Citibank 2008 Annual Report Download - page 19

In addition to the sale, Citigroup signed an agreement with TCS for TCS
to provide, through CGSL, process outsourcing services to Citigroup and its
affiliates in an aggregate amount of $2.5 billion over a period of 9.5 years.
Sale of Citigroup Technology Services Limited
On December 23, 2008, Citigroup announced an agreement with Wipro
Limited to sell all of Citigroup’s interest in Citi Technology Services Ltd.,
Citigroup’s India-based captive provider of technology infrastructure support
and application development, for all-cash consideration of approximately
$127 million. A substantial portion of the proceeds from this sale will be
recognized over the period in which Citi has a service contract with Wipro
Limited. This transaction closed on January 20, 2009 and a loss of
approximately $7 million was booked at that time.
Sale of Citi’s Nikko Citi Trust and Banking Corporation
Citigroup has executed a definitive agreement to sell all of the shares of
Nikko Citi Trust and Banking Corporation to Mitsubishi UFJ Trust and
Banking Corporation (MUTB). At the closing, MUTB will pay all-cash
consideration of 25 billion yen, subject to certain purchase price
adjustments. The sale is expected to close on or around April 1, 2009,
pending regulatory approvals and other closing conditions, and result in an
estimated after-tax gain of $53 million ($89 million pretax).
OTHER ITEMS
Auction Rate Securities Settlement
On August 7, 2008, Citigroup announced an agreement in principle with
state and federal regulators under which it agreed to offer to purchase the
failed ARS of its retail clients for par value. This agreement resulted in a
$926 million loss being recorded in 2008.
The loss comprises: (1) fines of $100 million ($50 million to the State of
New York and $50 million to the other state regulatory agencies); (2) losses
of $425 million, recorded at the time of the announcement, reflecting the
estimated difference between the fair value and par value of the securities to
be purchased; and (3) an incremental loss of $401 million due to the decline
in value of these ARS since the time of announcement. The securities
purchased by Citigroup under this agreement have a notional value of $6.1
billion. The purchase commitment for the remaining undelivered securities
is estimated to be approximately $1.0 billion as of December 31, 2008. The
pretax losses of $926 million have been divided equally between S&B and
GWM, both in North America.
Income Taxes
The Company recorded an income tax benefit for 2008. The Company’s
effective tax rate (benefit) on continuing operations was (38.9)% in 2008.
The 2008 effective tax rate is higher than 35% because of the impact of
indefinitely invested international earnings and other permanent differences
on the pretax loss. The 2008 tax rate included a $994 million tax benefit
related to the restructuring of the legal vehicles in Japan.
Sale of Redecard Shares
In the first quarter of 2008, Citigroup sold approximately 46.8 million
Redecard shares, which decreased Citigroup’s ownership in Redecard from
approximately 23.9% to approximately 17%. An after-tax gain of $426
million ($661 million pretax) was recorded in the Global Cards business in
Latin America.
Lehman Brothers Holding, Inc. Bankruptcy and Related
Matters
On September 15, 2008, Lehman Brothers Holding, Inc. (“LBHI” and,
together with its subsidiaries, “Lehman”) filed for Chapter 11 bankruptcy in
U.S. Federal Court. A number of LBHI subsidiaries have subsequently filed
bankruptcy or similar insolvency proceedings in the U.S. and other
jurisdictions. Lehman’s bankruptcy caused Citigroup to terminate cash
management and foreign exchange clearance arrangements, close out
approximately 40,000 Lehman foreign exchange, derivative and other
transactions and quantify other exposures. Citigroup expects to file claims in
the relevant Lehman bankruptcy proceedings, as appropriate.
Visa Restructuring and Litigation Matters
During 2008, Citigroup recorded a $723 million increase to pretax income
resulting from events surrounding Visa. These events included: (i) a $359
million gain on the redemption of Visa shares primarily recorded in U.S.
Consumer; (ii) a $108 million gain from an adjustment of the regional
share allocation related to the fourth quarter 2007 Visa reorganization,
primarily recorded in International Consumer; (iii) a $157 million
reduction of litigation reserves that were originally booked in the fourth
quarter of 2007 primarily in U.S. Consumer; and (iv) a gain on the sale of
Visa shares of $99 million.
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