-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
Dvg3tyIpAB3NfQyNO8PhktXMVfJh9k99hqPXol1M/yvtq1Vydh9yKa3GATiufrai
BnFQ0ImXDDUjHvg8JoMOkg==
<SEC-DOCUMENT>0000912057-01-007605.txt : 20010315
<SEC-HEADER>0000912057-01-007605.hdr.sgml : 20010315
ACCESSION NUMBER: 0000912057-01-007605
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 14
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010314
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CITIGROUP INC
CENTRAL INDEX KEY: 0000831001
STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021]
IRS NUMBER: 521568099
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-09924
FILM NUMBER: 1568303
BUSINESS ADDRESS:
STREET 1: 399 PARK AVENUE
CITY: NEW YORK
STATE: NY
ZIP: 10043
BUSINESS PHONE: 2125591000
MAIL ADDRESS:
STREET 1: 399 PARK AVENUE
CITY: NEW YORK
STATE: NY
ZIP: 10043
FORMER COMPANY:
FORMER CONFORMED NAME: TRAVELERS GROUP INC
DATE OF NAME CHANGE: 19950519
FORMER COMPANY:
FORMER CONFORMED NAME: TRAVELERS INC
DATE OF NAME CHANGE: 19940103
FORMER COMPANY:
FORMER CONFORMED NAME: PRIMERICA CORP /NEW/
DATE OF NAME CHANGE: 19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>a2040499z10-k405.txt
<DESCRIPTION>FORM 10-K405
<TEXT>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
<S> <C>
THE COMPANY............................ 1
Global Consumer...................... 1
Global Corporate and Investment
Bank............................... 2
Global Investment Management and
Private Banking.................... 3
Associates........................... 4
Investment Activities................ 5
Corporate/Other...................... 5
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL
DATA................................. 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................... 8
Results of Operations................ 10
GLOBAL CONSUMER........................ 13
Banking/Lending...................... 14
Citibanking North America.......... 14
Mortgage Banking................... 15
North America Cards................ 17
CitiFinancial...................... 18
Insurance............................ 19
Travelers Life and Annuity......... 19
Primerica Financial Services....... 21
Personal Lines..................... 22
International Consumer............... 24
Western Europe..................... 24
Japan.............................. 25
Asia............................... 26
Latin America...................... 27
Central & Eastern Europe, Middle
East & Africa.................... 28
e-Consumer........................... 29
Other Consumer....................... 30
Consumer Portfolio Review............ 30
Global Consumer Outlook.............. 32
GLOBAL CORPORATE AND INVESTMENT BANK... 36
Salomon Smith Barney and The Global
Relationship Bank.................. 37
Emerging Markets Corporate Banking... 39
Commercial Lines..................... 41
Commercial Portfolio Review.......... 48
Global Corporate and Investment Bank
Outlook............................ 50
GLOBAL INVESTMENT MANAGEMENT AND
PRIVATE BANKING...................... 52
Citigroup Asset Management........... 53
The Citigroup Private Bank........... 54
Global Investment Management and
Private Banking Outlook............ 55
ASSOCIATES............................. 56
Associates Outlook................... 58
INVESTMENT ACTIVITIES.................. 58
CORPORATE/OTHER........................ 59
FUTURE APPLICATION OF ACCOUNTING
STANDARDS............................ 59
FORWARD-LOOKING STATEMENTS............. 59
MANAGING GLOBAL RISK................... 60
The Credit Risk Management Process... 61
The Market Risk Management Process... 62
Management of Cross-Border Risk...... 66
LIQUIDITY AND CAPITAL RESOURCES........ 67
REPORT OF MANAGEMENT................... 76
INDEPENDENT AUDITORS' REPORT........... 77
CONSOLIDATED FINANCIAL STATEMENTS...... 78
Consolidated Statement of Income..... 78
Consolidated Statement of Financial
Position........................... 79
Consolidated Statement of Changes in
Stockholders' Equity............... 80
Consolidated Statement of Cash
Flows.............................. 81
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS........................... 82
FINANCIAL DATA SUPPLEMENT.............. 150
Average Balances and Interest Rates,
Taxable Equivalent Basis........... 150
Analysis of Changes in Net Interest
Revenue............................ 153
Ratios............................... 155
Foregone Interest Revenue on Loans... 155
Loan Maturities and Sensitivity to
Changes in Interest Rates.......... 156
Loans Outstanding.................... 157
Cash-Basis, Renegotiated, and Past
Due Loans.......................... 158
Other Real Estate Owned and Other
Repossessed Assets................. 159
Details of Credit Loss Experience.... 160
Average Deposit Liabilities in
Offices Outside the U.S............ 161
Maturity Profile of Time Deposits
($100,000 or more) in U.S.
Offices............................ 161
Short-Term and Other Borrowings...... 161
10-K CROSS-REFERENCE INDEX............. 175
CITIGROUP BOARD OF DIRECTORS........... 180
</TABLE>
i
<PAGE>
THE COMPANY
Citigroup Inc. (Citigroup and, together with its subsidiaries, the Company)
is a diversified financial holding company whose businesses provide a broad
range of financial services to consumer and corporate customers in over 100
countries and territories.
On November 30, 2000, Citigroup, completed its acquisition of Associates
First Capital Corporation (Associates) in a transaction accounted for as a
pooling of interests. The acquisition was consummated through a merger of a
subsidiary of Citigroup with and into Associates (with Associates as the
surviving corporation) pursuant to which each share of Associates common stock
became a right to receive .7334 of a share of Citigroup's common stock
(534.5 million shares). Subsequent to the acquisition, Associates was
contributed to and became a wholly owned subsidiary of Citicorp and Citicorp
issued a full and unconditional guarantee of the outstanding long-term debt
securities and commercial paper of Associates and Associates Corporation of
North America (ACONA), a subsidiary of Associates. Associates' and ACONA's debt
securities and commercial paper will no longer be separately rated.
On October 8, 1998, Citicorp merged with and into a newly formed, wholly
owned subsidiary of Travelers Group Inc. (TRV). Following the merger, TRV
changed its name to Citigroup Inc. (Citigroup). The merger was accounted for
under the pooling of interests method.
During April 2000, The Travelers Insurance Group Inc. (TIGI), an indirect
wholly owned subsidiary of the Company, completed a cash tender offer to
purchase all of the outstanding shares of Travelers Property Casualty Corp.
(TPC) not previously owned.
The Company's activities are conducted through Global Consumer, Global
Corporate and Investment Bank, Global Investment Management and Private Banking,
Associates, and Investment Activities.
GLOBAL CONSUMER
Global Consumer delivers a wide array of banking, lending, and investment
services, including the issuance of credit and charge cards, and personal
insurance products in 51 countries and territories. Global Consumer creates
products and platforms to meet the expanding needs of the world's growing middle
class.
CITIBANKING NORTH AMERICA delivers banking, lending, and investment services
to customers through Citibank's 367 branches and through electronic delivery
systems. Through its MORTGAGE BANKING unit, Global Consumer originates and
services mortgages and student loans for customers across the United States.
The NORTH AMERICA CARDS unit offers products such as
MasterCard-Registered Trademark-, VISA-Registered Trademark-, and Diners Club
across North America. As of December 31, 2000, the North America bankcards
business had 44 million accounts and $88 billion of managed receivables, which
represented approximately 17% of the U.S. credit card receivables market. New
accounts are primarily acquired through direct marketing efforts, over the
Internet, and through portfolio acquisitions.
The CITIFINANCIAL unit of Global Consumer provides community-based lending
services through its branch network system. As of December 31, 2000,
CitiFinancial maintained 1,270 loan offices in the U.S. and Canada. Loans to
consumers include real estate-secured loans, unsecured and partially secured
personal loans, and loans to finance consumer goods purchases.
The INSURANCE units of Global Consumer through Travelers Life and Annuity
offer individual annuity, group annuity, individual life insurance and corporate
owned life insurance (COLI). The individual products include fixed and variable
deferred annuities, payout annuities, and term and universal life insurance.
These products are primarily distributed through Citigroup businesses and a
1
<PAGE>
nationwide network of independent agents. The COLI product is a variable
universal life product distributed through independent specialty brokers. The
group annuity products offered include institutional pension products, including
guaranteed investment contracts, payout annuities, structured finance, and group
annuities to U.S. employer-sponsored retirement and savings plans through direct
sales and various intermediaries.
The business operations of Primerica Financial Services (Primerica) involve
the sale in North America of life insurance and other products manufactured by
its affiliates, including Smith Barney mutual funds, CitiFinancial mortgages and
personal loans and The Travelers Insurance Company (TIC) annuity products. The
Primerica sales force is composed of over 100,000 independent representatives. A
great majority of the sales force works on a part-time basis.
Through Travelers Property Casualty Corp. (TPC), Global Consumer writes
virtually all types of property and casualty insurance covering personal risks.
The Personal Lines unit of TPC had approximately 5.4 million policies in force
at December 31, 2000. The primary coverages are personal automobile and
homeowners insurance sold to individuals, and are distributed through
approximately 5,300 independent agencies located throughout the United States.
Personal Lines also uses alternative distribution channels, including sponsoring
organizations such as employee and affinity groups, and joint marketing
arrangements with other insurers, and are marketed through other Citigroup
businesses.
The INTERNATIONAL unit of Global Consumer provides full-service banking and
lending, including credit and charge cards, and investment services in the
developed markets of Western Europe and Japan, and in the emerging markets of
Asia, Latin America, and Central & Eastern Europe, Middle East & Africa, through
approximately 1,000 branches in 49 countries and territories. In these markets,
Global Consumer has approximately 12 million credit and charge card member
accounts.
E-CONSUMER is the business responsible for developing and implementing
Global Consumer's Internet financial services products and e-commerce solutions.
e-Consumer's mission is to build and deliver new forms of financial services
that meet the changing needs of customers and to facilitate all aspects of
e-commerce as it grows with the new digital economy. During 2000, e-Consumer
launched Citibank Online, an enhanced Internet banking service, C2it, a
person-to-anywhere (P2A) online payment system, and MyCiti, an online account
aggregation site, and entered into an online strategic alliance with America
Online.
GLOBAL CORPORATE AND INVESTMENT BANK
Global Corporate and Investment Bank provides corporations, governments,
institutions and investors in 100 countries and territories with a broad range
of financial products and services, including investment advice, financial
planning and retail brokerage services, banking and financial services and
commercial insurance products.
Global Corporate and Investment Bank, through SALOMON SMITH BARNEY (SSB),
delivers investment banking services that encompass a full range of global
capital market activities, including the underwriting and distribution of fixed
income and equity securities for United States and foreign corporations and for
state, local and other governmental and government-sponsored authorities. SSB
also provides capital raising, advisory, research and other brokerage services
to its customers, acts as a market-maker and executes securities and commodities
futures brokerage transactions on all major United States and international
exchanges on behalf of customers and for its own account. SSB trades for its own
account in various markets throughout the world and uses many different
strategies involving a broad spectrum of financial instruments and derivative
products. THE GLOBAL RELATIONSHIP BANK (GRB) provides banking and financial
services to large multinational companies. A dedicated relationship team serves
each parent company and its subsidiaries everywhere they operate. Product
offerings are determined by the demands of these sophisticated customers. Core
products include cash
2
<PAGE>
management, foreign exchange, structured products, derivatives, securities
custody, trade services and loan products.
On May 1, 2000, SSB completed the acquisition of the global investment
banking business and related assets of Schroders PLC, including all corporate
finance, financial markets and securities activities. The combined European
operations of SSB are now known as Schroder Salomon Smith Barney. During the
second quarter of 2000, GRB strengthened its position in the U.S. leasing market
through the purchase of Copelco, a prominent vendor leasing company.
Global Corporate and Investment Bank is a major participant in foreign
exchange and in the over-the-counter (OTC) market for derivative instruments
involving a wide range of products, including interest rate, equity and currency
swaps, caps and floors, options, warrants and other derivative products. It also
creates and sells various types of structured securities.
Citibank has a long-standing presence in emerging markets, which include all
locations outside North America, Western Europe and Japan. Citigroup's EMERGING
MARKETS CORPORATE BANKING (EM Corporate) business offers a wide array of banking
and financial services products and services that help multinational and local
companies fulfill their financial goals or needs. Citigroup's Embedded Bank and
Emerging Local Corporate strategies focus on its plans to gain market share in
selected emerging market countries and to establish Citibank as a local bank as
well as a leading international bank. Citibank typically enters a country to
serve global customers, providing them with cash management, trade services,
short-term loans and foreign-exchange services. Then, Citibank offers project
finance, fixed-income issuance and trading and, later, introduces securities
custody, loan syndications and derivatives services. Finally, as a brand image
is established and services for locally headquartered companies become
significant, consumer banking services may be offered.
In June 2000, EM Corporate completed the acquisition of a majority interest
in Bank Handlowy, Poland's largest corporate bank.
SSB investment bankers and GRB and Emerging Markets corporate relationship
managers also jointly market to their customers. SSB's investment banking
products are sold to corporate relationships in GRB and EM Corporate. In
addition, Citibank's capabilities in foreign exchange, lending and liquidity and
transaction services are sold to SSB's customers.
TPC's COMMERCIAL LINES unit offers a broad array of property and casualty
insurance and insurance-related services, which it distributes through
approximately 5,500 brokers and independent agencies located throughout the
United States. TPC is the third largest writer of commercial lines insurance in
the U.S. based on 1999 direct written premiums published by A.M. Best Company.
Commercial Lines is organized into four marketing and underwriting groups that
are designed to focus on a particular client base or industry segment to provide
products and services that specifically address customers' needs: National
Accounts, primarily serving large national corporations; Commercial Accounts,
serving mid-size businesses; Select Accounts, serving small businesses; and
Specialty Accounts, providing a variety of specialty coverages. Environmental,
asbestos and other cumulative injury claims are segregated from other claims and
are handled separately by TPC's Special Liability Group, a special unit staffed
by dedicated legal, claim, finance, and engineering professionals.
GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING
Global Investment Management and Private Banking is comprised of CITIGROUP
ASSET MANAGEMENT and THE CITIGROUP PRIVATE BANK. Citigroup Asset Management,
formerly known as the SSB Citi Asset Management Group and Global Retirement
Services, includes Smith Barney Asset Management, Salomon Brothers Asset
Management, and Citibank Asset Management along with the pension administration
businesses of Global Retirement Services. These businesses offer a broad range
of asset management products and services from global investment centers around
the world, including mutual
3
<PAGE>
funds, closed-end funds, managed accounts, unit investment trusts, variable
annuities, pension administration and personalized wealth management services to
institutional, high net worth and retail clients.
Clients include private and public retirement plans, endowments,
foundations, banks, central banks, insurance companies, other corporations,
government agencies and high net worth and other individuals. Client
relationships may be introduced through the cross marketing and distribution
channels within Citigroup, through Citigroup Asset Management's own sales force
or through independent sources.
The Citigroup Private Bank provides personalized wealth management services
for high net worth clients through more than 90 offices in 32 countries and
territories, generating fee and interest income from investment funds management
and customer trading activity, trust and fiduciary services, custody services
and banking and lending activities. Its Relationship Managers and Product
Specialists use their knowledge about their clients' individual needs and goals
to bring them an array of personal wealth management services.
ASSOCIATES
Associates, which provides finance, leasing, insurance and related services
to individual consumers and businesses in the United States and internationally,
is organized into five primary business units: U.S. credit card, U.S. consumer
branch, U.S. home equity, commercial and international finance.
Associates' U.S. credit card business offers private label retail credit
card and revolving programs (Private Label Cards) and VISA-Registered Trademark-
and MasterCard-Registered Trademark- retail bankcard credit card products
(Retail Bankcards) to customers throughout the United States. Various
credit-related and other insurance products are also provided, including credit
life, credit accident and health, accidental death and dismemberment,
involuntary unemployment and personal property insurance. In addition, the U.S.
credit card business provides emergency roadside assistance and auto club
services.
Associates' U.S. consumer finance business offers a variety of consumer
finance and insurance products and services to customers throughout the United
States. Finance products and services offered by this business include home
equity loans, personal loans, automobile financing and retail sales finance. In
addition, Associates, through certain subsidiaries and third parties, makes
available various credit-related and other insurance products to its U.S.
consumer finance customers, including credit life, credit accident and health,
involuntary unemployment, personal property insurance and other non-credit
products.
Associates' commercial business offers a variety of commercial finance and
insurance products to customers in the United States and Canada. Finance
products and services offered by this business in the United States and Canada
include retail and wholesale financing and leasing products and services for
heavy-duty (Class 8) and medium-duty (Classes 3 through 7) trucks and truck
trailers and construction, material handling and other industrial and
communications equipment. Associates engages in a number of other commercial
activities, including auto fleet leasing and fleet management services,
government guaranteed lending, employee relocation services, truck trailer
rental services, warehouse lending and public finance. Associates, through
certain subsidiaries and third parties, also makes available various
credit-related and other insurance products to its commercial segment customers
and other customers, including commercial auto and dealers' open lot physical
damage, credit life and motor truck cargo insurance, and commercial and public
auto liability insurance. Associates also offers specialty lines including
general liability, directors and officers and errors and omission insurance, and
personal lines including homeowner and recreational vehicle insurance.
Associates' international finance business offers a variety of consumer
finance products and services to customers in Japan, Canada, the United Kingdom,
Puerto Rico, Sweden, Hong Kong, Spain,
4
<PAGE>
India, Mexico, Taiwan, Ireland, the Philippines and Norway. Commercial financing
products are also offered in the United Kingdom, Hong Kong, Puerto Rico, France,
Mexico, Japan, India and Spain. Associates, through certain subsidiaries and
other third parties, also offers various credit-related and other insurance
products to its customers, including credit life, credit accident and health,
accidental death and dismemberment, involuntary unemployment and personal
property insurance. The characteristics of the international finance business'
customers are similar to those of their counterparts in the U.S. consumer
finance, U.S. credit card and commercial business.
INVESTMENT ACTIVITIES
The Company's Investment Activities segment consists primarily of its
venture capital activities, realized investment gains and losses related to
certain corporate and insurance related investments, and the results of certain
investments in countries that refinanced debt under the 1989 Brady Plan or plans
of a similar nature.
CORPORATE/OTHER
Corporate/Other includes net corporate treasury results, corporate staff and
other corporate expenses, certain intersegment eliminations, and the remainder
of Internet-related development activities (e-Citi) not allocated to the
individual businesses.
The periodic reports of Citicorp, Salomon Smith Barney Holdings Inc., TPC,
The Student Loan Corporation (STU), TIC, and Travelers Life and Annuity Company
(TLAC), subsidiaries of the Company that make filings pursuant to the Securities
Exchange Act of 1934, as amended (the Exchange Act), provide additional business
and financial information concerning those companies and their consolidated
subsidiaries.
The principal executive offices of the Company are located at 399 Park
Avenue, New York, New York 10043; telephone number 212-559-1000.
5
<PAGE>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
In Millions of Dollars, Except Per Share Amounts 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES.............................................. $111,826 $ 94,396 $ 85,925 $ 80,530 $ 72,192
Total revenues, net of interest expense..................... 75,188 65,722 55,233 53,231 48,400
Benefits, claims, and credit losses......................... 15,486 13,880 12,788 11,455 10,835
Operating expenses(2)....................................... 38,559 33,691 31,360 29,471 25,484
Income from continuing operations(2)........................ 13,519 11,370 6,950 7,682 7,900
Discontinued operations..................................... -- -- -- -- (334)
Cumulative effect of accounting changes(3).................. -- (127) -- -- --
-------- -------- -------- -------- --------
NET INCOME.................................................. $ 13,519 $ 11,243 $ 6,950 $ 7,682 $ 7,566
======== ======== ======== ======== ========
EARNINGS PER SHARE(4)
Basic earnings per share:
Income from continuing operations......................... $ 2.69 $ 2.26 $ 1.35 $ 1.48 $ 1.50
Net income................................................ 2.69 2.23 1.35 1.48 1.43
Diluted earnings per share:
Income from continuing operations......................... 2.62 2.19 1.31 1.42 1.44
Net income................................................ 2.62 2.17 1.31 1.42 1.38
Dividends declared per common share(4)(5)................... 0.520 0.405 0.277 0.200 0.150
-------- -------- -------- -------- --------
AT DECEMBER 31,
Total assets................................................ $902,210 $795,584 $740,336 $755,167 $675,738
Total deposits.............................................. 300,586 261,573 229,413 199,867 185,516
Long-term debt.............................................. 111,778 88,481 86,250 75,605 67,266
Mandatorily redeemable securities of subsidiary trusts...... 4,920 4,920 4,320 2,995 2,545
Redeemable preferred stock.................................. -- -- 140 280 420
Common stockholders' equity................................. 64,461 56,395 48,761 44,610 40,529
Total stockholders' equity.................................. 66,206 58,290 51,035 47,956 43,732
-------- -------- -------- -------- --------
Ratio of earnings to fixed charges and preferred stock
dividends................................................. 1.56X 1.61x 1.34x 1.42x 1.49x
Return on average common stockholders' equity(6)............ 22.4% 21.5% 14.4% 17.5% 19.1%
Common stockholders' equity to assets....................... 7.14% 7.09% 6.59% 5.91% 6.00%
Total stockholders' equity to assets........................ 7.34% 7.33% 6.89% 6.35% 6.47%
======== ======== ======== ======== ========
INCOME ANALYSIS(7)
Total revenues, net of interest expense..................... $ 75,188 $ 65,722 $ 55,233 $ 53,231 $ 48,400
Effect of securitization activities......................... 2,459 2,707 2,364 1,734 1,395
Associates Housing Finance charge(8)........................ 47 -- -- -- --
-------- -------- -------- -------- --------
ADJUSTED REVENUES, NET OF INTEREST EXPENSE.................. 77,694 68,429 57,597 54,965 49,795
-------- -------- -------- -------- --------
ADJUSTED OPERATING EXPENSES(9).............................. 37,775 33,744 30,565 27,753 25,498
-------- -------- -------- -------- --------
Benefits, claims, and credit losses......................... 15,486 13,880 12,788 11,455 10,835
Effect of securitization activities......................... 2,459 2,707 2,364 1,734 1,395
Associates Housing Finance charge(8)........................ (40) -- -- -- --
Acquisition-related costs................................... -- -- -- -- (541)
-------- -------- -------- -------- --------
ADJUSTED BENEFITS, CLAIMS, AND CREDIT COSTS................. 17,905 16,587 15,152 13,189 11,689
-------- -------- -------- -------- --------
Restructuring-related items and merger-related costs........ (759) 53 (795) (1,718) --
Associates Housing Finance charge(8)........................ (112) -- -- -- --
Acquisition-related costs................................... -- -- -- -- (650)
Operating loss from discontinued operations................. -- -- -- -- 123
Gain on sale of stock by subsidiary......................... -- -- -- -- 363
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND MINORITY
INTEREST.................................................. 21,143 18,151 11,085 12,305 12,444
-------- -------- -------- -------- --------
Provision for income taxes.................................. 7,525 6,530 3,907 4,411 4,497
Minority interest, net of income taxes...................... 99 251 228 212 47
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................... 13,519 11,370 6,950 7,682 7,900
Discontinued operations, net of tax......................... -- -- -- -- (334)
Cumulative effect of accounting changes(3).................. -- (127) -- -- --
-------- -------- -------- -------- --------
NET INCOME.................................................. $ 13,519 $ 11,243 $ 6,950 $ 7,682 $ 7,566
======== ======== ======== ======== ========
</TABLE>
- ------------------------------
(1) All periods have been restated to reflect the acquisition of Associates on
November 30, 2000. See Note 2 of Notes to Consolidated Financial Statements.
(2) The years ended December 31, 2000, 1999, 1998 and 1997 include net
restructuring-related items (and in 2000 and 1998 merger-related costs) of
$759 million ($550 million after-tax), ($53) million (($25) million
after-tax), $795 million ($535 million after-tax) and $1,718 million
($1,046 million after-tax), respectively. See Note 15 of Notes to
Consolidated Financial Statements.
6
<PAGE>
(3) Accounting changes include the adoption of Statement of Position (SOP) 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments" of ($135) million; SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk"
of $23 million; and SOP 98-5, "Reporting on the Costs of Start-Up
Activities" of ($15) million. See Note 1 of Notes to Consolidated Financial
Statements.
(4) All amounts have been adjusted to reflect stock splits.
(5) Amounts represent Citigroup's historical dividends per common share.
(6) The return on average common stockholders' equity is calculated using net
income after deducting preferred stock dividend requirements.
(7) The income analysis reconciles amounts shown in the Consolidated Statement
of Income on page 78 to the basis presented in the Management's Discussion
and Analysis of Financial Condition and Results of Operations section.
(8) In January 2000, Associates discontinued the loan origination operations of
its Housing Finance unit.
(9) Excludes restructuring-related items and merger-related costs,
discontinuation of Associates Housing Finance loan originations in 2000, and
in 1996, operating loss from discontinued operations and acquisition-related
costs.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACQUISITION OF ASSOCIATES
On November 30, 2000, Citigroup completed its acquisition of Associates. The
consolidated financial statements give retroactive effect to the acquisition in
a transaction accounted for as a pooling of interests, with all periods
presented as if Citigroup and Associates had always been combined. Certain
reclassifications and adjustments have been recorded to conform the accounting
policies and presentations of Citigroup and Associates.
MANAGED BASIS REPORTING
The discussion that follows includes amounts reported in the historical
financial statements (owned basis) adjusted to include certain effects of
securitization activity, receivables held for securitization, and receivables
sold with servicing retained (managed basis). On an owned basis, for securitized
receivables, amounts that would otherwise be reported as net interest revenue,
as fee and commission revenue, and as credit losses on loans are instead
reported as fee and commission revenue (for servicing fees) and as other revenue
(for the remaining cash flows to which Citigroup is entitled, which are net of
credit losses). Because credit losses are a component of these cash flows,
Citigroup's revenues over the terms of these transactions may vary depending
upon the credit performance of the securitized receivables. However, Citigroup's
exposure to credit losses on the securitized receivables is contractually
limited to these cash flows. Additionally, the net earnings on retained
securitization interests and receivables held for securitization, as well as
gains from subsequent sales in revolving securitization structures are included
in fees and commissions in the consolidated statement of income. On a managed
basis, these earnings are reclassified and presented as if the receivables had
neither been held for securitization nor sold.
8
<PAGE>
BUSINESS FOCUS
The table below shows the core income (loss) for each of Citigroup's
businesses for the three years ended December 31:
<TABLE>
<CAPTION>
In Millions of Dollars, Except Per Share Data 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
GLOBAL CONSUMER
Citibanking North America................................... $ 566 $ 398 $ 114
Mortgage Banking............................................ 272 225 206
North America Cards......................................... 1,381 1,182 806
CitiFinancial............................................... 481 388 221
------- ------- ------
Total Banking/Lending..................................... 2,700 2,193 1,347
------- ------- ------
Travelers Life and Annuity.................................. 777 623 493
Primerica Financial Services................................ 492 452 400
Personal Lines.............................................. 311 279 319
------- ------- ------
Total Insurance........................................... 1,580 1,354 1,212
------- ------- ------
Western Europe.............................................. 345 275 211
Japan....................................................... 139 87 66
Asia...................................................... 563 356 317
Latin America............................................. 208 222 149
Central & Eastern Europe, Middle East and Africa.......... 59 46 18
------- ------- ------
Total Emerging Markets Consumer Banking................... 830 624 484
------- ------- ------
Total International....................................... 1,314 986 761
------- ------- ------
e-Consumer.................................................. (202) (111) (75)
Other....................................................... (98) (75) (67)
------- ------- ------
TOTAL GLOBAL CONSUMER....................................... 5,294 4,347 3,178
------- ------- ------
GLOBAL CORPORATE AND INVESTMENT BANK
Salomon Smith Barney and The Global Relationship Bank....... 3,688 2,989 861
Emerging Markets Corporate Banking.......................... 1,610 1,162 762
Commercial Lines............................................ 1,072 845 723
------- ------- ------
TOTAL GLOBAL CORPORATE AND INVESTMENT BANK.................. 6,370 4,996 2,346
------- ------- ------
GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING............
Citigroup Asset Management.................................. 361 328 265
The Citigroup Private Bank.................................. 324 269 244
------- ------- ------
TOTAL GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING...... 685 597 509
------- ------- ------
ASSOCIATES.................................................. 1,381 1,402 1,143
INVESTMENT ACTIVITIES....................................... 1,363 658 832
------- ------- ------
Corporate/Other............................................. (888) (605) (456)
e-Citi...................................................... (65) (50) (67)
------- ------- ------
TOTAL CORPORATE/OTHER....................................... (953) (655) (523)
------- ------- ------
CORE INCOME................................................. 14,140 11,345 7,485
Restructuring-related items and merger-related costs,
after-tax................................................. (550) 25 (535)
Associates Housing Finance charge, after-tax................ (71) -- --
Cumulative effect of accounting changes..................... -- (127) --
------- ------- ------
NET INCOME.................................................. $13,519 $11,243 $6,950
======= ======= ======
DILUTED EARNINGS PER SHARE
Core income................................................. $ 2.74 $ 2.19 $ 1.42
Net income.................................................. $ 2.62 $ 2.17 $ 1.31
======= ======= ======
</TABLE>
9
<PAGE>
RESULTS OF OPERATIONS
INCOME AND EARNINGS PER SHARE
Citigroup reported 2000 core income of $14.140 billion or $2.74 per diluted
common share, both up 25% from $11.345 billion or $2.19 in 1999. Core income in
2000 excluded $550 million in after-tax restructuring-related items and
merger-related costs, and $71 million (after-tax) related to the discontinuation
of Associates' housing finance loan origination operations. Core income in 1999
excluded a release of $25 million for after-tax restructuring-related items and
an after-tax charge of $127 million reflecting the cumulative effect of adopting
several new accounting standards as described in Note 1 of Notes to the
Consolidated Financial Statements. Net income was $13.519 billion or $2.62 per
diluted share, up 20% and 21%, respectively, from $11.243 billion or $2.17 in
1999. Citigroup's 1999 core income was up $3.860 billion or 52% from 1998. Net
income in 1999 was up $4.293 billion or 62% from 1998. Core income return on
common equity was 23.5% in 2000 compared to 21.7% for 1999 and 15.2% for 1998.
Core income growth of $2.8 billion or 25% in 2000 was led by Global
Corporate and Investment Bank which improved $1.374 billion or 28%. Global
Consumer increased $947 million or 22%, Investment Activities were up
$705 million or 107%, Global Investment Management and Private Banking improved
$88 million or 15%, while Associates core income declined $21 million.
Core income growth of $3.860 billion or 52% in 1999, was led by increases in
Global Corporate and Investment Bank of $2.650 billion or 113%, as well as
Global Consumer of $1.169 billion or 37%, Associates of $259 million or 23%, and
Global Investment Management and Private Banking of $88 million or 17%.
Partially offsetting this was a $174 million or 21% decrease in Investment
Activities.
REVENUES, NET OF INTEREST EXPENSE
Adjusted revenues, net of interest expense of $77.7 billion in 2000 were up
$9.3 billion or 14% from 1999. Revenues in 1999 were up $10.8 billion or 19%
from 1998. Global Corporate and Investment Bank revenues of $32.1 billion in
2000 were up $4.6 billion or 17% from 1999, led by an increase of $3.4 billion
or 20% in SSB & GRB, driven by double-digit revenue growth across most
businesses. EM Corporate was up $731 million or 17%, while Commercial Lines was
up $435 million or 7%. In 1999, Global Corporate and Investment Bank revenues of
$27.5 billion were up $5.1 billion or 23% from 1998, principally reflecting an
increase in SSB & GRB of $4.6 billion or 37% to $16.9 billion, driven by an
increase in principal transactions revenues due to the absence of economic
turmoil that existed in 1998 along with strong 1999 results. EM Corporate's 1999
revenues increased by 20% from 1998 to $4.3 billion, while Commercial Lines was
down 3% to $6.3 billion.
Global Consumer revenues reflected strong performance across most businesses
in 2000 and were up $2.0 billion or 7% from 1999 to $30.4 billion. The Global
Consumer revenue growth was led by an $829 million or 7% increase in
Banking/Lending, a $781 million or 8% increase in Insurance, and a $477 million
or 7% increase in International. Global Consumer revenues in 1999 increased
$3.3 billion or 13% from 1998 to $28.4 billion, led by Banking/Lending up
$1.5 billion or 13%, and growth in the International businesses, up
$971 million or 17%.
Global Investment Management and Private Banking revenues of $3.3 billion
grew $593 million or 22% in 2000, and revenues of $2.7 billion grew
$302 million or 13% in 1999, reflecting continued growth in assets under
management and business volumes for both years and in 2000 the impact of
acquisitions in Citigroup Asset Management.
Associates revenues in 2000 were up $1.4 billion or 16% to $10.3 billion,
and in 1999 were up $2.5 billion or 38% from 1998. Investment Activities
revenues in 2000 increased $1.2 billion or 106%, primarily reflecting increases
in venture capital results and gains on the exchange of certain Latin
10
<PAGE>
American bonds, partially offset by repositioning losses in the
insurance-related investments. Investment Activities revenues in 1999 decreased
$233 million or 18%, primarily reflecting declines in realized gains, partially
offset by venture capital results and realized investment gains on certain
corporate-related investments.
SELECTED REVENUE ITEMS
Net interest revenue as calculated from the Consolidated Statement of Income
was $28.3 billion in 2000, up $2.0 billion or 8% from 1999, which was up
$2.5 billion or 10% from 1998, reflecting business volume growth in most markets
and acquisitions in Global Corporate & Investment Bank, Global Consumer and
Associates. Net interest revenue, adjusted for the effect of securitization
activity, of $34.6 billion was up $2.5 billion or 8% in 2000 and $2.2 billion or
7% in 1999. Total commissions, asset management and administration fees, and
other fee revenues of $21.7 billion were up $4.3 billion or 25% in 2000 and
$2.7 billion or 18% in 1999, primarily as a result of volume-related growth,
investment banking fees, assets under fee-based management, and the impact of
acquisitions. Insurance premiums of $12.4 billion in 2000 were up $925 million
or 8%, and were up $1.2 billion or 11% in 1999, reflecting strong growth in
Travelers Life & Annuity in both 2000 and 1999, and Commercial Lines in 2000.
Principal transactions revenues increased to $6.0 billion in 2000, up from
$5.2 billion in 1999 and $1.8 billion in 1998, reflecting strong results in
SSB & GRB. Realized gains from sales of investments of $806 million in 2000 were
up from $541 million in 1999, but were down from $841 million in 1998. The
increase in 2000 resulted from gains on the exchange of certain Latin American
bonds, partially offset by losses in insurance-related investments. Other income
of $6.0 billion increased $1.2 billion from 1999, which was up $1.1 billion from
1998. The 2000 improvement primarily reflected higher venture capital results
offset by lower securitization activities.
OPERATING EXPENSES
Adjusted operating expenses, which exclude restructuring and merger-related
costs, grew $4.0 billion or 12% to $37.8 billion in 2000, and increased
$3.2 billion or 10% from 1998 to 1999.
Global Corporate and Investment Bank expenses were up 16% in 2000, primarily
attributable to production-related compensation and acquisitions at SSB & GRB,
partially offset by lower year 2000 and European Economic Monetary Union (EMU)
expenses. EM Corporate expenses rose $208 million or 10% in 2000, as a result of
the acquisition of Bank Handlowy, investment spending in selected countries and
other volume related increases. Expenses increased in Global Consumer by 5% in
2000 and 7% in 1999, reflecting higher business volumes, including acquisitions,
and increases in e-Consumer. Associates expenses increased $493 million or 13%
in 2000, and were up $1.1 billion or 38% from 1998 to 1999, reflecting business
growth and acquisitions. Global Investment Management and Private Banking
expenses increased 25% in 2000 and 10% in 1999, driven by acquisitions in 2000
and investments in sales and marketing activities, technology, and product
development in both years.
RESTRUCTURING-RELATED ITEMS AND MERGER-RELATED COSTS
Restructuring-related items and merger-related costs of $759 million
($550 million after-tax) in 2000 primarily consisted of exit costs related to
the acquisition of Associates. Restructuring charges included the
reconfiguration of branch operations, exiting certain activities, and the
consolidation and integration of certain middle and back office functions, and
are expected to be implemented over the next year. Also included in the costs
were $177 million of merger-related costs, which included legal, advisory and
SEC filing fees, as well as other costs of administratively closing the
acquisition.
The 1998 restructuring-related and merger-related costs of $795 million
($535 million after-tax) represented $1.122 billion of exit costs associated
with the Citigroup Merger and $65 million of costs
11
<PAGE>
associated with administratively closing the Merger, partially offset by a
$392 million reduction in the 1997 restructuring charge due to changes in
estimates.
BENEFITS, CLAIMS, AND CREDIT LOSSES
Benefits, claims, and credit losses were $17.9 billion in 2000, up
$1.3 billion or 8% from 1999, which was up $1.4 billion or 9% from 1998.
Policyholder benefits and claims expense increased 11% to $10.1 billion in 2000
and 7% to $9.1 billion in 1999, primarily as a result of higher loss levels in
Commercial and Personal Lines and increased volume in Travelers Life & Annuity.
The adjusted provision for credit losses increased 4% to $7.8 billion in 2000
and 13% to $7.5 billion in 1999. Associates adjusted provision for credit losses
increased $1.007 billion or 36% to $3.8 billion in 2000, which included a
$210 million transportation loss provision relating to the truck loan and
leasing portfolio.
Global Consumer adjusted benefits, claims, and credit losses of
$10.0 billion were up 1% in 2000 and 8% in 1999. Managed net credit losses in
2000 were $6.8 billion and the related loss ratio was 2.48% compared with
$6.7 billion and 2.80% in 1999 and $5.9 billion and 2.90% in 1998. The managed
consumer loan delinquency ratio (90 days or more past due) was 1.78%, a decrease
from 2.07% and 2.13% at the end of 1999 and 1998.
Global Corporate and Investment Bank benefits, claims, and credit losses
increased to $4.1 billion from $3.9 billion in 1999, which was down from
$4.2 billion in 1998. The 2000 increases in Commercial Lines of $236 million,
and $155 million in SSB & GRB were partially offset by a decrease of
$162 million in EM Corporate, primarily in Asia. The 1999 decrease reflected
improvements in Russia and Asia, and a lower provision for credit losses
resulting from an improved credit outlook in EM Corporate, partially offset by
Latin America.
Commercial cash-basis loans and other real estate owned (OREO) of
$2.4 billion at December 31, 2000 were up from $2.2 billion a year earlier,
primarily reflecting the impact of acquisitions, along with increases in North
America, Associates, and Latin America, partially offset by improvements in Asia
and the North America real estate portfolio.
CAPITAL
Total capital (Tier 1 and Tier 2) was $73.0 billion or 11.23% of net
risk-adjusted assets, and Tier 1 capital was $54.5 billion or 8.38% at
December 31, 2000. See page 69 for the components of Tier 1 and Tier 2 capital.
12
<PAGE>
GLOBAL CONSUMER
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $28,519 $26,140 $22,907
Effect of credit card securitization activity............... 1,904 2,269 2,187
------- ------- -------
ADJUSTED REVENUES, NET OF INTEREST EXPENSE.................. 30,423 28,409 25,094
------- ------- -------
Adjusted operating expenses(2).............................. 12,151 11,591 10,812
------- ------- -------
Provisions for benefits, claims, and credit losses.......... 8,070 7,606 6,959
Effect of credit card securitization activity............... 1,904 2,269 2,187
------- ------- -------
Adjusted provisions for benefits, claims, and credit
losses.................................................... 9,974 9,875 9,146
------- ------- -------
CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 8,298 6,943 5,136
Income taxes................................................ 2,966 2,523 1,889
Minority interest, after-tax................................ 38 73 69
------- ------- -------
CORE INCOME................................................. 5,294 4,347 3,178
Restructuring-related items, after-tax...................... (13) (56) (401)
------- ------- -------
NET INCOME.................................................. $ 5,281 $ 4,291 $ 2,777
======= ======= =======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
Global Consumer--which provides banking, lending, investment and personal
insurance products and services, including credit and charge cards, to customers
around the world--reported core income of $5.294 billion in 2000, up
$947 million or 22% from 1999, and in 1999 core income grew $1.169 billion or
37% from 1998. Banking/Lending core income increased $507 million or 23% in 2000
and increased $846 million or 63% in 1999 reflecting strong performance across
all businesses. In the insurance segment, core income grew $226 million or 17%
in 2000 and $142 million or 12% in 1999 driven by strong performance in
Travelers Life and Annuity where income grew $154 million or 25% in 2000 and
$130 million or 26% in 1999. In the International segment, the developed markets
of Western Europe and Japan reported core income of $484 million in 2000 up
$122 million from 1999 and in 1999 income was up $85 million from 1998 despite
the foreign currency translation effects of a weakening Euro. Core income in the
emerging markets increased $206 million or 33% in 2000 and was up $140 million
or 29% in 1999 reflecting strong performance in Asia and in Central and Eastern
Europe, Middle East and Africa. In Latin America, core income in 2000 declined
$14 million from 1999 reflecting reduced revenue related to Confia, a Mexican
bank acquired in August 1998.
Net income of $5.281 billion in 2000, $4.291 billion in 1999, and
$2.777 billion in 1998 included restructuring-related charges of $13 million
($19 million pretax), $56 million ($87 million pretax), and $401 million
($633 million pretax), respectively.
In 2000, Global Consumer recorded restructuring-related items totaling
$19 million, including charges of $46 million for the reconfiguration of certain
branch operations outside the U.S. and for the downsizing and consolidation of
certain back office functions in the U.S., and accelerated depreciation charges
on the planned disposition of certain premises and equipment assets, in excess
of the normal scheduled depreciation on those assets of $30 million, offset by a
reduction in restructuring reserves due to changes in estimates attributable to
facts and circumstances arising subsequent to the original restructuring charges
of $57 million. In 1999, Global Consumer recorded restructuring-related items
totaling $87 million, including charges of $104 million, of which $82 million
related to new initiatives primarily for the reconfiguration of certain consumer
branch operations outside the U.S., downsizing of
13
<PAGE>
certain marketing operations, and costs associated with exiting a non-strategic
business. The 1999 items also include accelerated depreciation charges of
$114 million, offset by a reduction of restructuring reserves of $131 million.
In 1998, Global Consumer recorded a net restructuring charge totaling
$633 million for regional consolidation of call centers and other back office
functions worldwide, reduction of management layers, sales force restructuring,
integration of overlapping marketing and product management groups, and exiting
several non-strategic operations. See Note 15 of Notes to Consolidated Financial
Statements for a discussion of restructuring-related items.
In 2000, Citigroup adopted the Federal Financial Institutions Examination
Council's (FFIEC) revised Uniform Retail Classification and Account Management
Policy, which provided guidance on the reporting of delinquent consumer loans
and the timing of associated charge-offs for Citigroup's depository institution
subsidiaries. The adoption of the policy resulted in additional net credit
losses of approximately $90 million which were charged against the allowance for
credit losses.
BANKING/LENDING
CITIBANKING NORTH AMERICA
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $2,277 $2,104 $1,970
Adjusted operating expenses(2).............................. 1,310 1,354 1,665
Provision for credit losses................................. 29 64 100
------ ------ ------
CORE INCOME BEFORE TAXES.................................... 938 686 205
Income taxes................................................ 372 288 91
------ ------ ------
CORE INCOME................................................. 566 398 114
Restructuring-related items, after-tax...................... 9 1 (89)
------ ------ ------
NET INCOME.................................................. $ 575 $ 399 $ 25
====== ====== ======
Average assets (IN BILLIONS OF DOLLARS)..................... $ 9 $ 9 $ 10
Return on assets............................................ 6.39% 4.43% 0.25%
====== ====== ======
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets............................................ 6.29% 4.42% 1.14%
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
Citibanking North America--which delivers banking, lending and investment
services to customers through Citibank's branches and electronic delivery
systems--reported core income of $566 million in 2000, up $168 million or 42%
from 1999 and in 1999 grew $284 million or 249% from 1998 due to revenue growth,
and continued expense reduction initiatives and credit cost improvements. Net
income of $575 million in 2000, $399 million in 1999, and $25 million in 1998
included restructuring-related credits of $9 million ($15 million pretax), and
$1 million ($4 million pretax) in 2000 and 1999, respectively, and
restructuring-related charges of $89 million ($139 million pretax) in 1998.
14
<PAGE>
As shown in the following table, Citibanking grew accounts and customer
deposits in both 2000 and 1999.
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Accounts (IN MILLIONS)...................................... 6.7 6.3 5.8
Average customer deposits................................... $44.7 $42.1 $39.7
Average loans............................................... $ 7.0 $ 7.4 $ 7.7
</TABLE>
Revenues, net of interest expense, of $2.277 billion increased $173 million
or 8% from 1999 which increased $134 million or 7% from 1998, reflecting growth
in customer deposits and spreads, and increased investment product fees,
partially offset by lower loan revenues. Investment product fees and commissions
increased 24% and 54% in 2000 and 1999, respectively.
Adjusted operating expenses of $1.310 billion in 2000 declined $44 million
or 3% from 1999, and were down $311 million or 19% in 1999. The significant
reduction in expenses in 1999 reflects the impact of expense management
initiatives that reduced staff and other fixed expenses, as well as lower
marketing program spending.
The provision for credit losses declined to $29 million in 2000 from
$64 million in 1999 and $100 million in 1998. The net credit loss ratio of 0.91%
in 2000 declined from 1.22% in 1999 and 1.39% in 1998. Loans delinquent 90 days
or more of $35 million or 0.48% at December 31, 2000 declined from $55 million
or 0.78% at December 31, 1999 and $93 million or 1.25% at December 31, 1998. The
declines in the provision for credit losses and delinquencies reflect continued
improvement in the portfolio and a decline in loan volumes.
MORTGAGE BANKING
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $ 829 $ 747 $ 620
Adjusted operating expenses(2).............................. 365 329 254
(Benefit) Provision for credit losses....................... (11) 17 20
----- ----- -----
CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 475 401 346
Income taxes................................................ 181 157 135
Minority interest, after-tax................................ 22 19 5
----- ----- -----
CORE INCOME................................................. 272 225 206
Restructuring-related items, after-tax...................... -- -- (6)
----- ----- -----
NET INCOME.................................................. $ 272 $ 225 $ 200
===== ===== =====
Average assets (IN BILLIONS OF DOLLARS)..................... $ 38 $ 29 $ 25
Return on assets............................................ 0.72% 0.78% 0.80%
===== ===== =====
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets............................................ 0.72% 0.78% 0.82%
===== ===== =====
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
Mortgage Banking--which originates and services mortgages and student loans
for customers across the United States--reported core income of $272 million in
2000, up $47 million or 21% from 1999 and in 1999 income was up $19 million or
9% from 1998, reflecting growth in both the mortgage
15
<PAGE>
and student loan businesses and credit improvement in the mortgage portfolio.
Core income in 2000 and 1999 also reflects the April 1999 acquisition of the
principal operating assets and certain liabilities of Source One Mortgage
Services Corporation (Source One). Net income of $200 million in 1998 included a
restructuring-related charge of $6 million ($9 million pretax).
As shown in the following table, accounts grew 29% in 2000 and 21% in 1999,
reflecting loan growth in both mortgages and student loans and an increase in
serviced mortgage accounts. In 2000, growth in mortgage loans reflects higher
originations with a larger proportion at variable interest rates which are
typically held on-balance sheet rather than securitized. Growth in mortgage
originations and loans in both periods, and account growth in 1999 also reflects
Source One.
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Accounts (IN MILLIONS)(1)................................... 4.4 3.4 2.8
Average loans(1)............................................ $35.4 $27.5 $23.9
Mortgage originations....................................... $19.1 $18.2 $16.4
</TABLE>
- ------------------------
(1) Includes student loans.
Revenues, net of interest expense, of $829 million in 2000 grew $82 million
or 11% from 1999, reflecting loan growth and higher servicing income, partially
offset by reduced spreads and lower securitization activity. Revenues in 1999
increased $127 million or 20% from 1998, principally reflecting the acquisition
of Source One and growth in the student loan portfolio. Adjusted operating
expenses increased $36 million or 11% in 2000 and grew $75 million or 30% in
1999, reflecting additional business volumes, including the Source One
acquisition in April 1999.
The (benefit) provision for credit losses of ($11) million in 2000 declined
from $17 million in 1999 and $20 million in 1998. The adoption of revised FFIEC
write-off policies in 2000 added $17 million to net credit losses, which were
charged against the allowance for credit losses, and 5 basis points to the 2000
net credit loss ratio. The 2000 net credit loss ratio was 0.13% (0.08% excluding
the effect of FFIEC policy revisions) compared with 0.16% in 1999 and 0.31% in
1998 and the ratio of loans delinquent 90 days or more was 1.99% at
December 31, 2000 compared with 2.31% at December 31, 1999 and 2.44% at
December 31, 1998. The declines in the 2000 provision, the net credit loss ratio
(excluding FFIEC), and the delinquency ratio principally reflect improvement in
the mortgage portfolio. The 1999 improvement in mortgage delinquencies was
partially offset by higher student loan delinquencies as a result of a statutory
increase in the length of time Citigroup must hold delinquent
government-guaranteed student loans prior to submitting a claim under the
government guarantee.
16
<PAGE>
NORTH AMERICA CARDS
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $6,293 $5,686 $4,899
Effect of credit card securitization activity............... 1,904 2,269 2,187
------ ------ ------
ADJUSTED REVENUES, NET OF INTEREST EXPENSE.................. 8,197 7,955 7,086
------ ------ ------
Adjusted operating expenses(2).............................. 2,925 2,847 2,552
Adjusted provision for credit losses(3)..................... 3,075 3,234 3,240
------ ------ ------
CORE INCOME BEFORE TAXES.................................... 2,197 1,874 1,294
Income taxes................................................ 816 692 488
------ ------ ------
CORE INCOME................................................. 1,381 1,182 806
Restructuring-related items, after-tax...................... 6 12 (39)
------ ------ ------
NET INCOME.................................................. $1,387 $1,194 $ 767
====== ====== ======
Average assets (IN BILLIONS OF DOLLARS)(4).................. $ 37 $ 28 $ 27
Return on assets............................................ 3.75% 4.26% 2.84%
====== ====== ======
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets(5)......................................... 3.73% 4.22% 2.99%
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
(3) Adjusted for the effect of credit card securitization.
(4) Adjusted for the effect of credit card securitization, managed average
assets were $84 billion, $75 billion, and $63 billion in 2000, 1999, and
1998, respectively.
(5) Adjusted for the effect of credit card securitization, the return on managed
assets, excluding restructuring-related items was 1.64% in 2000, 1.58% in
1999, and 1.28% in 1998.
Cards--North America bankcards and Diners Club reported core income of
$1.381 billion in 2000, up $199 million or 17% from 1999 and in 1999 was up
$376 million or 47% from 1998, reflecting improvements in the bankcards
business. Net income of $1.387 billion in 2000, $1.194 billion in 1999, and
$767 million in 1998 included restructuring-related credits of $6 million
($8 million pretax) and $12 million ($18 million pretax) in 2000 and 1999,
respectively, and restructuring-related charges of $39 million ($58 million
pretax) in 1998.
Risk adjusted margin is a measure of profitability calculated as adjusted
revenues less managed net credit losses as a percentage of average managed
loans, consistent with the goal of matching the revenues generated by the loan
portfolio with the credit risk undertaken. As shown in the following table,
North America bankcards risk adjusted margin of 6.13% decreased 27 basis points
from 1999 as lower spreads on the portfolio were partially offset by credit
improvements and an increase in non-interest revenue, primarily interchange
fees.
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Risk adjusted revenues(1)................................. $4.8 $4.5 $3.6
Risk adjusted margin %(2)................................. 6.13% 6.40% 6.11%
</TABLE>
- ------------------------
(1) Adjusted revenues less managed net credit losses.
(2) Risk adjusted revenues as a percentage of average managed loans.
17
<PAGE>
Adjusted revenues, net of interest expense, of $8.197 billion in 2000
increased $242 million or 3% from 1999, reflecting receivable growth, including
portfolio acquisitions, higher interchange fee revenues due to sales volume
growth and increased fees from other cardmember services, offset by lower
spreads. Spread compression in the portfolio reflects changes in portfolio mix,
including an increased percentage of the portfolio priced at low introductory
rates, and higher funding costs due to increased interest rates. Adjusted
revenues of $7.955 billion in 1999 increased $869 million or 12% from 1998
reflecting receivable and sales volume growth, including the effect of
acquisitions, and risk-based pricing actions, partially offset by lower spreads.
As shown in the following table, on a managed basis, the North America
bankcard portfolio experienced growth in accounts, sales, cards in force, and
receivables in 2000, including the effect of portfolio acquisitions. Accounts
increased only slightly in 1999 and cards in force declined reflecting
management initiatives that resulted in the closing of inactive and/or high-risk
accounts.
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Accounts (IN MILLIONS).............................. 44.0 41.1 41.0
Cards in force (IN MILLIONS)........................ 68 65 66
Total sales......................................... $188.0 $163.3 $141.3
End-of-period managed receivables................... $ 87.7 $ 74.7 $ 70.0
</TABLE>
Adjusted operating expenses of $2.925 billion in 2000 increased $78 million
or 3% from 1999, and in 1999 grew $295 million or 12% from 1998, reflecting
acquisitions and increased target-marketing efforts in North America bankcards.
The adjusted provision for credit losses in 2000 was $3.075 billion compared
with $3.234 billion in 1999 and $3.240 billion in 1998. North America bankcards
managed net credit losses in 2000 were $3.022 billion and the related loss ratio
was 3.85%, compared with $3.158 billion and 4.54% in 1999 and $3.142 billion and
5.32% in 1998. North America bankcards managed loans delinquent 90 days or more
were $1.140 billion or 1.31% of loans at December 31, 2000 compared with
$1.066 billion or 1.44% at December 31, 1999 and $1.001 billion or 1.45% at
December 31, 1998. The improvement in the 2000 net credit loss ratio reflects
industry-wide bankruptcy trends and credit risk management initiatives.
CITIFINANCIAL
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,947 $1,615 $1,274
Adjusted operating expenses (2)............................. 757 617 505
Provisions for benefits, claims, and credit losses.......... 431 385 419
------ ------ ------
CORE INCOME BEFORE TAXES.................................... 759 613 350
Income taxes................................................ 278 225 129
------ ------ ------
CORE INCOME................................................. 481 388 221
Restructuring-related items, after-tax...................... -- (2) (1)
------ ------ ------
NET INCOME.................................................. $ 481 $ 386 $ 220
====== ====== ======
Average assets (IN BILLIONS OF DOLLARS)..................... $ 20 $ 16 $ 12
Return on assets............................................ 2.41% 2.41% 1.83%
====== ====== ======
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets............................................ 2.41% 2.43% 1.84%
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
18
<PAGE>
CitiFinancial--which provides community-based lending services through its
branch network and through cross-selling initiatives with other Citigroup
businesses--reported core income of $481 million in 2000 up $93 million or 24%
from 1999 and in 1999 core income was up $167 million or 76% from 1998,
reflecting continued strong receivable growth, including the effects of
acquisitions, and improved credit performance. Net income of $386 million in
1999 and $220 million in 1998 included restructuring-related items of
$2 million ($3 million pretax) and $1 million ($2 million pretax), respectively.
As shown in the following table, receivables grew 30% in both 2000 and 1999
resulting from higher volumes from CitiFinancial branches, and the cross-selling
of products through other Citigroup distribution channels. Growth in 1999 also
reflects acquisitions. At December 31, 2000, the portfolio consisted of 63% real
estate-secured loans, 30% personal loans, and 7% sales finance and other,
compared with 58%, 34% and 8% in 1999 and 56%, 36%, and 8% in 1998,
respectively. The average net interest margin on receivables of 8.13% in 2000
declined from 8.85% in 1999 and 8.90% in 1998, reflecting lower yields due to
changes in portfolio mix toward more real estate secured loans and higher
funding costs due to increased interest rates.
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
End-of-period managed receivables (IN BILLIONS)........ $20.1 $15.5 $11.9
Average interest margin %.............................. 8.13% 8.85% 8.90%
</TABLE>
Revenues, net of interest expense, of $1.947 billion in 2000 were up
$332 million or 21% from 1999 and in 1999 were up $341 million or 27% from 1998,
reflecting continued strong receivable growth offset by lower spreads. Adjusted
operating expenses of $757 million in 2000 increased $140 million or 23% from
1999 and in 1999 increased $112 million or 22% from 1998, reflecting higher
business volumes, including acquisitions.
The provision for benefits, claims, and credit losses was $431 million in
2000 up from $385 million in 1999 and $419 million in 1998, primarily reflecting
receivable growth. The net credit loss ratio of 1.96% in 2000 was down from
2.18% in 1999 and 2.75% in 1998. The 2000 net credit loss ratio included a
benefit of approximately 18 basis points related to changes in the write-off
policy for certain bankrupt accounts. Loans delinquent 90 days or more were
$277 million or 1.38% of loans in 2000 compared to $203 million or 1.31% in 1999
and $171 million or 1.44% in 1998. The increase in delinquencies from a year-ago
reflects the impact of previous acquisitions.
INSURANCE
TRAVELERS LIFE AND ANNUITY
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $3,891 $3,394 $3,012
Provision for benefits and claims........................... 2,325 1,997 1,863
Adjusted operating expenses(2).............................. 409 451 396
------ ------ ------
CORE INCOME BEFORE TAXES.................................... 1,157 946 753
Income taxes................................................ 380 323 260
------ ------ ------
CORE INCOME(3).............................................. 777 623 493
Restructuring-related items, after-tax...................... -- -- (8)
------ ------ ------
NET INCOME(3)............................................... $ 777 $ 623 $ 485
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
(3) Excludes investment gains/losses included in Investment Activities segment.
19
<PAGE>
Travelers Life and Annuity offers individual annuity, group annuity,
individual life insurance products and corporate owned life insurance (COLI)
marketed by The Travelers Insurance Company (TIC) and its wholly owned
subsidiary The Travelers Life and Annuity Company (TLAC) under the Travelers
name. Among the range of individual products offered are fixed and variable
deferred annuities, payout annuities and term, universal and variable life
insurance. These products are primarily distributed through CitiStreet
Retirement Services (CitiStreet) (via The Copeland Companies (Copeland)), a
joint venture, Salomon Smith Barney Financial Consultants, Primerica Financial
Services (Primerica), Citibank, and a nationwide network of independent agents.
The COLI product is a variable universal life product distributed through
independent specialty brokers. The group products include institutional
pensions, including guaranteed investment contracts (GICs), payout annuities,
group annuities to employer-sponsored retirement and savings plans and
structured finance transactions.
Core income was $777 million in 2000 compared to $623 million in 1999 and
$493 million in 1998. The 25% improvement in 2000 reflects increased business
volume, a strong capital base and particularly strong investment income versus
the prior-year period. During 2000, this business continued strong individual
annuity sales and achieved double-digit business volume growth in group annuity
account balances and individual life net written premiums, reflecting growth in
retirement savings and estate planning products and strong momentum from
cross-selling initiatives. The 26% improvement in 1999 was largely driven by
increases in business volumes and strong investment income. During 1999, this
business achieved double-digit growth in individual and group annuity account
balances and direct periodic life insurance premiums. The continued growth in
2000 and 1999 reflects both greater popularity of these products with an aging
American population and strong momentum from cross-selling initiatives. Adjusted
operating expenses decreased in 2000 compared to the prior-year period due to
the contribution of Copeland to the CitiStreet joint venture and the absence of
certain one-time technology expenses in 1999. The increase in revenues was also
mitigated by the contribution of Copeland.
The cross-selling initiatives of Travelers Life and Annuity products through
Primerica, Citibank, Salomon Smith Barney Financial Consultants, CitiStreet via
Copeland, and a nationwide network of independent agents and strong group sales
through various intermediaries reflect the ongoing effort to build market share
by strengthening relationships in key distribution channels.
On July 31, 2000, TIC sold 90% of its individual long-term care insurance
business to General Electric Capital Assurance Company in the form of an
indemnity reinsurance arrangement. Proceeds from the sale were $410 million,
resulting in a deferred gain of approximately $150 million after-tax.
The following table shows net written premiums and deposits by product line,
excluding long-term care insurance written premiums for the three years ended
December 31:
<TABLE>
<CAPTION>
In Millions of dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
INDIVIDUAL ANNUITIES
Fixed..................................................... $ 1,266 $ 1,008 $ 908
Variable.................................................. 5,025 4,265 2,892
Individual payout......................................... 80 78 70
GICS AND OTHER GROUP ANNUITIES.............................. 5,528 5,619 4,049
INDIVIDUAL LIFE INSURANCE
Direct periodic premiums and deposits....................... 511 409 322
Single premium deposits..................................... 99 84 85
Reinsurance................................................. (84) (71) (66)
------- ------- ------
$12,425 $11,392 $8,260
======= ======= ======
</TABLE>
20
<PAGE>
The majority of the annuity business and a substantial portion of the life
business written by Travelers Life and Annuity is accounted for as investment
contracts, with the result that the premiums and deposits collected are not
included in revenues.
Increased variable annuities sales drove account balances to $29.4 billion
at December 31, 2000, from $27.9 billion at year-end 1999 (up 5%) and
$21.5 billion at year-end 1998. Net written premiums and deposits increased in
2000 to $6.371 billion from $5.351 billion in 1999 (up 19%) and $3.870 billion
in 1998. Sales reflect significant increased production at Salomon Smith Barney
during 2000 and increased sales from all Travelers Life and Annuity core
distribution channels during both 2000 and 1999.
Group annuity account balances and benefit reserves reached $17.5 billion at
December 31, 2000, up from $15.1 billion at year-end 1999 (up 16%), and
$13.2 billion at year-end 1998. The group annuity businesses experienced
continued strong sales momentum in variable rate guaranteed investment
contracts, employer sponsored group plans and cross-selling structured
settlement annuities through Travelers Property Casualty Corp. (TPC). Net
written premiums and deposits (excluding the Company's employee pension plan
deposits) in 2000 were $5.528 billion, compared to $5.619 billion in 1999 (which
reflected particularly strong structured finance transactions) and
$4.049 billion in 1998.
Direct periodic premiums and deposits for individual life insurance were
$511 million in 2000 compared to $409 million in 1999 (up 25%) and $322 million
in 1998. Life insurance in force was $66.9 billion at December 31, 2000, up from
$60.6 billion at year-end 1999 and $55.4 billion at year-end 1998.
PRIMERICA FINANCIAL SERVICES
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,915 $1,775 $1,654
Provision for benefits and claims........................... 496 487 484
Adjusted operating expenses(1).............................. 659 586 546
------ ------ ------
CORE INCOME BEFORE TAXES.................................... 760 702 624
Income taxes................................................ 268 250 224
------ ------ ------
CORE INCOME(2).............................................. 492 452 400
Restructuring-related items, after-tax...................... 1 -- (2)
------ ------ ------
NET INCOME.................................................. $ 493 $ 452 $ 398
====== ====== ======
</TABLE>
- ------------------------
(1) Excludes restructuring-related items.
(2) Excludes investment gains/losses included in Investment Activities segment.
Primerica Financial Services--which sells life insurance as well as other
products manufactured by the Company, including Salomon Smith Barney mutual
funds, CitiFinancial mortgages and personal loans and Travelers Insurance
Company annuity products--reported core income of $492 million in 2000 compared
to $452 million in 1999 and $400 million in 1998. The 9% improvement in 2000
reflects strong mutual fund sales and net investment income and was partially
offset by increased infrastructure investment including international expansion.
The 13% increase in 1999 results reflects continued success at cross selling a
range of products (particularly mutual funds, variable annuities and debt
consolidation loans), growth in life insurance in force, improved investment
income, and disciplined expense management.
Increases in production and cross-selling initiatives were achieved during
2000. Earned premiums net of reinsurance were $1.106 billion, $1.071 billion,
and $1.057 billion in 2000, 1999, and 1998, respectively. Total face amount of
issued term life insurance was $67.4 billion in 2000 compared to
21
<PAGE>
$56.2 billion in 1999 and $57.4 billion in 1998. The number of policies issued
was 234,700 in 2000, compared to 209,900 in 1999 and 223,600 in 1998. The
average face value per policy issued was $245,000 in 2000 compared to $229,000
in 1999 and $223,000 in 1998. Life insurance in force at year-end 2000 reached
$412.7 billion, up from $394.9 billion at year-end 1999 and $383.7 billion at
year-end 1998, and continued to reflect good policy persistency.
In recent years, Primerica has leveraged cross selling through the Financial
Needs Analysis (FNA)--the diagnostic tool that enhances the ability of the
Personal Financial Analysts to address client needs--to expand its business
beyond life insurance and now offers its clients a greater array of financial
products and services, delivered personally through its sales force. During
2000, 438,000 FNAs were submitted. In addition, Primerica has traditionally
offered mutual funds to clients as a means to invest the relative savings
realized through the purchase of term life insurance as compared to traditional
whole life insurance. Sales of mutual funds were $4.220 billion in 2000 compared
to $3.124 billion in 1999 and $2.942 billion in 1998. During 2000, proprietary
mutual funds accounted for 50% of Primerica's U.S. sales and 43% of Primerica's
total sales. Variable annuity sales continued to show momentum, reaching net
written premiums and deposits of $1.057 billion in 2000, up from $990 million in
1999 and $652 million in 1998. As a result of the increased emphasis placed on
cross-selling initiatives, current year sales predominately reflect sales of
Travelers Life and Annuity variable annuity products. Cash advanced on
$.M.A.R.T-Registered Trademark- loan and $.A.F.E.-Registered Trademark- loan
products underwritten by Travelers Bank & Trust, fsb and CitiFinancial was
$2.09 billion in 2000, up 9% from $1.92 billion in 1999 and $1.46 billion in
1998.
PERSONAL LINES
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $4,187 $4,043 $3,666
Claims and claim adjustment expenses........................ 2,734 2,554 2,181
Total operating expenses.................................... 987 1,013 930
------ ------ ------
INCOME BEFORE TAXES AND MINORITY INTEREST................... 466 476 555
Income taxes................................................ 139 143 172
Minority interest, after-tax(1)............................. 16 54 64
------ ------ ------
NET INCOME(2)............................................... $ 311 $ 279 $ 319
====== ====== ======
</TABLE>
- ------------------------
(1) See Note 2 of Notes to Consolidated Financial Statements.
(2) Excludes investment gains/losses included in Investment Activities segment.
Personal Lines--which writes all types of property and casualty insurance
covering personal risks--reported net income of $311 million in 2000 compared to
$279 million in 1999 and $319 million in 1998. Included in 1999 is a charge
related to curtailing the sale of TRAVELERS SECURE-Registered Trademark- auto
and homeowners products. The 2000 results reflect increased net investment
income, lower catastrophe losses, and the incremental earnings from the minority
interest buyback, offset in part by increased loss cost trends and lower
favorable prior-year reserve development. The 1999 decrease primarily reflects
higher catastrophe losses due to Hurricane Floyd, higher loss ratios in the
TRAVELERS SECURE-Registered Trademark- program, the charge related to curtailing
the sale of TRAVELERS SECURE-Registered Trademark- products, and lower favorable
prior-year reserve development, partially offset by the increase in income due
to the growth in earned premiums.
22
<PAGE>
The following table shows net written premiums by product line for the three
years ended December 31:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Personal automobile................................. $2,366 $2,369 $2,328
Homeowners and other................................ 1,447 1,436 1,162
------ ------ ------
TOTAL NET WRITTEN PREMIUMS.......................... $3,813 $3,805 $3,490
====== ====== ======
</TABLE>
Personal Lines net written premiums for 2000 were $3.813 billion compared to
$3.805 billion in 1999 and $3.490 billion in 1998. Net written premiums in 1999
included an adjustment associated with the termination of a quota share
reinsurance arrangement, which increased homeowners' premiums written by
independent agents by $72 million. The increase in net written premiums in 2000
compared to 1999, excluding the reinsurance adjustment, primarily reflects
growth in target markets served by independent agents and growth in affinity
group marketing and joint marketing arrangements and is offset in part by
planned reductions in the TRAVELERS SECURE-Registered Trademark- auto and
homeowners business, a mandated rate decrease in New Jersey and continued
emphasis on disciplined underwriting and risk management. The business retention
ratio for 2000 was moderately lower than 1999, reflecting planned reductions in
the TRAVELERS SECURE-Registered Trademark- business. The 1999 increase compared
to 1998 primarily reflected growth in independent agents business and growth in
affinity group marketing and joint marketing arrangements.
Catastrophe losses, net of taxes and reinsurance, were $54 million in 2000
compared to $79 million in 1999 and $44 million in 1998. Catastrophe losses in
2000 were primarily due to Texas, Midwest and Northeast wind and hailstorms in
the second quarter and hailstorms in Louisiana and Texas in the first quarter.
Catastrophe losses in 1999 were primarily due to Hurricane Floyd in the third
quarter, wind and hailstorms on the East Coast and tornadoes in the Midwest in
the second quarter and a wind and ice storm in the Midwest and Northeast in the
first quarter. Catastrophe losses in 1998 were primarily due to Hurricanes
Bonnie and Georges, severe first quarter winter storms and second and third
quarter wind and hailstorms.
The statutory combined ratio for Personal Lines was 99.7% in 2000 compared
to 96.7% in 1999 and 93.9% in 1998. The U.S. generally accepted accounting
principles (GAAP) combined ratio for Personal Lines was 99.3% in 2000 compared
to 96.8% in 1999 and 93.2% in 1998. GAAP combined ratios for Personal Lines
differ from statutory combined ratios primarily due to the deferral and
amortization of certain expenses for GAAP reporting purposes only.
The 1999 statutory and GAAP combined ratios for Personal Lines include an
adjustment associated with the termination of a quota share reinsurance
arrangement. Excluding this adjustment, the 1999 statutory and GAAP combined
ratios were 96.5% and 97.3%, respectively. The increase in the 2000 statutory
and GAAP combined ratios compared to the statutory and GAAP combined ratios
(excluding the premium adjustment) for 1999 was primarily due to increased loss
cost trends and lower favorable prior-year reserve development, offset in part
by the TRAVELERS SECURE-Registered Trademark- charge taken in the third quarter
of 1999 and lower catastrophe losses. The increase in the 1999 statutory and
GAAP combined ratios excluding this adjustment compared to the 1998 statutory
and GAAP combined ratios was due to higher catastrophe losses due to Hurricane
Floyd, higher loss ratios in the TRAVELERS SECURE-Registered Trademark- program,
the TRAVELERS SECURE-Registered Trademark- charge, and lower favorable
prior-year reserve development in the automobile bodily injury line.
23
<PAGE>
INTERNATIONAL CONSUMER
WESTERN EUROPE
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,899 $1,991 $1,869
Adjusted operating expenses(2).............................. 1,125 1,271 1,265
Provisions for benefits, claims, and credit losses.......... 234 280 262
------ ------ ------
CORE INCOME BEFORE TAXES.................................... 540 440 342
Income taxes................................................ 195 165 131
------ ------ ------
CORE INCOME................................................. 345 275 211
Restructuring-related items, after-tax...................... -- 2 (125)
------ ------ ------
NET INCOME.................................................. $ 345 $ 277 $ 86
====== ====== ======
Average assets (IN BILLIONS OF DOLLARS)..................... $ 18 $ 19 $ 19
Return on assets............................................ 1.92% 1.46% 0.45%
====== ====== ======
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets............................................ 1.92% 1.45% 1.11%
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
Western Europe--which provides banking, lending and investment services,
including credit and charge cards, to customers throughout the region--reported
core income of $345 million in 2000, up $70 million or 25% from 1999 and in 1999
income was up $64 million or 30% from 1998, reflecting growth across the region,
particularly Germany. Net income of $277 million in 1999 and $86 million in 1998
included restructuring credits of $2 million ($4 million pretax) in 1999 and
restructuring-related charges of $125 million ($239 million pretax) in 1998.
The net effect of foreign currency translation reduced income growth by
approximately $54 million in 2000 and reduced revenue and expense and growth
rates by 14 and 12 percentage points from 1999. In 1999, the net effect of
foreign currency translation on core income growth from 1998 was minimal,
however, revenue and expenses growth rates were reduced by 3 and 4 percentage
points, respectively.
As shown in the following table, Western Europe reported 7% account growth
in 2000 and 3% in 1999 primarily reflecting loan and deposit growth. However,
loans and customer deposit volumes were reduced by the effect of foreign
currency translation.
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Accounts (IN MILLIONS)................................. 9.5 8.9 8.6
Average customer deposits.............................. $12.4 $13.7 $14.3
Average loans.......................................... $14.6 $15.3 $14.9
</TABLE>
Revenues, net of interest expense, of $1.899 billion in 2000 decreased
$92 million or 5% from 1999 as higher investment product fees, loan growth and
higher deposit spreads were more than offset by the effect of foreign currency
translation. Revenues in 1999 increased $122 million or 7% from 1998, as growth
across most products and countries was partially offset by foreign currency
translation effects.
Adjusted operating expenses of $1.125 billion declined $146 million or 11%
from 1999 as costs associated with higher business volumes were more than offset
by lower regional office and technology expenses and the effect of foreign
currency translation. Expenses in 1999 were up slightly from 1998.
24
<PAGE>
The provision for benefits, claims and credit losses was $234 million in
2000, down from $280 million in 1999 and $262 million in 1998. The adoption of
revised FFIEC write-off policies in 2000 added $10 million to net credit losses,
which were charged against the allowance for credit losses, and 7 basis points
to the net credit loss ratio. The net credit loss ratio was 1.62% (1.55%
excluding the effects of FFIEC policy revisions) in 2000, compared with 1.64% in
1999 and 1.61% in 1998. Loans delinquent 90 days or more of $782 million or
5.09% of loans at December 31, 2000 decreased from $868 million or 5.75% at
December 31, 1999 and $911 million or 5.69% at December 31, 1998.
JAPAN
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $ 652 $ 392 $ 293
Adjusted operating expenses(2).............................. 417 239 177
Provision for credit losses................................. 20 12 8
----- ----- -----
INCOME BEFORE TAXES......................................... 215 141 108
Income taxes................................................ 76 54 42
----- ----- -----
NET INCOME.................................................. 139 87 66
===== ===== =====
Average assets (IN BILLIONS OF DOLLARS)..................... $ 7 $ 5 $ 4
Return on assets............................................ 1.99% 1.74% 1.65%
===== ===== =====
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
Japan--which provides banking, lending and investment services, including
credit and charge cards, to customers throughout the country--reported net
income of $139 million in 2000, up $52 million or 60% from 1999 and net income
in 1999 was up $21 million or 32% from 1998, reflecting expansion of the
business, driven by growth in deposits, investment products, and mortgages. Net
income growth in 2000 also reflects the Diners Club acquisition in the 2000
first quarter.
Net foreign currency translation effects increased revenue growth by 2 and
11 percentage points, and expense growth by 4 and 17 percentage points in 2000
and 1999, respectively.
As shown in the following table, Japan reported strong growth in accounts,
customer deposits, and loans. In 2000, the Diners Club acquisition added
approximately $0.5 billion in loans and 0.6 million accounts.
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Accounts (IN MILLIONS).................................. 2.8 2.0 1.5
Average customer deposits............................... $13.6 $11.4 $8.5
Average loans........................................... $ 3.2 $ 1.6 $0.8
</TABLE>
Revenues, net of interest expense, of $652 million in 2000 grew
$260 million or 66% from 1999 and in 1999 was up $99 million or 34% from 1998,
reflecting higher deposit volumes and spreads, and growth in investment product
fees and mortgage loans. Adjusted operating expenses increased $178 million or
74% in 2000 and grew $62 million or 35% in 1999 reflecting costs associated with
expansion efforts and additional business volumes. In 2000, both revenue and
expense increases also reflect the Diners Club acquisition.
The provision for benefits, claims, and credit losses in 2000 was
$20 million, up from $12 million in 1999 and $8 million in 1998. The net credit
loss ratio of 0.63% in 2000 declined from 0.76% in 1999 and 0.98% in 1998 and
loans delinquent 90 days or more were $8 million or 0.22% of loans at
25
<PAGE>
December 31, 2000, down from $11 million or 0.49% at December 31, 1999 and
$12 million or 1.01% at December 31, 1998.
ASIA
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $2,109 $1,852 $1,557
Adjusted operating expenses(2).............................. 962 943 797
Provisions for benefits, claims, and credit losses.......... 273 341 243
------ ------ ------
CORE INCOME BEFORE TAXES.................................... 874 568 517
Income taxes................................................ 311 212 200
------ ------ ------
CORE INCOME................................................. 563 356 317
Restructuring-related items, after-tax...................... (4) (13) (64)
------ ------ ------
NET INCOME.................................................. $ 559 $ 343 $ 253
====== ====== ======
Average assets (IN BILLIONS OF DOLLARS)..................... $ 27 $ 25 $ 24
Return on assets............................................ 2.07% 1.37% 1.05%
====== ====== ======
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets............................................ 2.09% 1.42% 1.32%
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
Asia (excluding Japan)--which provides banking, lending and investment
services, including credit and charge cards, to customers throughout the
region--reported core income of $563 million in 2000, up $207 million or 58%
from 1999, reflecting loan growth, particularly credit cards, higher investment
product fees and deposit growth. Core income in 1999 grew $39 million or 12%
from 1998, reflecting business growth and expansion as the region rebounded from
weak 1998 results. Net income of $559 million in 2000, $343 million in 1999, and
$253 million in 1998 included restructuring-related charges of $4 million
($5 million pretax), $13 million ($23 million pretax), and $64 million
($83 million pretax), respectively.
In 2000, net foreign currency translation effects reduced revenue and
expense growth by approximately 1 and 3 percentage points, respectively. In
1999, strengthening currencies across the region increased both revenue and
expense growth by approximately 3 percentage points from 1998.
As shown in the following table, Asia accounts grew 13% in 2000 and 20% in
1999, reflecting growth in the cards business across the region, and favorable
economic conditions in most countries.
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Accounts (IN MILLIONS)................................. 8.1 7.2 6.0
Average customer deposits.............................. $33.8 $30.7 $27.7
Average loans.......................................... $22.2 $21.7 $19.4
</TABLE>
Revenues, net of interest expense, of $2.109 billion in 2000 increased
$257 million or 14% from 1999 reflecting improvements in most countries driven
by growth in cards, investment product fees, and deposits. Revenues in 1999
increased $295 million or 19% from 1998 reflecting business volume growth and
higher spreads.
Adjusted operating expenses of $962 million increased $19 million or 2% from
1999 reflecting increased variable compensation, including higher investment
product sales commissions, and increased
26
<PAGE>
marketing costs, offset by lower expenses in certain countries resulting from
previously implemented restructuring initiatives. Expenses in 1999 increased
$146 million or 18% from 1998, reflecting higher marketing spending across the
region, and costs associated with new branches and additional product offerings.
The provision for benefits, claims, and credit losses in 2000 was
$273 million compared with $341 million in 1999 and $243 million in 1998. The
net credit loss ratio was 1.16% in 2000, compared with 1.32% in 1999 and 1.12%
in 1998. Loans delinquent 90 days or more were $335 million or 1.51% of loans at
December 31, 2000, compared with $442 million or 1.93% at December 31, 1999 and
$486 million or 2.35% at December 31, 1998. The declines in the net credit loss
ratio and delinquencies from 1999 reflect favorable economic conditions in most
countries.
LATIN AMERICA
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,941 $1,970 $1,579
Adjusted operating expenses(2).............................. 1,307 1,194 1,066
Provisions for benefits, claims and credit losses........... 335 447 265
------ ------ ------
CORE INCOME BEFORE TAXES.................................... 299 329 248
Income taxes................................................ 91 107 99
------ ------ ------
CORE INCOME................................................. 208 222 149
Restructuring-related items, after-tax...................... (31) (27) (67)
------ ------ ------
NET INCOME.................................................. $ 177 $ 195 $ 82
====== ====== ======
Average assets (IN BILLIONS OF DOLLARS)..................... $ 12 $ 14 $ 11
Return on assets............................................ 1.48% 1.39% 0.75%
====== ====== ======
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets............................................ 1.73% 1.59% 1.35%
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
Latin America--which provides banking, lending and investment services,
including credit and charge cards, to customers throughout the region--reported
core income of $208 million in 2000, down $14 million or 6% from 1999,
reflecting reduced earnings related to Confia and lower business volumes due to
weak economic conditions, partially offset by lower credit costs and an increase
in earnings from Credicard, a 33%-owned Brazilian Card affiliate. Core income of
$222 million in 1999 increased from $149 million in 1998 primarily reflecting an
increase in earnings from Credicard, and the effect of certain acquisitions,
partially offset by higher credit costs. Net income of $177 million in 2000,
$195 million in 1999, and $82 million in 1998 included restructuring-related
charges of $31 million ($45 million pretax), $27 million ($42 million pretax),
and $67 million ($88 million pretax), respectively.
The net effect of foreign currency translation in 2000 was minimal. The
Brazilian currency devaluation in 1999 significantly contributed to the foreign
currency translation effects that reduced core income by approximately
$37 million in 1999 and reduced revenue and expense growth by approximately 10
and 7 percentage points, respectively, from 1998.
In 2000, minimal growth in accounts and deposits reflected economic
conditions in certain countries. The decline in average loans reflects the 2000
first quarter auto loan portfolio sale in Puerto
27
<PAGE>
Rico and credit risk management initiatives. In 1999, growth in accounts,
customer deposits and loans reflects acquisitions in the region with deposit
growth also reflecting a "flight to quality" in the region.
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Accounts (IN MILLIONS)................................. 9.1 8.8 7.3
Average customer deposits.............................. $13.7 $13.5 $10.2
Average loans.......................................... $ 7.2 $ 8.0 $ 7.8
</TABLE>
Revenues, net of interest expense, of $1.941 billion in 2000 decreased
$29 million or 1% from 1999 as higher Credicard earnings were offset by reduced
revenues from Confia and business volume declines in certain countries,
including the effect of the auto loan portfolio sale in Puerto Rico. Revenues in
1999 increased $391 million or 25% from 1998, reflecting acquisitions in the
region and increased Credicard earnings.
Adjusted operating expenses of $1.307 billion increased $113 million or 9%
from 1999 reflecting costs associated with new business initiatives, strategy
changes in certain countries, and acquisitions in the region. Expenses in 1999
grew $128 million or 12% from 1998 reflecting acquisitions.
The provisions for benefits, claims and credit losses was $335 million in
2000 compared to $447 million in 1999 and $265 million in 1998. The adoption of
revised FFIEC write-off policies in 2000 added $41 million to net credit losses,
which were charged against the allowance for credit losses, and 56 basis points
to the net credit loss ratio. The net credit loss ratio was 4.62% (4.06%
excluding the effect of FFIEC policy revisions) in 2000, compared to 5.30% in
1999 and 3.07% in 1998. Loans delinquent 90 days or more of $250 million or
3.66% of loans at December 31, 2000 decreased from $320 million or 4.10% at
December 31, 1999 and $288 million or 3.60% at December 31, 1998. The decline in
delinquent loans in 2000 from 1999 reflects additional write-offs related to the
adoption of revised FFIEC policies.
CENTRAL & EASTERN EUROPE, MIDDLE EAST & AFRICA
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE............... $ 418 $ 337 $ 273
Adjusted operating expenses(2)........................ 289 230 206
Provision for credit losses........................... 33 32 37
----- ----- -----
CORE INCOME BEFORE TAXES.............................. 96 75 30
Income taxes.......................................... 37 29 12
----- ----- -----
CORE INCOME........................................... 59 46 18
Restructuring-related items, after-tax................ 4 (17) --
----- ----- -----
NET INCOME............................................ $ 63 $ 29 $ 18
===== ===== =====
Average assets (IN BILLIONS OF DOLLARS)............... $ 3 $ 3 $ 3
Return on assets...................................... 2.10% 0.97% 0.60%
===== ===== =====
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets...................................... 1.97% 1.53% 0.60%
===== ===== =====
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
28
<PAGE>
Central & Eastern Europe, Middle East & Africa (CEEMEA--including India and
Pakistan)--which provides banking, lending and investment services, including
credit and charge cards, to customers throughout the region--reported core
income of $59 million in 2000, up $13 million or 28% from 1999, and in 1999 core
income was up $28 million or 156% from 1998, reflecting growth across the
region, particularly India. Net income of $63 million in 2000 and $29 million in
1999 included restructuring-related items of $4 million ($5 million pretax) and
($17) million (($27) million pretax), respectively. Core income in 1999 includes
a $16 million ($25 million pretax) gain related to an investment in an
affiliate.
The net effect of foreign currency translation reduced revenue growth by
approximately 5 and 4 percentage points and expense growth was reduced by
approximately 6 and 5 percentage points in 2000 and 1999, respectively.
As shown in the following table, CEEMEA reported 33% account growth in 2000
and 31% in 1999 primarily reflecting growth in credit cards and customer
deposits as franchise growth efforts continue across the region.
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Accounts (IN MILLIONS).................................... 2.8 2.1 1.6
Average customer deposits................................. $3.9 $3.6 $3.4
Average loans............................................. $1.9 $1.7 $1.4
</TABLE>
Revenues, net of interest expense, of $418 million in 2000 increased
$81 million or 24% from 1999 reflecting strong growth in cards and deposits, and
higher spreads. Revenues in 1999 were up $64 million or 23% from 1998, including
the $25 million gain in 1999 related to an investment in an affiliate.
Adjusted operating expenses of $289 million increased $59 million or 26%
from 1999 and in 1999 increased $24 million or 12% from 1998, reflecting higher
business volumes and costs associated with franchise growth in the region.
The provision for credit losses was $33 million in 2000 compared with
$32 million in 1999 and $37 million in 1998. The adoption of revised FFIEC
write-off policies in 2000 added $3 million to net credit losses, which were
charged against the allowance for credit losses, and 15 basis points to the net
credit loss ratio. The net credit loss ratio was 1.95% (1.80% excluding the
effect of FFIEC policy revisions) in 2000, down from 1.96% in 1999 and 2.63% in
1998. Loans delinquent 90 days or more of $32 million or 1.37% of loans at
December 31, 2000 decreased from $46 million or 2.25% at December 31, 1999 and
$44 million or 2.97% at December 31, 1998.
e-CONSUMER
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE.............. $ 172 $ 108 $ 77
Adjusted operating expenses.......................... 497 295 199
----- ----- ----
LOSS BEFORE TAX BENEFITS............................. (325) (187) (122)
Income tax benefits.................................. (123) (76) (47)
----- ----- ----
NET LOSS............................................. $(202) $(111) $(75)
===== ===== ====
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
29
<PAGE>
e-Consumer--the business responsible for developing and implementing Global
Consumer Internet financial services products and e-commerce solutions--reported
net losses of $202 million in 2000, compared to $111 million in 1999 and
$75 million in 1998.
Revenues, net of interest expense, were $172 million in 2000, up from
$108 million in 1999 and $77 million in 1998. Revenues in 2000 include gains
related to the sale of certain Internet/e-commerce investments.
Adjusted operating expenses of $497 million increased from $295 million and
$199 million in 1999 and 1998, respectively, reflecting continued investment
spending on Internet financial services. Expenses in 2000 include charges
related to the termination of certain contracts and other initiatives.
OTHER CONSUMER
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE............... $(11) $126 $164
Adjusted operating expenses(2)........................ 142 222 254
Provision for credit losses........................... -- 25 24
---- ---- ----
LOSS BEFORE TAX BENEFITS.............................. (153) (121) (114)
Income tax benefits................................... (55) (46) (47)
---- ---- ----
LOSS.................................................. (98) (75) (67)
Restructuring-related items, after-tax................ 2 (12) --
---- ---- ----
NET LOSS.............................................. $(96) $(87) $(67)
==== ==== ====
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
Other Consumer--which includes certain treasury operations and global
marketing and other programs--reported losses before restructuring-related items
of $98 million in 2000, compared with $75 million in 1999 and $67 million in
1998 reflecting lower treasury results, offset by lower marketing costs and
reduced staff levels. Expenses in 2000 also reflect costs associated with the
termination of certain global distribution initiatives. The 1999 and 1998
revenues, expenses and provision for credit losses include the results of the
private label cards business that was discontinued in early 2000. The net loss
of $96 million in 2000 and $87 million in 1999 included restructuring-related
items of $2 million ($2 million pretax) and ($12) million (($19) million
pretax), respectively.
CONSUMER PORTFOLIO REVIEW
In the consumer portfolio, credit loss experience is often expressed in
terms of annualized net credit losses as a percentage of average loans. Pricing
and credit policies reflect the loss experience of each particular product.
Consumer loans are generally written off no later than a predetermined number of
days past due on a contractual basis, or earlier in the event of bankruptcy. The
number of days is set at an appropriate level according to loan product and
country. The table below summarizes delinquency and net credit loss experience
in both the managed and on-balance sheet loan portfolios in terms of loans
90 days or more past due, net credit losses, and as a percentage of related
loans.
30
<PAGE>
CONSUMER LOAN DELINQUENCY AMOUNTS, NET CREDIT LOSSES, AND RATIOS
<TABLE>
<CAPTION>
TOTAL AVERAGE
In Millions of Dollars, LOANS 90 DAYS OR MORE PAST DUE(1) LOANS LOANS NET CREDIT LOSSES(1)
Except Loan Amounts -------- ------------------------------ -------- ------------------------------
in Billions 2000 2000 1999 1998 2000 2000 1999 1998
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Citibanking North
America................ $ 7.3 $ 35 $ 55 $ 93 $ 7.0 $ 64 $ 90 $ 106
Ratio.................... 0.48% 0.78% 1.25% 0.91% 1.22% 1.39%
Mortgage Banking......... 41.7 828 696 625 35.4 46 43 75
Ratio.................... 1.99% 2.31% 2.44% 0.13% 0.16% 0.31%
North America
Bankcards.............. 86.8 1,140 1,066 1,001 78.5 3,022 3,158 3,142
Ratio.................... 1.31% 1.44% 1.45% 3.85% 4.54% 5.32%
Other Cards.............. 1.7 6 21 19 1.8 65 49 38
Ratio.................... 0.35% 1.31% 1.27% 3.76% 3.00% 2.44%
CitiFinancial............ 20.1 277 203 171 17.4 340 295 291
Ratio.................... 1.38% 1.31% 1.44% 1.96% 2.18% 2.75%
Associates(2)............ 68.1 1,622 1,461 961 61.8 2,389 2,018 1,484
Ratio.................... 2.38% 2.62% 2.15% 3.87% 3.88% 3.71%
Western Europe........... 15.4 782 868 911 14.6 237 249 240
Ratio.................... 5.09% 5.75% 5.69% 1.62% 1.64% 1.61%
Japan.................... 3.6 8 11 12 3.2 20 12 8
Ratio.................... 0.22% 0.49% 1.01% 0.63% 0.76% 0.98%
Asia..................... 22.2 335 442 486 22.2 257 286 218
Ratio.................... 1.51% 1.93% 2.35% 1.16% 1.32% 1.12%
Latin America............ 6.8 250 320 288 7.2 332 419 239
Ratio.................... 3.66% 4.10% 3.60% 4.62% 5.30% 3.07%
CEEMEA................... 2.3 32 46 44 1.9 38 32 37
Ratio.................... 1.37% 2.25% 2.97% 1.95% 1.96% 2.63%
The Citigroup Private
Bank(3)................ 26.4 61 120 193 24.2 23 19 5
Ratio.................... 0.23% 0.54% 1.14% 0.09% 0.10% 0.03%
Other.................... 0.4 -- 4 10 0.3 -- 23 23
------ ------- ------ ------ ------ ------- ------- -------
TOTAL MANAGED............ 302.8 5,376 5,313 4,814 275.5 6,833 6,693 5,906
RATIO.................... 1.78% 2.07% 2.13% 2.48% 2.80% 2.90%
------ ------- ------ ------ ------ ------- ------- -------
Securitized
receivables............ (60.6) (1,012) (916) (717) (57.0) (2,228) (2,479) (2,194)
Loans held for sale...... (13.3) (110) (32) (38) (8.7) (182) (121) (134)
------ ------- ------ ------ ------ ------- ------- -------
CONSUMER LOANS........... $228.9 $ 4,254 $4,365 $4,059 $209.8 $ 4,423 $ 4,093 $ 3,578
RATIO.................... 1.86% 2.24% 2.35% 2.11% 2.24% 2.23%
====== ======= ====== ====== ====== ======= ======= =======
</TABLE>
- ------------------------
(1) The ratios of 90 days or more past due and net credit losses are calculated
based on end-of-period and average loans, respectively, both net of unearned
income.
(2) Associates results are reported in the Associates segment.
(3) The Citigroup Private Bank results are reported as part of the Global
Investment Management and Private Banking segment.
31
<PAGE>
CONSUMER LOAN BALANCES, NET OF UNEARNED INCOME
<TABLE>
<CAPTION>
END OF PERIOD AVERAGE
------------------------------ ------------------------------
In Billions of Dollars 2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TOTAL MANAGED............................... $302.8 $257.2 $225.9 $275.5 $239.3 $203.6
Securitized receivables..................... (60.6) (58.0) (47.8) (57.0) (51.0) (38.2)
Loans held for sale......................... (13.3) (4.6) (5.1) (8.7) (5.5) (4.7)
------ ------ ------ ------ ------ ------
CONSUMER LOANS.............................. $228.9 $194.6 $173.0 $209.8 $182.8 $160.7
====== ====== ====== ====== ====== ======
</TABLE>
Total delinquencies 90 days or more past due in the managed portfolio were
$5.376 billion with a related delinquency ratio of 1.78% at December 31, 2000,
compared with $5.313 billion or 2.07% at December 31, 1999 and $4.814 billion or
2.13% at December 31, 1998. Total managed net credit losses in 2000 were
$6.833 billion and the related loss ratio was 2.48%, compared with
$6.693 billion and 2.80% in 1999 and $5.906 billion and 2.90% in 1998. For a
discussion on trends by business, see business discussions on pages 13-30.
Citigroup's allowance for credit losses of $8.961 billion is available to
absorb all probable credit losses inherent in the portfolio. For analytical
purposes only, the portion of Citigroup's allowance for credit losses attributed
to the consumer portfolio was $4.973 billion as of December 31, 2000, down from
$5.158 billion in 1999 and up from $4.879 billion as of December 31, 1998. The
allowance as a percentage of loans on the balance sheet was 2.17% as of
December 31, 2000, down from 2.65% at December 31, 1999 reflecting improved
credit performance in the portfolio. The attribution of the allowance is made
for analytical purposes only and may change from time to time.
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Allowance for credit losses(1).............................. $4,973 $5,158 $4,879
As a percentage of total consumer loans..................... 2.17% 2.65% 2.82%
</TABLE>
- ------------------------
(1) Includes $1.746 billion, $1.727 billion and $1.569 billion at December 31
2000, 1999, and 1998, respectively, related to Associates.
GLOBAL CONSUMER OUTLOOK
The statements below are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act. See "Forward-Looking Statements"
on page 59.
BANKING/LENDING
CITIBANKING NORTH AMERICA. 2000 was a year of continued success.
Citibanking invested in programs and staff to improve operations and customer
service while continuing to reduce overall expenses. In addition, Citibanking
implemented its needs based sales approach through Citipro, a complimentary
financial needs analysis that assesses customers' needs and recommends
appropriate financial products to meet those needs. In 2001, Citibanking expects
business volumes to increase, including loans, which have declined in the past
two years, however, lower interest rates may narrow spreads.
On February 12, 2001, Citigroup agreed to acquire European American Bank
(EAB), a state-chartered bank with $11.5 billion in deposits, $15.4 billion in
assets and 97 branches in the New York area. The transaction, which upon
completion will be immediately accretive to Citigroup's earnings, is subject to
customary bank regulatory approvals and is expected to close in mid-2001.
32
<PAGE>
MORTGAGE BANKING. In 2000, Mortgage Banking, increased core income by 21%
over 1999. New loan production was 13% higher than 1999 as mortgage market share
increased and was supported by the cross-sell success of Salomon Smith Barney
financial consultants selling approximately $1 billion of mortgage products.
Student Loans retained its top industry ranking for volume and continued to
expand its Internet presence by sourcing 40% of new loan applications through
its website versus 16% in 1999. In 2001, core income should improve over 2000 if
increased refinancing activity occurs as a result of lower interest rates, by
the development of Internet-based partnerships, and additional e-commerce
volumes. Credit costs are not expected to improve further from 2000, due to
volume growth and U.S. economic conditions.
NORTH AMERICA CARDS. The Cards business achieved improved performance in
2000 despite a challenging interest rate environment and continuing competitive
pressures. Despite lower spreads, return on managed assets increased as both net
credit loss and expense ratios improved. In 2001, the business is expected to
show continued growth as lower interest rates should help improve spreads;
however, credit costs and delinquencies are expected to increase from 2000
levels as a result of the U.S. economic environment and continued business
growth.
CITIFINANCIAL. The addition of approximately 100 new branches, successful
integration of prior years acquisitions, and the continuation of originating new
volume through Citigroup affiliates contributed to the growth of the business in
2000. CitiFinancial will continue to pursue growth by expanding and developing
new channels and diversifying its product offerings. As in the past, cross-
selling opportunities among Citigroup affiliates will continue. The slowing U.S.
economy may mitigate growth in 2001 and credit performance is expected to
deteriorate as previous portfolio additions mature and the uncertain economic
environment persists.
INSURANCE INDUSTRY
A variety of factors continue to affect the property and casualty insurance
market and the Company's core business outlook, including a firming of pricing
in the commercial lines marketplace as evidenced by price increases, a
continuing highly competitive personal lines marketplace, inflationary pressures
on loss cost trends including medical inflation and increasing auto loss costs,
rising reinsurance costs and litigation.
Changes in the general interest rate environment affect the return received
by the insurance subsidiaries on newly invested and reinvested funds. While a
rising interest rate environment enhances the returns available, it reduces the
market value of existing fixed maturity investments and the availability of
gains on disposition. A decline in interest rates reduces the return available
on investment of funds, but creates the opportunity for realized investment
gains on disposition of fixed maturity investments.
Certain social, economic, political, and litigation issues have led to an
increased number of legislative and regulatory proposals aimed at addressing the
cost and availability of certain types of insurance, as well as the claim and
coverage obligations of insurers. While most of these provisions have failed to
become law, these initiatives may continue as legislators and regulators try to
respond to the public availability, affordability, and claims concerns, and the
resulting laws, if any, could adversely affect the Company's ability to write
business with appropriate returns.
TRAVELERS LIFE AND ANNUITY should benefit from growth in the aging
population who are becoming more focused on the need to accumulate adequate
savings for retirement, to protect these savings and to plan for the transfer of
wealth to the next generation. Travelers Life and Annuity is well positioned to
take advantage of the favorable long-term demographic trends through its strong
financial position, widespread brand name recognition and broad array of
competitive life, annuity and retirement and estate planning products sold
through established distribution channels.
33
<PAGE>
However, competition in both product pricing and customer service is
intensifying. While there has been some consolidation within the industry, other
financial services organizations are increasingly involved in the sale and/or
distribution of insurance products. Financial Services reform is likely to have
many effects on the life insurance industry and the results will take time to
assess; however, heightened competition is expected. Also, the annuities
business is interest rate and market sensitive, and swings in interest rates and
equity markets could influence sales and retention of in-force policies. In
order to strengthen its competitive position, Travelers Life and Annuity expects
to maintain a current product portfolio, further diversify its distribution
channels, and retain its healthy financial position through strong sales growth
and maintenance of an efficient cost structure.
PRIMERICA. During the last few years, primerica has instituted programs
including sales and product training that are designed to maintain high
compliance standards, increase the number of producing agents and customer
contacts and, ultimately, increase production levels. Additionally, increased
effort has been made to provide all Primerica customers full access to all
Primerica marketed lines. Insurance in force continues to grow. A continuation
of these trends could positively influence future operations. Primerica
continues to expand cross selling with other Company subsidiaries of products
such as loans, mutual funds, and annuity products.
PERSONAL LINES strategy includes control of operating expenses to improve
competitiveness and profitability, growth in sales primarily through independent
agents and selective expansion of alternative marketing channels to broaden
distribution to a wider customer base. Personal Lines is continuing to grow its
nonstandard auto insurance to broaden its product capabilities. These growth
strategies also provide opportunities to leverage the existing cost structure
and achieve economies of scale. In addition, Personal Lines continues to take
action to control its exposure to catastrophe losses, including limiting the
writing of new homeowners business in certain markets and implementing price
increases in certain hurricane-prone areas, subject to restrictions imposed by
insurance regulatory authorities.
The personal auto insurance marketplace remains highly competitive as some
personal auto carriers have been reluctant to increase prices despite increases
in loss cost trends due to inflationary pressures. These trends are expected to
continue into 2001. Personal Lines will continue to emphasize underwriting
discipline in this competitive marketplace and continue to pursue its strategy
of increases in auto rates to offset increases in loss cost trends. Market
conditions for homeowners insurance have remained stable with the industry
experiencing modest rate increases. Personal Lines expects homeowners rate
increases to continue in 2001. Homeowners loss cost trends continue to increase
at modest levels, reflecting inflationary pressures and the increased frequency
of weather-related losses.
The property and casualty insurance industry continues to be reshaped by
consolidations. The Company's strategic objectives are to enhance its position
as a consistently profitable market leader and to become a low-cost provider of
property and casualty insurance in the United States, as the industry
consolidates.
In relation to the Company's objective of being a low-cost provider of
property and casualty insurance, an emphasis on claim payout and performance and
enhanced productivity efforts is expected to continue.
INTERNATIONAL CONSUMER
WESTERN EUROPE. The outlook for the Western Europe region appears to be
favorable. The economic convergence of Eurozone is progressing and increasing
its breadth with the inclusion of Greece as of January 2001. In 2001, the
business will continue to focus on the development of Internet banking and
investment products, along with consumer finance and cards. As social reforms
take hold, an increasing recognition on the part of consumers that they will
need to fund their own retirements is fueling a substantial investment product
opportunity. Citigroup's strengths in distribution and consistent
34
<PAGE>
global advertising and marketing efforts will provide a strong platform to
expand beyond the current European presence.
JAPAN. The acquisition of Diners Japan in 2000 expanded the country's loan
portfolio and contributed to both revenue and income growth. Growth was reported
across all product categories in 2000 and is planned to continue in 2001. In
2001, the business focus will be on expanding cards, revolving credit, and
investment products. While competitive pressures are expected to continue and
compress spreads, the business plans to grow through volume and fee revenue
increases. Credit costs are expected to increase modestly due to volume growth.
CENTRAL & EASTERN EUROPE, MIDDLE EAST & AFRICA. The business experienced
strong momentum in 2000 with a 28% increase in core income, driven by an
expanded presence in the region and the rapid emergence of a middle class with
increasing financial services needs. In 2000, revenue and account growth was
driven by leadership in cards across the region, the development of the consumer
finance franchise in key markets, and increased focus on investment and
insurance product sales. The priorities for 2001 will be the growth of market
share in established markets, further integration of acquisitions in India,
Poland and Hungary, continued development of the new franchises, and the launch
of innovative products and services using the Internet and mobile channels. The
business plans to grow in 2001, despite increased competitive pressures.
ASIA. The region recorded strong financial performance in 2000, driven by
volume growth, expense management initiatives and favorable credit performance,
despite pricing compression and currency devaluation in a number of countries.
Credit costs in 2000 were low compared to previous years, and are expected to
increase modestly in 2001 to reflect business growth. The business focus in 2001
will be on continuing the 2000 momentum to expand the cards, revolving credit,
and investment products portfolios.
LATIN AMERICA. In 2000, the region continued to experience weak economic
conditions in some of its countries. Tight controls in loan underwriting and
collections resulted in improved credit performance, offsetting a portion of the
revenue weakness. The termination and subsequent partial restoration of a
subsidy from the Mexican government also impacted results. The business will
continue to focus on products with reduced risk and population segments and
continue to implement operating expense reduction programs. The partial
restoration of the subsidy from the Mexican government coupled with expected
improvement in the economic climate and stable credit costs should position the
Latin American region for growth in 2001.
e-CONSUMER. In 2000 the business launched several new product initiatives,
including Citibank Online, C2it and MyCiti, and entered into a strategic
alliance with America Online. Expenses in 2000 included one-time charges related
to the termination of certain contracts and other initiatives. In 2001, the
business will continue to develop and refine product offerings and focus on
strategic alliances that will extend Citigroup's ability to deliver financial
services via the Internet and improve cross selling opportunities with other
Citigroup businesses. These efforts should position Citigroup to grow with the
digital economy and improve product distribution and customer service
capabilities.
35
<PAGE>
GLOBAL CORPORATE AND INVESTMENT BANK
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $32,094 $27,505 $22,441
Adjusted operating expenses(2).............................. 18,205 15,733 14,575
Provisions for benefits, claims, and credit losses.......... 4,086 3,857 4,163
------- ------- -------
CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 9,803 7,915 3,703
Income taxes................................................ 3,365 2,752 1,214
Minority interest, after-tax................................ 68 167 143
------- ------- -------
CORE INCOME................................................. 6,370 4,996 2,346
Restructuring-related items, after-tax...................... (11) 121 26
------- ------- -------
NET INCOME(3)............................................... $ 6,359 $ 5,117 $ 2,372
======= ======= =======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
(3) The 1999 period excludes cumulative effect of accounting changes.
Citigroup's Global Corporate and Investment Bank business serves
corporations, financial institutions, governments, investors and other
participants in capital markets throughout the world and consists of Salomon
Smith Barney and The Global Relationship Bank, Emerging Markets Corporate
Banking and the Commercial Lines business of TPC. SSB is one of the largest
investment banking, underwriting and brokerage firms in the world, with a
significant presence in most major financial products. GRB focuses on providing
banking, capital markets and transaction processing services to large
multinational companies in 22 developed countries. EM Corporate provides a wide
array of banking products and services to multinational and large and emerging
local corporations in 78 emerging market countries. TPC is one of the largest
property and casualty insurers in the United States offering, among other
products, workers' compensation, commercial multi-peril, commercial auto, other
liability, fidelity and surety and property and other lines, which it
distributes through independent agents and brokers.
The Global Corporate and Investment Bank reported core income of
$6.370 billion in 2000, up $1.374 billion or 28% from 1999, reflecting continued
strong growth across the franchise. The growth in core income was led by SSB &
GRB, up $699 million to $3.688 billion, EM Corporate, up $448 million to
$1.610 billion, and Commercial Lines, up $227 million to $1.072 billion. Core
income growth at SSB & GRB was driven by double-digit revenue growth across most
businesses partially offset by increases in expenses and the provision for
credit losses. EM Corporate's core income growth was driven by broad-based
growth in revenues, tight expense control management and improved credit.
Commercial Lines growth primarily reflects incremental earnings from the
minority interest buyback, revenue growth from rate increases achieved during
the year, higher fee income and lower catastrophe losses.
Net income of $6.359 billion, $5.117 billion (excluding a charge of
$127 million for the cumulative effect of accounting changes) and
$2.372 billion in 2000, 1999 and 1998, respectively, included a
restructuring-related charge of $11 million ($18 million pretax) in 2000 and net
restructuring-related credits of $121 million ($207 million pretax) in 1999 and
$26 million ($62 million pretax) in 1998. Restructuring-related items in 1999
consist mainly of a release of the 1997 restructuring reserve that resulted from
SSB's reassessment of space needs. Restructuring-related items in 1998 included
a reduction of the 1997 restructuring reserve of $191 million ($324 million
pretax) that resulted from SSB's favorable negotiations on a sublease on the
Seven World Trade Center location. Also included in
36
<PAGE>
1998 is a restructuring charge of $165 million ($262 million pretax) related to
initiatives designed to realize synergies and operating efficiencies. See
Note 15 of Notes to Consolidated Financial Statements for further discussion of
restructuring-related items.
SALOMON SMITH BARNEY AND THE GLOBAL RELATIONSHIP BANK
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $20,316 $16,893 $12,323
Adjusted operating expenses(2).............................. 14,427 12,176 11,006
Provision (benefit) for credit losses....................... 161 6 (27)
------- ------- -------
CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 5,728 4,711 1,344
Income taxes................................................ 2,045 1,722 483
Minority interest, after-tax................................ (5) -- --
------- ------- -------
CORE INCOME................................................. 3,688 2,989 861
Restructuring-related items, after-tax...................... -- 131 76
------- ------- -------
NET INCOME(3)............................................... $ 3,688 $ 3,120 $ 937
======= ======= =======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
(3) The 1999 period excludes cumulative effect of accounting changes.
Core income was $3.688 billion in 2000 compared to $2.989 billion in 1999
and $861 million in 1998. Salomon Smith Barney and The Global Relationship
Bank's earnings during 2000 reflect double-digit revenue growth across most
businesses partially offset by increases in expenses and the provision for
credit losses, including the impact of acquisitions in 2000. Core income of
$2.989 billion in 1999 increased $2.128 billion compared to 1998, primarily
reflecting a rebound from 1998 economic turmoil and strong revenue growth in
1999. Net income of $3.120 billion and $937 million in 1999 and 1998,
respectively, included restructuring-related credits of $131 million
($224 million pretax) and $76 million ($135 million pretax), respectively. See
Note 15 of Notes to Consolidated Financial Statements for a discussion of the
restructuring-related items.
On May 1, 2000, SSB completed the approximately 1.36 billion British Pound
($2.2 billion) acquisition of the global investment banking business and related
net assets of Schroders PLC (Schroders), including all corporate finance,
financial markets and securities activities. The combined European operations of
SSB are now known as Schroder Salomon Smith Barney. During the second quarter of
2000, GRB strengthened its position in the U.S. leasing market through the
purchase of Copelco.
37
<PAGE>
Revenues for the years ended December 31 by category were as follows:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Commissions and fees........................................ $ 5,178 $ 4,365 $ 4,203
Investment banking.......................................... 4,087 3,350 2,549
Principal transactions...................................... 4,396 3,717 719
Asset management and administration fees(1)................. 2,618 2,024 1,356
Interest and dividend income, net........................... 3,523 3,399 3,315
Other income................................................ 514 38 181
------- ------- -------
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $20,316 $16,893 $12,323
======= ======= =======
</TABLE>
- ------------------------
(1) Excludes the revenues of SSB Asset Management which are reported in the
Citigroup Asset Management segment.
Revenues, net of interest expense, increased 20% in 2000 to $20.316 billion
from $16.893 billion in 1999 which, in turn, increased 37% from $12.323 billion
in 1998. The 2000 increase compared to 1999 reflects continued strong growth
across all businesses. The 1999 increase compared to 1998 primarily reflects
strong growth in all businesses as well as a rebound from the 1998 economic
turmoil.
Commissions and fees revenue increased 19% in 2000 to $5.178 billion from
$4.365 billion in 1999 and $4.203 billion in 1998. The 2000 and 1999 increases
reflect growth in sales of listed and over-the-counter securities along with
increased mutual fund commissions and GRB transaction services fees in 2000.
Investment banking revenues were $4.087 billion in 2000 compared to
$3.350 billion in 1999 and $2.549 billion in 1998. Growth in 2000 was primarily
due to growth in equity and high grade debt underwriting and in merger and
acquisition fees and was partially offset by a decline in high yield
underwriting. The increase in 1999 compared to 1998 reflects higher equity and
high grade debt underwriting combined with increased mergers and acquisitions
fees.
Principal transactions revenues were $4.396 billion in 2000, up
$679 million or 18% from 1999, primarily reflecting increases in global
equities, fixed income and foreign exchange. Principal transactions were
$3.717 billion in 1999 compared to $719 million in 1998. In 1998 trading results
were adversely impacted by significant dislocations in the global fixed income
markets, including greatly reduced liquidity and widening credit spreads.
Asset management and administration fees were $2.618 billion in 2000
compared to $2.024 billion in 1999 and $1.356 billion in 1998. The year-to-year
increases reflect growth in assets under fee-based management. These fees
include results from assets managed by the Financial Consultants and other
internally managed assets as well as those that are managed through the
Consulting Group.
Total assets under fee-based management at December 31, were as follows:
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Financial Consultant managed........................ $ 56.2 $ 43.6 $ 23.5
Consulting Group and internally managed............. 145.6 126.2 102.4
------ ------ ------
TOTAL ASSETS UNDER FEE-BASED MANAGEMENT(1).......... $201.8 $169.8 $125.9
====== ====== ======
</TABLE>
- ------------------------
(1) Includes assets managed jointly with Citigroup Asset Management.
38
<PAGE>
Interest and dividend income, net, was $3.523 billion in 2000 compared to
$3.399 billion in 1999 and $3.315 billion in 1998. The increase in 2000 was
primarily due to the addition of Copelco. The 1999 increase primarily reflects
increases in margin lending to clients.
Other income was $514 million in 2000 compared with $38 million in 1999,
primarily reflecting an increase in ownership in Nikko Securities along with
higher income from the Nikko SSB joint venture which began operations during the
1999 first quarter. Other income of $38 million in 1999 was down $143 million
from 1998 primarily due to 1998 gains resulting from the disposition of real
estate investments in GRB.
Adjusted operating expenses were $14.427 billion in 2000 compared to
$12.176 billion in 1999 and $11.006 billion in 1998. Adjusted operating expenses
increased 18% in 2000 compared to 1999 primarily due to higher production
related compensation and benefits expense, including the impact of the
acquisitions of Schroders and Copelco in the 2000 second quarter, partially
offset by the absence of year 2000 and European Economic Monetary Union
expenses. Adjusted operating expenses increased 11% in 1999 over 1998 primarily
due to an increase in production-related expenses, corresponding to increased
revenues.
The provision for credit losses was $161 million in 2000 compared to
$6 million in 1999 and net benefits of $27 million in 1998. The increase in 2000
compared to 1999 was due to 2000 losses on exposures to North American health
care borrowers; recoveries on real estate loans in 1999; and the inclusion of
losses for Copelco, which was acquired in the second quarter of 2000. Exposures
to healthcare were limited in 1999 and were significantly reduced during 2000.
Copelco is an equipment lease financing business that incurred an acceptable
level of credit losses in the normal course of its business. Net benefits in
1998 were primarily the result of real estate recoveries partially offset by
write-offs resulting from the financial market turmoil in Russia.
Cash-basis loans at December 31, 2000, 1999 and 1998 were $539 million,
$304 million and $268 million while the Other Real Estate Owned (OREO) portfolio
totaled $115 million, $156 million and $235 million, respectively. In all
periods, cash-basis loans represent less than 0.2% of total outstanding loans
and unfunded commitments. Approximately half of the increase in cash-basis loans
in 2000 was due to the acquisition of Copelco, with the balance attributable to
borrowers in North America. The increase in cash-basis loans in 1999 was due to
an increase in North America, primarily in the health-care industry, partially
offset by improvements in the real estate portfolio. The improvements in OREO in
2000 and 1999 were primarily related to the North America real estate portfolio.
EMERGING MARKETS CORPORATE BANKING
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $5,078 $4,347 $3,637
Adjusted operating expenses(2).............................. 2,332 2,124 1,994
Provision for credit losses................................. 185 347 424
------ ------ ------
CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 2,561 1,876 1,219
Income taxes................................................ 928 708 457
Minority interest, after-tax................................ 23 6 --
------ ------ ------
CORE INCOME................................................. 1,610 1,162 762
Restructuring-related items, after-tax...................... (11) (10) (50)
------ ------ ------
NET INCOME.................................................. $1,599 $1,152 $ 712
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
39
<PAGE>
Emerging Markets Corporate Banking core income totaled $1.610 billion in
2000, up $448 million or 39% from 1999, reflecting broad based revenue growth,
tight expense control management and improved credit in Asia. The improvement in
core income was driven by growth across all regions with Asia up $212 million to
$588 million, CEEMEA up $138 million to $393 million and Latin America up
$34 million to $566 million. In June 2000, EM Corporate completed the
acquisition of a majority interest in Bank Handlowy, Poland's largest corporate
bank. Core income in 1999 of $1.162 billion increased $400 million or 52% from
1998, mainly reflecting Russia-related losses in 1998 and strong 1999 revenue
growth in Latin America. Net income of $1.599 billion, $1.152 billion and
$712 million in 2000, 1999 and 1998, respectively, included
restructuring-related items of $11 million ($18 million pretax), $10 million
($17 million pretax) and $50 million ($73 million pretax), respectively.
Revenues, net of interest expense, of $5.078 billion in 2000 grew
$731 million or 17% compared with 1999. Revenue growth in 2000 was led by
CEEMEA, up 36% from 1999, due to the acquisition of Bank Handlowy along with
growth in trading-related revenues and transaction services. Asia revenues were
up 10% in 2000 as growth in transaction services and higher realized investment
gains were partially offset by a decline in trading-related revenues. Latin
America revenues were up 6% in 2000 reflecting growth in transaction services,
capital markets and asset based finance, partially offset by lower
trading-related revenues. Revenues of $4.347 billion in 1999 grew $710 million
or 20% compared with 1998, reflecting double-digit growth in revenues from loan
products, structured products and transaction services along with an
$86 million improvement in trading-related revenues.
Revenues in the EM Corporate business that were attributable to business
from multinational companies managed jointly with GRB grew 10% in 2000 and 17%
in 1999. These revenues accounted for approximately 23%, 25% and 25% of total EM
Corporate revenues in 2000, 1999 and 1998, respectively.
Adjusted operating expenses in 2000 were well controlled, increasing
$208 million or 10% to $2.332 billion (up 4% excluding the impact of the
acquisition of Bank Handlowy). Expense growth was primarily due to investment
spending to gain market share in selected emerging market countries and other
volume related increases. Expenses in 1999 were $2.124 billion, up $130 million
or 7% compared to 1998, as investment spending and volume growth were
essentially funded by savings from prior restructuring actions and other expense
initiatives.
The provision for credit losses totaled $185 million and $347 million in
2000 and 1999, respectively, down $162 million and $77 million compared with the
respective prior-year periods. Net credit losses in 2000 were down $185 million
or 46% compared to 1999, primarily reflecting improvements in Asia, mainly
China, Indonesia, Australia and Thailand, and in CEEMEA. The improvement in net
credit losses in 1999, down $40 million compared to 1998, was primarily
attributable to lower write-offs in Russia and Asia, partially offset by an
increase in Latin America.
Cash-basis loans at December 31, 2000, 1999 and 1998 were $1.147 billion,
$1.044 billion and $1.062 billion, respectively. The increase in 2000 was
primarily due to the acquisition of Bank Handlowy along with increases in Latin
America, partially offset by improvements in Asia. The 1999 balance reflected
decreases in Asia, partially offset by increases in Latin America.
40
<PAGE>
COMMERCIAL LINES
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $6,700 $6,265 $6,481
Claims and claim adjustment expenses........................ 3,740 3,504 3,766
Total operating expenses.................................... 1,446 1,433 1,575
------ ------ ------
INCOME BEFORE TAXES AND MINORITY INTEREST................... 1,514 1,328 1,140
Income taxes................................................ 392 322 274
Minority interest, after-tax(1)............................. 50 161 143
------ ------ ------
NET INCOME(2)(3)............................................ $1,072 $ 845 $ 723
====== ====== ======
</TABLE>
- ------------------------
(1) See Note 2 of Notes to Consolidated Financial Statements.
(2) Excludes investment gains/losses included in Investment Activities segment.
(3) 1999 excludes cumulative effect of accounting changes.
Commercial Lines--which offers a broad array of property and casualty
insurance and insurance-related services through brokers and independent
agencies--reported net income, excluding the effect of accounting changes in
1999, of $1.072 billion in 2000 compared to $845 million in 1999 and
$723 million in 1998. The improvements in 2000 over 1999 reflect the incremental
earnings from the minority interest buyback, rate increases, higher fee income,
lower catastrophe losses, and higher net investment income and were partially
offset by increased loss cost trends and lower favorable prior-year reserve
development. Results for 2000 and 1999 reflect benefits resulting from
legislative actions that changed the manner in which certain states finance
their workers' compensation second-injury funds principally in the states of New
York and Pennsylvania. The 1999 increase compared to 1998 reflects a benefit
resulting from legislative actions by the states of New York and Pennsylvania
and favorable prior-year reserve development. Also contributing to the earnings
improvement in 1999 were lower weather-related losses and lower operating
expenses, partially offset by lower fee income.
On May 31, 2000, the Company completed the acquisition of the surety
business of Reliance Group Holdings, Inc. (Reliance Surety) for $580 million. In
the third quarter of 2000 the Company purchased the renewal rights to a portion
of Reliance Group Holdings, Inc.'s commercial lines middle-market book of
business (Reliance Middle Market) and also acquired the renewal rights to
Frontier Insurance Group, Inc.'s (Frontier) environmental, excess and surplus
lines casualty businesses and certain classes of surety business.
The following table shows net written premiums by market for the three years
ended December 31:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
National accounts................................... $ 352 $ 488 $ 625
Commercial accounts................................. 2,099 1,816 1,800
Select accounts..................................... 1,576 1,494 1,494
Specialty accounts.................................. 1,004 610 695
------ ------ ------
TOTAL NET WRITTEN PREMIUMS.......................... $5,031 $4,408 $4,614
====== ====== ======
</TABLE>
Commercial Lines net written premiums were $5.031 billion in 2000 compared
to $4.408 billion in 1999 and $4.614 billion in 1998. Included in Specialty
Accounts net written premiums in 2000 is an adjustment of $131 million due to a
reinsurance transaction associated with the acquisition of the
41
<PAGE>
Reliance Surety business. Net written premiums continues to reflect the impact
of an improving rate environment as evidenced by the favorable pricing on
renewal business and an increase in new business premiums. Also contributing to
the net written premium increases in 2000 was the new business associated with
the acquisition of the renewal rights for the Reliance Middle Market business in
Commercial Accounts, and the impact of the ongoing business associated with the
Reliance Surety acquisition and the new business associated with the acquisition
of the renewal rights for the Frontier business in Specialty Accounts. The net
written premium decrease in National Accounts was primarily due to a shift of
business mix from premium-based products to fee-based products. The decrease in
1999 net written premiums reflects the highly competitive marketplace and the
Company's continued disciplined approach to underwriting and risk management.
Also contributing to the 1999 decrease in net written premiums in National
Accounts and Specialty Accounts is the impact of additional reinsurance
coverage. The slight increase in Commercial Accounts net written premiums in
1999 reflects growth in specific business segments and an improving rate
environment.
New business in National Accounts for 2000 was marginally lower than in
1999, reflecting the Company's continued disciplined approach to underwriting
and risk management. National Accounts new business in 1999 was significantly
lower than in 1998 reflecting the Company's continued disciplined approach to
underwriting and risk management in the highly competitive marketplace. National
Accounts business retention ratio for 2000 was moderately lower than 1999,
reflecting an increase in lost business due to the renewal price increases in
2000. National Accounts business retention ratio was moderately higher in 1999
than in 1998, primarily reflecting the loss of one large account in 1998.
New business in Commercial Accounts for 2000 was significantly higher than
in 1999, reflecting the impact of the Reliance Middle Market business. In 1999,
new business in Commercial Accounts was significantly lower than in 1998,
reflecting the Company's selective underwriting policy and continued focus on
obtaining profitable new business accounts. Commercial Accounts business
retention ratio for 2000 was moderately lower than 1999, reflecting an increase
in lost business due to the renewal price increases in 2000. The Commercial
Accounts business retention ratio in 1999 was virtually the same as in 1998.
For 2000, new business in Select Accounts was moderately higher than in
1999, while for 1999 new business was significantly lower than in 1998. These
changes reflect the unusually low new business in 1999 resulting from the
Company's selective underwriting policy in the highly competitive marketplace.
The business retention ratio for 2000 was moderately lower than in 1999,
reflecting an increase in lost business due to renewal price increases in 2000.
Select Accounts business retention ratio in 1999 was virtually the same as 1998.
There were no catastrophe losses in 2000. Catastrophe losses, net of tax and
reinsurance, were $27 million in 1999 compared to $25 million in 1998. The 1999
catastrophe losses were primarily due to Hurricane Floyd in the third quarter
and tornadoes in Oklahoma in the second quarter. The 1998 catastrophe losses
were primarily due to Hurricane Georges in the third quarter and tornadoes in
Nashville, Tennessee in the second quarter.
The statutory combined ratio before policyholder dividends for Commercial
Lines was 103.8% in 2000 compared to 108.6% in 1999 and 108.2% in 1998. The GAAP
combined ratio before policyholder dividends for Commercial Lines was 100.1% in
2000 compared to 105.0% in1999 and 109.5% in 1998. GAAP combined ratios for
Commercial Lines differ from statutory combined ratios primarily due to the
deferral and amortization of certain expenses for GAAP reporting purposes only.
The 2000 statutory and GAAP combined ratios include an adjustment associated
with the acquisition of the Reliance Surety business. Excluding this adjustment,
the 2000 statutory and GAAP combined ratios before policyholder dividends would
have been 103.5% and 100.8%, respectively. The 1999 statutory combined ratio for
Commercial Lines reflected the treatment of the commutation of an
42
<PAGE>
asbestos liability to an insured. Excluding this commutation, the statutory
combined ratio before policyholder dividends for 1999 would have been 106.1%.
The improvement in the 2000 statutory and GAAP combined ratios before
policyholder dividends, excluding the adjustments above, compared to the 1999
statutory and GAAP combined ratios before policyholder dividends was primarily
due to premium growth related to rate increases as well as the impact of the
ongoing business associated with the Reliance Surety acquisition and the
purchase of the renewal rights for the Reliance Middle Market and Frontier
businesses and lower catastrophe losses, partially offset by increased loss cost
trends and lower favorable prior-year reserve development.
The improvement in the 1999 statutory combined ratio before policyholder
dividends, excluding the commutation, compared to 1998 was primarily due to
favorable prior-year reserve development and lower weather-related losses. The
decrease in the 1999 GAAP combined ratio before policyholder dividends compared
to 1998 was due to favorable prior-year reserve development, lower weather-
related losses, and the benefit of the New York and Pennsylvania legislative
actions, partially offset by lower fee income.
ENVIRONMENTAL CLAIMS
The Company continues to receive claims from insureds, alleging that they
are liable for injury or damage arising out of their alleged disposition of
toxic substances. Mostly, these claims are due to various legislative as well as
regulatory efforts aimed at environmental remediation. The Company has been, and
continues to be, involved in litigation involving insurance coverage issues
pertaining to environmental claims. The Company believes that certain court
decisions have interpreted the insurance coverage to be broader than the
original intent of the insurers and insureds. These decisions often pertain to
insurance policies that were issued by the Company prior to the mid-1970s. These
decisions continue to be inconsistent and vary from jurisdiction to
jurisdiction. Environmental claims when submitted rarely indicate the monetary
amount being sought by the claimant from the insured and the Company does not
keep track of the monetary amount being sought in those few claims which
indicate such a monetary amount.
The Company's reserves for environmental claims are not established on a
claim-by-claim basis. An aggregate bulk reserve is carried for all of the
Company's environmental claims that are in the dispute process, until the
dispute is resolved. This bulk reserve is established and adjusted based upon
the aggregate volume of in-process environmental claims and the Company's
experience in resolving such claims. At December 31, 2000, approximately 73% of
the net aggregate reserve (approximately $405 million), is carried in a bulk
reserve and includes unresolved as well as incurred but not reported
environmental claims for which the Company has not received any specific claims.
The balance, approximately 27% of the net environmental loss reserve
(approximately $153 million) consists of case reserves for resolved claims.
The Company's reserving methodology is preferable to one based on
"identified claims" since the resolution of environmental exposures by the
Company generally occurs by settlement on an insured-by-insured basis as opposed
to a claim-by-claim basis. Generally, the settlement between the Company and the
insured extinguishes any obligation the Company may have under any policy issued
to the insured for past, present and future environmental liabilities as well as
extinguishes any pending coverage litigation dispute with the insured. This form
of settlement is commonly referred to as a "buy-back" of policies for future
environmental liability. In addition, many of the agreements have also
extinguished any insurance obligation which the Company may have for other
claims, including but not limited to asbestos and other cumulative injury
claims. Provisions of these agreements also include appropriate indemnities and
hold harmless provisions to protect the Company. The Company's general purpose
in executing such agreements is to reduce its potential environmental exposure
and eliminate both the risks presented by coverage litigation with the insured
and the cost of such litigation.
43
<PAGE>
As of December 31, 2000, the Company had approximately 43,000 pending
environmental-related claims tendered by 787 active policyholders. The pending
environmental-related claims represent federal or state EPA-type claims as well
as plaintiffs' claims alleging bodily injury and property damage due to the
discharge of waste or pollutants allegedly by the policyholder.
The following table displays activity for environmental losses and loss
expenses and reserves for the years ended December 31:
ENVIRONMENTAL LOSSES
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
BEGINNING RESERVES
Direct...................................................... $801 $928 $1,193
Ceded....................................................... (125) (96) (74)
---- ---- ------
Net......................................................... 676 832 1,119
INCURRED LOSSES AND LOSS EXPENSES
Direct...................................................... 75 139 123
Ceded....................................................... (11) (82) (73)
LOSSES PAID
Direct...................................................... 207 266 388
Ceded....................................................... (25) (53) (51)
---- ---- ------
ENDING RESERVES
Direct...................................................... 669 801 928
Ceded....................................................... (111) (125) (96)
---- ---- ------
Net......................................................... $558 $676 $ 832
==== ==== ======
</TABLE>
As of December 31, 2000, the number of policyholders with pending coverage
litigation disputes pertaining to environmental claims was 243, approximately
10% less than the number pending as of December 31, 1999, approximately 40% less
than the number of pending as of December 31, 1998, as well as approximately 54%
less than the number pending as of December 31, 1997. Also, in 2000, there were
158 policyholders tendering for the first time an environmental remediation-type
claim to the Company. This compares to 256 policyholders doing so in 1999 and
288 policyholders in 1998.
As of December 31, 2000, the Company, for approximately $1.78 billion
(before reinsurance), has resolved the environmental liabilities presented by
5,286 of the 6,073 policyholders who have tendered environmental claims to the
Company. This resolution comprises 87% of the policyholders who have tendered
such claims. The Company generally has been successful in resolving its coverage
litigation disputes and continues to reduce its potential exposure through
favorable settlements with certain insureds. Generally, the settlement dollars
paid in disputed coverage claims are a percentage of the total coverage sought
by such insureds.
The Company has direct environmental reserves (before reinsurance) of
approximately $669 million, $390 million of which relates to 787 policyholders
with unresolved environmental claims (the remaining 13% of the 6,073
policyholders who have tendered environmental claims); policyholders that may
tender an environmental claim in the future; and for the anticipated cost of
coverage litigation disputes pertaining to such environmental claims. Based upon
the Company's reserving methodology and the experience of its historical
resolution of environmental exposures, it believes that the environmental
reserves are appropriate.
44
<PAGE>
ASBESTOS CLAIMS
In the area of asbestos claims, the Company believes that the property and
casualty insurance industry has suffered from judicial interpretations that have
attempted to maximize insurance availability from both a coverage and liability
standpoint far beyond the intent of the contracting parties. These policies
generally were issued prior to 1980. The Company continues to receive asbestos
claims alleging insureds' liability from claimants' asbestos-related injuries.
In 2000, the Company experienced an increase over prior years in the number of
asbestos claims being tendered to the Company. In addition, the Company is
continuing to evaluate the impact of recent and well-publicized filings for
bankruptcy protection by certain major asbestos producers. As in the past,
asbestos claims, when submitted, rarely indicate the monetary amount being
sought by the claimant from the insured and the Company does not keep track of
the monetary amount being sought in those few claims that indicated such a
monetary amount. Based upon the Company's experience with asbestos claims, the
duration period of an asbestos claim from the date of submission to resolution
is approximately two years.
Various classes of asbestos defendants, such as major product manufacturers,
installers of asbestos, peripheral and regional product defendants as well as
premises owners, continue to tender asbestos-related claims to the industry.
Because each insured presents different liability and coverage issues, including
whether such claims qualify as products/completed operations or
non-products/operations claims, the Company evaluates those issues on an
insured-by-insured basis. From a coverage standpoint, one general distinction
between a products/completed operations and a non-products/operations claim is
that a products/completed operations claim is typically subject to a policy
aggregate limitation and a non-products/operations claim is not typically
subject to such a limitation in a pre-1985 general liability policy. The
Company's evaluations have not resulted in any meaningful data from which an
average asbestos defense or indemnity payment may be determined.
At December 31, 2000, approximately 83% (approximately $670 million) of the
net asbestos reserve, represents incurred but not reported losses for which the
Company has not received any specific claims. The balance, approximately 17% of
the net aggregate reserve (approximately $136 million) is for pending asbestos
claims.
In general, the Company posts case reserves for pending asbestos claims
within approximately thirty (30) business days of receipt of such claims.
45
<PAGE>
The following table displays activity for asbestos losses and loss expenses
and reserves for the years ended December 31:
ASBESTOS LOSSES
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
BEGINNING RESERVES
Direct...................................................... $1,050 $1,252 $1,363
Ceded....................................................... (223) (266) (249)
------ ------ ------
Net......................................................... 827 986 1,114
INCURRED LOSSES AND LOSS EXPENSES
Direct...................................................... 187 128 135
Ceded....................................................... (137) (71) (69)
LOSSES PAID
Direct...................................................... 232 330 246
Ceded....................................................... (161) (114) (52)
------ ------ ------
ENDING RESERVES
Direct...................................................... 1,005 1,050 1,252
Ceded....................................................... (199) (223) (266)
------ ------ ------
Net......................................................... $ 806 $ 827 $ 986
====== ====== ======
</TABLE>
UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS RESERVES
It is difficult to estimate the reserves for environmental and
asbestos-related claims due to the vagaries of court coverage decisions,
plaintiffs' expanded theories of liability, the risks inherent in major
litigation and other uncertainties, including without limitation, those which
are set forth below. Conventional actuarial techniques are not used to estimate
such reserves.
For environmental claims, the reserving methodology includes an analysis by
the Company of the exposure presented by each insured and the anticipated cost
of resolution, if any, for each insured. This analysis is completed by the
Company on a quarterly basis. In the course of its analysis, an assessment of
the probable liability, available coverage, judicial interpretations and
historical value of similar exposures is considered by the Company. In addition,
due consideration is given to the many variables presented, such as the nature
of the alleged activities of the insured at each site; the allegations of
environmental harm at each site; the number of sites; the total number of
potentially responsible parties at each site; the nature of environmental harm
and the corresponding remedy at a site; the nature of government enforcement
activities at each site; the ownership and general use of each site; the overall
nature of the insurance relationship between the Company and the insured,
including the role of any umbrella or excess insurance issued by the Company to
the insured; the identification of other insurers; the potential for other
available coverage, including the number of years of coverage; the role, if any,
of non-environmental claims or potential non-environmental claims, in any
resolution process; and the applicable law in each jurisdiction. Analysis of
these and other factors, including the potential for future claims, results in
the establishment of the bulk reserve.
The reserving methodology for asbestos includes an evaluation of the
asbestos exposure presented by each insured. The following factors are
evaluated: available insurance coverage including the role of any umbrella or
excess insurance issued by the Company to the insured; limits and deductibles;
an analysis of each insured's potential liability; jurisdictional involvement;
past and anticipated future claim activity; past settlement values of similar
claims; allocated claim adjustment expense; potential role of other insurance;
the role, if any, of non-asbestos claims or potential non-asbestos claims in any
46
<PAGE>
resolution process; and applicable coverage defenses or determinations, if any,
including the determination as to whether an asbestos claim is a
products/completed operations or non-products/ operations claim and the
available coverage, if any, for such a claim. Once the gross ultimate exposure
for indemnity and allocated claim adjustment expense is determined for each
insured by each policy year, a ceded reinsurance projection is calculated based
on any applicable facultative and treaty reinsurance, as well as past ceded
experience. Adjustments to the ceded projections also occur due to actual ceded
claim experience and reinsurance collections.
Historically, the Company's experience has indicated that insureds with
potentially significant environmental and asbestos exposures may often have
potential cumulative injury other than asbestos (CIOTA) exposures or CIOTA
claims pending with the Company. Due to this experience and the fact that
settlement agreements with insureds may extinguish the Company's obligations for
all claims, including environmental, asbestos and CIOTA, the Company evaluates
and considers the environmental and asbestos reserves in conjunction with the
CIOTA reserve.
The Company also compares its historical direct and net loss and expense
paid experience in environmental and asbestos, year-by-year, to assess any
emerging trends, fluctuations or characteristics suggested by the aggregate paid
activity. The comparison includes a review of the result derived from the
division of the ending direct and net reserves by last year's direct and net
paid activity, also known as the survival ratio.
As a result of these processes and procedures, the reserves carried for
environmental and asbestos claims at December 31, 2000 are the Company's best
estimate of ultimate claims and claim adjustment expenses based upon known facts
and current law. However, the uncertainties surrounding the final resolution of
these claims continue. These include, without limitation, any impact from the
bankruptcy protection sought by various asbestos producers, a further increase
or decrease in asbestos and environmental claims which cannot now be anticipated
as well as the role of any umbrella or excess policies issued by the Company for
such claims, the resolution or adjudication of certain disputes pertaining to
asbestos non-products/operations claims in a manner inconsistent with the
Company's previous assessment of such claims as well as unanticipated
developments pertaining to the Company's ability to recover reinsurance for
environmental and asbestos claims.
It is also not possible to predict changes in the legal and legislative
environment and their impact on the future development of asbestos and
environmental claims. Such development will be affected by future court
decisions and interpretations, as well as changes in legislation applicable to
such claims. Because of these future unknowns, and the uncertainties set forth
above, additional liabilities may arise for amounts in excess of the current
reserves. These additional amounts, or a range of these additional amounts,
cannot now be reasonably estimated, and could result in a liability exceeding
reserves by an amount that would be material to the Company's operating results
in a future period. However, in the opinion of the Company's management, it is
not likely that these claims will have a material adverse effect on the
Company's financial condition or liquidity.
CUMULATIVE INJURY OTHER THAN ASBESTOS (CIOTA) CLAIMS
CIOTA claims are generally submitted to the Company under general liability
policies and often involve an allegation by a claimant against an insured that
the claimant has suffered injuries as a result of long-term or continuous
exposure to potentially harmful products or substances. Such potentially harmful
products or substances include, but are not limited to, lead paint, pesticides,
pharmaceutical products, silicone-based personal products, solvents and other
deleterious substances.
To the extent disputes exist between the Company and a policyholder
regarding the coverage available for CIOTA claims, the Company resolves the
disputes, where feasible, through settlements with the policyholder or through
coverage litigation. Some agreements may extinguish any insurance obligation
which the Company may have for other claims, including but not limited to
asbestos and
47
<PAGE>
environmental claims. Generally, the terms of a settlement agreement set forth
the nature of the Company's participation in resolving CIOTA claims, the scope
of coverage to be provided by the Company and contain the appropriate
indemnities and hold harmless provisions to protect the Company. These
settlements generally eliminate uncertainties for the Company regarding the
risks extinguished, including the risk that losses would be greater than
anticipated due to evolving theories of tort liability or unfavorable coverage
determinations. The Company's approach also has the effect of determining losses
at a date earlier than would have occurred in the absence of such settlement
agreements. On the other hand, in cases where future developments are favorable
to insurers, this approach could have the effect of resolving claims for amounts
in excess of those that would ultimately have been paid had the claims not been
settled in this manner. No inference should be drawn that because of the
Company's method of dealing with CIOTA claims, its reserves for such claims are
more conservatively stated than those of other insurers.
At December 31, 2000, approximately 83% (approximately $667 million) of the
net CIOTA reserve, represents incurred but not reported losses for which the
Company has not received any specific claims. The balance, approximately 17% of
the net aggregate reserve (approximately $132 million) is for pending CIOTA
claims.
The following table displays activity for CIOTA losses and loss expenses and
reserves for the years ended December 31:
CIOTA LOSSES
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
BEGINNING RESERVES
Direct...................................................... $1,184 $1,346 $1,520
Ceded....................................................... (313) (392) (432)
------ ------ ------
Net......................................................... 871 954 1,088
INCURRED LOSSES AND LOSS EXPENSES
Direct...................................................... 27 (36) (31)
Ceded....................................................... (11) 28 29
LOSSES PAID
Direct...................................................... 132 126 143
Ceded....................................................... (44) (51) (11)
------ ------ ------
ENDING RESERVES
Direct...................................................... 1,079 1,184 1,346
Ceded....................................................... (280) (313) (392)
------ ------ ------
Net......................................................... $ 799 $ 871 $ 954
====== ====== ======
</TABLE>
COMMERCIAL PORTFOLIO REVIEW
Commercial loans are identified as impaired and placed on a nonaccrual basis
when it is determined that the payment of interest or principal is doubtful of
collection or when interest or principal is past due for 90 days or more, except
when the loan is well secured and in the process of collection. Impaired
commercial loans are written down to the extent that principal is judged to be
48
<PAGE>
uncollectible. Impaired collateral-dependent loans are written down to the lower
of cost or collateral value. The following table summarizes commercial
cash-basis loans and net credit losses.
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
CASH-BASIS LOANS AT YEAR-END
The Global Relationship Bank(1)............................. $ 539 $ 304 $ 268
Emerging Markets Corporate Banking.......................... 1,147 1,044 1,062
Associates(2)............................................... 402 223 180
Insurance and Investment Activities(3)...................... 46 55 265
------ ------ ------
TOTAL CASH-BASIS LOANS...................................... $2,134 $1,626 $1,775
====== ====== ======
NET CREDIT LOSSES (RECOVERIES)
The Global Relationship Bank(1)............................. $ 161 $ 6 $ (27)
Emerging Markets Corporate Banking.......................... 221 406 446
Associates(2)............................................... 382 142 50
Investment Activities(3).................................... 7 -- (10)
------ ------ ------
TOTAL NET CREDIT LOSSES..................................... $ 771 $ 554 $ 459
====== ====== ======
</TABLE>
- ------------------------
(1) In 2000, includes $107 million in cash-basis loans and $32 million in net
credit losses related to Copelco.
(2) Associates results are reported in the Associates segment and exclude
amounts related to manufactured housing, as such loan origination operations
were discontinued in early 2000. Excluded cash-basis loans and net credit
losses relating to manufactured housing were $55 million and $36 million,
respectively, in 1999 and $75 million and $21 million, respectively, in
1998.
(3) Investment Activities results are reported in the Investment Activities
segment.
Total commercial cash-basis loans were $2.134 billion, $1.626 billion and
$1.775 billion at December 31, 2000, 1999 and 1998, respectively. Cash-basis
loans in GRB increased $235 million to $539 million at December 31, 2000 with
approximately half of the increase due to the acquisition of Copelco and the
balance attributable to borrowers in North America. Associates' cash-basis loans
of $402 million increased $179 million primarily in the transportation
portfolio. EM Corporate cash-basis loans were $1.147 billion at December 31,
2000, up 10% from a year ago primarily due to the acquisition of Bank Handlowy
along with increases in Latin America, partially offset by improvements in Asia.
Total commercial cash-basis loans at December 31, 1999 declined $149 million
from December 31, 1998. The decline was primarily due to a decrease in Insurance
cash-basis loans resulting from a loan foreclosure during the year partially
offset by increases in GRB. The increase in GRB cash-basis loans in 1999 was due
to an increase in North America, primarily in the health-care industry,
partially offset by improvements in the real estate portfolio.
Total commercial net credit losses of $771 million in 2000 increased
$217 million compared to 1999 primarily reflecting increases in Associates and
GRB partially offset by a decline in EM Corporate. The increase in Associates
net credit losses was primarily due to deterioration in the transportation
portfolio while the GRB increase reflected 2000 losses on exposures to North
American health care borrowers, recoveries on real estate loans in 1999, and the
inclusion of losses for Copelco, which was acquired in the second quarter of
2000. Exposures to health care were limited in 1999 and were significantly
reduced during 2000. EM Corporate net credit losses in 2000 were down
$185 million, primarily reflecting improvements in Asia, mainly China,
Indonesia, Australia and Thailand, and in CEEMEA. Total commercial net credit
losses increased $95 million in 1999 compared to 1998, reflecting an increase in
Associates, primarily related to the transportation portfolio, combined with net
recoveries in GRB and Investment Activities in 1998. Partially offsetting the
1999 increases was improvement in EM Corporate primarily attributable to lower
write-offs in Russia and Asia. For a further discussion of trends by business,
see the business discussions on pages 36-40.
49
<PAGE>
Citigroup's allowance for credit losses of $8.961 billion is available to
absorb all probable credit losses inherent in the portfolio. For analytical
purposes only, the portion of Citigroup's allowance for credit losses attributed
to the commercial portfolio was $3.988 billion at December 31, 2000 compared to
$3.695 billion and $3.717 billion at December 31, 1999 and 1998, respectively.
The increase in the allowance in 2000 primarily reflects an increase related to
the Associates' transportation portfolio and the impact of acquisitions while
the decline in 1999 was primarily due to an improved credit outlook in Emerging
Markets Corporate Banking.
<TABLE>
<CAPTION>
In Billions of Dollars at Year End 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Commercial allowance for credit losses(1)........... $3.988 $3.695 $3.717
As a percentage of total commercial loans........... 2.89% 3.07% 3.30%
</TABLE>
- ------------------------
(1) Includes $621 million, $447 million and $409 million at December 31, 2000,
1999 and 1998, respectively, related to Associates.
GLOBAL CORPORATE AND INVESTMENT BANK OUTLOOK
The statements below are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act. See "Forward-Looking Statements"
on page 59.
The businesses of Global Corporate and Investment Bank are significantly
affected by the levels of activity in the global capital markets which, in turn,
are influenced by macro-economic and political policies and developments, among
other factors, in the 100 countries in which the businesses operate. Global
economic and market events can have both positive and negative effects on the
revenue performance of the businesses and can negatively affect credit
performance. In particular, levels of principal transactions, realized gains
from sales of investments, and gains from asset sales may fluctuate in the
future as a result of market and asset-specific factors.
In 1998, the global capital markets experienced severe economic turmoil.
Currency crises sparked economic turmoil that began in Asia, spread to Russia
and in early 1999 to Latin America. In response, the businesses undertook
initiatives at that time to reduce the risk profile, particularly in SSB's
global arbitrage operation.
Losses on commercial lending activities and the level of cash-basis loans
can vary widely with respect to timing and amount, particularly within any
narrowly defined business or loan type.
SALOMON SMITH BARNEY AND THE GLOBAL RELATIONSHIP BANK. In 2000, market
share improvements were achieved in equity and fixed income underwriting as well
as in global mergers and acquisitions. Investments are expected to continue in
2001 to expand and upgrade the Private Client branch system as well as expanding
the integration of Internet services with personal advice from the Salomon Smith
Barney Financial Consultants. In 2001, the businesses also plan to continue
broadening e-commerce opportunities through the development of new products,
services and strategic partnerships.
Citigroup continues to monitor the impact of the slowing U.S. economy on its
portfolio. Problem credits will continue to be identified early and appropriate
remedial actions will be taken.
EMERGING MARKETS CORPORATE BANKING. EM Corporate continues to work on
strategies such as Embedded Bank, Emerging Local Corporate and selective
acquisitions to increase market share in priority countries. In June 2000, EM
Corporate reinforced its position in Poland by completing the acquisition of a
majority interest in Bank Handlowy. Investments in a number of Internet
initiatives are expected to continue in 2001, including the expansion of
CitiDirect--giving clients Internet-based access to cash management and trade
capabilities--which has been installed in 39 countries and is available in 4
languages.
50
<PAGE>
Overall, the EM Corporate portfolio remains diversified across a number of
geographies and industry groups. During 2000, most emerging market economies
showed improvements, particularly in Asia. While most countries that suffered
from the economic turmoil of 1998 and early 1999 have stabilized, they remain
dependent on U.S. and world economic growth as well as liquidity. Citigroup
continues to monitor countries closely and, where appropriate, adjusts
exposures, tunes early warning systems and strengthens risk management
oversight.
COMMERCIAL LINES. In 2000, the trend of higher rates continued in
Commercial Lines. Prices generally rose throughout the year, although some of
the increases varied significantly by region and business segment. These
increases were necessary to offset the impact of rising loss cost trends and the
decline in profitability from the competitive pressures of the last several
years.
In National Accounts, where programs include risk management service, such
as claims settlement, loss control and risk management information services,
which are generally offered in connection with a large deductible or
self-insured program, and risk transfer, which is typically provided through a
guaranteed cost or retrospectively rated insurance policy, pricing began to
stabilize during 2000. National Accounts has benefited from higher rates on both
new and renewal business as evidenced by the improving profit margins earned on
this business. National Accounts believes that pricing will continue to firm in
2001. However, National Accounts will continue to reject business that is not
expected to produce acceptable returns.
Commercial Accounts achieved double-digit price increases on renewal
business during 2000, improving the overall profit margin in this business. In
addition, these increases were necessary to offset the impacts of rising loss
cost inflation, medical inflation and reinsurance costs. Commercial Accounts
will continue to seek significant rate increases in 2001 as pricing in certain
areas and business segments has not improved to the point of producing
acceptable returns.
In Select Accounts, the trends toward increased pricing on renewal business
that started in late 1999 gained momentum in 2000. Prices generally rose
throughout the year, although these increases varied significantly by region,
industry and product. Loss cost trends, however also worsened in 2000,
especially in workers' compensation and auto liability. The impact of these
negative loss cost trends has been partially offset by a continued disciplined
approach to underwriting and risk selection by the Company. Select Accounts
believes that the improvements gained through high quality underwriting and
continued price increases in 2001 may be offset by the combination of worsening
loss cost trends in certain lines and regulatory pricing constraints in some
jurisdictions.
Specialty Accounts achieved significant growth in 2000, with the acquisition
of Reliance Surety, cementing a leadership position in the surety bond
marketplace by broadening product and service capabilities. The Company's focus
in this market is to sustain its emphasis on products with the most
opportunities for acceptable profitability and increase its efforts to cross
sell its expanding array of specialty products to existing customers of National
Accounts, Commercial Accounts, Select Accounts, and various other Citigroup
units.
The Company was able to achieve growth in its premium and fee levels during
2000 as a result of the Reliance Surety acquisition, the acquisition of the
renewal rights for the Reliance Middle Market and Frontier businesses and the
continuation of rate increases. The rate increases are expected to continue into
2001, although the deteriorating loss cost trends and increased costs of
reinsurance will offset some of the positive impact. The Company will continue
to adhere to strict underwriting guidelines and to reject business that is not
expected to produce acceptable returns.
The Company continues to receive asbestos claims alleging insureds'
liability from claimants' asbestos-related injuries. In 2000, the Company
experienced an increase over prior years in the number of asbestos claims being
tendered to the Company. However, the uncertainties surrounding the final
51
<PAGE>
resolution of these claims continue. See the discussion on Asbestos Claims and
Uncertainty Regarding Adequacy of Environmental and Asbestos Reserves.
The property and casualty insurance industry continues to be reshaped by
consolidation and globalization. The Company's strategic objectives are to
enhance its position as a consistently profitable market leader and to become a
low-cost provider of property and casualty insurance in the United States, as
the industry consolidates. While some of the insurance industry's cost control
methods have been challenged in litigation, it continues to be the Company's
objective to be a low-cost provider of property and casualty insurance, with an
emphasis on claim payout and performance and enhanced productivity.
With respect to globalization, Citigroup recently announced the formation of
CitiInsurance, the international arm of Citigroup insurance activities. This new
Citigroup unit was formed to capitalize on the strength of the Citigroup branch
franchise and the extensive distribution strength of the Citigroup consumer
business around the world. This unit expects to build on the progress already
made in Southeast Asia during 2000 with the strategic alliance with Fubon Group,
a diversified financial services company based in Taiwan.
As required by various state laws and regulations, the Company's insurance
subsidiaries are subject to assessments from state-administered guaranty
associations, second injury funds and similar associations. Management believes
that such assessments will not have a material impact on the Company's results
of operations, financial condition or liquidity.
GLOBAL INVESTING MANAGEMENT AND PRIVATE BANKING
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $3,299 $2,706 $2,404
Adjusted operating expenses(2).............................. 2,156 1,719 1,563
Provision for credit losses................................. 23 12 5
------ ------ ------
CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 1,120 975 836
Income taxes................................................ 432 378 327
Minority interest, after-tax................................ 3 -- --
------ ------ ------
CORE INCOME................................................. 685 597 509
Restructuring-related items, after-tax...................... (11) 2 (53)
------ ------ ------
NET INCOME.................................................. $ 674 $ 599 $ 456
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
Global Investment Management and Private Banking is comprised of Citigroup
Asset Management and The Citigroup Private Bank. These businesses offer a broad
range of asset management products and services from global investment centers
around the world, including mutual funds, closed-end funds, managed accounts,
unit investment trusts, variable annuities, pension administration and
personalized wealth management services to institutional, high net worth and
retail clients.
Global Investment Management and Private Banking core income in 2000
increased to $685 million, up $88 million or 15% from 1999. The 2000 increase in
core income reflected continued customer revenue momentum within The Citigroup
Private Bank along with the impact of the acquisitions of Garante, Siembra and
Colfondos in Citigroup Asset Management. Core income of $597 million in 1999 was
up $88 million or 17% from 1998, primarily reflecting revenue growth
corresponding to growth in assets under management within Citigroup Asset
Management and client
52
<PAGE>
business volumes within The Citigroup Private Bank. Net income of $674 million
in 2000, $599 million in 1999, and $456 million in 1998 included a
restructuring-related charge of $11 million ($18 million pretax), a
restructuring-related credit of $2 million ($4 million pretax) and a
restructuring-related charge of $53 million ($87 million pretax), respectively.
CITIGROUP ASSET MANAGEMENT
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,893 $1,494 $1,274
Adjusted operating expenses(2).............................. 1,286 949 836
------ ------ ------
CORE INCOME BEFORE TAXES AND MINORITY INTEREST.............. 607 545 438
Income taxes................................................ 243 217 173
Minority interest, after-tax................................ 3 -- --
------ ------ ------
CORE INCOME................................................. 361 328 265
Restructuring-related items, after-tax...................... (6) 1 (10)
------ ------ ------
NET INCOME.................................................. $ 355 $ 329 $ 255
====== ====== ======
Assets under management (IN BILLIONS OF DOLLARS)(3)(4)...... $ 401 $ 377 $ 340
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
(3) Includes $30 billion, $31 billion, and $34 billion in 2000, 1999 and 1998,
respectively, for Citigroup Private Bank clients.
(4) Includes Unit Investment Trusts held in client accounts of $9 billion,
$13 billion and $13 billion in 2000, 1999 and 1998, respectively, and
$5 billion in Emerging Markets Pension Administration assets under
management in 2000.
Citigroup Asset Management is comprised of the substantial resources that
are available through its three primary asset management business
platforms--Smith Barney Asset Management, Salomon Brothers Asset Management and
Citibank Asset Management--along with the pension administration businesses of
Global Retirement Services. These businesses offer institutional, high net worth
and retail clients a broad range of investment alternatives from global
investment centers around the world. Products and services offered include
mutual funds, closed-end funds, separately managed accounts, unit investment
trusts, variable annuities (through affiliated and third party insurance
companies) and pension administration.
Core income of $361 million in 2000 was up $33 million or 10% compared to
1999, reflecting the impact of Latin American acquisitions in the Global
Retirement Services business and growth in asset-based fee revenue, partially
offset by increased expenses. Core income of $328 million in 1999 grew
$63 million or 24% from 1998, primarily reflecting an increase in assets under
management and a corresponding increase in revenues. Net income of $355 million
in 2000, $329 million in 1999, and $255 million in 1998 included a
restructuring-related charge of $6 million ($10 million pretax), a
restructuring-related credit of $1 million ($2 million pretax), and a
restructuring-related charge of $10 million ($17 million pretax), respectively.
Assets under management rose to $401 billion as of December 31, 2000, up 6%
from $377 billion in 1999, reflecting growth within the money market and
institutional liquidity funds and managed accounts product categories. Retail
client assets were $242 billion, up 9% compared to 1999 as growth in private
client separately managed accounts (up 20%) and money market funds (up 17%) were
53
<PAGE>
partially offset by a decline in fixed income funds. Institutional client assets
of $154 billion at December 31, 2000 were down 1% compared to a year ago
reflecting a decline in managed accounts, partially offset by cross-selling
efforts, including $20 billion in sales to Global Corporate and Investment Bank
customers.
Sales of proprietary mutual funds and managed account products at SSB rose
30% to $21 billion in 2000 and represented 41% of SSB's retail channel sales for
the year. Sales of mutual and money funds through Global Consumer's banking
network were $13 billion for the year, representing 56% of total sales,
including $9.3 billion in International and $4.2 billion in the U.S. Primerica
sold $1.8 billion of proprietary U.S. mutual and money funds in 2000, a 10%
increase compared to 1999, representing 50% of Primerica's total sales.
Revenues, net of interest expense, increased $399 million or 27% to
$1.893 billion in 2000, compared to $1.494 billion in 1999 which was up
$220 million or 17% from 1998. The increase in 2000 was primarily due to the
impact of the acquisitions of Siembra, Garante and Colfondos in the Global
Retirement Services business, along with continued growth in asset-based fee
revenues. The increase in 1999 was predominantly due to an increase in advisory
fee revenues and reflected broad-based growth in assets under management.
Adjusted operating expenses of $1.286 billion in 2000 were up $337 million
or 36% from 1999. The increase in 2000 reflected the impact of the acquisitions
of Siembra, Garante and Colfondos as well as continued investments in sales and
marketing activities, technology and product development. Expenses were
$949 million in 1999, up $113 million or 14%, primarily reflecting higher costs
associated with building the business' global sales and marketing capabilities
and investments in research, quantitative and technology expertise.
THE CITIGROUP PRIVATE BANK
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $1,406 $1,212 $1,130
Adjusted operating expenses(2).............................. 870 770 727
Provision for credit losses................................. 23 12 5
------ ------ ------
CORE INCOME BEFORE TAXES.................................... 513 430 398
Income taxes................................................ 189 161 154
------ ------ ------
CORE INCOME................................................. 324 269 244
Restructuring-related items, after-tax...................... (5) 1 (43)
------ ------ ------
NET INCOME.................................................. $ 319 $ 270 $ 201
====== ====== ======
Average assets (IN BILLIONS OF DOLLARS)..................... $ 25 $ 20 $ 17
Return on assets............................................ 1.28% 1.35% 1.18%
====== ====== ======
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets............................................ 1.30% 1.35% 1.44%
====== ====== ======
Client business volumes under management (IN BILLIONS OF
DOLLARS).................................................. $ 153 $ 140 $ 116
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items.
The Citigroup Private Bank provides personalized wealth management services
for high net worth clients around the world. The Citigroup Private Bank reported
core income in 2000 of $324 million, up $55 million or 20% from 1999, primarily
reflecting continued customer revenue momentum, partially
54
<PAGE>
offset by increased front-end expenses. Core income of $269 million in 1999 was
up $25 million or 10% from 1998, primarily reflecting improving revenue growth
which outpaced moderate increases in expenses and the provision for credit
losses. Net income of $319 million in 2000, $270 million in 1999 and
$201 million in 1998, included a restructuring-related charge of $5 million
($8 million pretax), a restructuring-related credit of $1 million ($2 million
pretax) and a restructuring-related charge of $43 million ($70 million pretax),
respectively.
Client business volumes under management, which include custody accounts,
client assets under fee-based management, deposits and loans, were $153 billion
at the end of the year, up 9% from $140 billion in 1999, reflecting strong
growth in the U.S., Asia Pacific and CEEMEA. Business volumes grew in all
product lines.
Revenues, net of interest expense, in 2000 were $1.406 billion, up
$194 million or 16% from 1999. Net interest and recurring fee-based revenues
increased $131 million or 16%, transaction revenues increased $59 million or
26%, while other revenue increased $4 million or 3% compared to 1999. The 2000
increase in revenues reflected growth in the international region, up
$130 million or 17%, as well as continued favorable trends in the U.S., up
$64 million or 15% compared to 1999. Revenues in 1999 were $1.212 billion, up
$82 million or 7% from 1998, reflecting strong lending and asset management
activity, partially offset by lower fees from customer trading-related
activities.
Adjusted operating expenses of $870 million in 2000 were up $100 million or
13% from 1999, primarily reflecting higher levels of bankers and product
specialists hired to improve front-end sales and service capabilities. Expenses
of $770 million in 1999 were up $43 million or 6% from 1998, reflecting
increased spending related to growth in the sales force and technology platform
development, partially offset by saves from restructuring initiatives.
The provision for credit losses in 2000 was $23 million, compared with
$12 million in 1999 and $5 million in 1998. The increase in the 2000 provision
primarily related to a loan in Europe. Net credit losses in 2000 remained at a
nominal level of 0.09% of average loans outstanding. Loans 90 days or more past
due at year-end were $61 million or 0.23% of total loans outstanding, compared
with 0.54% at the end of 1999 and 1.14% at the end of 1998.
Average assets of $25 billion in 2000 rose $5 billion or 25% from
$20 billion in 1999 which, in turn, increased $3 billion or 18% from 1998. The
growth in both periods was primarily due to higher loans.
GLOBAL INVESTMENT MANAGEMENT AND PRIVATE BANKING OUTLOOK
The statements below are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act. See "Forward-Looking Statements"
on page 59.
The businesses of Global Investment Management and Private Banking are
affected by the economic outlook and market levels. The market for investment
management and private banking services is extremely attractive because the
"wealth" segment has been growing faster than the overall market. While
competition for this attractive and dynamic market segment is increasing, the
global market is highly fragmented. This presents Global Investment Management
and Private Banking with an extremely attractive business opportunity because it
is one of the few providers that can claim to offer a full range of services on
a global basis.
55
<PAGE>
ASSOCIATES
<TABLE>
<CAPTION>
In Millions of Dollars 2000(1) 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
Total revenues, net of interest expense..................... $ 9,728 $8,489 $6,297
Effect of securitization activity........................... 555 438 177
Housing Finance charge...................................... 47 -- --
------- ------ ------
ADJUSTED REVENUES, NET OF INTEREST EXPENSE.................. 10,330 8,927 6,474
------- ------ ------
Adjusted operating expenses(2).............................. 4,368 3,875 2,809
Adjusted provision for benefits claims and credit
losses(3)................................................. 3,817 2,810 1,849
------- ------ ------
CORE INCOME BEFORE TAXES.................................... 2,145 2,242 1,816
Income taxes................................................ 764 840 673
------- ------ ------
CORE INCOME................................................. 1,381 1,402 1,143
Restructuring-related items and merger-related costs,
after-tax................................................. (460) (22) --
Housing Finance charge, after-tax........................... (71) -- --
------- ------ ------
NET INCOME.................................................. $ 850 $1,380 $1,143
======= ====== ======
Average assets (IN BILLIONS OF DOLLARS)(4).................. $ 90 $ 84 $ 66
Return on assets............................................ 0.94% 1.64% 1.73%
------- ------ ------
EXCLUDING RESTRUCTURING-RELATED ITEMS
Return on assets(5)......................................... 1.53% 1.67% 1.73%
======= ====== ======
</TABLE>
- ------------------------
(1) Includes after-tax adjustments to conform accounting policies to those of
Citigroup of $163 million, $110 million, and $81 million, respectively. See
Note 2 of Notes to Consolidated Financial Statements.
(2) Excludes restructuring-related items and Housing Finance charge.
(3) Adjusted for the effect of securitization and Housing Finance charge.
(4) Adjusted for the effect of securitization, managed average assets were
$103 billion, $91 billion, and $69 billion in 2000, 1999, and 1998,
respectively.
(5) Adjusted for the effect of securitization, the return on managed assets,
excluding restructuring-related items and Housing Finance charge was 1.34%
in 2000, 1.54% in 1999, and 1.66% in 1998.
Associates--which provides finance, leasing, insurance and related services
to consumers and businesses in the United States and internationally--reported
core income of $1.381 billion in 2000, down $21 million or 1.5% from 1999. In
1999, core income increased $259 million or 23%. The increase in core income in
1999 primarily related to continued strong receivable growth, including the
effect of acquisitions.
Net income of $850 million in 2000 and $1.380 billion in 1999 included
restructuring-related items and merger-related costs of $460 million
($630 million pretax) and $22 million ($35 million pretax), respectively, and in
2000, $71 million ($112 million pretax) related to the discontinuation of
Associates Housing Finance loan origination operations.
The restructuring charge of $474 million recorded in 2000 related to exit
costs as a result of Citigroup's acquisition of Associates. The charge included
amounts for the reconfiguration of certain branch operations, the exit from
non-strategic businesses and from activities as mandated by Federal bank
regulations, and the consolidation and integration of Corporate and middle and
back office functions. Also recorded in 2000 were $156 million of merger-related
costs, which included the direct and incremental costs of administratively
closing Citigroup's acquisition of Associates. The
56
<PAGE>
implementation of these restructuring initiatives will cause some related
premises and equipment assets to become redundant. As a result, the remaining
depreciable lives of these assets were shortened, and accelerated depreciation
charges of $62 million will be recognized in subsequent periods. See Note 15 of
Notes to Consolidated Financial Statements for additional discussion of
restructuring-related items.
In January 2000, Associates announced its intention to discontinue the loan
origination operations of its Associates Housing Finance (AHF) unit. Prior to
the announcement, AHF originated and serviced loans for manufactured homes. As a
result of this announcement, Associates took a charge of approximately
$112 million in the first quarter of 2000. This charge covers exit costs of
approximately $25 million, including severance, noncancellable contractual
obligations and related costs, a securitization retained interest write-down of
approximately $47 million, and a provision for increased losses on the
disposition of repossessions of approximately $40 million. Associates closed
substantially all of its sales centers in the second quarter of 2000. Associates
will service the liquidation of the existing receivables through its centralized
service facility. Associates will limit its origination activities to support
its contractual arrangements and loss mitigation initiatives.
As shown in the following table, Associates managed assets, end-of-period
managed receivables and average managed loans increased 22%, 15% and 15%,
respectively, during 2000 as compared to 17%, 20% and 24%, respectively, in
1999. The increase in managed receivables was a result of internal growth and
acquisitions primarily in the real estate, personal lending and retail sales
finance, and credit card product lines. The average net interest margin on
receivables increased to 9.65% in 2000 from 9.52% and 9.09% in 1999 and 1998,
respectively, reflecting higher yields due to increased interest rates and
changes in the aggregate portfolio composition toward high yielding automobile,
credit card and personal loans.
<TABLE>
<CAPTION>
In Billions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
MANAGED BASIS(1)
End of period assets........................................ 110 90 77
Average loans............................................... 84 73 59
Average net interest margin %............................... 9.65% 9.52% 9.09%
End of period managed receivables........................... 90 78 65
Net credit losses (as a % of average managed loans)......... 3.30% 2.97% 2.59%
90+ day delinquencies (as a % of average managed loans)..... 2.24% 2.20% 1.80%
</TABLE>
- ------------------------
(1) Excludes manufactured housing and the receivables of Arcadia (an auto
finance company purchased in April 2000) which were securitized prior to
Associates' purchase of the company.
Adjusted revenues, net of interest expense increased $1.403 billion or 16%
in 2000 and $2.453 billion or 38% in 1999 primarily resulting from an increase
in average loans outstanding during 2000 and the acquisition of Avco Financial
Services, Inc. in 1999 (see Note 2 of Notes to Consolidated Financial
Statements). Adjusted operating expense of $4.368 billion and $3.875 billion in
1999 increased $493 million or 13% and $1.066 billion or 38% reflecting
acquisitions, as well as new business volumes.
The adjusted provision for benefits, claims and credit losses increased
$1.007 billion or 36% during 2000 and $961 million or 52% in 1999 primarily
reflecting receivables growth and industry weakness in the transportation and
manufactured housing businesses and in 2000, a $210 million transportation loss
provision relating to the truck loan and leasing portfolio. The net credit loss
ratio of 3.30% in 2000 increased from 2.97% in 1999 and 2.59% in 1998. Loans
delinquent 90 days or more as a percentage of average managed loans increased to
2.24% in 2000 from 2.20% in 1999 and 1.80% in 1998.
57
<PAGE>
ASSOCIATES OUTLOOK
During 2000, Associates experienced continued revenue growth internally and
through acquisitions both domestically and in Japan. In 2001, Associates expects
to have growth particularly in its international markets and credit card
portfolio due to expansion in its college and emerging credit markets. The
commercial business expects reduced earnings due to increased fuel prices,
excess capacity for used vehicles and other economic factors having a large
negative effect on the performance of its transportation portfolio. This
paragraph contains statements that are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 59.
INVESTMENT ACTIVITIES
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $2,245 $1,090 $1,323
Total operating expenses.................................... 103 66 50
Provision (benefit) for credit losses....................... 7 -- (10)
------ ------ ------
INCOME BEFORE TAXES AND MINORITY INTEREST................... 2,135 1,024 1,283
Income taxes................................................ 782 355 435
Minority interest, after-tax................................ (10) 11 16
------ ------ ------
NET INCOME.................................................. $1,363 $ 658 $ 832
====== ====== ======
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
Investment Activities comprises Citigroup's venture capital activities,
realized investment gains (losses) related to certain corporate and
insurance-related investments, and the results of certain investments in
countries that refinanced debt under the 1989 Brady Plan or plans of a similar
nature.
Revenues, net of interest expense in 2000 of $2.245 billion increased
$1.155 billion from 1999, primarily reflecting increases in venture capital
results and gains on the exchange of certain Latin American bonds. Partially
offsetting the 2000 revenue increases were 2000 first quarter losses in
insurance-related investments from repositioning activities designed to improve
yields and maturity profiles, and writedowns in the refinancing portfolio.
Revenues in 1999 of $1.090 billion declined $233 million from 1998, primarily
reflecting declines in realized gains from sales of Brady bonds and
insurance-related investments, partially offset by an increase in venture
capital results and realized investment gains on certain corporate-related
investments.
Investment Activities results may fluctuate in the future as a result of
market and asset-specific factors. This statement is a forward-looking statement
within the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 59.
58
<PAGE>
CORPORATE/OTHER
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999(1) 1998(1)
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... $ (697) $ (208) $(139)
Adjusted operating expenses(2).............................. 792 760 756
Provisions for benefits, claims and credit losses........... (2) 33 (1)
------- ------ -----
LOSS BEFORE TAX BENEFITS.................................... (1,487) (1,001) (894)
Tax benefits................................................ (534) (346) (371)
------- ------ -----
LOSS........................................................ (953) (655) (523)
Restructuring-related items and merger-related costs,
after-tax................................................. (55) (20) (107)
------- ------ -----
NET LOSS.................................................... $(1,008) $ (675) $(630)
======= ====== =====
</TABLE>
- ------------------------
(1) Reclassified to conform to the 2000 presentation.
(2) Excludes restructuring-related items and merger-related costs.
Corporate/Other includes net corporate treasury results, corporate staff and
other corporate expenses, certain intersegment eliminations, and the remainder
of Internet-related development activities (e-Citi) not allocated to the
individual businesses.
Revenues in 2000 and 1999 included higher treasury costs as well as the
impact of intersegment eliminations and in 1998, income from the disposition of
a real estate development property. Expenses in 2000 include a $108 million
pretax expense for the contribution of appreciated venture capital securities to
Citigroup's Foundation, which had minimal impact on Citigroup's earnings after
related tax benefits and investment gains, and increases in certain unallocated
corporate costs offset by decreases in performance-based option expense,
technology costs and intersegment eliminations. Expenses in 1999 included
certain technology costs associated with year 2000 remediation, partially offset
by decreases in corporate staff expenses as a result of headcount reductions in
1999. Expenses in 1998 included a $100 million contribution of appreciated
venture capital securities to the Company's Foundation, which had minimal impact
on Citigroup's earnings after related tax benefits and investment gains. 1999
and 1998 expenses included $108 million and $70 million, respectively,
associated with performance-based stock options granted in 1998 and prior years.
The 2000 after-tax restructuring-related items of $55 million consisted of
$21 million in merger-related costs due to the Associates acquisition,
$19 million relating to accelerated depreciation charges and $15 million in net
restructuring charges to streamline corporate functions. The 1999 after-tax
restructuring-related items of $20 million primarily included accelerated
depreciation charges. The 1998 after-tax restructuring-related items included
$42 million to streamline and integrate corporate staff functions, as well as
$65 million of one-time expenses associated with merging Citigroup's predecessor
organizations. See Note 15 of Notes to the Consolidated Financial Statements for
additional information on restructuring-related items and merger-related costs.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 1 of Notes to the Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. Many of these statements appear under the heading "Global
Consumer Outlook," "Global Corporate and Investment
59
<PAGE>
Bank Outlook," "Global Investment Management and Private Banking Outlook," and
"Associates Outlook." The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by words or phrases such as "believe," "expect,"
"anticipate," "intend," "estimate," "may increase," "may fluctuate," and similar
expressions or future or conditional verbs such as "will," "should," "would,"
and "could." These forward-looking statements involve risks and uncertainties
including, but not limited to global economic and political conditions, levels
of activity in the global capital marketplace, and the maturing of recent credit
portfolio additions; changes in general economic conditions including the
slowing U.S. economy, the performance of global financial markets, prevailing
inflation and interest rates, increased fuel prices, excess capacity for used
vehicles, and rising reinsurance costs; results of various Investment
Activities; the effects of competitors' pricing and service policies, of
consumer privacy provisions included in the Gramm-Leach-Bliley Act, and of
proposed changes in laws and regulations on the cost and availability of certain
types of insurance, as well as the claim and coverage obligations of insurers,
on the regulatory treatment of certain investments, on determining minimum
regulatory capital requirements, on risk-based capital guidelines, and on
reporting requirements; the resolution of legal proceedings and related matters;
the actual amount of liabilities associated with certain environmental and
asbestos-related insurance claims; and the Company's success in managing the
costs associated with the expansion of existing distribution channels and
developing new ones, and in realizing increased revenues from such distribution
channels, including cross-selling initiatives and electronic commerce-based
efforts.
MANAGING GLOBAL RISK
The Citigroup Risk Management framework recognizes the wide range and
diversity of global business activities by balancing strong corporate oversight
with defined independent risk management functions at the business level.
The risk management functions at the corporate-level are responsible for
establishing Citigroup risk management standards and ensuring their ongoing
appropriateness, appointing business-specific risk managers, approving
business-specific risk management policies and limits, and reviewing, on an
ongoing basis, major risk exposures and concentrations across the organization.
The business-specific risk managers are responsible for establishing and
implementing risk management policies and practices within their business, while
ensuring ongoing consistency with Citigroup standards. The business-specific
risk managers have dual accountability--to the Citigroup Senior Risk Officer and
to the head of their business unit.
The Citigroup Senior Risk Officer is responsible for reviewing material
corporate-wide risks, and determining appropriate exposure levels and limits.
These risks are regularly reviewed with the business risk managers, the
Citigroup Management Committee, and as necessary, with committees of the Board
of Directors:
- Risk ratings, including trends in client creditworthiness;
- Industry concentrations, globally and within regions;
- Corporate customer credit concentrations and consumer programs;
- Product concentrations in consumer managed receivables, by product and by
region;
- Global real estate exposure, including commercial and consumer portfolios;
- Country risk, encompassing political and cross-border risk;
- Counterparty risk, evaluating presettlement risk on foreign exchange,
derivative products, and securities trades;
60
<PAGE>
- The estimated effects of sudden and severe external market events;
- Distribution and underwriting risk, capturing the risk that arises when
Citigroup commits to purchase an instrument from an issuer for subsequent
sale;
- Business process defects identified by Audit and Risk Review;
- Price risk, evaluating the earnings risk resulting from changing levels
and implied volatilities of interest rates, foreign exchange rates, and
commodity and security prices;
- Liquidity risk, evaluating funding concentrations and diversification
strategy;
- Commodities risk, evaluating earnings risk resulting from changing levels
and volatilities of commodity prices;
- Life Insurance, evaluating the risks that result from the underwriting,
sale, and reinsurance of life insurance policies;
- Property & Casualty, evaluating the risks that result from the
underwriting, sale, and reinsurance of commercial, personal, and
performance bonds insurance policies;
- Equity and subordinated debt investment risk;
- Margin lending risk;
- Legal risk, reviewing the business implications of legal issues; and
- Technology risk, assessing vulnerability to the business processing
environment.
The following sections summarize the processes for managing credit and
market risks within Citigroup's major businesses, and reflect the successful
ongoing integration of businesses and risk management practices.
THE CREDIT RISK MANAGEMENT PROCESS
The credit risk management process at Citigroup relies on corporate-wide
standards to ensure consistency and integrity, with business-specific policies
and practices to ensure applicability and ownership.
Within the Global Corporate and Investment Bank (GCIB), the credit process
is grounded in a series of fundamental policies, including:
- Business accountability for credit risks taken;
- Single center of control for each credit relationship;
- Approval authority standards;
- Approval requirements from the business and from independent credit risk
management;
- Uniform risk measurement standards, including risk ratings;
- Portfolio management tools, including obligor and other limits.
These policies apply universally across the Global Corporate and Investment
Bank, as well as the Private Bank, and incorporate previous Citibank and Salomon
Smith Barney credit policies. GCIB businesses that require tailored credit
processes, due to unique or unusual risk characteristics in their activities,
may do so under a separately approved Credit Program. A Credit Program must be
sponsored by a business, and must be approved by independent credit risk
management. In all cases, the GCIB Policies must be adhered to, or specific
exceptions must be granted by independent credit risk management.
61
<PAGE>
Within the Global Consumer Group (GCG), business-specific credit risk
policies and procedures are derived from the following risk management
framework:
- Each business must develop a plan, including risk/return tradeoffs, as
well as risk acceptance criteria and policies appropriate to their
activities;
- Senior Business Managers are responsible for managing risk/return
tradeoffs in their business;
- Senior Business Managers, in conjunction with Senior Credit Officers,
implement business-specific risk management policies and practices;
- Approval policies for a product or business are tailored to audit ratings,
profitability and credit risk management performance;
- Independent credit risk management is responsible for establishing the GCG
Policy, approving business-specific policies and procedures, monitoring
business risk management performance, providing ongoing assessment of
portfolio credit risks, and approving new products and new risks.
In the course of its insurance activities, TPC reinsures a portion of the
risks it underwrites in an effort to control its exposure to losses, stabilize
earnings and protect capital resources. TPC cedes to reinsurers a portion of
these risks and pays premiums based upon the risk and exposure of the policies
subject to such reinsurance. Reinsurance involves credit risk and is subject to
aggregate loss limits. Although the reinsurer is liable to TPC generally to the
extent of the reinsurance ceded, TPC remains primarily liable as the direct
insurer on all risks reinsured. TPC also holds collateral, including escrow
funds and letters of credit, under certain reinsurance agreements. TPC monitors
the financial condition of reinsurers on an ongoing basis, and reviews its
reinsurance arrangements periodically. Reinsurers are selected based on their
financial condition, business practices and the price of their product
offerings. For additional information concerning reinsurance, see Note 14 of
Notes to Consolidated Financial Statements.
THE MARKET RISK MANAGEMENT PROCESS
Market risk encompasses liquidity risk and price risk, both of which arise
in the normal course of business of a global financial intermediary. Liquidity
risk is the risk that some entity, in some location and in some currency, may be
unable to meet a financial commitment to a customer, creditor, or investor when
due. Liquidity Risk is discussed in greater detail in the Liquidity and Capital
Resources section.
Market risk at Citigroup--like credit risk--is managed through
corporate-wide standards and business-specific policies and procedures. Each
business is required to establish a market risk limit framework, including
standardized risk measures, limits and controls, and independent reporting and
monitoring functions. In all cases, the businesses are ultimately responsible
for the market risks that they take, and for remaining within their defined
limit frameworks. Independent market risk management establishes policies and
procedures, approves limits, and monitors exposures against limits.
Price risk is the risk to earnings that arises from changes in interest
rates, foreign exchange rates, equity and commodity prices, and in their implied
volatilities. Price risk arises in Non-Trading Portfolios, as well as in Trading
Portfolios.
NON-TRADING PORTFOLIOS
Price risk in non-trading portfolios is measured predominantly through
Earnings-at-Risk and Factor Sensitivity techniques. These measurement techniques
are supplemented with additional tools, including stress testing and
cost-to-close analysis.
62
<PAGE>
Business units manage the potential earnings effect of interest rate
movements by managing the asset and liability mix, either directly or through
the use of derivative financial products. These include interest rate swaps and
other derivative instruments which are either designated and effective as hedges
or designated and effective in modifying the interest rate characteristics of
specified assets or liabilities. The utilization of derivatives is managed in
response to changing market conditions as well as to changes in the
characteristics and mix of the related assets and liabilities. Additional
information about non-trading derivatives is located in Note 23 of Notes to
Consolidated Financial Statements. Citigroup does not utilize instruments with
leverage features in connection with its non-trading risk management activities.
Earnings-at-Risk is the primary method for measuring price risk in
Citigroup's non-trading portfolios (excluding the Travelers Insurance
Companies). Earnings-at-Risk measures the pretax earnings impact of a specified
upward and downward shift in the yield curve for the appropriate currency. The
Earnings-at-Risk is calculated separately for each currency and reflects the
repricing gaps in the position as well as option positions, both explicit and
embedded. U.S. dollar exposures are calculated by multiplying the gap between
interest sensitive items, including assets, liabilities, derivative instruments
and other off-balance sheet instruments, by 100 basis points. Non-U.S. dollar
exposures are calculated utilizing the statistical equivalent of a 100 basis
point change in interest rates and assumes no correlation between exposures in
different currencies.
Citigroup's primary non-trading price risk exposure is to movements in U.S.
dollar interest rates. Citigroup also has Earnings-at-Risk in various other
currencies; however, there are no significant risk concentrations in any
individual non-U.S. dollar currency.
The following table illustrates the impact to Citigroup pretax earnings from
a 100 basis point increase or decrease in the U.S. dollar yield curve. As of
December 31, 2000, pre-tax earnings would have a potential negative impact of
$243 million from an interest rate increase and a potential positive impact of
$270 million over the next 12 months from an interest rate decrease. This level
of 12 month Earnings-at-Risk equates to less than 1.5% of Citigroup pre-tax
earnings in 2000. The potential impact on pre-tax earnings for periods beyond
the first 12 months is an increase of $778 million from an increase in interest
rates and a decrease of $883 million from a decline in interest rates. The
change in Earnings-at-Risk from the prior year reflects the growth in
Citigroup's fixed funding as well as the reduction in the use of derivatives in
managing our risk portfolio.
The statistical equivalent of a 100 basis points increase in non-U.S. dollar
interest rates would have a potential negative impact on Citigroup's pretax
earnings of approximately $187 million for 2001 and $98 million for the years
thereafter. The statistical equivalent of a 100 basis points decrease in
non-U.S. dollar interest rates would have a potential positive impact on
Citigroup's pretax earnings of approximately $189 million for 2001 and
$115 million for the years thereafter. The lower sensitivity to rising rates in
the non-U.S. dollar Earnings-at-Risk from the prior year primarily reflects the
lower interest rate volatility seen across the Asia Pacific region.
63
<PAGE>
CITIGROUP EARNINGS-AT-RISK (IMPACT ON PRETAX EARNINGS)(1)(2)
<TABLE>
<CAPTION>
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------------------------------- -----------------------------------------
U.S. DOLLAR NON-U.S. DOLLAR(3) U.S. DOLLAR NON-U.S. DOLLAR(3)
------------------- ------------------- ------------------- -------------------
In Millions of Dollars INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Twelve months and less........ $(243) $ 270 $(187) $189 $(410) $ 438 $(273) $274
Thereafter.................... 778 (883) (98) 115 161 (232) (347) 352
----- ----- ----- ---- ----- ----- ----- ----
TOTAL......................... $ 535 $(613) $(285) $304 $(249) $ 206 $(620) $626
===== ===== ===== ==== ===== ===== ===== ====
</TABLE>
- ------------------------
(1) Excludes the Travelers Insurance Companies (see below).
(2) Certain information has been restated from that presented in the prior year
to reflect reorganizations and a change in assumptions (specifically
revising the measurement of Earnings-at-Risk from a two standard deviation
change in interest rates to a 100 basis point change). These changes were
made to reflect a more consistent view for managing price risk throughout
the organization.
(3) Primarily results from Earnings-at-Risk in the Euro, Canadian dollar,
Singapore dollar and Hong Kong dollar.
TRAVELERS INSURANCE COMPANIES
The table below reflects the estimated decrease in the fair value of
financial instruments held in the Travelers Insurance Companies, as a result of
a 100 basis point increase in interest rates.
<TABLE>
<CAPTION>
In Millions of Dollars at December 31, 2000 1999(1)
-------- --------
<S> <C> <C>
ASSETS
Investments......................................... $2,715 $2,594
------ ------
LIABILITIES
Long-term debt...................................... $ 28 $ 33
Contractholder funds................................ 542 427
Redeemable securities of subsidiary trusts.......... 44 82
====== ======
</TABLE>
- ------------------------
(1) Certain information has been restated from that presented in the prior year
to reflect reorganizations and to reflect a more consistent view for
managing price risk throughout the organization.
A significant portion of Travelers Insurance Companies liabilities, (e.g.,
insurance policy and claims reserves) are not financial instruments and are
excluded from the above sensitivity analysis. Corresponding changes in fair
value of these accounts, based on the present value of estimated cash flows,
would materially mitigate the impact of the net decrease in values implied
above. The analysis also excludes all financial instruments, including long-term
debt, identified with trading activities. The analysis reflects the estimated
gross change in value resulting from a change in interest rates only and is not
comparable to the Earnings-at-Risk used for the Citigroup non-trading portfolios
or the Value-at-Risk used for the trading portfolios, described below.
64
<PAGE>
TRADING PORTFOLIOS
Price risk in trading portfolios is measured through a complementary set of
tools, including Factor Sensitivities, Value-at-Risk, and Stress Testing. Each
trading portfolio has its own market risk limit framework, encompassing these
measures and other controls, including permitted product lists and a new,
complex product approval process, established by the business, and approved by
independent market risk management.
Factor Sensitivities are defined as the change in the value of a position
for a defined change in a market risk factor (e.g., the change in the value of a
Treasury bill for a 1 basis point change in interest rates). It is the
responsibility of independent market risk management to ensure that factor
sensitivities are calculated, monitored and, in some cases, limited, for all
relevant risks taken in a trading portfolio. Value-at-Risk estimates the
potential decline in the value of a position or a portfolio, under normal market
conditions, over a one-day holding period, at a 99% confidence level. The
Value-at-Risk method incorporates the Factor Sensitivities of the trading
portfolio with the volatilities and correlations of those factors.
Stress Testing is performed on trading portfolios on a regular basis, to
estimate the impact of extreme market movements. Stress Testing is performed on
individual trading portfolios, as well as on aggregations of portfolios and
businesses, as appropriate. It is the responsibility of independent market risk
management, in conjunction with the businesses, to develop stress scenarios,
review the output of periodic stress testing exercises, and utilize the
information to make judgments as to the ongoing appropriateness of exposure
levels and limits..
New and/or complex products in trading portfolios are required to be
reviewed and approved by the GCIB Capital Markets Approval Committee (CMAC). The
CMAC is responsible for ensuring that all relevant risks are identified and
understood, and can be measured, managed and reported in accordance with
applicable GCIB policies and practices. The CMAC is made up of senior
representatives from market and credit risk management, legal, accounting,
operations and other support areas, as required.
The level of price risk exposure at any given point in time depends on the
market environment and expectations of future price and market movements, and
will vary from period to period.
For Citicorp's major trading centers, the aggregate pretax Value-at-Risk in
the trading portfolios was $29 million at December 31, 2000. Daily exposures at
Citicorp averaged $24 million in 2000 and ranged from $16 million to
$36 million. At Salomon Smith Barney the aggregate pretax Value-at-Risk in the
trading portfolios was $35 million at December 31, 2000. Quarterly exposures at
Salomon Smith Barney averaged $28 million in 2000 and ranged from $20 million to
$37 million.
The following table summarizes Value-at-Risk in the trading portfolios as of
December 31, 2000 and 1999, along with the averages.
<TABLE>
<CAPTION>
CITICORP SALOMON SMITH BARNEY
----------------------------------------- -----------------------------------------
DEC. 31, 2000 DEC. 31, 1999 DEC. 31, 2000 DEC. 31, 1999
In Millions of Dollars 2000 AVERAGE 1999 AVERAGE 2000 AVERAGE 1999 AVERAGE
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate.................... $ 18 $ 17 $ 15 $ 13 $ 35 $ 26 $ 20 $ 37
Foreign exchange................. 9 9 17 9 2 1 -- 5
Equity........................... 20 14 11 9 4 6 6 5
All other (primarily
commodity)..................... 9 5 2 1 6 9 8 10
Covariance adjustment............ (27) (21) (21) (14) (12) (14) (11) (18)
---- ---- ---- ---- ---- ---- ---- ----
TOTAL............................ $ 29 $ 24 $ 24 $ 18 $ 35 $ 28 $ 23 $ 39
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
65
<PAGE>
The table below provides the range of Value-at-Risk in the trading
portfolios that was experienced during 2000 and 1999.
<TABLE>
<CAPTION>
CITICORP SALOMON SMITH BARNEY
----------------------------------------- -----------------------------------------
2000 1999 2000 1999
------------------- ------------------- ------------------- -------------------
In Millions of Dollars LOW HIGH LOW HIGH LOW HIGH LOW HIGH
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate............................. $13 $29 $9 $18 $19 $36 $17 $71
Foreign exchange.......................... 5 18 5 17 -- 8 -- 13
Equity.................................... 9 31 5 16 1 20 1 16
All other (primarily commodity)........... 1 18 1 3 5 14 5 16
=== === == === === === === ===
</TABLE>
MANAGEMENT OF CROSS-BORDER RISK
Cross-border risk is the risk that Citigroup will be unable to obtain
payment from customers on their contractual obligations as a result of actions
taken by foreign governments such as exchange controls, debt moratoria, and
restrictions on the remittance of funds. Citigroup manages cross-border risk as
part of the risk management framework described on pages 60 and 61.
Except as described below for cross-border resale agreements and the netting
of certain long and short securities positions, the following table presents
total cross-border outstandings and commitments on a regulatory basis in
accordance with Federal Financial Institutions Examination Council ("FFIEC")
guidelines. In regulatory reports under FFIEC guidelines, cross-border resale
agreements are presented based on the domicile of the issuer of the securities
that are held as collateral. However, for purposes of the following table,
cross-border resale agreements are presented based on the domicile of the
counterparty because the counterparty has the legal obligation for repayment.
Similarly, under FFIEC guidelines, long securities positions are required to be
reported on a gross basis. However, for purposes of the following table, certain
long and short securities positions are presented on a net basis consistent with
internal cross-border risk management policies, reflecting a reduction of risk
from offsetting positions.
During 2000, the FFIEC revised their cross-border reporting guidelines to
allow credit derivative contracts containing cross-border provisions to be
treated as effective guarantees. Purchased credit derivative contracts where
Citigroup is the beneficiary shift the underlying exposure to the guarantor
country. Written credit derivative contracts where Citigroup provides an
effective guarantee are included as cross-border commitments in the country of
the underlying credit exposure. Total cross-border outstandings and commitments
at December 31, 1999 and 1998 have not been restated to reflect this revised
FFIEC policy.
66
<PAGE>
CROSS-BORDER OUTSTANDINGS AND COMMITMENTS
Total cross-border outstandings include cross-border claims on third parties
as well as investments in and funding of local franchises. Countries with FFIEC
outstandings greater than 0.75% of Citigroup assets for the respective periods
include:
<TABLE>
<CAPTION>
DECEMBER 31, 2000
-----------------------------------------------------------------------------------------------
CROSS-BORDER CLAIMS ON THIRD PARTIES INVESTMENTS
------------------------------------------------ IN AND
TRADING AND CROSS-BORDER FUNDING OF TOTAL CROSS-
SHORT-TERM RESALE ALL LOCAL BORDER
In Billions of Dollars CLAIMS(1) AGREEMENTS OTHER TOTAL FRANCHISES OUTSTANDINGS COMMITMENTS(2)
----------- ------------ -------- -------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
France............... $7.6 $4.0 $1.8 $13.4 $ -- $13.4 $ 8.4
Germany.............. 6.5 3.9 1.7 12.1 0.3 12.4 7.1
United Kingdom....... 4.3 3.0 3.6 10.9 -- 10.9 15.4
Netherlands.......... 5.6 3.8 1.2 10.6 -- 10.6 1.9
Italy................ 6.3 1.1 1.5 8.9 1.0 9.9 5.7
Canada............... 2.0 0.2 2.5 4.7 4.2 8.9 5.0
Brazil............... 2.5 -- 2.0 4.5 3.6 8.1 0.2
Japan................ 3.5 1.1 2.0 6.6 0.8 7.4 0.8
Mexico............... 1.8 0.1 1.7 3.6 0.3 3.9 1.7
<CAPTION>
DECEMBER 31, 1999
------------------------------
TOTAL CROSS-
BORDER
In Billions of Dollars OUTSTANDINGS COMMITMENTS(2)
------------ ---------------
<S> <C> <C>
France............... $ 8.0 $ 2.2
Germany.............. 10.9 3.7
United Kingdom....... 19.5 15.5
Netherlands.......... 8.1 2.9
Italy................ 7.1 0.4
Canada............... 7.1 2.1
Brazil............... 3.8 0.1
Japan................ 9.8 0.1
Mexico............... 4.5 0.1
</TABLE>
- ------------------------------
(1) Trading and short-term claims include cross-border debt and equity
securities held in the trading account, trade finance receivables, net
revaluation gains on foreign exchange and derivative contracts, and other
claims with a maturity of less than one year.
(2) Commitments (not included in total cross-border outstandings) include
legally binding cross-border letters of credit and other commitments and
contingencies as defined by the FFIEC.
Total cross-border outstandings under FFIEC guidelines, including
cross-border resale agreements based on the domicile of the issuer of the
securities that are held as collateral, and long securities positions reported
on a gross basis, at December 31, 2000, 1999, and 1998 were (in billions) France
($13.5, $7.9, and $8.7), Germany ($16.8, $14.9, and $17.4), the United Kingdom
($9.6, $8.8, and $7.9), the Netherlands ($7.7, $5.0, and $3.9), Italy ($13.9,
$10.2, and $8.7), Canada ($9.0, $7.1, and $5.0), Brazil ($9.8, $4.9, and $4.5),
Japan ($9.1, $10.5, and $18.2), and Mexico ($4.7, $5.2, and $5.9), respectively.
Cross-border commitments (in billions) at December 31, 1998 were $1.1 for
France, $1.4 for Germany, $8.9 for the United Kingdom, $0.8 for the Netherlands,
$0.3 for Italy, $1.6 for Canada, $0.1 for Brazil, $0.1 for Japan, and $0.2 for
Mexico.
The sector percentage allocation for bank, public, and private cross-border
claims on third parties under FFIEC guidelines at December 31, 2000 was France
(31%, 31%, and 38%), Germany (28%, 50%, and 22%), United Kingdom (23%, 16%, and
61%), the Netherlands (20%, 8% and 72%), Italy (17%, 70%, and 13%), Canada (33%,
15% and 52%), Brazil (15%, 37%, and 48%), Japan (16%, 26%, and 58%), and Mexico
(2%, 49%, and 49%), respectively.
LIQUIDITY AND CAPITAL RESOURCES
Citigroup services its obligations primarily with dividends and advances
that it receives from subsidiaries. The subsidiaries' dividend paying abilities
are limited by certain covenant restrictions in credit agreements and/or by
regulatory requirements. Citigroup believes it will have sufficient funds to
meet current and future commitments. Each of Citigroup's major operating
subsidiaries finances its operations on a basis consistent with its
capitalization and ratings.
67
<PAGE>
Citigroup, Citicorp, Associates and certain of its affiliated companies, TPC
and The Travelers Insurance Company (TIC) issue commercial paper directly to
investors. Citigroup and Citicorp, both of which are bank holding companies,
maintain combined liquidity reserves of cash, securities, and unused bank lines
of credit at least equal to their combined outstanding commercial paper. All of
the commercial paper issued by Associates and its affiliates is guaranteed by
Citicorp, and Associates maintains unutilized credit facilities, all guaranteed
by Citicorp, in support of approximately 75% of its commercial paper. TPC and
TIC each maintains unused credit availability under their respective bank lines
of credit at least equal to the amount of outstanding commercial paper.
Borrowings under bank lines of credit may be at interest rates based on
LIBOR, CD rates, the prime rate, or bids submitted by the banks. Each company
pays its banks commitment fees for its lines of credit.
Citicorp, Salomon Smith Barney, and some of their nonbank subsidiaries have
credit facilities with Citicorp's subsidiary banks, including Citibank, N.A.
Borrowings under these facilities must be secured in accordance with
Section 23A of the Federal Reserve Act.
CITIGROUP INC. (CITIGROUP)
Citigroup and TIC have a five-year revolving credit facility in the amount
of $1.0 billion with a syndicate of banks that expires in June 2001 and can be
allocated to either of Citigroup or TIC. The participation of TIC in this
agreement is limited to $250 million. At December 31, 2000, all of the facility
was allocated to Citigroup. Under this facility, Citigroup is required to
maintain a certain level of consolidated stockholders' equity (as defined in the
agreement). Citigroup exceeded this requirement by approximately $44 billion at
December 31, 2000. At December 31, 2000, there were no borrowings outstanding
under this facility.
Citigroup is subject to risk-based capital guidelines issued by the Board of
Governors of the Federal Reserve System (FRB). These guidelines are used to
evaluate capital adequacy based primarily on the perceived credit risk
associated with balance sheet assets, as well as certain off-balance sheet
exposures such as unused loan commitments, letters of credit, and derivative and
foreign exchange contracts. The risk-based capital guidelines are supplemented
by a leverage ratio requirement.
CITIGROUP RATIOS
<TABLE>
<CAPTION>
At Year-End 2000 1999
-------- --------
<S> <C> <C>
Tier 1 capital........................................ 8.38% 8.87%
Total capital (Tier 1 and Tier 2)..................... 11.23 11.32
Leverage(1)........................................... 5.97 6.61
Common stockholders' equity........................... 7.14 7.09
===== =====
</TABLE>
- ------------------------
(1) Tier 1 capital divided by adjusted average assets.
Citigroup maintained a strong capital position during 2000. Total capital
(Tier 1 and Tier 2) amounted to $73.0 billion at December 31, 2000, representing
11.23% of net risk-adjusted assets. This compares to $65.9 billion and 11.32% at
December 31, 1999. Tier 1 capital of $54.5 billion at December 31, 2000
represented 8.38% of net risk-adjusted assets, compared to $51.6 billion and
8.87% at December 31, 1999. Citigroup's leverage ratio was 5.97% at
December 31, 2000 compared to 6.61% at December 31, 1999. The decrease in the
regulatory capital ratios during the year reflects the growth in risk-adjusted
and average assets during 2000. See Note 18 of Notes to Consolidated Financial
Statements.
68
<PAGE>
COMPONENTS OF CAPITAL UNDER REGULATORY GUIDELINES
<TABLE>
<CAPTION>
In Millions of Dollars at Year-End 2000 1999
-------- --------
<S> <C> <C>
TIER 1 CAPITAL
Common stockholders' equity..................... $ 64,461 $ 56,395
Perpetual preferred stock....................... 1,745 1,895
Mandatorily redeemable securities of subsidiary
trusts........................................ 4,920 4,920
Minority interest(1)............................ 334 1,501
Less: Net unrealized gains on securities
available for sale(2)......................... (973) (1,647)
Intangible assets:(3)...........................
Goodwill...................................... (11,972) (8,170)
Other intangible assets....................... (3,572) (3,183)
Net unrealized losses on available-for-sale
equity securities, net of tax(2).............. (68) --
50% investment in certain subsidiaries(4)....... (82) (107)
Other........................................... (295) --
-------- --------
TOTAL TIER 1 CAPITAL............................ 54,498 51,604
-------- --------
TIER 2 CAPITAL
Allowance for credit losses(5).................. 8,140 7,294
Qualifying debt(6).............................. 10,492 6,728
Unrealized marketable equity securities
gains(2)...................................... -- 363
Less: 50% investment in certain
subsidiaries(4)............................... (82) (107)
-------- --------
TOTAL TIER 2 CAPITAL............................ 18,550 14,278
-------- --------
TOTAL CAPITAL (TIER 1 AND TIER 2)............... $ 73,048 $ 65,882
======== ========
NET RISK--ADJUSTED ASSETS(7).................... $650,351 $581,858
======== ========
</TABLE>
- ------------------------
(1) The decrease is primarily related to the purchase of all of the outstanding
shares of common stock of TPC not previously owned.
(2) Tier 1 capital excludes unrealized gains and losses on debt securities
available for sale in accordance with regulatory risk-based capital
guidelines. The federal bank regulatory agencies permit institutions to
include in Tier 2 capital up to 45% of pretax net unrealized holding gains
on available-for-sale equity securities with readily determinable fair
values. Institutions are required to deduct from Tier 1 capital net
unrealized holding losses on available-for-sale equity securities with
readily determinable fair values, net of tax.
(3) The increase in goodwill and other intangibles was attributable to the
acquisitions completed during the year, including TPC's minority interest,
Schroders, Handlowy, Reliance, Copelco, and Siembra.
(4) Represents investment in certain overseas insurance activities and
unconsolidated banking and finance subsidiaries.
(5) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is
deducted from risk-adjusted assets.
(6) Includes qualifying senior and subordinated debt in an amount not exceeding
50% of Tier 1 capital, and subordinated capital notes subject to certain
limitations. The net increase in qualifying
69
<PAGE>
debt during 2000 includes $4.25 billion of Citigroup subordinated debt,
offset by net redemptions of subsidiary-obligated debt.
(7) Includes risk-weighted credit equivalent amounts, net of applicable
bilateral netting agreements, of $27.7 billion for interest rate, commodity
and equity derivative contracts and foreign exchange contracts, as of
December 31, 2000, compared to $32.9 billion as of December 31, 1999. Market
risk-equivalent assets included in net risk-adjusted assets amounted to
$39.6 billion and $43.1 billion at December 31, 2000 and 1999, respectively.
Net risk-adjusted assets also includes the effect of other off-balance sheet
exposures such as unused loan commitments and letters of credit and reflects
deductions for intangible assets and any excess allowance for credit losses.
Common stockholders' equity increased a net $8.1 billion during the year to
$64.5 billion at December 31, 2000, representing 7.14% of assets, compared to
$56.4 billion and 7.09% at year-end 1999. The increase in common stockholders'
equity during the year principally reflected net income of $13.5 billion and
$1.4 billion related to the issuance of shares pursuant to employee benefit
plans, change in unrealized gains on investment securities and other activity,
partially offset by treasury stock acquired of $4.1 billion and dividends
declared on common and preferred stock of $2.7 billion. The increase in the
common stockholders' equity ratio during the year reflected the above items,
which was partially offset by the increase in total assets.
During the 2000 third quarter, the Board of Directors approved an additional
$5 billion in the existing authority for the periodic repurchase of Citigroup
common stock. During the 2000 first quarter, Citigroup redeemed its Series T
perpetual preferred stock for $150 million.
All of the mandatorily redeemable securities of subsidiary trusts (trust
securities) outstanding at December 31, 2000 and 1999 qualify as Tier 1 capital.
The amount outstanding for both periods includes $2.3 billion of
parent-obligated securities and $2.62 billion of subsidiary-obligated
securities.
Citigroup's subsidiary depository institutions are subject to the risk-based
capital guidelines issued by their respective primary federal bank regulatory
agencies, which are generally similar to the FRB's guidelines. At December 31,
2000, all of Citigroup's subsidiary depository institutions were "well
capitalized" under the federal bank regulatory agencies' definitions.
On January 18, 2001, the FRB issued new proposed rules that would govern the
regulatory treatment of merchant banking investments and certain similar equity
investments, including investments made by venture capital subsidiaries, in
nonfinancial companies held by bank holding companies. The new proposal
generally would impose a capital charge that would increase in steps as the
banking organization's level of concentration in equity investments increased.
An 8 percent Tier 1 capital deduction would apply on covered investments that in
the aggregate represent up to 15 percent of an organization's Tier 1 capital.
For covered investments that aggregate more than 25 percent of the
organization's Tier 1 capital, a top marginal charge of 25 percent would be set.
The Company is monitoring the status and progress of the proposed rule, which,
at the present time, is not expected to have a significant impact on Citigroup.
On January 16, 2001, the Basel Committee on Banking Supervision (Committee)
released the second consultative package on the new Basel Capital Accord (new
Accord). The proposal modifies and substantially expands a proposal issued for
comment by the Committee in June 1999 and describes the methods by which banks
can determine their minimum regulatory capital requirements. The new Accord,
which will apply to all "significant" banks, as well as to holding companies
that are parents of banking groups, is intended to be finalized by year-end
2001, with implementation of the new framework beginning in 2004. The Company is
monitoring the status and progress of the proposed rule.
Additionally, from time to time, the FRB and the FFIEC propose amendments
to, and issue interpretations of, risk-based capital guidelines and reporting
instructions. Such proposals or interpretations could, if implemented in the
future, affect reported capital ratios and net risk-adjusted
70
<PAGE>
assets. This paragraph and the preceding two paragraphs contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
See "Forward-Looking Statements" on page 59.
CITICORP
Management of liquidity at Citicorp is the responsibility of the Corporate
Treasurer. The Country Corporate Officer and the Country Treasurer ensure that
all funding obligations in each country are met when due. The Country Treasurer
is appointed by the Corporate Treasurer.
The in-country forum for liquidity issues is the Asset/Liability Management
Committee (ALCO), which includes senior executives within each country. The ALCO
reviews the current and prospective funding requirements for all businesses and
legal entities within the country, as well as the capital position and balance
sheet. All businesses within the country are represented on the committee with
the focal point being the Country Treasurer.
Each Country Treasurer must prepare a liquidity plan at least annually that
is approved by the Country Corporate Officer, the Regional Treasurer, and the
Corporate Treasurer. The liquidity profile is monitored on an on-going basis and
reported monthly. Limits are established on the extent to which businesses in a
country can take liquidity risk. The size of the limit depends on the depth of
the market, experience level of local management, the stability of the
liabilities, and liquidity of the assets.
Regional Treasurers generally have responsibility for monitoring liquidity
risk across a number of countries within a defined geography. They are also
available for consultation and special approvals, especially in unusual or
volatile market conditions.
Citicorp's assets and liabilities are diversified across many currencies,
geographic areas, and businesses. Particular attention is paid to those
businesses which for tax, sovereign risk, or regulatory reasons cannot be freely
and readily funded in the international markets.
A diversity of funding sources, currencies, and maturities is used to gain a
broad access to the investor base. Citicorp's deposits, which represent 55% of
total funding at both December 31, 2000 and 1999 are broadly diversified by both
geography and customer segments.
Stockholder's equity, which grew $12.4 billion during the year to
$47.9 billion at year-end 2000, continues to be an important component of the
overall funding structure. In addition, long-term debt is issued by Citicorp and
its subsidiaries. Total Citicorp long-term debt outstanding at year-end 2000 was
$80.3 billion, compared with $67.8 billion at year-end 1999.
Asset securitization programs remain an important source of liquidity. Loans
securitized during 2000 included $9.1 billion of U.S. credit cards and
$12.0 billion of U.S. consumer mortgages. As credit card securitization
transactions amortize, newly originated receivables are recorded on Citicorp's
balance sheet and become available for asset securitization. In 2000, the
scheduled amortization of certain credit card securitization transactions made
available $7.4 billion of new receivables. In addition, at least $13.1 billion
of credit card securitization transactions are scheduled to amortize during
2001.
Citicorp is a legal entity separate and distinct from Citibank, N.A. and its
other subsidiaries and affiliates. There are various legal limitations on the
extent to which Citicorp's banking subsidiaries may extend credit, pay dividends
or otherwise supply funds to Citicorp. The approval of the Office of the
Comptroller of the Currency is required if total dividends declared by a
national bank in any calendar year exceed net profits (as defined) for that year
combined with its retained net profits for the preceding two years. In addition,
dividends for such a bank may not be paid in excess of the bank's undivided
profits. State-chartered bank subsidiaries are subject to dividend limitations
imposed by applicable state law.
71
<PAGE>
Citicorp's national and state-chartered bank subsidiaries can declare
dividends to their respective parent companies in 2001, without regulatory
approval, of approximately $7.2 billion, adjusted by the effect of their net
income (loss) for 2001 up to the date of any such dividend declaration. In
determining whether and to what extent to pay dividends, each bank subsidiary
must also consider the effect of dividend payments on applicable risk-based
capital and leverage ratio requirements as well as policy statements of the
federal regulatory agencies that indicate that banking organizations should
generally pay dividends out of current operating earnings. Consistent with these
considerations, Citicorp estimates that its bank subsidiaries can distribute
dividends to Citicorp, directly or through their parent holding company, of
approximately $6.4 billion of the available $7.2 billion, adjusted by the effect
of their net income (loss) up to the date of any such dividend declaration.
Citicorp also receives dividends from its nonbank subsidiaries. These
nonbank subsidiaries are generally not subject to regulatory restrictions on
their payment of dividends except that the approval of the Office of Thrift
Supervision (OTS) may be required if total dividends declared by a savings
association in any calendar year exceed amounts specified by that agency's
regulations.
Citicorp is subject to risk-based capital and leverage guidelines issued by
the FRB.
CITICORP RATIOS
<TABLE>
<CAPTION>
At Year-End 2000 1999
-------- --------
<S> <C> <C>
Tier 1 capital........................................ 8.41% 7.32%
Total capital (Tier 1 and Tier 2)..................... 12.29 10.69
Leverage(1)........................................... 7.54 6.51
Common stockholder's equity........................... 8.68 7.52
===== =====
</TABLE>
- ------------------------
(1) Tier 1 capital divided by adjusted average assets.
Citicorp maintained a strong capital position during 2000. Total capital
(Tier 1 and Tier 2) amounted to $58.0 billion at December 31, 2000, representing
12.29% of net risk-adjusted assets. This compares with $42.5 billion and 10.69%
at December 31, 1999. Tier 1 capital of $39.7 billion at year-end 2000
represented 8.41% of net risk-adjusted assets, compared with $29.1 billion and
7.32% at year-end 1999. The Tier 1 capital ratio at year-end 2000 was above
Citicorp's target range of 8.00% to 8.30%. See Note 18 of Notes to Consolidated
Financial Statements.
ASSOCIATES FIRST CAPITAL CORPORATION (ASSOCIATES)
Associates maintains a combination of unutilized bilateral and syndicated
credit facilities to support its short-term borrowings. These facilities, which
have maturities ranging from 2001 through 2005, provide a means of managing
liquidity and ensure that funds are always available to satisfy maturing
short-term obligations. At December 31, 2000, these facilities provided coverage
of approximately 75% of Associates' commercial paper borrowings and utilized
uncommitted lines of credit. In connection with Citigroup's November 30, 2000
acquisition of Associates in which Associates became a wholly owned subsidiary
of Citicorp, Citicorp guaranteed various debt obligations of Associates,
including those arising under these facilities. Under these facilities, Citicorp
is required to maintain a certain level of consolidated stockholder's equity. At
December 31, 2000, this requirement was exceeded by $32.6 billion.
CITIFINANCIAL CREDIT COMPANY (CCC)
CCC, an indirect subsidiary of Citicorp, has five-year revolving credit
facilities in the amount of $3.4 billion that expire in 2002. Citicorp
guarantees various debt obligations of CCC, including those
72
<PAGE>
arising under these facilities. Under these facilities, Citicorp is required to
maintain a certain level of consolidated stockholder's equity (as defined in the
agreement). At December 31, 2000, this requirement was exceeded by approximately
$32.6 billion. At December 31, 2000, there were no borrowings outstanding under
these facilities.
TRAVELERS PROPERTY CASUALTY CORP. (TPC)
TPC has a five-year revolving credit facility in the amount of $250 million
with a syndicate of banks that expires in December 2001. Under this facility TPC
is required to maintain a certain level of consolidated stockholders' equity (as
defined in the agreement). At December 31, 2000, this requirement was exceeded
by approximately $5.6 billion. At December 31, 2000, there were no borrowings
outstanding under this facility.
TPC's insurance subsidiaries are subject to various regulatory restrictions
that limit the maximum amount of dividends available to be paid to their parent
without prior approval of insurance regulatory authorities. A maximum of
$1.2 billion is available by the end of the year 2001 for such dividends without
prior approval of the Connecticut Insurance Department.
SALOMON SMITH BARNEY HOLDINGS INC. (SALOMON SMITH BARNEY)
Salomon Smith Barney's total assets were $238 billion at December 31,2000,
compared to $221 billion at year-end 1999. Due to the nature of Salomon Smith
Barney's trading activities it is not uncommon for asset levels to fluctuate
from period to period. At December 31, 2000, approximately 39% of these assets
represent trading securities, commodities, and derivatives used for proprietary
trading and to facilitate customer transactions, and approximately 43% of these
assets were related to collateralized financing transactions where securities
are bought, borrowed, sold, and lent in generally offsetting amounts. A
significant portion of the remainder of the assets represented receivables from
brokers, dealers, clearing organizations, and customers that relate to
securities transactions in the process of being settled. The carrying values of
the majority of Salomon Smith Barney's securities inventories are adjusted daily
to reflect current prices. See Notes 1, 5, 6, 7, 8, and 23 of Notes to the
Consolidated Financial Statements for a further description of these assets.
Salomon Smith Barney's assets are financed through a number of sources
including long and short-term unsecured borrowings, the financing transactions
described above, and payables to brokers, dealers, and customers. The highly
liquid nature of these assets provides Salomon Smith Barney with flexibility in
financing and managing its business. Salomon Smith Barney monitors and evaluates
the adequacy of its capital and borrowing base on a daily basis in order to
allow for flexibility in its funding, to maintain liquidity, and to ensure that
its capital base supports the regulatory capital requirements of its
subsidiaries.
Salomon Smith Barney funds its operations through the use of secured and
unsecured short-term borrowings, long-term borrowings and
TruPS.-Registered Trademark- Secured short-term financing, including repurchase
agreements and secured loans, is Salomon Smith Barney's principal funding
source. Unsecured short-term borrowings provide a source of short-term liquidity
and are also utilized as an alternative to secured financing when they represent
a cheaper funding source. Sources of short-term unsecured borrowings include
commercial paper, unsecured bank borrowings and letters of credit, deposit
liabilities, promissory notes, and corporate loans.
Salomon Smith Barney has a $5.0 billion 364-day committed uncollateralized
revolving line of credit that extends through May 2001. Salomon Smith Barney may
borrow under this revolving credit facility at various interest rate options
(LIBOR, CD, or base rate) and compensates the banks for this facility through
commitment fees. Under this facility Salomon Smith Barney is required to
maintain a certain level of consolidated adjusted net worth (as defined in the
agreement). At December 31, 2000, this requirement was exceeded by approximately
$4.3 billion. At December 31, 2000, there were no
73
<PAGE>
borrowings outstanding under this facility. Salomon Smith Barney also has
substantial borrowing arrangements consisting of facilities that it has been
advised are available, but where no contractual lending obligation exists. These
arrangements are reviewed on an ongoing basis to ensure flexibility in meeting
short-term requirements.
Unsecured term debt is a significant component of Salomon Smith Barney's
long-term capital. Long-term debt totaled $19.7 billion at December 31, 2000 and
$18.0 billion at December 31,1999. Salomon Smith Barney utilizes interest rate
swaps to convert the majority of its fixed rate long-term debt used to fund
inventory-related working capital requirements into variable rate obligations.
Long-term debt issuances denominated in currencies other than the U.S. dollar
that are not used to finance assets in the same currency are effectively
converted to U.S. dollar obligations through the use of cross-currency swaps and
forward currency contracts.
Salomon Smith Barney's borrowing relationships are with a broad range of
banks, financial institutions and other firms from which it draws funds. The
volume of borrowings generally fluctuates in response to changes in the level of
financial instruments, commodities and contractual commitments, customer
balances, the amount of reverse repurchase transactions outstanding, and
securities borrowed transactions. As Salomon Smith Barney's activities increase,
borrowings generally increase to fund the additional activities. Availability of
financing can vary depending upon market conditions, credit ratings, and the
overall availability of credit to the securities industry. Salomon Smith Barney
seeks to expand and diversify its funding mix as well as its creditor sources.
Concentration levels for these sources, particularly for short-term lenders, are
closely monitored both in terms of single investor limits and daily maturities.
Salomon Smith Barney monitors liquidity by tracking asset levels, collateral
and funding availability to maintain flexibility to meet its financial
commitments. As a policy, Salomon Smith Barney attempts to maintain sufficient
capital and funding sources in order to have the capacity to finance itself on a
fully collateralized basis in the event that access to unsecured financing was
temporarily impaired. Salomon Smith Barney's liquidity management process
includes a contingency funding plan designed to ensure adequate liquidity even
if access to unsecured funding sources is severely restricted or unavailable.
This plan is reviewed periodically to keep the funding options current and in
line with market conditions. The management of this plan includes an analysis
that is utilized to determine the ability to withstand varying levels of stress,
which could impact Salomon Smith Barney's liquidation horizons and required
margins. In addition, Salomon Smith Barney monitors its leverage and capital
ratios on a daily basis.
THE TRAVELERS INSURANCE COMPANY (TIC)
At December 31, 2000, TIC had $29.7 billion of life and annuity product
deposit funds and reserves. Of that total, $16.4 billion is not subject to
discretionary withdrawal based on contract terms. The remaining $13.3 billion is
for life and annuity products that are subject to discretionary withdrawal by
the contractholder. Included in the amount that is subject to discretionary
withdrawal are $2.9 billion of liabilities that are surrenderable with market
value adjustments. Also included are an additional $4.9 billion of the life
insurance and individual annuity liabilities which are subject to discretionary
withdrawals, and have an average surrender charge of 4.5%. In the payout phase,
these funds are credited at significantly reduced interest rates. The remaining
$5.5 billion of liabilities are surrenderable without charge. More than 12.7% of
these relate to individual life products. These risks would have to be
underwritten again if transferred to another carrier, which is considered a
significant deterrent against withdrawal by long-term policyholders. Insurance
liabilities that are surrendered or withdrawn are reduced by outstanding policy
loans, and related accrued interest prior to payout.
74
<PAGE>
Scheduled maturities of guaranteed investment contracts (GICs) in 2001,
2002, 2003, 2004, and thereafter are $3.607 billion, $944 million,
$809 million, $787 million, and $2.662 billion, respectively. At December 31,
2000, the interest rates credited on GICs had a weighted average rate of 6.75%.
TIC is subject to various regulatory restrictions that limit the maximum
amount of dividends available to its parent without prior approval of the
Connecticut Insurance Department. A maximum of $984 million of statutory surplus
is available by the end of the year 2001 for such dividends without the prior
approval of the Connecticut Insurance Department.
INSURANCE INDUSTRY-RISK BASED CAPITAL
The National Association of Insurance Commissioners (NAIC) adopted
risk-based capital (RBC) requirements for life insurance companies and for
property and casualty insurance companies. The RBC requirements are to be used
as minimum capital requirements by the NAIC and states to identify companies
that merit further regulatory action. The formulas have not been designed to
differentiate among adequately capitalized companies that operate with levels of
capital higher than RBC requirements. Therefore, it is inappropriate and
ineffective to use the formulas to rate or to rank such companies. At
December 31, 2000 and 1999, all of the Company's life and property & casualty
companies had adjusted capital in excess of amounts requiring any regulatory
action.
75
<PAGE>
REPORT OF MANAGEMENT
The management of Citigroup is responsible for the preparation and fair
presentation of the financial statements and other financial information
contained in this annual report. The accompanying financial statements have been
prepared in conformity with generally accepted accounting principles appropriate
in the circumstances. Where amounts must be based on estimates and judgments,
they represent the best estimates and judgments of management. The financial
information appearing throughout this annual report is consistent with that in
the financial statements.
The management of Citigroup is also responsible for maintaining effective
internal control over financial reporting. Management establishes an environment
that fosters strong controls, and it designs business processes to identify and
respond to risk. Management maintains a comprehensive system of controls
intended to ensure that transactions are executed in accordance with
management's authorization, assets are safeguarded, and financial records are
reliable. Management also takes steps to see that information and communication
flows are effective and to monitor performance, including performance of
internal control procedures.
Citigroup's accounting policies and internal control are under the general
oversight of the Board of Directors, acting through the Audit Committee of the
Board. The Committee is composed entirely of directors who are not officers or
employees of Citigroup. The Committee reviews reports by internal audit covering
its extensive program of audit and risk reviews worldwide. In addition, KPMG
LLP, independent auditors, are engaged to audit Citigroup's financial
statements.
KPMG LLP obtains and maintains an understanding of Citigroup's internal
control and procedures for financial reporting and conducts such tests and other
auditing procedures as it considers necessary in the circumstances to express
the opinion in its report that follows. KPMG LLP has full access to the Audit
Committee, with no members of management present, to discuss its audit and its
findings as to the integrity of Citigroup's financial reporting and the
effectiveness of internal control.
Management recognizes that there are inherent limitations in the
effectiveness of any system of internal control, and accordingly, even effective
internal control can provide only reasonable assurance with respect to financial
statement preparation. However, management believes that Citigroup maintained
effective internal control over financial reporting as of December 31, 2000.
<TABLE>
<S> <C>
[LOGO] [LOGO]
Sanford I. Weill Todd S. Thomson
Chairman and Chief Executive Officer Chief Financial Officer
</TABLE>
76
<PAGE>
INDEPENDENT AUDITORS' REPORT
[LOGO]
The Board of Directors and Stockholders
Citigroup Inc.:
We have audited the accompanying consolidated statement of financial
position of Citigroup Inc. and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Citigroup Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, in 1999 the
Company changed its methods of accounting for insurance-related assessments,
accounting for insurance and reinsurance contracts that do not transfer
insurance risk, and accounting for the costs of start-up activities.
KPMG LLG
New York, New York
January 16, 2001
77
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
In Millions of Dollars, Except Per Share Amounts 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Loan interest, including fees............................... $ 37,377 $33,018 $31,144
Other interest and dividends................................ 27,562 21,971 23,392
Insurance premiums.......................................... 12,429 11,504 10,324
Commissions and fees........................................ 16,363 13,229 12,395
Principal transactions...................................... 5,981 5,160 1,780
Asset management and administration fees.................... 5,338 4,164 2,292
Realized gains from sales of investments.................... 806 541 841
Other income................................................ 5,970 4,809 3,757
-------- ------- -------
Total revenues.............................................. 111,826 94,396 85,925
Interest expense............................................ 36,638 28,674 30,692
-------- ------- -------
TOTAL REVENUES, NET OF INTEREST EXPENSE..................... 75,188 65,722 55,233
-------- ------- -------
BENEFITS, CLAIMS, AND CREDIT LOSSES
Policyholder benefits and claims expense.................... 10,147 9,120 8,527
Provision for credit losses................................. 5,339 4,760 4,261
-------- ------- -------
TOTAL BENEFITS, CLAIMS, AND CREDIT LOSSES................... 15,486 13,880 12,788
-------- ------- -------
OPERATING EXPENSES
Non-insurance compensation and benefits..................... 18,633 16,169 14,615
Insurance underwriting, acquisition, and operating.......... 3,643 3,765 3,372
Restructuring-related items and merger-related costs........ 759 (53) 795
Other operating expenses.................................... 15,524 13,810 12,578
-------- ------- -------
TOTAL OPERATING EXPENSES.................................... 38,559 33,691 31,360
-------- ------- -------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES.............................. 21,143 18,151 11,085
Provision for income taxes.................................. 7,525 6,530 3,907
Minority interest, net of income taxes...................... 99 251 228
-------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES....... 13,519 11,370 6,950
-------- ------- -------
Cumulative effect of accounting changes..................... -- (127) --
-------- ------- -------
NET INCOME.................................................. $ 13,519 $11,243 $ 6,950
======== ======= =======
BASIC EARNINGS PER SHARE
Income before cumulative effect of accounting changes....... $ 2.69 $ 2.26 $ 1.35
Cumulative effect of accounting changes..................... -- (0.03) --
-------- ------- -------
NET INCOME.................................................. $ 2.69 $ 2.23 $ 1.35
======== ======= =======
Weighted average common shares outstanding.................. 4,977.0 4,979.2 4,995.1
-------- ------- -------
DILUTED EARNINGS PER SHARE
Income before cumulative effect of accounting changes....... $ 2.62 $ 2.19 $ 1.31
Cumulative effect of accounting changes..................... -- (0.02) --
-------- ------- -------
NET INCOME.................................................. $ 2.62 $ 2.17 $ 1.31
======== ======= =======
Adjusted weighted average common shares outstanding......... 5,122.2 5,127.8 5,143.7
======== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
78
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
In Millions of Dollars 2000 1999
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks (including segregated cash and other
deposits)................................................. $ 14,621 $ 15,978
Deposits at interest with banks............................. 16,164 12,266
Federal funds sold and securities borrowed or purchased
under agreements to resell................................ 105,877 112,655
Brokerage receivables....................................... 25,696 22,219
Trading account assets (including $83,821 pledged to
creditors at December 31, 2000)........................... 132,513 107,061
Investments (including $3,354 pledged to creditors at
December 31, 2000)........................................ 120,122 116,052
Loans, net of unearned income
Consumer.................................................. 228,879 194,569
Commercial................................................ 138,143 120,332
-------- --------
Loans, net of unearned income............................... 367,022 314,901
Allowance for credit losses............................... (8,961) (8,853)
-------- --------
Total loans, net............................................ 358,061 306,048
Reinsurance recoverables.................................... 10,541 9,705
Separate and variable accounts.............................. 24,947 23,118
Other assets................................................ 93,668 70,482
-------- --------
TOTAL ASSETS................................................ $902,210 $795,584
======== ========
LIABILITIES
Non-interest-bearing deposits in U.S. offices............... $ 21,694 $ 19,506
Interest-bearing deposits in U.S. offices................... 58,913 49,052
Non-interest-bearing deposits in offices outside the U.S.... 13,811 12,021
Interest-bearing deposits in offices outside the U.S........ 206,168 180,994
-------- --------
Total deposits.............................................. 300,586 261,573
Federal funds purchased and securities loaned or sold under
agreements to repurchase.................................. 110,625 92,591
Brokerage payables.......................................... 15,882 13,438
Trading account liabilities................................. 85,107 90,500
Contractholder funds and separate and variable accounts..... 44,884 41,335
Insurance policy and claims reserves........................ 44,666 43,842
Investment banking and brokerage borrowings................. 18,227 13,719
Short-term borrowings....................................... 51,675 44,339
Long-term debt.............................................. 111,778 88,481
Other liabilities........................................... 47,654 42,556
Citigroup or subsidiary obligated mandatorily redeemable
securities of subsidiary trusts holding solely junior
subordinated debt securities of--Parent................... 2,300 2,300
--Subsidiary............... 2,620 2,620
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock ($1.00 par value; authorized shares:
30 million), at aggregate liquidation value................. 1,745 1,895
Common stock ($.01 par value; authorized shares:
10 billion), issued shares: 2000--5,351,143,583 SHARES and
1999--5,350,977,319 shares................................ 54 54
Additional paid-in capital.................................. 16,504 15,307
Retained earnings........................................... 58,862 47,997
Treasury stock, at cost: 2000--328,921,189 SHARES and
1999--326,918,585 shares.................................. (10,213) (7,662)
Accumulated other changes in equity from nonowner sources... 123 1,155
Unearned compensation....................................... (869) (456)
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. 66,206 58,290
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $902,210 $795,584
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
79
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
AMOUNTS SHARES
------------------------------ ---------------------------------
In Millions of Dollars Except Shares in Thousands 2000 1999 1998 2000 1999 1998
-------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK AT AGGREGATE LIQUIDATION VALUE
Balance, beginning of year................................ $ 1,895 $ 2,274 $ 3,346 6,831 8,327 14,812
Redemption or retirement of preferred stock............... (150) (379) (1,072) (598) (1,496) (6,485)
-------- ------- ------- --------- --------- ---------
Balance, end of year...................................... 1,745 1,895 2,274 6,233 6,831 8,327
-------- ------- ------- --------- --------- ---------
COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year................................ 15,361 14,210 16,504 5,350,977 5,338,223 5,533,833
Employee benefit plans.................................... 1,119 1,036 537 -- 381 278
Issuance of common stock.................................. -- -- 1,267 -- -- 25,375
Conversion of redeemable preferred stock to common
stock................................................... -- 140 293 -- 12,489 26,375
Exercise of common stock warrants......................... -- -- 131 -- -- 20,260
Retirement of treasury stock.............................. -- -- (4,497) -- -- (267,851)
Other..................................................... 78 (25) (25) 167 (116) (47)
-------- ------- ------- --------- --------- ---------
Balance, end of year...................................... 16,558 15,361 14,210 5,351,144 5,350,977 5,338,223
-------- ------- ------- --------- --------- ---------
RETAINED EARNINGS
Balance, beginning of year................................ 47,997 38,893 33,923
Net income................................................ 13,519 11,243 6,950
Common dividends.......................................... (2,535) (1,990) (1,764)
Preferred dividends....................................... (119) (149) (216)
-------- ------- -------
Balance, end of year...................................... 58,862 47,997 38,893
-------- ------- -------
TREASURY STOCK, AT COST
Balance, beginning of year................................ (7,662) (4,829) (6,605) (326,918) (288,935) (465,744)
Issuance of shares pursuant to employee benefit plans..... 1,465 1,116 432 83,601 78,469 36,629
Treasury stock acquired................................... (4,066) (3,954) (3,139) (87,149) (116,697) (126,742)
Retirement of treasury stock.............................. -- -- 4,497 -- -- 267,851
Other..................................................... 50 5 (14) 1,544 245 (929)
-------- ------- ------- --------- --------- ---------
Balance, end of year...................................... (10,213) (7,662) (4,829) (328,922) (326,918) (288,935)
-------- ------- ------- --------- --------- ---------
ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES
Balance, beginning of year................................ 1,155 984 1,250
Net change in unrealized gains and losses on investment
securities, net of tax.................................. (674) 214 (264)
Foreign currency translations adjustment, net of tax...... (358) (43) (2)
-------- ------- -------
Balance, end of year...................................... 123 1,155 984
-------- ------- -------
UNEARNED COMPENSATION
Balance, beginning of year................................ (456) (497) (462)
Net issuance of restricted stock.......................... (1,055) (380) (420)
Restricted stock amortization............................. 642 421 385
-------- ------- -------
Balance, end of year...................................... (869) (456) (497)
-------- ------- -------
TOTAL COMMON STOCKHOLDERS' EQUITY AND COMMON SHARES
OUTSTANDING............................................. 64,461 56,395 48,761 5,022,222 5,024,059 5,049,288
-------- ------- ------- ========= ========= =========
TOTAL STOCKHOLDERS' EQUITY................................ $ 66,206 $58,290 $51,035
======== ======= =======
SUMMARY OF CHANGES IN EQUITY FROM NONOWNER SOURCES
Net income................................................ $ 13,519 $11,243 $ 6,950
Other changes in equity from nonowner sources, net of
tax..................................................... (1,032) 171 (266)
-------- ------- -------
TOTAL CHANGES IN EQUITY FROM NONOWNER SOURCES............. $ 12,487 $11,414 $ 6,684
-------- ------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
80
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
In Millions of Dollars 2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 13,519 $ 11,243 $ 6,950
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs and
value of insurance in force............................. 1,676 1,613 1,509
Additions to deferred policy acquisition costs............ (2,154) (1,961) (1,784)
Depreciation and amortization............................. 2,648 2,226 1,810
Deferred tax provision (benefit).......................... 1,537 598 (210)
Provision for credit losses............................... 5,339 4,760 4,261
Change in trading account assets.......................... (25,452) 9,928 63,099
Change in trading account liabilities..................... (5,393) (3,848) (32,804)
Change in Federal funds sold and securities borrowed or
purchased under agreements to resell.................... 6,778 (17,824) 25,136
Change in Federal funds purchased and securities loaned or
sold under agreements to repurchase..................... 18,034 11,566 (51,078)
Change in brokerage receivables net of brokerage
payables................................................ (1,033) (4,926) (991)
Change in insurance policy and claims reserves............ 824 405 112
Net gains on sales of investments......................... (806) (541) (841)
Venture capital activity.................................. (1,044) (863) (698)
Restructuring-related items and merger-related costs...... 759 (53) 795
Cumulative effect of accounting changes, net of tax....... -- 127 --
Other, net................................................ (12,559) (1,227) (8,527)
--------- --------- ---------
TOTAL ADJUSTMENTS........................................... (10,846) (20) (211)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 2,673 11,223 6,739
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in deposits at interest with banks................... (3,898) (573) 1,390
Change in loans............................................. (82,985) (120,970) (176,466)
Proceeds from sales of loans................................ 32,580 94,677 150,037
Purchases of investments.................................... (103,461) (92,495) (90,408)
Proceeds from sales of investments.......................... 67,561 49,678 46,798
Proceeds from maturities of investments..................... 34,774 35,525 34,220
Other investments, primarily short-term, net................ (3,086) 2,677 (4,237)
Capital expenditures on premises and equipment.............. (2,249) (1,750) (2,135)
Proceeds from sales of premises and equipment, subsidiaries
and affiliates, and repossessed assets.................... 1,232 3,437 764
Business acquisitions....................................... (8,843) (6,321) (6,573)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES....................... (68,375) (36,115) (46,610)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid.............................................. (2,654) (2,139) (1,988)
Issuance of common stock.................................... 958 758 1,685
Issuance of mandatorily redeemable securities of subsidiary
trusts.................................................... -- 600 1,325
Redemption of preferred stock............................... (150) (388) (1,040)
Treasury stock acquired..................................... (4,066) (3,954) (3,139)
Stock tendered for payment of withholding taxes............. (593) (496) (520)
Issuance of long-term debt.................................. 43,527 18,537 27,561
Payments and redemptions of long-term debt.................. (22,330) (18,835) (17,356)
Change in deposits.......................................... 39,013 32,160 29,546
Change in short-term borrowings including investment banking
and brokerage borrowings.................................. 9,851 (580) 3,662
Contractholder fund deposits................................ 6,077 5,933 4,422
Contractholder fund withdrawals............................. (4,758) (5,028) (2,579)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 64,875 26,568 41,579
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND DUE FROM
BANKS..................................................... (530) (98) (82)
--------- --------- ---------
Change in cash and due from banks........................... (1,357) 1,578 1,626
Cash and due from banks at beginning of period.............. 15,978 14,400 12,774
--------- --------- ---------
Cash and due from banks at end of period.................... $ 14,621 $ 15,978 $ 14,400
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for income taxes................ $ 5,357 $ 4,314 $ 3,445
Cash paid during the period for interest.................... 34,924 27,502 29,501
Non-cash investing activities--transfers to repossessed
assets.................................................... 820 862 688
Non-cash effects of accounting for the conversion of
investments in Nikko Securities Co., Ltd.................. 702 -- --
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
81
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Citigroup and its subsidiaries (the Company). Twenty-to-fifty
percent-owned affiliates, other than investments of designated venture capital
subsidiaries, are accounted for under the equity method, and the pro rata share
of their income (loss) is included in other income. Income from investments in
less than twenty percent-owned companies is generally recognized when dividends
are received. Gains and losses on disposition of branches, subsidiaries,
affiliates, and other investments and charges for management's estimate of
impairment in their value that is other than temporary, such that recovery of
the carrying amount is deemed unlikely, are included in other income. Goodwill
and other intangible assets are amortized over their estimated useful lives,
subject to periodic review for impairment that is other than temporary. If it is
determined that enterprise level goodwill is unlikely to be recovered,
impairment is measured on a discounted cash flow basis. The Company recognizes a
gain or loss in the consolidated statement of income when a subsidiary issues
its own stock to a third party at a price higher or lower than the Company's
proportionate carrying amount.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities denominated in
non-U.S. dollar currencies are translated into U.S. dollar equivalents using
year-end spot foreign exchange rates. Revenues and expenses are translated
monthly at amounts which approximate weighted average exchange rates, with
resulting gains and losses included in income. The effects of translating
operations with a functional currency other than the U.S. dollar are included in
stockholders' equity along with related hedge and tax effects. The effects of
translating operations with the U.S. dollar as the functional currency,
including those in highly inflationary environments, are included in other
income along with related hedge effects. Hedges of foreign currency exposures
include forward currency contracts and designated issues of non-U.S. dollar
debt.
RISKS AND UNCERTAINTIES. The preparation of the consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH FLOWS. Cash equivalents are defined as those amounts included in cash
and due from banks. Cash flows from risk management activities are classified in
the same category as the related assets and liabilities.
INVESTMENTS include fixed maturity and equity securities. Fixed maturities
includes bonds, notes and redeemable preferred stocks, as well as certain
loan-backed and structured securities subject to prepayment risk. Equity
securities include common and non-redeemable preferred stocks. Fixed maturities
classified as "held to maturity" represent securities that the Company has both
the ability and the intent to hold until maturity and are carried at amortized
cost. Fixed maturity securities classified as "available for sale" and
marketable equity securities are carried at fair values, based primarily on
quoted market prices or if quoted market prices are not available, discounted
expected cash flows using market rates commensurate with the credit quality and
maturity of the investment, with unrealized gains and losses and related hedge
effects reported in a separate component of stockholders' equity, net of
applicable income taxes. Declines in fair value that are determined to be other
than temporary are charged to earnings. Accrual of income is suspended on fixed
maturities that are in default, or on which it is likely that future interest
payments will not be made as scheduled.
82
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fixed maturities subject to prepayment risk are accounted for using the
retrospective method, where the principal amortization and effective yield are
recalculated each period based on actual historical and projected future cash
flows. Realized gains and losses on sales of investments are included in
earnings on a specific identified cost basis.
Citigroup's venture capital subsidiaries include subsidiaries registered as
Small Business Investment Companies and other subsidiaries that engage
exclusively in venture capital activities. Venture capital investments are
carried at fair value, with changes in fair value recognized in other income.
The fair values of publicly-traded securities held by these subsidiaries are
generally based upon quoted market prices. In certain situations, including
thinly-traded securities, large-block holdings, restricted shares or other
special situations, the quoted market price is adjusted to produce an estimate
of the attainable fair value for the securities. For securities held by these
subsidiaries that are not publicly traded, estimates of fair value are made
based upon review of the investee's financial results, condition, and prospects,
together with comparisons to similar companies for which quoted market prices
are available.
SECURITIES BORROWED AND SECURITIES LOANED are recorded at the amount of cash
advanced or received. With respect to securities loaned, the Company receives
cash collateral in an amount in excess of the market value of securities loaned.
The Company monitors the market value of securities borrowed and loaned on a
daily basis with additional collateral obtained as necessary.
REPURCHASE AND RESALE AGREEMENTS are treated as collateralized financing
transactions and are carried at the amounts at which the securities will be
subsequently reacquired or resold, including accrued interest, as specified in
the respective agreements. The Company's policy is to take possession of
securities purchased under agreements to resell. The market value of securities
to be repurchased and resold is monitored, and additional collateral is obtained
where appropriate to protect against credit exposure.
TRADING ACCOUNT ASSETS AND LIABILITIES include securities, commodities and
derivatives and are recorded at either market value or, when market prices are
not readily available, fair value, which is determined under an alternative
approach, such as matrix or model pricing. Obligations to deliver securities
sold but not yet purchased are also valued at market and included in trading
account liabilities. The determination of market or fair value considers various
factors, including: closing exchange or over-the-counter market price
quotations; time value and volatility factors underlying options, warrants and
derivatives; price activity for equivalent or synthetic instruments;
counterparty credit quality; the potential impact on market prices or fair value
of liquidating the Company's positions in an orderly manner over a reasonable
period of time under current market conditions; and derivatives transaction
maintenance costs during that period. Interest expense on trading account
liabilities is reported as a reduction of interest revenues.
Commodities include physical quantities of commodities involving future
settlement or delivery, and related gains or losses are reported as principal
transactions.
Derivatives used for trading purposes include interest rate, currency,
equity, credit, and commodity swap agreements, options, caps and floors,
warrants, and financial and commodity futures and forward contracts. The fair
values (unrealized gains and losses) associated with derivatives are reported
net by counterparty, provided a legally enforceable master netting agreement
exists, and are netted across products and against cash collateral when such
provisions are stated in the master netting agreement.
83
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivatives in a net receivable position, as well as options owned and warrants
held, are reported as trading account assets. Similarly, derivatives in a net
payable position, as well as options written and warrants issued, are reported
as trading account liabilities. Revenues generated from derivative instruments
used for trading purposes are reported as principal transactions and include
realized gains and losses as well as unrealized gains and losses resulting from
changes in the market or fair value of such instruments.
COMMISSIONS, UNDERWRITING AND PRINCIPAL TRANSACTIONS revenues and related
expenses are recognized in income on a trade date basis.
CONSUMER LOANS includes loans managed by the Global Consumer business, The
Citigroup Private Bank and Associates. Consumer loans are generally written off
not later than a predetermined number of days past due primarily on a
contractual basis, or earlier in the event of bankruptcy. The number of days is
set at an appropriate level by loan product and by country. The policy for
suspending accruals of interest on consumer loans varies depending on the terms,
security and loan loss experience characteristics of each product, and in
consideration of write-off criteria in place.
COMMERCIAL LOANS represent loans managed by the Global Corporate and
Investment Bank and Associates. Commercial loans are identified as impaired and
placed on a cash (nonaccrual) basis when it is determined that the payment of
interest or principal is doubtful of collection, or when interest or principal
is past due for 90 days or more, except when the loan is well secured and in the
process of collection. Any interest accrued is reversed and charged against
current earnings, and interest is thereafter included in earnings only to the
extent actually received in cash. When there is doubt regarding the ultimate
collectibility of principal, all cash receipts are thereafter applied to reduce
the recorded investment in the loan. Impaired commercial loans are written down
to the extent that principal is judged to be uncollectible. Impaired
collateral-dependent loans where repayment is expected to be provided solely by
the underlying collateral and there are no other available and reliable sources
of repayment are written down to the lower of cost or collateral value.
Cash-basis loans are returned to an accrual status when all contractual
principal and interest amounts are reasonably assured of repayment and there is
a sustained period of repayment performance in accordance with the contractual
terms.
LEASE FINANCING TRANSACTIONS. Loans include the Company's share of
aggregate rentals on lease financing transactions and residual values net of
related unearned income. Lease financing transactions substantially represent
direct financing leases and also include leveraged leases. Unearned income is
amortized under a method which substantially results in an approximate level
rate of return when related to the unrecovered lease investment. Gains and
losses from sales of residual values of leased equipment are included in other
income.
SECURITIZATIONS include sales of credit card receivables, mortgages and home
equity loans.
Revenue on securitized credit card receivables is recorded monthly as earned
over the term of each securitization transaction, which may range up to
12 years. The revolving nature of the receivables sold and the monthly
recognition of revenue result in a pattern of recognition that is similar to the
pattern that would be experienced if the receivables had not been sold.
Net revenue on securitized credit card receivables is collected over the
life of each sale transaction. The net revenue is based upon the sum of finance
charges and fees received from cardholders and
84
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
interchange revenue earned on cardholder transactions, less the sum of the yield
paid to investors, credit losses, transaction costs, and a contractual servicing
fee, which is also retained by certain Citigroup subsidiaries as servicers.
The Company retains a seller's interest in the credit card receivables
transferred to the trust, which is not in securitized form. Accordingly, the
seller's interest is carried on a historical cost basis and classified as
consumer loans. Retained interests in securitized mortgage loans are classified
as investments.
Servicing rights retained in the securitization of mortgage and home equity
loans are measured by allocating the carrying value of the loans between the
assets sold and the interest retained, based on the relative fair value at the
date of the securitization. The fair market values are determined using either
financial models, quoted market prices or sales of similar assets. Gain or loss
on sale is recognized at the time of the securitizations. Mortgage servicing
assets are amortized over the expected life of the loan and are evaluated
periodically for impairment.
LOANS HELD FOR SALE. Credit card and other receivables and mortgage loans
originated for sale are classified as loans held for sale, which are accounted
for at the lower of cost or market value in other assets with net credit losses
charged to other income.
ALLOWANCE FOR CREDIT LOSSES represents management's estimate of probable
losses inherent in the portfolio. This evaluation includes an assessment of the
ability of borrowers with foreign currency obligations to obtain the foreign
exchange necessary for orderly debt servicing. Attribution of the allowance is
made for analytical purposes only, and the entire allowance is available to
absorb probable credit losses inherent in the portfolio. Additions to the
allowance are made by means of the provision for credit losses. Credit losses
are deducted from the allowance, and subsequent recoveries are added. Securities
received in exchange for loan claims in debt restructurings are initially
recorded at fair value, with any gain or loss reflected as a recovery or
charge-off to the allowance, and are subsequently accounted for as securities
available for sale.
Larger-balance, non-homogenous exposures representing significant individual
credit exposures are evaluated based upon the borrower's overall financial
condition, resources, and payment record; the prospects for support from any
financially responsible guarantors; and, if appropriate, the realizable value of
any collateral. The allowance for loan losses attributed to these loans is
established via a process which begins with estimates of probable loss inherent
in the portfolio based upon various statistical analyses. These analyses
consider historical and projected default rates and loss severities; internal
risk ratings; geographic, industry, and other environmental factors; and model
imprecision. Management also considers overall portfolio indicators including
trends in internally risk rated exposures, classified exposures, cash-basis
loans, and historical and forecasted write-offs; a review of industry,
geographic, and portfolio concentrations, including current developments within
those segments; and the current business strategy and credit process including
credit limit setting and compliance, credit approvals, loan underwriting
criteria, and loan workout procedures. Within the allowance for credit losses, a
valuation allowance is maintained for larger-balance, non-homogenous loans that
have been individually determined to be impaired. This estimate considers all
available evidence including, as appropriate, the present value of the expected
future cash flows discounted at the loan's contractual effective rate, the
secondary market value of the loan, the fair value of collateral, and
environmental factors.
85
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Each portfolio of smaller balance, homogenous loans, including consumer
mortgage, installment, revolving credit and most other consumer loans, is
collectively evaluated for impairment. The allowance for loan losses attributed
to these loans is established via a process which begins with estimates of
probable losses inherent in the portfolio, based upon various statistical
analyses. These include migration analysis, in which historical delinquency and
credit loss experience is applied to the current aging of the portfolio,
together with analyses which reflect current trends and conditions. Management
also considers overall portfolio indicators including historical credit losses,
delinquent, non-performing and classified loans, and trends in volumes and terms
of loans; an evaluation of overall credit quality and the credit process,
including lending policies and procedures; consideration of economic,
geographical, product, and other environmental factors; and model imprecision.
REPOSSESSED ASSETS. Upon repossession, loans are adjusted if necessary to
the estimated fair value of the underlying collateral and transferred to
Repossessed Assets, which is reported in other assets net of a valuation
allowance for selling costs and net declines in value as appropriate.
RISK MANAGEMENT ACTIVITIES--DERIVATIVES AND FOREIGN EXCHANGE CONTRACTS USED
FOR NON-TRADING PURPOSES. The Company manages its exposures to market rate
movements outside of its trading activities by modifying the asset and liability
mix, either directly or through the use of derivative financial products
including interest rate swaps, futures, forwards, and purchased option positions
such as interest rate caps, floors, and collars. These end-user derivative
contracts include qualifying hedges and qualifying positions that modify the
interest rate characteristics of specified financial instruments. Derivative
instruments not qualifying as end-user positions are treated as trading
positions and carried at fair value.
To qualify as a hedge, the swap, futures, forward, or purchased option
position must be designated as a hedge and be effective in reducing the market
risk of an existing asset, liability, firm commitment, or identified anticipated
transaction which is probable to occur. To qualify as a position modifying the
interest rate characteristics of an instrument, there must be a documented and
approved objective to synthetically alter the market risk characteristics of an
existing asset, liability, firm commitment or identified anticipated transaction
which is probable to occur, and the swap, forward or purchased option position
must be designated as such a position and effective in accomplishing the
underlying objective.
The foregoing criteria are applied on a decentralized basis, consistent with
the level at which market risk is managed, but are subject to various limits and
controls. The underlying asset, liability, firm commitment or anticipated
transaction may be an individual item or a portfolio of similar items.
The effectiveness of these contracts is evaluated on an initial and ongoing
basis using quantitative measures of correlation. If a contract is found to be
ineffective, it no longer qualifies as an end-user position and any excess gains
or losses attributable to such ineffectiveness as well as subsequent changes in
fair value are recognized in earnings.
End-user contracts are primarily employed in association with on-balance
sheet instruments accounted for at amortized cost, including loans, deposits,
and long-term debt, and with credit card and other securitizations. These
qualifying end-user contracts are accounted for consistent with the risk
management strategy as follows. Amounts payable and receivable on interest rate
swaps and options are accrued according to the contractual terms and included
currently in the related revenue and expense category as an element of the yield
on the associated instrument (including the amortization of
86
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
option premiums). Amounts paid or received over the life of futures contracts
are deferred until the contract is closed; accumulated deferred amounts on
futures contracts and amounts paid or received at settlement of forward
contracts are accounted for as elements of the carrying value of the associated
instrument, affecting the resulting yield.
End-user contracts related to instruments that are carried at fair value are
also carried at fair value, with amounts payable and receivable accounted for as
an element of the yield on the associated instrument. When related to securities
available for sale, fair value adjustments are reported in stockholders' equity,
net of tax.
If an end-user derivative contract is terminated, any resulting gain or loss
is deferred and amortized over the original term of the agreement provided that
the effectiveness criteria have been met. If the underlying designated items are
no longer held, or if an anticipated transaction is no longer likely to occur,
any previously unrecognized gain or loss on the derivative contract is
recognized in earnings and the contract is accounted for at fair value with
subsequent changes recognized in earnings.
Foreign exchange contracts which qualify under applicable accounting
guidelines as hedges of foreign currency exposures, including net capital
investments outside the U.S., are revalued at the spot rate with any forward
premium or discount recognized over the life of the contract in interest revenue
or interest expense. Gains and losses on foreign exchange contracts which
qualify as a hedge of a firm commitment are deferred and recognized as part of
the measurement of the related transaction, unless deferral of a loss would lead
to recognizing losses on the transaction in later periods.
In 2001 Citigroup adopted Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities". This new
standard significantly changes the accounting treatment of derivatives and
foreign exchange contracts used for non-trading purposes. See Future Application
of Accounting Standards--Derivatives and hedge accounting section on page 90 for
further explanation.
INSURANCE PREMIUMS from long-duration contracts, principally life insurance,
are earned when due. Premiums from short-duration insurance contracts are earned
over the related contract period. Short-duration contracts include primarily
property and casualty, including estimated ultimate premiums on retrospectively
rated policies, and credit life and accident and health policies.
VALUE OF INSURANCE IN FORCE, included in other assets, represents the
actuarially determined present value of anticipated profits to be realized from
life and accident and health business on insurance in force at the date of the
Company's acquisition of its insurance subsidiaries using the same assumptions
that were used for computing related liabilities where appropriate. The value of
insurance in force acquired prior to December 31, 1993 is amortized over the
premium paying periods in relation to anticipated premiums. The value of
insurance in force relating to the 1993 acquisition of The Travelers Corporation
(old Travelers) was the actuarially determined present value of the projected
future profits discounted at interest rates ranging from 14% to 18% for the
business acquired. The value of insurance in force is amortized over the
contract period using current interest crediting rates to accrete interest and
using amortization methods based on the specified products. Traditional life
insurance is amortized over the period of anticipated premiums; universal life
in relation to estimated gross profits; and annuity contracts employing a level
yield method. The value of insurance in force is reviewed periodically for
recoverability to determine if any adjustment is required.
87
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED POLICY ACQUISITION COSTS, included in other assets, for the life
business represent the costs of acquiring new business, principally commissions,
certain underwriting and agency expenses and the cost of issuing policies.
Deferred policy acquisition costs for traditional life business are amortized
over the premium-paying periods of the related policies, in proportion to the
ratio of the annual premium revenue to the total anticipated premium revenue.
Deferred policy acquisition costs of other business lines are generally
amortized over the life of the insurance contract or at a constant rate based
upon the present value of estimated gross profits expected to be realized. For
certain property and casualty lines, acquisition costs (primarily commissions
and premium taxes) have been deferred to the extent recoverable from future
earned premiums and are amortized ratably over the terms of the related
policies. Deferred policy acquisition costs are reviewed to determine if they
are recoverable from future income, including investment income, and, if not
recoverable, are charged to expense. All other acquisition expenses are charged
to operations as incurred.
SEPARATE AND VARIABLE ACCOUNTS primarily represent funds for which
investment income and investment gains and losses accrue directly to, and
investment risk is borne by, the contractholders. Each account has specific
investment objectives. The assets of each account are legally segregated and are
not subject to claims that arise out of any other business of the Company. The
assets of these accounts are generally carried at market value. Amounts assessed
to the contractholders for management services are included in revenues.
Deposits, net investment income and realized investment gains and losses for
these accounts are excluded from revenues, and related liability increases are
excluded from benefits and expenses.
INSURANCE POLICY AND CLAIMS RESERVES represent liabilities for future
insurance policy benefits. Insurance reserves for traditional life insurance,
annuities, and accident and health policies have been computed based upon
mortality, morbidity, persistency and interest rate assumptions (ranging from
2.5% to 8.1%) applicable to these coverages, including adverse deviation. These
assumptions consider Company experience and industry standards and may be
revised if it is determined that future experience will differ substantially
from that previously assumed. Property-casualty reserves include (1) unearned
premiums representing the unexpired portion of policy premiums, and
(2) estimated provisions for both reported and unreported claims incurred and
related expenses. The reserves are adjusted regularly based on experience.
In determining insurance policy and claims reserves, the Company performs a
continuing review of its overall position, its reserving techniques and its
reinsurance. Reserves for property-casualty insurance losses represent the
estimated ultimate cost of all incurred claims and claim adjustment expenses.
Since the reserves are based on estimates, the ultimate liability may be more or
less than such reserves. The effects of changes in such estimated reserves are
included in the results of operations in the period in which the estimates are
changed. Such changes may be material to the results of operations and could
occur in a future period.
CONTRACTHOLDER FUNDS represent receipts from the issuance of universal life,
pension investment and certain individual annuity contracts. Such receipts are
considered deposits on investment contracts that do not have substantial
mortality or morbidity risk. Account balances are increased by deposits received
and interest credited and are reduced by withdrawals, mortality charges and
administrative expenses charged to the contractholders. Calculations of
contractholder account balances for investment contracts reflect lapse,
withdrawal and interest rate assumptions (ranging from 3.5% to 10.0%) based
88
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on contract provisions, the Company's experience and industry standards.
Contractholder funds also include other funds that policyholders leave on
deposit with the Company.
EMPLOYEE BENEFITS EXPENSE includes prior and current service costs of
pension and other postretirement benefit plans, which are accrued on a current
basis, contributions and unrestricted awards under other employee plans, the
amortization of restricted stock awards, and costs of other employee benefits.
There are no charges to earnings upon the grant or exercise of fixed stock
options or the subscription for or purchase of stock under stock purchase
agreements. Compensation expense related to performance-based stock options
granted in prior periods was recorded over the periods to the vesting dates.
Upon issuance of previously unissued shares under employee plans, proceeds
received in excess of par value are credited to additional paid-in capital. Upon
issuance of treasury shares, the difference between the proceeds received and
the average cost of treasury shares is recorded in additional paid-in capital.
INCOME TAXES. Deferred taxes are recorded for the future tax consequences
of events that have been recognized in the financial statements or tax returns,
based upon enacted tax laws and rates. Deferred tax assets are recognized
subject to management's judgment that realization is more likely than not. The
Company and its wholly owned domestic non-life insurance subsidiaries file a
consolidated federal income tax return. The major life insurance subsidiaries
are included in their own consolidated federal income tax return. Citicorp and
Associates each filed their own separate consolidated federal income tax returns
prior to the respective mergers.
EARNINGS PER COMMON SHARE is computed after recognition of preferred stock
dividend requirements. Basic earnings per share is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period, excluding restricted stock. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised and has been computed after
giving consideration to the weighted average dilutive effect of the Company's
convertible securities, common stock warrants, stock options and the shares
issued under the Company's Capital Accumulation Plan and other restricted stock
plans.
The Board of Directors on July 18, 2000 declared a four-for-three split in
Citigroup's common stock, which was paid in the form of a 33 1/3% stock dividend
on August 25, 2000. Prior year information has been restated to reflect the
stock split.
ACCOUNTING CHANGES
INSURANCE-RELATED ASSESSMENTS. During the first quarter of 1999, the
Company adopted Statement of Position ("SOP") 97-3, "Accounting by Insurance and
Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance
for determining when an entity should recognize a liability for guaranty-fund
and other insurance-related assessments, how to measure that liability, and when
an asset may be recognized for the recovery of such assessments through premium
tax offsets or policy surcharges. The initial adoption resulted in a cumulative
catch-up adjustment recorded as a charge to earnings of $135 million after-tax
and minority interest.
DEPOSIT ACCOUNTING. During the first quarter of 1999, the Company adopted
SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance
Contracts That Do Not Transfer Insurance
89
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Risk." SOP 98-7 provides guidance on how to account for insurance and
reinsurance contracts that do not transfer insurance risk and applies to all
entities and all such contracts, except for long-duration life and health
insurance contracts. The method used to account for such contracts is referred
to as deposit accounting. The initial adoption resulted in a cumulative catch-up
adjustment recorded as a credit to earnings of $23 million after-tax and
minority interest.
START-UP COSTS. During the first quarter of 1999, the Company adopted SOP
98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires costs
of start-up activities and organization costs to be expensed as incurred. The
initial adoption resulted in a cumulative catch-up adjustment recorded as a
charge to earnings of $15 million after-tax.
ASSET MANAGEMENT FEES. For periods prior to 1999, asset management and
administration fees earned by Citicorp subsidiaries are classified as
commissions and fees in the consolidated statement of income.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
DERIVATIVES AND HEDGE ACCOUNTING. On January 1, 2001 Citigroup adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended (SFAS 133), when the rules
became effective for calendar year companies.
The new rules will change the accounting treatment of derivative contracts
(including foreign exchange contracts) that are employed to manage risk outside
of Citigroup's trading activities, as well as certain derivative-like
instruments embedded in other contracts. The rules require that all derivatives
be recorded on the balance sheet at their fair value. The treatment of changes
in the fair value of derivatives depends on the character of the transaction.
For fair value hedges, in which derivatives hedge the fair value of assets
and liabilities, changes in the fair value of derivatives will be reflected in
current earnings, together with changes in the fair value of the related hedged
item. Citigroup's fair value hedges will primarily include hedges of fixed rate
long-term debt, loans and available-for-sale securities. As a result, Citigroup
expects that the net amount reflected in current earnings under the new rules
will be substantially similar to the amounts under existing accounting practice.
For cash flow hedges, in which derivatives hedge the variability of cash
flows related to floating rate assets, liabilities or forecasted transactions,
the accounting treatment will depend on the effectiveness of the hedge. To the
extent these derivatives are effective in offsetting the variability of the
hedged cash flows, changes in the derivatives' fair value will not be included
in current earnings but will be reported as other changes in stockholders'
equity from nonowner sources. These changes in fair value will be included in
earnings of future periods when earnings are also affected by the variability of
the hedged cash flows. To the extent these derivatives are not effective,
changes in their fair values will be immediately included in current earnings.
Citigroup's cash flow hedges will primarily include hedges of floating rate
credit card receivables and loans and foreign currency denominated funding. As a
result, while the earnings impact of cash flow hedges may be similar to existing
accounting practice, the amounts included in other changes in stockholders'
equity from nonowner sources may vary depending on market conditions.
90
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For net investment hedges, in which derivatives hedge the foreign currency
exposure of a net investment in a foreign operation, the accounting treatment
will similarly depend on the effectiveness of the hedge. The effective portion
of the change in fair value of the derivative, including any forward premium or
discount, is reflected in other changes in stockholders' equity from nonowner
sources as part of the foreign currency translation adjustment. The ineffective
portion will be reflected in current period earnings. Citigroup uses such
derivative contracts as part of its strategy for hedging its net foreign
investments. The impact on earnings and other changes in stockholders' equity
from nonowner sources is not expected to be materially different from the
current accounting practice.
Non-trading derivatives that do not qualify as hedges under the new rules
will be carried at fair value with changes in value included in current
earnings.
In order to adopt these new rules, the initial revaluation of these
derivatives along with the initial revaluations of other items discussed in the
preceding paragraphs, are required to be recorded as cumulative effects of a
change in accounting principle, after tax, either in net income if the hedging
relationship could have been considered a fair value type hedge prior to
adoption or in other changes in stockholders' equity from nonowner sources, if
the hedging relationship could have been considered a cash flow type hedge prior
to adoption. The initial transition adjustments required to adopt SFAS 133 are
not significant.
Citigroup will likely change certain risk management strategies outside of
its trading activities, and it also anticipates a significant increase in the
complexity of the accounting and recordkeeping requirements for these hedging
activities, but overall it does not foresee a material ongoing impact on its
financial position or results of operations from implementing the new rules. The
FASB continues to deliberate potential changes to the new rules, the effects of
which cannot be presently anticipated.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS. In September 2000, FASB issued
Statement of Financial Accounting Standards No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, a
replacement of FASB Statement No. 125" (SFAS 140).
Provisions of SFAS 140 primarily relating to transfers of financial assets
and securitizations that differ from provisions of SFAS 125 are effective for
transfers taking place after March 31, 2001. SFAS 140 also provides revised
guidance for an entity to be considered a qualifying special purpose entity
(QSPE). It is not expected that there will be a material effect on the financial
statements relating to a change in consolidation status for existing QSPEs under
SFAS 140.
INTEREST INCOME AND IMPAIRMENT ON CERTAIN ASSET-BACKED SECURITIES. In
November 2000, the Emerging Issues Task Force (EITF) of the FASB finalized
guidance on EITF Issue No. 99-20, "Recognition of Interest Income and Impairment
on Purchased and Retained Beneficial Interests in Securitized Financial Assets."
EITF 99-20, which is effective for the quarter beginning April 1, 2001, provides
new guidance regarding income recognition and identification and determination
of impairment on certain asset-backed securities. The Company is evaluating the
potential impact of implementing the new accounting standard.
91
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT BUSINESS ACQUISITIONS
ACQUISITION OF ASSOCIATES
On November 30, 2000, Citigroup Inc., completed its acquisition of
Associates First Capital Corporation (Associates). The acquisition was
consummated through a merger of a subsidiary of Citigroup with and into
Associates (with Associates as the surviving corporation) pursuant to which each
share of Associates common stock became a right to receive .7334 of a share of
Citigroup Inc. common stock (534.5 million shares). Subsequent to the
acquisition, Associates was contributed to and became a wholly owned subsidiary
of Citicorp and Citicorp issued a full and unconditional guarantee of the
outstanding long-term debt securities and commercial paper of Associates and
Associates Corporation of North America, a subsidiary of Associates (ACONA).
Associates' and ACONA's debt securities and commercial paper will no longer be
separately rated.
The consolidated financial statements give retroactive effect to the
acquisition in a transaction accounted for as a pooling of interests, with all
periods presented as if Citigroup and Associates had always been combined.
Certain reclassifications and adjustments have been recorded to conform the
accounting policies and presentations of Citigroup and Associates. The following
table sets forth the results of operations for the separate companies and the
combined amounts for periods prior to the acquisition.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- -------------------
In Millions of Dollars 2000 1999 1998
------------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES, NET OF INTEREST EXPENSE
Citigroup..................................... $49,225 $57,237 $48,936
Associates.................................... 6,855 8,225 6,180
Reclassifications(1).......................... 140 302 182
Conforming adjustments(2)..................... (35) (42) (65)
------- ------- -------
CITIGROUP..................................... $56,185 $65,722 $55,233
------- ------- -------
NET INCOME
Citigroup..................................... $ 9,683 $ 9,867 $ 5,807
Associates.................................... 1,151 1,490 1,224
Conforming adjustments(2)..................... (155) (114) (81)
------- ------- -------
CITIGROUP..................................... $10,679 $11,243 $ 6,950
======= ======= =======
</TABLE>
- ------------------------
(1) Reclassifications have been made to conform the Company's post-merger
presentation.
(2) Conforming adjustments include the effects of conforming Associates'
policies to the policies applied by Citigroup primarily for recognizing
charge-offs on finance receivables, capitalizing insurance policy deferred
acquisition costs, and recognizing revenue on leases and finance receivables
and the related tax effects.
92
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT BUSINESS ACQUISITIONS (CONTINUED)
MERGER WITH CITICORP
On October 8, 1998, Citicorp merged with and into a newly formed, wholly
owned subsidiary of Travelers Group, Inc. (TRV) (the Merger). Following the
Merger, TRV changed its name to Citigroup Inc. (Citigroup). The Merger was
accounted for under the pooling of interests method.
CONVERSION OF CONVERTIBLE BONDS OF NIKKO SECURITIES CO., LTD.
In March 2000, the Company converted into common stock a portion of its
investment in convertible bonds of the Nikko Securities Co., Ltd. (Nikko),
increasing its ownership of Nikko common stock from 9.5% to 20.7%. As a result
of the conversion, the common stock investment in Nikko is accounted for under
the equity method and is reported in other assets. The Company's proportionate
share of Nikko's income is reflected in other income. The Consolidated
Statements of Financial Condition and Changes in Stockholders' Equity have been
restated to account for the original 9.5% ownership under the equity method from
the date of original acquisition in August 1998. Previously, this 9.5% ownership
was reported in available-for-sale securities with changes in fair value, net of
applicable taxes, recorded in stockholders' equity.
ACQUISITION OF TRAVELERS PROPERTY CASUALTY CORP. (TPC) MINORITY INTEREST
During April 2000, The Travelers Insurance Group Inc. (TIGI), an indirect
wholly owned subsidiary of the Company, completed a cash tender offer to
purchase all of the outstanding shares of TPC not previously owned.
ACQUISITION OF AVCO FINANCIAL SERVICES
On January 6, 1999, Associates purchased the assets and assumed the
liabilities of Avco Financial Services, Inc. (Avco) for $3.9 billion. Associates
assumed from Avco approximately $7.5 billion in debt and, after giving effect to
the sale of certain of the non-strategic operations, acquired $6.0 billion in
finance receivables, $2.1 billion in goodwill and $690 million in other
intangible assets.
ACQUISITION OF UNIVERSAL CARD SERVICES
On April 2, 1998, Citicorp completed its acquisition of Universal Card
Services from AT&T for $3.5 billion in cash. This purchase added $15 billion in
customer receivables and 13.5 million accounts. In addition, Citicorp entered
into a ten-year cobranding and joint marketing agreement with AT&T.
3. BUSINESS SEGMENT INFORMATION
Citigroup is a diversified holding company whose businesses provide a broad
range of financial services to consumer and corporate customers around the
world. The Company's activities are conducted through Global Consumer, Global
Corporate and Investment Bank, Global Investment Management and Private Banking,
Associates, and Investment Activities.
The Global Consumer segment includes a global, full-service consumer
franchise encompassing, among other things, branch and electronic banking,
consumer lending services, investment services, credit and charge card services,
and life, auto and homeowners insurance. The businesses included in the
Company's Global Corporate and Investment Bank segment provide corporations,
governments, institutions, and investors in 100 countries and territories with a
broad range of financial products and
93
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS SEGMENT INFORMATION (CONTINUED)
services, including investment advice, financial planning and retail brokerage
services, banking and financial services, and commercial insurance products. The
Global Investment Management and Private Banking segment offers a broad range of
asset management products and services from global investment centers around the
world, including mutual funds, closed-end funds, managed accounts, unit
investment trusts, variable annuities, pension administration, and personalized
wealth management services to institutional, high net worth, and retail clients.
Associates provides finance, leasing, insurance and related services to
individual consumers and businesses in the United States and internationally.
The Investment Activities segment includes the Company's venture capital
activities, the realized investment gains and losses related to certain
corporate- and insurance-related investments, and the results of certain
investments in countries that refinanced debt under the 1989 Brady Plan or plans
of a similar nature. Corporate/Other includes net corporate treasury results,
corporate staff and other corporate expenses, certain intersegment eliminations,
and the remainder of Internet-related development activities (e-Citi) not
allocated to the individual businesses.
The following table presents certain information regarding these industry
segments:
<TABLE>
<CAPTION>
TOTAL REVENUES, NET OF PROVISION FOR
In Millions of Dollars, INTEREST EXPENSE(1) INCOME TAXES NET INCOME (LOSS)(2)(4)
Except Identifiable Assets ------------------------------ ------------------------------ ------------------------------
in Billions 2000 1999(3) 1998(3) 2000 1999(3) 1998(3) 2000 1999(3) 1998(3)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Global Consumer............. $28,519 $26,140 $22,907 $2,960 $2,492 $1,657 $ 5,281 $ 4,291 $2,777
Global Corporate and
Investment Bank........... 32,094 27,505 22,441 3,358 2,838 1,250 6,359 4,990 2,372
Global Investment Management
and Private Banking....... 3,299 2,706 2,404 425 378 293 674 599 456
Associates.................. 9,728 8,489 6,297 553 827 673 850 1,380 1,143
Investment Activities....... 2,245 1,090 1,323 782 355 435 1,363 658 832
Corporate/Other............. (697) (208) (139) (553) (360) (401) (1,008) (675) (630)
------- ------- ------- ------ ------ ------ ------- ------- ------
TOTAL $75,188 $65,722 $55,233 $7,525 $6,530 $3,907 $13,519 $11,243 $6,950
======= ======= ======= ====== ====== ====== ======= ======= ======
<CAPTION>
IDENTIFIABLE ASSETS
In Millions of Dollars, AT YEAR-END
Except Identifiable Assets ------------------------------
in Billions 2000 1999(3) 1998(3)
-------- -------- --------
<S> <C> <C> <C>
Global Consumer............. $271 $235 $216
Global Corporate and
Investment Bank........... 481 427 410
Global Investment Management
and Private Banking....... 31 26 20
Associates.................. 97 84 76
Investment Activities....... 10 11 8
Corporate/Other............. 12 13 10
---- ---- ----
TOTAL $902 $796 $740
==== ==== ====
</TABLE>
- ------------------------------
(1) Includes total revenues, net of interest expense in the United States of
$53.3 billion, $47.5 billion, and $42.2 billion in 2000, 1999, and 1998,
respectively. Total revenues, net of interest expense attributable to
individual foreign countries are not material to the total.
(2) For the 2000 period, Global Consumer, Global Corporate and Investment Bank,
Global Investment Management and Private Banking, Associates, and
Corporate/Other results reflect after-tax restructuring-related charges and
merger-related costs of $13 million, $11 million, $11 million,
$531 million, and $55 million, respectively. For the 1999 period, Global
Consumer, Global Corporate and Investment Bank, Global Investment Management
and Private Banking, Associates, and Corporate/ Other results reflect
after-tax restructuring charges (credits) of $56 million, ($121) million,
($2) million, $22 million, and $20 million, respectively. For the 1998
period, Global Consumer, Global Corporate and Investment Bank, Global
Investment Management and Private Banking, and Corporate/Other results
reflect after-tax restructuring-related charges (credits) and merger-related
costs of $401 million, ($26) million, $53 million, and $107 million,
respectively.
(3) Reclassified to conform to the 2000 presentation.
(4) Includes provision for credit losses (benefits) in the Global Consumer
results of $8.1 billion, $7.6 billion, and $7.0 billion, in the Global
Corporate and Investment Bank results of $4.1 billion, $3.9 billion, and
$4.2 billion, in the Global Investment Management and Private Banking
results of $23 million, $12 million, and $5 million, in the Associates
results of $3.3 billion, $2.4 billion, and $1.7 billion, and in the
Corporate/Other results of ($2) million, $33 million, and ($1) million for
2000, 1999,
94
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS SEGMENT INFORMATION (CONTINUED)
and 1998, respectively. Includes provision for credit losses (benefits) in
the Investment Activities results of $7 million and ($10) million in 2000
and 1998, respectively.
4. INVESTMENTS
<TABLE>
<CAPTION>
In Millions of Dollars at Year-end 2000 1999
-------- --------
<S> <C> <C>
Fixed maturities, primarily available for sale at
fair value......................................... $ 99,484 $ 99,352
Equity securities, primarily at fair value........... 6,652 6,851
Venture capital, at fair value....................... 5,204 4,160
Short-term and other................................. 8,782 5,689
-------- --------
$120,122 $116,052
======== ========
</TABLE>
The amortized cost and fair value of investments in fixed maturities and
equity securities at December 31, were as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------- ----------------------------------------------
GROSS GROSS GROSS GROSS
In Millions of dollars at AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
Year-End COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- -------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED MATURITY SECURITIES HELD
TO MATURITY, PRINCIPALLY
MORTGAGE-BACKED
SECURITIES(1)................. $ 28 $ -- $ -- $ 28 $ 33 $ 3 $ -- $ 36
------- ------ ------ ------- ------- ------ ------ -------
FIXED MATURITY SECURITIES
AVAILABLE FOR SALE
Mortgage-backed securities,
principally obligations of
U.S. Federal agencies......... $16,196 $ 329 $ 211 $16,314 $15,837 $ 55 $ 523 $15,369
U.S. Treasury and Federal
agency........................ 5,680 171 15 5,836 7,400 36 130 7,306
State and municipal............. 15,314 730 141 15,903 14,400 258 527 14,131
Foreign government.............. 25,934 148 154 25,928 25,595 522 326 25,791
U.S. corporate.................. 25,143 589 547 25,185 25,120 200 719 24,601
Other debt securities(2)........ 9,633 763 106 10,290 9,263 3,016 158 12,121
------- ------ ------ ------- ------- ------ ------ -------
$97,900 $2,730 $1,174 $99,456 $97,615 $4,087 $2,383 $99,319
------- ------ ------ ------- ------- ------ ------ -------
TOTAL FIXED MATURITIES.......... $97,928 $2,730 $1,174 $99,484 $97,648 $4,090 $2,383 $99,355
======= ====== ====== ======= ======= ====== ====== =======
EQUITY SECURITIES(3)............ $ 6,757 $ 340 $ 445 $ 6,652 $ 6,044 $1,117 $ 310 $ 6,851
======= ====== ====== ======= ======= ====== ====== =======
</TABLE>
- ------------------------------
(1) Recorded at amortized cost.
(2) Investments in convertible debt of Nikko are included in other debt
securities.
(3) Includes non-marketable equity securities carried at cost, which are
reported in both the amortized cost and fair value columns.
95
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
The accompanying table shows components of interest and dividends on
investments, realized gains and losses from sales of investments, and net gains
on investments held by venture capital subsidiaries.
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Taxable interest............................................ $ 6,743 $ 6,916 $6,021
Interest exempt from U.S. federal income tax................ 762 688 639
Dividends................................................... 393 306 193
------- ------- ------
Gross realized investments gains(1)......................... $ 2,008 $ 1,273 $1,508
Gross realized investments losses(1)........................ 1,202 732 667
------- ------- ------
Net realized and unrealized venture capital gains which
included:................................................. $ 1,850 $ 816 $ 487
Gross unrealized gains.................................... 1,752 999 709
Gross unrealized losses................................... 618 587 412
</TABLE>
- ------------------------
(1) Includes net realized gains related to insurance subsidiaries' sale of OREO
and mortgage loans of $74 million, $215 million, and $67 million in 2000,
1999, and 1998, respectively.
The following table presents the amortized cost, fair value, and average
yield on amortized cost of fixed maturity securities by contractual maturity
dates as of December 31, 2000:
<TABLE>
<CAPTION>
AMORTIZED FAIR
In Millions of Dollars COST VALUE YIELD
--------- -------- --------
<S> <C> <C> <C>
U.S. TREASURY AND FEDERAL AGENCY(1)
Due within 1 year........................................... $ 2,227 $ 2,225 6.47%
After 1 but within 5 years.................................. 1,030 1,050 6.02
After 5 but within 10 years................................. 1,557 1,606 6.62
After 10 years(2)........................................... 12,043 12,301 6.91
------- ------- ------
TOTAL....................................................... $16,857 $17,182 6.77
======= ======= ======
STATE AND MUNICIPAL
Due within 1 year........................................... $ 113 $ 112 6.19%
After 1 but within 5 years.................................. 1,001 1,020 5.79
After 5 but within 10 years................................. 2,722 2,765 5.40
After 10 years(2)........................................... 11,478 12,006 5.70
------- ------- ------
TOTAL....................................................... $15,314 $15,903 5.65
======= ======= ======
ALL OTHER(3)
Due within 1 year........................................... $13,283 $13,360 7.91%
After 1 but within 5 years.................................. 24,519 24,989 6.57
After 5 but within 10 years................................. 15,363 15,422 9.25
After 10 years(2)........................................... 12,592 12,628 7.72
------- ------- ------
TOTAL....................................................... $65,757 $66,399 7.69
======= ======= ======
</TABLE>
- --------------------------
(1) Includes mortgage-backed securities of U.S. federal agencies.
(2) Investments with no stated maturities are included as contractual maturities
of greater than 10 years. Actual maturities may differ due to call or
prepayment rights.
(3) Includes foreign government, U.S. corporate, mortgage-backed securities
issued by U.S. corporations, and other debt securities. Yields reflect the
impact of local interest rates prevailing in countries outside the U.S.
96
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. FEDERAL FUNDS, SECURITIES BORROWED, LOANED, AND SUBJECT TO REPURCHASE
AGREEMENTS
Federal funds sold and securities borrowed or purchased under agreements to
resell, at their respective carrying values, consisted of the following at
December 31:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999
-------- --------
<S> <C> <C>
Federal funds sold and resale agreements.................... $ 69,087 $ 76,676
Deposits paid for securities borrowed....................... 36,790 35,979
-------- --------
$105,877 $112,655
======== ========
</TABLE>
Federal funds purchased and securities loaned or sold under agreements to
repurchase, at their respective carrying values, consisted of the following at
December 31:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999
-------- --------
<S> <C> <C>
Federal funds purchased and repurchase agreements........... $ 94,397 $81,375
Deposits received for securities loaned..................... 16,228 11,216
-------- -------
$110,625 $92,591
======== =======
</TABLE>
The resale and repurchase agreements represent collateralized financing
transactions used to generate net interest income and facilitate trading
activity. These instruments are collateralized principally by government and
government agency securities and generally have terms ranging from overnight to
up to a year. It is the Company's policy to take possession of the underlying
collateral, monitor its market value relative to the amounts due under the
agreements, and, when necessary, require prompt transfer of additional
collateral or reduction in the loan balance in order to maintain contractual
margin protection. In the event of counterparty default, the financing agreement
provides the Company with the right to liquidate the collateral held. Resale
agreements and repurchase agreements are reported net by counterparty, when
applicable, pursuant to FASB Interpretation 41, "Offsetting of Amounts Related
to Certain Repurchase and Reverse Repurchase Agreements" (FIN 41). Excluding the
impact of FIN 41, resale agreements totaled $118.9 billion and $122.4 billion at
December 31, 2000 and 1999, respectively.
Deposits paid for securities borrowed (securities borrowed) and deposits
received for securities loaned (securities loaned) are recorded at the amount of
cash advanced or received and are collateralized principally by government and
government agency securities, corporate debt and equity securities. Securities
borrowed transactions require the Company to deposit cash with the lender. With
respect to securities loaned, the Company receives cash collateral in an amount
generally in excess of the market value of securities loaned. The Company
monitors the market value of securities borrowed and securities loaned daily,
and additional collateral is obtained as necessary. Securities borrowed and
securities loaned are reported net by counterparty, when applicable, pursuant to
FAS Interpretation 39, "Offsetting of Amounts Related to Certain Contracts" (FIN
39).
6. BROKERAGE RECEIVABLES AND BROKERAGE PAYABLES
The Company has receivables and payables for financial instruments purchased
from and sold to brokers and dealers and customers. The Company is exposed to
risk of loss from the inability of
97
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BROKERAGE RECEIVABLES AND BROKERAGE PAYABLES (CONTINUED)
brokers and dealers or customers to pay for purchases or to deliver the
financial instrument sold, in which case the Company would have to sell or
purchase the financial instruments at prevailing market prices. Credit risk is
reduced to the extent that an exchange or clearing organization acts as a
counterparty to the transaction.
The Company seeks to protect itself from the risks associated with customer
activities by requiring customers to maintain margin collateral in compliance
with regulatory and internal guidelines. Margin levels are monitored daily, and
customers deposit additional collateral as required. Where customers cannot meet
collateral requirements, the Company will liquidate sufficient underlying
financial instruments to bring the customer into compliance with the required
margin level.
Exposure to credit risk is impacted by market volatility, which may impair
the ability of clients to satisfy their obligations to the Company. Credit
limits are established and closely monitored for customers and brokers and
dealers engaged in forward and futures and other transactions deemed to be
credit sensitive.
Brokerage receivables and brokerage payables, which arise in the normal
course of business, consisted of the following at December 31:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999
-------- --------
<S> <C> <C>
Receivables from customers.................................. $23,142 $20,451
Receivables from brokers, dealers, and clearing
organizations............................................. 2,554 1,768
------- -------
TOTAL BROKERAGE RECEIVABLES................................. $25,696 $22,219
======= =======
Payables to customers....................................... $13,564 $12,323
Payables to brokers, dealers, and clearing organizations.... 2,318 1,115
------- -------
TOTAL BROKERAGE PAYABLES.................................... $15,882 $13,438
======= =======
</TABLE>
98
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities, at market value, consisted of the
following at December 31:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999
-------- --------
<S> <C> <C>
TRADING ACCOUNT ASSETS
U.S. Treasury and Federal agency securities................. $ 30,939 $ 24,847
State and municipal securities.............................. 2,439 2,121
Foreign government securities............................... 13,308 9,126
Corporate and other debt securities......................... 17,046 13,798
Derivative and other contractual commitments(1)............. 35,177 31,646
Equity securities........................................... 17,174 11,885
Mortgage loans and collateralized mortgage securities....... 6,024 5,654
Other....................................................... 10,406 7,984
-------- --------
$132,513 $107,061
======== ========
TRADING ACCOUNT LIABILITIES
Securities sold, not yet purchased.......................... $ 48,489 $ 51,447
Derivative and other contractual commitments(1)............. 36,618 39,053
-------- --------
$ 85,107 $ 90,500
======== ========
</TABLE>
- ------------------------
(1) Net of master netting agreements and securitization.
The average fair value of derivative and other contractual commitments in
trading account assets during 2000 and 1999 was $35.1 billion and
$36.8 billion, respectively. The average fair value of derivative and other
contractual commitments in trading account liabilities during 2000 and 1999 was
$37.2 billion and $38.9 billion, respectively. See Note 23 for a discussion of
trading securities, commodities, derivatives and related risks.
8. TRADING RELATED REVENUE
Trading related revenue consists of principal transactions revenues and net
interest revenue associated with trading activities. Principal transactions
revenues consist of realized and unrealized
99
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. TRADING RELATED REVENUE (CONTINUED)
gains and losses from trading activities. The following table presents trading
related revenue for the years ended December 31:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
GLOBAL CORPORATE AND INVESTMENT BANK
Fixed income(1)............................................. $2,369 $2,310 $1,158
Equities(2)................................................. 1,729 1,291 853
Foreign exchange(3)......................................... 1,243 1,405 1,404
All other(4)................................................ 301 482 (924)
------ ------ ------
Total Global Corporate and Investment Bank.................. 5,642 5,488 2,491
GLOBAL CONSUMER AND OTHER................................... 706 597 366
------ ------ ------
TOTAL TRADING RELATED REVENUE............................... $6,348 $6,085 $2,857
====== ====== ======
</TABLE>
- ------------------------
(1) Includes revenues from government securities and corporate debt, municipal
securities, preferred stock, mortgage securities, and other debt
instruments. Also includes spot and forward trading of currencies and
exchange-traded and over-the-counter (OTC) currency options, options on
fixed income securities, interest rate swaps, currency swaps, swap options,
caps and floors, financial futures, OTC options and forward contracts on
fixed income securities.
(2) Includes revenues from common and convertible preferred stock, convertible
corporate debt, equity-linked notes, and exchange-traded and OTC equity
options and warrants.
(3) Includes revenues from foreign exchange spot, forward, option and swap
contracts.
(4) Primarily includes revenues related to fixed income and equity securities,
together with related derivatives, utilized in arbitrage strategies, as well
as revenues from the results of Phibro Inc. (Phibro), which trades crude
oil, refined oil products, natural gas, electricity, metals, and other
commodities.
The following table reconciles principal transactions revenues on the
Consolidated Statement of Income to trading related revenue for the years ended
December 31:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Principal transactions...................................... $5,981 $5,160 $1,780
Net interest revenue........................................ 367 925 1,077
------ ------ ------
TOTAL TRADING RELATED REVENUE............................... $6,348 $6,085 $2,857
====== ====== ======
</TABLE>
100
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LOANS
<TABLE>
<CAPTION>
In Millions of Dollars at Year-end 2000 1999
-------- --------
<S> <C> <C>
CONSUMER
In U.S. offices
Mortgage and real estate(1)(2)............................ $ 73,166 $ 59,376
Installment, revolving credit, and other.................. 78,017 63,374
-------- --------
151,183 122,750
-------- --------
In offices outside the U.S.
Mortgage and real estate(1)(3)............................ 24,988 24,808
Installment, revolving credit, and other.................. 55,515 50,293
Lease financing........................................... 427 475
-------- --------
80,930 75,576
-------- --------
232,113 198,326
Unearned income............................................. (3,234) (3,757)
-------- --------
CONSUMER LOANS, NET OF UNEARNED INCOME...................... $228,879 $194,569
======== ========
COMMERCIAL
In U.S. offices
Commercial and industrial(4).............................. $ 37,220 $ 30,163
Lease financing........................................... 14,864 10,281
Mortgage and real estate(1)............................... 3,490 5,439
-------- --------
55,574 45,883
-------- --------
In offices outside the U.S.
Commercial and industrial(4).............................. 69,111 61,984
Mortgage and real estate(1)............................... 1,720 1,728
Loans to financial institutions........................... 9,559 7,692
Lease financing........................................... 3,689 2,459
Governments and official institutions..................... 1,952 3,250
-------- --------
86,031 77,113
-------- --------
141,605 122,996
Unearned income............................................. (3,462) (2,664)
-------- --------
COMMERCIAL LOANS, NET OF UNEARNED INCOME.................... $138,143 $120,332
======== ========
</TABLE>
- ------------------------
(1) Loans secured primarily by real estate.
(2) Includes $3.7 billion in 2000 and $3.4 billion in 1999 of commercial real
estate loans related to community banking and private banking activities.
(3) Includes $2.7 billion in 2000 and $2.9 billion in 1999 of loans secured by
commercial real estate.
(4) Includes loans not otherwise separately categorized.
101
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LOANS (CONTINUED)
Impaired loans are those on which Citigroup believes it is not probable that
it will be able to collect all amounts due according to the contractual terms of
the loan, excluding smaller-balance homogeneous loans that are evaluated
collectively for impairment, and are carried on a cash basis. Valuation
allowances for these loans are estimated considering all available evidence
including, as appropriate, the present value of the expected cash flows
discounted at the loan's contractual effective rate, the secondary market value
of the loan, the fair value of collateral, and environmental factors. The
following table presents information about impaired loans.
<TABLE>
<CAPTION>
In Millions of Dollars at Year-end 2000 1999
-------- --------
<S> <C> <C>
Impaired commercial loans................................... $1,847 $1,551
Other impaired loans(1)..................................... 100 185
------ ------
Total impaired loans(2)..................................... $1,947 $1,736
====== ======
Impaired loans with valuation allowances.................... $1,583 $1,381
Total valuation allowances(3)............................... 480 411
====== ======
During the year(4):
Average balance of impaired loans......................... $1,858 $1,898
Interest income recognized on impaired loans.............. 97 85
====== ======
</TABLE>
- ------------------------
(1) Primarily commercial real estate loans related to community and private
banking activities.
(2) At year-end 2000, approximately 25% of these loans were measured for
impairment using the fair value of the collateral, with the remaining 75%
measured using the present value of the expected future cash flows,
discounted at the loan's effective interest rate, compared with
approximately 33% and 67%, respectively, at year-end 1999.
(3) Included in the allowance for credit losses.
(4) For the year ended December 31, 1998, the average balance of impaired loans
was $1.7 billion and interest income recognized on impaired loans was
$75 million.
102
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LOANS (CONTINUED)
The following table presents total loan portfolios managed, the portion of
those portfolios securitized, and delinquencies (loans which are 90 days or more
past due) at December 31, 2000, and credit losses, net of recoveries, for the
year ended December 31, 2000.
<TABLE>
<CAPTION>
CREDIT CARD MORTGAGE
MANAGED LOANS RECEIVABLES LOANS(1)
- ------------- ----------- --------
<S> <C> <C>
In Billions of Dollars
Principal amounts, at year-end
Total managed............................................... $105.8 $28.1
Securitized amounts......................................... (57.0) (2.1)
------ -----
ON-BALANCE SHEET............................................ $ 48.8 $26.0
====== =====
In Millions of Dollars
Delinquencies, at year-end
Total managed............................................... $1,719 $ 759
Securitized amounts......................................... (925) (81)
------ -----
ON-BALANCE SHEET............................................ $ 794 $ 678
====== =====
Credit losses, net of recoveries, for the year ended
December 31,
Total managed............................................... $4,148 $ 422
Securitized amounts......................................... (2,250) (12)
------ -----
ON-BALANCE SHEET............................................ $1,898 $ 410
====== =====
</TABLE>
- ------------------------
(1) Includes mortgage and home equity loans.
103
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
ALLOWANCE FOR CREDIT LOSSES AT BEGINNING OF YEAR............ $8,853 $8,596 $8,087
Additions
Consumer provision for credit losses...................... 4,345 4,169 3,753
Commercial provision for credit losses.................... 994 591 508
------ ------ ------
TOTAL PROVISION FOR CREDIT LOSSES........................... 5,339 4,760 4,261
------ ------ ------
Deductions
Consumer credit losses.................................... 5,352 4,862 4,292
Consumer credit recoveries................................ (929) (769) (714)
------ ------ ------
NET CONSUMER CREDIT LOSSES.................................. 4,423 4,093 3,578
------ ------ ------
Commercial credit losses.................................. 906 746 671
Commercial credit recoveries.............................. (135) (156) (191)
------ ------ ------
NET COMMERCIAL CREDIT LOSSES................................ 771 590 480
------ ------ ------
Other--net(1)............................................... (37) 180 306
------ ------ ------
ALLOWANCE FOR CREDIT LOSSES AT END OF YEAR.................. $8,961 $8,853 $8,596
====== ====== ======
</TABLE>
- ------------------------
(1) In 2000 and 1999, primarily includes the addition of allowance for credit
losses related to acquisitions and foreign currency translation effects. In
1998, also reflects the addition of $320 million of credit loss reserves
related to the acquisition of the Universal Card portfolio.
11. SECURITIZATION ACTIVITY
Citigroup and its subsidiaries securitize primarily credit card receivables,
mortgage and home equity loans.
After securitization of credit card receivables, the Company continues to
maintain credit card customer account relationships and provides servicing for
receivables transferred to the trust. The Company also provides credit
enhancement to the trust using cash collateral accounts and put options. As
specified in certain of the sale agreements, the net revenue collected each
month is accumulated up to a predetermined maximum amount, and is available over
the remaining term of that transaction to make payments of yield, fees, and
transaction costs in the event that net cash flows from the receivables are not
sufficient. When the predetermined amount is reached net revenue is passed
directly to the Citigroup subsidiary that sold the receivables.
The Company provides a wide range of mortgage and home equity products to a
diverse customer base. In connection with these loans, the servicing rights
entitle the Company to a future stream of cash flows based on the outstanding
principal balances of the loans and the contractual servicing fee. Failure to
service the loans in accordance with contractual requirements may lead to a
termination of the servicing rights and the loss of future servicing fees. In
non-recourse servicing, the principal credit risk to the servicer is the cost of
temporary advances of funds. In recourse servicing, the servicer agrees to share
credit risk with the owner of the mortgage loans such as FNMA or FHLMC or with a
private investor, insurer or guarantor. Losses on recourse servicing occur
primarily when foreclosure sale
104
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SECURITIZATION ACTIVITY (CONTINUED)
proceeds of the property underlying a defaulted mortgage or home equity loan are
less than the outstanding principal balance and accrued interest of such
mortgage loan and the cost of holding and disposing of the underlying property.
The following table summarizes certain cash flows received from and paid to
securitization trusts during the year ended December 31, 2000:
<TABLE>
<CAPTION>
In Billions of Dollars CREDIT CARDS MORTGAGES(1)
------------ ------------
<S> <C> <C>
Proceeds from new securitizations........................... $ 9.1 $16.5
Proceeds from collections reinvested in new receivables..... 127.2 0.2
Servicing fees received..................................... 1.0 0.3
Cash flows received on retained interests................... 0.3 0.3
===== =====
</TABLE>
- ------------------------
(1) Includes mortgage, home equity and manufactured housing loans.
Key assumptions used for mortgage and home equity loans during the year
ended December 31, 2000 in measuring the fair value of retained interests at the
date of sale or securitization, presented by product groups, follow:
<TABLE>
<S> <C>
Discount rate............................................... 11.50% TO 12.90%; 12.25%
Constant payment rate....................................... 7.4% TO 7.6%; 28.0%
Anticipated net credit losses............................... 0.04%; 7.64%
========================
</TABLE>
For the year ended December 31, 2000, the Company recognized $79 million of
gains on securitizations of mortgage and home equity loans.
As disclosed below, SFAS 140 requires that the effect on the fair value of
the retained interests of two adverse changes in each key assumption be
independently calculated. Because the key assumptions may be correlated, the net
effect of simultaneous adverse changes in the key assumptions may be less than
the sum of the individual effects disclosed below.
105
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SECURITIZATION ACTIVITY (CONTINUED)
At December 31, 2000, for mortgage, home equity and manufactured housing
loans, the key assumptions, presented by product groups, and the sensitivity of
the fair value of retained interests to two adverse changes in each of the key
assumptions were as follows:
<TABLE>
<S> <C>
In Millions of Dollars
Carrying value of retained interests......... $ 2,483
----------------------------------
Discount rate................................ 9.70% TO 10.96%; 15.00%
+10%....................................... $ (91.3)
+20%....................................... (176.3)
----------------------------------
Constant payment rate........................ 11.1% TO 12.0%; 28.0%
+10%....................................... $(106.0)
+20%....................................... (196.0)
----------------------------------
Anticipated net credit losses................ 0.07%; 3.20% TO 11.99%
+10%....................................... $ (37.2)
+20%....................................... (74.2)
</TABLE>
12. DEBT
INVESTMENT BANKING AND BROKERAGE BORROWINGS
Investment banking and brokerage borrowings and the corresponding weighted
average interest rates at December 31 are as follows:
<TABLE>
<CAPTION>
2000 1999
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
In Millions of Dollars BALANCE RATE BALANCE RATE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Commercial paper........................................ $16,705 6.6% $12,578 6.0%
Bank borrowings......................................... 429 5.7% 536 5.8%
Other................................................... 1,093 6.0% 605 6.4%
------- -------
$18,227 $13,719
======= =======
</TABLE>
Investment banking and brokerage borrowings are short-term in nature and
include commercial paper, bank borrowings and other borrowings used to finance
SSB's operations, including the securities settlement process. Outstanding bank
borrowings include both U.S. dollar and non-U.S. dollar denominated loans. The
non-U.S. dollar loans are denominated in multiple currencies including the
Japanese yen, British pound, and Euro. All commercial paper outstanding at
December 31, 2000 and 1999 was U.S. dollar denominated.
At December 31, 2000, Salomon Smith Barney Holdings Inc. (Salomon Smith
Barney), had a $5.0 billion, 364-day revolving credit agreement that extends
through May 2001. Salomon Smith Barney may borrow under its revolving credit
facilities at various interest rate options (LIBOR, CD, or base rate) and
compensates the banks for the facilities through commitment fees. Under these
facilities SSB is required to maintain a certain level of consolidated adjusted
net worth (as defined in the
106
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. DEBT (CONTINUED)
agreements). At December 31, 2000, this requirement was exceeded by
approximately $4.3 billion. At December 31, 2000 there were no borrowings
outstanding under this facility.
Salomon Smith Barney also has substantial borrowing arrangements consisting
of facilities that it has been advised are available, but where no contractual
lending obligation exists.
SHORT-TERM BORROWINGS
At December 31, short-term borrowings consisted of commercial paper and
other borrowings with weighted average interest rates as follows:
<TABLE>
<CAPTION>
2000 1999
------------------- -------------------
WEIGHTED WEIGHTED
In Millions of Dollars BALANCE AVERAGE BALANCE AVERAGE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER
Citigroup............................................... $ 496 6.61% $ -- --%
Citicorp and Subsidiaries............................... 37,656 5.34 31,018 5.69
------- ------- ------- ----
38,152 31,018
OTHER BORROWINGS........................................ 13,523 8.76 13,321 7.94
------- -------
$51,675 $44,339
------- -------
</TABLE>
Citigroup, Citicorp, Associates and certain of its affiliated companies, TPC
and The Travelers Insurance Company (TIC) issue commercial paper directly to
investors. Citigroup and Citicorp, both of which are bank holding companies,
maintain combined liquidity reserves of cash, securities, and unused bank lines
of credit at least equal to their combined outstanding commercial paper. All of
the commercial paper issued by Associates and its affiliates is guaranteed by
Citicorp, and Associates maintains unutilized credit facilities, all guaranteed
by Citicorp, in support of approximately 75% of its commercial paper. TPC and
TIC each maintains unused credit availability under their respective bank lines
of credit at least equal to the amount of outstanding commercial paper.
Borrowings under bank lines of credit may be at interest rates based on
LIBOR, CD rates, the prime rate or bids submitted by the banks. Each company
pays its banks commitment fees for its lines of credit.
Citicorp, Salomon Smith Barney, and some of their nonbank subsidiaries have
credit facilities with Citicorp's subsidiary banks, including Citibank, N.A.
Borrowings under these facilities must be secured in accordance with
Section 23A of the Federal Reserve Act.
Citigroup and TIC have an agreement with a syndicate of banks to provide
$1.0 billion of revolving credit, to be allocated to Citigroup and TIC. The
participation of TIC in this agreement is limited to $250 million. The revolving
credit facility consists of a five-year revolving credit facility that expires
in June 2001. At December 31, 2000, all of the facility was allocated to
Citigroup. Under this facility the Company is required to maintain a certain
level of consolidated stockholders' equity (as defined in the agreement). The
Company exceeded this requirement by approximately $44 billion at December 31,
2000. At December 31, 2000, there were no borrowings outstanding under this
facility.
107
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. DEBT (CONTINUED)
Associates maintains a combination of unutilized bilateral and syndicated
credit facilities to support its short-term borrowings. These facilities, which
have maturities ranging from 2001 through 2005, provide a means of managing
liquidity and ensure that funds are always available to satisfy maturing
short-term obligations. At December 31, 2000, these facilities provided coverage
of approximately 75% of Associates' commercial paper borrowings and utilized
uncommitted lines of credit. In connection with Citigroup's November 30, 2000
acquisition of Associates in which Associates became a wholly owned subsidiary
of Citicorp, Citicorp guaranteed various debt obligations of Associates,
including those arising under these facilities. Under these facilities, Citicorp
is required to maintain a certain level of consolidated stockholder's equity. At
December 31, 2000, this requirement was exceeded by $32.6 billion.
At December 31, 2000, CitiFinancial Credit Company (CCC), an indirect
subsidiary of Citicorp had committed and available revolving credit facilities
of $3.4 billion, consisting of five-year facilities which expire in 2002. At
December 31, 2000, there were no borrowings outstanding under these facilities.
Citicorp guaranteed various debt obligations of CCC, including those arising
under these facilities. Under this facility Citicorp is required to maintain a
certain level of consolidated stockholder's equity (as defined in the
agreement). At December 31, 2000, this requirement was exceeded by approximately
$32.6 billion.
TPC has a five-year revolving credit facility in the amount of $250 million
with a syndicate of banks that expires in December 2001. Under this facility TPC
is required to maintain a certain level of consolidated stockholders' equity (as
defined in the agreement). At December 31, 2000, this requirement was exceeded
by approximately $5.6 billion. At December 31, 2000, there were no borrowings
outstanding under this facility.
108
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. DEBT (CONTINUED)
LONG-TERM DEBT
At December 31, long-term debt was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
In Millions of Dollars COUPON MATURITIES 2000 1999
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
CITIGROUP INC.
Senior Notes(1)..................................... 5.80% 2001-2030 $ 13,947 $ 4,181
Subordinated Notes.................................. 7.25% 2010 4,250 --
CITICORP AND SUBSIDIARIES
Senior Notes........................................ 6.57% 2001-2037 65,313 57,672
Subordinated Notes.................................. 7.01% 2001-2035 7,747 7,785
SALOMON SMITH BARNEY HOLDINGS INC.
Senior Notes........................................ 6.30% 2001-2026 19,652 17,970
TRAVELERS PROPERTY CASUALTY CORP.
Senior Notes........................................ 6.99% 2001-2026 850 850
THE TRAVELERS INSURANCE GROUP INC.(2)............... 19 23
-------- -------
Senior Notes........................................ 99,762 80,673
Subordinated Notes.................................. 11,997 7,785
Other............................................... 19 23
-------- -------
TOTAL............................................... $111,778 $88,481
======== =======
</TABLE>
- ------------------------
(1) Also includes $250 million of notes maturing in 2098.
(2) Principally 12% GNMA/FNMA-collateralized obligations.
The Company issues both U.S. dollar and non-U.S. dollar denominated fixed
and variable rate debt. The Company utilizes derivative contracts, primarily
interest rate swaps, to effectively convert a portion of its fixed rate debt to
variable rate debt. The maturity structure of the derivatives generally
corresponds with the maturity structure of the debt being hedged. At
December 31, 2000, the Company entered into interest rate swaps to convert
$23.0 billion of its $62.5 billion of fixed rate debt to variable rate
obligations. At December 31, 2000, the Company's overall weighted average
interest rate for long-term debt was 6.49% on a contractual basis and 6.48%
including the effects of derivative contracts. In addition, the Company utilizes
other derivative contracts to manage the foreign exchange impact of certain debt
issuances.
109
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. DEBT (CONTINUED)
Aggregate annual maturities on long-term debt obligations (based on final
maturity dates) are as follows:
<TABLE>
<CAPTION>
In Millions of Dollars 2001 2002 2003 2004 2005 THEREAFTER
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Citigroup Inc.................................. $ 3,000 $ 3,304 $ -- $ 750 $ -- $11,143
Salomon Smith Barney Holdings Inc.............. 2,826 4,947 5,860 2,005 1,834 2,180
Citicorp and Subsidiaries...................... 17,958 18,625 11,319 6,325 5,916 12,917
Travelers Property Casualty Corp............... 500 -- -- -- -- 350
The Travelers Insurance Group.................. -- -- -- -- -- 19
------- ------- ------- ------ ------ -------
$24,284 $26,876 $17,179 $9,080 $7,750 $26,609
======= ======= ======= ====== ====== =======
</TABLE>
13. INSURANCE POLICY AND CLAIMS RESERVES
At December 31, insurance policy and claims reserves consisted of the
following:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999
-------- --------
<S> <C> <C>
Benefit and loss reserves:
Property-casualty(1)...................................... $28,327 $28,776
Life and annuity.......................................... 9,966 9,370
Accident and health....................................... 1,074 914
Unearned premiums........................................... 4,836 4,338
Policy and contract claims.................................. 463 444
------- -------
$44,666 $43,842
======= =======
</TABLE>
- ------------------------
(1) Included at December 31, 2000 and 1999 are $1.4 billion and $1.5 billion,
respectively, of reserves related to workers' compensation that have been
discounted using an interest rate of 5%.
110
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INSURANCE POLICY AND CLAIMS RESERVES (CONTINUED)
The following table is a reconciliation of beginning and ending
property-casualty reserve balances for claims and claim adjustment expenses for
the years ended December 31:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
CLAIMS AND CLAIM ADJUSTMENT EXPENSE RESERVES AT BEGINNING OF
YEAR...................................................... $28,776 $29,139 $29,367
Less reinsurance recoverables on unpaid losses.............. 8,409 7,987 7,941
------- ------- -------
Net balance at beginning of year............................ 20,367 21,152 21,426
------- ------- -------
Provision for claims and claim adjustment expenses for
claims arising in current year............................ 7,015 6,564 6,127
Estimated claims and claim adjustment expenses for claims
arising in prior years.................................... (204) (281) (331)
------- ------- -------
TOTAL INCREASES............................................. 6,811 6,283 5,796
------- ------- -------
Acquisitions................................................ -- -- 368
------- ------- -------
Claims and claim adjustment expense payments for claims
arising in:
Current year.............................................. 2,975 2,757 2,405
Prior years............................................... 4,281 4,311 4,033
------- ------- -------
TOTAL PAYMENTS.............................................. 7,256 7,068 6,438
------- ------- -------
Net balance at end of year.................................. 19,922 20,367 21,152
Plus reinsurance recoverables on unpaid losses.............. 8,405 8,409 7,987
------- ------- -------
CLAIMS AND CLAIM ADJUSTMENT EXPENSE RESERVES AT END OF
YEAR...................................................... $28,327 $28,776 $29,139
======= ======= =======
</TABLE>
The decreases in the claims and claim adjustment expense reserves in 2000
and 1999, from 1999 and 1998, respectively, were primarily attributable to net
payments of $341 million and $504 million, respectively, for environmental and
cumulative injury claims.
In 2000, estimated claims and claim adjustment expenses for claims arising
in prior years included approximately $76 million primarily relating to net
favorable development in certain Commercial Lines coverages, predominantly in
the commercial multi-peril line of business, and in certain Personal Lines
coverages, predominately personal umbrella coverages. In addition, in 2000
Commercial Lines experienced favorable loss development on loss sensitive
policies in various lines; however, since the business to which it relates is
subject to premium adjustments, there is no impact on results of operations.
In 1999, estimated claims and claim adjustment expenses for claims arising
in prior years included approximately $205 million primarily relating to net
favorable development in certain Personal Lines coverages, predominantly
automobile coverages, and in certain Commercial Lines coverages, predominantly
in the general liability and commercial multi-peril lines of business. In
addition, in 1999 Commercial Lines experienced favorable loss development on
loss sensitive policies in the workers' compensation line; however, since the
business to which it relates is subject to premium adjustments, there was no
impact on results of operations.
In 1998, estimated claims and claim adjustment expenses for claims arising
in prior years included approximately $176 million primarily relating to net
favorable developments in certain Personal Lines
111
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INSURANCE POLICY AND CLAIMS RESERVES (CONTINUED)
coverages, predominantly automobile coverages. In addition, in 1998 Commercial
Lines experienced favorable prior-year loss development on loss sensitive
policies in the workers' compensation line; however, since the business to which
it relates is subject to premium adjustments, there was no impact on results of
operations.
The property-casualty claims and claim adjustment expense reserves include
$1.364 billion and $1.503 billion for asbestos and environmental-related claims
net of reinsurance at December 31, 2000 and 1999, respectively.
It is difficult to estimate the reserves for environmental and
asbestos-related claims due to the vagaries of court coverage decisions,
plaintiffs' expanded theories of liability, the risks inherent in major
litigation and other uncertainties, including without limitation, those which
are set forth below. Conventional actuarial techniques are not used to estimate
such reserves.
For environmental claims, the Company estimates its financial exposure and
establishes reserves based upon an analysis of its historical claim experience
and the facts of the individual underlying environmental exposure of each
policyholder. The unique facts are evaluated individually and collectively. Due
consideration is given to the many variables presented by each policyholder.
The reserving methodology for asbestos includes an evaluation of the
asbestos exposure presented by each insured. The following factors are
evaluated: available insurance coverage including the role of any umbrella or
excess insurance issued by the Company to the insured; limits and deductibles;
an analysis of each insured's potential liability; jurisdictional involvement;
past and anticipated future claim activity; past settlement values of similar
claims; allocated claim adjustment expense; potential role of other insurance;
the role, if any, of non-asbestos claims or potential non-asbestos claims in any
resolution process; and applicable coverage defenses or determinations, if any,
including the determination as to whether an asbestos claim is a
products/completed operations or non-products/ operating claim and the available
coverage, if any, for such a claim. Once the gross ultimate exposure for
indemnity and allocated claim adjustment expense is determined for each insured
by each policy year, a ceded reinsurance projection is calculated based on any
applicable facultative and treaty reinsurance, as well as past ceded experience.
Adjustments to the ceded projections also occur due to actual ceded claim
experience and reinsurance collections.
Historically, the Company's experience has indicated that insureds with
potentially significant environmental and asbestos exposures may often have
potential cumulative injury other than asbestos (CIOTA) exposures or CIOTA
claims pending with the Company. Due to this experience and the fact that
settlement agreements with insureds may extinguish the Company's obligations for
all claims, including environmental, asbestos and CIOTA, the Company evaluates
and considers the environmental and asbestos reserves in conjunction with the
CIOTA reserve.
The Company also compares its historical direct and net loss and expense
paid experience in environmental and asbestos, year-by-year, to assess any
emerging trends, fluctuations or characteristics suggested by the aggregate paid
activity. The comparison includes a review of the result derived from the
division of the ending direct and net reserves by last year's direct and net
paid activity, also known as the survival ratio.
As a result of these processes and procedures, the reserves carried for
environmental and asbestos claims at December 31, 2000 are the Company's best
estimate of ultimate claims and claim adjustment expenses based upon known facts
and current law. However, the uncertainties surrounding the final
112
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INSURANCE POLICY AND CLAIMS RESERVES (CONTINUED)
resolution of these claims continue. These include, without limitation, any
impact from the bankruptcy protection sought by various asbestos producers, a
further increase or decrease in asbestos and environmental claims which cannot
now be anticipated as well as the role of any umbrella or excess policies issued
by the Company for such claims, the resolution or adjudication of certain
disputes pertaining to asbestos non-products/operations claims in a manner
inconsistent with the Company's previous assessment of such claims as well as
unanticipated developments pertaining to the Company's ability to recover
reinsurance for environmental and asbestos claims.
It is also not possible to predict changes in the legal and legislative
environment and their impact on the future development of asbestos and
environmental claims. Such development will be affected by future court
decisions and interpretations, as well as changes in legislation applicable to
such claims. Because of these future unknowns, and the uncertainties set forth
above, additional liabilities may arise for amounts in excess of the current
reserves. These additional amounts, or a range of these additional amounts,
cannot now be reasonably estimated, and could result in a liability exceeding
reserves by an amount that would be material to the Company's operating results
in a future period. However, in the opinion of the Company's management, it is
not likely that these claims will have a material adverse effect on the
Company's financial condition or liquidity.
The Company has a geographic exposure to catastrophe losses in certain areas
of the country. Catastrophes can be caused by various events including
hurricanes, windstorms, earthquakes, hail, severe winter weather, explosions and
fires, and the incidence and severity of catastrophes are inherently
unpredictable. The extent of losses from a catastrophe is a function of both the
total amount of insured exposure in the area affected by the event and the
severity of the event. Most catastrophes are restricted to small geographic
areas; however, hurricanes and earthquakes may produce significant damage in
large, heavily populated areas. The Company generally seeks to reduce its
exposure to catastrophes through individual risk selection and the purchase of
catastrophe reinsurance.
14. REINSURANCE
The Company's insurance operations participate in reinsurance in order to
limit losses, minimize exposure to large risks, provide additional capacity for
future growth and effect business-sharing arrangements. Life reinsurance is
accomplished through various plans of reinsurance, primarily coinsurance,
modified coinsurance and yearly renewable term. Property-casualty reinsurance is
placed on both a quota-share and excess of loss basis. The property-casualty
insurance subsidiaries also participate as a servicing carrier for, and a member
of, several pools and associations. Reinsurance ceded arrangements do not
discharge the insurance subsidiaries as the primary insurer, except for cases
involving a novation.
113
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. REINSURANCE (CONTINUED)
Reinsurance amounts included in the Consolidated Statement of Income for the
years ended December 31 were as follows:
<TABLE>
<CAPTION>
GROSS NET
In Millions of Dollars AMOUNT CEDED AMOUNT
-------- -------- --------
<S> <C> <C> <C>
2000
PREMIUMS
Property-casualty insurance............................... $11,691 $(1,795) $ 9,896
Life insurance............................................ 2,550 (332) 2,218
Accident and health insurance............................. 530 (215) 315
------- ------- -------
$14,771 $(2,342) $12,429
======= ======= =======
CLAIMS INCURRED............................................. $10,779 $(1,895) $ 8,884
======= ======= =======
1999
PREMIUMS
Property-casualty insurance............................... $10,960 $(1,722) $ 9,238
Life insurance............................................ 2,190 (314) 1,876
Accident and health insurance............................. 444 (54) 390
------- ------- -------
$13,594 $(2,090) $11,504
======= ======= =======
CLAIMS INCURRED............................................. $ 9,939 $(1,913) $ 8,026
======= ======= =======
1998
PREMIUMS
Property-casualty insurance............................... $10,083 $(1,719) $ 8,364
Life insurance............................................ 1,915 (304) 1,611
Accident and health insurance............................. 410 (61) 349
------- ------- -------
$12,408 $(2,084) $10,324
======= ======= =======
CLAIMS INCURRED............................................. $ 9,104 $(1,578) $ 7,526
======= ======= =======
</TABLE>
Reinsurance recoverables, net of valuation allowance, at December 31 include
amounts recoverable on unpaid and paid losses and were as follows:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999
-------- --------
<S> <C> <C>
Life business............................................... $ 2,028 $1,222
Property-casualty business:
Pools and associations.................................... 2,417 2,788
Other reinsurance......................................... 6,096 5,695
------- ------
TOTAL....................................................... $10,541 $9,705
======= ======
</TABLE>
114
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RESTRUCTURING-RELATED ITEMS
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Restructuring charges....................................... $579 $ 166 $1,122
Changes in estimates........................................ (65) (401) (392)
Accelerated depreciation.................................... 68 182 --
---- ----- ------
TOTAL....................................................... $582 $ (53) $ 730
==== ===== ======
</TABLE>
During 2000, Citigroup recorded restructuring charges of $579 million,
primarily consisting of exit costs related to the acquisition of Associates. The
new initiatives are expected to be implemented over the next year. The charges
included $241 million related to employee severance, $154 million related to
exiting leasehold and other contractual obligations, and $184 million of asset
impairment charges.
The implementation of these restructuring initiatives will cause some
related premises and equipment assets to become redundant. As a result, the
remaining depreciable lives of these assets were shortened, and accelerated
depreciation charges of $69 million will be recognized in subsequent periods.
Of the $579 million charge, $474 million in the Associates business includes
the reconfiguration of certain branch operations, the exit from non-strategic
businesses and from activities as mandated by Federal bank regulations, and the
consolidation and integration of Corporate and middle and back office functions.
In the Global Consumer business, $51 million includes the reconfiguration of
certain branch operations outside the U.S. and the downsizing and consolidation
of certain back office functions in the U.S. Approximately $440 million of the
$579 million charge related to operations in the United States.
The $241 million portion of the charge related to employee severance
reflects the costs of eliminating approximately 7,400 positions, including
approximately 4,600 in Associates and 700 in the Global Consumer business.
Approximately 5,000 of these positions relate to the United States. In 2000, a
reserve for $23 million was recorded, $20 million of which related to the
elimination of 1,600 non-U.S. positions of an acquired entity.
The 2000 restructuring reserve utilization included $184 million of asset
impairment charges and $71 million of severance and other exit costs (of which
$40 million related to employee severance and $5 million related to leasehold
and other exit costs have been paid in cash and $26 million is legally
obligated), together with translation effects.
In 1999, Citigroup recorded restructuring charges of $166 million, including
additional severance charges of $49 million as a result of the continuing
implementation of 1998 restructuring initiatives, as well as $82 million of exit
costs associated with new initiatives in the Global Consumer business primarily
related to the reconfiguration of certain branch operations outside the U.S.,
the downsizing of certain marketing operations, and the exit of a non-strategic
business. The 1999 restructuring reserve was fully utilized at June 30, 2000.
The 1999 charge included $35 million of integration charges recorded by
Associates (the Avco charge) related to its January 6, 1999 acquisition of Avco
Financial Services, Inc. (Avco). The charge included $17 million related to
employee severance, $5 million related to branch closure, $7 million related to
training of employees and $6 million of other integration related expenses. In
addition to the
115
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RESTRUCTURING-RELATED ITEMS (CONTINUED)
Avco charge, as part of the purchase price allocation of the Avco acquisition,
Associates recorded a $146 million reserve (the Avco integration cost reserve)
at the time of the acquisition. This reserve was established to reflect the
costs of exiting certain activities that would not be continued after the
acquisition. The costs primarily consisted of severance costs and related
expenses, lease termination costs and other contractual liabilities. The Avco
reserve was fully utilized at December 31, 1999.
In 1998, Citigroup recorded a restructuring charge of $1.122 billion,
reflecting exit costs associated with business improvement and integration
initiatives. The 1998 restructuring reserve was fully utilized at December 31,
2000.
The implementation of the 1999 and 1998 restructuring initiatives also
caused certain related premises and equipment assets to become redundant. The
remaining depreciable lives of these assets were shortened, and accelerated
depreciation charges of $68 million and $182 million (in addition to normal
scheduled depreciation on those assets) were recognized over the shortened lives
in 2000 and 1999, respectively.
116
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RESTRUCTURING-RELATED ITEMS (CONTINUED)
The status of the 2000, 1999, and 1998 restructuring initiatives is
summarized in the following table:
RESTRUCTURING RESERVE ACTIVITY
<TABLE>
<CAPTION>
RESTRUCTURING INITIATIVES
------------------------------
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Original charges............................................ $ 579 $ 117 $1,122
Additional charges.......................................... -- -- 49
----- ----- ------
579 117 1,171
----- ----- ------
Acquisitions(1)
2000...................................................... 23 -- --
1999...................................................... -- 146 --
1998...................................................... -- -- --
----- ----- ------
23 146 --
----- ----- ------
Utilization(2)
2000...................................................... (255) (51) (142)
1999...................................................... -- (212) (744)
1998...................................................... -- -- (69)
----- ----- ------
(255) (263) (955)
----- ----- ------
Changes in estimates
2000...................................................... -- -- (65)
1999...................................................... -- -- (151)
1998...................................................... -- -- --
----- ----- ------
-- -- (216)
----- ----- ------
RESERVE BALANCE AT DECEMBER 31, 2000........................ $ 347 $ -- $ --
===== ===== ======
</TABLE>
- ------------------------
(1) Represents additions to restructuring liabilities arising from acquisitions.
(2) Utilization amounts include translation effects on the restructuring
reserve.
Changes in estimates are attributable to facts and circumstances arising
subsequent to an original restructuring charge. During 2000 and 1999, changes in
estimates resulted in reductions in the reserve for 1998 restructuring
initiatives of $65 million and $151 million, respectively, attributable to lower
than anticipated costs of implementing certain projects and a reduction in the
scope of certain initiatives. Changes in estimates related to 1997 restructuring
initiatives, which were fully utilized as of December 31, 1999, were
$250 million and $392 million in 1999 and 1998, respectively, and were primarily
related to the Seven World Trade Center lease. Adjustments related to the Seven
World Trade Center lease during 1999 were attributable to the reassessment of
space needed due to the Travelers and Citicorp merger, which indicated the need
for increased occupancy and the utilization of space previously considered
excessive; adjustments during 1998 resulted from negotiations on a sublease
117
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RESTRUCTURING-RELATED ITEMS (CONTINUED)
which indicated that excess space could be disposed of on terms more favorable
than had been originally estimated.
During 2000, the Company also recorded $177 million of merger-related costs
which included legal, advisory and SEC filing fees, as well as other costs of
administratively closing the acquisition of Associates. During 1998, the Company
recorded $65 million of merger-related costs which included the direct and
incremental costs of administratively closing the Travelers and Citicorp merger.
16. INCOME TAXES
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
CURRENT
Federal..................................................... $3,295 $3,350 $2,544
Foreign..................................................... 2,301 2,198 1,206
State....................................................... 392 384 367
------ ------ ------
5,988 5,932 4,117
------ ------ ------
DEFERRED
Federal..................................................... 1,231 631 (170)
Foreign..................................................... 197 (134) 110
State....................................................... 109 101 (150)
------ ------ ------
1,537 598 (210)
------ ------ ------
PROVISION FOR INCOME TAX BEFORE MINORITY INTEREST(1)........ 7,525 6,530 3,907
Provision (benefit) for income taxes on cumulative effect of
accounting changes........................................ -- (84) --
Income tax expense (benefit) reported in stockholders'
equity related to:
Foreign currency translation.............................. (108) (25) (41)
Securities available for sale............................. (259) (28) (124)
Employee stock plans...................................... (1,400) (1,017) (708)
Other..................................................... (24) (1) (1)
------ ------ ------
INCOME TAXES BEFORE MINORITY INTEREST....................... $5,734 $5,375 $3,033
====== ====== ======
</TABLE>
- ------------------------
(1) Includes the effect of securities transactions resulting in a provision of
$282 million in 2000, $189 million in 1999, and $294 million in 1998.
118
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. INCOME TAXES (CONTINUED)
The reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate applicable to income (before minority interest and
cumulative effect of accounting changes) for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
FEDERAL STATUTORY RATE...................................... 35.0% 35.0% 35.0%
Limited taxability of investment income..................... (1.2) (1.4) (2.1)
State income taxes, net of federal benefit.................. 1.6 1.7 1.3
Other, net.................................................. 0.2 0.7 1.0
---- ---- ----
EFFECTIVE INCOME TAX RATE................................... 35.6% 36.0% 35.2%
==== ==== ====
</TABLE>
Deferred income taxes at December 31 related to the following:
<TABLE>
<CAPTION>
In Millions of Dollars 2000 1999
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS
Credit loss deduction....................................... $2,981 $3,003
Differences in computing policy reserves.................... 1,956 1,988
Unremitted foreign earnings................................. 2,031 1,843
Deferred compensation....................................... 1,234 1,264
Employee benefits........................................... 613 757
Interest-related items...................................... 363 374
Foreign and state loss carryforwards........................ 293 311
Other deferred tax assets................................... 1,513 1,622
------ ------
Gross deferred tax assets................................... 10,984 11,162
Valuation allowance......................................... 220 314
------ ------
DEFERRED TAX ASSETS AFTER VALUATION ALLOWANCE............... 10,764 10,848
------ ------
DEFERRED TAX LIABILITIES
Investments................................................. (1,534) (1,443)
Deferred policy acquisition costs and value of insurance in
force..................................................... (1,102) (960)
Leases...................................................... (1,524) (1,350)
Other deferred tax liabilities.............................. (2,349) (2,339)
------ ------
GROSS DEFERRED TAX LIABILITIES.............................. (6,509) (6,092)
------ ------
NET DEFERRED TAX ASSET...................................... $4,255 $4,756
====== ======
</TABLE>
Foreign pretax earnings approximated $6.9 billion in 2000, $5.4 billion in
1999, and $2.8 billion in 1998. As a U.S. corporation, Citigroup is subject to
U.S. taxation currently on all foreign pretax earnings earned by a foreign
branch. Pretax earnings of a foreign subsidiary or affiliate are subject to U.S.
taxation when effectively repatriated. In addition, certain of Citigroup's U.S.
income is subject to foreign income tax where the payor of such income is
domiciled outside the United States. The Company provides income taxes on the
undistributed earnings of non-U.S. subsidiaries except to the extent that such
earnings are indefinitely invested outside the United States. At December 31,
2000, $1.5 billion of accumulated undistributed earnings of non-U.S.
subsidiaries was indefinitely invested. At
119
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. INCOME TAXES (CONTINUED)
the existing U.S. federal income tax rate, additional taxes of $426 million
would have to be provided if such earnings were remitted.
Income taxes are not provided for on the Company's life insurance
subsidiaries' "policyholders' surplus account" because under current U.S. tax
rules such taxes will become payable only to the extent such amounts are
distributed as a dividend or exceed limits prescribed by federal law.
Distributions are not contemplated from this account, which aggregated
$982 million (subject to a tax of $344 million) at December 31, 2000.
The 2000 net change in the valuation allowance related to deferred tax
assets was a decrease of $94 million primarily relating to the elimination of
the $100 million valuation allowance in the life insurance group. This
elimination resulted from an analysis of the availability of capital gains to
offset capital losses. In management's opinion, there will be adequate capital
gains to make realization of any capital losses more likely than not. The
recognition of the benefit produced by the reversal of this portion of the
valuation allowance was recognized by reducing goodwill. The remaining valuation
allowance of $220 million at December 31, 2000 is primarily related to specific
state and local, and foreign tax carryforwards or tax law restrictions on
benefit recognition in the U.S. federal tax return and in the above
jurisdictions.
Management believes that the realization of the recognized net deferred tax
asset of $4.255 billion is more likely than not based on existing carryback
ability and expectations as to future taxable income. The Company has reported
pretax financial statement income of approximately $17 billion, on average, over
the last three years and has generated federal taxable income exceeding
$10 billion, on average, each year during this same period.
17. MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS
The Company formed statutory business trusts under the laws of the state of
Delaware, which exist for the exclusive purposes of (i) issuing Trust Securities
representing undivided beneficial interests in the assets of the Trust;
(ii) investing the gross proceeds of the Trust securities in junior subordinated
deferrable interest debentures (subordinated debentures) of its parent; and
(iii) engaging in only those activities necessary or incidental thereto. These
subordinated debentures and the related income effects are eliminated in the
consolidated financial statements. Distributions on the mandatorily redeemable
securities of subsidiary trusts below have been classified as interest expense
in the Consolidated Statement of Income.
120
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. MANDATORILY REDEEMABLE SECURITIES OF SUBSIDIARY TRUSTS (CONTINUED)
The following tables summarize the financial structure of each of the
Company's subsidiary trusts at December 31, 2000:
<TABLE>
<CAPTION>
COMMON
TRUST SECURITIES SHARES
WITH DISTRIBUTIONS ISSUANCE SECURITIES LIQUIDATION COUPON ISSUED
GUARANTEED BY DATE ISSUED VALUE RATE TO PARENT
- -------------------------- ---------- ---------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
DOLLARS IN MILLIONS
Citigroup:
Citigroup Capital I....... Oct. 1996 16,000,000 $ 400 8.00% 494,880
Citigroup Capital II...... Dec. 1996 400,000 400 7.75% 12,372
Citigroup Capital III..... Dec. 1996 200,000 200 7.625% 6,186
Citigroup Capital IV...... Jan. 1998 8,000,000 200 6.85% 247,440
Citigroup Capital V....... Nov. 1998 20,000,000 500 7.00% 618,557
Citigroup Capital VI...... Mar. 1999 24,000,000 600 6.875% 742,269
------
Total parent obligated.... $2,300
Subsidiaries:
Travelers P&C Capital I... April 1996 32,000,000 $ 800 8.08% 989,720
Travelers P&C Capital
II...................... May 1996 4,000,000 100 8.00% 123,720
Salomon Inc. Financing
Trust I................. July 1996 13,800,000 345 9.25% 426,800
Salomon Smith Barney
Holdings Inc. Capital
I....................... Jan. 1998 16,000,000 400 7.20% 494,880
Citicorp Capital I........ Dec. 1996 300,000 300 7.933% 9,000
Citicorp Capital II....... Jan. 1997 450,000 450 8.015% 13,500
Citicorp Capital III...... June 1998 9,000,000 225 7.10% 270,000
------
Total subsidiary
obligated............... $2,620
======
<CAPTION>
JUNIOR SUBORDINATED DEBENTURES OWNED BY
TRUST
-------------------------------------------
TRUST SECURITIES REDEEMABLE
WITH DISTRIBUTIONS BY ISSUER
GUARANTEED BY AMOUNT MATURITY BEGINNING
- -------------------------- -------- -------------- ---------------
<S> <C> <C> <C>
DOLLARS IN MILLIONS
Citigroup:
Citigroup Capital I....... $412 Sept. 30, 2036 Oct. 7, 2001
Citigroup Capital II...... 412 Dec. 1, 2036 Dec. 1, 2006
Citigroup Capital III..... 206 Dec. 1, 2036 Not redeemable
Citigroup Capital IV...... 206 Jan. 22, 2038 Jan. 22, 2003
Citigroup Capital V....... 515 Nov. 15, 2028 Nov. 15, 2003
Citigroup Capital VI...... 619 Mar. 15, 2029 Mar. 15, 2004
Total parent obligated....
Subsidiaries:
Travelers P&C Capital I... 825 April 30, 2036 April 30, 2001
Travelers P&C Capital
II...................... 103 May 15, 2036 May 15, 2001
Salomon Inc. Financing
Trust I................. 356 June 30, 2026 June 30, 2001
Salomon Smith Barney
Holdings Inc. Capital
I....................... 412 Jan. 28, 2038 Jan. 28, 2003
Citicorp Capital I........ 309 Feb. 15, 2027 Feb. 15, 2007
Citicorp Capital II....... 464 Feb. 15, 2027 Feb. 15, 2007
Citicorp Capital III...... 232 Aug. 15, 2028 Aug. 15, 2003
Total subsidiary
obligated...............
</TABLE>
In each case, the coupon rate on the debentures is the same as that on the
trust securities. Distributions on the trust securities and interest on the
debentures are payable quarterly, except for Citigroup Capital II and III and
Citicorp Capital I and II, on which distributions are payable semiannually.
Salomon Inc. Financing Trust I, a wholly owned subsidiary of Salomon Smith
Barney, issued TRuPS-Registered Trademark- units to the public. Each
TRuPS-Registered Trademark- unit includes a security of SI Financing Trust I,
and a purchase contract that requires the holder to purchase, in 2021 (or
earlier if Salomon Smith Barney elects to accelerate the contract), one
depositary share representing a one-twentieth interest in a share of the
Company's 9.50% Cumulative Preferred Stock, Series L. Salomon Smith Barney is
obligated under the terms of each purchase contract to pay contract fees of
0.25% per annum.
121
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. PREFERRED STOCK AND STOCKHOLDERS' EQUITY
PERPETUAL PREFERRED STOCK
The following table sets forth the Company's perpetual preferred stock
outstanding at December 31:
<TABLE>
<CAPTION>
CARRYING VALUE (IN
MILLIONS OF
REDEEMABLE, IN REDEMPTION DOLLARS)
WHOLE OR IN PART PRICE NUMBER OF --------------------
RATE ON OR AFTER(1) PER SHARE(2) SHARES 2000 1999
---------------- ----------------- ------------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Series F(3).......... 6.365% June 16, 2007 $250 1,590,300 $ 397 $ 397
Series G(3).......... 6.213% July 11, 2007 $250 724,908 181 180
Series H(3).......... 6.231% September 8, 2007 $250 800,000 200 198
Series K(4).......... 8.40% March 31, 2001 $500 500,000 250 250
Series M(3).......... 5.864% October 8, 2007 $250 779,204 195 195
Series Q(5).......... Adjustable May 31, 1999 $250 688,150 172 175
Series R(5).......... Adjustable August 31, 1999 $250 400,000 100 100
Series T(5).......... 8.50% February 15, 2000 $250 600,000 -- 150
Series U(5).......... 7.75% May 15, 2000 $250 500,000 125 125
Series V(5).......... Fixed/Adjustable February 15, 2006 $500 250,000 125 125
---------------- ----------------- ---- --------- ------ ------
$1,745 $1,895
====== ======
</TABLE>
- ------------------------
(1) Under various circumstances, the Company may redeem certain series of
preferred stock at times other than described above.
(2) Liquidation preference per share equals redemption price per share.
(3) Issued as depositary shares, each representing a one-fifth interest in a
share of the corresponding series of preferred stock.
(4) Issued as depositary shares, each representing a one-twentieth interest in a
share of the corresponding series of preferred stock.
(5) Issued as depositary shares, each representing a one-tenth interest in a
share of the corresponding series of preferred stock.
All dividends on the Company's perpetual preferred stock are payable
quarterly and are cumulative. Only holders of Series K Preferred Stock have
voting rights. Holders of Series K Preferred Stock are entitled to three votes
per share.
Dividends on Series Q and R Preferred Stock are payable at rates determined
quarterly by formulas based on interest rates of certain U.S. Treasury
obligations, subject to certain minimum and maximum rates as specified in the
certificates of designation. The weighted-average dividend rate on the Series Q
and R Preferred Stock was 5.36% for 2000.
Dividends on the Series V Preferred Stock are payable at 5.86% through
February 15, 2006, and thereafter at rates determined quarterly by a formula
based on certain interest rate indices, subject to a minimum rate of 6% and a
maximum rate of 12%. The rate of dividends on the Series V Preferred Stock is
subject to adjustment based upon the applicable percentage of the dividends
received deduction.
122
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
Citigroup redeemed Series T Preferred Stock in February 2000.
REGULATORY CAPITAL
Citigroup and Citicorp are subject to risk-based capital and leverage
guidelines issued by the Board of Governors of the Federal Reserve System (FRB),
and their U.S. insured depository institution subsidiaries, including Citibank,
N.A., are subject to similar guidelines issued by their respective primary
regulators. These guidelines are used to evaluate capital adequacy and include
the required minimums shown in the following table.
To be "well capitalized" under federal bank regulatory agency definitions, a
depository institution must have a Tier 1 ratio of at least 6%, a combined Tier
1 and Tier 2 ratio of at least 10%, and a leverage ratio of at least 5%, and not
be subject to a directive, order, or written agreement to meet and maintain
specific capital levels. The regulatory agencies are required by law to take
specific prompt actions with respect to institutions that do not meet minimum
capital standards. As of December 31, 2000 and 1999, all of Citigroup's U.S.
insured subsidiary depository institutions were "well capitalized." At
December 31, 2000, regulatory capital as set forth in guidelines issued by the
U.S. federal bank regulators is as follows:
<TABLE>
<CAPTION>
MINIMUM CITIBANK,
In Millions of Dollars REQUIREMENT CITIGROUP CITICORP N.A.
----------- --------- -------- ---------
<S> <C> <C> <C> <C>
Tier 1 capital...................................... $54,498 $39,702 $24,624
Total capital(1).................................... 73,048 58,010 36,801
Tier 1 capital ratio................................ 4.00% 8.38% 8.41% 8.46%
Total capital ratio(1).............................. 8.00% 11.23% 12.29% 12.64%
Leverage ratio(2)................................... 3.00% 5.97% 7.54% 6.66%
</TABLE>
- ------------------------
(1) Total capital includes Tier 1 and Tier 2.
(2) Tier 1 capital divided by adjusted average assets.
There are various legal limitations on the extent to which Citigroup's
banking subsidiaries may pay dividends to their parents. Citigroup's national
and state-chartered bank subsidiaries can declare dividends to their respective
parent companies in 2001, without regulatory approval, of approximately
$7.2 billion, adjusted by the effect of their net income (loss) for 2001 up to
the date of any such dividend declaration. In determining whether and to what
extent to pay dividends, each bank subsidiary must also consider the effect of
dividend payments on applicable risk-based capital and leverage ratio
requirements as well as policy statements of the federal regulatory agencies
that indicate that banking organizations should generally pay dividends out of
current operating earnings. Consistent with these considerations, Citigroup
estimates that its bank subsidiaries can distribute dividends to Citigroup of
approximately $6.4 billion of the available $7.2 billion, adjusted by the effect
of their net income (loss) up to the date of any such dividend declaration.
The property-casualty insurance subsidiaries' statutory capital and surplus
at December 31, 2000 and 1999 was $7.634 billion (including Associates) and
$7.758 billion, respectively. The life insurance subsidiaries' statutory capital
and surplus at December 31, 2000 and 1999 was $6.079 billion and
$5.836 billion, respectively. Statutory capital and surplus are subject to
certain restrictions imposed by state insurance departments as to the transfer
of funds and payment of dividends. The property-
123
<PAGE>
CITIGROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
casualty insurance subsidiaries' statutory net income for the years ended
December 31, 2000, 1999, and 1998 was $1.445 billion (including Associates),
$1.500 billion, and $1.426 billion, respectively. The life insurance
subsidiaries' statutory net income for the years ended December 31, 2000, 1999
and 1998 was $1.090 million, $988 million and $829 million, respectively.
Statutory capital and surplus and statutory net income are determined in
accordance with statutory accounting practices.
TIC is subject to various regulatory restrictions that limit the maximum
amount of dividends available to its parent without prior approval of the
Connecticut Insurance Department. A maximum of $984 million of statutory surplus
is available by the end of the year 2001 for such dividends without the prior
approval of the Connecticut Insurance Department.
TPC's insurance subsidiaries are subject to various regulatory restrictions
that limit the maximum amount of dividends available to be paid to their parent
without prior approval of insurance regulatory authorities. A maximum of
$1.2 billion is available by the end of the year 2001 for such dividends without
prior approval of the Connecticut Insurance Department.
Certain of the Company's U.S. and non-U.S. broker-dealer subsidiaries are
subject to various securities and commodities regulations and capital adequacy
requirements promulgated by the regulatory and exchange authorities of the
countries in which they operate.