Citibank 2008 Annual Report Download - page 21

EVENTS IN 2007
CREDIT RESERVES
During 2007, the Company recorded a net build of $6.9 billion to its credit
reserves. The build consisted of $6.2 billion in Consumer ($5.0 billion in
North America Consumer and $1.2 billion in regions outside North
America), $562 million in ICG and $100 million in GWM.
The $5.0 billion build in North America Consumer reflected a weakening
of leading credit indicators including delinquencies on first and second
mortgages and deterioration in the housing market (approximately $3.0
billion), a downturn in other economic trends including unemployment and
GDP, as well as the impact of housing market deterioration, affecting all
other portfolios ($1.3 billion), and a change in the estimate of loan losses
inherent in the portfolio, but not yet visible in delinquency statistics
(approximately $700 million).
The $1.2 billion build in regions outside North America included a
change in estimate of loan losses inherent in the portfolio but not yet visible
in delinquency statistics (approximately $600 million), along with volume
growth and credit deterioration in certain countries. With the exception of
Mexico, Japan and India, the international consumer credit environment
remained generally stable.
The build of $562 million in ICG primarily reflected a slight weakening in
overall portfolio credit quality, as well as loan loss reserves for specific
counterparties. The loan loss reserves for specific counterparties include $327
million for subprime-related direct exposures.
INCOME TAXES
The Company recorded an income tax benefit for 2007. The effective tax rate
of (321.9)% primarily resulted from the pretax losses in the Company’s S&B
and North America Consumer Banking businesses (the U.S. is a higher tax
jurisdiction). In addition, the tax benefits of permanent differences,
including the tax benefit for not providing U.S. income taxes on the earnings
of certain foreign subsidiaries that are indefinitely invested, favorably
affected the Company’s effective tax rate.
STRUCTURED INVESTMENT VEHICLES (SIVs)
On December 13, 2007, Citigroup announced its decision to commit to
provide a support facility that would resolve uncertainties regarding senior
debt repayment facing the Citi-advised Structured Investment Vehicles
(SIVs). As a result of the Company’s commitment, which was not legally
required, Citigroup consolidated the assets and liabilities of the SIVs as of
December 31, 2007. This resulted in an increase of assets of $59 billion.
ACQUISITIONS
North America
Acquisition of ABN AMRO Mortgage Group
In 2007, Citigroup acquired ABN AMRO Mortgage Group (AAMG), a
subsidiary of LaSalle Bank Corporation and ABN AMRO Bank N.V. AAMG is a
national originator and servicer of prime residential mortgage loans. As part
of this acquisition, Citigroup purchased approximately $12 billion in assets,
including $3 billion of mortgage servicing rights, which resulted in the
addition of approximately 1.5 million servicing customers. Results for AAMG
are included in Citigroup’s North America Consumer Banking business
from March 1, 2007 forward.
Acquisition of Old Lane Partners, L.P.
In 2007, the Company completed the acquisition of Old Lane Partners, L.P.
and Old Lane Partners, GP, LLC (Old Lane). Old Lane was the manager of a
global, multi-strategy hedge fund and a private equity fund with total assets
under management and private equity commitments of approximately $4.5
billion. Results for Old Lane are included within ICG from July 2, 2007
forward.
Acquisition of BISYS
In 2007, the Company completed its acquisition of BISYS Group, Inc.
(BISYS) for $1.47 billion in cash. Citigroup completed the sale of the
Retirement and Insurance Services Divisions of BISYS, making the net cost of
the transaction to Citigroup approximately $800 million. Citigroup retained
the Fund Services and Alternative Investment services businesses of BISYS,
which provides administrative services for hedge funds, mutual funds and
private equity funds. Results for BISYS are included in Citigroup’s
Transaction Services business from August 1, 2007 forward.
Acquisition of Automated Trading Desk
In 2007, Citigroup completed its acquisition of Automated Trading Desk
(ATD), a leader in electronic market making and proprietary trading, for
approximately $680 million ($102.6 million in cash and approximately
11.17 million shares of Citigroup common stock). Results for ATD are
included in Citigroup’s Securities and Banking business from October 3,
2007 forward.
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