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Capital is generally generated via earnings from operating businesses. This is augmented through issuance of common stock, convertible preferred stock, preferred stock, subordinated debt, and equity issued through awards under employee benefit plans. Capital is used primarily to support assets in the Company’s businesses and to absorb unexpected market, credit or operational losses. The Company’s uses of capital, particularly to pay dividends and repurchase common stock, became severely restricted during the latter half of 2008. See “The Company,” “Management’s Discussion and Analysis – Events in 2008,” “TARP and Other Regulatory Programs,” “Risk Factors” and “Common Equity” on pages 2, 9, 44, 47 and 95, respectively.

Citigroup’s capital management framework is designed to ensure that Citigroup and its principal subsidiaries maintain sufficient capital consistent with the Company’s risk profile, all applicable regulatory standards and guidelines, and external rating agency considerations. The capital management process is centrally overseen by senior management and is reviewed at the consolidated, legal entity, and country level.

Senior management oversees the capital management process of Citigroup and its principal subsidiaries mainly through Citigroup’s Finance and Asset and Liability Committee (FinALCO). The Committee is composed of the senior-most management of Citigroup for the purpose of engaging management in decision-making and related discussions on capital and liquidity items. Among other things, the Committee’s responsibilities include: determining the financial structure of Citigroup and its principal

subsidiaries; ensuring that Citigroup and its regulated entities are adequately capitalized; determining appropriate asset levels and return hurdles for Citigroup and individual businesses; reviewing the funding and capital markets plan for Citigroup; and monitoring interest-rate risk, corporate and bank liquidity, the impact of currency translation on non-U.S. earnings and capital. The FinALCO has established capital targets for Citigroup and for significant subsidiaries. At December 31, 2008, these targets exceeded the regulatory standards.

Common and Preferred Stock Issuances

As discussed under “Events in 2008” on page 9, during 2008, the Company issued $45 billion in preferred stock and warrants under TARP, $12.5 billion of convertible preferred stock in a private offering, $11.7 billion of

non-convertible preferred stock in public offerings, $3.2 billion of convertible preferred stock in public offerings, and $4.9 billion of common stock in public offerings.

On January 23, 2009, pursuant to our prior agreement with the purchasers of the $12.5 billion convertible preferred stock issued in the private offering, the conversion price was reset from $31.62 per share to $26.35 per share. The reset will result in Citigroup’s issuing approximately 79 million additional common shares if converted. There will be no impact to net income, total stockholders’ equity or capital ratios due to the reset. However, the reset will result in a reclassification from Retained earnings to

Additional paid-in capital of $1.2 billion to reflect the benefit of the reset to

the preferred stockholders.

Capital Ratios

Citigroup is subject to risk-based capital ratio guidelines issued by the Federal Reserve Board (FRB). Capital adequacy is measured via two risk- based ratios, Tier 1 and Total Capital (Tier 1 + Tier 2 Capital). Tier 1 Capital is considered core capital while Total Capital also includes other items such as subordinated debt and loan loss reserves. Both measures of capital are stated as a percentage of risk-weighted assets. Risk-weighted assets are measured primarily on their perceived credit risk and include certain off-balance-sheet exposures, such as unfunded loan commitments and letters of credit, and the notional amounts of derivative and foreign- exchange contracts. Citigroup is also subject to the Leverage Ratio requirement, a non-risk-based asset ratio, which is defined as Tier 1 Capital as a percentage of adjusted average assets.

To be “well capitalized” under 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 an FRB directive to maintain higher capital levels.

As noted in the following table, Citigroup maintained a “well capitalized” position during both 2008 and 2007.

Citigroup Regulatory Capital Ratios

At year end 2008 2007

Tier 1 Capital 11.92% 7.12%

Total Capital (Tier 1 and Tier 2) 15.70 10.70

Leverage(1) _{6.08 4.03}

(1) Tier 1 Capital divided by adjusted average assets.

Events occurring during 2008, including the transactions with the U.S. government, affected Citigroup’s capital ratios, and any additional U.S. government financial involvement with the Company could further impact the Company’s capital ratios. In addition, future operations will affect capital levels, and changes that the FASB has proposed regarding off-balance-sheet assets, consolidation and sale treatment could also have an impact on capital ratios. See also Note 23 to the Consolidated Financial Statements on page 175, including “Funding Liquidity Facilities and Subordinate Interests.”

Components of Capital Under Regulatory Guidelines In millions of dollars at year end 2008 2007(1)

Tier 1 Capital

Common stockholders’ equity(2) _{$ 70,966 $ 113,447}

Qualifying perpetual preferred stock 70,664 —

Qualifying mandatorily redeemable securities of subsidiary

trusts 23,899 23,594

Minority interest 1,268 4,077

Less: Net unrealized gains (losses) on securities

available-for-sale, net of tax(3) _{(9,647) 471}

Less: Accumulated net losses on cash flow hedges, net of

tax (5,189) (3,163)

Less: Pension liability adjustment, net of tax(4) _{(2,615) (1,196)} Less: Cumulative effect included in fair value of financial

liabilities attributable to credit worthiness, net of tax(5) _{3,391 1,352}

Less: Restricted core capital elements(6) _{— 1,364}

Less: Disallowed deferred tax assets(7) _{23,520 —}

Less: Intangible assets:

Goodwill 27,132 41,053

Other disallowed intangible assets 10,607 10,511

Other (840) (1,500)

Total Tier 1 Capital $118,758 $ 89,226

Tier 2 Capital

Allowance for credit losses(8) _{$ 12,806 $ 15,778}

Qualifying debt(9) _{24,791 26,690}

Unrealized marketable equity securities gains(3) _{43 1,063}

Restricted core capital elements(6) _{— 1,364}

Total Tier 2 Capital $ 37,640 $ 44,895

Total Capital (Tier 1 and Tier 2) $156,398 $ 134,121

Risk-weighted assets(10) _{$996,247 $1,253,321}

(1) Reclassified to conform to the current period’s presentation.

(2) Reflects prior period adjustment to opening retained earnings as presented in the Consolidated Statement of Changes in Stockholders’ Equity on page 118.

(3) Tier 1 Capital excludes unrealized gains and losses on debt securities available-for-sale in accordance with regulatory risk-based capital guidelines. Institutions are required to deduct from Tier 1 Capital net unrealized holding gains on available-for-sale equity securities with readily determinable fair values, net of tax. The federal bank regulatory agencies permit institutions to include in Tier 2 Capital up to 45% of pretax net unrealized holding gains on available-for-sale equity securities with readily determinable fair values, net of tax.

(4) The FRB granted interim capital relief for the impact of adopting SFAS 158.

(5) The impact of including Citigroup’s own credit rating in valuing liabilities for which the fair value option has been selected is excluded from Tier 1 Capital, in accordance with regulatory risk-based capital guidelines.

(6) Represents the excess of allowable restricted core capital in Tier 1 Capital. Restricted core capital is limited to 25% of all core capital elements, net of goodwill.

(7) Of the Company’s $44 billion of net deferred tax assets at December 31, 2008, $14 billion were includable without limitation in regulatory capital pursuant to the risk-based capital guidelines, while $24 billion exceeds the limitation imposed by these guidelines and as “disallowed deferred tax assets” were deducted in arriving at Tier 1 Capital. The Company’s other $6 billion of net deferred tax assets at December 31, 2008, primarily represented the deferred tax effects of unrealized gains and losses on available-for-sale debt securities, which are permitted to be excluded prior to deriving the amount of net deferred tax assets subject to limitation under the guidelines. The Company had no disallowed deferred tax assets at December 31, 2007.

(8) Can include up to 1.25% of risk-weighted assets. Any excess allowance is deducted from risk- weighted assets.

(9) Includes qualifying subordinated debt in an amount not exceeding 50% of Tier 1 Capital. (10) Includes risk-weighted credit equivalent amounts, net of applicable bilateral netting agreements, of

$102.9 billion for interest rate, commodity and equity derivative contracts, foreign-exchange contracts and credit derivatives as of December 31, 2008, compared with $91.3 billion as of December 31, 2007. Market-risk-equivalent assets included in risk-weighted assets amounted to $101.8 billion at December 31, 2008 and $109.0 billion at December 31, 2007. Risk-weighted assets also include the effect of other off-balance-sheet exposures, such as unused loan commitments and letters of credit, and reflect deductions for certain intangible assets and any excess allowance for credit losses.

Common stockholders’ equity decreased approximately $42.4 billion to $71.0 billion, representing 3.7% of total assets as of December 31, 2008 from $113.4 billion and 5.2% at December 31, 2007.

Common Equity

The table below summarizes the change in common stockholders’ equity during 2008:

In billions of dollars

Common equity, December 31, 2007 $113.4

Net loss (27.7)

Employee benefit plans and other activities 4.1

Dividends (7.6)

Issuance of shares for Nikko Cordial acquisition 4.4

Issuance of common stock 4.9

Net change in Accumulated other comprehensive income (loss), net of tax (20.5)

Common equity, December 31, 2008 $ 71.0

As of December 31, 2008, $6.7 billion of stock repurchases remained under authorized repurchase programs after no material repurchases were made in 2008 and $0.7 billion of repurchases were made in 2007. Under TARP, the Company is restricted from repurchasing common stock, subject to certain exceptions, including in the ordinary course of business as part of employee benefit programs. In addition, in accordance with various TARP programs, Citigroup has agreed not to pay a quarterly common stock dividend exceeding $0.01 per share per quarter for three years (beginning in 2009) without the consent of the U.S. Treasury. See “TARP and Other Regulatory Programs” on page 44.

The Company is currently in ongoing discussions with the Federal Reserve Board regarding an increase to the Company’s risk-weighted assets resulting from certain liquidity-facility transactions relating to the Company’s primary credit card securitization trusts. This increase in risk- weighted assets will affect the calculation of the Company’s risk-based capital ratios. However, the timing and extent of the increase is not yet certain, pending completion of discussions with the Federal Reserve Board. See Note 23 to the Consolidated Financial Statements on page 175. Tangible Common Equity (TCE)

The Company and its bank regulators view the Tier 1 Capital Ratio as being the most important measure of risk capital for bank holding companies. Citigroup’s Tier 1 Capital Ratio was 11.92% at December 31, 2008 compared to 7.12% at December 31, 2007.

Tangible common equity (TCE) represents Common equity less

Goodwill and Intangible assets (excluding MSRs). TCE was $29.7 billion at

December 31, 2008, compared to $58.1 billion at December 31, 2007. The

TCE Ratio (TCE divided by risk-weighted assets) was 3.0% at December 31,

2008 compared to 4.6% at December 31, 2007. The primary drivers of the decline in TCE during the year were the 2008 net loss of $27.7 billion, and an increase in negative Accumulated other comprehensive income (AOCI) of $21 billion.

On February 27, 2009, the Company announced an exchange offer of its common stock for up to $27.5 billion of its existing preferred securities and trust preferred securities. The U.S. government will match this exchange up to a maximum of $25 billion of its preferred. These transactions are intended to increase the Company’s TCE. See “Outlook for 2009” on page 7.

Mandatorily Redeemable Securities of Subsidiary Trusts Total mandatorily redeemable securities of subsidiary trusts (trust preferred securities), which qualify as Tier 1 Capital, were $23.899 billion at

December 31, 2008, as compared to $23.594 billion at December 31, 2007. In 2008, Citigroup did not issue any new enhanced trust preferred securities.

The FRB issued a final rule, with an effective date of April 11, 2005, which retains trust preferred securities in Tier 1 Capital of bank holding companies, but with stricter quantitative limits and clearer qualitative standards. Under the rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other restricted core capital elements included in Tier 1 Capital of internationally active banking organizations, such as Citigroup, would be limited to 15% of total core capital elements, net of goodwill, less any associated deferred tax liability. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 Capital, subject to restrictions. At December 31, 2008, Citigroup had approximately 11.8% against the limit. The Company expects to be within restricted core capital limits prior to the implementation date of March 31, 2009.

The FRB permits additional securities, such as the equity units sold to ADIA, to be included in Tier 1 Capital up to 25% (including the restricted core capital elements in the 15% limit) of total core capital elements, net of goodwill less any associated deferred tax liability. At December 31, 2008, Citigroup had approximately 16.1% against the limit.

The FRB granted interim capital relief for the impact of adopting SFAS 158 at December 31, 2008 and December 31, 2007.

The FRB and the FFIEC may propose amendments to, and issue interpretations of, risk-based capital guidelines and reporting instructions. These may affect reported capital ratios and net risk-weighted assets. Capital Resources of Citigroup’s Depository Institutions Citigroup’s subsidiary depository institutions in the United States are subject to risk-based capital guidelines issued by their respective primary federal bank regulatory agencies, which are similar to the FRB’s guidelines. To be “well capitalized” under federal bank regulatory agency definitions, Citigroup’s depository institutions must have a Tier 1 Capital Ratio of at least 6%, a Total Capital (Tier 1 + Tier 2 Capital) Ratio of at least 10% and a Leverage Ratio of at least 5%, and not be subject to a regulatory directive to meet and maintain higher capital levels.

At December 31, 2008, all of Citigroup’s subsidiary depository institutions were “well capitalized” under the federal regulatory agencies’ definitions, including Citigroup’s primary depository institution, Citibank, N.A., as noted in the following table:

Citibank, N.A. Components of Capital and Ratios Under Regulatory Guidelines

In billions of dollars at year end 2008 2007

Tier 1 Capital $ 71.0 $ 82.0

Total Capital (Tier 1 and Tier 2) 108.4 121.6

Tier 1 Capital Ratio 9.94% 8.98%

Total Capital Ratio (Tier 1 and Tier 2) 15.18 13.33

Leverage Ratio(1) _{5.82 6.65}

(1) Tier 1 Capital divided by adjusted average assets.

Citibank, N.A. had a net loss for 2008 amounting to $6.2 billion. During 2008, Citibank, N.A. received contributions from its parent company of $6.1 billion. Citibank, N.A. did not issue any additional subordinated notes in 2008. Total subordinated notes issued to Citicorp Holdings Inc. that were outstanding at December 31, 2008 and December 31, 2007 and included in Citibank, N.A.’s Tier 2 Capital, amounted to $28.2 billion. Citibank, N.A. received an additional $14.3 billion in capital contribution from its parent company in January 2009. The impact of this contribution is not reflected in the table above. The substantial events in 2008 impacting the capital of Citigroup, and the potential future events discussed on page 94 under “Citigroup Regulatory Capital Ratios,” also affected, or could affect, Citibank, N.A.

The following table presents the estimated sensitivity of Citigroup’s and Citibank, N.A.’s Capital Ratios to changes of $100 million of Tier 1 or Total Capital (numerator), or changes of $1 billion in risk-weighted assets or adjusted average assets (denominator) based on financial information as of December 31, 2008. This information is provided solely for the purpose of analyzing the impact that a change in the Company’s financial position or

results of operations could have on these ratios. These sensitivities only consider a single change to either a component of Capital, risk-weighted assets or adjusted average assets. Accordingly, an event that affects more than one factor may have a larger basis-point impact than is reflected in this table.

Tier 1 Capital Ratio Total Capital Ratio Leverage Ratio

Impact of $100 million change in Tier 1 Capital Impact of $1 billion change in risk-weighted assets Impact of $100 million change in total capital Impact of $1 billion change in risk-weighted assets Impact of $100 million change in Tier 1 Capital Impact of $1 billion change in adjusted average assets Citigroup 1.0 bps 1.2 bps 1.0 bps 1.6 bps 0.5 bps 0.3 bps Citibank, N.A. 1.4 bps 1.4 bps 1.4 bps 2.1 bps 0.8 bps 0.5 bps Broker-Dealer Subsidiaries

The Company’s broker-dealer subsidiaries—including Citigroup Global Markets Inc. (CGMI), an indirect wholly owned subsidiary of Citigroup Global Markets Holdings Inc. (CGMHI)—are subject to various securities and commodities regulations and capital adequacy requirements of the regulatory and exchange authorities of the countries in which they operate. Specifically, the Company’s U.S.-registered broker-dealer subsidiaries, including CGMI, are subject to the Securities and Exchange Commission’s Net Capital Rule, Rule 15c3-1 (the Net Capital Rule) under the Exchange Act and related NYSE regulations.

Under the Net Capital Rule, CGMI is required to maintain minimum net capital equal to 2% of aggregate debit items, as defined. Under NYSE regulations, CGMI may be required to reduce its business if its net capital is less than 4% of aggregate debit items and may also be prohibited from expanding its business or paying cash dividends if resulting net capital would be less than 5% of aggregate debit items. Furthermore, the Net Capital Rule does not permit withdrawal of equity or subordinated capital if the resulting net capital would be less than 5% of aggregate debit items.

CGMI computes net capital in accordance with the provisions of Appendix E of the Net Capital Rule. This methodology allows CGMI to compute market risk capital charges using internal value-at-risk models. Under Appendix E, CGMI is also required to hold tentative net capital in excess of $1 billion and net capital in excess of $500 million. CGMI is also required to notify the SEC in the event that its tentative net capital is less than $5 billion. As of December 31, 2008, CGMI had tentative net capital in excess of both the minimum and the notification requirements.

Compliance with the Net Capital Rule could limit those operations of CGMI that require the intensive use of capital, such as underwriting and trading activities and the financing of customer account balances, and also restrict CGMHI’s ability to withdraw capital from its broker-dealer

subsidiaries, which in turn could limit CGMHI’s ability to pay dividends and make payments on its debt.

At December 31, 2008, CGMI had net capital, computed in accordance with the Net Capital Rule, of $2.5 billion, which exceeded the minimum requirement by $1.6 billion.

In addition, certain of the Company’s broker-dealer subsidiaries are subject to regulation in the other countries in which they do business, including requirements to maintain specified levels of net capital or its equivalent. The Company’s broker-dealer subsidiaries were in compliance with their capital requirements at December 31, 2008. See further discussions on “Capital Requirements” on page 228.

Regulatory Capital Standards Developments

Citigroup supports the move to a new set of risk-based regulatory capital standards, published on June 26, 2004 (and subsequently amended in November 2005) by the Basel Committee on Banking Supervision, consisting of central banks and bank supervisors from 13 countries. The international version of the Basel II framework will allow Citigroup to leverage internal risk models used to measure credit, operational, and market risk exposures to drive regulatory capital calculations.

On December 7, 2007, the U.S. banking regulators published the rules for large banks to comply with Basel II in the U.S. These rules require Citigroup, as a large and internationally active bank, to comply with the most advanced Basel II approaches for calculating credit and operational risk capital requirements. The U.S. implementation timetable consists of a parallel calculation period under the current regulatory capital regime (Basel I) and Basel II, starting anytime between April 1, 2008, and April 1, 2010 followed