Citibank 2011 Annual Report Download - page 29

7
Expenses
Citigroup expenses were $50.9 billion in 2011, up $3.6 billion, or 8%,
compared to 2010. Over two-thirds of this increase resulted from higher legal
and related costs (approximately $1.5 billion) and higher repositioning
charges (approximately $200 million, including severance) as compared to
2010, as well as the impact of FX translation (approximately $800 million).
Excluding these items, expenses were up $1.0 billion, or 2%, compared to the
prior year.
Investment spending was $3.9 billion higher in 2011, of which
roughly half was funded with efficiency savings, primarily in operations
and technology, labor reengineering and business support functions
(e.g., call centers and collections) of $1.9 billion. The $3.9 billion
increase in investment spending in 2011 included higher investments
in Global Consumer Banking ($1.6 billion, including incremental
cards marketing campaigns and new branch openings), Securities
and Banking (approximately $800 million, including new hires and
technology investments) and Transaction Services (approximately $600
million, including new mandates and platform enhancements), as well as
additional firm-wide initiatives and investments to comply with regulatory
requirements. All other expense increases, including higher volume-
related costs in Citicorp, were more than offset by a decline in Citi Holdings
expenses. While Citi will continue some level of incremental investment
spending in its businesses going forward, Citi currently believes these
increases in investments will be self-funded through ongoing reengineering
and efficiency savings. Accordingly, Citi believes that the increased level of
investment spending incurred during the latter part of 2010 and 2011 was
largely completed by year end 2011.
Citicorp expenses were $39.6 billion in 2011, up $3.5 billion, or 10%,
compared to 2010. Over one-third of this increase resulted from higher legal
and related costs and higher repositioning charges (including severance) as
compared to 2010, as well as the impact of FX translation. The remainder
of the increase was primarily driven by investment spending (as described
above), partially offset by ongoing productivity savings and other expense
reductions.
Citi Holdings expenses were $8.8 billion in 2011, down $824 million,
or 9%, principally due to the continued decline in assets, partially offset by
higher legal and related costs.
Credit Costs
Credit trends for Citigroup continued to improve in 2011, particularly for
Citi’s North America Citi-branded and retail partner cards businesses, as well
as its North America mortgage portfolios in Citi Holdings, although the pace
of improvement in these businesses slowed. Citi’s total provisions for credit
losses and for benefits and claims of $12.8 billion declined $13.2 billion, or
51%, from 2010. Net credit losses of $20.0 billion in 2011 were down $10.8
billion, or 35%, reflecting improvement in both Consumer and Corporate
credit trends. Consumer net credit losses declined $10.0 billion, or 35%, to
$18.4 billion, driven by continued improvement in credit in North America
Citi-branded cards and retail partner cards and North America real estate
lending in Citi Holdings. Corporate net credit losses decreased $810 million,
or 33%, to $1.6 billion, as credit quality continued to improve in the
Corporate portfolio.
The net release of allowance for loan losses and unfunded lending
commitments was $8.2 billion in 2011, compared to a net release of
$5.8 billion in 2010. Of the $8.2 billion net reserve release in 2011, $5.9
billion related to Consumer and was mainly driven by North America Citi-
branded cards and retail partner cards. The $2.3 billion net Corporate reserve
release reflected continued improvement in Corporate credit trends, partially
offset by loan growth.
More than half of the net credit reserve release in 2011, or $4.8 billion,
was attributable to Citi Holdings. The $3.5 billion net credit release in
Citicorp increased from $2.2 billion in the prior year, as a higher net release
in Citi-branded cards in North America was partially offset by lower net
releases in international Regional Consumer Banking and the Corporate
portfolio, each driven by loan growth.