SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 1-9924
Citigroup Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1568099
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
153 East 53rd Street, New York, New York 10043
(Address of principal executive offices) (Zip Code)
(212) 559-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Common stock outstanding as of July 31, 1999: 3,377,284,300
<PAGE>
Citigroup Inc.
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements: Page No.
Consolidated Statement of Income (Unaudited) -
Three and Six Months Ended June 30, 1999 and 1998 35
Consolidated Statement of Financial Position -
June 30, 1999 (Unaudited) and December 31, 1998 36
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) - Six Months Ended June 30, 1999 and 1998 37
Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 1999 and 1998 38
Notes to Consolidated Financial Statements (Unaudited) 39
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 1-34
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27-29
44-45
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 48
Item 6. Exhibits and Reports on Form 8-K 48
Signatures 49
Exhibit Index 50
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS
Business Focus
The table below shows the business income (loss) for each of Citigroup's
businesses:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------------------------------
In millions of dollars 1999 1998(1) 1999 1998(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Consumer
Citibanking North America $ 106 $ 37 $ 180 $ 62
Mortgage Banking 53 50 113 100
Cards 267 136 535 289
Consumer Finance Services 87 60 168 119
----------------------------------------------------------------------
Total Banking/Lending 513 283 996 570
----------------------------------------------------------------------
Travelers Life and Annuity 173 127 320 246
Primerica Financial Services 113 103 223 198
Personal Lines 79 81 162 163
----------------------------------------------------------------------
Total Insurance 365 311 705 607
----------------------------------------------------------------------
Total North America 878 594 1,701 1,177
----------------------------------------------------------------------
Europe, Middle East and Africa 78 56 152 107
Asia Pacific 108 86 210 169
Latin America 44 37 92 80
Global Private Bank 73 64 130 122
----------------------------------------------------------------------
Total International 303 243 584 478
----------------------------------------------------------------------
e-Citi (44) (37) (80) (67)
Other (27) (8) (44) (7)
----------------------------------------------------------------------
Total Global Consumer 1,110 792 2,161 1,581
----------------------------------------------------------------------
Global Corporate and Investment Bank
Salomon Smith Barney 610 348 1,258 791
Emerging Markets 295 242 615 502
Global Relationship Banking 158 239 360 399
Commercial Lines Insurance 201 174 390 345
----------------------------------------------------------------------
Total Global Corporate and Investment Bank 1,264 1,003 2,623 2,037
----------------------------------------------------------------------
SSB Citi Asset Management Group 84 69 164 138
Corporate/Other (144) (131) (309) (264)
----------------------------------------------------------------------
Business income 2,314 1,733 4,639 3,492
Investment Activities 163 316 253 718
----------------------------------------------------------------------
Core income 2,477 2,049 4,892 4,210
Restructuring-related items, after-tax (2) (29) 191 45 191
Cumulative effect of accounting changes (3) -- -- (127) --
----------------------------------------------------------------------
Net income $2,448 $2,240 $4,810 $4,401
- --------------------------------------------------------------======================================================================
</TABLE>
(1) The 1998 results have been restated to reflect changes in capital and tax
allocations among the segments to conform the policies of each of the
predecessor companies.
(2) The 1999 second quarter and six months include restructuring-related
charges of $29 million and $80 million, respectively, and in the six month
period, a $125 million credit for the reversal of the 1997 charge. The
1998 second quarter and six months include a credit for the reversal of
the 1997 charge of $191 million. See Note 7 of Notes to Consolidated
Financial Statements.
(3) Accounting changes include the 1999 first quarter adoption of Statement of
Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" of ($135) million; SOP 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk" of $23 million; and SOP 98-5, "Reporting on the
Costs of Start-Up Activities" of ($15) million. See Note 2 of Notes to
Consolidated Financial Statements.
<PAGE>
Income Analysis
The income analysis reconciles amounts shown in the Consolidated Statement of
Income to the basis employed by management for assessing financial results.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------------------------------
In millions of dollars 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues, net of interest expense $14,380 $12,965 $28,450 $25,761
Effect of credit card securitization activity 570 581 1,158 1,043
----------------------------------------------------------------------
Adjusted revenues, net of interest expense 14,950 13,546 29,608 26,804
----------------------------------------------------------------------
Total operating expenses 7,524 6,680 14,845 13,419
Restructuring-related items (47) 324 83 324
----------------------------------------------------------------------
Adjusted operating expenses 7,477 7,004 14,928 13,743
----------------------------------------------------------------------
Provisions for benefits, claims, and credit losses 2,941 2,703 5,718 5,292
Effect of credit card securitization activity 570 581 1,158 1,043
----------------------------------------------------------------------
Adjusted provisions for benefits, claims, and credit losses 3,511 3,284 6,876 6,335
----------------------------------------------------------------------
Core income before income taxes and minority interest 3,962 3,258 7,804 6,726
Taxes on core income 1,420 1,157 2,787 2,406
Minority interest, net of income taxes 65 52 125 110
----------------------------------------------------------------------
Core income 2,477 2,049 4,892 4,210
Restructuring-related items, after-tax (29) 191 45 191
----------------------------------------------------------------------
Income before cumulative effect of accounting changes 2,448 2,240 4,937 4,401
Cumulative effect of accounting changes -- -- (127) --
----------------------------------------------------------------------
Net income $ 2,448 $ 2,240 $ 4,810 $ 4,401
- --------------------------------------------------------------======================================================================
</TABLE>
Results of Operations
Citigroup reported core income of $2.477 billion ($0.71 per diluted common
share) in the 1999 second quarter, up $428 million or 21% from $2.049 billion
($0.57 per diluted share) in the 1998 second quarter. Core income in the 1999
second quarter excluded a charge of $29 million and the 1998 second quarter
excluded a credit of $191 million related to after-tax restructuring-related
items. Net income for the 1999 second quarter including these amounts was $2.448
billion ($0.70 per diluted share), up $208 million or 9% from $2.240 billion
($0.63 per diluted share) in the year-ago quarter. Excluding those amounts, core
income return on common equity was 23.1% for the 1999 second quarter compared to
19.4% a year ago.
Core income for the 1999 six months of $4.892 billion ($1.40 per diluted common
share) was up $682 million or 16% from $4.210 billion ($1.17 per diluted share)
for the 1998 six months. Core income in the 1999 six months excluded a credit of
$45 million related to after-tax restructuring-related items and a charge of
$127 million reflecting the cumulative effect of adopting several new accounting
standards as described in Note 2 of Notes to the Consolidated Financial
Statements. Core income in the 1998 six months excluded a credit of $191 million
related to after-tax restructuring-related items. Net income for the 1999 six
months including these amounts was $4.810 billion ($1.38 per diluted share), up
$409 million or 9% from a year ago. Excluding those amounts, core income return
on common equity was 23.3% for the 1999 six months compared to 20.9% for 1998.
Core income growth in the quarter was led by Global Consumer, up $318 million or
40% to $1.110 billion and a $261 million or 26% increase in Global Corporate and
Investment Bank to $1.264 billion. In addition, SSB Citi Asset Management Group
("Asset Management") grew $15 million or 22% to $84 million reflecting a 19%
increase in assets under management to $347 billion. Investment Activities core
income of $163 million was down $153 million or 48% from the year-ago quarter,
primarily reflecting lower revenues from sales of Brazilian Brady Bonds and
other proprietary investments, partially offset by an increase in U.S. venture
capital revenues. Corporate/Other net loss increased by $13 million. For the six
month period, Global Consumer was up 37% to $2.161 billion, Global Corporate and
Investment Bank was up 29% to $2.623 billion, and Asset Management was up 19% to
$164 million. Partially offsetting these improvements was a core income decrease
of $465 million or 65% in Investment Activities to $253 million, reflecting
lower revenues from sales of Brazilian Brady Bonds and other proprietary
investments, and reduced venture capital revenues, and a $45 million increase in
Corporate/Other net loss.
Global Consumer core income in both the quarter and six months resulted from
strong growth in virtually all businesses, particularly in the Banking/Lending
business in North America where Cards core income of $267 million and $535
million in the 1999 second quarter and six months grew $131 million or 96% and
$246 million or 85%, from the prior year comparable periods, and Citibanking
North America core income of $106 million and $180 million, nearly tripled from
the prior year levels. Core income in the International businesses grew 25% to
$303 million and 22% to $584 million in the 1999 second quarter and six months,
and in the Insurance businesses grew 17% to $365 million and 16% to $705
million. Global Consumer core income growth was achieved even as spending
continued on global advertising and marketing initiatives and on the
technological enhancements of e-Citi. The
2
<PAGE>
increase in Global Corporate and Investment Bank core income in both the quarter
and six months primarily resulted from a particularly strong performance at
Salomon Smith Barney, up $262 million or 75% to $610 million in the 1999 second
quarter and up $467 million or 59% to $1.258 billion in the first half, as 30%
and 21% net revenue growth in the quarter and six months led by principal
transactions, investment banking, and commissions outpaced expense growth.
Emerging Markets core income was up 22% and 23% in the quarterly and six month
comparisons to $295 million and $615 million, as revenue growth and expense
discipline more than offset higher credit costs. Global Relationship Banking was
down $81 million or 34% to $158 million and down $39 million or 10% to $360
million for the 1999 second quarter and six months, due to $104 million of real
estate items in the 1998 periods. Commercial Lines was up $27 million or 16% to
$201 million and $45 million or 13% to $390 million in the 1999 second quarter
and first half, as favorable prior-year reserve development, expense control,
and in the quarter, lower weather-related losses offset revenue declines.
Adjusted revenues, net of interest expense, of $15.0 billion and $29.6 billion
in the 1999 second quarter and six months were up $1.4 billion and $2.8 billion,
or 10% compared to the 1998 periods. Revenues in Global Consumer increased
strongly in almost all sectors and were $7.4 billion and $14.5 billion in the
1999 second quarter and six months, up $817 million or 12% and $2.0 billion or
16% from the comparable 1998 periods. Revenue growth in both the 1999 second
quarter and six months was led by the Insurance businesses, up 11% in both
periods to $2.3 billion and $4.5 billion, by the International businesses, up
17% and 18% in the quarterly and six month comparisons to $1.9 billion and $3.7
billion, and by Cards, up 10% and 23% to $2.0 billion and $4.0 billion in the
1999 second quarter and six months. Consumer growth was driven largely by volume
growth in customers and accounts in virtually all business lines, complemented
by strategic acquisitions. Global Corporate and Investment Bank revenues of $6.9
billion and $14.0 billion in the 1999 second quarter and six months were up $692
million or 11% and $1.3 billion or 10% from the 1998 periods, principally
reflecting increases at Salomon Smith Barney of $746 million or 30% to $3.3
billion and $1.2 billion or 21% increase to $6.6 billion. Emerging Markets
increased 12% and 15% to $1.1 billion and $2.2 billion in the 1999 second
quarter and six months, but Global Relationship Banking was down 12% to $1.0
billion and 2% to $2.1 billion in the quarterly and six month comparisons (due
to the 1998 real estate gains), and Commercial Lines decreased 2% and 3% to $1.6
billion and $3.1 billion, respectively. Asset Management segment revenues of
$357 million and $711 million for the 1999 second quarter and six months were up
$48 million and $97 million, both up 16%. Corporate/Other revenues of ($1)
million in the quarter and ($67) million for the six months were up $68 million
and $55 million. The $221 million decrease in the 1999 second quarter and $687
million decrease in the first half in Investment Activities revenues to $270
million and $423 million was a result of lower realized gains from sales of
investments and in the six month period reduced venture capital revenues.
Adjusted net interest revenues, including the effect of credit card
securitization, of $6.0 billion and $12.0 billion for the 1999 second quarter
and six months were up $475 million or 9% and $1.3 billion or 12% from the 1998
periods, reflecting business volume growth in most markets and the Global
Consumer acquisitions. Insurance premiums of $2.6 billion and $5.1 billion were
up $221 million or 9% and $407 million or 9%, reflecting solid growth in
Personal Lines partially offset by a managed decline in Commercial Lines.
Principal transactions revenues of $1.3 billion and $3.0 billion were up $394
million or 45% and $799 million or 36%, reflecting the broad-based rebound in
trading activities. Adjusted commissions, asset management and administration
fees, and other fee revenues of $4.0 billion and $7.8 billion were up $484
million or 14% and $867 million or 13%, primarily as a result of continued
growth in assets under fee-based management. Realized gains from sales of
investments were down $144 million to $188 million in the quarter and down $469
million to $241 million in the six months, reflecting lower levels of investment
sales. Other income, excluding credit card securitization activity, of $806
million and $1.5 billion decreased $26 million and $78 million from the year-ago
periods.
Adjusted operating expenses of $7.5 billion and $14.9 billion for the 1999
second quarter and six months, which exclude the restructuring-related items,
were up $473 million or 7% and $1.2 billion or 9% from the comparable 1998
periods. Expenses increased in Global Consumer by 5% and 11% in the quarterly
and six month comparisons, primarily reflecting the acquisitions in Latin
America and North America Banking/Lending, global advertising and marketing
initiatives and electronic financial services development efforts, partially
offset by expense reduction initiatives. Global Corporate and Investment Bank
expenses were up 6% and 5% in the quarterly and six month comparisons, primarily
attributable to an increase in production-related compensation, partially offset
by lower European Economic Monetary Union ("EMU") and Year 2000 expenses.
In 1999, the previously announced business improvement and integration
initiatives, together with tighter management of non-customer expenses, are
expected to yield gross annual pretax expense savings of approximately $2
billion. Through the end of the 1999 second quarter, the actions necessary to
realize approximately $1.7 billion of the targeted $2 billion of annualized
pretax expense savings had been taken. There can be no assurance that the $2
billion projected cost savings will be achieved. This paragraph contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 26.
Adjusted provisions for benefits, claims, and credit losses were $3.5 billion
and $6.9 billion in the 1999 second quarter and six months, up $227 million or
7% and $541 million or 9% from the comparable 1998 periods. Policyholder
benefits and claims increased 5% to $2.1 billion in the quarter and 4% to $4.2
billion in the six months. The adjusted provision for credit losses
3
<PAGE>
increased 10% to $1.4 billion in the quarter and 17% to $2.7 billion in the six
months. Global Consumer adjusted provisions for benefits, claims and credit
losses of $2.5 billion and $4.9 billion, were up 8% and 11% in the quarter and
six months. The ratio of net credit losses to average managed loans was 2.58% in
the quarter, compared to 2.61% in the preceding quarter and 2.86% a year ago.
The managed consumer loan delinquency ratio (90 days or more past due) decreased
to 1.98% from 2.09% for the preceding quarter and 2.12% a year ago.
Global Corporate and Investment Bank provisions for benefits, claims, and credit
losses of $983 million and $2.0 billion in the 1999 second quarter and six
months increased 4% in the quarter and remained unchanged in the six month
period, primarily reflecting increased losses in Emerging Markets and reduced
recoveries in Global Relationship Banking, partially offset by improvement in
Commercial Lines prior-year loss development. Commercial cash-basis loans and
other real estate owned of $2.2 billion at quarter-end were up 19% from a year
earlier and 4% from the preceding quarter.
The total provisions for benefits, claims, and credit losses as shown on the
Consolidated Statement of Income were $2.9 billion and $5.7 billion in the 1999
second quarter and six months, compared to $2.7 billion and $5.3 billion in the
year-ago periods, reflecting the items described above.
Total capital (Tier 1 and Tier 2) was $57.8 billion or 12.12% of net
risk-adjusted assets, and Tier 1 capital was $44.7 billion or 9.37% at June 30,
1999, compared to $56.5 billion or 11.56% and $43.3 billion or 8.87% at March
31, 1999.
GLOBAL CONSUMER
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % -------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $6,832 $6,004 14 $13,361 $11,446 17
Effect of credit card securitization
activity 570 581 (2) 1,158 1,043 11
-------------------------------- --------------------------------
Adjusted revenues, net of interest expense 7,402 6,585 12 14,519 12,489 16
Adjusted operating expenses (1) 3,107 2,971 5 6,162 5,543 11
-------------------------------- --------------------------------
Provisions for benefits, claims,
and credit losses 1,945 1,756 11 3,739 3,353 12
Effect of credit card securitization
activity 570 581 (2) 1,158 1,043 11
-------------------------------- --------------------------------
Adjusted provisions for benefits,
claims, and credit losses 2,515 2,337 8 4,897 4,396 11
-------------------------------- --------------------------------
Core income before taxes
and minority interest 1,780 1,277 39 3,460 2,550 36
Income taxes 649 469 38 1,257 937 34
Minority interest, after-tax 21 16 31 42 32 31
-------------------------------- --------------------------------
Core income 1,110 792 40 2,161 1,581 37
Restructuring-related items, after-tax 18 -- NM 56 -- NM
-------------------------------- --------------------------------
Net income $1,092 $ 792 38 $ 2,105 $ 1,581 33
- -------------------------------------------========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Global Consumer -- which provides banking, lending, and personal insurance
products and services, including credit and charge cards, to customers around
the world -- reported core income of $1.110 billion and $2.161 billion in the
1999 second quarter and six months, up $318 million or 40% and $580 million or
37% from the 1998 periods, reflecting strong growth in virtually all businesses,
particularly in North America where Cards core income increased $131 million or
96% in the quarter and $246 million or 85% in the six months, and Citibanking
core income increased $69 million or 186% and $118 million or 190% from the 1998
periods. In the Insurance segment, core income grew 17% in the quarter and 16%
in the six months and Consumer Finance Services core income increased 45% in the
quarter and 41% in the six months. Core income in the International businesses
grew 25% and 22% in the quarter and six months, reflecting increases in Europe,
Middle East and Africa and Asia Pacific, and the effect of certain acquisitions
in Latin America. Global Consumer core income growth was achieved even as
spending continued on global advertising and marketing initiatives and on the
technological enhancements of e-Citi. Net income of $1.092 billion and $2.105
billion in the 1999 second quarter and six months included restructuring-related
items of $18 million ($30 million pretax) and $56 million ($91 million pretax).
4
<PAGE>
Banking/Lending
Citibanking North America
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $532 $535 (1) $1,053 $1,026 3
Adjusted operating expenses (1) 329 438 (25) 693 851 (19)
Provision for credit losses 18 30 (40) 45 61 (26)
-------------------------------
--------------------------------
Core income before taxes 185 67 176 315 114 176
Income taxes 79 30 163 135 52 160
-------------------------------
--------------------------------
Core income 106 37 186 180 62 190
Restructuring-related items, after-tax 5 -- NM 19 -- NM
-------------------------------- -------------------------------
Net income $101 $ 37 173 $ 161 $ 62 160
- -----------------------------------------===========================================================================================
Average assets (in billions of dollars) $10 $10 -- $10 $10 --
Return on assets 4.05% 1.48% 3.25% 1.25%
- -----------------------------------------===========================================================================================
Excluding restructuring-related items
Return on assets 4.25% 1.48% 3.63% 1.25%
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Citibanking North America -- which delivers banking services to customers
through Citibank's branch network and electronic delivery systems -- reported
core income of $106 million and $180 million in the 1999 second quarter and six
months, up from $37 million and $62 million in the 1998 periods principally due
to expense reduction initiatives. Net income of $101 million and $161 million in
the 1999 second quarter and six months included restructuring-related items of
$5 million ($9 million pretax) and $19 million ($31 million pretax).
As shown in the following table, Citibanking grew accounts and customer deposits
from 1998. The decline in loans reflects a decrease in home equity loans due to
increased industry-wide mortgage refinancing activity. See page 6 for a
discussion of Mortgage Banking results and activity.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In billions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) 6.4 6.0 7 6.4 6.0 7
Average customer deposits $42.2 $39.4 7 $41.9 $39.2 7
Average loans 8.1 8.3 (2) 8.1 8.4 (4)
- -----------------------------------------===========================================================================================
</TABLE>
Revenues, net of interest expense, of $532 million and $1.053 billion in the
1999 second quarter and six months, declined slightly in the quarter, but
increased $27 million or 3% year-to-date, reflecting higher investment product
fees and commissions and growth in customer deposits, offset by reduced spreads
and lower loan volumes. Revenue growth was also reduced by a 1998 second quarter
gain of approximately $25 million related to a building lease buyout. Adjusted
operating expenses declined $109 million or 25% and $158 million or 19% from the
1998 periods, reflecting expense management initiatives that significantly
reduced staff expenses and other fixed costs.
The provision for credit losses improved to $18 million and $45 million in 1999
second quarter and six months from $30 million and $61 million in the 1998
periods. The net credit loss ratio of 1.31% in the quarter declined from 1.49% a
year ago. Loans delinquent 90 days or more of $96 million or 1.20% at June 30,
1999 declined from $119 million or 1.39% in 1998. The declines in the provision
for credit losses and delinquencies reflect continued improvement in the
portfolio and a decline in loan volumes.
5
<PAGE>
Mortgage Banking
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % -------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $183 $152 20 $352 $306 15
Total operating expenses 82 61 34 141 120 18
Provision for credit losses 5 9 (44) 8 22 (64)
-------------------------------- --------------------------------
Income before taxes
and minority interest 96 82 17 203 164 24
Income taxes 38 32 19 80 64 25
Minority interest, after-tax 5 -- NM 10 -- NM
-------------------------------- --------------------------------
Net income $ 53 $ 50 6 $113 $100 13
- -----------------------------------------===========================================================================================
Average assets (in billions of dollars) $29 $25 16 $28 $25 12
Return on assets 0.73% 0.80% 0.81% 0.81%
- -----------------------------------------===========================================================================================
</TABLE>
NM Not meaningful
- --------------------------------------------------------------------------------
Mortgage Banking -- which provides mortgages and student loans to customers
across North America -- reported net income of $53 million and $113 million in
the 1999 second quarter and six months, up $3 million or 6% and $13 million or
13% from the 1998 periods, reflecting growth in student loans and continued
credit improvement in the mortgage portfolio. The April 1999 acquisition of the
principal operating assets and certain liabilities of Source One Mortgage
Services Corporation ("Source One") contributed a net loss of approximately $4
million in the quarter; however, this acquisition is expected to be accretive to
earnings in 1999. This statement is a forward-looking statement within the
meaning of the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 26.
As shown in the following table, accounts, loans, and mortgage originations
increased in both the 1999 quarter and six months reflecting business growth,
including the effect of the Source One acquisition.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In billions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) (1) 3.0 2.5 20 3.0 2.5 20
Average loans(1) $27.3 $23.7 15 $26.9 $23.6 14
Mortgage originations 4.8 4.0 20 8.6 6.9 25
- -----------------------------------------===========================================================================================
</TABLE>
(1) Includes student loans.
- --------------------------------------------------------------------------------
Revenues, net of interest expense, of $183 million and $352 million in the 1999
second quarter and six months grew $31 million or 20% and $46 million or 15%
from the 1998 periods, reflecting higher mortgage revenues, including the effect
of the Source One acquisition, and growth in the student loan portfolio.
Excluding that acquisition, expenses in both the 1999 quarter and six months
were unchanged from a year ago.
The provision for credit losses of $5 million and $8 million in the 1999 second
quarter and six months declined from $9 million and $22 million in the 1998
periods. The net credit loss ratio of 0.17% in the quarter declined from 0.31% a
year ago and the ratio of loans delinquent 90 days or more of 2.09% declined
from 2.67% in 1998, reflecting continued improvement in the mortgage portfolio.
6
<PAGE>
Cards
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $1,430 $1,244 15 $2,830 $2,197 29
Effect of credit card securitization
activity 570 581 (2) 1,158 1,043 11
-------------------------------- -------------------------------
Adjusted revenues,
net of interest expense 2,000 1,825 10 3,988 3,240 23
Total operating expenses 746 721 3 1,494 1,172 27
Adjusted provision for credit losses (1) 831 885 (6) 1,647 1,602 3
-------------------------------- -------------------------------
Income before taxes 423 219 93 847 466 82
Income taxes 156 83 88 312 177 76
-------------------------------- -------------------------------
Net income $ 267 $ 136 96 $ 535 $ 289 85
- -----------------------------------------===========================================================================================
Average assets (in billions of dollars) (2) $ 28 $ 30 (7) $29 $26 12
Return on assets (3) 3.82% 1.82% 3.72% 2.24%
- -----------------------------------------===========================================================================================
</TABLE>
(1) On a managed basis.
(2) Adjusted for the effect of credit card securitization, managed average
assets for Cards were $75 billion in both 1999 periods, compared to $67
billion and $59 billion in the 1998 periods.
(3) Adjusted for the effect of credit card securitization, the return on
managed assets for Cards was 1.43% and 0.81% in the second quarters of
1999 and 1998, and 1.44% and 0.99% for the six months of 1999 and 1998,
respectively.
- --------------------------------------------------------------------------------
Cards -- U.S. bankcards (including Travelers Bank), Diners Club, and private
label cards -- reported net income of $267 million and $535 million in the 1999
second quarter and six months, up $131 million or 96% and $246 million or 85%
from the 1998 periods, reflecting significant improvements in the U.S. bankcards
business.
Universal Cards Services ("UCS"), which was acquired in April 1998, contributed
approximately $11 million and $9 million to net income in the 1999 second
quarter and six months compared with a net loss of $43 million in both 1998
periods. The acquisition of Mellon Bank's credit card portfolio on March 31,
1999 contributed approximately $1 million to net income in the second quarter
and six months.
Adjusted revenues, net of interest expense, of $2.000 billion and $3.988 billion
in the 1999 second quarter and six months increased $175 million or 10% and $748
million or 23% from the 1998 periods reflecting increases in receivables,
including the Mellon acquisition, increased delinquency and other risk-based
charges due to pricing actions, and higher interchange fee revenues, offset by
lower spreads. The year-to-date increase also reflects the acquisition of UCS in
April 1998.
As shown in the following table, on a managed basis, the U.S. bankcards
portfolio experienced strong growth in the quarter and the six months reflecting
the impact of enhanced target marketing efforts and the acquisition of Mellon
Bank's credit card portfolio. The increase in total sales in the six month
period also reflects the acquisition of UCS.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In billions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) 41.1 39.4 4 41.1 39.4 4
Total sales $40.8 $35.4 15 $77.6 $60.7 28
End-of-period receivables 70.3 62.0 13 70.3 62.0 13
- -----------------------------------------===========================================================================================
</TABLE>
Total operating expenses of $746 million and $1.494 billion in the 1999 second
quarter and six months were up $25 million or 3% and $322 million or 27% from
the 1998 periods, reflecting increased advertising and marketing in U.S.
bankcards and the Mellon acquisition. The year-to-date increase also reflects
the acquisition of UCS.
The adjusted provision for credit losses was $831 million and $1.647 billion in
the 1999 second quarter and six months, compared with $885 million and $1.602
billion in the 1998 periods. The increase in the six months reflects the
addition of UCS since April 1998. U.S. bankcards managed net credit losses in
the 1999 second quarter were $803 million and the related loss ratio was 4.63%,
compared with $784 million and 4.72% in the 1999 first quarter and $852 million
and 5.65% in the 1998 second quarter. U.S. bankcards managed loans delinquent 90
days or more were $954 million or 1.36% at June 30, 1999, down from $1.007
billion or 1.46% at March 31, 1999 and $956 million or 1.56% at June 30, 1998.
The improvement in both the delinquency and net credit loss ratios from a year
ago reflects moderating industry-wide bankruptcy trends and previously
implemented credit risk management initiatives.
7
<PAGE>
Consumer Finance Services
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $410 $326 26 $786 $635 24
Adjusted operating expenses (1) 155 124 25 299 246 22
Provisions for benefits,
claims and credit losses 117 109 7 221 204 8
-------------------------------- -------------------------------
Core income before taxes 138 93 48 266 185 44
Income taxes 51 33 55 98 66 48
-------------------------------- -------------------------------
Core income 87 60 45 168 119 41
Restructuring-related items, after-tax -- -- -- 1 -- NM
-------------------------------- -------------------------------
Net income $ 87 $ 60 45 $167 $119 40
- -----------------------------------------===========================================================================================
Average assets (in billions of dollars) $ 15 $ 12 25 $ 15 $ 12 25
Return on assets 2.33% 2.01% 2.25% 2.00%
- -----------------------------------------===========================================================================================
Excluding restructuring-related items
Return on assets 2.33% 2.01% 2.26% 2.00%
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
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.
Core income was $87 million and $168 million in the 1999 second quarter and six
months, up from $60 million and $119 million in the comparable periods of 1998.
Receivables grew 29% from the 1998 second quarter due to healthy business flow
at Commercial Credit branches, cross-selling of Commercial Credit products
through Primerica distribution channels and the acquisition in the first quarter
of 1999 of certain Associates First Capital branches. The total number of
Commercial Credit branches rose to 1,177 at the end of the second quarter of
1999, up from 980 at year-end 1998. The increase in adjusted operating expenses
was primarily attributable to the acquisition.
Net receivables at June 30, 1999 reached a record $13.6 billion compared to
$11.9 billion at year-end 1998 and $10.6 billion at June 30, 1998. Much of the
growth in 1999 in real estate-secured loans resulted from the continued strong
performance of the $.M.A.R.T. Loan(R) and $.A.F.E.(R) Loan programs, which grew
to $3.5 billion at June 30, 1999, a 32% increase over June 30, 1998, as well as
solid sales in the branch network.
The average yield on receivables was 14.48% during the second quarter of 1999
and 14.43% for the first six months of 1999, down from 14.94% in the second
quarter of 1998 and 14.93% for the first six months of 1998, reflecting a shift
in the portfolio mix toward lower-risk real estate loans which have lower
margins. At June 30, 1999, the portfolio consisted of 57% real estate-secured
loans, 36% personal loans, and 7% sales finance and other.
Delinquencies in excess of 60 days on receivables were 1.67% at June 30, 1999,
down from 1.74% at June 30, 1998. The charge-off rate on receivables was 2.14%
in the second quarter of 1999 and 2.24% for the first six months of 1999,
compared to 2.78% in the second quarter of 1998 and 2.83% for the first six
months of 1998.
Insurance
Travelers Life and Annuity
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $867 $765 13 $1,638 $1,463 12
Policyholder claims and benefits 494 472 5 936 888 5
Total operating expenses 110 98 12 217 199 9
-------------------------------- -------------------------------
Income before taxes 263 195 35 485 376 29
Income taxes 90 68 32 165 130 27
-------------------------------- -------------------------------
Net income (1) $173 $127 36 $ 320 $ 246 30
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes investment gains/losses included in Investment Activities
segment.
- --------------------------------------------------------------------------------
8
<PAGE>
Net income was $173 million and $320 million in the second quarter and six
months of 1999, respectively, up from $127 million and $246 million in the
comparable periods of 1998. The improvement in 1999 reflects increased business
volume and particularly strong investment income versus the prior year periods.
During 1999, this business achieved strong double-digit business volume growth
in annuity account balances and direct periodic life and long-term care premiums
reflecting both greater popularity of these products with an aging American
population and strong momentum from cross-selling initiatives.
The cross-selling initiative of Travelers Life and Annuity products through the
Primerica, Citibank, and Salomon Smith Barney Financial Consultants distribution
channels, along with improved sales through The Copeland Companies ("Copeland"),
and a nationwide network of independent agents and strong group sales through
various intermediaries 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.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Deferred annuities
Fixed $ 250 $ 215 16 $ 444 $ 480 (8)
Variable 1,048 680 54 2,024 1,327 53
Payout annuities 115 107 7 203 188 8
GICs and other group annuities 1,510 922 64 3,302 1,701 94
Individual life insurance
Direct periodic premiums and deposits 87 78 12 171 154 11
Single premium deposits 21 20 5 37 44 (16)
Reinsurance (18) (16) 13 (34) (31) 10
Individual long-term care insurance 60 54 11 112 98 14
-------------------------------- -------------------------------
$3,073 $2,060 49 $6,259 $3,961 58
- -----------------------------------------===========================================================================================
</TABLE>
The majority of the annuity business and a substantial portion of the life
business written by Travelers Life and Annuity are accounted for as investment
contracts, with the result that the premiums and deposits collected are not
included in revenues.
Increased deferred annuities sales, combined with favorable market returns from
variable annuities, drove account balances to $23.6 billion at June 30, 1999, up
24% from $19.0 billion at June 30, 1998. Net written premiums and deposits for
deferred annuities increased 45% and 37% in the second quarter and six months of
1999 to $1.3 billion and $2.5 billion, respectively, from $895 million and $1.8
billion in the comparable periods of 1998. The strong sales reflect the
marketing initiatives at Salomon Smith Barney, Copeland's penetration of the
small company segment of the 401(k) market, new products introduced into the
Primerica and Citibank distribution channels as well as strong core agent
production.
Payout and group annuity account balances and benefit reserves reached $15.8
billion at June 30, 1999, up 25% from $12.7 billion at the end of the 1998
second quarter. The payout and group annuity businesses reflect momentum from
rating upgrades, variable rate guaranteed investment contracts, and structured
finance transactions and cross-selling structured settlement annuities through
Travelers Property Casualty. Net written premiums and deposits (excluding
Citigroup's employee pension plan deposits) were $1.6 billion and $3.5 billion
in the second quarter and six months of 1999, respectively, up 58% and 86% from
$1.0 billion and $1.9 billion in the comparable periods of 1998.
Direct periodic premiums and deposits for individual life insurance of $87
million and $171 million for the second quarter and six months of 1999,
respectively, were 12% and 11% ahead of the $78 million and $154 million for the
comparable periods of 1998 reflecting strong core agency results. Life insurance
in force was $57.7 billion at June 30, 1999, up from $55.4 billion at year-end
1998 and $53.2 billion at June 30, 1998.
Net written premiums for the long-term care insurance line reached $60 million
and $112 million in the second quarter and six months of 1999, respectively, up
from $54 million and $98 million in the comparable periods of 1998.
9
<PAGE>
Primerica Financial Services
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $443 $420 5 $875 $820 7
Policyholder claims and benefits 121 115 5 241 236 2
Total operating expenses 146 144 1 288 276 4
-------------------------------- -------------------------------
Income before taxes 176 161 9 346 308 12
Income taxes 63 58 9 123 110 12
-------------------------------- -------------------------------
Net income (1) $113 $103 10 $223 $198 13
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes investment gains/losses included in Investment Activities
segment.
- --------------------------------------------------------------------------------
Net income was $113 million and $223 million in the second quarter and six
months of 1999, respectively, up from $103 million and $198 million in the
comparable periods of 1998. The improvement in 1999 reflects continued success
at cross-selling a range of products, growth in life insurance in force,
improved investment income and disciplined expense management, which was
partially offset by less favorable mortality experience. Increases in total
production and cross-selling initiatives were achieved during 1999. During the
first six months of 1999, 265,000 Financial Needs Analysis ("FNA") -- the
diagnostic tool that enhances the ability of the Personal Financial Analysts to
address client needs -- were submitted compared to 271,000 in the first six
months of 1998. Earned premiums, net of reinsurance, were $269 million and $536
million in the second quarter and six months of 1999, respectively, up from $266
million and $526 million in the comparable periods of 1998. Premiums for
Primerica individual term life policies included in earned premiums for the
second quarter and six months of 1999, were $253 million and $504 million,
respectively, up from $249 million and $494 million in the comparable periods of
1998.
Total face amount of issued term life insurance was $15.5 billion and $29.1
billion in the second quarter and six months of 1999, respectively, compared to
$15.8 billion and $28.8 billion in the prior year periods. Life insurance in
force reached $391.7 billion at June 30, 1999 up from $383.7 billion at year-end
1998 and $377.5 billion at June 30, 1998, and continued to reflect good policy
persistency.
In recent years, Primerica has leveraged cross-selling through the FNA to expand
its business beyond life insurance and now offers its clients a greater array of
financial products and services, delivered personally through 150,000
independent representatives. Primerica sales of Travelers variable annuities
continued to show momentum, reaching net written premiums and deposits of $279
million and $502 million in the second quarter and six months of 1999,
respectively, up from $175 million and $302 million in the prior year periods.
This increase reflects the increased emphasis placed on cross-selling
initiatives in the latter part of 1998, with the current period sales
predominately reflecting sales of Travelers Life and Annuity variable annuity
products. Cash advanced on $.M.A.R.T. Loan(R) and $.A.F.E.(R) Loan products
underwritten by Travelers Bank & Trust, fsb and Commercial Credit, respectively,
was $493 million and $912 million in the second quarter and six months of 1999,
respectively, up 20% and 25% from the comparable periods last year. Net written
premiums from Primerica's sales of TRAVELERS SECURE(R) property and casualty
insurance products were $63 million and $120 million in the second quarter and
six months of 1999, respectively, up from $56 million and $94 million in the
comparable periods of 1998. Mutual fund sales were $807 million and $1.59
billion for the 1999 second quarter and six months, respectively, slightly below
last year's second quarter and six months. During the six months of 1999,
Salomon Smith Barney mutual funds accounted for 63% of Primerica's U.S. sales
and 54% of total sales.
Personal Lines
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $1,005 $ 899 12 $1,988 $1,767 13
Total operating expenses 242 233 4 488 454 7
Claims and claim adjustment expenses 627 524 20 1,221 1,027 19
-------------------------------- -------------------------------
Income before taxes
and minority interest 136 142 (4) 279 286 (2)
Income taxes 41 45 (9) 85 91 (7)
Minority interest, after-tax 16 16 -- 32 32 --
-------------------------------- -------------------------------
Net income (1) $ 79 $ 81 (2) $ 162 $ 163 (1)
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes investment gains/losses included in Investment Activities
segment.
- --------------------------------------------------------------------------------
Net income was $79 million and $162 million in the second quarter and six months
of 1999, respectively, compared to $81 million and $163 million in the prior
year periods. The 1999 second quarter and six month results reflect higher
catastrophe losses, lower favorable prior-year reserve development and higher
loss ratios in the TRAVELERS SECURE(R) business, which was mostly offset
10
<PAGE>
by growth in earned premiums. During this period, the company realigned its
underwriting standards for its TRAVELERS SECURE(R) product to offset a more
competitive rate environment and to improve margins in this business. Net
written premiums in the first quarter of 1999 include an adjustment associated
with the termination of a quota share reinsurance arrangement, which increased
homeowners premiums written by independent agents by $72 million.
The following table shows net written premiums by product line:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Personal automobile $597 $578 3 $1,217 $1,134 7
Homeowners and other 354 296 20 718 546 31
-------------------------------- -------------------------------
Total net written premiums $951 $874 9 $1,935 $1,680 15
- -----------------------------------------===========================================================================================
</TABLE>
Personal Lines net written premiums for the second quarter and six months of
1999 were $951 million and $1.863 billion (excluding the adjustment discussed
above), respectively, up from $874 million and $1.680 billion in the comparable
periods of 1998. The 1999 increase compared to 1998 primarily reflects growth in
target markets served by independent agents and growth in affinity group
marketing, joint marketing arrangements and the TRAVELERS SECURE(R) program.
Business retention continued to be strong.
Catastrophe losses, net of taxes and reinsurance, were $23 million and $31
million in the second quarter and six months of 1999, respectively, up from $13
million and $22 million in the comparable periods of 1998. Catastrophe losses in
1999 were due to wind and hail storms on the East Coast and tornadoes in the
Midwest in the second quarter and a wind and ice storm in the Midwest and
Northeast in the first quarter. Catastrophe losses in 1998 were due to tornadoes
and wind and hail storms in the Southeast and Midwest in the second quarter and
ice storms in northern New York and New England and windstorms on the East Coast
in the first quarter.
Statutory and GAAP combined ratios (before allocation of corporate expenses) for
Personal Lines were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory
Loss and LAE ratio (1) 69.3% 65.2% 68.0% 65.2%
Underwriting expense ratio 25.5 27.7 26.5 27.9
---------------------------------------------------------------------------
Combined ratio 94.8% 92.9% 94.5% 93.1%
- ---------------------------------------------------------===========================================================================
GAAP
Loss and LAE ratio (1) 69.3% 65.2% 68.0% 65.2%
Underwriting expense ratio 25.4 26.3 25.1 26.7%
---------------------------------------------------------------------------
Combined ratio 94.7% 91.5% 93.1% 91.9%
- ---------------------------------------------------------===========================================================================
</TABLE>
(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.
The increase in the second quarter of 1999 statutory and GAAP Loss and LAE
ratios compared to the second quarter of 1998 was primarily due to lower
favorable prior-year reserve development in the automobile bodily injury line,
higher loss ratios in the TRAVELERS SECURE(R) program and higher catastrophe
losses. The decrease in the statutory and GAAP underwriting expense ratios in
the second quarter of 1999 compared to the second quarter of 1998 reflects
greater efficiency through the leveraging of TAP's expense base as premiums
grow.
The first six months of 1999 statutory and GAAP combined ratios for Personal
Lines include an adjustment associated with the termination of a quota share
reinsurance arrangement. Excluding this adjustment, both the statutory and GAAP
combined ratios for the first six months of 1999 would have been 94.1%. The
increase in the first six months of 1999 statutory and GAAP combined ratios
excluding this adjustment compared to the first six months of 1998 statutory and
GAAP combined ratios was due to higher catastrophe losses, higher loss ratios in
the TRAVELERS SECURE(R) program and lower favorable prior-year reserve
development in the automobile bodily injury line, partially offset by
productivity improvements.
11
<PAGE>
International Consumer
Europe, Middle East & Africa
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $537 $496 8 $1,071 $967 11
Adjusted operating expenses (1) 337 337 -- 675 655 3
Provision for credit losses 75 67 12 153 137 12
-------------------------------- -------------------------------
Core income before taxes 125 92 36 243 175 39
Income taxes 47 36 31 91 68 34
-------------------------------- -------------------------------
Core income 78 56 39 152 107 42
Restructuring-related items, after-tax 3 -- NM 9 -- NM
-------------------------------- -------------------------------
Net income $ 75 $ 56 34 $ 143 $107 34
- -----------------------------------------===========================================================================================
Average assets (in billions of dollars) $ 21 $ 21 -- $ 21 $ 21 --
Return on assets 1.43% 1.07% 1.37% 1.03%
- ------------------------------------------------------------------------------------------------------------------------------------
Excluding restructuring-related items
Return on assets 1.49% 1.07% 1.46% 1.03%
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Europe, Middle East & Africa ("EMEA") -- which provides banking and lending
services, including credit and charge cards, to customers throughout the region
- -- reported core income of $78 million and $152 million in the 1999 second
quarter and six months, up $22 million or 39% and $45 million or 42% from the
1998 periods, reflecting growth across Western Europe, particularly Germany and
Greece. Net income of $75 million and $143 million in the 1999 second quarter
and six months included restructuring-related items of $3 million ($5 million
pretax) and $9 million ($15 million pretax).
As shown in the following table, EMEA reported 7% account growth from a year ago
primarily reflecting loan growth, including credit cards.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In billions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounts (in millions) 9.8 9.2 7 9.8 9.2 7
Average customer deposits $16.5 $16.5 -- $16.6 $16.5 1
Average loans 16.0 15.4 4 16.1 15.2 6
- -----------------------------------------===========================================================================================
</TABLE>
Revenues, net of interest expense, of $537 million and $1.071 billion in the
1999 second quarter and six months grew $41 million or 8% and $104 million or
11% from the 1998 periods, reflecting loan growth, improved spreads, and higher
investment product fees, principally in Western Europe. Adjusted operating
expenses of $337 million and $675 million in the 1999 second quarter and six
months were unchanged in the quarter, but were up $20 million or 3% in the six
months, reflecting costs associated with franchise expansion in Central and
Eastern Europe.
The provision for credit losses was $75 million and $153 million in the 1999
second quarter and six months, up from $67 million and $137 million in the 1998
periods. The net credit loss ratio was 1.71% in both the 1999 and 1998 second
quarters. Loans delinquent 90 days or more were $882 million or 5.50% at June
30, 1999, down from $887 million or 5.80% at June 30, 1998.
12
<PAGE>
Asia Pacific
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $544 $457 19 $1,063 $880 21
Adjusted operating expenses (1) 282 253 11 549 490 12
Provision for credit losses 89 64 39 177 114 55
-------------------------------- -------------------------------
Core income before taxes 173 140 24 337 276 22
Income taxes 65 54 20 127 107 19
-------------------------------- -------------------------------
Core income 108 86 26 210 169 24
Restructuring-related items, after-tax 2 -- NM 9 -- NM
-------------------------------- -------------------------------
Net income $106 $ 86 23 $ 201 $169 19
- -----------------------------------------===========================================================================================
Average assets (in billions of dollars) $ 29 $ 28 4 $ 29 $ 27 7
Return on assets 1.47% 1.23% 1.40% 1.26%
- ------------------------------------------------------------------------------------------------------------------------------------
Excluding restructuring-related items
Return on assets 1.49% 1.23% 1.46% 1.26%
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Asia Pacific (including Japan and Australia) -- which provides banking and
lending services, including credit and charge cards, to customers throughout the
region -- reported core income of $108 million and $210 million in the 1999
second quarter and six months, up from $86 million and $169 million in the 1998
periods, as the region continues to rebound from weak 1998 results. Net income
of $106 million and $201 million in the 1999 second quarter and six months
included restructuring-related items of $2 million ($4 million pretax) and $9
million ($15 million pretax).
As shown in the following table, Asia Pacific accounts grew 26% from 1998,
driven by double digit growth in both customer deposits and loans, reflecting
significant increases in Japan, and economic stabilization in certain countries.
Deposit volumes and accounts continue to benefit from a "flight to quality" in
the region.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In billions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) 8.3 6.6 26 8.3 6.6 26
Average customer deposits $41.0 $34.9 17 $40.5 $34.1 19
Average loans 22.9 19.7 16 22.5 19.6 15
- -----------------------------------------===========================================================================================
</TABLE>
Revenues, net of interest expense, of $544 million and $1.063 billion in the
1999 second quarter and six months increased $87 million or 19% and $183 million
or 21% from the 1998 periods, reflecting strong performance in Japan and
business volume growth and higher spreads in most other countries. Adjusted
operating expenses in the quarter and six months were up $29 million or 11% and
$59 million or 12% from the 1998 periods, reflecting higher marketing and
program spending in Japan, Korea, and Singapore as well as business volume
growth. The increase in the six month period also reflects marketing and program
spending in Taiwan and the Philippines.
The provision for credit losses was $89 million and $177 million in the 1999
second quarter and six months, up from $64 million and $114 million in the 1998
periods. The net credit loss ratio was 1.33% in the quarter, up from 1.17% a
year ago, but down from 1.43% in the 1999 first quarter. Loans delinquent 90
days or more of $509 million or 2.17% at June 30, 1999 increased from $324
million or 1.64% a year ago and declined from $513 million or 2.31% at March 31,
1999. The increases in the provision, the net credit loss ratio, and delinquency
ratio from a year ago primarily reflect increases in Taiwan and Hong Kong;
however, net credit losses and delinquencies declined from the 1999 first
quarter.
13
<PAGE>
Latin America
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $503 $370 36 $969 $724 34
Adjusted operating expenses (1) 302 248 22 594 481 23
Provision for credit losses 135 61 121 236 110 115
-------------------------------- -------------------------------
Core income before taxes 66 61 8 139 133 5
Income taxes 22 24 (8) 47 53 (11)
-------------------------------- -------------------------------
Core income 44 37 19 92 80 15
Restructuring-related items, after-tax 8 -- NM 18 -- NM
-------------------------------- -------------------------------
Net income $ 36 $ 37 (3) $ 74 $ 80 (8)
- -----------------------------------------===========================================================================================
Average assets (in billions of dollars) $ 15 $ 10 50 $ 14 $ 10 40
Return on assets 0.96% 1.48% 1.07% 1.61%
- ------------------------------------------------------------------------------------------------------------------------------------
Excluding restructuring-related items
Return on assets 1.18% 1.48% 1.33% 1.61%
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Latin America -- which provides banking and lending services, including credit
and charge cards, to customers throughout the region -- reported core income of
$44 million and $92 million in the 1999 second quarter and six months, up $7
million or 19% and $12 million or 15% from the 1998 periods, reflecting the
effect of certain acquisitions, and an increase in earnings from Credicard, a
33%-owned Brazilian Card affiliate, partially offset by a higher provision for
credit losses. Net income of $36 million and $74 million in the 1999 second
quarter and six months included restructuring-related items of $8 million ($12
million pretax) and $18 million ($28 million pretax). Average assets of $15
billion in the quarter and $14 billion in the six months increased 50% and 40%
from the 1998 periods due to acquisitions in the region.
The Brazilian currency devaluation in the 1999 first quarter exacerbated the
deteriorating economic conditions in the region. The devaluation significantly
contributed to the 1999 second quarter and six months foreign currency
translation effects that reduced revenue growth by 10% in both periods and
expense growth by 7% and 9%, respectively.
As shown in the following table, Latin America experienced strong business
volume growth, principally due to the effect of acquisitions. Customer deposit
growth also reflects a "flight to quality" in the region.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In billions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts (in millions) 7.2 5.5 31 7.2 5.5 31
Average customer deposits $13.5 $9.3 45 $13.1 $9.1 44
Average loans 8.1 7.9 3 7.9 7.7 3
- -----------------------------------------===========================================================================================
</TABLE>
Revenues, net of interest expense, of $503 million and $969 million in the 1999
second quarter and six months were up $133 million or 36% and $245 million or
34% from the 1998 periods, reflecting acquisitions in the region, increased
earnings from Credicard, and account and business volume growth, partially
offset by reduced spreads. Adjusted operating expenses grew $54 million or 22%
and $113 million or 23% in the quarter and six months, reflecting acquisitions
in the region. Efficiency efforts contributed to a 3% decline in expenses in the
quarter excluding the effect of acquisitions and foreign currency translation.
The provision for credit losses was $135 million and $236 million in the 1999
second quarter and six months, up from $61 million and $110 million in the 1998
periods. The net credit loss ratio of 6.17% in the 1999 second quarter increased
from 2.88% in the 1998 second quarter. Loans delinquent 90 days or more of $346
million or 4.32% at June 30, 1999 increased from $209 million or 2.61% at June
30, 1998. The increases in the provision, the net credit loss ratio, and
delinquency ratio reflect economic conditions in the region, particularly in
Argentina and Chile.
14
<PAGE>
Global Private Bank
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $299 $285 5 $572 $549 4
Total operating expenses 181 179 1 355 355 --
Provision (benefit) for credit losses 2 -- NM 10 (7) 243
-------------------------------- -------------------------------
Income before taxes 116 106 9 207 201 3
Income taxes 43 42 2 77 79 (3)
-------------------------------- -------------------------------
Net income $ 73 $ 64 14 $130 $122 7
- -----------------------------------------===========================================================================================
Average assets (in billions of dollars) $ 19 $ 16 19 $ 19 $ 16 19
Return on assets 1.54% 1.60% 1.38% 1.54%
- -----------------------------------------===========================================================================================
</TABLE>
NM Not meaningful
- --------------------------------------------------------------------------------
Global Private Bank -- which provides personalized wealth management services
for high net-worth clients around the world --reported net income of $73 million
and $130 million in the 1999 second quarter and six months, up $9 million or 14%
and $8 million or 7% from the 1998 periods, primarily reflecting revenue growth,
particularly in the U.S. and Japan.
Client business volumes under management were $126 billion at June 30, 1999, up
from $119 billion at March 31, 1999 and $108 billion a year ago, reflecting
growth in the U.S., Europe, and Japan.
Total revenues, net of interest expense, were $299 million and $572 million in
the quarter and six months, up $14 million or 5% and $23 million or 4% from
1998. The increases reflected growth in net interest income, placement and
performance fee revenues, partially offset by reduced customer-based
trading-related revenue. Regionally, strong revenue growth in the U.S. and Japan
was partially offset by weakness in Asia Pacific, excluding Japan.
Total operating expenses of $181 million in the quarter and $355 million in the
six months were up $2 million or 1% from the year-ago quarter, and were
unchanged year-to-date, as an 8% reduction in staffing levels was offset by
higher incentive compensation and technology expenses.
The provision for credit losses was $2 million and $10 million for the 1999
quarter and six months, compared with no provision in the 1998 quarter and a
benefit of $7 million in the six months. In the 1999 quarter, the reduction in
Asia Pacific write-offs was more than offset by the reduction in U.S credit
recoveries. The year-to-date change was driven by the substantial reduction in
U.S. credit recoveries. Loans 90 days or more past due also continued to remain
low at $162 million or 0.88% of loans at June 30, 1999, compared to $191 million
or 1.10% at March 31, 1999 and $197 million or 1.23% at June 30, 1998.
e-Citi
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $ 55 $34 62 $109 $ 64 70
Total operating expenses 128 94 36 241 172 40
Provision for credit losses 1 1 -- 2 2 --
-------------------------------- -------------------------------
Loss before tax benefits (74) (61) 21 (134) (110) 22
Income tax benefits (30) (24) 25 (54) (43) 26
-------------------------------- -------------------------------
Net loss ($ 44) ($37) 19 ($ 80) ($ 67) 19
- -----------------------------------------===========================================================================================
</TABLE>
e-Citi -- the business responsible for developing and implementing the Company's
internet financial services products and e-commerce solutions -- reported net
losses of $44 million and $80 million in the 1999 second quarter and six months,
compared to $37 million and $67 million in the 1998 periods.
Revenues, net of interest expense, were $55 million and $109 million in the 1999
second quarter and six months, up from $34 million and $64 million in the 1998
periods, reflecting business volume increases in certain electronic banking
services. Total operating expenses of $128 million and $241 million in the
quarter and six months increased from $94 million and $172 million in the 1998
periods, reflecting business volume increases and continued investment in
internet-based and other electronic financial services as well as other
e-commerce solutions.
15
<PAGE>
Other Consumer
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------------------------------
In millions of dollars 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues, net of interest expense $24 $21 $55 $48
Total operating expenses 67 41 128 72
----------------------------------------------------------------------
Loss before tax benefits (43) (20) (73) (24)
Income tax benefits (16) (12) (29) (17)
----------------------------------------------------------------------
Net loss ($27) ($ 8) ($44) ($ 7)
- --------------------------------------------------------------======================================================================
</TABLE>
Other Consumer -- which includes certain treasury operations and global
marketing and other programs -- reported net losses of $27 million and $44
million in the 1999 second quarter and six months, up from $8 million and $7
million in the 1998 periods, reflecting higher costs associated with global
advertising and marketing initiatives.
Consumer Portfolio Review
In the consumer portfolio, credit loss experience is often expressed in terms of
annualized net credit losses as a percentage of average loans. Pricing and
credit policies reflect the 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 following table summarizes delinquency and net credit loss experience in
both the managed and on-balance sheet loan portfolios in terms of loans 90 days
or more past due, net credit losses, and as a percentage of related loans.
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, June 30, June 30, Mar. 31, June 30, 2nd Qtr. 2nd Qtr. 1st Qtr. 2nd Qtr.
except loan amounts in billions 1999 1999 1999 1998 1999 1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Citibanking North America $ 8.0 $ 96 $ 107 $ 119 $ 8.1 $ 26 $ 28 $ 31
Ratio 1.20% 1.33% 1.39% 1.31% 1.35% 1.49%
Mortgage Banking 27.5 575 610 634 27.3 11 13 18
Ratio 2.09% 2.29% 2.67% 0.17% 0.20% 0.31%
U.S. Bankcards (2) 70.2 954 1,007 956 69.5 803 784 852
Ratio 1.36% 1.46% 1.56% 4.63% 4.72% 5.65%
Other Cards 2.5 46 46 40 2.4 21 18 17
Ratio 1.80% 1.86% 1.61% 3.33% 3.25% 2.77%
Consumer Finance Services 13.6 172 183 145 13.2 70 71 71
Ratio 1.26% 1.42% 1.37% 2.14% 2.38% 2.78%
Europe, Middle East & Africa 16.0 882 878 887 16.0 68 73 65
Ratio 5.50% 5.45% 5.80% 1.71% 1.81% 1.71%
Asia Pacific 23.4 509 513 324 22.9 76 78 58
Ratio 2.17% 2.31% 1.64% 1.33% 1.43% 1.17%
Latin America 8.0 346 292 209 8.1 124 91 57
Ratio 4.32% 3.75% 2.61% 6.17% 4.74% 2.88%
Global Private Bank 18.4 162 191 197 18.0 2 8 -
Ratio 0.88% 1.10% 1.23% 0.05% 0.18% NM
Other 0.7 2 2 2 0.5 1 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total managed 188.3 3,744 3,829 3,513 186.0 1,202 1,165 1,170
Ratio 1.98% 2.09% 2.12% 2.58% 2.61% 2.86%
- ----------------------------------==================================================================================================
Securitized credit card
receivables (47.4) (652) (688) (605) (46.7) (541) (556) (544)
Loans held for sale (6.5) (35) (39) (40) (6.2) (29) (32) (37)
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer loans $134.4 $3,057 $3,102 $2,868 $133.1 $ 632 $ 577 $ 589
Ratio 2.27% 2.37% 2.39% 1.89% 1.78% 1.93%
- ----------------------------------==================================================================================================
</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.
NM Not meaningful
- --------------------------------------------------------------------------------
16
<PAGE>
Consumer Loan Balances, Net of Unearned Income
<TABLE>
<CAPTION>
End of Period Average
------------------------------- -------------------------------
June 30, Mar. 31, June 30, 2nd Qtr. 1st Qtr. 2nd Qtr.
In billions of dollars 1999 1999 1998 1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total managed $188.3 $183.2 $166.2 $186.0 $180.8 $164.0
Securitized credit card receivables (47.4) (46.7) (41.5) (46.7) (44.3) (37.0)
Loans held for sale (6.5) (5.6) (4.9) (6.2) (5.2) (4.7)
------------------------------- -------------------------------
Consumer loans $134.4 $130.9 $119.8 $133.1 $131.3 $122.3
- -----------------------------------------------------------=========================================================================
</TABLE>
Total delinquencies 90 days or more past due in the managed portfolio were $3.7
billion with a related delinquency ratio of 1.98% at June 30, 1999, compared
with $3.8 billion or 2.09% at March 31, 1999 and $3.5 billion or 2.12% at June
30, 1998. Total managed net credit losses in the 1999 second quarter were $1.2
billion and the related loss ratio was 2.58%, compared with $1.2 billion and
2.61% in the 1999 first quarter and $1.2 billion and 2.86% in the 1998 second
quarter. For a discussion on trends by business, see business discussions on
pages 4-16.
The portion of Citigroup's allowance for credit losses attributed to the
consumer portfolio was $3.4 billion at June 30, 1999, compared with $3.4 billion
at March 31, 1999 and $3.2 billion at June 30, 1998. The allowance as a
percentage of loans on the balance sheet was 2.55% at June 30, 1999, compared
with 2.56% at March 31, 1999 and 2.67% at June 30, 1998. The attribution of the
allowance is made for analytical purposes only and may change from time to time.
Net credit losses and the related loss ratios may increase from the 1999 second
quarter as a result of global economic conditions, particularly in Latin America
and Asia Pacific, portfolio growth, the credit performance of the portfolios,
including bankruptcies, and seasonal factors. Additionally, delinquencies could
remain at relatively high levels. This statement is a forward-looking statement
within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 26.
GLOBAL CORPORATE AND INVESTMENT BANK
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $6,922 $6,230 11 $14,022 $12,713 10
Adjusted operating expenses (1) 3,940 3,700 6 7,934 7,523 5
Provisions for benefits, claims,
and credit losses 983 948 4 1,959 1,951 --
-------------------------------- -------------------------------
Core income before taxes
and minority interest 1,999 1,582 26 4,129 3,239 27
Income taxes 694 544 28 1,428 1,132 26
Minority interest, after-tax 41 35 17 78 70 11
-------------------------------- -------------------------------
Core income 1,264 1,003 26 2,623 2,037 29
Restructuring-related items, after-tax 3 (191) 102 (117) (191) 39
-------------------------------- -------------------------------
Net income (2) $1,261 $1,194 6 $ 2,740 $ 2,228 23
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
(2) The 1999 six month period excludes cumulative effect of accounting
changes.
- --------------------------------------------------------------------------------
Global Corporate and Investment Bank provides corporations, governments,
institutions and investors in 100 countries with a broad range of financial
products and services.
Global Corporate and Investment Bank core income was $1.264 billion and $2.623
billion in the 1999 second quarter and six months, up $261 million or 26% and
$586 million or 29% from 1998. The 1999 second quarter increase reflects core
income growth of $262 million or 75% at Salomon Smith Barney ("SSB"), $53
million or 22% in the Emerging Markets, and $27 million or 16% in Commercial
Lines, partially offset by a decline of $81 million or 34% in Global
Relationship Banking ("GRB"). The six month comparison reflects core income
growth of $467 million or 59% at SSB, $113 million or 23% in the Emerging
Markets, and $45 million or 13% in Commercial Lines, partially offset by a
decline of $39 million or 10% in GRB. The GRB comparisons are affected by $104
million in after-tax items due to the disposition of real estate investments and
a related real estate recovery in the second quarter of 1998. Excluding these
items, GRB core income grew $23 million or 17% in the second quarter of 1999,
and $65 million or 22% in the six month comparison.
SSB's core income growth was driven by strong revenue momentum in the Private
Client group, principal transactions, and investment banking. The Emerging
Markets core income growth was driven by increased revenues in loans and
investment securities sales in the quarterly comparison, and primarily by higher
principal transaction and loan revenues in the six month comparison. Excluding
the $104 million of 1998 real estate items, GRB's core income growth was a
result of lower expenses in the
17
<PAGE>
quarterly comparison and higher structured products revenues and lower expenses
in the six month comparison. The Commercial Lines improvement reflects favorable
prior-year reserve development and expense control.
Global Corporate and Investment Bank net income totaled $1.261 billion in the
1999 second quarter, up $67 million or 6% from the 1998 second quarter, and
excluding the effect of accounting changes, $2.740 billion in the 1999 six
months, up $512 million or 23% from the 1998 six months. Included in the 1999
six months net income was a release of the 1997 restructuring reserve of $125
million ($211 million pre-tax) that resulted from SSB's reassessment of space
needs due to the Citicorp merger. Included in 1998 six months net income is a
release of the 1997 restructuring reserve of $191 million ($324 million pre-tax)
that resulted from SSB's negotiations on a sublease on the Seven World Trade
Center location which indicated that excess space could be disposed of on terms
more favorable than had been originally estimated. See further discussion of the
restructuring reserve release in SSB in Note 7 of Notes to Consolidated
Financial Statements.
The businesses of Global Corporate and Investment Bank are significantly
affected by the levels of activity in the global capital markets which, in turn,
are influenced by macroeconomic and political policies and developments, among
other factors, in the 100 countries in which the businesses operate. Global
economic exigencies 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 gains from asset sales may fluctuate in the future as a result
of market and asset-specific factors. Losses on commercial lending activities
and the level of cash-basis loans can vary widely with respect to timing and
amount, particularly within any narrowly defined business or loan type, or due
to global economic developments. A variety of factors continue to affect the
property and casualty insurance market, including the competitive pressures
affecting pricing and profitability, inflation in the cost of medical care, and
litigation. Pricing in the Commercial Lines marketplace is expected to continue
to be very competitive in 1999. Changes in the general interest rate environment
affect the returns received by Commercial Lines on newly invested and reinvested
funds. This paragraph contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act. See "Forward-Looking Statements"
on page 26.
Salomon Smith Barney
The following data does not include the Asset Management division of Salomon
Smith Barney, which is included in the SSB Citi Asset Management Group segment.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- % -------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $3,269 $2,523 30 $6,610 $5,441 21
Adjusted operating expenses (1) 2,308 1,981 17 4,646 4,188 11
------------------------------- --------------------------------
Core income before taxes 961 542 77 1,964 1,253 57
Income taxes 351 194 81 706 462 53
------------------------------- --------------------------------
Core income 610 348 75 1,258 791 59
Restructuring-related credit, after-tax -- (191) NM (124) (191) (35)
------------------------------- --------------------------------
Net income (2) $ 610 $ 539 13 $1,382 $ 982 41
- -------------------------------------------=========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
(2) The 1999 six month period excludes cumulative effect of accounting change.
NM Not meaningful
- --------------------------------------------------------------------------------
Salomon Smith Barney reported core income in the second quarter and six months
of 1999 of $610 million and $1.258 billion, respectively, up from $348 million
and $791 million in the comparable periods of 1998. See Note 7 of Notes to
Consolidated Financial Statements for discussions of the restructuring-related
credits in the first quarter of 1999 and the second quarter of 1998.
18
<PAGE>
Salomon Smith Barney's earnings benefited from continued growth in commission
income from the Private Client group, strong investment banking fees, and
principal transactions. Revenues by category were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commissions $ 903 $ 781 16 $1,803 $1,574 15
Investment banking 762 633 20 1,417 1,249 13
Principal transactions 698 315 122 1,672 1,094 53
Asset management
and administration fees (1) 400 344 16 777 644 21
Net interest income (2) 457 406 13 827 808 2
Other income 49 44 11 114 72 58
-------------------------------- -------------------------------
Total revenues, net of interest
expense (2) $3,269 $2,523 30 $6,610 $5,441 21
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes the revenues of SSB Asset Management which are reported in the
Asset Management business segment.
(2) Net of interest expense of $2.407 billion and $3.060 billion in 1999 and
1998 second quarters, respectively, and $4.648 billion and $5.974 billion
for the 1999 and 1998 six month periods, respectively.
- --------------------------------------------------------------------------------
Revenues, net of interest expense in the second quarter and six months of 1999
were $3.269 billion and $6.610 billion, respectively, a 30% and 21% improvement
over the comparable 1998 periods, primarily reflecting increases in all
categories.
The increase in Commission revenues reflects growth in sales of listed and
over-the-counter ("OTC") securities as well as the Company's Private Client
group continuing its strong growth in revenue.
The increase in Investment banking revenues in the second quarter of 1999
compared to the second quarter of 1998 reflects increases in merger and
acquisition fees, high grade debt, high yield and equity underwritings,
partially offset by a decline in public finance underwriting. The increase in
the six months of 1999 compared to the six months of 1998 reflects increases in
high grade debt underwriting and merger and acquisition fees.
Principal transaction revenues in the second quarter of 1999 compared to the
second quarter of 1998 reflects increases in the institutional global fixed
income and global equities trading. In addition, global arbitrage and commodity
trading were moderately profitable in the second quarter of 1999, after
recording losses in the comparable 1998 period. The increase in the six months
of 1999 compared to the six months of 1998 reflects increases in institutional
global fixed income, global equities and municipal trading, offset to an extent
by a decline in commodities trading.
The increase in Asset management and administration fees reflects the growth in
assets under fee-based management. The investment services category includes
results from assets managed by the Financial Consultants as well as assets that
are externally managed by the consulting group. Assets under fee-based
management increased significantly at June 30, 1999 compared to June 30, 1998
causing the corresponding increase in revenue. Total assets under fee-based
management at June 30, were as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------- %
In billions of dollars 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Consultant managed accounts $20.2 $14.3 41
Consulting Group externally managed assets 76.8 69.3 11
-----------------------------------
Total assets under fee-based management (1) $97.0 $83.6 16
- --------------------------------------------------------------------------------====================================================
</TABLE>
(1) Excludes the assets under management of SSB Asset Management, which are
reported in the Asset Management business segment.
- --------------------------------------------------------------------------------
The increase in net interest and dividends is due primarily to increased margin
lending to clients.
The increase in adjusted operating expenses primarily reflects an increase in
production-related compensation and employee benefits expense, reflecting
increased revenues, partially offset by the benefit of changes in employee
deferred compensation plans. Salomon Smith Barney continues to maintain its
focus on controlling fixed expenses.
19
<PAGE>
Emerging Markets
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- % -------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $1,087 $972 12 $2,225 $1,929 15
Adjusted operating expenses (1) 503 505 -- 1,006 982 2
Provision for credit losses 110 79 39 225 141 60
------------------------------- --------------------------------
Core income before taxes
and minority interest 474 388 22 994 806 23
Income taxes 177 146 21 376 304 24
Minority interest, after-tax 2 -- NM 3 -- NM
------------------------------- --------------------------------
Core income 295 242 22 615 502 23
Restructuring-related items, after-tax 1 -- NM 2 -- NM
------------------------------- --------------------------------
Net income $ 294 $242 21 $ 613 $ 502 22
- -------------------------------------------=========================================================================================
Average assets (in billions of dollars) $ 83 $ 75 11 $ 82 $ 75 9
Return on assets 1.42% 1.29% 1.51% 1.35%
- ------------------------------------------------------------------------------------------------------------------------------------
Excluding restructuring-related items
Return on assets 1.43% 1.29% 1.51% 1.35%
- -------------------------------------------=========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful.
- --------------------------------------------------------------------------------
Emerging Markets core income was $295 million and $615 million in the 1999
second quarter and six months, up $53 million or 22% and $113 million or 23%
from 1998. Return on assets, excluding restructuring-related items, was 1.43% in
the 1999 second quarter, up from 1.29% in 1998. In the six months ended June 30,
1999, return on assets, excluding restructuring-related items, was 1.51%, up
from 1.35% in the six months ended June 30, 1998.
Revenues, net of interest expense were $1.087 billion and $2.225 billion in the
1999 second quarter and six months, up $115 million or 12% and $296 million or
15%, respectively, from 1998. The second quarter reflects strong growth in Latin
America attributable to principal transactions, loans, and transaction banking.
Second quarter revenues in Asia and CEEMEA (Central and Eastern Europe, Middle
East and Africa) were essentially unchanged as lower principal transactions
offset higher gains from sales of investment securities. The six month
comparison reflects revenue growth in Latin America in principal transactions,
loans, and trade finance. This was partially offset by revenue reduction in Asia
due to high principal transactions in 1998.
Adjusted operating expenses were well-controlled and flat in the quarterly
comparison, while showing a 2% increase in the six month comparison. In the
quarterly comparison, investment spending to gain market share in selected
emerging market countries was essentially funded by savings from the 1997 and
1998 restructuring actions and other expense savings initiatives. Expenses also
benefited from the effect of foreign currency translation. The six month
comparison expense growth of $24 million primarily reflects investment spending
to gain market share in selected emerging market countries.
The 1999 second quarter provision for credit losses totaled $110 million, up $31
million from 1998, but declined $5 million from the 1999 first quarter. The
increase was in the Middle East and Latin America. The 1999 six month provision
for credit losses was $225 million, up $84 million from 1998, with the increase
spread across Latin America, Asia, and the Middle East.
Cash-basis loans were $1.197 billion at June 30, 1999, reflecting an increase of
$102 million from March 31, 1999, and an increase of $216 million from June 30,
1998. The higher cash basis loans in both these comparisons were due to
increases in Latin America and CEEMEA, partially offset by reductions in Asia.
See the tables entitled "Cash-Basis, Renegotiated, and Past Due Loans" on page
46.
While economic conditions can be volatile in any country or group of countries,
Citigroup does not expect significant quarter-to-quarter increases in Emerging
Markets net credit losses or cash-basis loans during the remainder of 1999. This
statement is a forward-looking statement within the meaning of the Private
Securities Litigation Reform Act. See "Forward-Looking Statements" on page 26.
Average assets of $83 billion in the 1999 second quarter and $82 billion in the
six months reflected growth of $8 billion and $7 billion, respectively. This
growth was driven by higher loans, trading assets, and trade finance.
20
<PAGE>
Global Relationship Banking
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- % -------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $1,008 $1,151 (12) $2,095 $2,140 (2)
Adjusted operating expenses (1) 757 825 (8) 1,534 1,558 (2)
Provision (benefit) for credit losses -- (51) NM (4) (48) 92
------------------------------- --------------------------------
Core income before taxes 251 377 (33) 565 630 (10)
Income taxes 93 138 (33) 205 231 (11)
------------------------------- --------------------------------
Core income 158 239 (34) 360 399 (10)
Restructuring-related items, after-tax 2 -- NM 5 -- NM
------------------------------- --------------------------------
Net income $ 156 $ 239 (35) $ 355 $ 399 (11)
- -----------------------------------------===========================================================================================
Average assets (in billions of dollars) $ 80 $ 93 (14) $ 84 $ 92 (9)
Return on assets 0.78% 1.03% 0.85% 0.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Excluding restructuring-related items
Return on assets 0.79% 1.03% 0.86% 0.87%
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
Core income from Global Relationship Banking in North America, Europe and Japan
was $158 million and $360 million in the 1999 second quarter and six months,
respectively. This represented a decline of $81 million or 34% in the second
quarter comparison and a decline of $39 million or 10% in the six month
comparison. The 1998 second quarter included $104 million in after-tax items due
to the disposition of real estate investments and a related real estate
recovery. Excluding these items, GRB core income grew $23 million or 17% in the
second quarter of 1999, and $65 million or 22% in the six month comparison.
In the 1999 second quarter, revenues, net of interest expense of $1.008 billion
declined $143 million or 12% from 1998, although revenues were essentially flat
excluding the effect of the 1998 real estate gains. Strong growth in corporate
finance and moderate growth in transaction services were offset by a lower level
of principal transactions. In the six month comparison, revenues declined by 2%,
although excluding the effect of 1998 real estate gains, revenues grew 4%. The
six months revenue growth was driven by increases in structured products
revenues and transaction services.
Adjusted operating expenses were $757 million and $1.534 billion in the 1999
second quarter and six months, down $68 million or 8% and $24 million or 2%,
respectively, from the 1998 periods. The decrease in expenses was due to
business integration initiatives with SSB and lower EMU and Year 2000 expenses.
The 1999 provisions (benefits) for credit losses were negligible, compared with
net recoveries (primarily real estate) in both 1998 periods. Cash-basis loans
were $279 million at June 30, 1999, reflecting decreases of $29 million from
March 31, 1999 and $21 million from June 30, 1998. The Other Real Estate Owned
portfolio was $178 million at June 30, 1999, declined $34 million from March 31,
1999 and $146 million from June 30, 1998. See the tables entitled "Cash-Basis,
Renegotiated, and Past Due Loans" and "Other Real Estate Owned and Assets
Pending Disposition" on page 46.
Average assets of $80 billion in the 1999 second quarter declined $13 billion
from 1998, while the 1999 six month average of $84 billion declined $8 billion.
These declines reflect the transfer of certain fixed income and equity
businesses to SSB and lower trading assets.
Commercial Lines
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $1,558 $1,584 (2) $3,092 $3,203 (3)
Total operating expenses 372 389 (4) 748 795 (6)
Claims and claim adjustment expenses 873 920 (5) 1,738 1,858 (6)
------------------------------- -------------------------------
Income before taxes and minority interest 313 275 14 606 550 10
Income taxes 73 66 11 141 135 4
Minority interest, after-tax 39 35 11 75 70 7
------------------------------- -------------------------------
Net income (1) (2) $ 201 $ 174 16 $ 390 $ 345 13
- -------------------------------------------=========================================================================================
</TABLE>
(1) The 1999 six month period excludes cumulative effect of accounting
changes.
(2) Excludes investment gains/losses included in Investment Activities
segment.
- --------------------------------------------------------------------------------
21
<PAGE>
Net income, excluding the effect of accounting changes, was $201 million and
$390 million in the second quarter and six months of 1999, respectively, up from
$174 million and $345 million in the comparable periods of 1998. The 16%
improvement in the 1999 second quarter over the 1998 quarter reflects favorable
prior-year reserve development, continued expense savings and lower
weather-related losses, partially offset by a decrease in fee income. The
operating trends for the six months of 1999 compared to 1998 were the same as
those in the quarter, except that the six months of 1999 reflects higher losses
from weather related-events compared to 1998. Operating results reflect the
long-standing insistence on maintaining discipline in the highly competitive
commercial lines marketplace and on growing business only where market
conditions warrant.
Net written premiums by market were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
National accounts $ 101 $ 121 (17) $ 251 $ 308 (18)
Commercial accounts 440 441 -- 884 904 (2)
Select accounts 394 394 -- 766 772 (1)
Specialty accounts 160 165 (3) 308 349 (12)
------------------------------- ------------------------------
Total net written premiums $1,095 $1,121 (2) $2,209 $2,333 (5)
- -----------------------------------------===========================================================================================
</TABLE>
Commercial Lines net written premiums in the second quarter and six months of
1999 totaled $1.095 billion and $2.209 billion, respectively, down from $1.121
billion and $2.333 billion in the comparable periods of 1998 reflecting the
highly competitive marketplace and the continued disciplined approach to
underwriting and risk management.
Fee income was $67 million and $134 million in the second quarter and six months
of 1999, respectively, down from $77 million and $159 million in the comparable
periods of 1998. The decrease in fee income was primarily due to the
depopulation of involuntary pools serviced by TAP.
The decrease in National Accounts net written premiums for the quarter and six
month period was primarily due to the impact of additional reinsurance coverage
and the continued disciplined approach to underwriting and risk management.
National Accounts new business was significantly lower in both the second
quarter and the six months of 1999 than in the comparable periods of 1998,
reflecting continued disciplined approach to underwriting and risk management.
National Accounts business retention ratio was significantly higher in the
second quarter of 1999 than in the second quarter of 1998 and was moderately
higher in the first six months of 1999 compared to the first six months of 1998,
both periods reflecting the loss of one large account in the second quarter of
1998.
The decrease in Commercial Accounts net written premiums for the six month
period reflects the continued disciplined approach to underwriting and risk
management, partially offset by the benefits of rate increases.
Commercial Accounts new business in the second quarter of 1999 was moderately
lower than in the second quarter of 1998, and for the first six months of 1999,
significantly declined compared to the first six months of 1998, reflecting the
focus on obtaining new business accounts only where it can maintain its
selective underwriting policy. Commercial Accounts business retention ratio was
moderately higher in the second quarter of 1999 than in the second quarter of
1998 and for the first six months of 1999 remained virtually the same compared
to the first six months of 1998. Commercial Accounts continues to focus on
maintaining its product pricing standards and its selective underwriting policy
in the renewal of accounts.
The decrease in Select Accounts net written premiums for the six month period
reflects the highly competitive marketplace and the continued disciplined
approach to underwriting and risk management.
New premium business in Select Accounts was significantly lower in both the
second quarter of 1999 and the six months of 1999 than in the comparable periods
of 1998, reflecting its selective underwriting policy in the highly competitive
marketplace. Select Accounts business retention ratio in the second quarter of
1999 and the six months of 1999 remained strong and was virtually the same as in
the comparable periods of 1998.
The decrease in Specialty Accounts net written premiums for the quarter and six
month periods primarily reflects the impact of additional reinsurance coverage,
a highly competitive marketplace and the continued disciplined approach to
underwriting and risk management.
22
<PAGE>
Statutory and GAAP combined ratios (before allocation of corporate expenses) for
Commercial Lines were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory
Loss and LAE ratio 75.1% 79.0% 75.7% 78.6%
Underwriting expense ratio 30.5 30.8 29.5 29.6
----------------------------------------------------------------------
Combined ratio before policyholder dividends 105.6% 109.8% 105.2% 108.2%
----------------------------------------------------------------------
Combined ratio 106.3% 111.0% 106.1% 109.4%
- --------------------------------------------------------------======================================================================
GAAP
Loss and LAE ratio 74.8% 78.4% 75.3% 78.1%
Underwriting expense ratio 31.4 31.5 31.3 30.8
----------------------------------------------------------------------
Combined ratio before policyholder dividends 106.2% 109.9% 106.6% 108.9%
----------------------------------------------------------------------
Combined ratio 106.9% 111.1% 107.5% 110.1%
- --------------------------------------------------------------======================================================================
</TABLE>
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.
The decrease in the second quarter of 1999 statutory and GAAP combined ratios
before policyholder dividends compared to the second quarter of 1998 statutory
and GAAP combined ratios before policyholder dividends was due to favorable
prior-year reserve development and lower weather-related losses, partially
offset by lower fee income.
The decrease in the first six months of 1999 statutory and GAAP combined ratios
before policyholder dividends compared to the first six months of 1998 statutory
and GAAP combined ratios before policyholder dividends was due to favorable
prior-year reserve development, partially offset by higher weather-related
losses and lower fee income.
Uncertainty Regarding Adequacy of Environmental and Asbestos Reserves
The reserves for environmental claims are not established on a claim-by-claim
basis. An aggregate bulk reserve is carried for all of the 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 experience in resolving such claims. At
June 30, 1999, approximately 18% of the net aggregate reserve (i.e.,
approximately $140 million) consisted of case reserve for resolved claims. The
balance, approximately 82% of the net aggregate reserve (i.e., approximately
$632 million), was carried in a bulk reserve and included incurred but not
reported environmental claims for which specific claims have not been received.
In general, the Company posts case reserves for pending asbestos claims within
approximately 30 business days of receipt of such claims. At June 30, 1999,
approximately 21% of the net aggregate reserve (i.e., approximately $203
million) was for pending asbestos claims. The balance, approximately 79% (i.e.,
approximately $754 million) of the net aggregate reserve, represents incurred
but not reported losses for which specific claims have not been received.
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.
The reserves carried for environmental and asbestos claims at June 30, 1999 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. 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 may 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 its financial condition or liquidity.
This paragraph contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. See "Forward-Looking Statements" on
page 26.
23
<PAGE>
ASSET MANAGEMENT
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- % -------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest
expense $357 $309 16 $711 $614 16
Total operating expenses 218 196 11 441 388 14
--------------------------------- --------------------------------
Income before taxes 139 113 23 270 226 19
Income taxes 55 44 25 106 88 20
--------------------------------- --------------------------------
Net income (1) $ 84 $ 69 22 $164 $138 19
- -------------------------------------===============================================================================================
Assets under management
(in billions of dollars) (2) $347 $292 19 $347 $292 19
- -------------------------------------===============================================================================================
</TABLE>
(1) The 1999 six month period excludes cumulative effect of accounting change.
(2) Includes $35 billion and $31 billion in the 1999 and 1998 second quarters,
respectively, for Global Private Bank clients.
- --------------------------------------------------------------------------------
SSB Citi Asset Management Group (the "Group") 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 Asset Management. The Group offers institutional, high net worth, and
retail clients a broad range of investment disciplines from 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).
The Group's net income of $84 million in the second quarter was up $15 million,
a 22% increase from the 1998 quarter, as revenue growth offset increased
expenses from continued investments in the business' infrastructure and
investment research. For the six months ended June 30, 1999, net income of $164
million was up $26 million, a 19% increase over 1998.
Assets under management rose 19% from the year-ago quarter to $347 billion, as
growth continued across all product categories. Separately managed accounts grew
22% to $143 billion as institutional accounts grew $14 billion and private
client accounts grew $12 billion. Strong growth in institutional client assets
year-over-year was largely due to cross-selling efforts through the Global
Corporate and Investment Bank, the July 1998 acquisition of JP Morgan's
Australia asset management business, and assets raised through non-proprietary
channels in Europe. Money fund and long-term mutual fund assets grew by 25% and
12%, respectively. Capitalizing on Japan's Big Bang, year-to-date the Group
raised over $950 million in Japan through sales of its new CitiFunds mutual
funds and the sale of Salomon Brothers mutual funds in non-proprietary channels.
Mutual fund sales year-to-date through the Citibank Europe Consumer Bank totaled
$1.5 billion, of which $700 million was from new initiatives including the new
Citi Euroland Funds.
Revenues, net of interest expense, increased $48 million or 16% to $357 million
in the quarter, and increased $97 million or 16% to $711 million year-to-date.
These increases were predominantly in investment advisory fees and reflect the
broad growth in assets under management.
Operating expenses increased $22 million or 11% to $218 million in the quarter,
and increased $53 million or 14% to $441 million year-to-date. These increases
reflect global business growth and efforts to build the Group's investment
research and quantitative analysis capabilities.
CORPORATE/OTHER
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense ($ 1) ($ 69) 99 ($ 67) ($122) 45
Adjusted operating expenses (1) 196 124 58 361 265 36
Provision (benefit) for benefits,
claims, and credit losses 13 (1) NM 20 (2) NM
-------------------------------- -------------------------------
Business loss before tax benefits (210) (192) 9 (448) (385) 16
Income tax benefits (66) (61) 8 (139) (121) 15
-------------------------------- -------------------------------
Business loss (144) (131) 10 (309) (264) 17
Restructuring-related items, after-tax 8 -- NM 16 -- NM
-------------------------------- -------------------------------
Net loss ($152) ($131) 16 ($325) ($264) 23
- -----------------------------------------===========================================================================================
</TABLE>
(1) Excludes restructuring-related items.
NM Not meaningful
- --------------------------------------------------------------------------------
24
<PAGE>
Corporate/Other includes certain net treasury results and corporate staff and
other corporate expenses. Net loss of $152 million and $325 million in the 1999
second quarter and six months increased $21 million and $61 million over the
respective prior year periods, primarily reflecting increases in certain
technology expenses, and other unallocated corporate costs, partially offset in
the 1999 second quarter by lower corporate staff expenses, largely resulting
from a 15% reduction in headcount.
INVESTMENT ACTIVITIES
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- % ------------------------------- %
In millions of dollars 1999 1998 Change 1999 1998 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues, net of interest expense $270 $491 (45) $423 $1,110 (62)
Total operating expenses 16 13 23 30 24 25
Benefit for credit losses -- -- -- -- (10) NM
------------------------------- -------------------------------
Income before taxes and minority interest 254 478 (47) 393 1,096 (64)
Income taxes 88 161 (45) 135 370 (64)
Minority interest, after-tax 3 1 200 5 8 (38)
------------------------------- -------------------------------
Net income $163 $316 (48) $253 $ 718 (65)
- -------------------------------------------=========================================================================================
</TABLE>
NM Not meaningful
- --------------------------------------------------------------------------------
Investment Activities comprises 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. Investment Activities net
income of $163 million and $253 million for the 1999 second quarter and six
months was down $153 million or 48% and $465 million or 65% from the 1998
periods.
Revenues, net of interest expense, of $270 million for the 1999 second quarter
declined $221 million or 45% from the 1998 second quarter reflecting a $203
million decrease in realized gains from sales of investments to $101 million,
partially offset by a $24 million increase in venture capital revenues to $195
million. For the six months ended June 30, 1999, revenues of $423 million
decreased $687 million or 62% from the same period in 1998, reflecting a $516
million decrease in realized gains from sales of investments to $137 million
coupled with a $102 million decrease in venture capital revenues to $333
million. The decreases in realized gains from sales of investments resulted from
lower revenues from sales of Brazilian Brady Bonds.
Investment Activities results may fluctuate in the future due to market and
asset-specific factors. This statement is a forward-looking statement within the
meaning of the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 5.
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 $950 million through 1999. This cost, which
represents an increase of $50 million from previous estimates, is being funded
from a combination of a reprioritization of technology development initiatives
and incremental costs and is being expensed as incurred. Of the total,
approximately $830 million has been incurred-to-date, including approximately
$170 million in the first six months of 1999, of which approximately $80 million
was incurred in the second quarter.
Substantially all of the required modification and internal testing work has
been completed, including modification of all critical systems, and Citigroup
continues to make satisfactory progress towards full completion of its year 2000
program. The remainder of 1999 will be spent primarily to address completion of
the remaining external testing, integration testing, and production assurance.
Citigroup's year 2000 program encompasses a range of other matters, including
business applications to be sunset (that is, removed from use in favor of
replacement applications), end-user computing applications, networks, data
centers, desktops, facilities,
25
<PAGE>
business processes, and external providers. Substantially all of the
investigation and necessary remediation of these matters has been completed, and
substantially all are considered compliant.
Citigroup is also addressing year 2000 issues that may exist with other
significant third parties with which it interfaces, including customers and
counterparties, 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 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 Travelers Property Casualty Corp. ("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.
The Company's expectations with respect to remediation of and claims from
customers with respect to year 2000 issues constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" below.
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. 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," "may fluctuate," 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 global economic conditions, particularly in Latin
America and Asia Pacific, portfolio growth, the credit performance of the
portfolios, including bankruptcies, and seasonal factors; changes in general
economic conditions, including the performance of global financial markets,
risks associated with fluctuating levels of principal transactions, realized
gains from sales of investments, gains from asset sales, and losses on
commercial lending activities, particularly in Emerging Markets; the effect on
net income attributable to certain recent acquisitions; interest rates; results
of various Investment Activities; the resolution of legal proceedings and
related matters; the actual amount of liabilities associated with certain
environmental and asbestos-related insurance claims; customer responsiveness to
both new products and distribution channels; the actual cost of year
2000-related remediation and claims, if any; and the possibility that the
Company will be unable to achieve anticipated levels of operational efficiencies
related to recent mergers and business acquisitions, as well as achieving its
other cost-saving initiatives.
26
<PAGE>
MANAGING GLOBAL RISK
The Market Risk Management Process
Market risk encompasses liquidity risk and price risk, both of which arise in
the normal course of business of a global financial intermediary. Liquidity risk
is the risk that 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.
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. The risk management process is described in detail in the
1998 Annual Report and Form 10-K, as amended ("the 1998 Annual Report and Form
10-K"). As Citigroup's businesses become more closely integrated, it is expected
that these management processes will also be more closely integrated.
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 with 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 changes
in market conditions as well as to changes in the characteristics and mix of the
related assets and liabilities.
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.
Citicorp's primary non-trading price risk exposure is to movements in U.S.
dollar interest rates. As of June 30, 1999, 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 45 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 June 30,
1999, the rate shifts applied to these currencies for purposes of calculating
Earnings-at-Risk ranged from 27 to 1,991 basis points, over a four-week
defeasance period.
The following table illustrates that, as of June 30, 1999, a 45 basis point
increase in the U.S. dollar yield curve would have a potential negative impact
on Citicorp's pre-tax earnings of approximately $133 million in the next twelve
months, and approximately $38 million for the total five-year period 1999-2004.
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 $120
million in the next twelve months, and approximately $189 million for the
five-year period 1999-2004.
27
<PAGE>
Citicorp Earnings-at-Risk (impact on pre-tax earnings)
<TABLE>
<CAPTION>
Assuming a U.S. Assuming a Non-U.S.
Dollar Rate Move of Dollar Rate Move of (1)
------------------------------------------------------------
Two Standard Deviations Two Standard Deviations (2)
------------------------------------------------------------
In millions of dollars at June 30, 1999 Increase Decrease Increase Decrease
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overnight to three months ($ 69) $ 74 ($ 24) $ 24
Four to six months (31) 39 (31) 31
Seven to twelve months (33) 41 (65) 65
------------------------------------------------------------
Total overnight to twelve months (133) 154 (120) 120
- -------------------------------------------------------------------------------------------------------------------------
Year two (26) 25 (94) 95
Year three 12 (17) (7) 7
Year four 45 (50) 15 (15)
Year five 91 (108) 10 (9)
Effect of discounting (27) 31 7 (7)
------------------------------------------------------------
Total ($ 38) $ 35 ($189) $191
- -------------------------------------------------------------============================================================
</TABLE>
(1) Primarily results from Earnings-at-Risk in Singapore dollar, Hong Kong
dollar, Korea won, and Mexico peso.
(2) Total assumes a two standard deviation increase or decrease for every
currency, not taking into account any covariance among currencies.
- --------------------------------------------------------------------------------
The table above also illustrates that Citicorp's risk profile in the one- to
two-year time horizon is 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.
The following table summarizes Citicorp's worldwide Earnings-at-Risk over the
next 12 months from changes in interest rates, and illustrates 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 in
interest rates.
Citicorp Twelve Month Earnings-at-Risk (impact on pre-tax earnings)
<TABLE>
<CAPTION>
U.S. Dollar Non-U.S. Dollar
------------------------------------------------------------------------------------
June 30, Dec. 31, June 30, June 30, Dec. 31, June 30,
In millions of dollars 1999 1998 1998 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assuming a two standard deviation rate
Increase ($133) ($148) ($173) ($120) ($93) ($81)
Decrease 154 156 206 120 93 81
- ------------------------------------------------====================================================================================
</TABLE>
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)
<TABLE>
<CAPTION>
U.S. Dollar Non-U.S. Dollar
------------------------------------------------------------------------------------
June 30, Dec. 31, June 30, June 30, Dec. 31, June 30,
In millions of dollars 1999 1998 1998 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assuming a two standard deviation rate
Increase $ 7 $10 $18 ($137) ($94) ($91)
Decrease 12 (3) (6) 138 94 91
- ------------------------------------------------====================================================================================
</TABLE>
During the first six months of 1999, 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 $73
million to $133 million in the aggregate at each month end of 1999, compared
with a range from $65 million to $173 million at each month end during 1998. The
relatively lower U.S. dollar Earnings-at-Risk experienced during the first six
months of 1999 was primarily due to the reduction in the level of receive fixed
swaps. 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 $98 million to $123 million in the aggregate at each month
end during the first six months of 1999, compared with a range from $53 million
to $98 million during 1998. The higher non-U.S. dollar Earnings-at-Risk
experienced during the 1999 six months primarily reflected the higher interest
rate volatility seen across the Asia Pacific region.
28
<PAGE>
In addition, there are other financial instruments held in the non-trading
portfolio outside Citicorp such as investments, long-term debt, derivatives and
contractholder funds. The price risk associated with these instruments is
measured using sensitivity analysis as described in the 1998 Annual Report and
Form 10-K. At June 30, 1999 there was no significant change to the risk profile
as disclosed at year-end 1998.
Trading Portfolios
A tool for measuring the price risk of trading activities is Value-at-Risk,
which estimates the potential pretax loss in market value that could occur over
a one-day holding period at a 99% confidence level. The Value-at-Risk method
incorporates the market factors to which the value of the trading position is
exposed in each market (interest rates, foreign exchange rates, equity and
commodity prices), 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 level of exposure taken depends on the market environment and expectations
of future 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 $17 million at June 30, 1999. Daily exposures at Citicorp
averaged $19 million in the second quarter of 1999 and ranged from $14 million
to $24 million. At Salomon Smith Barney the aggregate pretax Value-at-Risk in
the trading portfolios was $42 million at June 30, 1999. Quarterly exposures at
Salomon Smith Barney averaged $44 million in the second quarter of 1999 and
ranged from $38 million to $50 million.
The following table summarizes Citigroup's Value-at-Risk in its trading
portfolios as of June 30, 1999 and December 31, 1998 along with the second
quarter 1999 average.
<TABLE>
<CAPTION>
Citicorp Salomon Smith Barney
------------------------------------------------------------------------------------
1999 1999
Second Second
June 30, Quarter Dec. 31, June 30, Quarter Dec. 31,
In millions of dollars 1999 Average 1998 1999 Average 1998 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate $11 $15 $13 $38 $42 $60
Foreign exchange 9 9 7 7 5 2
Equity 8 9 5 6 5 5
All other (primarily commodity) 2 1 1 16 13 11
Covariance adjustment (13) (15) (11) (25) (21) (18)
------------------------------------------------------------------------------------
Total $17 $19 $15 $42 $44 $60
- ------------------------------------------------====================================================================================
</TABLE>
(1) In 1999, Salomon Smith Barney began using one year of historical price
data (i.e., volatilities and correlation factors) to calculate VAR, rather
than the previously used six months, primarily for consistency with the
capital guidelines issued by the Federal Reserve Board. The amounts in the
table above provide the restated VAR.
- --------------------------------------------------------------------------------
The table below provides the distribution of Value-at-Risk during the second
quarter of 1999.
<TABLE>
<CAPTION>
Citicorp Salomon Smith Barney
----------------------------------------------------------------------
In millions of dollars High Low High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate $25 $11 $48 $36
Foreign exchange 14 6 8 3
Equity 13 8 14 3
All other (primarily commodity) 6 1 16 13
- --------------------------------------------------------------======================================================================
</TABLE>
In addition to Value-at-Risk, stress and scenario analysis are also applied to
the trading portfolios.
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 in the 1998 Annual Report and Form 10-K.
Except as described below for cross-border resale agreements, the following
table presents total cross-border outstandings and commitments on a regulatory
basis in accordance with Federal Financial Institutions Examination Council
("FFIEC") guidelines. In regulatory reports under FFIEC guidelines, cross-border
resale agreements are presented based on the domicile of the issuer of the
29
<PAGE>
securities that are held as collateral. However, for purposes of the following
table, cross-border resale agreements are presented based on the domicile of the
counterparty because the counterparty has the legal obligation for repayment.
Total cross-border outstandings include cross-border claims on third parties as
well as investments in and funding of local franchises. Countries with FFIEC
outstandings greater than 0.75% of Citigroup assets at June 30, 1999 and
December 31, 1998 include:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Cross-Border Claims on Third Parties
-----------------------------------------------
SSB Cross- Investments
Border In and
Trading and Resale Funding of Total Total Cross-
In billions of Short-term Agreements Local Cross-Border Commit- Border Commit-
Dollars Claims (2) (3) All Other Total Franchises Outstandings ments (4) Outstandings ments (4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United Kingdom $4.7 $9.2 $2.7 $16.6 $ -- $16.6 $9.4 $10.4 $8.9
Germany 8.5 6.2 0.3 15.0 1.0 16.0 1.3 16.6 1.4
Japan 6.7 5.7 0.7 13.1 -- 13.1 0.3 14.1 0.1
France 5.8 3.8 0.2 9.8 0.1 9.9 1.5 8.2 1.1
Italy 6.8 2.2 0.2 9.2 0.4 9.6 0.4 7.7 0.3
Mexico 2.8 -- 1.8 4.6 0.8 5.4 0.2 4.9 0.2
Brazil 1.6 -- 1.6 3.2 1.4 4.6 -- 4.1 0.1
- ------------------==================================================================================================================
</TABLE>
(1) Reclassified to conform to the current quarter's presentation.
(2) Trading and short-term claims include cross-border debt and equity
securities held in the trading account, trade finance receivables, net
revaluation gains on foreign exchange and derivative contracts, and other
claims with a maturity of less than one year.
(3) SSB refers to Salomon Smith Barney.
(4) 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.
- --------------------------------------------------------------------------------
Total cross-border outstandings for June 30, 1999 under FFIEC guidelines,
including cross-border resale agreements based on the domicile of the issuer of
the securities that are held as collateral, amount to $17.7 billion for Germany,
$14.0 billion for Japan, $11.0 billion for Italy, $11.0 billion for France, $9.5
billion for the United Kingdom, $6.4 billion for Mexico, and $5.5 billion for
Brazil.
Total cross-border outstandings for December 31, 1998 under FFIEC guidelines
amounted to $17.4 billion for Germany, $12.9 billion for Japan, $8.7 billion for
Italy, $8.7 billion for France, $7.9 billion for the United Kingdom, $5.9
billion for Mexico, and $4.5 billion for Brazil.
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, TAP, and The Travelers Insurance Company ("TIC") issue
commercial paper directly to investors. Commercial Credit Company ("CCC"), which
had previously issued commercial paper, became an indirect subsidiary of
Citicorp on August 4, 1999 and, thereafter, ceased such issuance. Citigroup and
Citicorp maintain combined liquidity reserves of cash, securities, and unused
bank lines of credit at least equal to their combined outstanding commercial
paper. TAP and TIC maintain unused credit availability under their respective
bank lines of credit at least equal to the amount of 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 Inc. ("Citigroup")
Currently, Citigroup and TIC have an agreement with a syndicate of banks to
provide $1.0 billion of revolving credit, to be allocated to either of Citigroup
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 June 30, 1999, 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
30
<PAGE>
in the agreement). The Company exceeded this requirement by approximately $28.7
billion at June 30, 1999. Citigroup also has $300 million in 364-day facilities
which expire in July 2000. At June 30, 1999, 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 Federal Reserve Board ("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.
Citigroup Ratios
<TABLE>
<CAPTION>
June 30, Mar. 31, Dec. 31,
1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital 9.37% 8.86% 8.68%
Total capital (Tier 1 and Tier 2) 12.12 11.56 11.43
Leverage (1) 6.38 6.24 6.03
Common stockholders' equity 6.25 6.06 6.04
- -------------------------------------------------------------------------------------===============================================
</TABLE>
(1) Tier 1 capital divided by adjusted average assets.
- --------------------------------------------------------------------------------
Citigroup maintained a strong capital position during 1999. Total capital (Tier
1 and Tier 2) amounted to $57.8 billion at June 30, 1999, representing 12.12% of
net risk-adjusted assets. This compares to $56.5 billion and 11.56% at March 31,
1999 and $55.0 billion and 11.43% at December 31, 1998. Tier 1 capital of $44.7
billion at June 30, 1999 represented 9.37% of net risk-adjusted assets, compared
to $43.3 billion and 8.86% at March 31, 1999 and $41.8 billion and 8.68% at
December 31, 1998. Citigroup's leverage ratio was 6.38% at June 30, 1999
compared to 6.24% at March 31, 1999 and 6.03% at December 31, 1998.
Components of Capital Under Regulatory Guidelines
<TABLE>
<CAPTION>
June 30, Mar. 31, Dec. 31,
In millions of dollars 1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 Capital
Common stockholders' equity $43,122 $41,846 $40,395
Perpetual preferred stock 2,113 2,113 2,313
Mandatorily redeemable securities of subsidiary trusts 4,920 4,920 4,320
Minority interest (1) 1,540 1,580 1,602
Less: Net unrealized gains on securities available for sale (2) (1,257) (1,554) (1,359)
Intangible assets:
Goodwill (4,061) (3,880) (3,764)
Other intangible assets (1,565) (1,584) (1,620)
50% investment in certain subsidiaries (3) (115) (113) (110)
----------------------------------------------------
Total Tier 1 capital 44,697 43,328 41,777
- ------------------------------------------------------------------------------------------------------------------------------------
Tier 2 Capital
Allowance for credit losses (4) 5,976 6,120 6,024
Qualifying debt (5) 6,876 7,020 7,296
Unrealized marketable equity securities gains (2) 379 169 21
Less: 50% investment in certain subsidiaries (3) (114) (113) (110)
----------------------------------------------------
Total Tier 2 capital 13,117 13,196 13,231
----------------------------------------------------
Total capital (Tier 1 and Tier 2) $57,814 $56,524 $55,008
- --------------------------------------------------------------------------------====================================================
Net risk-adjusted assets (6) $477,197 $488,897 $481,208
- --------------------------------------------------------------------------------====================================================
</TABLE>
(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. The federal bank regulatory agencies permit institutions to
include in Tier 2 capital up to 45% of pretax net unrealized holding gains
on available-for-sale equity securities with readily determinable fair
values.
(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 $30.0 billion for interest rate,
commodity and equity derivative contracts and foreign exchange contracts,
as of June 30, 1999, compared to $32.8 billion as of March 31, 1999 and
$37.3 billion as of December 31, 1998. Market risk-equivalent assets
included in net risk-adjusted assets amounted to $46.9 billion at June 30,
1999, $52.2 billion at March 31, 1999, and $51.5 billion at December 31,
1998. 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.
- --------------------------------------------------------------------------------
31
<PAGE>
Common stockholders' equity increased a net $2.7 billion during the first six
months of 1999 to $43.1 billion at June 30, 1999, representing 6.25% of assets,
compared to $40.4 billion and 6.04% at year-end 1998. The net increase in common
stockholders' equity during the six months of 1999 principally reflected net
income of $4.8 billion and issuance of shares pursuant to employee benefit plans
and other activity of $1.1 billion, partially offset by treasury stock acquired
of $2.0 billion and dividends declared on common and preferred stock of $1.0
billion. The increase in the common stockholders' equity ratio during the six
months of 1999 reflected the above items, partially offset by the increase in
total assets.
During the first quarter of 1999, Citigroup redeemed its $200 million Series J
perpetual preferred stock. Citigroup has announced that it will redeem its $62.5
million Series O perpetual preferred stock on August 15, 1999.
All of the mandatorily redeemable securities of subsidiary trusts (trust
securities) outstanding at June 30, 1999 qualify as Tier 1 capital. The amount
outstanding at June 30, 1999 includes $2.3 billion of parent-obligated
securities and $2.62 billion of subsidiary-obligated securities. The increase in
trust securities outstanding during the six months ended June 30, 1999 of $600
million represents parent-obligated securities.
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 June 30, 1999,
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
Citicorp manages liquidity through a well-defined process described in the 1998
Annual Report and Form 10-K.
A diversity of funding sources, currencies, and maturities is used to gain a
broad access to the investor base. Citicorp's deposits, which represent 69% and
66% of its total funding at June 30, 1999 and December 31, 1998, respectively,
are broadly diversified by both geography and customer segments.
Stockholder's equity, which grew $1.26 billion during the six months to $23.8
billion at June 30, 1999, 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 quarter-end was $20.0
billion, up from $19.6 billion at year-end. Asset securitization programs remain
an important source of liquidity. Loans securitized during the first six months
included $5.4 billion of U.S. credit cards, $4.6 billion of U.S. consumer
mortgages, and $0.2 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.
During the six months, the scheduled amortization of certain credit card
securitization transactions made available $3.3 billion of new receivables. In
addition, $0.5 billion of credit card securitization transactions are scheduled
to amortize during the rest of 1999.
Citicorp is a legal entity separate and distinct from Citibank, N.A. and its
other subsidiaries and affiliates. As discussed in the 1998 Annual Report and
Form 10-K, there are various legal limitations on the extent to which Citicorp's
subsidiaries may extend credit, pay dividends, or otherwise supply funds to
Citicorp. As of June 30, 1999, under their applicable dividend limitations,
Citicorp's national and state-chartered bank subsidiaries could have declared
dividends to their respective parent companies without regulatory approval of
approximately $3.8 billion. 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 ratios 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, as of
June 30, 1999, its bank subsidiaries could have distributed dividends to
Citicorp, directly or through their parent holding company, of approximately
$3.4 billion of the available $3.8 billion.
Citicorp 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.
32
<PAGE>
Citicorp Ratios
<TABLE>
<CAPTION>
June 30, Mar. 31, Dec. 31,
1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital 8.63% 8.35% 8.44%
Total capital (Tier 1 and Tier 2) 12.52 12.15 12.38
Leverage (1) 6.97 6.74 6.68
Common stockholder's equity 6.76 6.58 6.57
- ------------------------------------------------------------------------------------================================================
</TABLE>
(1) Tier 1 capital divided by adjusted average assets.
- --------------------------------------------------------------------------------
Citicorp maintained a strong capital position during the 1999 second quarter.
Total capital (Tier 1 and Tier 2) amounted to $34.8 billion at June 30, 1999,
representing 12.52% of net risk-adjusted assets. This compares with $33.8
billion and 12.15% at March 31, 1999 and $33.9 billion and 12.38% at December
31, 1998. Tier 1 capital of $24.0 billion at June 30, 1999 represented 8.63% of
net risk-adjusted assets, compared with $23.2 billion and 8.35% at March 31,
1999 and $23.1 billion and 8.44% at December 31, 1998. Citicorp's Tier 1 capital
ratio at June 30, 1999 exceeded Citicorp's target range of 8.00% to 8.30%.
Commercial Credit Company ("CCC")
Currently, CCC has committed and available five-year revolving credit facilities
in the amount of $3.4 billion which expire in 2002. At June 30, 1999, there were
no borrowings outstanding under these facilities. In connection with the August
4, 1999 reorganization of CCC as a subsidiary of Citicorp, Citicorp guaranteed
various debt obligations of CCC, including those arising under these facilities.
Travelers Property Casualty Corp. ("TAP")
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 June 30, 1999, this requirement was exceeded by
approximately $4.5 billion. At June 30, 1999, 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 $1.0 billion in 1999 without
prior approval of the Connecticut Insurance Department. TAP received $300
million of dividends from its insurance subsidiaries during the first six months
of 1999.
Salomon Smith Barney Holdings Inc. ("Salomon Smith Barney")
Salomon Smith Barney manages liquidity and monitors and evaluates capital
adequacy through a well-defined process described in the 1998 Annual Report and
Form 10-K. Total assets were $218 billion at June 30, 1999, up slightly from
$212 billion at year-end 1998. As discussed in the 1998 Annual Report and Form
10-K, it is not uncommon for asset levels to fluctuate from period to period.
Salomon Smith Barney has 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 2000. Salomon Smith Barney may borrow
under these 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 June 30, 1999, this requirement was exceeded by approximately $3.6 billion.
At June 30, 1999, 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 $18.1 billion at June 30, 1999 and
$19.1 billion at December 31, 1998. 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.
33
<PAGE>
The Travelers Insurance Company ("TIC")
At June 30, 1999, TIC had $27.0 billion of life and annuity product deposit
funds and reserves. Of that total, $14.0 billion is not subject to discretionary
withdrawal based on contract terms. The remaining $13.0 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 $2.3 billion of liabilities that are surrenderable with market
value adjustments. Also included are an additional $5.0 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
$5.7 billion of liabilities are surrenderable without charge. More than 11% 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.
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 of which $275
million was paid during the first six months of 1999.
34
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------------------------------------
In millions, except per share amounts 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Loan interest, including fees $ 5,614 $ 5,625 $ 11,502 $ 10,969
Other interest and dividends 5,449 6,010 10,863 11,797
Insurance premiums 2,616 2,395 5,142 4,735
Commissions and fees 3,052 2,985 5,832 5,860
Principal transactions 1,272 878 3,042 2,243
Asset management and administration fees (1) 1,003 553 1,958 1,051
Realized gains from sales of investments 188 332 241 710
Other income 1,242 1,183 2,377 2,033
----------------------------------------------------------------------
Total revenues 20,436 19,961 40,957 39,398
Interest expense 6,056 6,996 12,507 13,637
----------------------------------------------------------------------
Total revenues, net of interest expense 14,380 12,965 28,450 25,761
----------------------------------------------------------------------
Provisions for benefits, claims, and credit losses
Policyholder benefits and claims 2,151 2,047 4,199 4,041
Provision for credit losses 790 656 1,519 1,251
----------------------------------------------------------------------
Total provisions for benefits, claims, and credit losses 2,941 2,703 5,718 5,292
----------------------------------------------------------------------
Operating expenses
Non-insurance compensation and benefits 3,615 3,429 7,370 6,920
Insurance underwriting, acquisition, and operating 802 811 1,627 1,623
Restructuring-related items 47 (324) (83) (324)
Other operating 3,060 2,764 5,931 5,200
----------------------------------------------------------------------
Total operating expenses 7,524 6,680 14,845 13,419
----------------------------------------------------------------------
Income before income taxes, minority interest
and cumulative effect of accounting changes 3,915 3,582 7,887 7,050
Provision for income taxes 1,402 1,290 2,825 2,539
Minority interest, net of income taxes 65 52 125 110
----------------------------------------------------------------------
Income before cumulative effect of accounting changes 2,448 2,240 4,937 4,401
Cumulative effect of accounting changes (2) -- -- (127) --
----------------------------------------------------------------------
Net income $ 2,448 $ 2,240 $ 4,810 $ 4,401
- --------------------------------------------------------------======================================================================
Basic Earnings Per Share (3)
Income before cumulative effect of accounting changes $0.72 $0.65 $1.46 $1.27
Cumulative effect of accounting changes (2) -- -- (0.04) --
----------------------------------------------------------------------
Net income $0.72 $0.65 $1.42 $1.27
======================================================================
Weighted average common shares outstanding 3,332.7 3,366.0 3,336.4 3,365.4
- --------------------------------------------------------------======================================================================
Diluted Earnings Per Share (3)
Income before cumulative effect of accounting changes $0.70 $0.63 $1.41 $1.23
Cumulative effect of accounting changes (2) -- -- (0.03) --
----------------------------------------------------------------------
Net income $0.70 $0.63 $1.38 $1.23
======================================================================
Adjusted weighted average common shares outstanding 3,450.3 3,496.4 3,445.2 3,491.6
- --------------------------------------------------------------======================================================================
</TABLE>
(1) The 1999 second quarter and six months include asset management and
administration fees for Citicorp subsidiaries, previously reflected in
Commissions and fees.
(2) See Note 2 of Notes to Consolidated Financial Statements for a description
of accounting changes.
(3) Earnings per share have been adjusted to reflect the three-for-two split
in Citigroup's common stock, effective May 28, 1999. See Note 1 of Notes
to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
35
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30,
1999 December 31,
In millions of dollars (Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents (including segregated cash and other deposits) $ 14,688 $ 13,837
Deposits at interest with banks 11,864 11,643
Investments 104,089 103,672
Federal funds sold and securities borrowed or purchased under agreements to resell 105,029 94,831
Brokerage receivables 23,319 21,413
Trading account assets 111,484 119,845
Loans, net
Consumer 134,359 132,255
Commercial 97,807 89,703
-----------------------------------
Loans, net of unearned income 232,166 221,958
Allowance for credit losses (6,743) (6,617)
-----------------------------------
Total loans, net 225,423 215,341
Reinsurance recoverables 9,605 9,492
Separate and variable accounts 19,407 15,820
Other assets 64,692 62,747
-----------------------------------
Total assets $689,600 $668,641
- -------------------------------------------------------------------------------------------------===================================
Liabilities
Non-interest-bearing deposits in U.S. offices $ 17,544 $ 17,058
Interest-bearing deposits in U.S. offices 44,737 44,169
Non-interest-bearing deposits in offices outside the U.S. 13,028 10,856
Interest-bearing deposits in offices outside the U.S. 169,081 156,566
-----------------------------------
Total deposits 244,390 228,649
Federal funds purchased and securities loaned or sold under agreements to repurchase 93,661 81,025
Brokerage payables 15,781 21,055
Trading account liabilities 88,289 94,584
Contractholder funds and separate and variable accounts 37,709 33,037
Insurance policy and claims reserves 44,076 43,990
Investment banking and brokerage borrowings 12,708 14,040
Short-term borrowings 14,303 16,112
Long-term debt 49,030 48,671
Other liabilities 39,358 40,310
Citigroup or subsidiary obligated mandatorily redeemable securities of subsidiary
trusts holding solely junior subordinated debt securities of -- Parent 2,300 1,700
-- Subsidiary 2,620 2,620
Redeemable preferred stock -- Series I 140 140
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock ($1.00 par value; authorized shares: 30 million), at aggregate liquidation value 2,113 2,313
Common stock ($.01 par value; authorized shares: 6.0 billion), Issued shares --
3,603,018,359 at June 30, 1999 and 3,603,106,368 at December 31, 1998 (1) 36 36
Additional paid-in capital (1) 9,237 8,893
Retained earnings 39,822 35,971
Treasury stock, at cost: June 30, 1999 -- 226,304,850 shares and
December 31, 1998 -- 216,143,199 shares (1) (6,081) (4,789)
Accumulated other changes in equity from nonowner sources 633 781
Unearned compensation (525) (497)
-----------------------------------
Total stockholders' equity 45,235 42,708
-----------------------------------
Total liabilities and stockholders' equity $689,600 $668,641
- -------------------------------------------------------------------------------------------------===================================
</TABLE>
(1) Reflects the three-for-two split in Citigroup's common stock, effective
May 28, 1999. See Note 1 of Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
36
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
In millions of dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Preferred stock at aggregate liquidation value
Balance, beginning of period $ 2,313 $ 3,353
Redemption or retirement of preferred stock (200) (628)
-----------------------------------
Balance, end of period 2,113 2,725
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock and additional paid-in capital
Balance, beginning of period 8,929 12,496
Employee benefit plans 372 397
Conversion of preferred stock to common stock -- 153
Exercise of common stock warrants -- 75
Other (28) (7)
-----------------------------------
Balance, end of period 9,273 13,114
- ------------------------------------------------------------------------------------------------------------------------------------
Retained earnings
Balance, beginning of period 35,971 32,002
Net income 4,810 4,401
Common dividends (1) (881) (836)
Preferred dividends (78) (120)
-----------------------------------
Balance, end of period 39,822 35,447
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury stock, at cost
Balance, beginning of period (4,789) (6,595)
Issuance of shares pursuant to employee benefit plans and other 750 221
Treasury stock acquired (2,042) (1,321)
-----------------------------------
Balance, end of period (6,081) (7,695)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated other changes in equity from nonowner sources
Balance, beginning of period 781 1,057
Net change in unrealized gains and losses on investment securities, net of tax (102) (110)
Foreign currency translations adjustment, net of tax (46) (54)
-----------------------------------
Balance, end of period 633 893
- ------------------------------------------------------------------------------------------------------------------------------------
Unearned compensation
Balance, beginning of period (497) (462)
Issuance of restricted stock, net of amortization (28) (111)
-----------------------------------
Balance, end of period (525) (573)
- ------------------------------------------------------------------------------------------------------------------------------------
Total common stockholders' equity (shares outstanding: 3,376,713,509 in 1999
and 3,420,708,210 in 1998) (2) 43,122 41,186
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 45,235 $ 43,911
- -------------------------------------------------------------------------------------------------===================================
Summary of changes in equity from nonowner sources
Net income $ 4,810 $ 4,401
Other changes in equity from nonowner sources, net of tax (148) (164)
-----------------------------------
Total changes in equity from nonowner sources $ 4,662 $ 4,237
- -------------------------------------------------------------------------------------------------===================================
</TABLE>
(1) Common dividends declared were 12 cents per share in the first quarter of
1999, 14 cents per share in the 1999 second quarter and 8.3 cents per
share in both the first and second quarters of 1998 (adjusted to reflect
the three-for-two split in Citigroup's common stock, effective May 28,
1999). See Note 1 of Notes to Consolidated Financial Statements.
(2) Shares outstanding reflect the split in Citigroup's common stock.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
37
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
In millions of dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,810 $ 4,401
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of deferred policy acquisition costs and value of insurance in force 798 743
Additions to deferred policy acquisition costs (957) (874)
Depreciation and amortization 823 707
Provision for credit losses 1,519 1,251
Change in trading account assets 8,361 4,201
Change in trading account liabilities (6,295) (2,683)
Change in federal funds sold and securities borrowed or purchased under agreements to
resell (10,198) (23,726)
Change in federal funds purchased and securities loaned or sold under agreements to
repurchase 12,636 3,568
Change in brokerage receivables net of brokerage payables (7,180) 7,183
Change in insurance policy and claims reserves 86 (38)
Net gain on sale of securities (241) (710)
Venture capital activity (112) (518)
Restructuring-related items (83) (324)
Cumulative effect of accounting changes, net of tax 127 -
Other, net 2,947 1,789
-----------------------------------
Total adjustments 2,231 (9,431)
-----------------------------------
Net cash provided by (used in) operating activities 7,041 (5,030)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Change in deposits at interest with banks (221) (964)
Change in loans (66,087) (92,641)
Proceeds from sales of loans 54,736 89,919
Purchases of investments (45,847) (43,624)
Proceeds from sales of investments 26,952 19,905
Proceeds from maturities of investments 15,981 18,724
Other investments, primarily short-term, net (885) (1,270)
Capital expenditures on premises and equipment (755) (833)
Proceeds from sales of premises and equipment, subsidiaries and affiliates, and other real
estate owned 336 329
Business acquisitions (2,150) (3,655)
-----------------------------------
Net cash used in investing activities (17,940) (14,110)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Dividends paid (959) (960)
Issuance of common stock 521 192
Issuance of mandatorily redeemable securities of subsidiary trusts 600 825
Redemption of preferred stock (200) (628)
Treasury stock acquired (2,042) (1,310)
Stock tendered for payment of withholding taxes (305) (402)
Issuance of long-term debt 5,222 5,793
Payments and redemptions of long-term debt (4,733) (3,565)
Change in deposits 15,741 16,861
Change in short-term borrowings and investment banking and brokerage borrowings (2,889) 3,543
Contractholder fund deposits 3,772 2,481
Contractholder fund withdrawals (2,687) (1,788)
-----------------------------------
Net cash provided by financing activities 12,041 21,042
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (291) (162)
- ------------------------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 851 1,740
Cash and cash equivalents at beginning of period 13,837 12,618
-----------------------------------
Cash and cash equivalents at end of period $ 14,688 $ 14,358
- -------------------------------------------------------------------------------------------------===================================
Supplemental disclosure of cash flow information
Cash paid during the period for income taxes $ 1,677 $ 1,455
Cash paid during the period for interest 12,027 12,836
Non-cash investing activities
Transfers from loans to other real estate owned $80 $121
- -------------------------------------------------------------------------------------------------===================================
</TABLE>
See Notes to Consolidated Financial Statements
38
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying consolidated financial statements as of June 30, 1999 and for
the three and six month periods ended June 30, 1999 and 1998 are unaudited and
include the accounts of Citigroup Inc. ("Citigroup") and its subsidiaries
(collectively, the Company). In the opinion of management all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
have been reflected. The accompanying consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes included in the Company's 1998 Annual Report and Form 10-K.
Certain financial information that is normally included in annual financial
statements prepared in accordance with generally accepted accounting principles,
but is not required for interim reporting purposes, has been condensed or
omitted.
The Board of Directors on April 19, 1999 declared a three-for-two split in
Citigroup's common stock, which was paid in the form of a 50% stock dividend on
May 28, 1999. Prior year information has been restated to reflect the stock
split.
2. Accounting Changes
Insurance-related assessments. During the first quarter of 1999, the Company
adopted Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments". 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. The effect of initial adoption resulted in a
cumulative catch-up adjustment recorded as a charge to earnings of $135 million
after-tax and minority interest.
Deposit Accounting. During the first quarter of 1999, the Company adopted
Statement of Position 98-7, "Deposit Accounting: Accounting for Insurance and
Reinsurance Contracts That Do Not Transfer Insurance Risk". 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. The effect of
initially adopting SOP 98-7 resulted in a cumulative catch-up adjustment
recorded as a credit to earnings of $23 million after-tax and minority interest.
Start-up costs. During the first quarter of 1999, the Company adopted Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities". SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. The effects of initially adopting SOP 98-5 resulted in a cumulative
catch-up adjustment recorded as a charge to earnings of $15 million after-tax,
to write-off certain capitalized closed-end fund distribution costs.
Derivatives and hedge accounting. In June 1999, the Financial Accounting
Standards Board ("FASB") deferred the effective date of Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" for one year. As a result, SFAS No. 133 will become
effective on January 1, 2001 for calendar year companies such as the Company.
3. Business Segment Information
The following table presents certain information regarding the Company's
industry segments:
<TABLE>
<CAPTION>
Income (Loss)
Before Cumulative
Effect of
Total Revenues, Net Provision for Accounting
of Interest Expense Income Taxes Changes (1) Identifiable Assets
------------------------------------------------------------------------------------
Three Months Ended June 30,
In millions of dollars, except identifiable --------------------------------------------------------------- June 30, Dec. 31,
assets in billions 1999 1998 (2) 1999 1998 (2) 1999 1998 (2) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Consumer (3) $ 6,832 $ 6,004 $ 637 $ 469 $1,092 $ 792 $244 $237
Global Corporate and Investment Bank (3) 6,922 6,230 693 677 1,261 1,194 427 416
Asset Management 357 309 55 44 84 69 2 2
Investment Activities 270 491 88 161 163 316 9 8
Corporate/Other (1) (69) (71) (61) (152) (131) 8 6
------------------------------------------------------------------------------------
Total $14,380 $12,965 $1,402 $1,290 $2,448 $2,240 $690 $669
- ------------------------------------------------====================================================================================
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Income (Loss)
Before Cumulative
Effect of
Total Revenues, Net Provision for Accounting
of Interest Expense Income Taxes Changes (1)
---------------------------------------------------------------
Six Months Ended June 30,
---------------------------------------------------------------
In millions of dollars 1999 1998 (2) 1999 1998 (2) 1999 1998 (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Consumer (3) $13,361 $11,446 $1,222 $ 937 $2,105 $1,581
Global Corporate and Investment Bank (3) 14,022 12,713 1,509 1,265 2,740 2,228
Asset Management 711 614 106 88 164 138
Investment Activities 423 1,110 135 370 253 718
Corporate/Other (67) (122) (147) (121) (325) (264)
---------------------------------------------------------------
Total $28,450 $25,761 $2,825 $2,539 $4,937 $4,401
- ---------------------------------------------------------------------===============================================================
</TABLE>
(1) For the 1999 second quarter and six month periods, results reflect
after-tax restructuring-related items of $18 million and $56 million in
Global Consumer; $3 million and ($117) million in Global Corporate and
Investment Bank; and $8 million and $16 million in Corporate/Other,
respectively. For the 1998 second quarter and six month periods, Global
Corporate and Investment Bank results reflect an after-tax restructuring
credit of ($191) million.
(2) The 1998 results have been restated to reflect changes in capital and tax
allocations among the segments to conform the policies of each of the
predecessor companies.
(3) Includes provisions for benefits, claims, and credit losses in the Global
Consumer results of $1.95 billion and $1.76 billion, and in the Global
Corporate and Investment Bank results of $983 million and $948 million for
the second quarter of 1999 and 1998, respectively. Includes provisions for
benefits, claims, and credit losses in the Global Consumer results of
$3.74 billion and $3.35 billion, and in the Global Corporate and
Investment Bank results of $1.96 billion and $1.95 billion for the six
months of 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
4. Investments
<TABLE>
<CAPTION>
June 30, December 31,
In millions of dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities, primarily available for sale at fair value $ 90,395 $ 90,414
Equity securities, at fair value 4,984 4,203
Venture capital, at fair value (1) 3,409 3,297
Short-term and other 5,301 5,758
-----------------------------------
$104,089 $103,672
- -------------------------------------------------------------------------------------------------===================================
</TABLE>
(1) For the six months ended June 30, 1999, net gains on investments held by
venture capital subsidiaries totaled $333 million, of which $342 million
and $265 million represented gross unrealized gains and losses,
respectively. For the six months ended June 30, 1998, net gains on
investments held by venture capital subsidiaries totaled $435 million, of
which $518 million and $148 million represented gross unrealized gains and
losses, respectively.
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in fixed maturities and equity
securities at June 30, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 (1)
------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Amortized Fair
In millions of dollars Cost Gains Losses Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturity securities held to maturity,
principally mortgage-backed securities $ 26 $ 5 $ -- $ 31 $ 30 $ 36
------------------------------------------------------------------------------------
Fixed maturity securities available for sale
Mortgage-backed securities, principally
obligations of U.S. Federal agencies $13,731 $ 131 $ 266 $13,596 $12,646 $12,982
U.S. Treasury and Federal agency 5,759 124 66 5,817 5,250 5,701
State and municipal 13,849 387 223 14,013 13,714 14,286
Foreign government 24,195 398 407 24,186 26,444 26,268
U.S. corporate 24,992 361 349 25,004 23,424 24,335
Other debt securities 7,743 125 115 7,753 6,642 6,812
------------------------------------------------------------------------------------
$90,269 $1,526 $1,426 $90,369 $88,120 $90,384
------------------------------------------------------------------------------------
Equity securities (2) $ 4,638 $ 486 $ 140 $ 4,984 $ 4,060 $ 4,203
- ------------------------------------------------====================================================================================
Fixed maturity securities available for sale include:
Government of Brazil Brady Bonds $ 658 $ 158 $ -- $ 816 $ 660 $ 686
Government of Venezuela Brady Bonds 450 -- 104 346 478 304
- ------------------------------------------------====================================================================================
</TABLE>
(1) At December 31, 1998, gross unrealized gains and losses on fixed
maturities and equity securities totaled $3.805 billion and $1.392
billion, respectively.
(2) Includes non-marketable equity securities carried at cost, which are
reported in both the amortized cost and fair value columns.
- --------------------------------------------------------------------------------
40
<PAGE>
5. Trading Account Assets and Liabilities
Trading account assets and liabilities at market value consisted of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
In millions of dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trading Account Assets
U.S. Treasury and Federal agency securities $ 29,232 $ 24,729
State and municipal securities 2,709 3,165
Foreign government securities 15,458 21,240
Corporate and other debt securities 12,735 12,595
Derivative and other contractual commitments (1) 27,702 37,431
Equity securities 10,227 7,291
Mortgage loans and collateralized mortgage securities 6,181 6,082
Commodities 139 245
Other 7,101 7,067
-----------------------------------
$111,484 $119,845
- -------------------------------------------------------------------------------------------------===================================
Trading Account Liabilities
Securities sold, not yet purchased $ 57,155 $ 53,228
Derivative and other contractual commitments (1) 31,134 41,356
-----------------------------------
$ 88,289 $ 94,584
- -------------------------------------------------------------------------------------------------===================================
</TABLE>
(1) Net of master netting agreements and securitization.
- --------------------------------------------------------------------------------
6. Debt
Investment banking and brokerage borrowings consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
In millions of dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank borrowings $ 301 $ 556
Commercial paper 11,572 10,493
Other 835 2,991
-----------------------------------
$12,708 $14,040
- -------------------------------------------------------------------------------------------------===================================
</TABLE>
Short-term borrowings consisted of commercial paper and other short-term
borrowings as follows:
<TABLE>
<CAPTION>
June 30, December 31,
In millions of dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial paper
<S> <C> <C>
Citigroup Inc. $ 520 $ 991
Commercial Credit Company 3,751 2,908
Citicorp 57 132
-----------------------------------
4,328 4,031
Other short-term borrowings 9,975 12,081
-----------------------------------
$14,303 $16,112
- -------------------------------------------------------------------------------------------------===================================
</TABLE>
Long-term debt, including its current portion, consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
In millions of dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Citigroup Inc. $ 3,843 $ 2,422
Citicorp 19,762 19,624
Salomon Smith Barney Holdings Inc. 18,097 19,092
Commercial Credit Company 6,050 6,250
Travelers Property Casualty Corp. 1,250 1,250
The Travelers Insurance Group Inc. 28 33
-----------------------------------
$49,030 $48,671
- -------------------------------------------------------------------------------------------------===================================
</TABLE>
41
<PAGE>
7. Restructuring-Related Items
In December 1998, Citigroup recorded a restructuring charge of $1.122 billion
($703 million after-tax), 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 for the
elimination of approximately 11,900 positions, after considering attrition and
redeployment within the Company. The overall workforce reduction, net of
anticipated rehires to fill relocated positions, is expected to be approximately
10,400 positions worldwide. The charge also included $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. Also recorded in the 1998 fourth quarter were $65 million of
merger-related costs which included the direct and incremental costs of
administratively closing the Citicorp merger.
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 (in addition to normal
scheduled depreciation on these assets) will be recognized in subsequent
periods, $47 million and $128 million of which were recorded in the 1999 second
quarter and six months, respectively. Additional implementation costs associated
with these restructuring initiatives will be expensed as incurred but are not
expected to be material.
In 1997, Citigroup recorded restructuring charges of $1.718 billion, consisting
of an $880 million restructuring charge related to cost-management programs and
customer service initiatives to improve operational efficiency and productivity
in the Citicorp businesses, and an $838 million charge related to the Salomon
merger.
The status of the 1998 and 1997 restructuring initiatives is summarized in the
following table.
Restructuring Reserves Activity
<TABLE>
<CAPTION>
1998 1997
Restructuring Restructuring
In millions of dollars Reserve Reserve Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Restructuring Charges $1,122 $1,718 $2,840
Utilization (1) (419) (982) (1,401)
Changes in 1997 Estimates -- (603) (603)
----------------------------------------------------
Balance at June 30, 1999 $ 703 $ 133 $ 836
- --------------------------------------------------------------------------------====================================================
</TABLE>
(1) Utilization amounts include translation effects on the restructuring
reserve.
- --------------------------------------------------------------------------------
The 1998 restructuring reserve utilization includes $35 million of non-cash
charges for equipment and premises write-downs as well as $352 million of
severance and other exit costs, occurring primarily in the first half of 1999
(of which $205 million related to employee severance and $57 million related to
leasehold and other exit costs have been paid in cash and $90 million is legally
obligated), together with translation effects. Utilization, including
translation effects, in the second quarter of 1999 was $154 million. Through
June 30, 1999, approximately 3,500 gross staff positions have been eliminated
under these programs, including 1,100 in the 1999 second quarter.
The 1997 restructuring reserve utilization includes $314 million of non-cash
charges for equipment and premises write-downs as well as $660 million of
severance and other exit costs (of which $449 million related to employee
severance and $168 million related to leasehold and other exit costs have been
paid in cash and $43 million is legally obligated), together with translation
effects. Utilization, including translation effects, in the second quarter and
six months of 1999 was $37 million and $170 million, respectively. Through June
30, 1999, approximately 7,000 gross staff positions have been eliminated under
these programs, including 300 in the 1999 second quarter.
Changes in 1997 estimates are attributable to facts and circumstances arising
subsequent to the original restructuring charge. In the 1999 first quarter and
the second and fourth quarters of 1998, $211 million, $324 million, and $30
million, respectively, of the 1997 Salomon Smith Barney reserve was released,
primarily related to the Seven World Trade Center lease. Additionally, in the
1998 fourth quarter $38 million of the 1997 Citicorp reserve was released. The
1999 first quarter release resulted from a reassessment of space needed due to
the Citicorp merger. The reassessment indicated the need for increased occupancy
and the utilization of space previously considered excessive. The 1998 SSB
releases resulted from negotiations on a sublease on the Seven World Trade
Center location which indicated that excess space could be disposed of on terms
more favorable than had been originally estimated. Changes in prior 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.
42
<PAGE>
Additional information about the 1998 and 1997 restructuring charges, including
the business segments affected, may be found in the 1998 Annual Report and Form
10-K.
8. Earnings Per Share
The following reflects the income and share data used in the basic and diluted
earnings per share computations for the three and six months ended June 30, 1999
and 1998. Shares have been adjusted to give effect to the three-for-two split in
Citigroup's common stock as discussed in Note 1 of Notes to Consolidated
Financial Statements.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
In millions, except per share amounts 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before cumulative effect of accounting changes $2,448 $2,240 $4,937 $4,401
Cumulative effect of accounting changes -- -- (127) --
Preferred dividends (38) (58) (78) (121)
----------------------------------------------------------------------
Income available to common stockholders' for basic EPS 2,410 2,182 4,732 4,280
Effect of dilutive securities 3 6 6 12
----------------------------------------------------------------------
Income available to common stockholders' for diluted EPS $2,413 $2,188 $4,738 $4,292
- --------------------------------------------------------------======================================================================
Weighted average common shares
outstanding applicable to basic EPS 3,332.7 3,366.0 3,336.4 3,365.4
Effect of dilutive securities:
Convertible securities 10.2 19.8 10.3 19.8
Options 80.7 72.8 73.3 70.5
Warrants -- 5.1 -- 5.0
Restricted stock 26.7 32.7 25.2 30.9
----------------------------------------------------------------------
Adjusted weighted average common shares
outstanding applicable to diluted EPS 3,450.3 3,496.4 3,445.2 3,491.6
- --------------------------------------------------------------======================================================================
Basic earnings per share
Income before cumulative effect of accounting changes $ 0.72 $ 0.65 $ 1.46 $ 1.27
Cumulative effect of accounting changes -- -- (0.04) --
----------------------------------------------------------------------
Net income $ 0.72 $ 0.65 $ 1.42 $ 1.27
- --------------------------------------------------------------======================================================================
Diluted earnings per share
Income before cumulative effect of accounting changes $ 0.70 $ 0.63 $ 1.41 $ 1.23
Cumulative effect of accounting changes -- -- (0.03) -
----------------------------------------------------------------------
Net income $ 0.70 $ 0.63 $ 1.38 $ 1.23
- --------------------------------------------------------------======================================================================
</TABLE>
43
<PAGE>
9. Trading Securities, Commodities, Derivatives and Related Risks
Derivative and Foreign Exchange Contracts
The table below presents the aggregate notional principal amounts of Citigroup's
outstanding derivative and foreign exchange contracts at June 30, 1999 and
December 31, 1998, along with the related balance sheet credit exposure.
Additional information concerning Citigroup's derivative and foreign exchange
products and activities, including a description of accounting policies, and
credit and market risk management process is provided in the 1998 Annual Report
and Form 10-K.
<TABLE>
<CAPTION>
Notional Balance Sheet
Principal Amounts Credit Exposure (1)(2)
----------------------------------------------------------------------
June 30, Dec. 31, June 30, Dec. 31,
In billions of dollars 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate products $5,359.3 $5,552.5 $11.8 $18.0
Foreign exchange products 1,844.2 2,222.1 8.5 11.8
Equity products 139.1 163.5 5.8 6.8
Commodity products 26.5 20.0 1.5 0.6
Credit derivative products 35.7 28.7 0.1 0.2
-----------------------------------
$27.7 $37.4
- --------------------------------------------------------------======================================================================
</TABLE>
(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) The balance sheet credit exposure reflects $69.5 billion and $90.0 billion
of master netting agreements in effect at June 30, 1999 and December 31,
1998, respectively. Master netting agreements mitigate credit risk by
permitting the offset of amounts due from and to individual counterparties
in the event of counterparty default. In addition, Citibank has
securitized and sold net receivables, and the associated credit risk
related to certain derivative and foreign exchange contracts via Markets
Assets Trust, which amounted to $2.2 billion and $2.7 billion at June 30,
1999 and December 31, 1998, respectively.
- --------------------------------------------------------------------------------
The tables below 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 the end of the second
quarter of 1999.
End-User Derivative Interest Rate and Foreign Exchange Contracts
<TABLE>
<CAPTION>
Notional Principal
Amounts Percentage of June 30, 1999 Amount Maturing
-----------------------------------------------------------------------------
June 30, Dec. 31, Within 1 to 2 to 3 to 4 to After
In billions of dollars 1999 1998 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate products
Futures contracts $ 23.0 $ 28.6 65% 24% 7% 3% 1% --%
Forward contracts 7.5 6.5 100 -- -- -- -- --
Swap agreements 120.1 113.7 34 14 10 10 10 22
Option contracts 8.7 9.9 65 1 13 -- 3 18
Foreign exchange products
Futures and forward contracts 58.3 68.2 95 4 1 -- -- --
Cross-currency swaps 7.0 4.8 18 12 19 19 17 15
- --------------------------------------------------------============================================================================
</TABLE>
44
<PAGE>
End-User Interest Rate Swaps and Net Purchased Options as of June 30, 1999
<TABLE>
<CAPTION>
Remaining Contracts Outstanding --
Notional Principal Amounts
----------------------------------------------------------
In billions of dollars 1999 2000 2001 2002 2003 2004
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive fixed swaps $78.1 $63.6 $52.9 $42.7 $32.3 $20.9
Weighted-average fixed rate 6.4% 6.4% 6.4% 6.4% 6.4% 6.7%
Pay fixed swaps 21.2 12.9 9.6 7.5 5.9 4.9
Weighted-average fixed rate 5.9% 6.1% 6.1% 6.2% 6.4% 6.5%
Basis swaps 20.8 3.1 0.6 0.5 0.5 0.5
Purchased caps (including collars) 2.5 -- -- -- -- --
Weighted-average cap rate purchased 6.8% --% --% --% --% --%
Purchased floors 3.5 0.7 0.7 0.1 0.1 0.1
Weighted-average floor rate purchased 5.8% 6.0% 6.0% 5.8% 5.8% 5.8%
Written floors related to purchased caps (collars) 0.2 -- -- -- -- --
Weighted-average floor rate written 8.2% --% --% --% --% --%
Written caps related to other purchased caps (1) 2.5 2.4 2.3 1.8 1.8 1.5
Weighted-average cap rate written 9.8% 9.8% 9.8% 10.6% 10.6% 10.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Three-month forward LIBOR rates (2) 5.4% 6.0% 6.4% 6.6% 6.7% 6.8%
- --------------------------------------------------------------------------==========================================================
</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
June 30, 1999, provided for reference.
- --------------------------------------------------------------------------------
10. Contingencies
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.
The reserves carried for environmental and asbestos claims at June 30, 1999 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.
In the ordinary course of business Citigroup and/or its subsidiaries are also
defendants or co-defendants in various litigation matters, other than those
described above. 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.
45
<PAGE>
FINANCIAL DATA SUPPLEMENT
Cash-Basis, Renegotiated, and Past Due Loans (1)
<TABLE>
<CAPTION>
June 30, Dec. 31, June 30,
In millions of dollars 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial cash-basis loans
Collateral dependent (at lower of cost or collateral value) (2) $ 214 $ 394 $ 193
Other 1,341 1,201 1,100
----------------------------------------------------
Total $1,555 $1,595 $1,293
- --------------------------------------------------------------------------------====================================================
Commercial cash-basis loans
In U.S. offices $ 265 $ 463 $ 216
In offices outside the U.S. 1,290 1,132 1,077
----------------------------------------------------
Total $1,555 $1,595 $1,293
- --------------------------------------------------------------------------------====================================================
Commercial renegotiated loans (in offices outside the U.S.) $50 $45 $45
- --------------------------------------------------------------------------------====================================================
Consumer loans on which accrual of interest had been suspended
In U.S. offices (3) $ 732 $ 825 $ 855
In offices outside the U.S. 1,527 1,458 1,176
----------------------------------------------------
Total $2,259 $2,283 $2,031
- --------------------------------------------------------------------------------====================================================
Accruing loans 90 or more days delinquent (4)
In U.S. offices (3) $ 598 $ 592 $ 593
In offices outside the U.S. 472 532 470
----------------------------------------------------
Total $1,070 $1,124 $1,063
- --------------------------------------------------------------------------------====================================================
</TABLE>
(1) For a discussion of risks in the consumer loan portfolio, see pages 4-17,
and of commercial cash-basis loans, see pages 20-21.
(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 $12 million, $10 million, and $10 million of consumer loans on
which accrual of interest had been suspended and $26 million, $30 million,
and $32 million of accruing loans 90 or more days delinquent related to
loans held for sale at June 30, 1999, December 31, 1998, and June 30,
1998, respectively.
(4) Substantially all consumer loans, of which $284 million, $267 million, and
$247 million are government-guaranteed student loans at June 30, 1999,
December 31, 1998, and June 30, 1998, respectively.
- --------------------------------------------------------------------------------
Other Real Estate Owned and Assets Pending Disposition
<TABLE>
<CAPTION>
June 30, Dec. 31, June 30,
In millions of dollars 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer (1) $213 $254 $199
Commercial (1) 634 496 539
----------------------------------------------------
Total $847 $750 $738
- ------------------------------------------------------------------------------------------------------------------------------------
Assets pending disposition (2) $89 $100 $104
- --------------------------------------------------------------------------------====================================================
</TABLE>
(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.
- --------------------------------------------------------------------------------
46
<PAGE>
Details of Credit Loss Experience
<TABLE>
<CAPTION>
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
In millions of dollars 1999 1999 1998 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for credit losses
at beginning of period $6,662 $6,617 $6,604 $6,529 $6,159
---------------------------------------------------------------------------------------
Provision for credit losses 790 729 674 826 656
Gross credit losses
Consumer
In U.S. offices 440 391 421 424 470
In offices outside the U.S. 332 304 294 262 246
Commercial
In U.S. offices 2 1 10 56 1
In offices outside the U.S. 132 130 128 216 81
---------------------------------------------------------------------------------------
906 826 853 958 798
---------------------------------------------------------------------------------------
Credit recoveries
Consumer
In U.S. offices 70 55 50 60 66
In offices outside the U.S. 70 63 79 69 61
Commercial
In U.S. offices 3 2 17 26 50
In offices outside the U.S. 21 18 30 14 4
---------------------------------------------------------------------------------------
164 138 176 169 181
---------------------------------------------------------------------------------------
Net credit losses
In U.S. offices 369 335 364 394 355
In offices outside the U.S. 373 353 313 395 262
---------------------------------------------------------------------------------------
742 688 677 789 617
---------------------------------------------------------------------------------------
Other -- net (1) 33 4 16 38 331
---------------------------------------------------------------------------------------
Allowance for credit losses at end of period $6,743 $6,662 $6,617 $6,604 $6,529
- ---------------------------------------------=======================================================================================
Net consumer credit losses $ 632 $ 577 $ 586 $ 557 $ 589
As a percentage of average consumer loans 1.89% 1.78% 1.80% 1.80% 1.93%
- ------------------------------------------------------------------------------------------------------------------------------------
Net commercial credit losses $ 110 $ 111 $ 91 $ 232 $ 28
As a percentage of average commercial loans 0.48% 0.46% 0.39% 1.07% 0.13%
- ---------------------------------------------=======================================================================================
</TABLE>
(1) Primarily includes foreign currency translation effects and the addition
of allowance for credit losses related to acquisitions. In the second
quarter of 1998, reflects the addition of a $320 million allowance for
credit losses related to the acquisition of the Universal Card portfolio.
- --------------------------------------------------------------------------------
47
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Information concerning all matters voted on by stockholders at Citigroup's
Annual Meeting of Stockholders held on April 20, 1999 is incorporated
herein by reference to Item 4 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K.
On April 20, 1999, the Company filed a Current Report on Form 8-K, dated April
19, 1999, reporting under Item 5 thereof the results of its operations for the
quarter ended March 31, 1999, and certain other selected financial data.
On May 10, 1999, the Company filed a Current Report on Form 8-K, dated May 6,
1999, filing an exhibit under Item 7 thereof relating to the offer and sale of
the Company's Medium Term Notes, Series A, due nine months or more from date of
issue.
No other reports on Form 8-K were filed during the second quarter of 1999;
however, on July 20, 1999, the Company filed a Current Report on Form 8-K, dated
July 19, 1999, reporting under Item 5 thereof the results of its operations for
the quarter ended June 30, 1999, and certain other selected financial data.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 12th day of August, 1999.
CITIGROUP INC.
(Registrant)
By /s/ Heidi G. Miller
-------------------------------
Heidi G. Miller
Chief Financial Officer
Principal Financial Officer
By /s/ Irwin R. Ettinger By /s/ Roger W. Trupin
--------------------------------- -------------------------------
Irwin R. Ettinger Roger W. Trupin
Principal Accounting Officer Principal Accounting Officer
49
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
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 Citigroup 1999 Stock Incentive Plan (effective as of April 30,
1999), incorporated by reference to Annex A to the Company's
Proxy Statement dated March 8, 1999 (File No. 1-9924).
10.02 Citigroup 1999 Executive Performance Plan (effective as of
January 1, 1999), incorporated by reference to Annex B to the
Company's Proxy Statement dated March 8, 1999 (File No.
1-9924).
12.01 Computation of Ratio of Earnings to Fixed Charges.
12.02 Computation of Ratio of Earnings to Fixed Charges (including
preferred stock dividends).
27.01 Financial Data Schedule.
The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the Securities and Exchange Commission
upon request.
50
CITIGROUP, INC.
CALCULATION OF RATIO OF INCOME TO FIXED CHARGES
(In Millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
JUNE 30,
EXCLUDING INTEREST ON DEPOSITS: 1998 1997 1996 1995 1994 1999 1998
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
INTEREST EXPENSE (OTHER THAN
INTEREST ON DEPOSITS) 15,849 14,911 12,362 13,488 13,532 7,020 8,232
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302 162 145
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 16,243 15,212 12,644 13,763 13,834 7,182 8,377
------ ------ ------ ------ ------ ------ ------
INCOME:
INCOME BEFORE TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 9,269 10,750 11,087 8,914 5,656 7,887 7,050
OTHER -- -- 1 -- -- -- --
FIXED CHARGES 16,243 15,212 12,644 13,763 13,834 7,182 8,377
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 25,512 25,962 23,732 22,677 19,490 15,069 15,427
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 1.57 1.71 1.88 1.65 1.41 2.10 1.84
====== ====== ====== ====== ====== ====== ======
INCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE 27,495 24,524 21,336 22,390 22,528 12,507 13,637
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302 162 145
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 27,889 24,825 21,618 22,665 22,830 12,669 13,782
------ ------ ------ ------ ------ ------ ------
INCOME:
INCOME BEFORE TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 9,269 10,750 11,087 8,914 5,656 7,887 7,050
OTHER -- -- 1 -- -- -- --
FIXED CHARGES 27,889 24,825 21,618 22,665 22,830 12,669 13,782
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 37,158 35,575 32,706 31,579 28,486 20,556 20,832
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.33 1.43 1.51 1.39 1.25 1.62 1.51
====== ====== ====== ====== ====== ====== ======
</TABLE>
CITIGROUP, INC.
CALCULATION OF RATIO OF INCOME TO FIXED CHARGES
INCLUDING PREFERRED STOCK DIVIDENDS
(In Millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
JUNE 30,
EXCLUDING INTEREST ON DEPOSITS: 1998 1997 1996 1995 1994 1999 1998
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
INTEREST EXPENSE (OTHER THAN
INTEREST ON DEPOSITS) 15,849 14,911 12,362 13,488 13,532 7,020 8,232
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302 162 145
DIVIDENDS--PREFERRED STOCK 332 433 505 800 704 121 188
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 16,575 15,645 13,149 14,563 14,538 7,303 8,565
------ ------ ------ ------ ------ ------ ------
INCOME:
INCOME BEFORE TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 9,269 10,750 11,087 8,914 5,656 7,887 7,050
OTHER -- -- 1 -- -- -- --
FIXED CHARGES (EXCLUDING PREFERRED
STOCK DIVIDENDS) 16,243 15,212 12,644 13,763 13,834 7,182 8,377
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 25,512 25,962 23,732 22,677 19,490 15,069 15,427
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS 1.54 1.66 1.80 1.56 1.34 2.06 1.80
====== ====== ====== ====== ====== ====== ======
INCLUDING INTEREST ON DEPOSITS:
FIXED CHARGES:
INTEREST EXPENSE 27,495 24,524 21,336 22,390 22,528 12,507 13,637
INTEREST FACTOR IN RENT EXPENSE 394 301 282 275 302 162 145
DIVIDENDS--PREFERRED STOCK 332 433 505 800 704 121 188
------ ------ ------ ------ ------ ------ ------
TOTAL FIXED CHARGES 28,221 25,258 22,123 23,465 23,534 12,790 13,970
------ ------ ------ ------ ------ ------ ------
INCOME:
INCOME BEFORE TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 9,269 10,750 11,087 8,914 5,656 7,887 7,050
OTHER -- -- 1 -- -- -- --
FIXED CHARGES (EXCLUDING PREFERRED
STOCK DIVIDENDS) 27,889 24,825 21,618 22,665 22,830 12,669 13,782
------ ------ ------ ------ ------ ------ ------
TOTAL INCOME 37,158 35,575 32,706 31,579 28,486 20,556 20,832
====== ====== ====== ====== ====== ====== ======
RATIO OF INCOME TO FIXED CHARGES
INCLUDING INTEREST ON DEPOSITS 1.32 1.41 1.48 1.35 1.21 1.61 1.49
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CITIGROUP'S
FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING DISCLOSURES.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,688
<INT-BEARING-DEPOSITS> 11,864
<FED-FUNDS-SOLD> 105,029<F1>
<TRADING-ASSETS> 111,484
<INVESTMENTS-HELD-FOR-SALE> 104,089
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 232,166
<ALLOWANCE> 6,743<F2>
<TOTAL-ASSETS> 689,600
<DEPOSITS> 244,390
<SHORT-TERM> 14,303<F3>
<LIABILITIES-OTHER> 39,358
<LONG-TERM> 49,030
4,920
2,113
<COMMON> 36<F4>
<OTHER-SE> 43,086<F4>
<TOTAL-LIABILITIES-AND-EQUITY> 689,600
<INTEREST-LOAN> 11,502
<INTEREST-INVEST> 0<F5>
<INTEREST-OTHER> 10,863
<INTEREST-TOTAL> 22,365
<INTEREST-DEPOSIT> 0<F5>
<INTEREST-EXPENSE> 12,507
<INTEREST-INCOME-NET> 9,858
<LOAN-LOSSES> 1,519
<SECURITIES-GAINS> 241
<EXPENSE-OTHER> 5,931
<INCOME-PRETAX> 7,887
<INCOME-PRE-EXTRAORDINARY> 4,937
<EXTRAORDINARY> 0
<CHANGES> (127)<F6>
<NET-INCOME> 4,810
<EPS-BASIC> 1.42<F4><F7>
<EPS-DILUTED> 1.38<F4>
<YIELD-ACTUAL> 0<F5>
<LOANS-NON> 3,814<F8>
<LOANS-PAST> 1,070<F9>
<LOANS-TROUBLED> 50
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,617
<CHARGE-OFFS> 1,732
<RECOVERIES> 302
<ALLOWANCE-CLOSE> 6,743<F2>
<ALLOWANCE-DOMESTIC> 0<F10>
<ALLOWANCE-FOREIGN> 0<F11>
<ALLOWANCE-UNALLOCATED> 0<F11>
<FN>
<F1> Includes securities borrowed or purchased under agreements to resell.
<F2> Allowance activity for the six months of 1999 includes $37MM in other
changes, principally foreign currency translation effects.
<F3> Commercial paper and other short-term borrowings.
<F4> The Board of Directors declared a three-for-two split in Citigroup's
common stock, effective May 28, 1999. Current and prior year information
have been restated to reflect the stock split.
<F5> Not disclosed.
<F6> First quarter 1999 accounting changes include the adoption of Statement of
Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" of $(135) million; SOP 98-7, "Deposit
Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk" of $23 million; and SOP 98-5, "Reporting on the
Costs of Start-Up Activities" of $(15) million.
<F7> Primary EPS represents Basic EPS under Financial Accounting Standards No.
128, "Earnings per Share".
<F8> Includes $1,555MM of cash-basis commercial loans and $2,259MM of consumer
loans on which accrual of interest has been suspended.
<F9> Accruing loans 90 or more days delinquent.
<F10> No portion of Citigroup's credit loss allowance is specifically allocated
to any individual loan or group of loans.
<F11> See Footnote F10 above.
</FN>
</TABLE>
