Citigroup Inc. (C)

October 20, 2011 10:00 am ET


Ilene Fiszel Bieler -

Eric W. Aboaf - Treasurer

John C. Gerspach - Chief Financial Officer


Barry Cohen - Merrill Lynch

Ryan O'Connell -

Mark Kehoe - Goldman Sachs

Michael Rogers - Conning Asset Management

Unknown Analyst -

Robert Smalley



Hello, and welcome to Citi's Fixed Income Investor Review with Chief Financial Officer, John Gerspach; and Treasurer, Eric Aboaf. Today's call will be hosted by Ilene Fiszel Bieler, Head of Fixed Income Investor Relations. [Operator Instructions] Also as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Ms. Fiszel Bieler, you may begin your conference.

Ilene Fiszel Bieler

Thank you, operator. Good morning, and thank you all for joining us. In our call today, our CFO, John Gerspach, will speak first. Then Eric Aboaf, our Treasurer will take you through the fixed income investor presentation, which is available for download on our website, Afterwards, we will be happy to take questions.

Before we get started, I would like to remind you that today's presentation may contain forward-looking statements that are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results and capital and other financial condition may differ materially from these statements due to a variety of factors, including the precautionary statements referenced in our discussion today and those included in our SEC filings, including without limitation, the risk factors section of our 2010 Form 10-K.

With that said, let me turn it over to John.

John C. Gerspach

Thank you, Ilene, and good morning, everyone. We're very pleased to be hosting our Fixed Income Investor Review this quarter. Last quarter, we discussed some of our key accomplishments, particularly our strong capital position, robust structure liquidity and disciplined balance sheet management.

Today, we're going to update you on our continued execution and progress in those areas. Eric Aboaf, our Treasurer, is going to take you through some specifics on credit fundamentals, balance sheet progress, our liquidity profile, our capital position, as well as provide a review of our recent issuance activity and our current funding plan for the current year.

Many of you may have joined us for Monday's earnings call, and there are some key points from that call that I would like to reemphasize to start us off here on Slide 1. We announced net income of $3.8 billion or $1.23 per share for the third quarter. When you exclude CVA and focus on our operating results, we earned $2.6 billion or $0.84 per share. These are solid results, particularly in a macro environment in which economic and political uncertainty created a lot of market volatility.

Over the past few years, we have methodically positioned Citi for the trends and opportunities we see in the world. We built substantial financial strength, de-risked our balance sheet and reoriented our business back to what we do best and what's been Citi's DNA, being a uniquely global bank, focused on capital flows and global trade with a particular focus on the emerging markets.

I believe that Citi's performance during this quarter shows the significant progress that we have made in improving our risk management. We've completely revamped our risk profile, risk approach, and most importantly, our risk culture. We put in place robust practices in the businesses and regions to integrate risk analysis into decision-making. More than 18 months ago, we recognized a potential for Greece's sovereign debt issues to impact other countries in the Eurozone. Since then, we have reduced our exposures where needed while continuing to serve our clients diligently.

As you will see, we have continued to closely manage our trading and excess portfolios in the GIIPS, France and Belgium. And currently have no material net exposure to sovereign debt securities in those countries. Eric will go into further detail on our enhanced risk management and update you on our European exposures later during the call.

We continue to be very transparent about our U.S. mortgage exposure. We have a smaller owned mortgage portfolio than any peer. Because of our aggressive risk mitigation efforts, which include selling mortgages, our portfolio has shrunk faster than any peer. And in a period of uncertainty, we believe that we hold the largest reserves against that portfolio. We have the smallest servicing portfolio and the smallest securitization portfolio of any peer. While we continue to focus on the risk of the mortgage portfolio, particularly if the economy were to weaken, we feel very good about all the steps we've taken and how we are positioned today.

Regarding Citi Holdings, we decided to move the vast majority of our Retail Partner Card business to Citicorp. We've made a lot of progress in strengthening this portfolio, including shredding -- shedding some assets and re-underwriting the portfolio to much higher credit standards. The portfolio is now 2/3 of its size at its peak with an average balance weighted FICO of more than 700.

As importantly, the credit card business and the availability of credit have changed since the enactment of the CARD Act. Consumer behavior has also changed. As branded cards carry smaller open lines, consumers would rather use retail cards to preserve and protect their open lines of credit with banks. With this transfer, pro forma holdings assets would total about $250 billion or 13% of Citi's balance sheet. Although we continue to analyze the holdings portfolio, we don't expect any other transfers of this magnitude, and our goal is to get holdings below 10% of the balance sheet in the near future.

Next, Citi has built unquestionable financial strength over the past several years. At the end of the third quarter, our Tier 1 common ratio was 11.7%, and we had approximately $145 billion in tangible common equity. Almost 25% of our balance sheet is cash or liquid securities. We have enough liquidity that we could operate without issuing long-term debt for a couple of years, although we still plan to participate in the debt markets.

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