Citibank 2008 Annual Report Download - page 43

Total client assets, including assets under fee-based management,
increased $346 billion, or 24%, reflecting the inclusion of client assets from
the Nikko Cordial and Quilter acquisitions, as well as organic growth. Net
flows increased slightly compared to the prior year. Global Wealth
Management had 15,454 financial advisors/bankers as of December 31,
2007, compared with 13,694 as of December 31, 2006, driven by the Nikko
Cordial and Quilter acquisitions, as well as hiring in the Private Bank.
Operating expenses increased 23% primarily due to the impact of
acquisitions, higher variable compensation associated with the increase in
revenues, increased customer activity and charges related to headcount
reductions. Expense growth in 2007 was favorably affected by the absence of
the charge related to the initial adoption of SFAS 123(R) in the first quarter
of 2006.
Provision for loan losses increased $77 million in 2007, primarily driven
by portfolio growth and a reserve for specific non-performing loans in the
Private Bank.
Net income growth also reflected a $65 million APB 23 benefit in the
Private Bank in 2007 and the absence of a $47 million tax benefit resulting
from the resolution of 2006 Tax Audits.
OUTLOOK FOR 2009
During 2009, Citigroup’s businesses will continue to be negatively affected by
the levels of and volatility in the capital markets, the disruption in the
economic environment generally and credit costs, including the level of
interest rates, the credit environment and unemployment rates. See “Outlook
for 2009” on page 7 and “Risk Factors” on page 47.
As previously announced, the completion of the Morgan Stanley Smith
Barney joint venture is anticipated to occur in the third quarter of 2009. After
the expected completion of the joint venture transaction, which is subject to
and contingent upon regulatory approvals, a significant portion of the
earnings in the joint venture, of which Citigroup will share 49%, will be
derived from the profitability of the joint venture. Joint venture profitability
will be impacted by the ability of Smith Barney and Morgan Stanley to
execute the planned integration, as well as the overall market and economic
conditions, including further declines in client asset values.
In addition, Citigroup’s management and reporting realignment will
result in the restructuring of these businesses, effective for reporting purposes
in the second quarter of 2009, resulting in a focus on the Company’s core
assets within the businesses, such as the Private Bank, and continued efforts
to maximize the value of other assets, including Citi’s 49% stake in the
Morgan Stanley Smith Barney Joint Venture and the Company’s Nikko Asset
Management business.
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