citibank international plc (registered number: 1088249) … · the directors present their report...

CITIBANK INTERNATIONAL PLC (Registered Number: 1088249)

ANNUAL REPORT AND FINANCIAL STATEMENTS

for the year ended 31 December 2009

CITIBANK INTERNATIONAL PLC

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DIRECTORS’ REPORT for the year ended 31 December 2009 The Directors present their report and the financial statements of Citibank International plc (“the Company”) and its subsidiaries (“the Group”) for the year ended 31 December 2009. Principal activities and business review The Company is authorised by the Financial Services Authority under the Financial Services and Markets Act 2000. The Group provides corporate and investment banking, private banking and alternative investments and consumer banking products and services in the United Kingdom and Continental Europe. The Group’s headquarters are in London and it currently has offices and subsidiaries in other European financial centres. The Group’s performance is affected by the economic cycle and market conditions. Financial markets have stabilised over the past year. However, challenging economic conditions have increased the risk of customer and counterparty delinquency or default and the Group has experienced increased write-downs especially in its consumer business. Loan volumes have declined in line with the strategy to reduce the size of the Group’s balance sheet. The main challenges facing the Group are capital and liquidity constraints, while the Group has made progress in decreasing the risks arising from its balance sheet. Note 36 of the financial statements provides information on some of the key risks to which the Group is exposed. The Group generated pre-tax losses of £627 million in the year to 31 December 2009 (2008: loss of £87 million). The Group generated a loss after tax of £573 million (2008: £90 million). The Group has two reporting segments, Institutional Clients Group (“ICG”) and Local Consumer Lending (“LCL”), consistent with the reporting segments of Citigroup Inc. Within Citigroup, ICG is part of Citicorp while LCL is part of Citi Holdings. The Group’s strategy has been in line with that of Citigroup’s - to reduce assets, tightly manage risks and optimize the value of assets in Citi Holdings, while working to generate long-term profitability and growth from Citicorp, which comprises its core franchise. The Financial Statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions. Further information relevant to the assessment is provided in the following sections of the financial statements:

• principal activities, strategic direction and challenges and uncertainties are described in the business review;

• a financial summary, including a review of the income statement and balance sheet, is provided in the financial results section below; and

• objectives, policies and processes for managing credit, liquidity and market risk, and its approach to capital management and allocation, are described in note 36

ICG made a loss before tax in 2009 of £425 million (2008: profit of £100 million) primarily from loan losses and credit valuation adjustments (“CVAs”). LCL incurred pre-tax losses of £202 million in 2009 (2008: loss of £187 million), primarily from net credit losses. Income Total operating income was £791 million, a 37 per cent decrease on the previous year. This reduction of £456 million was primarily driven by the change in the CVA of the Company’s issued debt. Citigroup’s spreads tightened in the year leading to a loss of about £278 million being taken compared to a gain of £272 million in 2008.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Costs Operating expenses have fallen 14 per cent from £810 million to £699 million. Cost control remains a key focus of the Group. Personnel expenses have fallen by over 23 per cent, driven by the restructuring reserve taken in 2008. In addition, as most of the Group’s compensation costs are in Euro it would have been expected that the employee remuneration would have increased from 2008. However this has more than been offset by the reduction in average headcount from 4,912 to 4,454. General and administrative expenses have also decreased year on year by 18 percent as a result of the winding down of certain Citi Holdings’ businesses thus incurring less expenditure. The Group has also incurred less Head Office charges from Citigroup Inc. Net credit losses have risen to £759 million from £536 million. Consumer losses have increased by £292 million, mainly due to increases in the loan loss reserve and specific write offs in Greece, United Kingdom, Italy, Portugal and the Nordic countries. ICG credit charges have actually decreased by £69 million, mainly due to a reduction in specific reserves taken in 2009 compared to 2008 where significant losses were taken in respect of the Company’s Icelandic exposures. Gains on Sales The Group completed the sale in 2009 of its Portuguese cards portfolio and Norwegian consumer loans portfolio resulting in gains on sale of £40 million. Balance sheet Total assets of £34 billion at 31 December 2009 were 30 per cent lower than at 31 December 2008 (£48 billion). The reduction is driven by the reduction in loans and advances to customers through a combination of sales and repayments and a general reduction in intergroup funding. On 26 February 2009 the Company made a capital contribution of £10 million to EMSO Partners Limited and on 15 May 2009 the Company made a capital contribution of €260 million (£231 million) to Citicorp Finanziaria SpA. In addition to the financial results of the Group, senior management also consider the following key financial performance indicators:

• Net interest margin • Actual revenues and expenses against budget • Net credit losses • Maintenance of required level of regulatory capital

During 2010 it is expected that the Group’s businesses may continue to be significantly affected by the levels of and volatility in the global capital markets and economic and political developments. Loan volumes are expected to decline as is consistent with tighter origination standards in view of the weak credit environment and exits in specific consumer finance businesses. The environment will be challenging and while numerous risks remain, the Group has made progress in decreasing the risks arising from its balance sheet and building capital to generate future earnings. Disposals On 30 September 2009 the Group agreed to sell its Portuguese cards portfolio to a third party. The sale completed on 30 November 2009. On 8 October 2009 the Group agreed to sell its Norwegian consumer loans portfolio to a third party. The sale completed on 15 December 2009. Note 10 provides further information relating to these disposals.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Disposals (continued) In line with the Group’s strategy in relation to Citi Holdings business the Company and Group have identified several portfolios of business which it intends to sell in the next year. Assets totalling £846 million have been separately disclosed in the balance sheet and additional information is provided in Note 20. Post balance sheet events On 18 December 2009 the Group agreed to sell its Finnish consumer loans business to a third party. The sale completed on 1 March 2010. On 11 February 2010 the Group agreed to sell its Italian consumer cards business to a third party. The sale is expected to complete prior to 31 March 2010. Other The Group will prepare interim accounts at 30 June 2010 under the European Union Transparency Directive. Financial instruments The financial risk management objectives and policies and the exposure to price risk, credit risk and liquidity risk of the Group have been disclosed in the risk management policies on pages 73 to 90. Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law they have elected to prepare both the group and the parent company financial statements in accordance with IFRSs as adopted by the EU and applicable law. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the

group and the parent company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Statement of Corporate Governance The Company is a wholly owned subsidiary of Citibank Investments Limited (“CIL”) and its ultimate parent is Citigroup Inc. At 31 December 2009 there are no special rights attaching to the shares held by CIL. As the Company is a wholly owned subsidiary, there are no special powers given to the Directors in relation to the appointment and replacement of Directors, amendments to the articles of association and the issuance and buying back of shares. Internal control and financial reporting With the Company’s ultimate parent being Citigroup Inc, the governance framework that the Company primarily follows falls under the Sarbanes-Oxley Act of 2002. The Act is administered by the Securities and Exchange Commission (SEC), which sets deadlines for compliance and publishes rules on requirements. Section 404 of the act requires management to acknowledge its responsibility for establishing and maintaining adequate internal controls, including asserting their effectiveness in writing. Management maintains a comprehensive system of controls intended to ensure that transactions are executed in accordance with management’s authorisation, assets are safeguarded, and financial records are reliable. Procedures for the ongoing identification, evaluation and management of the significant risks faced by the Company and Group have been in place throughout the year and up to the date of approval of the financial statements. The Directors and senior management of the Group have formally adopted Risk and Controls policies which set out the Company’s and Citigroup’s attitude to risk and internal control. Key risks, including business risks, are identified and reviewed by senior and operating management on an ongoing basis by means of Sarbanes-Oxley testing along with Risk, Governance and Audit Committee reviews. The Directors also receive regular reports on any risk matters that need to be brought to their attention. Significant risks identified in connection with the development of new activities are subject to consideration by the Directors. There are well established management reporting procedures in place and reports are presented regularly to the Directors detailing business results and performance. The effectiveness of the internal control system is reviewed regularly by the Directors and the Audit Committee, which also receives reports of review undertaken by the internal audit function as well as reports from the external auditors which include details of internal control matters that they have identified. Certain aspects of the internal control system are also subject to regulatory supervision, the results of which are monitored closely by the Directors and senior management. The Audit Committee and Directors are also responsible for monitoring the preparation of the financial statements and for reviewing and monitoring the independence of the statutory auditor, in particular the provision of additional services to the Group.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Risk factors The disruption in the financial markets has increased the risks and uncertainties identified by Citigroup globally and other Financial Service companies. The below is an extract of the risk factors impacting Citigroup from its 2010 annual report on form 10-K: The economic recession and disruptions in the global financial markets have adversely affected, and may continue to adversely affect, Citigroup’s business and results of operations The financial services industry and the capital markets have been, and may continue to be, materially and adversely affected by the economic recession and disruptions in the global financial markets. These market disruptions were initially triggered by declines that impacted the value of subprime mortgages, but spread to all mortgage and real estate asset classes, to leveraged bank loans and to nearly all asset classes, including equities. These market disruptions resulted in significant write-downs of asset values by financial institutions, including Citigroup, causing many financial institutions to seek additional capital, merge with other financial institutions or, in some cases, go bankrupt. Disruptions in the global financial markets have also adversely affected, and may continue to adversely affect, the corporate bond markets, equity markets, debt and equity underwriting, and other elements of the financial markets. Such disruptions have caused some lenders and institutional investors to reduce and, in some cases, cease to provide funding to certain borrowers, including other financial institutions. Credit headwinds, increasingly volatile financial markets and reduced levels of business activity may continue to negatively impact Citigroup’s business, capital, liquidity, financial condition and results of operations, as well as the trading price of Citigroup common stock, preferred stock and debt securities. Moreover, market and economic disruptions have affected, and may continue to affect, consumer confidence levels, consumer spending, personal bankruptcy rates, and levels of incurrence and default on consumer debt and home prices, among other factors, in certain of the markets in which Citigroup operates. Any of these factors, along with persistently high levels of unemployment, may result in a greater likelihood of reduced client interaction or elevated delinquencies on consumer loans, particularly with respect to Citi’s credit card and mortgage programs, or other obligations to Citigroup. This, in turn, could result in a higher level of loan losses and Citi’s allowances for credit losses, all of which could adversely affect Citigroup’s earnings. While Citigroup has instituted loss mitigation programs to work with distressed borrowers and potentially mitigate these effects, these programs are in the early stages, and it is uncertain whether they will be successful. In connection with significant government and central bank actions taken in late 2008 and in 2009, the U.S. and global economies began to see signs of stabilization in certain areas, and some early positive economic signs were observed in late 2009. Despite these positive signs, there remains significant uncertainty regarding the sustainability and pace of economic recovery, unemployment levels, the impact of the U.S. and other governments’ unwinding of their extensive economic and market supports, which may accelerate in 2010, and Citi’s delinquency and credit loss trends. Previously enacted and potential future legislation, including legislation to reform the U.S. financial regulatory system, could require Citigroup to change certain of its business practices, impose additional costs on Citigroup or otherwise adversely affect its businesses In addition to previously enacted governmental assistance programs designed to stabilize and stimulate the U.S. economy (including without limitation the Emergency Economic Stabilization Act of 2008 (EESA) and the American Recovery and Reinvestment Act of 2009 (ARRA)), recent economic, political and market conditions have led to numerous proposals in the U.S. for changes in the regulation of the financial industry in an effort to prevent future crises and to reform the financial regulatory system.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Risk factors (continued) Previously enacted and potential future legislation, including legislation to reform the U.S. financial regulatory system, could require Citigroup to change certain of its business practices, impose additional costs on Citigroup or otherwise adversely affect its businesses (continued) Some of these proposals have already been adopted. For example, in May 2009, the U.S. Congress enacted the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), which, among other things, restricts certain credit card practices, requires expanded disclosures to consumers and provides consumers with the right to opt out of certain interest rate increases. Complying with these legislative changes, as well as the requirements of the amendments to Regulation Z (Truth in Lending) adopted by the Federal Reserve Board and effective July 2010, will require Citigroup to invest significant management attention and resources to make the necessary disclosure and system changes in its U.S. card businesses and will affect the results of such businesses. In addition, in 2009, the Obama Administration released a comprehensive plan for regulatory reform in the financial industry. The Administration’s plan calls for significant proposed structural reforms and new substantive regulation across the financial industry, including, without limitation, requiring that broker-dealers who provide investment advice about securities to investors have the same fiduciary obligations as registered investment advisers; new requirements for the securitization market, including requiring a securitizer to retain a material economic interest in the credit risk associated with the underlying securitization; and additional regulation with respect to the trading of over-the-counter derivatives. In addition, the Administration’s plan calls for increased scrutiny and regulation, including potentially heightened capital requirements, for any financial institution whose combination of size, leverage and interconnectedness could pose a threat to market-wide financial stability if it failed. This is sometimes referred to as “systemic risk” and may adversely affect Citigroup, as well as the financial intermediaries with which it interacts on a daily basis such as clearing agencies, clearing houses, banks, securities firms and exchanges. The House Financial Services Committee began considering legislation based on the Administration’s proposal, and in December 2009, the U.S. House of Representatives passed the Wall Street Reform and Consumer Protection Act. The bill calls for comprehensive financial regulatory reform and would create a Consumer Protection Agency whose mandate includes measures that would subject federally chartered financial institutions to state consumer protection laws that have historically been preempted. The bill would also provide Federal regulators with the authority to rein in or dismantle financial institutions whose collapse could pose a systemic risk to the financial stability or economy of the U.S. due to their size, leverage or interconnectedness. The Senate Banking, Housing and Urban Affairs Committee also issued a discussion draft of a bill in November 2009 based on the Administration’s proposal, which differs significantly from the House bill in many respects. More recently, in early 2010, the Obama Administration proposed further restrictions on the size and scope of banks and other financial institutions. There can be no assurance as to whether or when any of the parts of the Administration’s plan or other proposals will be enacted into legislation and, if adopted, what the final provisions of such legislation will be. New legislation and regulatory changes could require Citigroup to further change certain of its business practices, impose additional costs on Citigroup, some significant, adversely affect its ability to pursue business opportunities it might otherwise consider engaging in, cause business disruptions or impact the value of assets that Citigroup holds.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Risk factors (continued) Citigroup’s businesses are subject to risks arising from extensive operations outside the United States As a global participant in the financial services industry, Citigroup is subject to extensive regulation, including fiscal and monetary policies, in jurisdictions around the world. As a result of the current financial crisis, there are currently numerous reform efforts underway outside the U.S., including without limitation proposals by the European Commission to amend bank capital requirements and by the Financial Services Authority in the United Kingdom to enhance regulatory standards applicable to financial institutions. This level of regulation could further increase in all jurisdictions in which Citigroup conducts business. Any regulatory changes could lead to business disruptions or could impact the value of assets that Citigroup holds or the scope or profitability of its business activities. Such changes could also require Citigroup to change certain of its business practices and could expose Citigroup to additional costs, including compliance costs, and liabilities as well as reputational harm. To the extent the regulations strictly control the activities of financial services institutions, such changes would also make it more difficult for Citigroup to distinguish itself from competitors. In addition, the emerging markets in which Citigroup operates or invests, or in which it may do so in the future, particularly as a result of its overall strategy, may be more volatile than the U.S. markets or other developed markets outside the U.S. and are subject to changing political, economic, financial and social factors. Among other factors, these include the possibility of recent or future changes in political leadership and economic and fiscal policies and the possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable to companies or investments in these countries. Citigroup’s inability to remain in compliance with local laws in a particular market could have a materially adverse effect not only on its business in that market but also on its reputation generally. Future issuances of Citigroup common stock and preferred stock may reduce any earnings available to Citi’s common stockholders and the return on the company’s equity During 2009, Citigroup raised a total of approximately $79 billion in private and public offerings of common stock in connection with its exchange offers and as required by the U.S. government pursuant to Citigroup’s repayment of TARP. This amount does not include approximately $3.5 billion of tangible equity units issued in December 2009 that will be settled for additional shares of Citigroup common stock that may be issued over a three-year period but in no event later than December 2012. In addition, in January 2010, Citigroup issued $1.7 billion of common stock equivalents to its employees in lieu of cash compensation they would have otherwise received. Subject to shareholder approval at Citi’s annual shareholder meeting scheduled to be held on April 20, 2010, such amount of common stock equivalents will be converted to common stock. Further, pursuant to its agreement with the Abu Dhabi Investment Authority (ADIA), entered into in November 2007, Citi will issue an aggregate of $7.5 billion of common stock, at a price per share of $31.83, over an approximately two-year period beginning in March 2010. While this additional capital has provided, or will provide, funding to Citigroup’s businesses and has improved, or will improve, Citigroup’s financial position and capital strength, it has increased, or will increase, Citigroup’s equity and the number of actual and diluted shares of Citigroup common stock. Such increases in the outstanding shares of common stock reduce Citigroup’s earnings per share and the return on Citigroup’s equity, unless Citigroup’s earnings increase correspondingly. In addition, any additional future issuances of common stock, including without limitation pursuant to U.S. governmental requirements or programs, could further dilute the existing common stockholders and any earnings available to the common stockholders.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Risk factors (continued) The sale by the U.S. Treasury of its stake in Citigroup will result in a substantial amount of Citigroup common stock entering the market, which could adversely affect the market price of Citigroup common stock As of December 31, 2009, the U.S. Treasury held a 27.0% ownership stake in Citigroup. In December 2009, the U.S. Treasury announced that it planned to divest its stake during 2010, subject to market conditions and following a 90-day lockup period that will expire on March 16, 2010, resulting in approximately 7.7 billion shares of Citigroup common stock being sold into the market. The divestiture of such a large number of shares of Citigroup common stock within the announced timeframe could adversely affect the market price of Citigroup common stock. Failure to maintain the value of the Citigroup brand may adversely affect its businesses Citigroup’s success depends on the continued strength and recognition of the Citigroup brand on a global basis. The Citi name is integral to its business as well as to the implementation of its strategy for expanding its businesses, including outside the U.S. Maintaining, promoting and positioning the Citigroup brand will depend largely on the success of its ability to provide consistent, high-quality financial services and products to its clients around the world. Citigroup’s brand could be adversely affected if it fails to achieve these objectives or if its public image or reputation were to be tarnished by negative views about Citigroup or the financial services industry in general, or by a negative perception of Citigroup’s short-term or long-term financial prospects. Any of these events could have a material adverse effect on Citigroup’s businesses. Although Citigroup currently believes it is “well capitalized,” its capitalization may not prove to be sufficiently consistent with its risk profile or sufficiently robust relative to future capital requirements Citigroup’s capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with Citigroup’s risk profile, all applicable regulatory standards and guidelines as well as external rating agency conditions. Citigroup is subject to the risk based capital guidelines issued by the Federal Reserve Board. Capital adequacy is measured, in part, based on two risk based capital ratios, the Tier 1 Capital and Total Capital (Tier 1 Capital plus Tier 2 Capital) ratios. In conjunction with the conclusion of the Supervisory Capital Assessment Program (SCAP), U.S. banking regulators developed a new measure of capital called Tier 1 Common. While Tier 1 Common and related ratios are measures used and relied on by U.S. banking regulators, they are non-GAAP financial measures for SEC purposes. Citigroup is also subject to a Leverage ratio requirement, a non-risk-based measure of capital adequacy. To be “well capitalized” under U.S. federal bank regulatory agency definitions, a bank holding company must have a Tier 1 Capital ratio of at least 6%, a Total Capital ratio of at least 10% and a Leverage ratio of at least 3%, and not be subject to a Federal Reserve Board directive to maintain higher capital levels. As of December 31, 2009, Citigroup was “well capitalized,” with a Tier 1 Capital ratio of 11.7%, a Total Capital ratio of 15.2% and a Leverage ratio of 6.9%, as well as a Tier 1 Common ratio of 9.6%. There can be no assurance, however, that Citigroup will be able to maintain sufficient capital consistent with its risk profile or remain “well capitalized.” Moreover, the various regulators in the U.S. and abroad have not reached consensus as to the appropriate level of capitalization for financial services institutions such as Citigroup. These regulators, including the Federal Reserve Board, may alter the current regulatory capital requirements to which Citigroup is subject and thereby necessitate equity increases that could dilute existing stockholders, lead to required asset sales or adversely impact the availability of Citi’s DTAs, as described above, among other issues.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Risk factors (continued) Although Citigroup currently believes it is “well capitalized,” its capitalization may not prove to be sufficiently consistent with its risk profile or sufficiently robust relative to future capital requirements (continued) In addition, Citigroup could adopt the provisions of the Basel II regulatory capital framework as early as April 1, 2011. This new regulatory capital framework is likely to result in a need for Citigroup to hold additional regulatory capital. If market conditions do not improve, the capital requirements of Basel II could increase prior to scheduled implementation in 2011, further increasing the amount of capital needed by Citi. The new rules could also result in changes in Citigroup’s funding mix, resulting in lower net income and/or continued shrinking of the balance sheet. Separate from the above Basel II rules for credit and operational risk, the Basel Committee on Banking Supervision has also proposed revisions to the market risk framework that could also lead to additional capital requirements. Although not yet ratified by the U.S. regulators, the Basel II rules for market risk are currently scheduled for January 1, 2011, one quarter ahead of Citigroup’s earliest date for Basel II implementation for credit and operational risk. Liquidity is essential to Citigroup’s businesses, and Citigroup relies on external sources to finance a significant portion of its operations Adequate liquidity is essential to Citigroup’s businesses. Citigroup’s liquidity could be materially, adversely affected by factors Citigroup cannot control, such as general disruption of the financial markets or negative views about the financial services industry in general. In addition, Citigroup’s ability to raise funding could be impaired if lenders develop a negative perception of Citigroup’s short-term or long-term financial prospects, or a perception that it is experiencing greater liquidity risk. Regulatory measures instituted in late 2008 and 2009, such as the FDIC’s temporary guarantee of the newly issued senior debt as well as deposits in non-interest-bearing deposit transaction accounts, and the commercial paper funding facility of the Federal Reserve Board were designed to stabilize the financial markets and the liquidity position of financial institutions such as Citigroup. While much of Citigroup’s long-term and short-term unsecured funding during 2009 was issued pursuant to these government-sponsored funding programs, Citigroup began to access funding outside of these programs, particularly during the fourth quarter of 2009, due, in part, to the fact that many of these facilities were terminating. Citi’s reliance on government-sponsored short-term funding facilities was substantially reduced as of the end of 2009. The impact that the termination of any of these facilities could have on Citigroup’s ability to access funding in the future is uncertain. It is also unclear whether Citigroup will be able to regain access to the public long-term unsecured debt markets on historically customary terms. Citigroup’s cost of obtaining long-term unsecured funding is directly related to its credit spreads in both the cash bond and derivatives markets. Increases in Citigroup’s credit qualifying spreads can significantly increase the cost of this funding. Credit spreads are influenced by market and rating agency perceptions of Citigroup’s creditworthiness and may be influenced by movements in the costs to purchasers of credit default swaps referenced to Citigroup’s long-term debt. In addition, a significant portion of Citigroup’s business activities are based on gathering deposits and borrowing money and then lending or investing those funds, including through market-making activities in tradable securities. Citigroup’s profitability is in part a function of the spread between interest rates earned on such loans and investments, as well as other interest-earning assets, and the interest rates paid on deposits and other interest-bearing liabilities. During 2009, the need to maintain adequate liquidity caused Citigroup to invest available funds in lower-yielding assets, such as those issued by the U.S. government. As a result, during 2009, the yields across both the interest-earning assets and the interest-bearing liabilities dropped significantly from 2008. The lower asset yields more than offset the lower cost of funds, resulting in lower net interest margins compared to 2008. There can be no assurance that Citigroup’s net interest margins will not continue to remain low.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Risk factors (continued) Any reduction in Citigroup’s and its subsidiaries’ credit ratings could increase the cost of its funding from, and restrict its access to, the capital markets and have a material adverse effect on its results of operations and financial condition Each of Citigroup’s and Citibank, N.A.’s long-term/senior debt is currently rated investment grade by Fitch Ratings, Moody’s Investors Service and Standard & Poor’s. The rating agencies regularly evaluate Citigroup and its subsidiaries, and their ratings of Citigroup’s and its subsidiaries’ long-term and short-term debt are based on a number of factors, including financial strength, as well as factors not entirely within the control of Citigroup and its subsidiaries, such as conditions affecting the financial services industry generally. In light of the difficulties in the financial services industry and the financial markets generally, or as a result of events affecting Citigroup more specifically, Citigroup and its subsidiaries may not be able to maintain their current respective ratings. A reduction in Citigroup’s or its subsidiaries’ credit ratings could adversely affect Citigroup’s liquidity, widen its credit spreads or otherwise increase its borrowing costs, limit its access to the capital markets or trigger obligations under certain bilateral provisions in some of Citigroup’s trading and collateralized financing contracts. In addition, under these provisions, counterparties could be permitted to terminate certain contracts with Citigroup or require it to post additional collateral. Termination of Citigroup’s trading and collateralized financing contracts could cause Citigroup to sustain losses and impair its liquidity by requiring Citigroup to find other sources of financing or to make significant cash payments or securities transfers. Certain of the credit rating agencies have stated that the credit ratings of Citi and other financial institutions have benefited from the implicit support that the U.S. government and regulators have provided to the financial industry through the financial crisis. The expectation that this support will be reduced over time, unless offset by improvement in standalone credit profiles, could have a negative impact on the credit ratings of financial institutions, including Citi. Market disruptions may increase the risk of customer or counterparty delinquency or default Market and economic disruptions, as well as the policies of the Federal Reserve Board or other government agencies or entities, can adversely affect Citigroup’s customers, obligors on securities or other instruments or other counterparties, potentially increasing the risk that they may fail to repay their securities or loans or otherwise default on their contractual obligations to Citigroup, some of which maybe significant. These customers, obligors or counterparties could include individuals or corporate or governmental entities. Moreover, Citigroup may incur significant credit risk exposure from holding securities or other obligations or entering into swap or other derivative contracts under which obligors or other counterparties have long-term obligations to make payments to Citigroup. Market conditions over the last several years, including credit deterioration, decreased liquidity and pricing transparency along with increased market volatility, have negatively impacted Citigroup’s credit risk exposure. Although Citigroup regularly reviews its credit exposures, default risk may arise from events or circumstances that are difficult to detect or foresee. Citigroup may fail to realize all of the anticipated benefits of the realignment of its businesses Effective in the second quarter of 2009, Citigroup realigned into two primary business segments, Citicorp and Citi Holdings, for management and reporting purposes. The realignment is part of Citigroup’s strategy to focus on its core businesses and reduce non-core assets in a disciplined and deliberate manner. Citigroup believes this structure will allow it to enhance the capabilities and performance of Citigroup’s core assets, through Citicorp, as well as realize value from its non-core assets, through Citi Holdings.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Risk factors (continued) Citigroup may fail to realize all of the anticipated benefits of the realignment of its businesses (continued) Citigroup intends to exit the Citi Holdings non-core businesses as quickly as practicable yet in an economically rational manner through business divestitures, portfolio run-off and asset sales. Citigroup has been making substantial progress divesting and exiting businesses included within Citi Holdings, having completed more than 20 divestitures over the last two years, including the Morgan Stanley Smith Barney joint venture, Nikko Cordial Securities and Nikko Asset Management sales. Citi Holdings’ assets have been reduced from a peak level of approximately $898 billion in the first quarter of 2008 to approximately $547 billion at year-end 2009. Despite these efforts, given the rapidly changing and uncertain financial environment, there can be no assurance that the realignment of Citigroup’s businesses will achieve the company’s desired objectives or benefits, including simplifying the organization and permitting Citigroup to allocate capital to fund its long-term strategic businesses comprising Citicorp, or that Citi will be able to continue to make progress in divesting or exiting businesses within Citi Holdings in an orderly and timely manner. Citigroup may experience further write-downs of its financial instruments and other losses related to volatile and illiquid market conditions Market volatility, illiquid market conditions and disruptions in the credit markets have made it extremely difficult to value certain of Citigroup’s assets. Subsequent valuations, in light of factors then prevailing, may result in significant changes in the values of these assets in future periods. In addition, at the time of any sales of these assets, the price Citigroup ultimately realizes will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value. Further, Citigroup’s hedging strategies with respect to these assets may not be effective. Any of these factors could require Citigroup to take further write-downs in respect of these assets, which may negatively affect Citigroup’s results of operations and financial condition in future periods. Citigroup finances and acquires principal positions in a number of real estate and real-estate-related products for its own account, for investment vehicles managed by affiliates in which it also may have a significant investment, for separate accounts managed by affiliates and for major participants in the commercial and residential real estate markets, and originates loans secured by commercial and residential properties. Citigroup also securitizes and trades in a wide range of commercial and residential real estate and real-estate-related whole loans, mortgages and other real estate and commercial assets and products, including residential and commercial mortgage-backed securities. These businesses have been, and may continue to be, adversely affected by the downturn in the real estate sector. Furthermore, in the past, Citigroup has provided financial support to certain of its investment products and vehicles in difficult market conditions, and Citigroup may decide to do so again in the future for contractual reasons or, at its discretion, for reputational or business reasons, including through equity investments or cash or capital infusions. Should unemployment rates continue to be high, and if stresses in the real estate market continue to depress housing prices, Citi could experience greater write-offs and also need to set aside larger loan loss reserves for mortgage and credit card portfolios as well as other consumer loans. Citigroup’s financial statements are based in part on assumptions and estimates, which, if wrong, could cause unexpected losses in the future Pursuant to U.S. GAAP, Citigroup is required to use certain assumptions and estimates in preparing its financial statements, including in determining credit loss reserves, reserves related to litigation and the fair value of certain assets and liabilities, among other items. If assumptions or estimates underlying Citigroup’s financial statements are incorrect, Citigroup may experience material losses.


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DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Risk factors (continued) Changes in accounting standards can be difficult to predict and can materially impact how Citigroup records and reports its financial condition and results of operations Citigroup’s accounting policies and methods are fundamental to how it records and reports its financial condition and results of operations. From time to time, the FASB changes the financial accounting and reporting standards that govern the preparation of Citigroup’s financial statements. These changes can be hard to anticipate and implement and can materially impact how Citigroup records and reports its financial condition and results of operations. For example, the FASB’s current financial instruments project could, among other things, significantly change the way loan loss provisions are determined from an incurred loss model to an expected loss model, and may also result in most financial instruments being required to be reported at fair value. Citigroup may incur significant losses as a result of ineffective risk management processes and strategies, and concentration of risk increases the potential for such losses Citigroup seeks to monitor and control its risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. While Citigroup employs a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application may not be effective and may not anticipate every economic and financial outcome in all market environments or the specifics and timing of such outcomes. Market conditions over the last several years have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk. These market movements can, and have, limited the effectiveness of Citigroup’s hedging strategies and have caused Citigroup to incur significant losses, and they may do so again in the future. In addition, concentration of risk increases the potential for significant losses in certain of Citigroup’s businesses. For example, Citigroup extends large commitments as part of its credit origination activities. Citigroup’s inability to reduce its credit risk by selling, syndicating or securitizing these positions, including during periods of market dislocation, could negatively affect its results of operations due to a decrease in the fair value of the positions, as well as the loss of revenues associated with selling such securities or loans. Further, Citigroup routinely executes a high volume of transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks and investment funds. This has resulted in significant credit concentration with respect to this industry. The financial services industry faces substantial legal liability and regulatory risks, and Citigroup may face damage to its reputation and incur significant legal and regulatory liability Citigroup faces significant legal and regulatory risks in its businesses, and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remain high. Citigroup’s experience has been that legal claims by shareholders, regulators, customers and clients increase in a market downturn. In addition, employment-related claims typically increase in periods when Citigroup has reduced the total number of employees, such as during the prior two fiscal years. There have also been a number of highly publicized cases involving fraud or other misconduct by employees in the financial services industry in recent years, and Citigroup runs the risk that employee misconduct could occur. It is not always possible to deter or prevent employee misconduct, and the extensive precautions Citigroup takes to prevent and detect this activity may not be effective in all cases.


14

DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Risk factors (continued) A failure in Citigroup’s operational systems or infrastructure, or those of third parties, could impair its liquidity, disrupt its businesses, result in the disclosure of confidential information, damage Citigroup’s reputation and cause losses Citigroup’s businesses are highly dependent on its ability to process and monitor, on a daily basis, a very large number of transactions, many of which are highly complex, across numerous and diverse markets in many currencies. These transactions, as well as the information technology services Citigroup provides to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards. Due to the breadth of Citigroup’s client base and its geographical reach, developing and maintaining Citigroup’s operational systems and infrastructure is challenging. Citigroup’s financial, account, data processing or other operating systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond its control, such as a spike in transaction volume or unforeseen catastrophic events, adversely affecting Citigroup’s ability to process these transactions or provide these services. Citigroup also faces the risk of operational failure, termination or capacity constraints of any of the clearing agents, exchanges, clearing houses or other financial intermediaries Citigroup uses to facilitate its transactions, and as Citigroup’s interconnectivity with its clients grows, it increasingly faces the risk of operational failure with respect to its clients’ systems. In addition, Citigroup’s operations rely on the secure processing, storage and transmission of confidential and other information in its computer systems and networks. Although Citigroup takes protective measures and endeavors to modify them as circumstances warrant, its computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. Given the high volume of transactions at Citigroup, certain errors may be repeated or compounded before they are discovered and rectified. If one or more of such events occurs, this could potentially jeopardize Citigroup’s, its clients’, its counterparties’ or third parties’ confidential and other information processed and stored in, and transmitted through, Citigroup’s computer systems and networks, or otherwise cause interruptions or malfunctions in Citigroup’s, its clients’, its counterparties’ or third parties’ operations, which could result in significant losses or reputational damage. The above factors are also the key risks and uncertainties identified by the Group. The impact of the above factors on the capital requirements and liquidity of the Group, are the key drivers of the Group’s potential need of parental support. Dividends Interim dividends paid in the year were £nil (2008: £47 million). The Directors do not recommend the payment of a final dividend (2008: £nil).


15

DIRECTORS’ REPORT (continued) for the year ended 31 December 2009 Directors The Directors who held office at 31 December 2009 were: W J Mills (Chairman and Chief Executive) A R Black (appointed 29 October 2009) D J Challen (appointed 17 November 2009) L B Kaden C Menendez (appointed 9 November 2009) G J Ryan C M Weir Sir Winfried F W Bischoff resigned as a Director with effect from 11 September 2009. M E Schlein resigned as a Director with effect from 21 September 2009. R G J Orf resigned as a Director with effect from 10 November 2009. H L Pijls resigned as a Director with effect from 18 November 2009. D Taylor was appointed a Director with effect from 27 January 2010. Directors’ indemnity The Directors benefit from qualifying third party indemnity provisions in place during the financial year and at the date of this report. Suppliers It is the Group’s policy to ensure that suppliers are paid within 60 days of invoice date or as may otherwise be agreed between the respective supplier and the Group. Otherwise, the Group does not follow any code or standard on payment practice. The Group, as with certain other UK subsidiary undertakings, continues to retain the services of the London branch of Citibank, N.A. for the purposes of settling its suppliers’ accounts. The number of creditor days at the year end was 60 days. Environment The Group recognises the importance of its environmental responsibilities, monitors its impact on the environment, and designs and implements policies to reduce any damage that might be caused by its activities. Initiatives designed to minimise the Group’s impact on the environment include safe disposal of waste, recycling and reducing energy consumption. Employment of disabled persons Applications for employment by disabled persons are fully and fairly considered having regard to the aptitudes and abilities of each applicant. Efforts are made to enable any employees who become disabled during employment to continue their careers within the Group. Opportunities for training, career development and promotion of disabled persons are, as far as possible, identical to those available to other employees who are not disabled. Employee consultation The Group places considerable value on the involvement of its employees and has continued its previous practice of keeping them informed by written communications and meetings on matters affecting them as employees and on the various factors affecting the Group’s business. Charitable donations and political contributions During the year the Group made charitable donations of £4,657 (2008: £78,537). No political contributions were made during the year (2008: £ nil).


18

CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2009

Note2009

£ Million2008*

£ Million

Interest and similar income 1,101 1,896 Interest expense and similar charges (458) (1,202) Net interest income 3 643 694

Net fee and commission income 5 267 300 Net income on items at fair value through profit and loss 6 (138) 221 Net investment (loss)/income 7 (1) 3 Other operating income 20 29

Total operating income 791 1,247

Personnel expenses 8 (282) (365) General and administrative expenses 9 (288) (362) Amortisation and write off of intangible assets 22 (63) (28) Depreciation of property and equipment 23 (66) (55)

Operating profit before net credit losses 92 437

Net credit losses 16 (759) (536) Gain on disposal of operations 10 40 12

(Loss) before income tax (627) (87)

Income tax credit/(expense) 11 54 (3)

(Loss) for the financial year (573) (90)

* restated to be consistent with current year presentation. The accompanying notes on pages 28 to 93 form an integral part of these financial statements.


19

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2009

Note2009

£ Million2008

£ Million

Loss for the year (573) (90)

Other comprehensive incomeAvailable for sale assets - change in fair values transferred to equity 17 (65) - transfer to income statement on sale/redemption 7 1 2

18 (63)

Foreign exchange translation differences 15 (31)

Actuarial (losses)/gains on retirement benefits 12 3 (20) 36 (114)

Net tax on items taken directly to equity 11 (6) 23

Other comprehensive income/(loss) for the year, net of tax 30 (91)

Total comprehensive loss for the year (543) (181)

The total comprehensive income for the year is attributable to shareholders of the parent company. The accompanying notes on pages 28 to 93 form an integral part of these financial statements.


21

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY As at 31 December 2009

Share Capital

Share Premium

Capital Reserve

Translation Reserve

Fair Value Reserve

Equity Reserve

Retained Earnings Total

£ Million £ Million £ Million £ Million £ Million £ Million £ Million £ MillionBalance at 1 January 2008 1,757 64 480 (5) (8) 4 521 2,813 Total comprehensive income for the periodProfit or loss - - - - - - (90) (90) Other comprehensive income Foreign currency translation differences, net of tax - - - (31) - - - (31) Net change in fair value of available-for-sale financial assets, net of tax - - - - (45) - - (45) Defined benefit plan actuarial gains and losses, net of tax - - - - - - (15) (15) Total other comprehensive income - - - (31) (45) - (15) (91) Total comprehensive income for the period - - - (31) (45) - (105) (181) Contributions by and distributions to ownersDividends paid - - - - - - (47) (47) Capital contribution - - 150 - - - - 150 Share-based payment transactions - - - - - 11 - 11 Total transactions with owners - - 150 - - 11 (47) 114 Balance at 31 December 2008/1 January 2009 1,757 64 630 (36) (53) 15 369 2,746

Total comprehensive income for the periodProfit or loss - - - - - - (573) (573) Other comprehensive income Foreign currency translation differences - - - 15 - - - 15 Net change in fair value of available-for-sale financial assets, net of tax - - - - 13 - - 13 Defined benefit plan actuarial gains and losses, net of tax - - - - - - 2 2 Total other comprehensive income - - - 15 13 - 2 30 Total comprehensive income for the period - - - 15 13 - (571) (543) Contributions by and distributions to ownersShare-based payment transactions - - - - - (6) - (6) Balance at 31 December 2009 1,757 64 630 (21) (40) 9 (202) 2,197

The accompanying notes on pages 28 to 93 form an integral part of these financial statements.


22

CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2009

Note

2009£ Million

2008*£ Million

Cash flow from/(used in) operating activities(Loss)/profit before tax (627) (87) Adjustments to reconcile net (loss)/profit to cash flow from/ (used in) operating activitiesNon-cash items included in net profit and other adjustments:Depreciation of property and equipment 23 66 55 Amortisation and write off of intangible assets 22 63 28 Credit losses 16 817 575 Net changes from investing activities (46) (1,028) Net changes from financing activities 388 - Reversal of write-offs 16 (58) (39) Net (increase)/decrease in operating assets:Due from/to banks (8,804) 17,985 Due from/to customers 4,483 (2,770) Change in trading assets and derivative assets 534 (465) Change in accrued income, prepaid expenses and other assets 1,164 853 Net increase/(decrease) in operating liabilities:Change in derivative liabilities (1,244) 1,160 Change in accrued expenses and other liabilities (1,353) (411) Income taxes/(paid) 27 (111)

Net cash flow from/(used in) operating activities (4,590) 15,745

Cash flow from/(used in) investing activitiesDisposal of business units or subsidiary undertakings 277 39 Purchase of property and equipment 23 (73) (64) Purchase/disposal of financial investments 163 (86)

Net cash flow from/(used in) investing activities 367 (111)

Cash flow from/(used in) financing activitiesDividends paid - (47) Issuance of debt securities - 566 Redemption of debt securities (625) (1,139) Capital contribution (paid)/received 30 - 150 Proceeds from subordinated loan 29 - 120

Net cash flow from/(used in) financing activities (625) (350)

Effects of exchange rate differences 136 118

Net increase/(decrease) in cash and cash equivalents (4,712) 15,402

Cash and cash equivalents, beginning of the year 32 24,469 9,067

Cash and cash equivalents, end of the year 32 19,757 24,469



23

COMPANY INCOME STATEMENT For the year ended 31 December 2009

Note2009

£ Million2008*

£ Million

Interest and similar income 985 1,745 Interest expense and similar charges (425) (1,145) Net interest income 3 560 600

Dividend income 4 16 - Net fee and commission income 5 244 269 Net income on items at fair value through profit and loss 6 (138) 220 Net investment income/(loss) 7 (1) 3 Other operating income 32 40

Total operating income 713 1,132

Personnel expenses 8 (244) (344) General and administrative expenses 9 (237) (319) Amortisation and write off of intangible assets 22 (63) (29) Depreciation of property and equipment 23 (62) (53)

Operating profit before net credit losses 107 387

Net credit losses 16 (638) (441) Gain on disposal of operations 10 40 8 Impairment of subsidiary undertaking 21 (219) (89)

Loss before income tax (710) (135)

Income tax credit/(expense) 11 150 (7)

Loss for the financial year (560) (142)



24

COMPANY STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2009

Note2009

£ Million2008

£ Million

Loss for the year (560) (142)

Other comprehensive incomeAvailable for sale assets - change in fair values transferred to equity 17 (65) - transfer to income statement on sale/redemption 7 1 2

18 (63)

Foreign exchange translation differences 4 (24) Actuarial (losses)/ gains on retirement benefits 12 4 (20)

26 (107)

Net tax on items taken directly to equity 11 (6) 23

Other comprehensive income/(loss) for the year, net of tax 20 (84)

Total comprehensive loss for the year (540) (226)

The total comprehensive income for the year is attributable to shareholders of the parent company. The accompanying notes on pages 28 to 93 form an integral part of these financial statements.


26

COMPANY STATEMENT OF CHANGES IN EQUITY As at 31 December 2009

Share Capital

Share Premium

Capital Reserve

Translation Reserve

Fair Value Reserve

Equity Reserve

Retained Earnings Total

£ Million £ Million £ Million £ Million £ Million £ Million £ Million £ MillionBalance at 1 January 2008 1,757 64 480 - (8) 4 515 2,812 Total comprehensive income for the periodProfit or loss - - - - - - (142) (142) Other comprehensive income Foreign currency translation differences, net of tax - - - (24) - - - (24) Net change in fair value of available-for-sale financial assets, net of tax - - - - (45) - - (45) Defined benefit plan actuarial gains and losses, net of tax - - - - - (15) (15) Total other comprehensive income - - - (24) (45) - (15) (84) Total comprehensive income for the period - - - (24) (45) - (157) (226) Transaction with owners, recorded directly in equityContribution by and distribution to ownersCapital contribution - - 166 - - - - 166 Dividends to equity holders - - - - - - (47) (47) Share-based payment transactions - - - - - 11 - 11 Total contributions by and distributions to owners - - 166 - - 11 (47) 130 Balance as 31 December 2008/1 January 2009 1,757 64 646 (24) (53) 15 311 2,716

Total comprehensive income for the periodProfit or loss - - - - - - (560) (560) Other comprehensive income Foreign currency translation differences - - - 4 - - - 4 Net change in fair value of available-for-sale financial assets, net of tax - - - - 13 - - 13 Defined benefit plan actuarial gains and losses, net of tax - - - - - - 3 3 Total other comprehensive income - - - 4 13 - 3 20 Total comprehensive income for the period - - - 4 13 - (557) (540) Transaction with owners, recorded directly in equityContribution by and distribution to ownersShare-based payment transactions - - - - - (6) - (6) Total contributions by and distributions to owners - - - - - (6) - (6) Balance as 31 December 2009 1,757 64 646 (20) (40) 9 (246) 2,170

\ The accompanying notes on pages 28 to 93 form an integral part of these financial statements.


27

COMPANY CASH FLOW STATEMENT For the year ended 31 December 2009

Note2009

£ Million2008*

£ Million

Cash flow from/(used in) operating activities(Loss)/profit before tax (710) (135) Adjustments to reconcile net (loss)/profit to cash flow from/(used in) operating activitiesNon-cash items included in net profit and other adjustments:Depreciation of property and equipment 23 62 53 Amortisation and write off of intangible assets 22 63 29 Credit losses 16 696 484 Net changes from investing activities 171 (859) Net changes from financing activities 501 - Reversal of write-offs 16 (58) (43) Net (increase)/decrease in operating assets:Due from/to banks (7,446) 17,959 Change in customer accounts 4,068 (2,712) Change in trading assets and derivative assets 454 (465) Change in accrued income, prepaid expenses and other assets 1,036 885 Net increase/(decrease) in operating liabilities:Change in derivative liabilities (1,244) 1,160 Change in accrued expenses and other liabilities (1,298) (363) Income taxes (paid) 31 (94)

Net cash flow from/(used in) operating activities (3,674) 15,899

Cash flow from/(used in) investing activitiesDisposal of business units or subsidiary undertakings 10 277 39 Purchase of property and equipment 23 (73) (64) Purchase/disposal of financial investments 158 (92)

Net cash flow from/(used in) investing activities 362 (117)

Cash flow from/(used in) financing activitiesDividends received 4 16 - Dividends paid - (47) Issuance of debt securities - 564 Redemption of debt securities (610) (1,095) Capital contribution (paid)/received 21/ 30 (241) 150 Proceeds from subordinated loan 29 - 120

Net cash flow from/(used in) financing activities (835) (308) Effects of exchange rate differences 136 118

Net increase/(decrease) in cash and cash equivalents (4,011) 15,592

Cash and cash equivalents, beginning of the year 32 25,661 10,069

Cash and cash equivalents, end of the year 32 21,650 25,661


CITIBANK INTERNATIONAL PLC NOTES TO THE FINANCIAL STATEMENTS

28

1. Principal accounting policies a) Basis of preparation

The Company and Group financial statements have both been prepared and approved by the Directors in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the E.U. These financial statements have been prepared under the historical cost convention as modified to include the fair value of certain financial instruments and obligations to the ultimate parent company arising from sharebased payments to the extent required or permitted under the accounting standards and as set out in the relevant accounting policies. The financial statements are prepared on a going concern basis taking into account the continuing support from the Group’s parent. The risks and uncertainties identified by the parent group, together with those factors which lead to the Group’s reliance on parental support, are discussed further in the Directors’ report on pages 2 - 16. Taking these factors into account the directors acknowledge and accept the intent and ability of Citigroup to provide support to the Group if required and consequently present these financial statements on a going concern basis. In preparing these accounts the Group has adopted the following amendments to standards for the first time: • IFRS 8 ‘Operating Segments’ is effective for periods beginning after 1 January 2009. This has

resulted in the Group presenting segmental information reflecting the current operating segments used to make operating decisions;

• Revised IAS 1 ‘Presentation of Financial Statements’ is effective for periods beginning after 1 January 2009. This has resulted in a Statement of Changes in Equity being included with the primary statements and a change to the name and presentation of the Statement of Comprehensive Income;

• Revised IFRS 7 ‘Financial Instruments’ is effective for periods beginning on or after 1 January 2009, and requires enhanced disclosures about the fair value hierarchy, and amended disclosures of liquidity risks; and

• Revised IAS 27 ‘Consolidated and Separate Financial Statements’ effective for periods beginning after 1 January 2009. This has resulted in the Company recognising dividend income from subsidiaries paid from pre-acquisition profits rather than reducing its investment in the subsidiary.

The Group has elected not to early adopt Revised IFRS 3 ‘Business Combinations, which is effective from 1 January 2010 and will be applied prospectively and therefore, have no impact on prior periods financial results.

b) Consolidation Subsidiary undertakings (including some special purpose entities) that are directly or indirectly controlled by the Group are consolidated. Subsidiary undertakings are fully consolidated from the date on which control is obtained by the Group. They are de-consolidated from the date that control ceases. The Group uses the purchase method of accounting to account for the acquisition of a subsidiary undertaking. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. The Group’s accounting policies have been consistently applied for the purposes of preparing the consolidated accounts.

The Group’s results are consolidated in the financial statements of its ultimate parent company, Citigroup Inc., which are made available to the public annually.


29

1. Principal accounting policies (continued) c) Segmental reporting

An operating segment is a component of the Group, which earns revenues and incurs expenses, whose results are regularly reviewed by management and for which discrete financial information is available. The Group is organised into two operating segments; Institutional Clients Group and Local Consumer Lending. This organisational structure is the basis upon which the Group reports its primary segment information. There are two geographic segments which management review the operations of the Group - the United Kingdom and Western Europe. Segment income, segment expenses and segment performance include transfers between business segments, which are conducted at arm’s length.

d) Foreign currencies

The Group and Company financial statements are presented in Pounds Sterling (“£”), which is the presentational currency of the Group and Company. Transactions in foreign currencies are measured in each of the Group’s branches or entities using their functional currency, being the functional currency of the primary economic environment in which they operate. The principal functional currencies are Pounds Sterling and Euro. At the balance sheet date monetary assets and liabilities are translated at the year end rates of exchange and translation differences are included in the income statement. Non-monetary assets and liabilities measured at historical cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities that are classified as “held for trading “ or “designated at fair value” are translated at the year end spot rate. Any exchange profits and losses on non-monetary items are taken directly to the statement of comprehensive income. Translation differences on debt securities classified as available-for-sale are included in the income statement. On consolidation, the assets and liabilities of the Group’s foreign entities are translated at year end rates of exchange to the presentational currency. Income and expense items are translated at the average exchange rates to presentational currency. Exchange differences arising on the retranslation of opening net investments in foreign entities at year end exchange rates and arising from the translation of the results of these overseas subsidiaries and branches at the average exchange rate are taken directly to equity.

e) Net interest income

Interest income and expense on financial assets and liabilities are recognised in the income statement using the effective interest rate method. Fees and direct costs relating to loan origination, re-financing or restructuring and to loan commitments are deferred and amortised to interest earned on loans and advances using the effective interest method. Interest income and expense presented in the income statement include: • interest on financial assets and liabilities at amortised cost on an effective interest basis, and • interest on available-for-sale investment securities on an effective interest basis.


30

1. Principal accounting policies (continued)

f) Fees and commissions

Fees and commissions income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. Fees and commissions income not integral to effective interest arising from negotiating, or participating in the negotiation of a transaction from a third party, such as securities or cash clearing or the purchase or sale of businesses, are recognised on an accruals basis as the service is provided. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts. Non performance based asset management fees are recognised over the period in which the services are rendered. Performance based asset management fees, income from wealth management and custody services are recognised when the amount of revenue can be measured reliably and it is probable that such fees will flow to the Group. Other fees and commission expenses are expensed as the services are received.

g) Dividend income Dividend income is recognised when the right to receive payment is established which is the ex-dividend date for equity securities.

h) Net income on items at fair value through profit and loss

Net income on items at fair value through profit and loss comprises all gains less losses related to trading assets and liabilities and financial instruments designated at fair value, and include all realised and unrealised fair value changes, together with related interest, dividends and foreign exchange differences.

i) Derivative contracts

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in fair value are recognised in net income on items at fair value through profit and loss. Derivatives may be embedded in another contractual arrangement (a “host contract”). The Group accounts for embedded derivatives separately from the host contract when the host contract is not itself carried at fair value through profit or loss, and the characteristics of the embedded derivative are not clearly and closely related to the host contract.

j) Other financial assets and liabilities

Trading assets The Group’s trading assets are acquired principally for the purpose of selling in the near term, or form part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking. Trading assets are initially and subsequently measured at fair value. Gains and losses realised on disposal or redemption and unrealised gains and losses from changes in fair value are reported in net income on items at fair value through profit and loss. The Group uses trade date accounting when recording trading assets.


31


j) Other financial assets and liabilities (continued)

Investment securities Investment securities are recognised on a trade date basis and are classified as either Held-to-maturity, Available-for-sale or Designated at Fair Value. Held-to-maturity investment securities are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. Held-to-maturity investment securities are initially recognised at fair value, including directly attributable costs, and subsequently measured at amortised cost using the effective interest method less any impairment losses. Available-for-sale investment securities are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Available-for-sale investment securities are initially recognised at fair value including directly attributable costs and subsequently measured at fair value with the changes in the fair value reported in the statement of comprehensive income. The translation of gains and losses on foreign currency debt securities is taken directly through the income statement. When available-for-sale debt securities are sold the cumulative gain or loss previously recognised in the statement of comprehensive income is transferred to the income statement and disclosed within investment income. When available for sale debt securities are impaired the impairment is recognised in the income statement.

Loans and receivables Loans and receivables consist of non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, not classified as available-for-sale and the Group does not intend to sell them immediately or in the near term. They are initially recognised at fair value, which is the cash given to originate the loan, including any directly attributable transaction costs less fees received and subsequently measured at amortised cost using the effective interest rate method, less any impairment charges. Loans are recognised when cash is advanced to borrowers and are derecognised when the rights to receive cash flows have expired or the Group has transferred substantially all the risks and rewards of ownership. Financial instruments designated at fair value The Group may designate financial instruments at fair value through profit and loss when: i) this will eliminate or significantly reduce valuation or recognition inconsistencies that would otherwise

arise from measuring financial assets or financial liabilities, or recognising gains and losses on them, on different bases;

ii) groups of financial assets, financial liabilities or combinations thereof are managed, and their performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and where information about groups of financial instruments is reported to management on that basis; or

iii) financial instruments containing one or more embedded derivatives that significantly modify the cash flows resulting from those financial instruments.

The fair value designation, once made, is irrevocable. Designated financial instruments are initially recognised at fair value on trade date and subsequently remeasured at fair value. Gains and losses realised on disposal or redemption and unrealised gains and losses from changes in fair value are reported in net income on items at fair value through profit and loss. The Group has designated as at fair value through profit and loss certain investment securities, debt securities and customer loans and advances on the basis that these securities are managed and their performance evaluated on a fair value basis.


32


j) Other financial assets and liabilities (continued)

Financial liabilities Deposits, customer accounts, debt securities in issue, subordinated loans and derivative financial liabilities are initially measured at fair value net of transactions costs at trade date. Subsequently, they are measured at amortised cost using the effective interest rate method, except for derivative financial liabilities and any liabilities designated on initial recognition as at fair value through profit and loss.

The Group has designated as at fair value through profit and loss a number of issued debt securities that contain embedded equity, interest rate and credit derivatives that would otherwise be required to be split and separately accounted for at fair value. The fair value of issued debt securities also takes into account an allowance for the Group’s own credit risks. Counterparty receivables and payables Other assets and other liabilities include amounts due to and from customers and clearing institutions in relation to the purchase and sale of securities.

Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

k) Impairment of financial assets

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a portfolio of financial assets is impaired. A financial asset or portfolio of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset and prior to the balance sheet date (“a loss event”) and that loss event or events has had an impact on the estimated future cash flows of the financial asset or the portfolio that can be reliably estimated. Objective evidence that a financial asset or a portfolio is impaired includes observable data that comes to the attention of the Group about the following loss events: • significant financial difficulty of the issuer or obligor; • a breach of contract, such as a default or delinquency in interest or principal payments; • it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; • the disappearance of an active market for that financial asset because of financial difficulties; or • observable data indicating that there is a measurable decrease in the estimated future cash flows from

a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: i. adverse changes in the payment status of borrowers in the portfolio; and

ii. national or local economic conditions that correlate with defaults on the assets in the portfolio.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

For loans and advances and for assets held to maturity the amount of impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows considering collateral, discounted at the asset's original effective interest rate. The amount of the loss is recognised using an allowance account and the amount of the loss is included in the income statement.


33


k) Impairment of financial assets (continued) Following impairment, interest income is recognised using the original effective interest rate which is used to discount the future cash flows for the purpose of measuring the impairment loss. Financial assets not individually impaired are grouped together to assess impairment collectively and is shown Allowance for loans and advances. The collective assessment includes an assessment of losses:

• that have been incurred but not yet identified taking into account historical loss experience and the estimated period between impairment occurring and loss being identified;

• based on statistical analysis of historical data and the Group’s experience of delinquency and default; and

• from the impact of other risk factors including unemployment rates, bankruptcy trends, economic conditions and the current level of write offs.

For the purposes of the collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics by using a grading process that considers obligor type, industry, geographical location, collateral type, past-due status and other relevant factors. These characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the likelihood of receiving all amounts due under a facility according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group.

When a loan is un-collectable, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement. In the case of equity instruments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also considered in determining whether impairment exists. In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as for assets held at amortised cost. Reversals of impairment of debt securities are recognised in the income statement. Reversals of impairment of equity shares are not recognised in the income statement. Increases in the fair value of equity shares after impairment are recognised directly in the statement of comprehensive income.

l) Derecognition of financial assets and liabilities Financial assets are derecognised when the right to receive cash flows from assets has expired or the Group has transferred its contractual right to receive the cashflows of the financial assets and either substantially all the risks and rewards of ownership have been transferred or substantially all the risks and rewards have neither been retained nor transferred but control is not retained. Financial liabilities are derecognised when they are extinguished, that is, when the obligation is discharged, cancelled or expires.


34

1. Principal accounting policies (continued) m) Goodwill and intangible assets

Goodwill Acquired goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary undertaking at the date of acquisition. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is stated at cost less any accumulated impairment losses. Goodwill existing prior to 1 January 2005 has ceased to be amortised from 1 January 2005, but continues to be reviewed annually for impairment. Other intangible assets Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the income statement using the methods that best reflect the economic benefits over their estimated useful economic lives. The estimated useful lives are as follows:

Acquired computer software licenses 3 - 5 years Computer software development 1 - 3 years

Computer software development: Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group and that will probably generate economic benefits exceeding costs beyond one year are recognised as intangible assets. The cost of developed software includes directly attributable internal and external costs.

Client intangibles: Client intangibles are identifiable assets and are recognised at their present value based on cash flow forecasts on acquired contractual rights over customer relationships.

n) Property and equipment

Items of property and equipment are stated at cost, less accumulated depreciation and impairment losses (see below). Depreciation is provided to write off the cost, less the estimated residual value of each asset, on a straight-line basis over their estimated useful lives. Land is not depreciated. Estimated useful lives are as follows:

Freehold buildings 50 years Leasehold property Lease term Leasehold improvements shorter of lease term and 10 years Vehicles, furniture and equipment between 1 and 10 years Leased assets between 1 and 20 years

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period during which they are incurred.


35


o) Impairment of goodwill, intangible assets and property and equipment

At each reporting date, the Group assesses whether there is any indication that its intangible assets or property and equipment are impaired. Goodwill is tested for impairment annually or more frequently if events or changes in circumstance indicate that it might be impaired. Goodwill is allocated to cash generating units for the purpose of impairment testing. Impairment losses in respect of goodwill are not reversed.

p) Finance and operating leases

Where the Group leases out equipment and there is a transfer of substantially all of the risks and rewards of ownership to the lessee, the lease is accounted for as a finance lease. Operating leases are leases other than finance leases. Finance and operating leases – as lessee Assets held under finance leases and hire purchase contracts are capitalised and depreciated as described in Note 1(n) above. Finance charges are allocated to accounting periods so as to produce a constant periodic rate of interest on the remaining balance of the obligation for each accounting period. Rentals payable under operating leases are charged to the income statement on a straight line basis over the lease term and are included within “General and administrative expenses”.

Finance and operating leases – as lessor The net investment in finance leases is included in “Loans and advances to customers”. The gross earnings over the period of the lease are allocated to give a constant periodic rate of return on the net investment. Direct costs of initiating leases are added to the initial recognition amount of the asset. Rentals receivable are included within “Interest and similar income”. Assets held for the purpose of leasing to third parties under operating leases are included in “Property and equipment” and depreciated on a straight-line basis over their estimated useful lives. Rentals receivable are accounted for on a straight-line basis over the period of the lease and are included within “Other operating income”. Residual values Residual value exposure occurs due to the uncertain nature of the value of an asset at the end of an agreement. Throughout the life of an asset its residual value will fluctuate because of the uncertainty of the future market and technological changes or product enhancements as well as general economic conditions. Residual values are set at the commencement of the lease based upon management’s expectations of future values. During the course of the lease residual values are reviewed on an annual basis so as to identify any potential impairment. Any reduction in the residual value that leads to an impairment of an asset is identified within such reviews and recognised immediately.

q) Shares in subsidiary undertakings

Shares in subsidiary undertakings, comprising unlisted securities, are shown at cost less allowance for impairment.

Amounts receivable from the liquidation of subsidiary undertakings are included within “Other assets”.


36

1. Principal accounting policies (continued) r) Income taxes

Income tax payable on profits is recognised as an expense based on the applicable tax laws in each jurisdiction in the period in which profits arise. Deferred tax assets and liabilities are recognised for taxable and deductible temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets are recognised to the extent that it is probable that there will be suitable profits available against which these differences can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the asset will be realised or the liability will be settled based on tax rates that are enacted or substantively enacted at the balance sheet date. Current and deferred taxes are recognised as income tax benefit or expense in the income statement, except for deferred taxes on the following items which are recorded as a separate component of other comprehensive income: • unrealised gains or losses on available-for-sale investments; • changes in actuarial gains and losses on retirement benefit plans; and • changes in share based incentives.

s) Retirement benefit obligations

The Group participates in and operates state and non-state run defined contribution pension schemes for its employees, both in the U.K. and locally overseas. The charge against profit is the contributions payable in respect of the service provided during the year. The Group also participates in and continues to operate defined benefit pension schemes for employees in Spain, Norway, Italy, Netherlands, Belgium and Greece. Staff do not make contributions for basic pensions. For its overseas defined benefit schemes, the liability recognised in the balance sheet is the actuarially calculated present value of the defined benefit obligation at the balance sheet date, less the fair value of the scheme assets, together with adjustments for past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses are recognised immediately in the statement of recognised income and expense. Current and prior service costs, interest costs and expected returns on assets are recognised in the income statement. A surplus is recognised on the balance sheet where an economic benefit is available as a reduction in future contributions or as a refund of monies to the company.


37

1. Principal accounting policies (continued) t) Share-based incentive plans

The Group participates in a number of Citigroup Inc. (“Citigroup”) share-based incentive plans under which Citigroup grants shares to the Company’s employees. Pursuant to a separate Stock Plans Affiliate Participation Agreement (“SPAPA”) the Company makes a cash settlement to Citigroup for the fair value of the share-based incentive awards delivered to the Company’s employees under these plans. On 1 January 2008 the Group adopted IFRIC 11 - “IFRS 2 Group and Treasury Share Transactions” which resulted in the Group moving to equity-settled accounting for its share based incentive plans, with separate accounting for its associated obligations to make payments to Citigroup Inc. Previously the Group applied cash-settled accounting to the combination of the share based incentive plans and the associated obligation to Citigroup Inc. The Group now recognises the fair value of the awards at grant date as a compensation expense over the vesting period with a corresponding credit in equity as a capital contribution from Citigroup Inc. All amounts paid to Citigroup Inc and the associated obligation under the SPAPA are recognised in equity over the vesting period. Subsequent changes in the fair value of all unexercised awards and the SPAPA are reviewed annually and any changes in value are recognised in equity, again over the vesting period. Previously such amounts were recognised in the income statement over the vesting period. As part of 2009 remuneration, the Group has entered into an arrangement referred to as a “Common Stock Equivalent” award. It is yet to be determined whether the award will be settled in cash or by issuing equity. Consequently, the obligation has been accounted for as a cash-settled share-based transaction.

u) Provisions

Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a current legal or constructive obligation as a result of past events, and a reliable estimate can be made of the amount of the obligation. This includes where the Group has undrawn loan commitments and a provision is made for expected losses.

v) Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with original maturity of less than three months, including: cash and non-restricted balances with central banks, treasury bills and other eligible bills, loans and advances to banks, amounts due from other banks and short-term trading assets.

2. Use of assumptions estimates and judgements The results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its consolidated financial statements. The accounting policies used in the preparation of the consolidated financial statements are described in detail above. The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are:


38

2. Use of assumptions estimates and judgements (continued) Impairment of loans The Group’s accounting policy for losses in relation to the impairment of customer loans and advances is described in Note 1(k). In determining whether an impairment loss should be recorded in the income statement, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. Management uses estimates based on historical loss experience and experience of losses that have been incurred but not yet identified for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when estimating its future cash flows. Note 16 details the movement in the impairment provision for the year. Valuation of financial instruments The Group’s accounting policy for valuation of financial instruments is included in Note 1(i) and Note 1(j). The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. To the extent practical, models use only observable data, where this is not possible management may be required to make estimates. Note 14 further discusses the valuation of financial instruments. Retirement benefit obligation The Group participates in locally operated defined benefit schemes for its European branches. Defined benefit schemes are measured on an actuarial basis, with the key assumptions being inflation, discount rate, mortality, and investment returns. Return on assets is an average of expected returns weighted by asset class. Returns on investments in equity are based upon government bond yields with a premium to reflect an additional return expected on equity investments. Inflation rates are selected by reference to the European Central Bank target for inflation and the difference between conventional and index linked government bonds. Mortality assumptions are based upon the relevant standard industry and national mortality tables. Discount rates are based on specific corporate bond indices which reflect the underlying yield curve of each scheme. Management judgement is required in estimating the rate of future salary growth. All assumptions are unbiased, mutually compatible and based upon market expectations at the reporting date. Deferred tax asset The Group’s accounting policy for the recognition of deferred tax assets is described in Note 1(r). A deferred tax asset is recognised to the extent that it is probable that suitable future taxable profits will be available against which deductible temporary differences can be utilised. The recognition of a deferred tax asset relies on management’s judgements surrounding the probability and sufficiency of suitable future taxable profits, future reversals of existing taxable temporary differences and planning strategies. The amount of the deferred tax asset recognised is based on the evidence available about conditions at the balance sheet date, and requires significant judgements to be made by management, especially those based on management’s projections of business growth, credit losses and the timing of a general economic recovery. Management’s judgement takes into account the impact of both negative and positive evidence, including historical financial results and projections of future taxable income, on which the recognition of the deferred tax asset is mainly dependent. Note 25 further discusses deferred tax. Management’s forecasts support the assumption that it is probable that the future results of the Group will generate sufficient suitable taxable income to utilise the deferred tax assets. Share-based incentive plans The Group participates in a number of Citigroup share-based incentive plans. Awards granted through Citigroup's Stock Option Program are measured by applying an option pricing model, taking into account the terms and conditions of the program. Analysis of past exercise behaviour, Citigroup's dividend history and historical volatility are inputs to the valuation model.


39

2. Use of assumptions estimates and judgements (continued) Credit value adjustment The Group has designated various debt instruments with embedded credit, equity and other derivatives as at fair value through profit or loss. Under IAS 39, the Group is required to use its own-credit spreads in determining the current value for these liabilities. When the Group’s credit spreads widen (deteriorate), the Group recognises a gain on these liabilities because the value of the liabilities has decreased. When Citigroup’s credit spreads narrow (improve), the Group recognises a loss on these liabilities because the value of the liabilities has increased. During 2009, the Group recorded losses of approximately £278 million on these debt instruments due to the narrowing of the Group’s credit spreads. There was a further loss of £34 million due to foreign exchange movements. The total adjustment recorded in the Group balance sheet at year end was an increase in the fair value of the debt instruments of £312 million (2008: £371 million decrease). From September 2008, the Group’s credit default swap (CDS) spreads and credit spreads observed in the bond market (cash spreads) diverged from each other and from their historical relationship. Due to the persistence and significance of this divergence during the fourth quarter of 2008, management determined that such a pattern may not be temporary and that using cash spreads would be more relevant to the valuation of debt instruments. Therefore, the Group changed its method of estimating the fair value of debt instruments designated as at fair value through profit or loss to incorporate Citigroup’s cash spreads. In 2008, £194 million of the total gain of £371 million recorded in the Group balance sheet as a reduction in the fair value of debt instruments was due to the change in the methodology for estimating the credit value adjustment. 3. Net interest income

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Interest and similar incomeCash and balances at central banks 3 56 3 55 Loans and advances to banks 226 669 262 711 Loans and advances to customers 851 1,031 699 839 Investment securities 20 104 20 105 Other interest income 1 36 1 35

1,101 1,896 985 1,745 Interest expense and similar chargesDeposits by banks 312 893 310 888 Customer accounts 96 233 96 233 Debt securities in issue 31 52 - - Subordinated loan 16 14 16 14 Other interest paid 3 10 3 10

458 1,202 425 1,145

Net interest income 643 694 560 600

Group Company

Interest income on items not at fair value through profit and loss is £1,052 million for the Group and £936 million for the Company.


40

4. Dividend income

2009£ Million

2008£ Million

Dividends received from:Citicapital Leasing (March) Limited 10 - NT Europe SpA 6 -

16 -

Company

5. Net fee and commission income

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Fee and commission income 300 551 281 527 Fee and commission expense (33) (251) (37) (258)

267 300 244 269

Company Group

Included within fee and commission income is £10 million (2008: £12 million) of fee income arising from trust and fiduciary activities. Expenses of £1 million (2008: £4 million) relating to these activities are included within fee and commission expense.

Group net fee and commission income of £237 million (2008: £251 million) relate to financial assets and liabilities not carried at fair value. Company net fee and commission income of £205 million (2008: £218 million) relate to financial assets and liabilities not carried at fair value. 6. Net income on items at fair value through profit and loss

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Net income on financial instruments designated at fair value (296) 975 (296) 975 Net trading (loss)/income 158 (754) 158 (755)

(138) 221 (138) 220

Group Company


41

7. Net investment income/(loss)

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Available-for-sale: - Debt securities 1 2 1 2 Held to maturity - Equity securities (2) 1 (2) 1

(1) 3 (1) 3

Group Company

8. Personnel expenses

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Employee remuneration 225 227 187 214 Payroll taxes 47 49 42 43 Share based incentive expense (Note 13) 3 17 3 17 Pension costs - defined contribution plans 9 5 6 4 - defined benefit plans (Note 12) 8 4 7 3 Restructuring costs (10) 63 (1) 63

282 365 244 344

Group Company

The average number of persons employed by the Group during the year was 4,454 (2008: 4,912). 9. General and administrative expenses

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Administrative expenses 239 353 188 310 Provisions for liabilities (Note 28) 44 6 44 6 Software costs 5 3 5 3

288 362 237 319

Group Company

Included within administrative expenses is auditors’ remuneration as follows:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Fees payable for the audit of the annual statutory accounts 0.5 0.5 0.4 0.4

Pursuant to legislative requirements (Sarbanes Oxley)

0.2 0.2 0.2 0.2

Other services 0.1 0.1 0.1 0.1

0.8 0.8 0.7 0.7

Group Company


42

10. Gain on disposal of operations (i) Portugal retail business On 30 November 2009 the Company sold its Portugal cards business to a third party for consideration of €628 million (£575 million) resulting in a gain of €40 million (£36 million). (ii) Norway retail business On 15 December 2009 the Company sold its Norway consumer loans portfolio to a third party for consideration of NOK 2,674 million (£286 million) resulting in a gain on sale of NOK 37 million (£4 million). (iii) Italy branch retail business On 9 May 2008 the Group sold its Italian retail business for consideration of €40 million (£31 million) resulting in a gain of €26 million (£20 million). (iv) Diners Club Italia Srl On 9 May 2008 the Company sold Diners Club Italia Srl (“Diners Italy”) for a cash consideration of €9 million (£7 million) resulting in a loss on disposal of €16 million (£13 million). The Company’s investment in Diners Italy was €22 million (£17 million). The net asset value of Diners Italy at the date of sale was €18 million (£14 million) which resulted in a loss on disposal for the Group of €12 million (£9 million).

Group & Company Group Company

2009£ Million

2008£ Million

2008£ Million

Proceeds 860 44 44 Less:Cost of operations (812) (14) (18) Expenses directly related to disposal (8) (18) (18)

Gain on sale 40 12 8


43

11. Income tax expense a) Analysis of tax charge in the year

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Current tax:

UK corporation tax on profits of the period 2 1 - - Adjustments in respect of corporation tax for earlier years (50) - (51) (3)

Total UK corporation tax (credit)/charge (48) 1 (51) (3)

Overseas current taxation 13 42 12 21 Adjustment in respect of overseas tax for earlier years 2 (4) 2 1

Total current tax (credit)/charge (33) 39 (37) 19

Deferred tax:

Origination and reversal of temporary differences- UK (87) 8 (88) 10 - Overseas (59) (55) (48) (29) Write off foreign subsidiary deferred tax asset 97 - - - Adjustment in respect of previous periods 28 1 23 (3) Adjustment due to change in tax rate - 10 - 10

Total deferred tax (Note 25) (21) (36) (113) (12)

Tax (credit)/charge (54) 3 (150) 7

Group Company


44

11. Income tax expense (continued) (b) Factors affecting tax charge for the period The tax assessed for the Group and Company for the period differs from the standard rate of corporation tax in the U.K. of 28% (2008: 28%). The differences are explained below:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

(Loss)/profit before tax (627) (87) (710) (135)

(Loss)/profit multiplied by the standard rate of corporation tax in the UK of 28% (2008: 28%) (176) (24) (199) (38)

Effects of:

Dividend income - - (3) - Gain on disposal of operations - (3) - (2) Amounts written off investments - - 61 25 Foreign tax deductions (3) (7) (3) (7) Other expenses not deductible for tax purposes 14 9 (14) 3 Write off of foreign subsidiary deferred tax asset 97 - - - Group relief surrendered for no consideration 24 - 22 - Overseas tax in respect of foreign branches 12 21 12 21 Adjustment due to change in tax rate - 10 - 10 Adjustment to tax charge in relation to previous periods (22) (3) (26) (5)

Income tax expense (54) 3 (150) 7

Group Company

The aggregate tax credit for the Group and Company relating to items that are charged to equity at 31 December 2009 was £22 million (2008: £26 million).

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Change in fair value on Available-for-sale assets (5) 18 (5) 18 Actuarial gains/( losses) on retirement benefits (1) 5 (1) 5 Share based compensation 2 (4) 2 (4)

(4) 19 (4) 19

Group Company


45

12. Retirement benefit obligation The Group participates in locally operated defined benefit and defined contribution schemes for its European branches. The overseas branches in Belgium, the Netherlands, Norway, Spain and Greece operate defined benefit schemes locally. Additionally, defined benefit pension schemes operate in two of the Group’s Italian subsidiaries. In some of the European countries employers pay contributions towards the state pension scheme. The Group fulfils its duties in this regard as required by local statute. Regular employer contributions to the defined benefit schemes in 2010 are estimated to be £7.4 million for Group and £7.4 million for Company (2009: Group £7.8 million and Company £7.5 million). Overseas schemes:

The amounts recognised in the balance sheet are determined as follows:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Present value of funded defined benefit obligations (157) (157) (157) (157) Fair value of plan assets 160 146 160 146 (Deficit)/surplus 3 (11) 3 (11)

Present value of unfunded defined benefit obligations (15) (17) (14) (13) Unrecognised prior service cost - 1 - 1

Liability recognised on the balance sheet (note 27) (12) (27) (11) (23)

Deferred tax asset 3 6 3 7

Net pension liability (9) (21) (8) (16)

Group Company

The analysis of the income statement charge is as follows:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Current service cost (4) (4) (4) (4) Interest cost (9) (8) (9) (7) Expected return on plan assets 7 9 7 9 Past service cost (1) (1) (1) (1) Curtailment and settlement cost (1) - - -

Expense recognised in the income statement (Note 8) (8) (4) (7) (3)

Group Company


46

12. Retirement benefit obligation (continued) The changes to the present value of the defined benefit obligation during the year are as follows:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Opening defined benefit obligation (174) (132) (170) (129) Exchange rate adjustments 12 (40) 10 (38) Current service cost (4) (4) (4) (4) Interest cost (9) (8) (9) (7) Actuarial (losses)/gains on scheme liabilities (7) 2 (6) 1 Net benefits paid out 12 8 9 7 Past service cost (1) (1) (1) (1) Net increase in liabilities from disposals/acquisitions - 1 - 1 Curtailments and settlements (1) - - -

Closing defined benefit obligation (172) (174) (171) (170)

Group Company

The changes to the fair value of scheme assets during the year are as follows:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Opening fair value of scheme assets 146 133 146 133 Exchange rate adjustments (9) 34 (9) 34 Expected return on assets 7 9 7 9 Actuarial gains/(losses) on scheme assets 10 (29) 10 (29) Contributions by the employer 18 7 15 6 Net benefits paid out (12) (8) (9) (7)

Closing fair value of scheme assets 160 146 160 146

Group Company

The actual return on plan assets is as follows:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Expected return on scheme assets 7 9 7 9 Actuarial gain/(loss) on scheme assets 10 (29) 10 (29)

Actual return on scheme assets 17 (20) 17 (20)

Group Company


47

12. Retirement benefit obligation (continued) The analysis of amounts recognised outside the income statement, and disclosed in the statement of comprehensive income are as follows:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Total actuarial (losses)/gains 3 (27) 4 (27) Change in irrevocable surplus, effect of limit in para 58(b) - 7 - 7 Total gain in the statement of comprehensive income 3 (20) 4 (20)

Cumulative amount of losses recognised in the statement of comprehensive income (26) (29) (23) (27)

Group Company

History of asset values, defined benefit obligation, deficit in scheme and experience gains and losses for the Group are as follows:

2009£ Million

2008£ Million

2007£ Million

2006£ Million

2005£ Million

Fair value of scheme assets 160 146 133 117 112 Defined benefits obligation (172) (173) (132) (134) (131)

(Deficit)/surplus in scheme (12) (27) 1 (17) (19)

2009£ Million

2008£ Million

2007£ Million

2006£ Million

2005£ Million

10 (29) (2) 2 5

(1) (2) (1) (6) (3) (6) 4 16 6 (9) (7) 2 15 - (12)

Total actuarial (losses)/gains 3 (27) 13 2 (7)

Experience gains/(losses) on scheme assets

Experience losses on scheme liabilities

Total actuarial gains/(losses) on scheme Assumption (losses)/gains on scheme


48

12. Retirement benefit obligation (continued) History of asset values, defined benefit obligation, deficit in scheme and experience gains and losses for the Company are as follows:

2009£ Million

2008£ Million

2007£ Million

2006£ Million

2005£ Million

Fair value of scheme assets 160 146 133 117 112 Defined benefits obligation (172) (170) (129) (129) (127)

(Deficit)/surplus in scheme (12) (24) 4 (12) (15)

2009£ Million

2008£ Million

2007£ Million

2006£ Million

2005£ Million

10 (29) (2) 2 5

(1) (2) - (6) (2) (5) 4 16 6 (10) (6) 2 16 - (12)

Total actuarial (losses)/gains 4 (27) 14 2 (7)

Total actuarial gains/(losses) on scheme

Experience losses on scheme liabilitiesAssumption gains/(losses) on scheme

Experience (losses)/gains on scheme assets

The assumptions which have the most significant effect on the results of the valuation are those relating to the discount rate on scheme liabilities and mortality assumptions. The future life expectancy of scheme members is a key assumption. However, mortality assumptions are expected to vary from country to country, due to variations in underlying population mortality as well as in variations of the profile of typical membership of the company pension scheme. The average life expectancy of an individual retiring at age 65 is 17 for males and 21 for females. The financial weighted average assumptions used in calculating the liabilities as at 31 December 2009 are as follows:

Group and Company 2009 2008 2007

Discount rate for assessing scheme liabilities 5.3% 5.7% 5.5% Future salary increases 3.5% 3.5% 3.5% Rate of increase for pensions in payment 1.9% 2.0% 2.0% Inflation rate assumption 2.2% 2.2% 2.2% Value £ Million Group and Company Long-term rate of return expected 2009 2008 2007 2009 2008 2007 Equities 29 28 44 8.0% 8.0% 8.4% Property 3 3 2 7.0% 7.0% 6.1% Government bonds 69 75 56 4.1% 4.1% 4.3% Corporate bonds 27 26 16 4.3% 5.3% 5.1% Other 32 14 15 1.5% 3.6% 4.5% Total fair value of assets 160 146 133


49

12. Retirement benefit obligation (continued) The expected rate of return on assets is an average of expected returns weighted by asset class. The expected rates of return on bonds reflect yields on longer term government and corporate bonds. The expected rates of return on equities are based on government bond yields together with a premium to reflect an additional return expected on equity investments. 13. Share-based incentive plans The Group participates in a number of Citigroup share-based incentive plans to attract, retain and motivate employees, to compensate them for their contributions to the Group, and to encourage employee stock ownership. i) Stock option programme The Group participates in a number of Citigroup stock option programmes for its employees. Generally, since January 2005, stock options have been granted only to Citigroup’s Capital Accumulation Programme (‘CAP’) participants who elect to receive stock options in lieu of restricted or deferred stock awards and to non-employee directors who elect to receive their compensation in the form of a stock option grant. All stock options are granted on Citigroup common stock with exercise prices equal to the fair market value at the time of grant. Options granted since January 2005 typically vest 25% each year over four years and have six-year terms. Options granted in 2004 and 2003 typically also have six-year terms but vest in thirds each year over three years, with the first vesting date occurring 17 months after the grant date. The sale of underlying shares acquired through the exercise of employee stock options granted since 2003 is restricted for a two-year period (and the shares are subject to stock ownership commitment of senior executives thereafter). Prior to 2003, Citigroup options, including options granted since the date of the merger of Citicorp and Travelers Group, Inc., generally had a 10 year term and vested at a rate of 20% per year over five years, with the first vesting occurring 12 to 18 months following the grant date. Certain options, mostly granted prior to 1 January 2003, permit an employee exercising an option under certain conditions to be granted new options (reload options) in an amount equal to the number of common shares used to satisfy the exercise price and the withholding taxes due upon exercise. The reload options are granted for the remaining term of the related original option and vest after six months. An option may not be exercised using the reload method unless the market price on the date of exercise is at least 20% greater than the option exercise price. Reload options have been treated as separate grants from the related original grants. Reload options are intended to encourage employees to exercise options at an earlier date and to retain the shares so acquired, in furtherance of the Group’s long-standing policy of encouraging increased employee stock ownership. On 29 October 2009 the Group made a discretionary one-off grant of options to eligible employees pursuant to the broad-based Citigroup Employee Option Grant (“CEOG”) Program under the Citigroup 2009 Stock Incentive Plan, which was approved by Citigroup’s shareholders on 21 April 2009. Under CEOG, the options generally vest equally over three years, the option term is 6 years from the grant date and the shares acquired on exercise are not subject to a sale restriction. To the extent permitted, CEOG options granted to eligible UK employees were granted under an HMRC approved sub-plan with any excess over the applicable individual limit being granted under the global plan, which is not an HMRC approved plan.


50

13. Share-based incentive plans (continued) Information for the Group with respect to stock option activity in 2009 and 2008 under Citigroup stock option plans is as follows: 2009 2008

Options

Weighted average exercise

price $

Options

Weighted average

exercise price

$ Outstanding, beginning of year 355,987 40.97 800,042 38.50 Granted 2,646,504 4.08 47,748 24.45Forfeited (54,620) 43.00 (28,978) 42.28Exercised - - (30,238) 22.57Transfers 544,628 34.84 (222,471) 43.51Expired (46,031) 32.06 (210,116) 27.60 Outstanding, end of year 3,446,468 11.76 355,987 40.97 Exercisable, end of year 611,535 42.04 296,226 43.34 The weighted average share price at the exercise date for options exercised during the year was $nil (2008: $26.04). The following table summarises the information about stock options outstanding under Citigroup stock option plans at 31 December 2009: Options outstanding Options exercisable

Range of exercise prices

Number outstanding

Weighted average

contractual life

remaining

Weighted

average exercise

price $

Number exercisable

Weighted

average exercise

price $

< $30.00 2,896,128 5.72 5.29 71,242 18.25 $30.00 - $39.99 - - - - - $40.00 - $49.99 522,950 1.04 44.75 521,186 44.86 ≥ $50.00 27,390 2.29 53.91 19,107 53.70 3,446,468 4.98 11.76 611,535 42.04


51

13. Share-based incentive plans (continued) The following table summarises the information about stock options outstanding under Citigroup stock option plans at 31 December 2008: Options outstanding Options exercisable

Range of exercise prices

Number outstanding

Weightedaverage

contractuallife

remaining

Weighted

average exercise

price $

Number exercisable

Weighted

average exercise

price $

< $30.00 49,002 5.06 24.45 - - $30.00 - $39.99 46,030 0.12 32.06 46,030 32.06 $40.00 - $49.99 254,247 1.97 45.41 248,502 45.35 ≥ $50.00 6,708 4.04 54.38 1,694 54.39 355,987 2.19 40.97 296,226 43.34 Fair value assumptions Reload options have been treated as separate grants from the related original grants. Under the Group’s reload program, upon exercise of an option, employees use previously owned shares to pay the exercise price and surrender shares otherwise to be received for related tax withholding, and receive a reload option covering the same number of shares used for such purposes. Reload options vest at the end of a six-month period. Reload options are intended to encourage employees to exercise options at an earlier date and to retain the shares so acquired, in furtherance of the Group’s long-standing policy of encouraging increased employee stock ownership. The result of this program is that employees generally will exercise options as soon as they are able and, therefore, these options have shorter expected lives. Shorter option lives result in lower valuations using a Binomial option model. However, such values are expensed more quickly due to the shorter vesting period of reload options. In addition, since reload options are treated as separate grants, the existence of the reload feature results in a greater number of options being valued. Shares received through option exercises under the reload program, as well as certain other options granted, are subject to restrictions on sale. Discounts have been applied to the fair value of options granted to reflect these sale restrictions. Additional valuation and related assumption information for Citigroup option plans is presented below. Citigroup used a binomial model to value stock options. Volatility has been estimated by taking the historical volatility in traded Citigroup options and adjusting where there are known factors that may affect future volatility.


52

13. Share-based incentive plans (continued) For options granted during 2009 2008 Weighted average fair value at year end Option $0.90 $0.18 Weighted average expected life Original grants 5 years 3 years Reload grants 1 years 3 years Option life 5 years 3 years Valuation assumptions Expected volatility 37.74% 42.96% Risk-free interest rate 2.56% 0.72% Expected dividend yield 0.00% 0.60% Expected annual forfeitures 9.62% 7.58% ii) Stock award programme The Group participates in the Citigroup CAP programme, under which shares of Citigroup common stock are awarded in the form of restricted or deferred stock to participating employees. For all stock award programmes, during the applicable vesting period, the shares awarded cannot be sold or transferred by the participant, and the award is subject to cancellation if the participant’s employment is terminated. After the award vests, the shares become freely transferable (subject to the stock ownership commitment of senior executives). From the date of award, the recipient of a restricted stock award can direct the vote of the shares and receive regular dividends to the extent dividends are paid on Citigroup common stock. Recipients of deferred stock awards receive dividend equivalents to the extent dividends are paid on Citigroup common stock, but cannot vote. The program provides that employees who meet certain age plus years-of-service requirements (retirement-eligible employees) may terminate active employment and continue vesting in their awards provided they comply with specified non-compete provisions. Awards granted to retirement-eligible employees are accrued in the year prior to the grant date in the same manner as cash incentive compensation is accrued. Stock awards granted in January 2009, 2008, 2007, 2006 and 2005 generally vest 25% per year over four years. CAP participants may elect to receive all or part of their award in stock options. The figures presented in the stock option programme table include options granted under CAP. Information with respect to current year stock awards is as follows: 2009 2008Shares awarded 541,073 822,240 Weighted average fair market value per share $4.67 $26.33 £ Million £ Million Compensation cost charged to earnings 3 17Fair value adjustments in equity (6) 11Total carrying amount of equity-settled transaction liability 2 2Total intrinsic value of liability for vested benefits - -


53

14. Financial assets and liabilities The following tables summarise the carrying value and fair values of the financial assets and financial liabilities and the classification of each class of financial asset and liability:

Group2009 Note Trading

Available-for-sale

Held-to maturity

Loans and receivables

Amortised cost

Designated at fair value

Total carrying amount

Fairvalue

£ Million £ Million £ Million £ Million £ Million £ Million £ Million£

MillionAssetsCash and balances at central banks - - - 305 - - 305 305

Trading assets 18 2,578 - - - - - 2,578 2,578 Derivative financial instruments 17 425 - - - - - 425 425 Loans and advances to banks - - - 18,080 - - 18,080 18,024 Loans and advances to customers 15 - - - 8,508 - 183 8,691 9,095 Investment securities 19 - 340 1,050 - - 80 1,470 1,512 Assets held for sale 20 - - - 846 - - 846 845 Other assets 24 - - - 979 - - 979 968 Total financial assets 3,003 340 1,050 28,718 - 263 33,374 33,752

LiabilitiesDeposits by banks - - - - 18,217 - 18,217 18,078 Customer accounts - - - - 9,154 - 9,154 9,133 Derivative financial instruments 17 916 - - - - - 916 916 Debt securities in issue 26 - - - - 393 1,466 1,859 1,799 Subordinated loan 29 - - - - 405 - 405 404 Other liabilities 27 - - - - 952 - 952 953 Total financial liabilities 916 - - - 29,121 1,466 31,503 31,283

Group2008 Note Trading

Available-for-sale

Held-to maturity


Amortised cost



Fairvalue


MillionAssetsCash and balances at central banks - - - 176 - - 176 176

Trading assets 18 3,244 - - - - - 3,244 3,244 Derivative financial instruments 17 919 - - - - - 919 919 Loans and advances to banks - - - 24,190 - - 24,190 23,928 Loans and advances to customers 15 - - - 14,512 - 356 14,868 14,033 Investment securities 19 - 394 1,295 - - 86 1,775 1,797 Other assets 24 - - - 1,929 - - 1,929 1,906 Total financial assets 4,163 394 1,295 40,807 - 442 47,101 45,961

LiabilitiesDeposits by banks - - - - 29,494 - 29,494 29,065 Customer accounts - - - - 8,390 - 8,390 8,324 Derivative financial instruments 17 2,160 - - - - - 2,160 2,160 Debt securities in issue 26 - - - - 437 1,740 2,177 2,114 Subordinated loan 29 - - - - 434 - 434 431 Other liabilities 27 - - - - 1,988 - 1,988 1,930 Total financial liabilities 2,160 - - - 40,743 1,740 44,643 44,024


54

14. Financial assets and liabilities (continued)

Company2009 Note Trading

Available-for-sale

Held-to maturity


Other amortised

costDesignated at

fair value


Fairvalue


MillionAssetsCash and balances at central banks - - 305 - - 305 305

Trading assets 18 2,578 - - - - - 2,578 2,578 Derivative financial instruments 17 425 - - - - - 425 425 Loans and advances to banks - - - 19,970 - - 19,970 19,911 Loans and advances to customers 15 - - - 7,352 - 183 7,535 8,046 Investment securities 19 - 342 1,050 - - 80 1,472 1,514 Assets held for sale 20 - - - 846 - - 846 845 Other assets 24 - - - 957 - - 957 950 Total financial assets 3,003 342 1,050 29,430 - 263 34,088 34,574

LiabilitiesDeposits by banks - - - - 19,499 - 19,499 19,383 Customer accounts - - - - 9,154 - 9,154 9,133 Derivative financial instruments 17 916 - - - - - 916 916 Debt securities in issue 26 - - - - - 1,466 1,466 1,466 Subordinated loan 29 - - - - 405 - 405 404 Other liabilities 27 - - - - 916 - 916 918 Total financial liabilities 916 - - - 29,974 1,466 32,356 32,220

Company2008 Trading

Available-for-sale

Held-to maturity


Other amortised

costDesignated at

fair value


Fairvalue


MillionAssetsCash and balances at central banks - - 176 - - 176 176

Trading assets 18 3,244 - - - - - 3,244 3,244 Derivative financial instruments 17 919 - - - - - 919 919 Loans and advances to banks - - - 25,319 - - 25,319 25,054 Loans and advances to customers 15 - - - 12,820 - 356 13,176 12,492 Investment securities 19 - 398 1,295 - - 86 1,779 1,759 Other assets 24 - - - 1,904 - - 1,904 1,887 Total financial assets 4,163 398 1,295 40,219 - 442 46,517 45,531

LiabilitiesDeposits by banks - - - - 29,440 - 29,440 29,084 Customer accounts - - - - 8,390 - 8,390 8,324 Derivative financial instruments 17 2,160 - - - - - 2,160 2,160 Debt securities in issue 26 - - - - - 1,740 1,740 1,740 Subordinated loan 29 - - - - 434 - 434 431 Other liabilities 27 - - - - 1,969 - 1,969 1,914 Total financial liabilities 2,160 - - - 40,233 1,740 44,133 43,653

The calculation of fair value incorporates the Group’s estimate of the fair value of financial assets and financial liabilities. It does not reflect the economic benefits and costs that the Group expects to flow from the instruments cash flows over there expected future lives. Other entities may use different valuation methods and assumptions in determining fair values, so comparisons of fair values between entities may not necessarily be meaningful.


55

14. Financial assets and liabilities (continued) The following summarises the major methods and assumptions used in estimating the fair value of the financial assets and financial liabilities used in the above tables: • Derivative financial instruments, trading assets, and debt securities in issue are measured at fair value by

reference to quoted market prices in active markets. If quoted market prices are not available then fair values are estimated on the basis of other valuation techniques, including discounted cash flow models and options pricing models. The market price includes credit value adjustments.

• Investment securities classified as available-for-sale, held to maturity or designated at fair value, through

profit and loss, are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated based on other recognised valuation techniques.

• The fair value for loans and advances and other lending are estimated using internal valuation techniques

such as discounted cash flow analyses. Cash flows are discounted using Libor and Euribor rates, no adjustment is made for counterparty credit spreads. If available, the Company may also use quoted prices for recent trading activity of assets with similar characteristics to the loan being valued. In certain cases the fair value approximates carrying value because the instruments are short term in nature or reprice frequently.

• The fair value of debt securities in issue that are classified at amortised cost is measured using discounted

cash flows applying Libor and Euribor rates. No adjustment is made for counterparty credit spreads. • Fair values of customer account deposit liabilities, subordinated loans, other assets and other liabilities are

estimated using discounted cash flows, applying either market rates where practicable, or rates currently offered by the Group for deposits of similar remaining maturities. Where market rates are used no adjustment is made for counterparty credit spreads.

• The carrying amount of cash and balances at central banks is a reasonable approximation of fair value due to

the short term nature of the balances. The group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: • Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. • Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e.

derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

• Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments

where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.


56

14. Financial assets and liabilities (continued) The following table shows an analysis of financial assets and liabilities classified as held for trading or designated at fair value by fair value hierarchy: Group and Company

Level 1 Level 2 Level 3 Total£ million £ million £ million £ million

Financial assets held for tradingDerivatives - 409 16 425

Trading assetsGovernment bonds 98 - - 98Corporate bonds - 1,362 213 1,575European commercial paper - 625 - 625Equity 3 - - 3Loans - 264 13 277

101 2,660 242 3,003Financial assets designated at fair valueLoans and advances to customers - - 183 183

Investment securities - - 80 80

- - 263 263

Total financial assets 101 2,660 505 3,266

Financial liabilities held for tradingDerivatives - 804 112 916

Financial liabilities designated at fair valueDebt securities in issue - 1,227 239 1,466

Total financial liabilities - 2,031 351 2,382

31 December 2009

Fair values of certain financial instruments recognised in the financial statements may be determined in whole or in part using valuation techniques based on assumptions that are not supported by prices from current market transactions or observable market data. Any changes in these assumptions will change the resultant fair value of the derivative. The Group values a number of assets and liabilities using valuation techniques that use one or more significant inputs that are not based on observable market data. The group grades all such assets and liabilities in order to identify those items for which a reasonably possible change in one or more assumptions is likely to have a significant impact on fair value.


57

14. Financial assets and liabilities (continued) The following tables show an analysis of the movement of Level 3 financial assets and liabilities for 2009: Group and Company

At 1 January

Gain/(loss) recorded in the

income statement

Net purchases, sales and

settlements

Transfer from/ (to) level 1 and

level 2 At 31

December £ million £ million £ million £ million £ million

Financial assets held for tradingDerivatives 87 8 8 (87) 16Trading assets

Corporate bonds 617 (38) (97) (269) 213Loans - - 13 - 13

704 (30) (76) (356) 242

Financial assets designated at fair valueLoans and advances to customers 356 (80) (93) - 183

Investment securities 86 (6) - - 80442 (86) (93) - 263

Total financial assets 1,146 (116) (169) (356) 505

Financial liabilities held for tradingDerivatives (246) 53 12 69 (112)Securities sold not yet purchased (6) 86 - (80) -

Financial liabilities designated at fair valueDebt securities in issue (489) (115) 53 312 (239)

Total financial liabilities (741) 24 65 301 (351)

During the year, total changes in fair value of £92 million (2008: £6 million) were recognised in the income statement relating to items where fair value was estimated using a valuation technique that uses one or more significant inputs that are based on unobservable market data. As these valuation techniques are based upon assumptions, changing the assumptions will change the estimate of fair value. The potential impact of using reasonably possible alternative assumptions for the valuation techniques including unobservable market data has been quantified as approximately £11 million (2008: £7 million).


58

15. Loans and advances to customers

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Mortgage and real estate 180 194 180 194 Charge and credit card debtors 943 1,796 944 1,775 Commercial loans 5,316 8,211 5,316 8,211 Consumer loans 2,617 4,489 1,795 3,208 Other loans and advances 439 712 32 266

9,495 15,402 8,267 13,654

Less: allowance for losses on loans (note 16) (804) (534) (732) (478)

8,691 14,868 7,535 13,176

CompanyGroup

Included within Commercial loans are loans that have been designated at fair value through profit or loss as the Group manages these loans and advances on a fair value basis in accordance with its investment strategy. At 31 December 2009 the maximum exposure to credit risk on loans and advances at fair value through profit or loss was £183 million (2008: £356 million). The changes in the fair value recognised on these commercial loans amounted to £2 million (2008: £14 million) included within net income on items at fair value through profit and loss. The cumulative net loss in the fair value recognised on these commercial loans amounted to £24 million (2008: £22 million). At 31 December 2009 the accumulated and current year change in fair value attributable to changes in credit risk on these loans was £2 million. The Group’s cost of assets acquired for the purpose of letting under finance leases and hire purchase contracts during the year was £nil (2008: £ nil). Included in Other operating income are aggregate rental receivables with respect to finance leases in the Group in the year of £77 million (2008: £95 million). Loans and advances to customers include finance lease receivables.

2009£ Million

2008£ Million

No later than 1 year 6 6 Later than 1 year and no later than 5 years 77 93 Later than 5 years 3 7

86 106

Unearned future income on leases (9) (11)

Net investment in finance leases 77 95

Group

Gross investment in finance leases receivable:

The net investment in finance leases may be analysed as follows:

2009£ Million

2008£ Million

Expiring:No later than 1 year 6 6 Later than 1 year and no later than 5 years 69 83 Later than 5 years 2 6

77 95

Group


59

16. Allowances for loans and advances

2009£ Million

2008£ Million

2009£ Million

2008£ Million

At 1 January 534 174 478 152 Exchange adjustments (27) 75 (23) 63 Charge against profits 817 575 696 484 Amounts written off (417) (253) (317) (182) Disposals (2) 2 (1) 4 Recoveries (58) (39) (58) (43) Transfer to held for sale (43) - (43) -

At 31 December 804 534 732 478

Individual assessment 456 254 456 254 Collective assessment 348 280 276 224

804 534 732 478

Group Company

17. Derivative financial instruments Group and Company

Asset Liability Asset Liability£ Million £ Million £ Million £ Million

Exchange rate related contractsForwards and futures 74 88 309 309 Currency swaps 185 211 142 222 Options 11 11 14 14

270 310 465 545Interest rate related contractsInterest rate swaps 57 137 207 364Options 67 54 26 21

124 191 233 385Equity and commodity related contractsOptions 12 7 80 63 Swaps 19 408 141 1,167

31 415 221 1,230

Total derivative contracts 425 916 919 2,160

2008Fair valueFair value

2009

18. Trading assets Group and Company

2009£ Million

2008£ Million

Government bonds 98 103 Corporate bonds 1,575 2,387 European commercial paper 625 383 Equity 3 161 Loans 277 210

2,578 3,244


60

19. Investment securities

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Investment securities Debt securities - at fair value:

- listed 327 378 327 378 - unlisted 4 2 6 6

Equity securities - at fair value: - unlisted 9 14 9 14

340 394 342 398

Investment securities Debt securities - at amortised cost:

- listed 3 - 3 - - unlisted 1,046 1,290 1,046 1,290

Equity securities - at amortised value: - listed 1 5 1 5

1,050 1,295 1,050 1,295

Investment securities Debt securities - at fair value:

- unlisted 80 86 80 86

80 86 80 86

Total investment securities 1,470 1,775 1,472 1,779


Held-to-maturity Held-to-maturity

Group CompanyAvailable-for-sale Available-for-sale


Investment securities include £80 million (2008: £86 million) of unlisted debt securities that are designated at fair value through profit and loss. The changes in the fair value recognised on these investment securities in the year amounted to £6 million (2008: £20 million). During 2008 the Group and Company identified financial assets which were held as available-for-sale for which it had changed its intention, such that it now has the intention and ability to be transferred to held-to-maturity. For both Group and Company available-for-sale assets with a fair value at the date of transfer of £1,290 million were transferred to held-to-maturity. As at 31 December 2009 these assets had a fair value of £1,512 million. If the assets had remained as available-for-sale a gain of approximately £222 million would be recognised in the statement of other comprehensive income.


61

20. Assets held for sale On 18 December 2009 the Company signed an agreement to sell its Consumer finance – personal loans business in Finland to a third party. As a result the Company has classified the assets to be sold as ‘held for sale’. The sale completed on 1 March 2010. The Company’s consumer finance business in Sweden and its cards portfolio in Italy met the definition of ‘Held for sale’ at 31 December 2009. The assets comprise: Group and Company £ Million

Loans and advances to customers 882 Less Allowances for loans and advances (43) Loans and advances to banks 2 Prepayments and accrued income 2 Other assets 5 Other liabilities (2)

846

On 11 February 2010 the Group agreed the sale of the Italian cards portfolio. The total net income from the assets held for sale for the year to 31 December 2009 was £8 million. It is currently expected that the Company and Group will dispose of these assets at a discount to carrying value. 21. Shares in subsidiary undertakings The movement in the Company’s investments in the share capital of subsidiary undertakings was as follows:

2009£ Million

2008£ Million

At 1 January 71 136 Capital contribution 241 22 Disposals/transfers (1) (24) Losses from impairment (219) (89) Exchange rate adjustments (9) 26

At 31 December 83 71

On 26 February 2009 the Company made a capital contribution of £10 million to EMSO Partners Limited and on 15 May 2009 the Company made a capital contribution of €260 million (£231 million) to Citicorp Finanziaria SpA. Details of principal Group subsidiary undertakings held at 31 December 2009 are as follows: Name

Country of incorporation

Nature of business

% holding in ordinary share capital

CitiCapital Leasing Limited England Lease finance 100% CitiCapital Leasing (March) Limited England Lease finance 100% CitiCapital Leasing (June) Limited England Lease finance 100% Citicorp Finanziaria SpA Italy Consumer finance 100% CitiService SpA Italy Consumer finance 100% Diners Club UK Limited England Charge cards 100% EMSO Partners Limited England Alternative

Investment Services 100%

CitiCapital Leasing (March) Limited has an accounting period ending on 31 March. CitiCapital Leasing (June) Limited has an accounting period ending on 30 June. For the purpose of preparing these consolidated financial statements, management accounts of these two companies for the year ended 31 December 2009 have been used.


62

22. Goodwill and intangible assets

Goodwill £ Million

Client intangible £ Million

Computer software £ Million

Total£ Million

Goodwill £ Million

Client intangible £ Million

Computer software£ Million

Total£ Million

Cost

At 1 January 2009 33 24 215 272 30 25 214 269 Additions - - 50 50 - - 50 50 Disposals - - (15) (15) - - (14) (14) Write offs - - (1) (1) - - (1) (1) Exchange rate adjustments - (1) (2) (3) - (1) (2) (3)

31 December 2009 33 23 247 303 30 24 247 301

Amortisation andimpairment losses

At 1 January 2009 3 11 143 157 - 11 143 154 Disposals - - (9) (9) - - (8) (8) Write offs 19 - - 19 19 - - 19 Amortisation - 5 39 44 - 5 39 44 Exchange rate adjustments - (1) (1) (2) - (1) (1) (2)

31 December 2009 22 15 172 209 19 15 173 207

Net carrying value31 December 2009 11 8 75 94 11 9 74 94 31 December 2008 30 13 72 115 30 14 71 115

Group Company

For the purpose of testing goodwill for impairment, the Group determines the recoverable amount of its cash generating units on the basis of value in use and management’s review of the recoverable amount. The recoverable amount is determined using a model based on the discounted cash flow method. The cash flow projections are based on business plans approved by management covering a five year period, or greater if deemed appropriate by management. Goodwill was allocated to the Netherlands and Greece. The cash flow projections in respect of Greece cover a five year period in line with Citigroup policy, and the Netherlands (Direct custody and clearing business) projections cover an eight year period as management believe this is a reasonable expectation of the length of the client relationships which have been acquired. The cash flows used to estimate the operating profit projections reflects the current market assessment of the risk of the cash generating units. Operating profit represents the operating profit in the business plans, approved by management and as such reflects the best estimate of future profits based on both historical experience and expected growth rates. The discount rate is the LIBOR rate. As a result of the cash flow projections for Greece it was determined that the goodwill had been impaired and the total balance of £19 million was written off. There was no evidence of impairment arising from the review of the goodwill for the Netherlands. A summary of the allocation of goodwill with the unit is presented below: Cash generating unit Goodwill at 31 December

2009 Growth

rate Discount rate

£Million 2009 2008Institutional Clients Group - Netherlands (Direct custody and clearing business)

11 0.33% 1.22% 3.3%

The model is most sensitive to changes in the growth rate. Management believes that reasonable changes in key assumptions used to determine the recoverable amounts would not result in a material impairment.


63

23. Property and equipment Group

Long leasehold property£ Million

Leaseholdimprovements

£ Million

Vehicles, furniture

and equipment

£ Million

Leased or hire

purchase assets

£ MillionTotal

£ Million

Cost

1 January 2008 1 39 419 20 479 Additions 12 4 48 - 64 Disposals - (2) (7) - (9) Write offs - (5) (9) - (14) Exchange rate adjustments - 11 20 8 39

At 31 December 2008/ 1 January 2009 13 47 471 28 559

Additions 8 3 62 - 73 Disposals - (1) (18) (28) (47) Write offs - (1) (14) - (15) Exchange rate adjustments (1) (4) (6) - (11)

31 December 2009 20 44 495 - 559

Depreciation

1 January 2008 - 18 286 17 321 Charged in year - 4 51 - 55 Disposals - (1) (7) - (8) Acquisitions - - 1 - 1 Write offs - (4) (9) - (13) Exchange rate adjustments - 6 15 6 27

At 31 December 2008/ 1 January 2009 - 23 337 23 383

Charged in year - 9 57 - 66 Disposals - (1) (7) (23) (31) Acquisitions - - (2) - (2) Write offs - (1) (15) - (16) Exchange rate adjustments - (1) (4) - (5)

31 December 2009 - 29 366 - 395

Net book valueAt 31 December 2009 20 15 129 - 164 At 31 December 2008 13 24 134 5 176


64

23. Property and equipment (continued) Company

Long leasehold property£ Million

Leaseholdimprovement

s£ Million

Vehicles, furniture

and equipment

£ Million

Leased or hire

purchase assets

£ MillionTotal

£ MillionCost

1 January 2008 1 31 408 20 460 Additions 12 4 48 - 64 Disposals - - (4) - (4) Write offs - (5) (9) - (14) Exchange rate adjustments - 9 19 8 36

At 31 December 2008/ 1 January 2009 13 39 462 28 542

Additions 8 3 62 - 73 Disposals - - (14) (28) (42) Write offs - (1) (14) - (15) Exchange rate adjustments (1) (3) (6) - (10)

At 31 December 2009 20 38 490 - 548

Depreciation

1 January 2008 - 15 278 17 310 Charged in year - 3 50 - 53 Additions - - 1 - 1 Disposals - - (5) - (5) Write offs - (4) (8) - (12) Exchange rate adjustments - 5 16 6 27

At 31 December 2008/ 1 January 2009 - 19 332 23 374

Charged in year - 5 57 - 62 Additions - - (3) - (3) Disposals - - (3) (23) (26) Write offs - (1) (16) - (17) Exchange rate adjustments - (1) (4) - (5)

At 31 December 2009 - 22 363 - 385

Net book valueAt 31 December 2009 20 16 127 - 163 At 31 December 2008 13 20 130 5 168

At the year-end, the rental commitments as lessor under non-cancellable operating leases were as follows:

2009£ Million

2008£ Million

Expiring:- between one and five years 1 2 - in five years or more - 1

1 3


65

24. Other assets

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Counterparty receivables on sale of securities 569 1,442 569 1,442

Other balances 410 487 388 462

979 1,929 957 1,904

Group Company

25. Deferred income tax Deferred income taxes are calculated on all temporary differences under the liability method using an effective rate of 28% for 2009 (2008: 28%). The movement on the deferred income tax account is as follows:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

At 1 January 181 93 80 38 Additions - (3) - (3) Disposals - (3) - - Income statement charge 21 50 113 22 Write off of foreign subsidiary deferred tax - - - - Tax reflected in equity (Note 11) (4) 19 (4) 19 Exchange differences (12) 35 (9) 14 Adjustment due to change in tax rate - (10) - (10)

At 31 December 186 181 180 80

Group Company

Deferred income tax assets and liabilities are attributable to the following items:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Deferred income tax liabilitiesPensions and other post retirement benefits 1 - - - Other temporary differences 92 57 89 57

93 57 89 57

Deferred income tax assetsAccelerated tax depreciation 135 37 135 37 Pensions and other post retirement benefits 3 6 3 7 Provision for loan impairment 5 109 5 6 Other temporary differences 44 73 33 74 Unused tax losses 92 13 92 13

279 238 268 137

Group Company

Management expects, based on future profit forecasts and planning actions, that the deferred tax asset will be recoverable in the foreseeable future and therefore should be recognised.


66

25. Deferred income tax (continued) The deferred tax credit in the income statement comprises the following temporary differences:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Accelerated tax depreciation (95) (25) (95) (22) Pensions and other post retirement benefits - (13) - (12) Allowances for loan losses 1 (46) 1 1 Provisions and other temporary differences 73 38 (19) 11 Adjustment due to change in tax rate - 10 - 10

(21) (36) (113) (12)

Group Company

26. Debt securities in issue Group 2009

£ Million2008

£ Million

Credit linked medium term notes 36 39 Equity linked medium term notes 1,430 1,701 £263.0 million medium term notes 19 24 € 648.5 million medium term notes 374 413

1,859 2,177

Company 2009£ Million

2008£ Million

Credit linked medium term notes 36 39 Equity linked medium term notes 1,430 1,701

1,466 1,740

The equity linked and credit linked medium term notes issued, have been designated at fair value through profit and loss. The carrying amount of financial liabilities designated at fair value through profit and loss at 31 December 2009 was £921 million lower than the contractual amount at maturity (2008: £735 million lower). At 31 December 2009, the accumulated change in fair value attributable to changes in credit risk on these financial liabilities was a gain of £758 million (2008: £446 million gain). The current year change in fair value attributable to changes in credit risk on these financial liabilities was a loss of £312 million (2008: £371 million gain). The Company has securitised commercial mortgage and other loans through consolidated special purpose entities. The Company retains the excess spread between the amounts collected on the loans and the amounts paid on the notes issued by the special purpose entities to third-party investors. These securities are held at amortised cost and the differences between that and the nominal value above recognises repayments. As of 31 December 2009, the carrying amount of the commercial mortgage and other loans was approximately £398 million (2008: £456 million) and was classified within Loans and advances to customers in the Group balance sheet. A similar corresponding amount of liabilities, which are non-recourse to the general credit of the Company, are classified within Debt securities in issue.


67

27. Other liabilities

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Trade finance acceptances 2 84 2 84 Counterparty payables on purchase of securities 569 1,442 569 1,442

Retirement benefit obligations (Note 12) 12 27 11 23 Other balances 381 462 345 443

964 2,015 927 1,992

Group Company

Included within Other balances is an accrual for Bank Bonus tax which is expected to be payable in 2010 in relation to bonus’ paid in relation to 2009 performance. 28. Provisions for liabilities Group

2009 2008 2009 2008 2009 2008At 1 January 82 31 18 14 100 45 Charge against profits 4 72 44 6 48 78 Acquisitions 35 8 1 1 36 9 Provisions utilised (75) (31) (2) (2) (77) (33) Release of provisions (14) (9) - (1) (14) (10) Exchange adjustments (1) 6 - 1 (1) 7 Other movements 1 5 (1) (1) - 4

At 31 December 32 82 60 18 92 100

Company

2009 2008 2009 2008 2009 2008At 1 January 81 28 17 12 98 40 Charge against profits 4 72 44 6 48 78 Acquisitions 2 7 - - 2 7 Provisions utilised (58) (27) (1) (1) (59) (28) Release of provisions (5) (9) - (1) (5) (10) Exchange adjustments (2) 5 - - (2) 5 Other movements 1 5 (1) 1 - 6

At 31 December 23 81 59 17 82 98

Restructuring provision£ Million

Other provisions£ Million

Total£ Million

Restructuring provision£ Million

Other provisions£ Million

Total£ Million

The “restructuring provision” relates to the provision for the cost of staff redundancies and compensation. This balance is expected to be fully utilised in 2010. There are no reimbursements anticipated. The “other provisions” relate to potential litigation provisions, which are assessed on a case by case basis, taking into account legal advice for each case, provisions for undrawn loan commitments and a “provision for pension obligations and post-retirement benefit commitments” relating to retirement payments to ex-employees and staff contributions to overseas national government pension schemes, which are accounted for as defined contribution schemes. The staff contributions are based on actuarial estimates and assumptions. The year-end provision of £1 million is due to be fully utilised by 2014.


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29. Subordinated loan Amount included in subordinated loan:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Amounts due after five years 405 434 405 434

Amounts due after five years 432 486 432 486

At 31 December 2009 the total facilities in place were:

Group Company

On 19 October 2005 the Company entered into a subordinated loan agreement, whereby Citibank Investments Limited (‘CIL’), the immediate parent company, provided a facility of US$500 million. Draw downs on the facility can be made in Euro, Sterling or US dollar. On 30 October 2005 the Company subscribed for €330 million due in 2015. On 10 December 2007 this facility was extended from US$500 million to US$700 million. On 8 April 2008, a further €126 million of the facility was drawn down. Any draw downs on this facility are fully subordinated to the rights and claims of senior creditors of the Company and interest is payable at LIBOR plus 50 basis points. 30. Capital and reserves Further details regarding capital and reserves movements are shown in the Consolidated and Company Statement of Changes in Equity on pages 21 and 26. On 8 April 2008 the Group received a capital contribution of $300 million (£150 million) from Citibank Investments Limited which is recorded in the capital reserve. On 19 December 2008 the Company made a capital contribution of £18 million to Citicorp Finanziaria SpA on the transfer of CitiService SpA. The capital reserve includes the capital contributions from the parent company which are distributable and £137 million of non-distributable reserves. Interim dividends paid in the year were £nil (2008: £47 million). The Directors do not recommend the payment of a final dividend (2008: £nil). The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The fair value reserve includes the cumulative net change in the fair value of available-for-sale investments until the investment is derecognised or impaired. The equity reserve is the fair value movement of share based incentives issued.


69

31. Share capital Authorised 2009 2008 £ Million £ Million 1,876,846,755 sterling ordinary shares of £1 each 1,877 1,877 US$ Million US$ Million 600,000,000 dollar ordinary shares of US$1 each 600 600 Allotted, called-up and fully paid 2009 2008 £ Million £ Million 1,757,011,710 sterling ordinary shares of £1 each 1,757 1,757 Ordinary shares of £1 each 2009 2008 Shares Shares At 1 January and 31 December 1,757,011,710 1,757,011,710 All ordinary shares confer identical rights in respect of capital, dividends, voting and otherwise. 32. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances that mature within three months:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Cash and balances at central banks 305 176 305 176 Loans and advances to banks 17,285 21,420 19,178 22,612 Trading assets 2,167 2,873 2,167 2,873

19,757 24,469 21,650 25,661

Company Group

33. Related party transactions The Company is a wholly owned subsidiary undertaking of CIL, which is incorporated in England. The largest group in which the results of the Group are consolidated is that headed by Citigroup Inc. which is incorporated in the United States. The Group and Company define related parties as the Board of Directors, their close family members, parent and fellow subsidiaries and associated companies. A number of arm’s length transactions are entered into with related parties. These include loans and deposits that provide funding to Group companies as well as derivative contracts used to hedge residual risks that are included in the other assets and other liabilities balances. Various services are provided between related parties and these are all also provided at arm’s length. No provisions have been recognised in respect of loans given to related parties (2008: £nil). The table below summarises balances with related parties where CIL is the parent undertaking. There were no related party transactions with the ultimate parent company, Citigroup Inc.


70

. 33. Related party transactions (continued) Group

Parent undertaking

£ Million

Other Citigroup

undertakings£ Million

Total£ Million

AssetsLoans and advances to banks - 18,976 18,976 Loans and advances to customers - 74 74 Prepayments and accrued income - 36 36 Other assets and derivatives - 218 218 LiabilitiesDeposits by banks 111 18,749 18,860 Customer accounts - 39 39 Accruals and deferred income 2 80 82 Other liabilities and derivatives 67 229 296 Subordinated loan 405 - 405 Off balance sheetGuarantees issued by the Group - (24) (24) Income statementInterest and similar income - 158 158 Interest expense and similar charges (13) (311) (324) Net fee and commission income - 55 55 Other operating income - 14 14 Net income on items at fair value through profit and loss - 29 29 General and administrative expenses (4) (59) (63) Other operating charges 3 17 20

2009

Parent

undertaking £Million

Other Citigroup

undertakings £Million

Total £Million

AssetsLoans and advances to banks - 22,202 22,202 Loans and advances to customers - 128 128 Prepayments and accrued income - 145 145 Other assets and derivatives - 1,129 1,129 LiabilitiesDeposits by banks 49 28,858 28,907 Customer accounts - 30 30 Accruals and deferred income 9 220 229 Other liabilities and derivatives - 1,532 1,532 Subordinated loan 434 - 434 Off balance sheetGuarantees issued by the Group - (52) (52) Income statementInterest and similar income - 590 590 Interest expense and similar charges (22) (845) (867) Net fee and commission income - 36 36 Other operating income - (16) (16) Net income on items at fair value through profit and loss - (335) (335) General and administrative expenses (1) (139) (140) Other operating charges 5 (58) (53)

2008


71

33. Related party transactions (continued)

CompanyParent

undertaking£ Million

Subsidiary undertakings

£ Million

Other Citigroup


Total£ Million

AssetsLoans and advances to banks - 704 18,970 19,674 Loans and advances to customers - - 74 74 Prepayments and accrued income - 22 36 58 Other assets and derivatives - 8 205 213 LiabilitiesDeposits by banks 111 69 18,736 18,916 Customer accounts - - 39 39 Accruals and deferred income 2 2 78 82 Other liabilities and derivatives 67 24 228 319 Subordinated loans 405 - - 405 Off balance sheetGuarantees issued by the Group - - 24 24 Income statementInterest and similar income - 41 156 197 Interest expense and similar charges (13) (1) (309) (323) Net fee and commission income - 2 40 42 Net income on items at fair value through profit and loss - - 29 29

Other operating income - 6 15 21 General and administrative expenses (4) 13 (44) (35) Other operating charges 3 4 17 24

2009

Parent undertaking

£ Million

Subsidiary undertakings

£ Million

Other Citigroup


Total£ Million

AssetsLoans and advances to banks - 4 22,133 22,137 Loans and advances to customers - 1,272 128 1,400 Prepayments and accrued income - 47 145 192 Other assets and derivatives - 3 1,129 1,132

LiabilitiesDeposits by banks 49 - 28,858 28,907 Customer accounts - - 30 30 Accruals and deferred income 9 7 218 234 Other liabilities and derivatives - 1 1,487 1,488 Subordinated loans 434 - - 434

Off balance sheetGuarantees issued by the Group - - 52 52

Income statementInterest and similar income - 51 587 638 Interest expense and similar charges (22) (1) (843) (866) Net fee and commission income - 1 37 38 Net income on items at fair value through profit and loss - - (335) (335)

Other operating income - 16 (16) - General and administrative expenses (1) (9) (130) (140) Other operating charges 5 - (58) (53)

2008


72

33. Related-party transactions (continued) Directors’ remuneration Directors’ compensation for the year comprises:

2009£ 000's

2008£ 000's

Salaries and other short- term benefits 613 1,240 Post-employment benefits 8 4 Share-based payments 603 110

1,224 1,354

Contributions to defined benefit and money purchase schemes are accruing to 10 of the Directors (2008: 11). Six of the Directors (2008: 8) of the Company participate in Citigroup share and share option plans and during the year, none of the Directors (2008: none) exercised options. The emoluments for the highest paid Director were £0.7 million (2008: £1.1 million) with £0.4 million (2008: £0.07 million) being share based compensation and accrued pension of £1 thousand (2008: £2 thousand). During the year the highest paid Director did not exercise share options. The Directors benefit from qualifying third party indemnity provisions in place during the financial year and at the date of this report. The above remuneration is based on the apportionment of time incurred by the Directors for services to the Group. 34. Pledged assets Group and Company Collateral accepted as security for assets The fair value of assets pledged as security for lending activities at 31 December 2009 was £1,986 million (2008: £2,284 million). These transactions are conducted under terms that are usual and customary to standard lending activities. Financial assets pledged to secure liabilities The total financial assets that have been pledged as collateral for liabilities at 31 December 2009 was £1,373 million (2008: £1,668 million). These transactions are conducted under terms that are usual and customary to standard lending activities.


73

35. Contingent liabilities and commitments The table below gives the nominal principal amounts and risk weighted amounts of contingent liabilities and commitments. The nominal principal amounts indicate the volume of business outstanding at the balance sheet date and do not represent amounts at risk. The risk weighted amounts have been calculated in accordance with the Financial Services Authority’s (FSA) guidelines on capital adequacy. Group and Company 2009 2008 Contract Risk Contract Risk Amount weighted amount weighted amount* Amount* £ Million £ Million £ Million £ MillionContingent liabilities Guarantees and irrevocable letters of credit 1,605 796 2,127 1,416 Commitments Other commitments: - documentary credits, short term trade 153 57 64 32 related transactions and other - undrawn formal standby facilities, credit lines and other commitments to lend:

- less than 1 year 2,725 726 3,272 1,126- 1 year and over 11,032 3,409 12,981 3,272

13,910 4,192 16,317 4,430 * Unaudited The Group has granted to various banks and other entities a number of fixed and floating charges over certain holdings in securities, properties, collateral and monies held by or on behalf of such banks or other entities, including charges relating to the Group’s participation in clearance/settlement systems. These transactions are conducted under terms that are usual and customary to standard lending, and securities borrowing and lending activities. 36. Financial instruments and risk management Objectives, policies and strategies Transacting in financial instruments is fundamental to the Group’s business. The risks associated with financial instruments and the credit exposure from lending are significant components of the overall risks faced by the Group. Financial instruments create, modify or reduce the liquidity, credit and market risk of the Group’s balance sheet and support the extension of credit to the Group’s customers. The past year has been a period of consolidation in financial markets. These disruptions have affected, and are likely to continue to affect, the Group's business and results of its operations. These disruptions have increased the risk of counterparty delinquency or default, reduced liquidity and pricing transparency all of which can negatively impact the Group's credit exposure. Although the Group regularly reviews its credit exposures, in these market circumstances default risk may arise from events or circumstances that are difficult to foresee. In addition, the current market and economic conditions have affected and may continue to affect consumer confidence, consumer spending, personal bankruptcy and house prices amongst other factors. This provides greater likelihood that more of the Group's customers could become delinquent in their loans or other obligations. This, in turn, could result in a higher level of charge-offs and provisions for credit losses.


74

36. Financial instruments and risk management (continued) Objectives, policies and strategies (continued) The market uncertainty places additional importance on the risk management policies and procedures which are outlined below. The Group believes that effective risk management is of primary importance to its success. Accordingly, the Group seeks to have a comprehensive risk management process to monitor, evaluate and manage the principal risks it assumes in conducting its activities. These risks include credit, market, liquidity and operational risks. As part of Citigroup, the risk management framework is designed to balance corporate oversight with well-defined independent risk management functions. The risk management framework is based on guiding principles established by the Chief Risk Officer of Citigroup: • a common risk capital model to evaluate risks; • a defined risk appetite aligned with business strategy; • accountability through a common framework to manage risks; • risk decisions based on transparent, accurate and rigorous analytics; • expertise, stature, authority and independence of Risk Managers; and • empowering Risk Managers to make decisions and escalate issues. The market disruptions have also increased the risk associated with holding financial instruments. The purpose for which the Group holds or issues financial instruments can be classified into five main categories: • Customer loans and deposits: Customer loans and deposits (both retail and institutional) form a large part

of the Group’s business. The Group has detailed policies and strategies in respect of its customer loans and deposits that seek to minimise the risks associated with these financial instruments.

• Investment securities: The Group holds securities, excluding strategic investments, for use on a continuing

basis in the Group’s activities. The objective of holding such financial instruments is primarily to support collateral requirements or cash and securities clearing and to support liquidity management.

• Finance: The Group issues financial instruments to fund that portion of the Group’s assets not funded by

customer deposits. The objective of using financial instruments for financing purposes is to manage the Group’s balance sheet in terms of minimising market risk and to support liquidity management. Responsibility for overseeing and implementing balance sheet management lies with the Group’s Treasury department.

• Hedging: Where financial instruments form part of the Group’s interest rate management strategy, they are

classified as economic hedges. The objective for holding financial instruments as hedges is to match or minimise the risk arising from adverse movements in interest rates, exchange rates or equity prices. Cash products are the main instruments used for economically hedging the balance sheet.

• Trading: The Group trades in financial instruments for its own account and to facilitate customer

transactions. As a market maker in these products the Group facilitates a two-way flow. Trading activity is restricted to certain areas in the Group and is subject to approved policies and limits. Responsibility for setting trading policies and monitoring adherence thereto lies with Citigroup Risk Management.

In the normal course of business, the Group enters into a variety of derivative transactions principally in the equity, interest rate and foreign exchange markets. They are used to provide financial services to customers and to take hedge and modify positions, as part of trading activities. Derivatives may also be used to economically hedge or modify risk exposures arising on the balance sheet from a variety of activities, including lending and securities investment. Most of the counterparties in the Group’s derivative transactions are banks and other financial institutions. The risks involved in derivatives include market, credit and liquidity risk.


75

36. Financial instruments and risk management (continued) Risk management The management of risk within Citigroup is across three dimensions: businesses, regions and critical products. Each of the major business groups has a Business Chief Risk Officer who is the focal point for risk decisions (such as setting risk limits or approving transactions) in the business. There are also Regional Chief Risk Officers, accountable for the risks in their geographic area, and who are the primary risk contact for the regional business heads and local regulators. In addition, there are Product Risk Officers for those areas of critical importance to Citigroup such as real estate and fundamental credit. The Product Risk Officers are accountable for the risks within their specialty and they focus on specific areas across businesses and regions. The Product Risk Officers serve as a resource to the Chief Risk Officer, as well as to the Business and Regional Chief Risk Officers, to better enable the Business and Regional Chief Risk Officers to focus on the day-to-day management of risks and responsiveness to business flow. The Citigroup risk organisation also includes a Business Management team to seek to ensure that the risk organisation has the appropriate infrastructure, processes and management reporting. This team which supports risk management within the Company includes: • the risk capital group, which continues to enhance the risk capital model so that it is consistent across all

business activities; • the risk architecture group, which seeks to ensures integrated systems and common metrics, and thereby

allows for aggregate and stress exposures across the institution; • the infrastructure risk group, which focuses on improving operational processes across businesses and

regions; and • the office of the Chief Administrative Officer, which focuses on re-engineering risk communications and

relationships, including critical regulatory relationships. Risk aggregation and stress testing The Chief Risk Officer, as noted above, is expected to monitor and control major risk exposures and concentrations across the organisation. This means aggregating risks, within and across businesses, as well as subjecting those risks to alternative stress scenarios in order to assess the potential economic impact they may have on the Group. Stress tests are undertaken across Citigroup mark-to-market, available-for-sale, and amortised cost portfolios. These firm-wide stress reports measure the potential impact to the Group and its component businesses, including the risk within the Group of very large changes in various types of key risk factors (e.g. interest rates, credit spreads), as well as the potential impact of a number of historical and hypothetical forward-looking systemic stress scenarios. Supplementing the stress testing described above, Risk Management working with input from the businesses and Finance, provides periodic updates to senior management and the Board of Directors on significant potential exposures across Citigroup arising from risk concentrations, financial market participants and other systemic issues. These risk assessments are forward-looking exercises, intended to inform senior management and the Board of Directors about the potential economic impacts to Citigroup that may occur directly or indirectly, as a result of hypothetical scenarios, based on judgmental analysis from independent risk managers. The stress testing and risk assessment exercises are a supplement to the standard limit-setting and risk capital exercises described later in this section, as these processes incorporate events in the marketplace and within Citigroup that impact our outlook on the form, magnitude, correlation and timing of identified risks that may arise. In addition to enhancing awareness and understanding of potential exposures within the Group, the results of these processes then serve as the starting point for developing risk management and mitigation strategies. Along with the processes described above, the following sections summarise the processes that were in place during 2009 for managing the Group’s major risks.


76

36. Financial instruments and risk management (continued) Market risk Market risk encompasses liquidity risk and price risk. Liquidity risk has two elements: • the risk that the Group may be unable to meet a financial commitment to a customer, creditor or investor

when due; and • the risk that the market is unable to absorb substantial positions without an impact on market price/valuation

in relation to our trading portfolios. Price risk is the risk to earnings that arises from adverse changes in interest rates, foreign exchange rates, equity prices and in their implied volatilities.

The Group and other Citigroup entities’ business and corporate oversight groups, have defined market risk management responsibilities. Within each business a process is in place to control market risk exposure. The risk management process includes the establishment of appropriate market risk controls and limits, policies and procedures and appropriate senior management risk oversight, with a risk management function independent from the business. Management of this process begins with the professionals nearest to the Group’s customers, products and markets and extends up to the senior executives who manage these businesses and up to the country level. Periodic reviews are conducted by the Audit and Risk Review function for compliance with institutional policies and procedures for the assessment, management and control of market risk. Price risk is measured using various tools including, Interest Rate Gap Analysis, Interest Rate Exposure (“IRE”) limits, stress and scenario analysis which are applied to interest rate risk arising in the non-trading portfolios and factor sensitivity limits, Value-at Risk (“VaR”) and stress and scenario analysis which are applied to the trading portfolios. At the discretion of Market Risk Management, VaR can sometimes be applied to the non-trading portfolio as a complementary measure. Trading price risk Overall objectives The group uses a daily VaR measure, in conjunction with factor sensitivity and stress reporting, as a mechanism for monitoring and controlling market risk. The VaR is calculated at a 99% confidence level assuming a one-day liquidation horizon. Daily losses are expected to exceed the VaR, on average, once every one hundred business days. VaR Methodology The VaR engine is based on the structured Monte-Carlo approach where 5,000 scenarios of market rates/prices are simulated. The covariance matrix of volatility and correlation is updated at least monthly, based on three years’ worth of market data. VaR limitations Although extensive back-testing of VaR hypothetical portfolios is performed, with varying concentrations by industry, risk rating and other factors, the VaR cannot necessarily provide an indication of the potential size of loss when it occurs. Hence a comprehensive set of factor sensitivity limits and stress tests are used, in addition to VaR limits.


77

36. Financial instruments and risk management (continued) Trading price risk (continued) A VaR trigger is in place for the Company that seeks to ensure any excesses are discussed and resolved between Risk and the business and entity management. In addition, the European Commercial Paper (‘ECP’) desk is subject to formal limits on interest rate and issuer exposures that are closely monitored by Risk Management and senior business management. The following table summarises trading price risk by disclosing the Company’s average exposure of its trading book to VaR during the reporting period, together with the exposure as at 31 December:

At 31 Dec Average £ Million £ Million 2009 Equity risk 0.02 0.04 Interest rate risk 0.38 2.78 Foreign currency risk - - Covariance adjustment (0.02) (0.02) Overall 0.38 2.80 2008 Equity risk 0.04 0.42 Interest rate risk 5.45 1.18 Foreign currency risk 0.17 0.05 Covariance adjustment - (0.26) Overall 5.66 1.39

Non-trading price risk Price risk in the non-trading portfolios is measured using Interest Rate Gap Analysis, IRE limits and stress and scenario analysis. Interest Rate Gap Analysis utilises the maturity or re-pricing schedules of balance sheet items to determine interest rate exposures within given tenor buckets. IRE measures the potential earnings impact, over a specified reporting period, from a defined standard set of parallel shifts in the curve. IRE is calculated separately for each currency and reflects the re-pricing gaps in the position, as well as option positions, both explicit and embedded. Limits are set for the U.K. country and business activity, of which the Group is a part. Market Risk Management monitors these limits. The IRE measures the potential change in expected net interest earnings over an accounting horizon of 12 months, 5 years and 10 years and has been broken down into the main currencies on the Company’s balance sheet. The following table shows the IRE measures for the Company at 31 December assuming a parallel upward shift of interest rates by 100 basis points. A positive IRE indicates a potential increase of earnings while a negative IRE indicates a potential decline of earnings.

2009 2008 £ million 12 Months 5 Years 10 Years 12 Months 5 Years 10 Years USD 5 5 5 5 5 5 EUR 2 3 3 6 7 7 GBP 3 3 3 3 3 3


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36. Financial instruments and risk management (continued) Currency exposures The main operating or functional currencies of the Company’s overseas branches and the Group’s subsidiaries are sterling, euros, US dollars, Danish kroner, Swedish kroner and Norwegian kroner. Since the Group prepares its consolidated financial statements in sterling, the Group’s balance sheet is affected by movements between those currencies and sterling. These currency exposures are shown in the following table. The column on the left represents the functional currency of the Company’s branches and the Group’s subsidiaries while the top row represents the exposure of the branches and subsidiaries to currencies other than their functional currency. Functional currency of the Group

2009 £ Million GBP USD Euro Others Total GBP - 195 495 253 943 Euro - (1) - (8) (9) Others - - (1) - (1) Total - 194 494 245 933 2008 £ Million GBP USD Euro Others Total GBP - 518 (227) 157 448 Euro - (3) - 1 (2) Others - 1 1 - 2 Total - 516 (226) 158 448

Transactional currency exposures occur as a result of normal operations and/or cross-border inter-branch transactions. Liquidity risk Management of liquidity at Citigroup is the responsibility of the Corporate Treasury function. A uniform liquidity risk management policy exists for Citigroup and its major operating subsidiaries. Under this policy, there is a single set of standards for the measurement of liquidity risk to seek consistency across businesses, stability in methodologies and transparency of risk. Management of liquidity at each UK operating subsidiary is performed on a daily basis and is monitored by Corporate Treasury. The UK forum for liquidity issues is the UK Asset/Liability Management Committee (“ALCO”), which includes senior executives within the Group and is chaired by the Country Treasurer. This forum is composed of the UK CFO, Regional Corporate Treasurer and business treasury functions. The UK ALCO reviews the current and prospective funding requirements for the Company, as well as the capital position and balance sheet. A liquidity plan is prepared annually and the liquidity profile is monitored on an on-going basis and reported daily. Liquidity risk is monitored using various ratios and limits in accordance with the Liquidity Risk Management Policy for Citigroup. The funding and liquidity plan includes analysis of the balance sheet as well as the economic and business conditions impacting the major operating subsidiaries in the UK. As part of the funding and liquidity plan, liquidity limits, liquidity ratios and assumptions for periodic stress tests are reviewed and approved. Simulated liquidity stress testing is performed and reviewed by the UK ALCO. The scenarios include assumptions about significant changes in key funding sources, credit ratings and contingent uses of funding. The product of these stress tests is a series of alternatives that can be used in the event of a liquidity event.


79

36. Financial instruments and risk management (continued) Liquidity risk (continued) The following table analyses the Group’s assets and liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date: Group

2009 1 year or less£ million

>1 year and < 5 years

£ Million

Greater than 5 years

£ MillionTotal

£ Million

Assets Cash and balances at central banks 305 - - 305 Loans and advances to banks 17,752 328 - 18,080 Loans and advances to customers 5,203 2,017 1,471 8,691 Derivative financial instruments 304 108 13 425 Trading assets 2,578 - - 2,578 Investment securities 83 384 1,003 1,470 Assets held for sale 846 - - 846 All other assets 1,400 71 229 1,700

Total assets 28,471 2,908 2,716 34,095 2008 total assets 38,467 4,751 4,858 48,076

Liabilities Deposits by banks 17,249 836 132 18,217 Customer accounts 9,153 1 - 9,154 Derivative financial instruments 313 522 81 916 Debt securities in issue 189 1,099 571 1,859 Subordinated loan notes - - 405 405 All other liabilities and equity 3,666 75 (197) 3,544

Total liabilities and equity 30,570 2,533 992 34,095 2008 total liabilities 39,399 3,927 4,750 48,076

2009 net liquidity gap (2,099) 375 1,724 -

2008 net liquidity gap (932) 824 108 -


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36. Financial instruments and risk management (continued) Liquidity risk (continued) The following table analyses the Company’s assets and liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date: Company

2009 1 year or less£ million

>1 year and < 5 years

£ Million


£ MillionTotal

£ Million

Assets Cash and balances at central banks 305 - - 305 Loans and advances to banks 19,646 324 - 19,970 Loans and advances to customers 4,948 1,542 1,045 7,535 Derivative financial instruments 304 108 13 425 Trading assets 2,578 - - 2,578 Investment securities 83 387 1,002 1,472 Assets held for sale 846 - - 846 All other assets 1,635 38 135 1,808

Total assets 30,345 2,399 2,195 34,939 2008 total assets 39,466 3,886 4,126 47,478

Liabilities Deposits by banks 18,802 565 132 19,499 Customer accounts 9,153 1 - 9,154 Derivative financial instruments 313 522 81 916 Debt securities in issue 168 1,105 193 1,466 Subordinated loan notes - - 405 405 All other liabilities and equity 3,691 78 (270) 3,499

Total liabilities and equity 32,127 2,271 541 34,939 2008 total liabilities 40,225 3,062 4,191 47,478

2009 net liquidity gap (1,782) 128 1,654 -

2008 net liquidity gap (759) 824 (65) -


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36. Financial instruments and risk management (continued) Liquidity risk (continued) The table below analyses the Group’s liabilities into relevant maturity groupings based on the remaining contractual future undiscounted cash flows up to maturity. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Group manages the liquidity risk based on the contractual maturity as disclosed in the previous table. Group

2009

3 months or less

£ Million

> 3 months and < 1

year£ Million

>1 year and < 5

years£ Million


£ Million

Gross nominal inflow/

(outflow) £ Million

Liabilities Deposits by banks 15,349 1,945 926 155 18,375 Customer accounts 8,647 525 1 - 9,173 Derivative financial instruments 62 251 522 81 916 Debt securities in issue 61 168 1,433 724 2,386 Subordinated loan notes 4 11 56 431 502

24,123 2,900 2,938 1,391 31,352 2008 Liabilities Deposits by banks 23,729 4,053 2,013 152 29,947 Customer accounts 8,059 393 1 - 8,453 Derivative financial instruments 629 306 893 332 2,160 Debt securities in issue 65 147 1,671 1,028 2,911 Subordinated loan notes 4 11 57 461 533

32,486 4,910 4,635 1,973 44,004

The following table analyses the Company’s liabilities into relevant maturity groupings based on the remaining contractual undiscounted cash flows including interest: Company

2009

3 months or less

£ Million

> 3 months and < 1

year£ Million

>1 year and < 5

years£ Million


£ Million

Gross nominal inflow/

(outflow)£ Million

Liabilities Deposits by banks 17,179 1,668 626 137 19,610 Customer accounts 8,647 525 - - 9,172 Derivative financial instruments 62 251 522 81 916 Debt securities in issue 40 168 1,438 346 1,992 Subordinated loan notes 4 11 56 431 502

25,932 2,623 2,642 995 32,192 2008 Liabilities Deposits by banks 24,891 3,713 1,036 152 29,792 Customer accounts 8,061 393 - - 8,454 Derivative financial instruments 629 306 893 332 2,160 Debt securities in issue 40 147 1,676 612 2,475 Subordinated loan notes 4 11 57 461 533

33,625 4,570 3,662 1,557 43,414

Assets available to meet all of the liabilities and to cover outstanding loan commitments include cash, central bank balances, items in the course of collection, loans and advances to banks and loans and advances to customers. The Group would also be able to meet unexpected net cash outflows by selling securities.


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36. Financial instruments and risk management (continued) Credit risk Credit risk is the potential for financial loss resulting from the failure of a borrower or counterparty to honour its financial or contractual obligations. Credit risk arises in many of Citigroup’s business activities, including: • lending; • sales and trading; • derivatives; • securities transactions; • settlement; and • when Citigroup acts as an intermediary on behalf of its clients and other third parties. For corporate clients and investment banking activities across the organization, the credit process is grounded in a series of fundamental policies, including: • joint business and independent risk management responsibility for managing credit risks; • single centre of control for each credit relationship that coordinates credit activities with that client; • portfolio limits seek to ensure diversification and maintain risk/capital alignment; • a minimum of two authorized-credit-officer signatures are required on extensions of credit, one of which

must be from a credit officer in credit risk management; • risk rating standards, applicable to every obligor and facility; and • consistent standards for credit origination documentation and remedial management. Corporate loans are identified as impaired when it is determined that the payment of interest or principal is doubtful or when interest or principal is past due for 90 days or more, the exception is when the loan is well secured and in the process of collection. Impaired corporate loans are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans are written down to the lower of cost or collateral value, less disposal costs. The Group structures the level of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or group of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. The exposure to any one borrower is further restricted by sub-limits covering on- and off-balance sheet exposures. Actual exposures against limits are monitored daily. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees, but a significant portion is lending where no such facilities can be obtained. The Group’s maximum credit exposure is represented by the financial assets presented on the balance sheet and, additionally, off-balance sheet items disclosed in Note 35. Derivatives The Group maintains strict control limits on net open derivative positions by both amount and term. At any one time, the amount subject to credit risk is limited to the current fair value of instruments that are favourable to the Group (i.e. assets where their fair value is positive), which in relation to derivatives is only a small fraction of the contract, or notional values, used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Master netting arrangements The Group further restricts its exposure to credit losses by entering into master netting arrangements with counterparties with which it undertakes a significant volume of transactions. Master netting arrangements do not generally result in an offset of balance sheet assets and liabilities, as transactions are usually settled on a gross basis. However, the credit risk associated with favourable contracts is reduced by a master netting arrangement to the extent that if an event of default occurs, all amounts with the counterparty are terminated and settled on a net basis. The Group’s overall exposure to credit risk on derivative instruments subject to master netting arrangements can change substantially within a short period, as it is affected by each transaction subject to the arrangement.


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36. Financial instruments and risk management (continued) Credit risk (continued) Credit-related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit – which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties – carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions – are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. Management of credit risk The different business segments manage their credit risk process as follows: Institutional Clients Group Credit risk is measured by total facilities and an exposure measurement, which consists of outstanding and unused committed facility amounts. There are five exposure types: direct, contingent, counterparty, settlement and clearing. Facility risk ratings are assigned to all credit exposures, and obligor risk ratings to all relationships. Facilities must be approved by the appropriate independent risk and Business Credit Officers. Facilities are re-assessed annually and are as a result either re-approved or terminated. Extension of credit is governed by limits based on an obligor's risk rating. Weaker credits are monitored either quarterly or monthly depending on the exposure amount and credit quality. A dedicated team is responsible for risk reporting and aggregation at the obligor level. The credit quality of assets is monitored regularly and reported to senior management and the Board quarterly. In addition, high risk exposures are reported to senior management monthly. Any sudden credit events are promptly escalated to senior risk and business managers.


84

36. Financial instruments and risk management (continued) Credit risk (continued) Management of credit risk (continued) Credit quality The table below presents an analysis of the Group’s ICG Loans and advances to customers, European commercial paper, Corporate bonds and Government bonds by rating agency designation based on Standard & Poors rating or their internal equivalent:

European commercial

paperCorporate

bondsGovernment

bonds2009

%2009

%2009

% 2009

%

AAA 8 64 36 -AA+ to A- 1 29 39 33Lower than A- 82 7 25 67Unrated 9 - - -

100 100 100 100

2008%

2008%

2008%

2008%

AAA 13 - 41 -AA+ to A- 84 100 39 100Lower than A- 3 - 15 -Unrated - - 5 -

100 100 100 100

Trading PortfolioLoans and

advances to customers

99% (2008: 92%) of loans and advances to banks in the Group comprise of balances with fellow Citigroup entities. In 2009 derivative financial assets comprise 52% (2008: 22%) graded within AA- to A+ and 0% (2008:0%) graded within AAA. Local Consumer Lending Country Business Managers have ownership of portfolios and are accountable for managing the risk/return trade-offs in their businesses. In cooperation with Senior/Country Credit Officers they implement policies, procedures and risk management practices in their businesses that are compliant with global consumer credit risk policies. Consumer Risk Officers regularly review the performance of the consumer businesses and seek to ensure that appropriate control is exercised. A risk differentiated approach is employed, such that critical activities, for example collection and fraud, are reviewed with greater frequency. Credit authority levels, the delegation process, approval processes for portfolios, product approvals, and other types of required approvals, as well as credit authority levels and responsibilities are defined in Global Consumer Credit and Fraud Risk Policies. These policies establish a consistent set of standards for the appointment of Credit Officers and Senior Credit Officers, streamline the approval process, create auditable policies, and seek to ensure the accountability and responsibility of risk management staff. The Country Credit Officer prepares credit strategy in collaboration with the Country Business Manager, which is reviewed by the Regional Senior Credit Officer.


85

36. Financial instruments and risk management (continued) Credit risk (continued) Management of credit risk (continued) There is an established set of measures, procedures and policies that aims at monitoring results of retail portfolios. These include: • comparison of indicators to past performance; • country Credit Officer reviews; • stress tests; and • mandates and approval authorities. In addition to these procedures, each business has credit benchmarks that set out its short and long-term expectations. Loans and advances to customers

Group 2009

Residentialmortgages

Charge and credit card

debtorsCommercial

loansConsumer

loans

Other loans and

advances Total £ Million £ Million £ Million £ Million £ Million £ Million

Gross amount 180 1,138 5,133 3,304 439 10,194

Carrying amount 180 805 4,966 3,001 438 9,390

Individually Impaired1 - 119 days past due - - 729 49 9 787 120 - 179 days past due - - - 26 - 26 180 days or more past due - 179 2 156 - 337 Gross amount - 179 731 231 9 1,150

Individually assessed allowance for loans and advances

- (179) (76) (201) - (456)

Carrying amount - - 655 30 9 694

Collectively ImpairedCurrent - 738 4,018 1,974 356 7,086 1 - 119 days past due - 156 - 369 - 525 120 - 180 days past due - 31 - 8 - 39 Gross amount - 925 4,018 2,351 356 7,650

Collectively assessed allowance for loans and advances

- (154) (91) (103) - (348)

Carrying amount - 771 3,927 2,248 356 7,302

Neither past due nor impairedRisk rating I (current) 180 34 384 723 73 1,394 Risk rating IA & II (special mention and sub-standard) - - - - - -

Carrying amount 180 34 384 723 73 1,394

Total carrying amount 180 805 4,966 3,001 438 9,390


86

36. Financial instruments and risk management (continued) Credit risk (continued) Management of credit risk (continued) Loans and advances to customers

Group 2008



debtorsCommercial

loansConsumer

loans

Other loans and


Gross amount 194 1,796 7,855 4,489 712 15,046

Carrying amount 185 1,604 7,716 4,303 704 14,512

Individually Impaired1 - 119 days past due - - 147 41 - 188 120 - 179 days past due - - - 19 - 19 180 days or more past due - 95 - 58 - 153 Gross Amount - 95 147 118 - 360


- (95) (65) (94) - (254)

Carrying amount - - 82 24 - 106

Collectively ImpairedCurrent - 1,422 5,102 3,203 38 9,765 1 - 119 days past due 1 228 - 396 - 625 120 - 180 days past due - 39 - 2 - 41 Gross amount 1 1,689 5,102 3,601 38 10,431


- (100) (80) (100) - (280)

Carrying amount 1 1,589 5,022 3,501 38 10,151

Neither past due nor impairedRisk rating I (current) 184 15 2,533 778 640 4,150 Risk rating IA & II (special mention and sub-standard) - - 79 - 26 105

Carrying amount 184 15 2,612 778 666 4,255

Total carrying amount 185 1,604 7,716 4,303 704 14,512


87


Company 2009



debtorsCommercial

loansConsumer

loans

Other loans and


Gross amount 180 1,138 5,133 2,482 32 8,965

Carrying amount 180 805 4,969 2,247 32 8,233

Individually impaired1 - 119 days past due - - 729 49 9 787 120 - 179 days past due - - - 26 - 26 180 days or more past due - 179 2 156 - 337 Gross amount - 179 731 231 9 1,150


- (178) (76) (202) - (456)

Carrying amount - 1 655 29 9 694

Collectively impairedCurrent - 736 4,018 1,244 21 6,019 1 - 119 days past due - 156 - 276 - 432 120 - 180 days past due - 31 - 8 - 39 Gross amount - 923 4,018 1,528 21 6,490


- (155) (88) (33) - (276)

Carrying amount - 768 3,930 1,495 21 6,214

Neither past due nor impairedRisk rating I (current) 180 36 384 723 2 1,325 Risk rating IA & II (special mention and sub-standard) - - - - - -

Carrying amount 180 36 384 723 2 1,325

Total carrying amount 180 805 4,969 2,247 32 8,233


88


Company 2008



debtorsCommercial

loansConsumer

loans

Other loans and


Gross amount 194 1,775 7,855 3,208 266 13,298

Carrying amount 185 1,584 7,718 3,075 258 12,820

Individually impaired1 - 119 days past due - - 147 41 - 188 120 - 179 days past due - - - 19 - 19 180 days or more past due - 95 - 58 - 153 Gross amount - 95 147 118 - 360


- (94) (65) (95) - (254)

Carrying amount - 1 82 23 - 106

Collectively impairedCurrent - 1,420 5,102 2,038 38 8,598 1 - 119 days past due 1 225 - 280 - 506 120 - 180 days past due - 39 - 2 - 41 Gross amount 1 1,684 5,102 2,320 38 9,145


- (101) (77) (46) - (224)

Carrying amount 1 1,583 5,025 2,274 38 8,921

Neither past due nor impairedRisk rating I (current) 184 - 2,532 778 210 3,704 Risk rating IA & II (special mention and sub-standard)

- - 79 - 10 89

Carrying amount 184 - 2,611 778 220 3,793

Total carrying amount 185 1,584 7,718 3,075 258 12,820

Included in commercial loans in the tables above are £42 million (2008: £233 million) of loans made to banks. Commercial loans designated at fair value through the profit and loss of £183 million (2008: £356 million) have been excluded from the above tables. Loans and advances to customers that have been included as Assets-held-for-sale in the balance sheet of £839 million have been excluded from the above tables. The credit quality of Local Consumer Lending assets is measured and reported on a days past due model. This model identifies the gross value of balances which are current (i.e. are not yet past due) and those balances which are past due depending on how many days past due the balance is. The past due model shows that 78% (2008: 86%) of the gross balance is current, 13% (2008: 11%) is 1 – 119 days past due, and 9% (2008: 3%) is greater than 120 days past due.


89

36. Financial instruments and risk management (continued) Credit risk (continued) Credit risk concentrations A concentration of credit risk exists when a number of counterparties are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. The Group and Company credit risk concentrations by industry are as follows:

2009£ Million

2008£ Million

2009£ Million

2008£ Million

Chemicals 198 386 198 386 Communication 287 215 287 215 Consumer 4,510 7,021 3,282 5,273 Engineering 709 949 709 949 Transport 963 876 963 876 Financial 974 2,757 974 2,757 Manufacturing 114 1,683 114 1,683 Other 1,740 1,515 1,740 1,515

9,495 15,402 8,267 13,654

Group Company

Operational risk management process (unaudited) Operational risk is the risk of loss resulting from inadequate or failed internal processes, human factors or systems or from external events. It includes the reputation and franchise risk associated with business practices or market conduct that the Group undertakes. Operational risk is inherent in the Group’s business activities and, as with other risk types, is managed through an overall framework with checks and balances that includes: • Recognised ownership of the risk by the businesses; • Oversight by independent risk management; and • Independent review by Audit and Risk Review (ARR). Framework The Group follows the approach to operational risk defined in the Citigroup Risk and Control Self-Assessment (RCSA)/Operational Risk Policy. The objective of the Policy is to establish a consistent value-added framework for assessing and communicating operational risk and the overall effectiveness of the internal control environment across Citigroup. Information about operational risk, historical losses and the control environment, is reported and summarised for the Audit Committee, senior management and for the Directors.


90

36. Financial instruments and risk management (continued) Capital management Regulatory capital The Group’s capital adequacy position is managed and monitored in accordance with the prudential requirements of the Financial Services Authority (‘FSA’), the UK regulator. The Group must at all times meet the relevant minimum capital requirements of the FSA. The Group has established processes and controls in place to monitor and manage its capital adequacy position and remained in compliance with these requirements throughout the year. Under the FSA’s minimum capital standards, the Group is required to maintain a prescribed excess of total capital resources over its capital resources requirements. In meeting these requirements, the Group recognises a number of credit risk mitigation techniques in calculating the charges for credit risk. The Group’s regulatory capital resources comprise two distinct elements: • Tier one capital, which includes ordinary share capital, share premium, retained earnings and capital

reserves; and • Tier two capital, which includes qualifying long-term subordinated liabilities. Various limits are applied to elements of the capital base. For example, the amount of qualifying Tier 2 capital cannot exceed tier 1 capital; and the qualifying term subordinated loan capital may not exceed 50 percent of Tier 1 capital. Other deductions from capital include the carrying amounts of investments in subsidiaries that are not included in the regulatory consolidation, investments in the capital of banks and certain other regulatory items. The Group’s policy is to maintain sufficient capital base in order to maintain investor, creditor and market confidence and to sustain the future development of the business. The impact of the level of capital on shareholder return is also recognised and the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Group’s regulatory capital resources at 31 December were as follows: 2009 2008 £ Million £ Million Tier 1 capital 2,159 2,816 Tier 2 capital 629 732 2,788 3,548 Deductions from Tier 1 & Tier 2* (164) (160) Total regulatory capital* 2,624 3,388 * Unaudited


91

37. Operating lease commitments Group Total Total

2009£ Million

2008£ Million

At the year-end, the rental commitments under non-cancellableoperating leases were as follows:

Expiring: - Within one year 11 13 - Between one and five years 3 3 - Later than five years - 3

14 19

38. Segmental analysis During 2009 in line with changes in the operating structure of Citigroup Inc and the adoption of IFRS 8 ‘Operating Segments’, there has been a change in the operating segments of the Group in line with the factors that Citigroup Inc. use to identify its business segments. The Group is organised into two main reporting segments, ICG and LCL and it conducts its business in the United Kingdom and Western Europe. There are several operational segments within each reporting segment which have been aggregated into reporting segments. ICG provides corporations, governments, institutions and investors with a broad range of investment banking products and services, including investment banking, debt trading, advisory services, foreign exchange, structured products, derivatives and lending, and investment advice and asset management services to high net worth individuals, retail clients and institutions. LCL delivers a wide array of retail banking, cards, lending, insurance and investment services through a network of local branches, offices and electronic delivery systems. The LCL business services both individual consumers as well as small businesses. Transactions between business segments are undertaken on an arm’s length basis. Gross income includes dividend income, net fee and commission income, net income on items at fair value through profit and loss and net investment income. The Gross income from third parties represents income with non related entities, this information is not readily available for 2008. ‘Impairment charge – loans’ includes the impairment charge on loans and advances to customers plus recoveries.


92

38. Segmental analysis (continued)

United Kingdom

Western Europe

Total United Kingdom

Western Europe


Western Europe

Total

£ Million £ Million £ Million £ Million £ Million £ Million £ Million £ Million £ MillionGross income 306 167 473 79 697 776 385 864 1,249

Interest income 340 32 372 63 666 729 403 698 1,101 Interest expense (268) 26 (242) (132) (84) (216) (400) (58) (458)

(Loss)/profit before tax (224) (201) (425) 30 (232) (202) (194) (433) (627) Income tax expense 157 (28) 129 (11) (64) (75) 146 (92) 54

(Loss)/profit for the year (67) (229) (296) 19 (296) (277) (48) (525) (573)

Segment assets 21,063 3,777 24,840 6,753 2,502 9,255 27,816 6,279 34,095

Total assets 21,063 3,777 24,840 6,753 2,502 9,255 27,816 6,279 34,095

Segment liabilities 15,826 6,745 22,571 8,220 1,107 9,327 24,046 7,852 31,898

Total liabilities 15,826 6,745 22,571 8,220 1,107 9,327 24,046 7,852 31,898

Other segment items:Gross income from third parties 188 233 421 (1) 461 460 187 694 881 Capital expenditure 66 2 68 - 5 5 66 7 73 Depreciation 50 2 52 - 14 14 50 16 66 Impairment charge - loans 127 45 172 1 586 587 128 631 759 Amortisation of intangibles 33 3 36 1 26 27 34 29 63

2009Institutional Clients Group Local Consumer Lending Total

United Kingdom

Western Europe


Western Europe


Western Europe

Total

£ Million £ Million £ Million £ Million £ Million £ Million £ Million £ Million £ MillionGross income 1,053 389 1,442 311 696 1,007 1,364 1,085 2,449

Interest income 718 251 969 270 657 927 988 908 1,896 Interest expense (595) (91) (686) (396) (120) (516) (991) (211) (1,202)

(Loss)/profit before tax 109 (9) 100 (66) (121) (187) 43 (130) (87) Income tax expense (42) 15 (27) 13 11 24 (29) 26 (3)

(Loss)/profit for the year 67 6 73 (53) (110) (163) 14 (104) (90)

Segment assets 27,583 5,450 33,033 9,141 5,902 15,043 36,724 11,352 48,076

Total assets 27,583 5,450 33,033 9,141 5,902 15,043 36,724 11,352 48,076

Segment liabilities 23,866 6,251 30,117 13,023 2,190 15,213 36,889 8,441 45,330

Total liabilities 23,866 6,251 30,117 13,023 2,190 15,213 36,889 8,441 45,330

Other segment items:Capital expenditure 40 12 52 - 12 12 40 24 64 Depreciation 41 5 46 - 9 9 41 14 55 Impairment charge - loans 233 8 241 1 294 295 234 302 536 Amortisation of intangibles 18 2 20 1 19 20 19 21 40

Institutional Clients Group Local Consumer Lending Total2008


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39. Parent companies The Company is a subsidiary undertaking of Citibank Investments Limited, which is incorporated in England. The largest group in which the results of the Group are consolidated is that headed by Citigroup Inc. The audited consolidated financial statements of Citigroup Inc. are made available to the public annually in accordance with Securities and Exchange Commission regulations and may be obtained from www.citigroup.com/citi/corporategovernance/ar.htm.

citibank international plc (registered number: 1088249) … · the directors present their report...

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