Citibank 2008 Annual Report Download - page 20

Write-Down of Intangible Asset Related to Old Lane
As a result of Old Lane Partners, L.P. and Old Lane Partners GP, LLC
notifying their investors that they would have the opportunity to redeem their
investments in the hedge fund, without restriction effective July 31, 2008, ICG
recorded a pretax write-down of $202 million on intangible assets related to
this multi-strategy hedge fund during the first quarter of 2008. By April 2008,
substantially all unaffiliated investors had notified Old Lane of their
intention to redeem their investments. See Note 19 on page 166 for
additional information.
Write-Down of Intangible Asset Related to Nikko Asset
Management
During the fourth quarter of 2008, Citigroup performed an impairment
analysis of Japan’s Nikko Asset Management fund contracts which represent
the rights to manage and collect fees on investor assets and are accounted for
as indefinite-lived intangible assets. As a result, an impairment loss of $937
million pretax ($607 million after-tax) was recorded in ICG.
Nikko Cordial
Citigroup began consolidating Nikko Cordial’s financial results and the
related minority interest on May 9, 2007, when Nikko Cordial became a
61%-owned subsidiary. Later in 2007, Citigroup increased its ownership stake
in Nikko Cordial to approximately 68%. Nikko Cordial results are included in
Citigroup’s Securities and Banking and Global Wealth Management
businesses.
On January 29, 2008, Citigroup completed the acquisition of the
remaining Nikko Cordial shares that it did not already own by issuing
175 million Citigroup common shares (approximately $4.4 billion based on
the exchange terms) in exchange for those remaining Nikko Cordial shares.
The share exchange was completed following the listing of Citigroup’s
common shares on the Tokyo Stock Exchange on November 5, 2007.
Transaction with Banco de Chile
In 2007, Citigroup and Quiñenco entered into a definitive agreement to
establish a strategic partnership that combines Citigroup operations in Chile
with Banco de Chile’s local banking franchise to create a banking and
financial services institution with approximately 20% market share of the
Chilean banking industry. The transaction closed on January 1, 2008.
Under the agreement, Citigroup sold its Chilean operations and other
assets in exchange for an approximate 32.96% stake in LQIF, a wholly owned
subsidiary of Quiñenco that controls Banco de Chile. This investment is
accounted for under the equity method of accounting. As part of the overall
transaction, Citigroup also acquired the U.S. branches of Banco de Chile for
approximately $130 million. The new partnership calls for active
participation by Citigroup in the management of Banco de Chile including
board representation at both LQIF and Banco de Chile. In addition, as part of
the definitive agreement, Citigroup and Quiñenco agreed on certain
transactions that could increase Citigroup’s stake in LQIF to approximately
50%. Specifically, Quiñenco has a put that would require Citigroup to buy an
additional approximately 8.5% stake in LQIF. Citigroup has a call on, or the
option to buy, this increased ownership percentage as well. Further,
Citigroup has an option to buy an additional approximately 8.5% in LQIF,
resulting in a potential 50% ownership stake in LQIF. Each of these potential
additional acquisitions will be exercisable in 2010.
SUBSEQUENT EVENT
Joint Venture with Morgan Stanley
On January 13, 2009, Citigroup reached a definitive agreement to sell its
Smith Barney business, which includes Smith Barney in the U.S., Smith
Barney in Australia and Quilter in the U.K., to a joint venture to be formed
with Morgan Stanley in exchange for a 49% stake in the joint venture and an
upfront cash payment of $2.7 billion from Morgan Stanley. The joint
venture, to be called Morgan Stanley Smith Barney, will combine the sold
businesses with Morgan Stanley’s Global Wealth Management Group. It will
not include Citi Private Bank, Nikko Cordial Securities or Citigroup’s bank
branch-based financial advisors.
The joint venture’s combined businesses have more than 20,000 financial
advisors, 1,000 offices, $1.7 trillion in client assets at December 31, 2008,
$14.9 billion in 2008 pro forma combined revenues, and $2.8 billion in 2008
pro forma combined pretax profit.
Upon closing, and following the cash payment of $2.7 billion from
Morgan Stanley to Citigroup, Morgan Stanley will own 51% and Citi will own
49% of the joint venture. Morgan Stanley and Citi will have various purchase
and sale rights for the joint venture, but Citi is expected to retain the full
amount of its stake at least through year three and to continue to own a
significant stake in the joint venture at least through year five.
The transaction, which is subject to and contingent upon regulatory
approvals and other customary closing conditions, is expected to close in the
third quarter of 2009. At closing, and based on current estimates of the fair
value of the joint venture, the Company estimates that it will recognize a
pretax gain of approximately $9.5 billion (approximately $5.8 billion after
tax) and will generate approximately $6.5 billion of tangible common
equity.
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