... Citicorp Mortgage, Inc. Delaware
... ... ... Citicorp Credit Services, Inc. (Maryland) Delaware
... ... ... Citicorp Mortgage Securities, Inc. Delaware
... ... ... Citicorp Washington Industrial Loan Company Missouri
... ... ... EKS Corp. Delaware
... ... Citicorp Securities Asia Pacific Limited Hong Kong
... ... ... Citibank Global Asset Management (Asia) Limited Hong Kong
... ... ... Citicorp Securities Investment Consulting Inc. Taiwan
... ... Citicorp Strategic Technology Corporation Delaware
... ... Citicorp Securities Services, Inc. Delaware
... ... Citicorp Trust Company (Maryland) Maryland
... ... Citicorp Washington, Inc. District of Columbia
... ... Citicurrencies S.A. Luxembourg
... ... CitiDel, Inc. Delaware
... ... Citilandmark S.A. Luxembourg
... ... Citilife S.A./N.V. Belgium
... ... Citimarkets S.A. Luxembourg
... ... CitiMortgages, Inc. Delaware
... ... Citinvest S.A. Luxembourg
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... Citiportfolios S.A. Luxembourg
... ... Citirenta S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda Mexico
... ... Citishare Corporation Delaware
... ... Cititrust S.p.A.-Istituto Fiduciario Italy
... ... Court Square Capital Limited Delaware
... ... CrossMar, Inc. Delaware
... ... Housing Securities, Inc. Delaware
... ... Inverciti, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda Mexico
... ... Inversiones Citiminera S.A. Chile
... ... Mortgage Capital Funding Inc. Delaware
... Citicorp Capital I Delaware
... Citicorp Capital II Delaware
... Citicorp Capital III Delaware
... Citicorp Credit Services, Inc. Delaware
... Citicorp Holdings, Inc. Delaware
... ... Citibank Delaware Delaware
... ... ... ... Citibank Insurance Agency, Inc. New York
... ... ... ... Citicorp Delaware Equity, Inc. Delaware
... ... ... ... ... ESSL-RP, Inc. Delaware
... ... ... ... ... Fairfax Holdings, Inc. Delaware
... ... ... ... Citicorp Del-Lease, Inc. Delaware
... ... ... ... ... Citicorp Aircraft Management, Inc. Delaware
... ... ... ... ... Citicorp Bankers Leasing Corporation Delaware
... ... ... ... ... ... Bankers Leasing Corporation Massachusetts
... ... ... ... ... ... ... BLC Corporation California
... ... ... ... ... ... ... ... Citicorp Bankers Leasing Finance Corporation Delaware
... ... ... ... ... ... ... Commetro Leasing, Inc. Delaware
... ... ... ... ... ... ... Commonwealth Control, Inc. Delaware
... ... ... ... ... ... ... Commonwealth Plan, Inc., The Massachusetts
... ... ... ... ... ... ... Commonwealth System, Inc., The Massachusetts
... ... ... ... ... ... ... Financial Leasing Corporation Massachusetts
... ... ... ... ... ... ... Pacific Plan, Inc., The Massachusetts
... ... ... ... ... ... ... Worcester Plan, Inc., The Massachusetts
... ... ... ... ... ... CBL Capital Corporation Delaware
... ... ... ... ... Citicorp Delaware Properties, Inc. Delaware
... ... ... ... ... Citicorp Nevada Credit, Inc. Nevada
... ... ... ... ... Citicorp Nevada Leasing, Inc. Nevada
... ... ... ... ... ... G.W.L. Leasing Company, Incorporated California
... ... ... ... ... ... GXW Corporation California
... ... ... ... ... Palm Defeasance Company Delaware
... ... ... ... Citicorp Insurance Agency, Inc. Delaware
... ... ... ... Citicorp Insurance Agency, Inc. Missouri
... ... ... ... ... Citicorp Insurance Agency, Inc. California
... ... ... ... Citicorp Life Insurance Company Delaware
... ... ... ... ... Citicorp Assurance Co. Delaware
... ... ... ... ... First Citicorp Life Insurance Company New York
... ... ... ... Citicorp Railmark, Inc. Delaware
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... Citicorp U.S. Holdings Netherlands, Inc. Delaware
... ... ... ... ... Citicorp Holdings Netherlands B.V. Netherlands
... ... Citibank (Florida), National Association United States
... ... ... Citibank Mortgage Corp. Florida
... ... ... ... Citibank Commercial Properties, Inc. Florida
... ... ... ... ... ... Income Service Group, Inc. Florida
... ... ... ... ... ... Land Service Group, Inc. Florida
... ... ... ... ... ... RRR Property Management, Inc. Florida
... ... ... ... ... ... Thirteen Property Management, Inc. Florida
... ... Citibank (Nevada), National Association United States
... ... Citibank (South Dakota), N.A. South Dakota
... ... ... CDC Holdings Inc. South Dakota
... ... ... ... Citicorp Diners Club Inc. Delaware
... ... ... Citicorp Trust South Dakota South Dakota
... ... ... CitiHousing, Inc. South Dakota
... Citicorp National Services, Inc. Delaware
... Citicorp North America, Inc. Delaware
... ... ADV One, Inc. Delaware
... ... Asset D Vehicle, Inc. Delaware
... ... Citicorp Churchill Lease, Inc. Delaware
... ... Citicorp Epic Finance, Inc. Delaware
... ... Citicorp FSC II Ltd. Bermuda
... ... Citicorp Global Lease, Inc. Delaware
... ... Citicorp MT Aquarius Ship, Inc. Delaware
... ... Citicorp MT Aries Ship, Inc. Delaware
... ... Citicorp Sierra Lease, Inc. Delaware
... ... Citicorp Translease, Inc. Delaware
... ... ... CGI Capital, Inc. Delaware
... ... ... Citicorp Leasing (Alyeska), Inc. Delaware
... ... ... Citicorp Lescaman, Inc. Delaware
... ... ... Citicorp Petrolease, Inc. Delaware
... ... ... Citicorp Tulip Lease, Inc. Delaware
... ... ... ... CM Leasing Member 1995 Trust-A2 Delaware
... ... ... Citimarlease (Burmah I), Inc. New York
... ... ... ... Citimarlease (Burmah I), Inc. UTA (9/28/72)* Delaware
... ... ... Citimarlease (Burmah Liquegas), Inc. Delaware
... ... ... ... Citimarlease (Burmah Liquegas), Inc. UTA (9/28/92)* Delaware
... ... ... Citimarlease (Burmah LNG Carrier), Inc. Delaware
... ... ... ... Citimarlease (Burmah LNG Carrier), Inc. UTA (9/28/72)* Delaware
... ... ... Citimarlease (Fulton), Inc. Delaware
... ... ... Citimarlease (Whitney), Inc. Delaware
... ... CM Leasing Member 1995 Trust-A1 Delaware
... ... ... CM North America Holding Company* Canada
... ... ... ... CM Leasing Company* Canada
... ... ... CM Tulip Holding Company* Canada
... ... ESSL 1, Inc. Delaware
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ESSL 2, Inc. Delaware
... ... FCL Ship Three, Inc. Delaware
... ... FCL Ship Two, Inc. Delaware
... ... POP Trophy I Inc. New York
... ... POP Trophy Inc. New York
... ... S.P.L., Inc. Delaware
... ... Science Defeasance Corp. Delaware
... Citicorp Retail Services, Inc. Delaware
... Citicorp Securities Funding, Inc. Delaware
... Citicorp Services Inc. New York
Citigroup Capital I Delaware
Citigroup Capital II Delaware
Citigroup Capital III Delaware
Citigroup Capital IV Delaware
Citigroup Capital V Delaware
Citigroup Capital VI Delaware
Citigroup Capital VII Delaware
Citigroup Capital VIII Delaware
Greenwich Street Capital Partners, Inc. Delaware
... TRV Employees Fund, L.P.* Delaware
... Greenwich Street Employees Fund L.P. Delaware
... Greenwich Street Investments, LP Delaware
MRC Holdings, Inc. Delaware
Salomon Smith Barney Holdings Inc. Delaware
... Genesis Energy, L.L.C. Delaware
... ... Genesis Crude Oil, L.P. Delaware
... ... Genesis Energy, L.P. Delaware
... ... Global Wrap Services Co., Ltd. Japan
... Mutual Management Corp. Delaware
... ... Salomon Smith Barney Asset Management Australia Ltd. Australia
... ... Smith Barney Asset Management Company, Ltd. Japan
... ... Smith Barney Management Company (Ireland) Limited Ireland
... ... Smith Barney Strategy Advisers Inc. Delaware
... Nextco Inc. Delaware
... Phibro Energy Production, Inc. Delaware
... ... Anglo Suisse USSR L.P.* Russia
... ... Phibro Energy Production G.P. Inc Delaware
... Phibro Inc. Delaware
... ... MC2 Technologies, Inc. Delaware
... ... Phibro Commodities England
... ... Phibro Energy Clearing, Inc. Delaware
... ... Phibro GmbH Switzerland
... ... ... Phibro (Asia) Pte Ltd Singapore
... ... ... Scanports Limited England
... ... ... Turavent Oil AG Switzerland
... ... Phibro Holdings Limited England
... ... ... Phibro Futures and Metals Limited England
... ... Scanports Shipping, Inc. Delaware
... Phibro Resources Corp. Delaware
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... R-H Capital, Inc. Delaware
... ... R-H/Travelers, L.P. Delaware
... ... ... R-H Capital Partners, L.P. Delaware
... Salomon Brothers Services GmbH Germany
... Salomon Smith Barney Australia Pty Limited* Australia
... ... Salomon Smith Barney Australia Broker Holdings Pty Limited Australia
... ... ... Salomon Smith Barney Australia Securities Pty Limited Australia
... ... ... ... Bowyang Nominees Pty Limited Australia
... ... ... ... Calex Nominees Pty Limited Australia
... ... ... ... Dervat Nominees Pty Limited Australia
... ... ... ... Feta Nominees Pty Limited Australia
... ... ... ... Gymkhana Nominees Pty Limited Australia
... ... ... ... Salomon Smith Barney New Zealand Limited New Zealand
... ... ... ... ... Palliser Nominees Limited New Zealand
... ... Salomon Smith Barney Australia Capital Markets Pty Limited Australia
... ... Salomon Smith Barney Australia Corporate Finance Pty Limited Australia
... ... Salomon Smith Barney Australia Nominees No. 2 Pty Limited Australia
... ... Salomon Smith Barney Australia Nominees Pty Limited Australia
... ... Salomon Smith Barney Australia Superannuation Fund Pty Limited Australia
... Smith Barney Mortgage Capital Group, Inc. Delaware
... Smith Barney Offshore, Inc. Delaware
... Smith Barney Private Trust GmbH Switzerland
... Smith Barney Securities Investment Consulting Co. Ltd. Taiwan
... SSBH Capital I Delaware
... SSBH Capital II Delaware
... SSBH Capital III Delaware
... SSBH Capital IV Delaware
... Sudtex Real Estate Inc. New York
... ... LT Investment I LLC Delaware
... ... LT Investment II LLC Delaware
... Targets Trust I Delaware
... The Travelers Investment Management Company Connecticut
... Salomon Brothers Holding Company Inc Delaware
... ... ... Patrimonio Overseas Corporation Cayman Islands
... ... ... Patrimonio Servicos Ltda. Brazil
... ... ... ... Patrimonio Madeira/Masterpieces SGPS Portugal
... ... Compania de Investimento Participar Brazil
... ... Grove Street Film Corp Delaware
... ... Huwest Company Inc Delaware
... ... Loan Participation Holding Corporation Delaware
... ... ... Home Mortgage Access Corporation District of Columbia
... ... ... ... Home MAC Government Financial Corporation District of Columbia
... ... ... ... Home MAC Government Financial Corporation West District of Columbia
... ... ... ... Home MAC Mortgage Securities Corporation District of Columbia
... ... PB-SB Investments, Inc Delaware
... ... ... PB-SB 1983 I Delaware
... ... ... PB-SB 1983 IA Delaware
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... PB-SB 1983 II Delaware
... ... ... PB-SB 1983 III Delaware
... ... PB-SB Ventures, Inc Delaware
... ... ... PB-SB 1985 VII Delaware
... ... ... PB-SB 1988 II Delaware
... ... ... PB-SB 1988 III Delaware
... ... ... PB-SB 1988 VIII Delaware
... ... PT Salomon Smith Barney Nusa Securities Indonesia
... ... Salomon (International) Finance AG Switzerland
... ... ... ... Ion Trading Systems Limited England
... ... ... ... Salomon Brothers Eastern Europe Limited England
... ... ... ... Salomon Brothers International Limited England
... ... ... ... Salomon Brothers Nominees Limited England
... ... ... ... Salomon Brothers UK Equity Limited England
... ... ... ... Salomon Brothers UK Limited England
... ... ... ... Wavendown Limited England
... ... ... Salomon Brothers Holdings GmbH* Switzerland
... ... ... ... Salomon Contractuals Limited Cayman Islands
... ... ... ... Salomon International Financial Products Delaware
... ... ... ... Salomon Smith Barney (Japan) Limited Cayman Islands
... ... ... ... Salomon Smith Barney Services Japan Cayman Islands
... ... ... Salomon Brothers Overseas Inc Cayman Islands
... ... ... Salomon-Shanghai Industrial Greater China Fund* Delaware
... ... Salomon Analytics Inc Delaware
... ... Salomon Brothers Asia Capital Corp Ireland
... ... ... Darkland International Limited Ireland
... ... ... Ilshin No. 4 Venture Investment Partnership South Korea
... ... ... Kookmin No. 5 Investment Partnership South Korea
... ... ... Solom International Limited Ireland
... ... Salomon Brothers Asia Pacific Ltd. Delaware
... ... Salomon Brothers Asset Management (Ireland) Ltd Ireland
... ... Salomon Smith Barney Asset Management Asia Pacific Ltd Hong Kong
... ... Salomon Brothers Asset Management Inc Delaware
... ... ... Salomon Brothers Asset Management G.P. Inc. Delaware
... ... ... Salomon Brothers Asset Management Japan Ltd Japan
... ... ... Salomon Investment Trust Management Co., Ltd. Japan
... ... Salomon Smith Barney China Ltd Hong Kong
... ... Salomon Brothers Finance AG Switzerland
... ... Salomon Smith Barney Hong Kong Futures Limited Hong Kong
... ... ... Salomon Smith Barney Hong Kong Nominee Limited Hong Kong
... ... Salomon Brothers Hong Kong Limited* Hong Kong
... ... Salomon Brothers Housing Investment Inc Delaware
... ... Nomolas BA Australia
... ... Salomon Brothers International Operations (Japan) Inc Delaware
... ... Salomon Brothers International Operations (Jersey) Limited Channel Islands
... ... Salomon Brothers International Operations (Overseas) Limited Channel Islands
... ... Salomon Brothers International Operations Inc Delaware
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... Salomon Brothers Mortgage Securities II, Inc Delaware
... ... Salomon Brothers Mortgage Securities III, Inc Delaware
... ... Salomon Brothers Mortgage Securities Inc Delaware
... ... Salomon Brothers Mortgage Securities VI, Inc Delaware
... ... Salomon Brothers Mortgage Securities VII, Inc Delaware
... ... Salomon Brothers Pacific Holding Company Inc Delaware
... ... Salomon Brothers Properties Inc Delaware
... ... ... Salomon Brothers Investments Inc Delaware
... ... ... ... ... Salomon Brothers AG Germany
... ... ... ... ... Salomon Brothers Kapitalanlage-Gesellschaft mbH Germany
... ... Salomon Brothers Real Estate Development Corp Delaware
... ... ... Crow Wood Terrace Associates Georgia
... ... Salomon Brothers Realty Corp New York
... ... Salomon Brothers Russia Holding Company Inc Delaware
... ... ... AO Salomon Brothers Russia
... ... Salomon Brothers Taiwan Limited Taiwan
... ... Salomon Brothers Tosca Inc Delaware
... ... Salomon Capital Access for Savings Institutions, Inc. Delaware
... ... ... Salomon Capital Access Corporation District of Columbia
... ... Salomon Forex Inc Delaware
... ... ... Salomon Brothers Finance Corporation Delaware
... ... Salomon International Limited Delaware
... ... ... Salomon Brothers Europe Limited* England
... ... Salomon Loan Fund Inc Delaware
... ... Salomon Millennium Bridge Fund Inc. Delaware
... ... Salomon Northpoint Corp Delaware
... ... Salomon Plaza Holdings Inc Delaware
... ... ... Plaza Holdings Inc. Delaware
... ... ... ... Salomon Brothers Finance Corporation and Co beschranthaftende KG* Germany
... ... Salomon Reinvestment Company, Inc Delaware
... ... Salomon Smith Barney (Malaysia) Sdn Bhd Malaysia
... ... Salomon Smith Barney Canada Holding Co Canada
... ... ... Salomon Smith Barney Canada Inc. Canada
... ... Salomon Smith Barney Inc. Delaware
... ... ... ... Robinson-Humphrey Insurance Services Inc. Georgia
... ... ... ... ... Robinson-Humphrey Insurance Services of Alabama, Inc. Alabama
... ... ... ... Salomon Smith Barney Life Agency Inc. Louisiana
... ... ... ... SBHU Life Agency of Arizona, Inc. Arizona
... ... ... ... SBHU Life Agency of Indiana, Inc. Indiana
... ... ... ... SBHU Life Agency of Ohio, Inc. Ohio
... ... ... ... SBHU Life Agency of Oklahoma, Inc. Oklahoma
... ... ... ... SBHU Life Agency of Texas, Inc. Texas
... ... ... ... SBHU Life Agency of Utah, Inc. Utah
... ... ... ... SBHU Life Insurance Agency of Massachusetts, Inc. Massachusetts
... ... ... ... SBS Insurance Agency of Hawaii, Inc. Hawaii
... ... ... ... SBS Insurance Agency of Idaho, Inc. Idaho
... ... ... ... SBS Insurance Agency of Maine, Inc. Maine
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... SBS Insurance Agency of Montana, Inc. Montana
... ... ... ... SBS Insurance Agency of Nevada, Inc. Nevada
... ... ... ... SBS Insurance Agency of Ohio, Inc. Ohio
... ... ... ... SBS Insurance Agency of South Dakota, Inc. South Dakoba
... ... ... ... SBS Insurance Agency of Wyoming, Inc. Wyoming
... ... ... ... SBS Insurance Brokerage Agency of Arkansas, Inc. Arkansas
... ... ... ... SBS Insurance Brokers of Kentucky, Inc. Kentucky
... ... ... ... SBS Insurance Brokers of New Hampshire, Inc. New Hampshire
... ... ... ... SBS Insurance Brokers of North Dakota, Inc. North Dakota
... ... ... ... SBS Life Insurance Agency of Puerto Rico, Inc. Puerto Rico
... ... ... ... SLB Insurance Agency of Maryland, Inc. Maryland
... ... ... Smith Barney (Netherlands) Inc. Delaware
... ... ... Smith Barney International Incorporated Oregon
... ... ... ... Smith Barney Pacific Holdings, Inc. British Virgin Is.
... ... ... ... ... Smith Barney (Asia) Limited Hong Kong
... ... ... Smith Barney Puerto Rico Inc. Puerto Rico
... ... ... The Robinson-Humphrey Company LLC Delaware
... ... Salomon Smith Barney S.A. France
... ... ... Salomon Smith Barney Singapore Pte. Ltd. Singapore
... ... Salomon Swapco Inc Delaware
... ... SB Contractual Products Inc Delaware
... ... SB Funding Corp. Delaware
... ... SB Management Services Inc Delaware
... ... SB Motel Corp. Delaware
... ... ... SB Motel Mortgage Corp Delaware
... ... Seven World Holdings Inc Delaware
... ... ... Mosenergia Holdings Limited Cyprus
... ... ... ... ... LLC Mudraya Sova* Russia
... ... ... ... ... LLC Beloye Ozero* Russia
... ... Seven World Technologies, Inc Delaware
... ... SSB Vehicle Securities Inc. Delaware
... ... Structured Placements Corp Delaware
... ... Structured Products Corp Delaware
... ... TCEP Participation Corp. New York
... ... TCP Corp. Delaware
... ... The Downtown Conference Center Inc. Delaware
... ... SB Cayman Holdings I Inc. Delaware
... ... SB Cayman Holdings II Inc. Delaware
... ... SB Cayman Holdings III Inc. Delaware
... ... SB Cayman Holdings IV Inc. Delaware
... ... ... Smith Barney Credit Services (Cayman) Ltd. Cayman Islands
... ... ... SFP Soditic Financial Products Ltd. Cayman Islands
... ... SI Financing Trust I Delaware
... ... Smith Barney (Delaware) Inc. Delaware
... ... ... IPO Holdings Inc. Delaware
... ... ... Smith Barney Global Capital Management, Inc. Delaware
... ... ... Smith Barney Risk Investors, Inc. Delaware
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Name of Subsidiary Company Jurisdiction of Incorporation
- -------------------------- -----------------------------
<S> <C>
... ... ... ... Smith Barney Consulting Partnership, LP Delaware
... ... ... Smith Barney Venture Corp. Delaware
... ... ... ... First Century Management Company New York
... ... Smith Barney (Ireland) Limited Ireland
... ... Smith Barney Capital Services Inc. Delaware
... ... Smith Barney Commercial Corp. Delaware
... ... Smith Barney Europe Holdings, Ltd. England
... ... Smith Barney Funding Corp. Delaware
... ... Smith Barney Futures Management Inc. Delaware
... ... ... F-1000 Futures Fund L.P., Michigan Series I New York
... ... ... F-1000 Futures Fund L.P., Michigan Series II New York
... ... ... SB/Michigan Futures Fund L.P. New York
... ... ... Smith Barney AAA Energy Fund L.P. New York
... ... ... Smith Barney Global Markets Futures Fund L.P. New York
... ... ... Smith Barney Great Lakes Futures Fund L.P. New York
... ... ... Smith Barney Potomac Futures Fund L.P. New York
... ... ... Smith Barney Telesis Futures Fund L.P. New York
... ... ... Smith Barney Tidewater Futures Fund L.P. New York
Smith Barney Corporate Trust Company Delaware
Smith Barney Private Trust Bank of Michigan Michigan
Smith Barney Private Trust Company New York
Smith Barney Private Trust Company of Florida Florida
Smith Barney Private Trust Company of New Jersey New Jersey
Smith Barney Private Trust Company of Texas Texas
... Salomon Smith Barney Hicks Muse Partners, L.P. Delaware
Travelers Group Diversified Distribution Services, Inc. Delaware
... Travelers Group Exchange, Inc. Delaware
Travelers Group International Inc. Delaware
TRV Employees Investments, Inc. Delaware
</TABLE>
- -------
* Indicates that wholly owned subsidiary is partially owned by more than one
subsidiary of Citigroup Inc.
** Citigroup Inc., through The Travelers Insurance Group Inc., owns
approximately 84% of Travelers Property Casualty Corp.
27
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Citigroup Inc.:
We consent to the incorporation by reference in the Registration Statements on:
- - Form S-3 Nos. 33-49280, 33-55542, 33-56940, 33-68760, 33-51101, 33-52281,
33-54093, 33-62903, 33-63663, 333-04809, 333-12439, 333-27155,
333-42575, 333-44549, 333-68949 and 333-68989; and
- - Form S-8 Nos. 33-32130, 33-43997, 33-59524, 33-28110, 33-43883, 33-21099,
33-29711, 33-47437, 33-39025, 33-40469, 33-38109, 33-50206,
33-51201, 33-51353, 33-51769, 33-51783, 33-52027, 33-52029,
33-64985, 333-02809, 333-02811, 333-12697, 333-25603, 333-38647,
333-41865, 333-56589 and 333-65487
of Citigroup Inc. (formerly Travelers Group Inc.) of our report dated January
25, 1999, with respect to the consolidated statement of financial position of
Citigroup Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December
31, 1998, which report is included in the annual report on Form 10-K of
Citigroup Inc. for the year ended December 31, 1998.
/s/ KPMG LLP
New York, New York
March 8, 1999
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Registration Statements on:
- - Form S-3 Nos. 33-49280, 33-55542, 33-56940, 33-68760, 33-51101, 33-52281,
33-54093, 33-62903, 33-63663, 333-04809, 333-12439, 333-27155,
333-42575, 333-44549, 333-68949 and 333-68989; and
- - Form S-8 Nos. 33-32130, 33-43997, 33-59524, 33-28110, 33-43883, 33-21099,
33-29711, 33-47437, 33-39025, 33-40469, 33-38109, 33-50206,
33-51201, 33-51353, 33-51769, 33-51783, 33-52027, 33-52029,
33-64985, 333-02809, 333-02811, 333-12697, 333-25603, 333-38647,
333-41865, 333-56589 and 333-65487
of Citigroup Inc. of our report dated March 13, 1997, relating to the
consolidated statement of financial condition of Salomon Inc and subsidiaries as
of December 31, 1996 and 1995, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996, which report is incorporated by
reference or included in the annual report on Form 10-K of Citigroup Inc.
for the year ended December 31, 1998.
/s/ Arthur Andersen LLP
New York, New York
March 8, 1999
<PAGE>
Exhibit 24.01
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ C. Michael Armstrong
------------------------------
C. Michael Armstrong
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Alain J.P. Belda
------------------------------
Alain J.P. Belda
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Kenneth J. Bialkin
------------------------------
Kenneth J. Bialkin
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Kenneth T. Derr
------------------------------
Kenneth T. Derr
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ John M. Deutch
------------------------------
John M. Deutch
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Ann Dibble Jordan
------------------------------
Ann Dibble Jordan
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Reuben Mark
------------------------------
Reuben Mark
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Michael T. Masin
------------------------------
Michael T. Masin
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Dudley C. Mecum
------------------------------
Dudley C. Mecum
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Richard D. Parsons
------------------------------
Richard D. Parsons
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Andrall E. Pearson
------------------------------
Andrall E. Pearson
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Robert B. Shapiro
------------------------------
Robert B. Shapiro
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Franklin A. Thomas
------------------------------
Franklin A. Thomas
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Edgar S. Woolard, Jr.
------------------------------
Edgar S. Woolard, Jr.
<PAGE>
POWER OF ATTORNEY
Annual Report on Form 10-K
Citigroup Inc.
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a director of
Citigroup Inc., a Delaware corporation, do hereby constitute and appoint Sanford
I. Weill, John S. Reed, Heidi G. Miller, Charles O. Prince, III and John J.
Roche, and each of them severally, to be my true and lawful attorneys-in-fact
and agents, each acting alone with full power of substitution and
re-substitution, to sign my name to an Annual Report on Form 10-K of Citigroup
Inc. for the fiscal year ended December 31, 1998, and all amendments thereto,
and to file, or cause to be filed, the same with all exhibits thereto (including
this power of attorney), and other documents in connection therewith with the
Securities and Exchange Commission, provided that such Annual Report on Form
10-K in final form, and any amendment or amendments thereto and such other
documents, be approved by said attorneys-in-fact, or by any one of them; and I
do hereby grant unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in or about the premises, as fully and to all intents and purposes as I
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of January 19,
1999.
/s/ Arthur Zankel
------------------------------
Arthur Zankel
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CITIGROUP'S FORM 10-K FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
AND ACCOMPANYING DISCLOSURES.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,837
<INT-BEARING-DEPOSITS> 11,643
<FED-FUNDS-SOLD> 94,831<F1>
<TRADING-ASSETS> 119,845
<INVESTMENTS-HELD-FOR-SALE> 103,672
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 221,958
<ALLOWANCE> 6,617<F2>
<TOTAL-ASSETS> 668,641
<DEPOSITS> 228,649
<SHORT-TERM> 16,112<F3>
<LIABILITIES-OTHER> 40,310
<LONG-TERM> 48,671
4,320
2,313
<COMMON> 24
<OTHER-SE> 40,371
<TOTAL-LIABILITIES-AND-EQUITY> 668,641
<INTEREST-LOAN> 22,543
<INTEREST-INVEST> 0<F4>
<INTEREST-OTHER> 23,696
<INTEREST-TOTAL> 46,239
<INTEREST-DEPOSIT> 0<F4>
<INTEREST-EXPENSE> 27,495
<INTEREST-INCOME-NET> 18,744
<LOAN-LOSSES> 2,751
<SECURITIES-GAINS> 840
<EXPENSE-OTHER> 11,146
<INCOME-PRETAX> 9,269
<INCOME-PRE-EXTRAORDINARY> 5,807
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,807
<EPS-PRIMARY> 2.49<F5>
<EPS-DILUTED> 2.43
<YIELD-ACTUAL> 3.08
<LOANS-NON> 3,868<F6>
<LOANS-PAST> 1,094<F7>
<LOANS-TROUBLED> 45
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,237
<CHARGE-OFFS> 3,311
<RECOVERIES> 667
<ALLOWANCE-CLOSE> 6,717<F2>
<ALLOWANCE-DOMESTIC> 0<F8>
<ALLOWANCE-FOREIGN> 0<F9>
<ALLOWANCE-UNALLOCATED> 0<F10>
<FN>
<F1>Includes securities borrowed or purchased under agreements to resell.
<F2>Aggregate allowance activity for the twelve months of 1998 includes $373MM
in other changes, of which, $320MM reflects the addition of credit loss reserves
related to the acquisition of UCS. The remaining balance is principally
foreign currency translation effects. Aggregate allowance includes
$50 million attributable to standby letters of credit and guarantees included
in Other Liabilities, and $50 million attributable to derivative and foreign
exchange contracts reported as a deduction from Trading account assets at
December 31, 1998.
<F3>Commercial paper and other short-term borrowings.
<F4>Not disclosed.
<F5>Primary EPS represents Basic EPS under Financial Accounting
Standards No. 128, "Earnings per Share".
<F6>Includes $1,595MM of cash-basis commercial loans and $2,273MM of
consumer loans on which accrual of interest has been suspended.
<F7>Accruing loans 90 or more days delinquent.
<F8>No portion of Citigroup's credit loss allowance is specifically
allocated to any individual loan or group of loans.
<F9>See Footnote F8 above.
<F10>See Footnote F8 above.
</FN>
</TABLE>
<PAGE>
Exhibit 99.01
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on which
Title of each class registered
------------------- ------------------------------
<S> <C>
Common Stock, par value $ .01 per share New York Stock Exchange
and Pacific Exchange
Depositary Shares, each representing 1/5th of New York Stock Exchange
a share of 6.365% Cumulative Preferred Stock,
Series F
Depositary Shares, each representing 1/5th of New York Stock Exchange
a share of 6.213% Cumulative Preferred Stock,
Series G
Depositary Shares, each representing 1/5th of New York Stock Exchange
a share of 6.231% Cumulative Preferred Stock,
Series H
Depositary Shares, each representing 1/20th of New York Stock Exchange
a share of 8.40% Cumulative Preferred Stock,
Series K
Depositary Shares, each representing 1/5th of New York Stock Exchange
a share of 5.864% Cumulative Preferred Stock,
Series M
Depositary Shares, each representing 1/10th of New York Stock Exchange
a share of Adjustable Rate Cumulative
Preferred Stock, Series Q
Depositary Shares, each representing 1/10th of New York Stock Exchange
a share of Adjustable Rate Cumulative
Preferred Stock, Series R
Depositary Shares, each representing 1/10th of New York Stock Exchange
a share of 8.30% Noncumulative Preferred
Stock, Series S
Depositary Shares, each representing 1/10th of New York Stock Exchange
a share of 8 1/2% Noncumulative Preferred
Stock, Series T
Depositary Shares, each representing 1/10th of New York Stock Exchange
a share of 7 3/4 % Cumulative Preferred Stock,
Series U
7 3/4% Notes Due June 15, 1999 New York Stock Exchange
8% Trust Securities of Subsidiary Trust (and New York Stock Exchange
registrant's guaranty with respect thereto)
7 3/4% Trust Securities of Subsidiary Trust New York Stock Exchange
(and registrant's guaranty with respect
thereto)
7 5/8% Trust Securities of Subsidiary Trust New York Stock Exchange
(and registrant's guaranty with respect
thereto)
6.850% Trust Securities (TRUPS(R)) of New York Stock Exchange
Subsidiary Trust (and registrant's guaranty
with respect thereto)
7 % Trust Securities (TRUPS(R)) of New York Stock Exchange
Subsidiary Trust (and registrant's guaranty
with respect thereto)
</TABLE>
<PAGE>
Exhibit 99.02
[Letterhead of Arthur Andersen LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Salomon Inc:
We have audited the accompanying consolidated statement of financial
condition of Salomon Inc (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Salomon Inc
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
March 13, 1997
